November Banking Newsletter. Analysis of China Listed Banks' Results for the Third Quarter of

Transcription

1 Analysis of China Listed Banks' Results for the Third Quarter of

2 Editorial Team Editor-in-Chief:Patrick Zhou Deputy Editor-in-Chief:Carly Guan Members of the editorial team: Jack Chen, Cynthia Chen, Jeff Deng, Nora Wang, Carrie Yan (in alphabetical order of last names ) Advisory Board Jimmy Leung, Margarita Ho, Richard Zhu, Linda Yip

3 About this newsletter The (the Newsletter), s analysis of China s listed banks and the wider industry, is now in its 29th edition. Since the beginning of this year there are a number of IPOs for small-and-medium-sized banks in Mainland China and Hong Kong exchanges, which increases the universe of listed banks in China. Our analysis follows this trend by expanding the scope to 26 A-share and/or H-share listed banks that announced their 2016 Q3 financial results as at October These banks are categorised into four groups as defined by the China Banking Regulatory Commission (CBRC): Large Commercial Banks (5) Joint-stock commercial banks (9) City Commercial Banks (8) Rural Commercial Banks (4) Industrial and Commercial Bank of China (ICBC) China Construction Bank (CCB) Agricultural Bank of China (ABC) Bank of China (BOC) Bank of Communications (BOCOM) China Merchants Bank (CMB) Industrial Bank (CIB) Shanghai Pudong Development Bank (SPDB) China CITIC Bank (CITIC) China Minsheng Banking Corporation (CMBC) China Everbright Bank (CEB) Ping An Bank (PAB) Bank of Beijing (BOB) Bank of Shanghai (BOS) Bank of Jiangsu (JSBC) Bank of Nanjing (BNJ) Bank of Ningbo (BNB) Bank of Hangzhou (HZB) Bank of Chongqing (BCQ) Bank of Guiyang (GYB) Chongqing Rural Commercial Bank (CQRCB) Changshu Rural Commercial Bank (CSRCB) Jiangyin Rural Commercial Bank (JYRCB) Wuxi Rural Commercial Bank (WXRCB) Hua Xia Bank (HXB) China Zheshang Bank (CZB) The total assets of these banks, as of 30 September 2016, accounted for 78.90% 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 Table of Contents Macro overview Operating performance Financial positions Capital management Appendix

5 Macro overview China's economic growth remained stable Credit growth driven by a booming property market RMB depreciation pressure increased 5

6 China's economic growth remained stable The downturn of global economy and trade continued in the first three quarters of The recovery of developed economies was weak, while the differentiation of growth trends among emerging economies was obvious. In October, the International Monetary Fund (IMF) lowered its forecast of global Gross Domestic Product (GDP) growth for 2016 to 3.10%, lower than the actual growth rate of 3.20% in The forecast of global trade growth for 2016 was 2.30%, a 0.30 percentage point drop from the actual growth rate in China's economy remained stable in the first three quarters of 2016, with a year-on-year GDP growth rate of 6.70%. While the economic structure continues to rebalance, indicators for manufacturing industry and business profits have also improved, thanks to a stable growth in fixed asset investments. Domestic price level remained stable in the first three quarters of In September, Consumers Price Index (CPI) rose by 1.90% year-on-year. The Producers Price Index (PPI) in September rose by 0.10% year-on-year for the first time in 54 months, fuelled by a price surge in raw materials such as coal and steel. The turnaround of PPI was a sign of changing supply and demand in the markets. On the supply-side structural reform front, while cutting excess capacity and de-stocking, the central government has introduced new deleveraging measures in Q to ease the debt burden for businesses. Guidances on debtto-equity swaps were also released by the authorities with the emphasis on a market-driven basis. Figure 1 China s quarterly GDP growth rate Figure 2 Monthly CPI and PPI 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2016 Q3, 6.70% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% 0.10% 1.90% Source: National Bureau of Statistics Note: the growth rates in the figure refer to growth rates at the end of each quarter, for example, 2013 Q2 means the cumulative growth rate by the end of 2Q in % CPI Source: National Bureau of Statistics PPI 6

7 Credit growth driven by a booming property market By the end of September 2016, the broad money (M2) supply in China reached RMB tn, increasing by 11.50% year-on-year. Residential property markets boomed in the first and second tier cities in the first three quarters of According to the National Bureau of Statistics, the sales volume of residential properties rose by 41.30% year-on-year, and the sales in terms of floor areas increased by 26.90% year-on-year. As a result, personal housing loans (i.e. mortgage loans) increased significantly in the first nine month. According to the People s Bank of China (PBoC or the central bank), by the end of September 2016, the total balance of RMB loans hit RMB tn, representing a year-on-year increase of 13.00%, with loan growth amount reaching RMB tn in the first three quarters. The loan growth was mainly boosted by the home buyers. According to the PBoC, personal housing loans by the end of September 2016 hit RMB tn, a year-on-year increase of 33.40%. To curb the rapid property price surge that might lead to another bubble, municipal governments of many cities in early October imposed a series of measures to restrict the purchase of residential properties, including raising the down payment ratios for mortgage loans. China Banking Regulatory Commission (CBRC) also tightened the controls on financing activities related to property industry, including banning the misappropriation of credit into property industry and strengthening the scrutiny on fund flows of wealth management products in an attempt to prevent any malpractices. Figure 3 RMB loans growth trend Figure 4 Blance & growth of personal housing loans Loan growth amount (RMB trillion) Y-o-y growth 16% 14% 12% 10% 8% 6% 4% 2% 0% Personal housing loans(rmb trillion) Y-o-y growth % 35% , % % 12 20% % 6 10% 4 2 5% - 0% Loan growth amount Source: People's Bank of China Y-o-y growth Personal housing loans Source: People's Bank of China Y-o-y growth 7

8 RMB depreciation pressure increased The RMB exchange rate has been under persistent depreciation pressure in the first three quarters of The official RMB daily reference exchange rate was against the USD by the end of September 2016, representing a drop of 0.70% in value compared to the end of June. The China Foreign Exchange Trade System (CFETS) RMB index, the index of RMB exchange rate against a basket of currencies closed at by the end of September, representing a drop of nearly 1.00% compared to the end of June. The depreciation pressure has been mounting since October as the RMB exchange rate hit eight-year low. By 25 November the RMB daily reference exchange rate against USD was , representing an accumulated depreciation of 13.01% since the latest exchange rate reform on 11 August exchange rate, PBoC has intervened by using foreign reserve. By the end of September 2016, China's foreign reserve balance fell to USD 3.17 tn, a record low level since May Meanwhile, the funds outstanding for foreign exchange decreased by RMB bn on a month-onmonth basis to RMB tn, marking the 11 th consecutive monthly drop. This indicates that cross-border funds have been under greater outflow pressures. With the RMB formally incorporated into the IMF's basket of currencies making up the Special Drawing Rights (SDR) on 1 October 2016, the RMB is expected to play a more significant role in the international monetary and financial systems, which will in turn prompt monetary authority in China to maintain stable RMB exchange rates. In order to reduce the fluctuations of RMB Figure 5 RMB daily reference exchange rate Figure 6 Monthly balance of foreign exchange reserves RMB / USD , , USD Trillion , , , , Source: China Foreign Exchange Trade System Source: People's Bank of China 8

9 Operating performance Downturn of net profit growth continued Profitability indicators dropped Growth in net interest income slowed down and non-interest income grew rapidly Credit costs continued to rise 9

10 Downturn of net profit growth continued Due to the economic downturn, interest rate cuts and value added tax (VAT) reforms, Chinese banks net profit growth remained weak. The aggregate net profit of the 26 listed banks that disclosed their financial results for Q reached RMB 1.12 tn in the first three quarters, a year-on-year increase of 3.90%. A cross-sectional comparison indicates that eight City Commercial Banks (CCBs) recorded the fastest growth (at an aggregate of 11.42%), and were the only group of banks who maintained a double-digit growth, followed by four Rural Commercial Banks (RCBs) and nine Joint-stock Commercial Banks (JSCBs). The net profit growth of five Large Commercial Banks (LCBs) was relatively slow, with an aggregate rate of 2.49%. Figure 7 Net profits and net profit growth of listed banks The aggregate net profit of the 26 listed banks reached RMB 1.12 tn in the first three quarters of 2016, a year-on-year increase of 3.90%. Five Large Commercial Banks Nine Joint-stock Commercial Banks Eight Four City Commercial Banks Rural Commercial Banks bn bn bn 8.33 bn 2.49% 6.41% 11.42% 7.84% 10

11 Net profit growth of LCBs and JSCBs dropped to single digit The net profit growth of four LCBs was around 1.00% or less, except for Bank of China (BOC) whose net profit grew by 9.93% year-on-year, thanks to the large investment returns recorded in 1H 2016, mainly from the sale of its equity interest in a subsidiary, Nanyang Commercial Bank (NCB). BOC s net profit growth only reached 3.18% year-on-year in 3Q Figure 8 BOC CCB BOCOM ICBC ABC Large commercial banks y-o-y net profit growth 0.57% 0.73% 0.53% 0.65% 0.52% 1.35% 1.17% 1.18% 0.79% 9.93% 2016 Q1-Q3 vs 2015 Q1-Q Q1-Q3 vs 2014 Q1-Q3 Aggregate growth rate in the first three quarters of 2016 was 2.49% The net profit growth of eight of JSCBs were all single digits in the first three quarters of 2016, except for China Zheshang Bank (CZB) who was newly-listed this year. Figure 9 Joint-stock commercial banks y-o-y net profit growth CZB 26.80% SPDB 9.77% 6.56% 7.29% CMB 6.24% 44.88% CIB PAB HXB CITIC CEB CMBC 3.56% 1.77% 2.40% 2.37% 6.60% 7.63% 5.52% 5.06% 5.79% 2.11% 4.36% 13.04% 2016 Q1-Q3 vs 2015 Q1-Q Q1-Q3 vs 2014 Q1-Q3 Aggregate growth rate in the first three quarters of 2016 was 6.41% 11

12 Most CCBs maintained double-digit net profit growth Six of the CCBs maintained double-digit net profit growth year-on-year in the first three quarters of 2016, except for Bank of Beijing (BOB) and Bank of Hangzhou (HZB). Figure 10 BNJ BNB City commercial banks y-o-y net profit growth 18.89% 16.53% 23.05% 24.60% JSBC 12.94% BCQ GYB 10.68% 10.40% 10.08% 2016 Q1-Q3 vs 2015 Q1-Q Q1-Q3 vs 2014 Q1-Q3 BOS 10.05% 13.19% BOB HZB 6.06% 6.00% 12.47% Aggregate growth rate in the first three quarters of 2016 was 11.42% Note: the three newly listed city commercial banks this year, JSBC, GYB and HZB, did not disclose their comparable data from the first three quarters of 2014, hence the year-on-year growth rate of the same period in 2015 cannot be calculated. The net profit growth of RCBs in the first three quarters of 2016 were about 10.00% or lower, and Jiangyin Rural Commercial Bank (JYRCB) even recorded a negative growth. Figure 11 Rural commercial banks y-o-y net profit growth 10.35% WXRCB 8.94% CQRCB 8.02% 8.07% -6.80% CSRCB JYRCB Aggregate growth rate in the first three quarters of 2016 was 7.84% 2016 Q1-Q3 vs 2015 Q1-Q Q1-Q3 vs 2014 Q1-Q3 Note: the three newly listed rural commercial banks this year, WXRCB, CSRCB and JYRCB, did not disclose their comparable data from the first three quarters of 2014, hence the year-on-year growth rate of the same period in 2015 cannot be calculated. 12

13 Profitability indicators fell Due to the slowing of net profit growth, the annualized return on equity (ROE) of most listed banks fell in the first three quarters of The ROE of CCBs ranked the highest, followed by JSCBs, LCBs, and RCBs. Figure 12 Change of return on equity (ROE) of listed banks 20% 19.73% 18.12% 17.33% 17.63% 18% 16.21% 15.46% 16% 14.95% 13.81% 14% 12% 10% 8% 6% 4% 2% 0% LCBs JSCBs CCBs RCBs 2016 Q Q3 Note: CZB and BOS did not release their return on equity for the first three quarters of 2015 and 2016, thus their data were not included in the calculation of the above ratios of JSCBs and CCBs. Eleven of the 26 listed banks disclosed their net interest margins (NIM) for the first three quarters of 2016, all of which further narrowed as compared with 1H Figure 13 Change of net interest margins (NIM) of listed banks 3.0% PAB 2.8% CQRCB 2.6% CMB BNJ BCQ 2.4% CCB 2.2% 2.0% ICBC CITIC BOCOM BNB 1.8% BOC 2016 Q1-Q H 13

14 Growth in net interest income slowed down and non-interest income grew rapidly As the effect of interest rate cuts and the impact of VAT reforms gradually become evident, the net interest income of all listed banks, similar to the case in 1H, continued to grow slowly in the first three quarters of Most of their growth came from fee and commission income and other non-interest income. Other non-interest income of LCBs and CCBs grew rapidly. BOC s disposal of equity interest and the outstanding performance of China Construction Bank (CCB) s insurance subsidiary contributed to the increase of LCBs other non-interest income. Among city commercial banks, Bank of Nanjing (BNJ), Bank of Ningbo (BNB) and Bank of Shanghai (BOS) s non-interest income grew significantly. In terms of income mix, the proportion of net interest income continued to fall while the proportion of non-interest income rose for all listed banks. Figure 14 Segment income growth of listed banks, Q1-Q % -7.69% 78.72% 1.50% 16.90% 36.27% 8.76% 39.28% Figure 15 Change of income mix of listed banks 98.05% 1.65% 51.05% LCBs JSCBs CCBs RCBs -8.25% Net interest income Net fee & commission income Other non-interest income 12% 7% 5% 4% 3% 2% 1% 2% 9% 6% 15% 19% 28% 25% 19% 20% 68% 74% 67% 71% 78% 83% 90% 92% Other noninterest income Net fee & commission income Net interest income Q1-Q3 Q1-Q Q1-Q3 Q1-Q Q1-Q3 Q1-Q Q1-Q3 Q1-Q3 LCBs JSCBs CCBs RCBs 14

15 Credit costs continued to rise Most listed banks had a higher asset impairment charges in the first three quarters of 2016 over the same period of 2015, indicating that they increased their loan provisions in response to the economic downturn. Figure 16 Asset impairment charges of listed banks, Q1-Q (RMB million) 60,000 54, , ,000 The asset impairment charges of the LCBs and RCBs grew relatively slow, and that of CCB and Chongqing Rural Commercial Bank (CQRCB) even fell on a year-on-year basis. The credit risk of small and medium-sized banks continued to increase. The asset impairment charges of the JSCBs and CCBs on a year-onyear basis also grew rapidly, indicating a continual exposure in credit risk. 40,000 30,000 20,000 10,000-27, , , , LCBs JSCBs CCBs RCBs

16 16

17 Financial positions Assets grew steadily, whereas investments grew rapidly leading to an expansion in proportion Personal loans and available-for-sale financial assets grew rapidly Greater exposure to non-performing loans (NPLs), provision pressures increased Liabilities grew steadily and proportion of debt security issued rose 17

18 Total assets grew steadily By the end of September 2016, the total assets of the 26 listed banks reached RMB tn, increasing by 9.84% and 2.12% respectively when compared to the end of December 2015 and the end of June Compared with the data by the end of June 2016, total assets growth of JSCBs, CCBs and RCBs, all surpassed 2.00%. Among all the banks, eight CCBs saw the fastest growth in total assets, increasing by 16.99% and 4.51% respectively when compared to the end of December 2015 and the end of June Five LCBs saw the slowest growth in total assets, increasing by 8.31% and 1.87% respectively when compared to the end of December 2015 and the end of June Compared to the end of December 2015, JSCBs, CCBs and RCBs achieved double digit growth in total assets. Figure 17 Growth of total assets of listed banks By the end of September 2016, the total assets of the 26 listed banks reached RMB tn, increasing by 9.84% and 2.12% respectively compared to the ends of December 2015 and June Five Large Commercial Bank Nine Joint-stock Commercial Banks Eight City Comemrcial Banks Four Rural Commercial Banks tn tn 8.43 tn 1.14 tn Compared to 2015 year end Compared to the end of June % % % % +1.87% +2.17% +4.51% +3.23% 18

19 Investments grew rapidly, leading to an expansion in proportion By the end of September 2016, listed banks investments portfolio grew at a faster rate than loans, resulting in rise of the proportion in investments for most listed banks when compared to the end of June The interbank assets of both LCBs and JSCBs decreased significantly due to a falling interest rate environment and weak funding demand, leading to the decrease in proportion. In the meantime, the interbank assets of CCBs and RCBs continued to grow due to different asset allocation needs, leading to the increase in proportion. LCBs and JSCBs saw an increase in the proportion of loans. Figure 18 Segment assets growth, 30September 2016 vs 30 June % 6.65% 6.23% 4.26% 4.46% 4.21% 2.25% 2.39% 2.92% 0.90% LCBs JSCBs CCBs RCBs -9.78% -9.20% Loans & advances Investments Inter-bank activities Figure 19 Change of asset structure of listed banks 4% 4% 4% 4% 2% 2% 2% 2% 14% 14% 9% 10% 9% 9% 11% 12% 6% 6% 7% 7% 11% 11% 15% 13% Others Cash & deposits with central bank 25% 24% 36% 35% 42% 41% 32% 32% Inter-bank activities Investments 52% 52% 45% 44% 36% 37% 40% 41% Loans & advances LCBs JSCBs CCBs RCBs 19

20 Personal loans and available-for-sale financial assets grew rapidly Among banks who disclosed the breakdown of their loan portfolio, by the end of September 2016, LCBs and CCBs saw their corporate loan balance shrunk compared to the end of June JSCBs corporate loans experienced slower growth due to the economy downturn. These factors contributed to the decrease in the proportion of their corporate loans. In contrast, personal loans of most listed banks grew rapidly, especially those of JSCBs whose quarter-on-quarter growth reached 10.64%, leading to an increase in proportion of personal loans. In terms of investments, available-for-sale financial assets of listed banks experienced double-digit growth in Q On the other hand, investments classified as receivables which had grown rapidly in the past, saw a decline in balance for JSCBs, CCBs and RCBs. This has led to the expansion of the proportion of available-for-sale financial assets while that of investments classified as receivables contracted in proportion. Figure 20 Change of loan structure of listed banks 4% 4% 3% 4% 5% 5% 10% 7% 6% 4% 33% 32% 40% 37% 23% 23% 34% 35% 67% 70% 58% 60% 57% 58% 60% 61% LCBs JSCBs CCBs RCBs Figure 21 Change of investment portfolio of listed banks 7% 7% 6% 4% 3% 2% 3% 1% 30% 28% 42% 39% 17% 16% 19% 29% 10% 11% 51% 58% 61% 40% 33% 37% 53% 54% 28% 29% 19% 19% 22% 22% Overseas & subsidiaries Discounted bills Personal Corporate Fair value through profit or loss Available for sale Receivables Held to maturity LCBs JSCBs CCBs RCBs 20

21 Greater exposure in non-performing loans (NPLs) Among the 26 listed banks covered in this newsletter, the aggregate non-performing loans (NPLs) of the 21 banks who disclosed such figures on a comparable basis* amounted to RMB 1.14 tn by the end of September 2016, an increase of 3.31% compared to the end of June The NPL ratio was 1.67%, remaining unchanged from the end of June quarters and in Q3 2016; the six CCBs on a comparable basis experienced the second fastest growth in NPLs. As the size of RCBs are relatively small, the two RCBs on a comparable basis saw a reduction in NPL balance in Q As of September 2016, the NPLs of the 21 banks increased by 13.48% compared to the end of 2015, and the NPL ratio rose by 0.05 percentage points to 1.67%. With credit risk under control, LCBs only saw an increase of 2.21% in NPLs in Q3. In the meantime, asset quality credit continued to intensify. The eight JSCBs on a comparable basis who disclosed their NPL information saw the fastest growth in NPLs both in the first three Figure 22 NPL of listed banks, end of September 2016 The total NPL of the 21 listed banks amounted to RMB 1.14 tn by the end of September 2016, increasing by 3.31% compared to the end of June 2016; the NPL ratio was 1.67%, remaining unchanged from that in late June Five Large Commercial Banks Eight Joint-stock Commercial Banks Six City Commercial Banks Two Rural Commercial Banks 8, tn 2, tn tn tn Compared to 2015 year end Compared to the end of June % % % % +2.21% +6.48% +5.29% -1.34% *CZB,. BOS and HZB did not disclosed their NPL data for the first three quarters of 2016, while BOS, JYRCB and WXRCB did not disclosed their 1H NPL data. The comparable basis mentioned above excluded these five banks. 21

22 LCB s NPL ratio remained flat while All listed banks NPL ratio not yet peaked A comparison among the NPL ratios of listed banks indicates that the NPL ratios of LCBs by the end of September 2016 remained unchanged from that of June JSCBs NPL ratios continued to rise but haven t peaked while CCBs NPL ratios fluctuated. Due to a weak economy, banks will continue to be under NPL pressures for a period of time. In order to mitigate the credit risk arising from greater NPLs, the management of all listed banks have proactively disposed NPLs by a variety of channels including writing-offs, collections, transferring etc.. However, since listed banks only disclosed NPL balance and ratios in their quarterly results without information regarding special mention loans, overdue loans, past-due-but-not-impaired loans, it is still early days to assess if the credit risk has eased just by looking at a single indicator. Figure 23 Change of NPL ratios of listed banks 1.72% 1.72% 1.69% 1.65% 1.61% 1.54% 1.18% 1.16% 1.17% 1.04% 1.06% 1.05% LCBs JSCBs CCBs RCBs * CZB, BOS and HZB have not disclosed their NPL data for the first three quarters of 2016, while BOS, JYRCB and WXRCB have not disclosed their 1H NPL data. The figure above shows the changes of NPL of 21 listed banks, excluding the aforesaid five banks. 22

23 LCBs increasingly under provision pressures, with one more bank falling below the red line The allowance to total loan ratio (also referred to as loan provision ratio or provision-toloan ratio ) and provision coverage ratios are the two major indicators to measure a bank s provision adequacy. By the end of September 2016, JSCB and CCBs saw rise in allowance to total loan ratio as compared to the end of June, while those of LCBs and RCBs fell. Figure 24 Allowance to total loan ratio of listed banks 4.0% 3.5% 3.18% 3.13% 2.94% 3.0% 2.88% 2.71% 2.65% 2.5% 2.0% 3.73% 3.69% 1.5% LCBs JSCBs CCBs RCBs Notes: CZB, BOS, HZB and JYRCB didn t disclose information about their allowance, so the information above didn t cover that of these banks. As listed banks become increasingly exposed to NPLs, their provision coverage ratios were declining. Figure % Provision coverage ratios of listed banks Among LCBs, ICBC s provision coverage ratio has fell below the regulatory level of 150% for three consecutive quarters. CCB s provision coverage ratio fell below the regulatory level too at the end of September % 400% 350% 300% 250% CIB SPDB BOB BNJ CQRCB BNB CQB CSRCB The provision coverage ratios of BOC and BOCOM were also fell to close to 150%. Among JSCBs, the provision coverage ratios of CITIC, CMBC and CEB were also close to 150%. 200% ABC CMB GYB WXRCB CCB BOCOM CMBC PAB JSBC 150% HXB BOC CITIC CEB 100% ICBC Notes: CZB, BOS, HZB and JYRCB didn t disclose relevant information at the end of September or June

24 Liabilities grew steadily with proportion of debt securities issued rising The total liabilities of the 26 banks grew steadily and reached RMB tn by the end of September 2016, increasing by 9.80% and 1.91% respectively compared to 2015 year end and the end of June Compared to the end of June 2016, listed banks saw slight changes in their liability structure, with the proportion of interbank liabilities for most banks dropped and that of debt securities issued continued to rise. Deposits remained the largest source of liabilities. That said, most listed banks (except for LCBs) saw a slight drop in the proportion of deposits. Figure 26 Change of liability structure of listed banks 5% 5% 3% 3% 11% 12% 3% 3% 3% 3% 2% 2% 11% 9% 14% 13% 6% 6% 16% 15% 24% 24% 21% 21% Others Borrowings from central bank Debt securities issued 80% 79% 60% 62% 61% 62% 74% 75% Inter-bank activities Deposits LCBs JSCBs CCBs RCBs Notes: Other liabilites mainly refer to financial liabilities, derivative financial liabilites and other liabilites that are measured with fair value through income. 24

25 Capital management External financing became the primary source to strengthen capital base 25

26 External financing became the primary source to strengthen capital base Within Q3 2016, listed banks continued to strengthen their capital base by issuing preferred shares, tier-2 capital bonds, common shares and IPOs, resulting in moderate increases in core tier-1 capital adequacy ratios and capital adequacy ratios by the end of September 2016 compared to the end of June. Figure 27 Change of core tier-1 capital adequacy ratio of listed banks 12% 11.74% 11.53% 11.70% 11.41% 11.35% 10.84% 10% 9.25% 9.88% 9.75% 9.14% 9.32% 9.05% 8% 6% However, greater exposure to credit risk, slow growth of net profits and other factors have also brought capital pressure on those banks. It is expected that external financing will continue to be listed banks primary source to increase capital base. 4% 2% 0% LCBs JSCBs CCBs RCBs Note: Since CZB, BOB and HZB didn t disclose their core tier-1 capital adequacy ratios in Q and WXRCB didn t disclose its core tier-1 capital adequacy ratio in 1H 2016, above figure only compared 22 listed banks. Figure 28 Change of capital adequacy ratios of listed banks 16% 14.21% 14.31% 13.85% 14% 12.14% 12% 10% 12.97% 12.63% 11.93% 12.33% 11.67% 13.31% 12.86% 12.76% 8% 6% 4% 2% 0% LCBs JSCBs CCBs RCBs Note: since BOB and HZB didn t capital adequacy ratios in Q and Q3 2015, CZB didn t disclose capital adequacy ratios in Q and WXRCB didn t disclose capital adequacy ratios in 1H 2016, above figure only compared 22 listed banks. 26

27 Appendix Financial highlights of listed banks Banking and Capital Markets Contacts 27

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29 Financial highlights of listed banks (I) -Large Commercial Banks Five Large Commercial Banks (In RMB millions) Operating Results in Jan-Sep 2016 ICBC CCB ABC BOC BOCOM Total Operating income 517, , , , ,301 1,892,871 Net interest income 351, , , , ,764 1,295,850 Net fee & commission income 113,748 92,314 73,141 68,486 28, ,587 Other non-interest income 52,668 64,456 14,892 70,779 17, ,434 Operating expenses (229,244) (227,699) (196,547) (187,801) (80,447) (921,738) Business tax and surcharges (14,598) (14,485) (9,944) (8,314) (4,879) (52,220) Business & administration expenses (117,223) (102,694) (119,392) (97,778) (43,541) (480,628) Allowance for impairment losses (63,906) (63,704) (60,535) (63,966) (21,598) (273,709) Other business expenses (33,517) (46,816) (6,676) (17,743) (10,429) (115,181) Operating profit 288, , , ,269 66, ,133 Profit before tax 289, , , ,914 67, ,999 Income tax expense (66,398) (52,206) (37,747) (31,356) (14,504) (202,211) Net profit 223, , , ,558 52, ,788 Non-controlling interests , ,600 Profit attributable to shareholders 222, , , ,813 52, ,188 Financial Position, as of 30 Sep 2016 Total assets 23,646,472 20,500,683 19,064,101 17,857,503 8,091,810 89,160,569 Loans and advances, net 12,629,838 11,248,007 9,220,381 9,648,243 3,931,176 46,677,645 Loans and advances 12,914,203 11,515,397 9,617,343 9,875,808 4,023,430 47,946,181 Less: Allowance for impairment losses (284,365) (267,390) (396,962) (227,565) (92,254) (1,268,536) Investments 5,469,130 5,109,136 5,202,322 3,930,760 2,147,297 21,858,645 Interbank assets 1,278, ,071 1,208,129 1,160, ,370 5,101,463 Cash & deposits with central bank 3,302,564 2,725,492 2,862,087 2,329, ,192 12,176,840 Others assets 966, , , , ,775 3,345,976 Total liabilities 21,692,477 18,929,235 17,751,076 16,392,602 7,472,932 82,238,322 Deposits from customers 17,754,418 15,277,178 14,997,769 12,974,479 4,728,274 65,732,118 Interbank liabilities 2,324,083 2,062,816 1,313,738 1,770,712 1,679,280 9,150,629 Debt securities issued 537, , , , ,903 2,160,543 Due to central bank , , , ,158 1,429,671 Other liabilities 1,076, , , , ,317 3,765,361 Total owners equity 1,953,995 1,571,448 1,313,025 1,464, ,878 6,922,247 Non-controlling interests 11,708 12,045 2,589 75,306 3, ,707 Total equity attributable to shareholders 1,942,287 1,559,403 1,310,436 1,389, ,819 6,817,540 Financial Ratios in Jan-Sep 2016 Profitability (Jan - Sep 2016) Return on average total assets (ROA) 1.30% 1.34% 1.12% 1.17% 0.93% Return on weighted average equity (ROE) 16.53% 17.16% 17.10% 13.66% 12.84% Net Interest Spread (NIS) No Data 2.09% No Data No Data No Data Net Interest Margin (NIM) 2.18% 2.26% No Data 1.85% 1.91% Cost to income ratio 22.64% 21.73% 30.92% 26.49% 29.56% Income Mix (Jan - Sep 2016) Net interest income 67.86% 66.83% 77.20% 62.27% 68.41% Fee and commission income 21.97% 19.53% 18.94% 18.56% 19.62% Other non-interest income 10.17% 13.64% 3.86% 19.18% 11.97% Asset Quality (As of 30 Sep 2016) Non performing loan balance, in millions 208, , , ,034 61,374 NPL ratio 1.62% 1.56% 2.39% 1.48% 1.53% Overdue loan balance, in millions No Data No Data No Data No Data No Data Overdue loan ratio No Data No Data No Data No Data No Data Restructured loan balance, in millions No Data No Data No Data No Data No Data Restructured loan ratio No Data No Data No Data No Data No Data Allowance to total loans ratio 2.20% 2.32% 4.13% 2.30% 2.29% Provision coverage ratio % % % % % Capital Adequacy (As of 30 Sep 2016) Common Equity Tier 1 capital adequacy ratio 12.58% 13.37% 10.35% 11.29% 11.10% Tier 1 capital adequacy ratio 13.13% 13.54% 11.03% 12.22% 12.30% Capital adequacy ratio 14.18% 15.36% 13.21% 14.13% 14.17% Total equity to total assets ratio 8.26% 7.67% 6.89% 8.20% 7.65% Risk-weighted assets to total assets ratio 61.85% 55.92% 62.02% 62.44% 61.66% Leverage ratio 7.57% 7.12% 6.43% 7.08% 6.95% 29

30 Financial highlights of listed banks (II) -Joint-stock Commercial Banks Nine Joint-stock Commercial Banks (In RMB millions) Operating Results in Jan-Sep 2016 CMB CIB SPDB CITIC CMBC CEB PAB HXB CZB Total Operating income 160, , , , ,381 70,754 81,968 47,595 25, ,956 Net interest income 100,722 84,547 81,850 79,524 70,889 48,832 54,563 36,550 18, ,977 Net fee & commission income 49,236 26,104 31,140 30,973 39,943 21,225 24,174 10,770 5, ,819 Other non-interest income 10,333 8,007 7,938 4,839 5, , ,292 42,161 Operating expenses (93,774) (65,586) (67,416) (69,872) (66,395) (38,642) (57,423) (28,096) (14,273) (501,477) Business tax and surcharges (5,525) (5,292) (3,898) (4,026) (3,794) (2,683) (3,100) (1,720) (626) (30,664) Business & administration expenses (40,419) (24,072) (25,851) (30,450) (31,074) (19,699) (22,708) (16,562) (6,544) (217,379) Allowance for impairment losses (47,640) (35,979) (37,485) (35,396) (30,665) (16,113) (31,615) (9,802) (7,103) (251,798) Other business expenses (190) (243) (182) 0 (862) (147) 0 (12) 0 (1,636) Operating profit 66,517 53,072 53,512 45,464 49,986 32,112 24,545 19,499 10, ,479 Profit before tax 67,438 53,431 53,689 45,609 49,953 32,214 24,560 19,584 10, ,256 Income tax expense (15,094) (9,180) (12,551) (10,986) (10,064) (7,725) (5,841) (4,896) (2,611) (78,948) Net profit 52,344 44,251 41,138 34,623 39,889 24,489 18,719 14,688 8, ,308 Non-controlling interests ,856 Profit attributable to shareholders 52,142 43,982 40,682 34,543 39,163 24,437 18,719 14,617 8, ,452 Financial Position, as of 30 Sep 2016 Total assets 5,563,990 5,816,904 5,564,282 5,541,535 5,636,577 3,836,367 2,791,238 2,273,723 1,260,015 38,284,631 Loans and advances, net 3,062,607 1,888,745 2,481,542 2,772,772 2,389,447 1,711,472 1,393,854 1,171, ,596 17,289,236 Loans and advances 3,173,088 1,964,223 2,570,186 2,838,800 2,448,871 1,752,246 1,430,514 1,203,982 No Data 17,381,910 Less: Allowance for impairment losses (110,481) (75,478) (88,644) (66,028) (59,424) (40,774) (36,660) (32,781) No Data (510,270) Investments 1,391,315 3,037,338 2,113,603 1,825,617 2,046,069 1,271, , , ,692 13,607,518 Interbank assets 397, , , , , , , ,536 56,526 2,551,345 Cash & deposits with central bank 561, , , , , , , , ,242 3,465,492 Others assets 151, , , , , , ,922 37,630 16,960 1,371,041 Total liabilities 5,166,556 5,468,893 5,199,676 5,194,107 5,300,872 3,587,726 2,593,010 2,124,641 1,193,285 35,828,766 Deposits from customers 3,615,989 2,514,084 2,993,443 3,392,444 2,998,848 2,131,891 1,912,878 1,371, ,363 21,620,394 Interbank liabilities 975,333 1,883,564 1,335,555 1,138,313 1,438, , , , ,822 8,657,847 Debt securities issued 306, , , , , , , , ,684 3,796,151 Due to central bank 94, ,000 60,143 79, ,439 87,000 10,649 58, ,294 Other liabilities 174,598 93, , , ,890 77,006 84,382 57,980 35,416 1,008,080 Total owners equity 397, , , , , , , ,082 66,731 2,455,866 Non-controlling interests 1,023 4,030 4,795 5,269 9, ,641 Total equity attributable to shareholders 396, , , , , , , ,302 66,731 2,430,225 Financial Ratios in Jan-Sep 2016 Profitability (Jan - Sep 2016) Return on average total assets (ROA) No Data 0.80% 0.78% 0.87% 1.05% No Data 0.92% No Data No Data Return on weighted average equity (ROE) 17.47% 14.11% 12.86% 13.91% 16.58% 14.67% 14.43% 11.82% No Data Net Interest Spread (NIS) 2.43% No Data No Data No Data No Data No Data 2.62% No Data No Data Net Interest Margin (NIM) 2.56% No Data No Data 2.01% No Data No Data 2.73% No Data No Data Cost to income ratio 25.22% 20.29% 21.38% 26.40% 26.70% 27.84% 27.70% 34.80% 26.13% Income Mix (Jan - Sep 2016) Net interest income 62.84% 71.25% 67.68% 68.95% 60.91% 69.02% 66.57% 76.79% 73.87% Fee and commission income 30.72% 22.00% 25.75% 26.85% 34.32% 30.00% 29.49% 22.63% 20.98% Other non-interest income 6.45% 6.75% 6.56% 4.20% 4.77% 0.99% 3.94% 0.58% 5.16% Asset Quality (As of 30 Sep 2016) Non performing loan balance, in millions 59,275 33,593 44,290 42,616 38,487 26,466 22,300 19,288 No Data NPL ratio 1.87% 1.71% 1.72% 1.50% 1.57% 1.51% 1.56% 1.60% No Data Overdue loan balance, in millions No Data No Data No Data No Data No Data No Data No Data No Data No Data Overdue loan ratio No Data No Data No Data No Data No Data No Data No Data No Data No Data Restructured loan balance, in millions No Data No Data No Data No Data No Data No Data No Data No Data No Data Restructured 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 3.48% 3.84% 3.45% 2.33% 2.43% 2.33% 2.56% 2.72% No Data Provision coverage ratio % % % % % % % % No Data Capital Adequacy (As of 30 Sep 2016) Common Equity Tier 1 capital adequacy ratio 12.43% 8.87% 8.58% 9.01% 9.07% 8.54% 8.64% 8.59% No Data Tier 1 capital adequacy ratio 12.43% 9.59% 9.42% 9.15% 9.09% 9.73% 9.67% 9.92% No Data Capital adequacy ratio 14.16% 12.54% 12.04% 11.47% 11.72% 11.24% 11.97% 11.76% No Data Total equity to total assets ratio 7.14% 5.98% 6.55% 6.27% 5.96% 6.48% 7.10% 6.56% 5.30% Risk-weighted assets to total assets ratio 55.29% 61.79% 64.20% 68.19% 64.99% 66.05% 69.29% 66.05% No Data Leverage ratio 5.99% No Data 5.38% 4.86% 5.14% 5.65% 5.63% 5.75% No Data 30

31 Financial highlights of listed banks (III) -City Commercial Banks Eight City Commercial Banks (In RMB millions) Operating Results in Jan-Sep 2016 BoB BOS JSBC BNJ BNB HZB BCQ GYB Total Operating income 36,296 26,419 23,787 21,061 17,940 10,720 7,295 7, ,582 Net interest income 27,662 20,048 18,995 16,649 12,903 8,836 5,846 5, ,876 Net fee & commission income 8,082 4,507 4,647 3,155 4,690 1,576 1, ,879 Other non-interest income 552 1, , ,828 Operating expenses (17,694) (14,010) (13,320) (12,720) (10,342) (6,708) (3,363) (3,959) (82,117) Business tax and surcharges (1,145) (691) (923) (896) (493) (317) No Data (233) (4,698) Business & administration expenses (8,654) (5,571) (6,255) (4,517) (5,888) (3,076) (1,743) (1,685) (37,388) Allowance for impairment losses (7,879) (7,732) (6,140) (7,253) (3,958) (3,291) (1,621) (2,039) (39,913) Other business expenses (16) (16) (2) (54) (4) (24) 0 (2) (118) Operating profit 18,602 12,409 10,467 8,341 7,598 4,013 3,932 3,104 68,465 Profit before tax 18,567 12,531 10,489 8,356 7,592 4,014 3,933 3,106 68,589 Income tax expense (3,531) (1,589) (2,179) (1,923) (1,239) (692) (973) (397) (12,522) Net profit 15,036 10,942 8,310 6,433 6,354 3,323 2,960 2,709 56,067 Non-controlling interests (34) Profit attributable to shareholders 14,955 10,911 8,280 6,352 6,343 3,357 2,960 2,698 55,887 Financial Position, as of 30 Sep 2016 Total assets 2,042,843 1,650,924 1,562,968 1,023, , , , ,320 8,433,856 Loans and advances, net 852, , , , , , ,118 95,259 3,061,600 Loans and advances 884,900 No Data 635, , ,134 No Data 147,119 98,705 2,377,566 Less: Allowance for impairment losses (32,025) No Data (16,619) (12,780) (9,825) No Data (4,001) (3,445) (78,695) Investments 538, , , , , , , ,280 3,520,305 Interbank assets 448, , ,425 74,351 27,518 60,295 61,088 16, ,343 Cash & deposits with central bank 167, , ,468 94,445 79,253 62,351 39,942 36, ,035 Others assets 35,880 28,057 48,357 21,106 16,769 7,871 6,920 13, ,573 Total liabilities 1,899,921 1,547,106 1,481, , , , , ,948 7,914,006 Deposits from customers 1,139, , , , , , , ,667 4,859,240 Interbank liabilities 448, , , , , ,582 61,629 8,291 1,684,360 Debt securities issued 252, , , , , ,398 39,036 36,857 1,076,290 Due to central bank 12,031 43,086 13,530 20,620 1, ,637 Other liabilities 47,541 32,626 35,189 20,559 35,439 22,284 5,078 4, ,478 Total owners equity 142, ,818 80,985 62,056 50,365 34,713 23,619 21, ,850 Non-controlling interests 1, ,844 Total equity attributable to shareholders 141, ,353 80,575 61,603 50,259 34,713 23,619 20, ,006 Financial Ratios in Jan-Sep 2016 Profitability (Jan - Sep 2016) Return on average total assets (ROA) No Data No Data No Data 0.93% 1.09% No Data 1.17% 1.28% Return on weighted average equity (ROE) 12.70% No Data 15.57% 17.11% 19.71% 13.45% 17.61% 20.35% Net Interest Spread (NIS) No Data No Data No Data 2.15% 1.99% No Data No Data No Data Net Interest Margin (NIM) No Data No Data No Data 2.29% 2.00% No Data 2.40% No Data Cost to income ratio 23.84% 21.09% 26.29% 21.45% 32.82% 28.69% 23.89% 23.86% Income Mix (Jan - Sep 2016) Net interest income 76.21% 75.88% 79.86% 79.05% 71.93% 82.42% 80.14% 84.04% Fee and commission income 22.27% 17.06% 19.53% 14.98% 26.14% 14.70% 19.64% 11.17% Other non-interest income 1.52% 7.06% 0.61% 5.97% 1.93% 2.88% 0.23% 4.79% Asset Quality (As of 30 Sep 2016) Non performing loan balance, in millions 10,619 No Data 9,089 2,780 2,664 No Data 1,422 1,459 NPL ratio 1.20% No Data 1.43% 0.87% 0.91% No Data 0.97% 1.48% Overdue loan balance, in millions No Data No Data No Data No Data No Data No Data No Data No Data Overdue loan ratio No Data No Data No Data No Data No Data No Data No Data No Data Restructured loan balance, in millions No Data No Data No Data No Data No Data No Data No Data No Data Restructured loan ratio No Data No Data No Data No Data No Data No Data No Data No Data Allowance to total loans ratio 3.31% No Data 2.62% 4.01% 3.35% No Data 2.72% 3.49% Provision coverage ratio % No Data % % % No Data % % Capital Adequacy (As of 30 Sep 2016) Common Equity Tier 1 capital adequacy ratio No Data 10.10% 9.05% 8.51% 8.74% No Data 10.79% 12.11% Tier 1 capital adequacy ratio No Data 10.10% 9.05% 10.14% 9.67% No Data 10.79% 12.12% Capital adequacy ratio No Data 12.12% 11.57% 14.21% 12.51% No Data 12.85% 14.52% Total equity to total assets ratio 7.00% 6.29% 5.18% 6.06% 6.01% 5.47% 6.66% 6.53% Risk-weighted assets to total assets ratio No Data 61.90% 57.11% 59.48% 61.83% No Data No Data 53.31% Leverage ratio 5.89% No Data 4.61% 5.31% 5.27% No Data No Data No Data 31

32 Financial highlights of listed banks (IV) -Rural Commercial Banks Four Rural Commercial Banks (In RMB millions) Operating Results in Jan-Sep 2016 CQRCB CSRCB JYRCB WXRCB Total Operating income 16,179 3,249 1,847 1,903 23,179 Net interest income 14,540 2,919 1,639 1,711 20,809 Net fee & commission income 1, ,011 Other non-interest income Operating expenses (7,806) (2,223) (1,291) (1,014) (12,334) Business tax and surcharges No Data (72) (41) (54) (167) Business & administration expenses (6,154) (1,118) (616) (588) (8,476) Allowance for impairment losses (1,652) (1,032) (630) (371) (3,685) Other business expenses 0 (0) (4) (1) (5) Operating profit 8,373 1, ,845 Profit before tax 8,483 1, ,986 Income tax expense (2,171) (236) (57) (188) (2,652) Net profit 6, ,333 Non-controlling interests Profit attributable to shareholders 6, ,238 Financial Position, as of 30 Sep 2016 Total assets 795, , , ,311 1,143,921 Loans and advances, net 288,048 61,726 49,199 58, ,722 Loans and advances 299,677 63,855 51,348 60, ,250 Less: Allowance for impairment losses (11,629) (2,129) (2,149) (1,622) (17,528) Investments 244,628 41,324 39,018 36, ,217 Interbank assets 162,394 6,795 1,970 5, ,009 Cash & deposits with central bank 87,134 12,442 10,730 15, ,937 Others assets 13,637 3,228 2,336 2,835 22,036 Total liabilities 742, ,156 94, ,487 1,062,929 Deposits from customers 530,158 87,103 73,122 94, ,010 Interbank liabilities 132,003 17,984 14,727 6, ,898 Debt securities issued 52,340 6,653 3,682 5,309 67,985 Due to central bank 16, ,846 Other liabilities 12,380 3,074 2,470 4,265 22,189 Total owners equity 52,939 10,360 8,870 8,824 80,993 Non-controlling interests 1, ,578 Total equity attributable to shareholders 51,342 9,768 8,591 8,714 78,415 Financial Ratios in Jan-Sep 2016 Profitability (Jan - Sep 2016) Return on average total assets (ROA) 1.11% No Data 0.71% 0.79% Return on weighted average equity (ROE) 16.29% 12.21% 9.00% 9.23% Net Interest Spread (NIS) No Data No Data 2.27% No Data Net Interest Margin (NIM) 2.78% No Data 2.43% No Data Cost to income ratio 38.04% 34.40% 33.37% 30.89% Income Mix (Jan - Sep 2016) Net interest income 89.87% 89.84% 88.74% 89.88% Fee and commission income 10.05% 6.36% 2.39% 7.09% Other non-interest income 0.08% 3.80% 8.87% 3.03% Asset Quality (As of 30 Sep 2016) Non performing loan balance, in millions 2, , NPL ratio 0.96% 1.41% 2.42% 1.29% Overdue loan balance, in millions No Data No Data No Data No Data Overdue loan ratio No Data No Data No Data No Data Restructured loan balance, in millions No Data No Data No Data No Data Restructured loan ratio No Data No Data No Data No Data Allowance to total loans ratio 3.88% 3.33% 4.18% 2.69% Provision coverage ratio % % % % Capital Adequacy (As of 30 Sep 2016) Common Equity Tier 1 capital adequacy ratio 9.91% 11.34% 12.99% 10.79% Tier 1 capital adequacy ratio 9.92% 11.36% 13.01% 10.79% Capital adequacy ratio 12.04% 13.70% 14.18% 13.32% Total equity to total assets ratio 6.65% 8.25% 8.59% 7.40% Risk-weighted assets to total assets ratio 65.35% 70.15% 65.34% 67.69% Leverage ratio 6.32% 6.72% 7.97% 6.86% 32

33 Banking and Capital Markets Contacts Assurance Advisory Tax Jimmy Leung James Chang Florence Yip +86 (21) (10) Margarita Ho William Gee Oliver Kang +86 (10) (10) (10) Richard Zhu Chris Chan Matthew Wong +86 (10) (21) Michael Hu William Yung +86 (21) (21) Assurance Risk & Quality Charles Chow Matthew Phillips Tracy Chen +86 (755) (21) Linda Yip Nigel Dealy +86 (10)

34 This content is for general information purposes only, and should not be used 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.