Rate hikes around the corner

Transcription

1 Rate hikes around the corner Analysis of China Listed Banks Results for the First Quarter of

2 Editorial Team Editor-in-Chief:Elaine Wang Deputy Editor-in-Chief:Vina Guo Jeff Deng Members of the editorial team: Cynthia Chen Jamie Leng Lilian Ling Sisi Liu Ariel Liu Susan Meng Julia Wang (in alphabetical order of last names) Advisory Board Jimmy Leung Margarita Ho Richard Zhu Linda Yip

3 Preface The (the Newsletter), s analysis of China s listed banks and the wider industry, is now in its 31st edition. Over the past one year there are a number of IPOs for small-and-medium-sized banks, which increases the universe of listed banks in China. This analysis covers 31 A-share and/or H- share listed banks that released their 2017 first quarter results. Those banks are categorized into four groups as defined by the China Banking Regulatory Commission (CBRC): Large Commercial Banks (6) Joint-Stock Commercial Banks (9) City Commercial Banks (9) Industrial and Commercial Bank of China (ICBC) China Construction Bank (CCB) Agricultural Bank of China (ABC) Bank of China (BOC) Bank of Communications (BOCOM) Postal Savings Bank of China (PSBC) China Merchants Bank (CMB) China Industrial Bank (CIB) Shanghai Pudong Development Bank (SPDB) China CITIC Bank (CITIC) Minsheng Bank Corporation (CMBC) China Everbright Bank (CEB) Ping An Bank (PAB) Huaxia Bank (HXB) China Zheshang Bank (CZB) Bank of Beijing (Beijing) Bank of Shanghai (Shanghai) Bank of Jiangsu (Jiangsu) Bank of Nanjing (Nanjing) Bank of Ningbo (Ningbo) Bank of Hangzhou (Hangzhou) Bank of Chongqing (Chongqing) Bank of Guiyang (Guiyang) Bank of Zhengzhou (Zhengzhou) Rural Commercial Banks (7) Chongqing Rural Commercial Bank (CQRCB) Jiutai Rural Commercial Bank (JTRCB) Changshu Rural Commercial Bank (CSRCB) Jiangyin Rural Commercial Bank (JYRCB) Wuxi Rural Commercial Bank (WXRCB) Wujiang Rural Commercial Bank (WJRCB) Zhangjiagang Rural Commercial Bank (ZJGRCB) The total assets of these banks, as of 31 March 2017, accounted for 82.67% of the total assets of China s commercial banking sector. Unless otherwise stated, all the information in this newsletter comes from publicly available sources. For more information, please talk to your contacts or any of those listed in the Appendix as Banking and Capital Markets Contacts. 3

4 Contents Macro Environment Overview Financial Position 5 Profitability Regulatory updates

5 Macro Environment Overview Global and China s economy shows positive signs Monetary policy remains prudent with tightening liquidity and shrinking corporate credit bond issuance Credit grows slower while policy fine-tuning continues 5

6 Global and China s economy shows positive signs With the increasingly complex and ever-changing environment, global economy showed positive changes in 2017 Q1 in terms of growth, employment, and trade. The rebounding of the commodity prices eased deflationary risk. The International Monetary Fund (IMF) slightly raised 2017 global economic growth forecast in April, rising from 3.40% to 3.50%. In terms of price levels, the Consumer Price Index (CPI) was affected by the fluctuation of food prices, which was lower than that in 2016 Q4. The Producer Price Index (PPI) was affected by raw material prices (including crude oil, iron ore and nonferrous metals, etc.) which rose sharply, and also affected by the domestic supply and demand, and the rising trend continued starting from September (Figure 2). China's economy rebounded moderately in 2017 Q1, as the gross domestic product (GDP) growth rose slightly to 6.90% from 6.80% in 2016 Q4 (Figure 1). Mainly driven by the speed up of the industrial production, export growth and domestic infrastructure investment growth. Figure 1 Changes in China s GDP growth Figure 2 Changes in CPI and PPI 13% 12% 8% 7% 6% % 11% 10% 9% 8% 7% 6% 2017 Q1 6.90% 5% 4% 3% 2% 1% 0% -1% -2% 5% -3% -4% -5% Source: National Bureau of Statistics Note: The growth rate in the graph shows the situation at the end of each quarter; for example, 2016 Q1 represents the growth rate for 2016 Q1. -6% CPI Source: National Bureau of Statistics PPI 6

7 Monetary policy remains prudent with tightening liquidity and shrinking corporate credit bond issuance In 2017 Q1, the People's Bank of China (PBoC) continued to use quantitative tools such as Standing Lending Facility (SLF) and Medium-term Lending Facility (MLF). The cumulative amount reached RMB 230 billion and RMB 1, billion respectively, compared with that in 2016 Q4. However, the inter-bank market liquidity was still relatively tight. The interbank interest rate - the Shanghai Interbank Offered Rate (SHIBOR), increased in different degrees, and the volatility also expanded (Figure 3), by which small banks were affected significantly. At the end of 2017 Q1, the amount of corporate credit bonds (including enterprise bonds, corporate bonds and non-financial corporate debt financing instruments) decreased significantly (Figure 4), mainly influenced by the tightening liquidity, rising costs and increasing credit risks, etc. The shrinking size of corporate credit bond issuance has also led to tight credit resources and is expected to affect the pricing of credit assets in the future. Figure 3 Changes in SHIBOR Figure 4 Changes in corporate credit bond issuance % Overnight 1 week 2 weeks 1 month 3 months 6 months 9 months 1year Source: People s Bank of China RMB billion 2,500 2,000 1,500 1, , , , , Q Q Q Q Q1 non-financial corporate debt financing instruments corporate bonds enterprise bonds Source: People s Bank of China Note: Non-financial corporate debt financing instruments include convertible bonds, separable debt, small and medium-sized private debt 7

8 Credit grows slower while policy fine-tuning continues In 2017 Q1, the balance of loans increased slower compared with that in 2016 (Figure 5). The rapid expansion of individual housing loans in 2016 cooled downed in 2017 Q1, due to the real estate market regulations newly issued by the central and local governments and the tightened mortgage policy. At the end of 2016, the Central Economic Working Conference regarded controlling financial risks as top priority, and the leadership paid more attention to financial security. In 2017 Q1, financial regulators carried out a series of new regulations on to control potential risks in various financial fields. The Central Political Bureau noted to safeguard the national financial security on April 25 th through a high-level conference, President Xi Jinping urged to ensure financial security based on six tasks. Currently, the potential domestic financial risks are mainly concentrated in non-performing loans (NPLs), bond defaults, shadow banking, and Internet finance. At the same time, asset price bubbles continued to expand in the real estate and some other areas, along with the rise of corporate and local government debt level, and the economy turns more towards virtual sectors instead of real sectors, which accelerated the accumulation of risks. In order to curb financial risks, in the future, controls on monetary supply and credit growth will be more further tightened, and the intensity of supervision is expected to continue. Figure 5 RMB loans growth Newly issued amount (RMB trillion) % Growth 16% 14% 12% 10% 8% 6% 4% 2% 0% Source:People s Bank of China Newly issued amount Growth rate 8

9 Profitability Net interest income increased slightly excluding the effects of VAT reform Provision levels present divergent trends Profitability indicators worsen 9

10 Net interest income increased slightly excluding the effects of VAT reform The 31 A-share and/or H-share listed banks that released their 2017 Q1 results, recorded a total net profit of RMB billion, a year-on-year increase of 3.88%. Table 1 compares the net profit growth in 2016 Q1 and 2017 Q1 of the 19 listed banks. Since 1 May 2016, VAT reform began to take effect in financial industry. As the scope of the taxable revenue expanded, while deductible input tax was relatively limited, the effective tax rate increased. With some followup policies, tax incentives policy was clarified, such as income from interbank business of financial institutions exempts VAT, This policy showed effects on the banking industry. Table 1 19 listed banks Overview of net profit of listed banks in 2017 Q1 Total Profit of 2017 Q1 (In RMB billion) Growth in 2017 Q1 Growth in 2016 Q1 Change in growth rate (percentage points) % 2.96% 0.59 Six LCBs % 1.37% 1.46 Eight JSCBs % 7.04% Four CCBs % 10.68% One RCBs % 7.54% 3.94 Notes: 12 banks did not disclose their net profit of 2016 Q1, the table above only presented 19 listed banks net profit growth. In 2017 Q1, the net interest income of LCBs remained still, while that of the JSCBs and the CCBs decreased. The net interest income of the RCBs continued to grow at a high rate. Figure 6 Net interest rate growth, before and after the effects of VAT reform 0.04% LCBs 6.76% Figure 6 shows the average growth of banks net interest income was more than 5%, excluding the impact of VAT reform, of which nearly half of the banks saw net interest income growth rate increased from negative to positive % JSCBs CCBs -2.18% -0.53% 3.20% before after In addition, the exchange rate fluctuation and precious metals business prominently affected banks bottom line. RCBs 6.06% 12.61% Note: The growth rate used in the first quarter of 2016 is a net interest income that does not include a business tax 10

11 Provision levels present divergent trends Operating profit growth before the provision of four categories of banks reflect their various profitability. The profitability of LCBs has rebounded, but the asset impairment loss increased rapidly, which was an important factor restricting net profit growth. Figure 7 Comparison of net profit growth and pre-provision operating profit growth LCBs JSCBs 0.56% 2.83% 5.39% 7.72% Net profit growth Pre-provision operating profit growth JSCBs had greater pressure on earning profit, and their operating profit is close to zero. CCBs 4.76% 10.13% CCBS maintained a double-digit net profit growth, while preprovision operating profit growth fell to below 5%. RCBs 9.60% 11.31% RCBs' net profit and pre-provision operating profit growth increased rapidly, but bank's profitability were different to each other, reflecting the regional differences. Figure 8 Changes in the amount of asset impairment losses (In RMB million) LCBs 93, ,968 JSCBs 82,521 83,898 CCBs 14,604 14, Q Q1 RCBs 1,731 1,539 11

12 Profitability indicators worsen Most of the listed banks annualized return on equity (ROE) in 2017 Q1 dropped slightly. This was mainly due to the impact of the issuance of preferred shares (such as BoCOM, CITIC, CEB and Bank of Beijing) since 2016 Q2, resulting the net asset growth was faster than the net profit growth. Figure 9 Changes of ROE of listed banks 20% 19% 18% 17% 16% 15% 14% 16.95% 17.00% 15.43% 15.32% 17.90% 16.59% 13% 12% 11% 10% 12.20% 11.41% LCBs JSCBs CCBs RCBs 2017 Q Q1 Note: China Zheshang Bank, Bank of Zhengzhou, Jiutai Rural Commercial Bank did not disclose the weighted average ROE of 2017 Q1, so the JSCBs, CCBs and RCBs are not included in the relevant ratios of these banks. 12

13 Financial Position Total asset growth divergent, while growth in investment classified as securities and non-standard assets slows Corporate loans rise in proportion while retail loans remain stable NPL ratios drop moderately Allowance to total loan ratios remain stable, while provision coverage ratios rise slightly 13

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15 Total asset growth divergent, while growth in investment classified as securities and non-standard assets slows In accordance with the requirements of the Macro- Prudential Assessment (MPA), that is to focus on a broader credit (including loans, bonds, equity and other investments, repurchase financial assets, deposits of non-banking financial institutions, and off-balancing finance) instead of narrow loans. Macro-prudent capital adequacy ratio was added into assessment of bank capital constraints, leading to a result that in 2017 Q1, the asset growth of listed banks slowed down compared to 2016 Q1. The growth of different types of banks showed a trend of differentiation. Table 2 Growth of total assets of listed banks Total assets (In RMB trillions) Growth of 2017 Q1 Growth of 2016 Q1 Change in growth rate (percentage points) 31 listed banks % 3.84% Six LCBs % 3.32% Nine JSCBs % 4.65% Nine CCBs % 8.07% Seven RCBs % 1.43% In terms of securities and nonstandard investment, in addition to the MPA constraints, the adjustment of the bond market, the increase of the cost of issuance, as well as the intensive introduction of financial institutions, regulatory policies have led to the decelerating tendency of the securities and non-standard investment of listed banks in 2017 Q1 compared to the same period last year. Figure 10 Comparison of the securities and non-standard asset growth LCBs 2.89% 3.19% 2017Q1 2016Q1 2.48% JSCBs 10.28% 2.07% CCBs 17.07% RCBs 5.46% 6.29% Note: Securities and non-standard assets includes financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables. 15

16 Corporate loans rise in proportion while retail loans remain stable In 2017 Q1, China's economy rebounded mildly and the demand for corporate lending increased. However, the liquidity of the market was still tight, the direct financing costs of the bond market rose, while the enterprises turned to indirect financing, and the bank's credit resources were tight, leading to an upward expectation of credit asset pricing. Meanwhile, MPA new rules also added broad credit growth into the assessment, banks also adjust the business strategies accordingly, taking the initiative to adjust the credit. increased, while discount bill decreased, corresponding compression, the size of the two has a mutual replacement relationship. In terms of retail loans, with the introduction of more real estate tightening policy, it is estimated that personal mortgage loans will be affected in the second quarter and beyond, with credit flowing back to the real economy. Compared the loans of 15 listed banks that have disclosed the structure to the same period of 2016, the company's loan balance in size and proportion Figure 11 Loan structure changes in 2017 Q1 5% 7% 1% 2% 6% 9% 7% 8% 36% 36% 37% 36% 24% 24% 28% 28% 59% 57% 62% 62% 70% 67% 65% 64% LCBs JSCBs CCBs RCBs Corporate Personal discounted bills 16

17 NPL ratios drop moderately According to the 26 listed banks that have disclosed NPL information, the balance of NPL reached RMB1.24 trillion in 2017 Q1, increased by 3.01% compared to the end of As some banks did not disclose the NPL of 2016 Q1, Table 3 showed the 20 listed banks data in 2017 Q1 and 2016 in a comparable manner. At the end of 2017 Q1, the NPL ratio of LCBs, JSCBs and RCBs declined slightly, while the NPL ratio of CCBs increased slightly compared to the same period of Although the listed banks did not disclose NPL information by geographical regions, indications suggested that the NPL ratio differed from place to place. Especially in Shandong and Northeast, the risk was still relatively high. Table 3 Graph % 1.70% Growth of NPL of 2017 Q1 Change in NPL ratio of listed banks 1.66% NPL of 2017 Q1 Balance (In RMB billion) 1.74% 1.72% Growth Growth in 2016 Q1 Change in growth rate (percentage point) 20 Listed Banks 12, % 7.39% Six LCBs 8, % 7.15% Eight JSCBs 3, % 8.22% Four CCBs % 8.12% Two RCBs % 2.34% 0.33 Note: Since 11 banks did not disclose the bad debt data of 2016 Q1. The table shows the change in the amount of bad debt loans of 20 listed banks excluding the 11 banks. 1.60% 1.63% 1.50% 1.40% 1.30% 1.20% 1.29% 1.21% 1.22% 1.28% LCBs JSCBs CCBs RCBs Note: Since five banks did not disclose bad debt data of 2017 Q1. The graph shows the date excluding these five banks of the 26 listed banks. The above data are obtained by weighted average calculation method. 17

18 Allowance to total loan ratios remain stable, while provision coverage ratios rise slightly As of the end of 2017 Q1, the allowance to total loans ratio of listed banks was stable, while the provision coverage ratio was generally higher than the end of Both of these two indicators of the JSCBs increased obviously. Figure % 3.7% 3.5% Allowance to total loans ratio of listed banks 3.81% 3.80% Debt-to-equity swap continued to advance In 2017 Q1, the "debt-to-equity swap, aimed at reducing corporate leverage, continued to advance. For example, ICBC, CCB, and ABC s related financial assets investment subsidiaries were approved by the regulator to set up recently for carrying out the debt-to-equity swap scheme. 3.3% 3.1% 2.9% 2.7% 2.5% 3.08% 3.01% 3.06% % 2.64% LCBs JSCBs CCBs RCBs At the end of 2017 Q1, the amount of market-oriented debt-toequity swap that issued by CCB has reached RMB300 billion, which was in a leading position in the industry. Figure % Provision coverage ratio of listed banks % It is expected that other banks will also push forward "debt-to-equity swap" in % 270% 250% % % % 230% 210% 190% 170% 150% % % % % LCBs JSCBs CCBs RCBs Note: Since five banks did not disclose bad debt data of 2017 Q1. The figure shows the date excluding these five banks of the 26 listed banks. The above data are obtained by weighted average calculation method. 18

19 Regulatory updates Macro prudential assessment (MPA) gradually takes effect Financial risk control remains top priority 19

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21 Macro prudential assessment (MPA) gradually takes effect In 2017 Q1, the MPA added off-balance sheet financial products into the broad range of credit, aiming to strengthen supervision on financial institutions off-balance sheet business and control risks. Based on abovementioned pressure, listed banks continued supplement capital in recent years through issuing preferred shares, tier-2 capital bonds, convertible bonds, common stocks and other external financing channels. Although the listed banks are all satisfied the regulation requirement to meet the minimum capital adequacy ratio of 8%, the MPA requires a higher level of capital for those banks that has faster credit growth. Due to the relatively large credit balance as the base, MPA has limited effects on LCBs, while small and medium-sized banks capital pressure is increasingly prominent. Figure 15 Capital adequacy ratio of listed banks 14% 12% 13.67% 13.67% 12.10% 11.80% 13.33% 12.74% 13.02% 12.48% 10% 8% 6% 4% 2% 0% LCBs JSCBs CCBs RCBs Note: Since Zheshang bank, Bank of Beijing, and Wujiang rural commercial bank did not disclose data of March The graph shows below excluding these three banks of the 26 listed banks. 21

22 Financial risk control remains top priority Since 2017 Q1, the CBRC has issued a number of regulatory requirements. Also, CBRC with the local banking bureau carried out on-site inspections, with the banks active cooperation. Banks business model is expected to be adjusted, for example, the complex nested investment business will shrink, and the credit resources will continue to be tightened. Table 4 New regulations issued by CBRC in 2017 Q1 Title Key messages CBRC [2017] No.5 CBRC [2017] No.6 The notice on regulating the market conducted of the banking industry The guidelines on risk controlling of banking industry Focus on remediation ten chaos: Equity and foreign investment; Institutions and executives; Rules and regulations; Business; Product; Focus on prevention and control of ten types of risk: credit risk; Liquidity risk; Bond investment risk; Interbank business risk; Bank financing products risk; Employee behavior; Industry risk of clean government; Supervise duties Internal and external collusion illegal acts; Illegal financial activities. Real estate risk Local government debt risk; Network financial risk; External risk; Major case risk. CBRC [2017] No.7 The notice on making up shortness of supervision and enhancing the effectiveness of regulation Six enhanced" requirements: Strengthen the supervision system construction; Strengthen the source of risk containment; Strengthen off-site and on-site supervision; Strengthen the supervision of information disclosure; Strengthen supervision and punishment; Strengthen accountability. CBRC [2017] No.45 The notice on regulating illegal behavior of banking industry Six points: System Construction; Compliance management; Risk Management; Process and system control; "Three violations" prominent areas; Rectification accountability CBRC [2017] No.46 The notice on regulating arbitrage behavior of banking industry Seven points: Avoid arbitrage on supervision target Avoid arbitrage on supervision policy Credit "idle"; Bill "idle"; Financial products "idle Violation of credit to related parties, transfer of assets or other; Violation or circumvention and management. CBRC [2017] No.53 The notice on regulating improper innovation, transaction, incentive and charges behavior of banking industry Eleven Points: Financial innovation governance Improper trading of trust; mechanism; Evaluation index; Financial innovation system and Evaluation mechanism; process; Salary payment Improper interbank trade; Charge; Improper trading of financing products; Price information disclosure Internal management procedures. 22

23 Appendix Financial highlights of listed banks Banking and capital markets contacts 23

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25 Financial highlights of listed banks (I) -Large Commercial Banks 2017(In RMB million) ICBC CCB ABC BOC BoCom PSBC Total Operating performance (January-March) Operating income 189, , , ,295 54,885 52, ,341 Net interest income 121, , ,206 78,608 31,217 41, ,873 Net fee & commission income 40,958 38,767 25,471 25,751 11,279 4, ,309 Other non-interest income 26,597 25,108 19,711 24,936 12,389 6, ,159 Operating expenses (91,122) (83,543) (80,600) (64,981) (30,907) (36,605) (387,758) Business tax and surcharges (1,839) (1,322) (1,049) (1,205) (584) No data (5,999) Business & administration expenses (36,608) (33,602) (38,409) (31,262) (12,741) (32,035) (184,657) Allowance for impairment losses (31,505) (36,162) (23,629) (22,243) (7,859) (4,570) (125,968) Other business expenses (21,170) (12,457) (17,513) (10,271) (9,723) 0 (71,134) Operating profit 98,403 87,255 67,788 64,314 23,978 15, ,583 Profit before tax 98,796 87,773 68,944 64,633 24,012 15, ,003 Income tax expense (22,769) (17,542) (13,165) (14,306) (4,562) (2,052) (74,396) Net profit 76,027 70,231 55,779 50,327 19,450 13, ,607 Non-controlling interests , (3) 4,331 Profit attributable to shareholders 75,786 70,012 55,710 46,649 19,323 13, ,276 Financial Position (as of 31 March) Total assets 24,904,936 21,695,204 20,323,984 18,917,549 8,733,711 8,486, ,062,251 Loans and advances, net 13,267,798 11,877,235 9,703,407 10,124,969 4,244,850 3,114,506 52,332,765 Loans and advances 13,572,444 12,171,546 10,112,685 10,364,753 4,343,741 3,189,914 53,755,083 Less: Allowance for impairment losses (304,646) (294,311) (409,278) (239,784) (98,891) (75,408) (1,422,318) Investments 5,664,974 5,160,524 5,687,722 4,169,309 2,408,858 3,283,451 26,374,838 Interbank assets 1,554, ,438 1,506,394 1,185, , ,130 6,503,327 Cash & deposits with central bank 3,437,830 2,981,283 2,831,875 2,540,457 1,010,524 1,366,773 14,168,742 Others assets 979, , , , , ,007 3,682,579 Total liabilities 22,859,965 20,044,597 18,957,939 17,388,917 8,081,553 8,126,724 95,459,695 Deposits from customers 18,565,009 16,232,198 15,961,893 13,759,960 4,937,673 7,780,555 77,237,288 Interbank liabilities 2,545,150 1,899,223 1,334,432 1,676,821 1,768, ,932 9,363,031 Debt securities issued 604, , , , ,829 74,922 2,579,752 Due to central bank , , , , ,246,697 Other liabilities 1,145, , , , , ,315 4,032,927 Total owners equity 2,044,971 1,650,607 1,366,045 1,528, , ,143 7,602,556 Non-controlling interests 12,223 13,199 3,301 77,184 3, ,631 Total equity attributable to shareholders 2,032,748 1,637,408 1,362,744 1,451, , ,788 7,492,925 Major financial indicators Profitability (January-March) Return on average total assets (ROA) 1.24% 1.32% 1.12% 1.09% 0.91% 0.67% Return on weighted average equity (ROE) 15.80% 17.63% 17.49% 13.74% 12.10% 15.83% Net Interest Spread (NIS) No data 2.01% No data No data No data 2.31% Net Interest Margin (NIM) 2.12% 2.13% No data 1.80% 1.57% 2.24% Cost to income ratio 19.32% No data 25.88% 24.18% 24.14% 60.35% Asset quality (as of 31 March) Non-performing loan ratio 1.59% 1.52% 2.33% 1.45% 1.52% 0.85% Overdue loan ratio No data No data No data No data No data No data Allowance to total loans ratio % % % % % % Provision coverage ratio 2.24% 2.42% 4.05% 2.31% 2.28% 2.36% Capital adequacy (as of 31 March) Common Equity Tier 1 capital adequacy ratio 12.98% 12.98% 10.50% 11.16% 10.92% 8.88% Tier 1 capital adequacy ratio 13.51% 13.14% 11.16% 12.04% 12.03% 8.88% Capital adequacy ratio 14.66% 14.82% 13.21% 13.77% 13.64% 11.88% Leverage ratio 7.54% 7.01% 6.13% 6.94% 6.81% 4.05% Note: 1. Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables; 2. Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets; 3. Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets; 4. Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt, deposit certificates and interbank deposits. 25

26 Financial highlights of listed banks (II) -Joint-Stock Commercial Banks 2017(In RMB million) CIB CMB CMBC SPDB CITIC CEB PAB HXB CZB Total Operating performance (January-March) Operating income 34,546 57,075 36,229 42,360 37,778 23,657 27,712 16,331 8, ,212 Net interest income 21,739 34,914 20,680 26,519 25,108 15,203 18,869 12,445 6, ,690 Net fee & commission income 8,890 18,640 12,681 12,191 10,805 8,208 8,150 3,666 2,122 85,353 Other non-interest income 3,917 3,521 2,868 3,650 1, ,168 Operating expenses (14,731) (31,751) (18,666) (23,963) (22,967) (12,213) (19,484) (10,290) (4,012) (158,077) Business tax and surcharges (260) (505) (353) (314) (408) (249) (246) (190) (51) (2,576) Business & administration expenses (8,516) (13,868) (8,962) (9,541) (9,769) (6,396) (6,804) (5,664) (2,718) (72,238) Allowance for impairment losses (5,887) (17,315) (9,001) (13,961) (12,790) (5,486) (12,434) (4,405) (1,242) (82,521) Other business expenses (68) (63) (350) (147) 0 (82) 0 (31) 0 (741) Operating profit 19,815 25,324 17,563 18,397 14,811 11,444 8,228 6,041 4, ,135 Profit before tax 19,882 25,502 17,582 19,017 14,810 11,447 8,230 6,059 4, ,046 Income tax expense (2,958) (5,410) (3,076) (4,370) (3,418) (2,848) (2,016) (1,514) (1,138) (26,748) Net profit 16,924 20,092 14,506 14,647 11,392 8,599 6,214 4,545 3, ,298 Non-controlling interests (24) 752 Profit attributable to shareholders 16,824 19,977 14,199 14,462 11,389 8,579 6,214 4,499 3,403 99,546 Financial Position (as of 31 March) Total assets 6,229,171 6,000,674 5,956,607 5,889,663 5,751,862 4,126,980 3,006,195 2,399,055 1,418,599 40,778,806 Loans and advances, net 2,122,930 3,308,271 2,543,720 2,840,944 2,871,468 1,850,311 1,504,184 1,222, ,661 18,743,509 Loans and advances 2,198,641 3,434,526 2,611,888 2,934,867 2,949,235 1,896,333 1,548,162 1,257,570 No data 18,831,222 Less: Allowance for impairment losses (75,711) (126,255) (68,168) (93,923) (77,767) (46,022) (43,978) (35,550) No data (567,374) Investments 3,259,532 1,565,887 2,256,562 2,177,444 1,877,435 1,387, , , ,712 14,673,805 Interbank assets 161, , , , , , , ,610 84,227 2,340,023 Cash & deposits with central bank 444, , , , , , , , ,439 3,512,969 Others assets 241, , , , , , ,590 42,555 35,560 1,508,500 Total liabilities 5,832,427 5,578,850 5,589,864 5,504,392 5,358,696 3,863,247 2,798,456 2,242,727 1,331,754 38,100,413 Deposits from customers 2,885,353 3,929,544 3,050,541 3,097,527 3,430,435 2,243,298 1,912,082 1,393, ,407 22,689,704 Interbank liabilities 1,897, ,406 1,511,791 1,412,568 1,174, , , , ,312 8,826,576 Debt securities issued 719, , , , , , , , ,777 4,062,572 Due to central bank 226, , , , , ,500 25, , ,515,288 Other liabilities 103, , , , ,915 85,148 71,800 47,074 44,259 1,006,274 Total owners equity 396, , , , , , , ,328 86,845 2,678,393 Non-controlling interests 5,434 1,190 9,783 5,210 5, ,446 29,800 Total equity attributable to shareholders 391, , , , , , , ,494 85,400 2,648,594 Major financial indicators Profitability (January-March) Return on average total assets (ROA) 1.12% No data 0.98% 1.00% 0.79% No data 0.83% 0.76% No data Return on weighted average equity (ROE) 18.80% 19.42% 16.71% 15.84% 13.25% 15.30% 12.35% 10.92% No data Net Interest Spread (NIS) No data 2.36% No data No data No data No data 2.37% No data No data Net Interest Margin (NIM) No data 2.49% No data No data 1.79% No data 2.53% No data No data Cost to income ratio 24.85% 23.65% 24.74% No data No data No data 24.55% 34.68% No data Asset quality (as of 31 March) Non-performing loan ratio 1.60% 1.76% 1.68% 1.92% 1.74% 1.54% 1.74% 1.69% No data Overdue loan ratio No data No data No data No data No data No data No data No data No data Allowance to total loans ratio % % % % % % % % No data Provision coverage ratio 3.44% 3.68% 2.61% 3.20% 2.64% 2.43% 2.84% 2.83% No data Capital adequacy (as of 31 March) Common Equity Tier 1 capital adequacy ratio 9.01% 12.40% 8.91% 8.72% 8.86% 8.25% 8.28% 8.37% No data Tier 1 capital adequacy ratio 9.65% 12.40% 9.19% 9.49% 9.88% 9.32% 9.23% 9.61% No data Capital adequacy ratio 12.26% 14.43% 11.63% 11.77% 12.08% 11.78% 11.48% 11.36% No data Leverage ratio No data 6.01% 5.40% 5.64% 5.51% 5.58% 5.58% 5.66% No data Note: 1. Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables; 2. Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets; 3. Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets; 4. Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt, deposit certificates and interbank deposits. 26

27 Financial highlights of listed banks (III) -City Commercial Banks 2017(In RMB million) Beijing Shanghai Jiangsu Nanjing Ningbo Hangzhou Chongqing Guiyang Zhengzhou Total Operating performance (January-March) Operating income 13,606 8,185 8,535 6,231 6,433 3,254 2,555 2,893 2,441 54,133 Net interest income 9,440 5,234 6,861 5,078 4,806 2,877 2,028 2,572 2,129 41,024 Net fee & commission income 4,032 1,682 1, , ,364 Other non-interest income 134 1, (30) (26) (64) 1,745 Operating expenses (6,803) (4,058) (5,007) (3,163) (3,573) (1,720) (1,089) (1,781) (1,061) (28,253) Business tax and surcharges (142) (89) (59) (89) (25) (29) No data (14) (7) (454) Business & administration expenses (2,895) (1,685) (2,306) (1,683) (1,924) (738) (580) (767) (582) (13,160) Allowance for impairment losses (3,761) (2,279) (2,641) (1,375) (1,623) (949) (509) (997) (470) (14,604) Other business expenses (5) (4) (1) (16) (2) (3) 0 (3) (2) (35) Operating profit 6,803 4,128 3,528 3,068 2,860 1,534 1,467 1,113 1,380 25,880 Profit before tax 6,803 4,155 3,563 3,077 2,849 1,535 1,467 1,118 1,385 25,951 Income tax expense (1,322) (275) (554) (598) (487) (225) (372) (145) (310) (4,287) Net profit 5,481 3,880 3,009 2,479 2,362 1,310 1, ,075 21,664 Non-controlling interests Profit attributable to shareholders 5,445 3,874 2,988 2,453 2,359 1,310 1, ,052 21,544 Financial Position (as of 31 March) Total assets 2,174,459 1,782,347 1,749,021 1,122, , , , , ,370 9,655,447 Loans and advances, net 929, , , , , , , , ,011 3,417,957 Loans and advances No data 589, , , , , , ,212 No data 2,450,269 Less: Allowance for impairment losses No data (17,305) (17,477) (13,632) (10,616) (8,041) (4,441) (3,982) No data (75,494) Investments 741, , , , , , , , ,562 4,168,590 Interbank assets 293, , , ,617 39,414 88,516 68,385 8,670 33,319 1,030,649 Cash & deposits with central bank 168, , , ,802 81,838 55,885 39,586 46,401 41, ,579 Others assets 42,346 32,582 47,390 24,282 26,060 8,520 8,608 18,782 17, ,673 Total liabilities 2,025,858 1,662,057 1,662,571 1,058, , , , , ,435 9,072,228 Deposits from customers 1,188, , , , , , , , ,345 5,405,361 Interbank liabilities 384, , ,376 68, , ,293 50,601 38,154 68,606 1,588,535 Debt securities issued 339, , , , , ,894 84,287 54,080 57,219 1,564,870 Due to central bank 51, ,070 47,030 41,090 27, , ,763 Other liabilities 62,009 34,261 27,912 21,241 32,619 27,231 5,893 5,344 6, ,699 Total owners equity 148, ,290 86,451 64,378 51,709 39,732 26,257 22,866 22, ,218 Non-controlling interests 1, , , ,213 Total equity attributable to shareholders 146, ,838 84,888 63,897 51,611 39,732 24,787 21,997 22, ,005 Major financial indicators Profitability (January-March) Return on average total assets (ROA) No data 0.88% No data 0.90% 1.05% 0.72% 1.15% 1.02% No data Return on weighted average equity (ROE) 17.20% 13.16% 14.27% 18.52% 20.48% 13.40% 17.74% 17.92% No data Net Interest Spread (NIS) No data No data No data 1.67% 2.08% No data No data No data No data Net Interest Margin (NIM) No data No data No data 1.83% 2.14% No data 2.22% No data No data Cost to income ratio No data No data 27.02% 27.01% 29.90% No data 22.50% 26.60% No data Asset quality (as of 31 March) Non-performing loan ratio No data 1.15% 1.43% 0.87% 0.91% 1.61% 1.15% 1.47% No data Overdue loan ratio No data No data No data No data No data No data No data No data No data Allowance to total loans ratio No data % % % % % % % No data Provision coverage ratio No data 2.93% 2.59% 3.93% 3.38% 3.05% 2.82% 3.79% No data Capital adequacy (as of 31 March) Common Equity Tier 1 capital adequacy ratio No data 11.50% 8.67% 8.14% 8.57% 9.94% 9.71% 11.03% 9.30% Tier 1 capital adequacy ratio No data 11.50% 8.67% 9.63% 9.46% 9.94% 9.72% 11.05% 9.33% Capital adequacy ratio No data 13.48% 10.99% 13.38% 12.15% 11.89% 13.70% 13.16% 13.19% Leverage ratio 5.85% 6.21% 4.32% 5.03% 5.01% 5.01% No data 4.85% No data Note: 1. Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables; 2. Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets; 3. Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets; 4. Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt, deposit certificates and interbank deposits. 27

28 Financial highlights of listed banks (IV) -Rural Commercial Banks 2017(In RMB million) CQRCB JTRCB CSRCB WXRCB JYRCB ZJGRCB WJRCB Total Operating performance (January-March) Operating income 5,674 1,526 1, ,796 Net interest income 5, , ,920 Net fee & commission income ,037 Other non-interest income Operating expenses (2,397) (740) (733) (374) (376) (397) (411) (5,429) Business tax and surcharges No data (13) (9) (6) (6) (3) (6) (43) Business & administration expenses (1,818) (543) (442) (197) (225) (230) (198) (3,653) Allowance for impairment losses (579) (185) (282) (171) (144) (164) (207) (1,731) Other business expenses 0 (0) 0 (0) (1) 0 0 (2) Operating profit 3, ,366 Profit before tax 3, ,408 Income tax expense (818) (162) (95) (65) 4 (4) (38) (1,179) Net profit 2, ,229 Non-controlling interests (2) Profit attributable to shareholders 2, ,038 Financial Position (as of 31 March) Total assets 824, , , , ,340 91,623 82,559 1,565,842 Loans and advances, net 299,642 67,940 66,234 60,927 51,347 44,450 45, ,792 Loans and advances 312,337 No data 68,476 62,644 53,717 46,122 No data 543,296 Less: Allowance for impairment losses (12,695) No data (2,242) (1,717) (2,370) (1,672) No data (20,696) Investments 263,770 53,173 48,257 41,806 38,466 33,104 17, ,716 Interbank assets 151,752 41,719 5,598 9,294 2,402 2,248 6, ,095 Cash & deposits with central bank 94,717 25,456 14,210 14,844 9,617 8,616 11, ,489 Others assets 14,554 7,081 3,487 2,861 2,508 3,205 3,055 36,750 Total liabilities 767, , , ,708 95,404 83,332 74,524 1,447,555 Deposits from customers 556, ,533 94, ,551 75,742 66,102 65,757 1,087,449 Interbank liabilities 74,303 16,034 13,925 10,106 14,196 13,664 6, ,414 Debt securities issued 93,808 30,742 13,626 5,612 2, ,101 Due to central bank 30, , ,463 Other liabilities 12,587 2,784 2,917 4,338 2,625 2,950 1,929 30,129 Total owners equity 56,599 16,703 10,700 9,025 9,103 8,290 8, ,454 Non-controlling interests 1,586 3, ,161 Total equity attributable to shareholders 55,013 13,314 10,103 8,926 8,838 8,167 7, ,294 Major financial indicators Profitability (January-March) Return on average total assets (ROA) 1.21% No data 1.00% No data 0.69% 0.90% No data Return on weighted average equity (ROE) 18.05% No data 12.68% 10.76% 7.96% 10.32% 8.68% Net Interest Spread (NIS) No data No data No data No data 1.89% 2.24% No data Net Interest Margin (NIM) 2.66% No data No data No data 2.14% 2.45% No data Cost to income ratio 31.92% No data 38.60% 29.25% 40.83% 38.19% No data Asset quality (as of 31 March) Non-performing loan ratio 0.96% No data 1.36% 1.31% 2.41% 1.96% No data Overdue loan ratio No data No data No data No data No data No data No data Allowance to total loans ratio % No data % % % % No data Provision coverage ratio 4.06% No data 3.27% 2.74% 4.21% 3.61% No data Capital adequacy (as of 31 March) Common Equity Tier 1 capital adequacy ratio 9.92% 10.61% 10.32% 9.66% 12.68% 12.40% No data Tier 1 capital adequacy ratio 9.93% 10.80% 10.35% 9.67% 12.69% 12.40% No data Capital adequacy ratio 12.72% 13.56% 12.56% 11.83% 13.87% 13.56% No data Leverage ratio 6.52% No data 6.18% 6.38% 8.10% 7.60% No data Note: 1. Investment include: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and receivables; 2. Interbank assets include: deposits with banks and other financial institutions, demolition of funds and buy back financial assets; 3. Interbank liabilities include: deposits with banks and other financial institutions, capitalization of borrowed funds and repurchase of financial assets; 4. Issued debt securities include: subordinated debt, two capital debt, convertible corporate bonds, green bonds, financial bonds, mixed capital debt, deposit certificates and interbank deposits. 28

29 Banking and capital markets contacts Assurance Advisory Tax Jimmy Leung Shanghai James Chang Beijing Oliver Kang Beijing +86 (21) (10) (10) Margarita Ho Beijing Addison Everett Beijing Matthew Wong Shanghai +86 (10) (10) (21) Richard Zhu Beijing William Gee Beijing Florence Yip Hong Kong +86 (10) (10) Linda Yip Beijing William Yung Shanghai +86 (10) (21) Michael Hu Shanghai Matthew Phillips Hong Kong Assurance Risk & Quality +86 (21) Tracy Chen Shanghai +86 (21) Shirley Yeung Guangzhou Chris Chan Hong Kong +86 (20) Nigel Dealy Hong Kong Vincent Yao Shenzhen +86 (755)

30 This content is only for general information purposes only, and should not be as a substitute for consultation with professional advisors PricewaterhouseCoopers Zhong Tian LLP. All rights reserved. refers to the China member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see for further details.