Banco De Construcao Da China (Macau), S.A.

Transcription

1 (Incorporated in Macau with limited liability) Financial Statements For the year ended 31 December 2007

2 Independent auditor s report to the shareholders of Banco De Construcao Da China (Macau), S.A. (Formerly known as Banco Da America (Macau), S.A.) (Incorporated in Macao with limited liability) We have audited the accompanying financial statements of Banco De Construcao Da China (Macau), S.A. ( the Bank ) set out on pages 3 to 26, which comprise the balance sheet as at 31 December 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors are responsible for the preparation and presentation of these financial statements in accordance with the Financial Reporting Standards of the Macau SAR and the requirements as set out in Decree-Law No. 32/93/M. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances; and maintaining adequate and accurate accounting records. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with the Auditing Standards and Technical Standards of Auditing of the Macau SAR. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing appropriate procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s professional judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considers internal control relevant to the entity s preparation and presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion. 1

3 Independent auditor s report to the shareholders of Banco De Construcao Da China (Macau), S.A. (Formerly known as Banco Da America (Macau), S.A.) (continued) (Incorporated in Macao with limited liability) Opinion In our opinion, the financial statements give a true and fair view, in all material respects, of the financial position of the Bank as at 31 December 2007, and of its results of operations and its cash flows for the year then ended in accordance with the Financial Reporting Standards of the Macau SAR. This report is intended solely for filing with the Autoridade Monetaria de Macau. Lei Iun Mei, Registered Auditor KPMG Certified Public Accountants 23th Floor, D Bank of China Building Avendia Doutor Mario Soares Macau, 10 March

4 Income statement for the year ended 31 December 2007 (Expressed in Macau Patacas) Note Interest income 156,987, ,137,791 Interest expense (95,261,015) (104,482,333) Net interest income 4 61,726,003 53,655, Fees and commission income 36,830,023 22,590,751 Fees and commission expense (799,206) (483,667) Net fees and commission income 5 36,030,817 22,107, Other operating income 6 13,363,551 12,876, Total operating income 111,120,371 88,639,515 Operating expenses 7 (37,810,276) (28,842,572) Operating profit before provisions 73,310,095 59,796,943 (Charge)/release of provision for advances 9(b) (3,983,516) 1,352,210 Profit before taxation 69,326,579 61,149,153 Taxation 8(a) (8,347,000) (7,356,280) Profit after taxation 60,979,579 53,792,873 Retained profits at beginning of year 150,507, ,714,182 Profits available for appropriation 211,486, ,507,055 Appropriation to statutory reserve 15 (11,000,000) (4,000,000) Retained profits at the end of year 200,486, ,507,055 The notes on pages 8 to 26 form part of these financial statements. 3

5 Balance sheet as at 31 December 2007 (Expressed in Macau Patacas) Assets Note (restated) Cash and balances with banks 1,436,102,170 1,055,897,194 Placements with banks maturing between one and twelve months 120,655, ,783,620 Advances to customers 9 1,834,126,532 1,425,290,365 Investment securities ,900,207 67,456,605 Positive value of derivative financial instruments 19(b) 110,107,159 60,164,733 Prepayments and other assets 11 60,838,833 63,450,997 Property and equipment 12 17,794,973 15,487,489 Total assets 3,692,525,829 3,036,531,003 Liabilities Deposits and balances of banks 32,601,939 37,695,210 Deposits from customers 2,621,227,781 2,416,072,214 Negative value of derivative financial instruments 19(b) 207,367, ,719,322 Current taxation 8(c) 8,361,894 7,345,200 Other liabilities 13 47,179,893 41,892,002 Total liabilities 2,916,739,195 2,621,723, Equity Share capital ,000, ,000,000 Statutory reserve 15 75,300,000 64,300,000 Retained profits 200,486, ,507,055 Total equity 775,786, ,807, Total equity and liabilities 3,692,525,829 3,036,531,003 Approved and authorised for issue by the board of directors on 10 March Director Director Director and General Manager The notes on pages 8 to 26 form part of these financial statements. 4

6 Statement of changes in equity for the year ended 31 December 2007 (Expressed in Macau Patacas) Share Statutory Retained Note capital reserve earnings Total At 1 January ,000,000 64,300, ,507, ,807,055 Net profit for the year ,979,579 60,979,579 Appropriation to statutory reserve 15-11,000,000 (11,000,000) - Shares issued ,000, ,000,000 At 31 December ,000,000 75,300, ,486, ,786,634 ========= ========= ========= ========= At 1 January ,000,000 60,300, ,714, ,014,182 Net profit for the year ,792,873 53,792,873 Appropriation to statutory reserve 15-4,000,000 (4,000,000) - Shares issued ,000, ,000,000 At 31 December ,000,000 64,300, ,507, ,807,055 ========= ========= ========= ========= The notes on pages 8 to 26 form part of these financial statements. 5

7 Cash flow statement for the year ended 31 December 2007 (Expressed in Macau Patacas) Note Net cash (outflow)/inflow from operations 18 (136,524,807) 323,492,543 Macau complementary tax paid (7,330,306) (5,106,780) Net cash (outflow)/inflow from operating activities (143,855,113) 318,385, Investing activities Proceeds from disposal of property and equipment - 53,333 Payment for purchase of property and equipment 12 (4,360,688) (6,543,095) Dividends received 6 126, ,425 Net cash outflow from investing activities (4,234,513) (6,389,337) Financing activities Proceeds from issue of shares ,000, ,000,000 Net cash inflow from financing activities 300,000, ,000, Increase in cash and cash equivalents 151,910, ,996,426 Cash and cash equivalents at 1 January 1,408,626, ,629,981 Cash and cash equivalents at 31 December 1,560,536,781 1,408,626,407 ========== ========== 6

8 Cash flow statement for the year ended 31 December 2007 (continued) (Expressed in Macau Patacas) Analysis of balances of cash and cash equivalents Note Cash and balances with banks 1,411,856,580 1,031,098,862 Placements with banks with original maturity within three months 40,807, ,160,528 Investment debt securities with original maturity within three months 111,928,809 66,485,207 Deposits and balances of banks with original maturity within three months (4,056,359) (118,190) 1,560,536,781 1,408,626,407 ========== ========== The notes on pages 8 to 26 form part of these financial statements. 7

9 Notes to the financial statements (Expressed in Macau Patacas unless otherwise stated) 1 Status of the bank Banco De Construcao Da China (Macau), S.A. ( the Bank ) was incorporated and domiciled in the Macau Special Administrative Region ( Macau SAR ) and has its registered office and principal place of business at Nos , Avenida de Alemida Ribeiro, Macau. On 24 August 2006, an acquisition agreement was made between China Construction Bank Corporation and Bank of America Corporation that China Construction Bank Corporation would purchase all the right title and interest in the shares of China Construction Bank (Asia) Corporation Limited, the immediate holding company of the Bank. The acquisition was completed on 29 December The Bank has changed its name from Banco Da America (Macau), S.A. to Banco De Construcao Da China (Macau), S.A. with effect from 9 January 2007 following the approval from the Autoridade Monetaria de Macau ( AMCM ). The Bank is engaged in the provision of commercial banking and related financial services. 2 Changes in accounting policies Under Article 13 of the Administrative Regulation No. 25/2005, entities governed by Financial System Act are required to prepare their financial statements in accordance with the requirements of Macau Financial Reporting Standards ( MFRSs ) with effect from 1 January There have been no significant changes to the accounting policies applied in these financial statements as a result of these developments and accordingly no prior year adjustments have been made for the years presented in this respect. 3 Significant accounting policies (a) Statement of compliance These financial statements have been prepared in accordance with the requirements as set out in Decree Law No. 32/93/M and the MFRSs issued under Administrative Regulation No. 25/2005 of the Macau SAR. A summary of the significant accounting policies adopted by the Bank are set out below. The accounting policies have been applied consistently to all periods presented in these financial statements. (b) Basis of preparation These financial statements are presented in Macau Patacas ( ), rounded to the nearest dollar. The measurement basis used in the preparation of these financial statements is the historical cost basis. 8

10 3 Significant accounting policies (continued) (c) Investment securities Investment debt securities are held primarily for liquidity purposes and are carried at cost, increased by the accretion of discounts and decreased by the amortisation of premiums arising on acquisition. Any premium or discount arising from the acquisition is amortised through the income statement as interest income over the period from the date of purchase to the date of maturity, or redemption. (d) Advances to customers Advances to customers stated in the financial statements are net of both specific provision and general provision for bad and doubtful debts. Provisions for loans and advances are made in accordance with the notice No. 18/93-AMCM of 21 December 1993 as and when they are considered necessary by the directors. Specific provisions are made when there are evidence that advances to customers will not be fully recoverable. Specific provisions are made against the difference between the carrying amounts of advances and the recoverable amounts. Recoverable amount include the estimated cash received from the guarantor or from the disposal of collateral. General provision is maintained at not less than 1% of the aggregate value of the advances which are not overdue for more than 3 months at the balance sheet date. Changes in the provisions are recognised in the income statement. Where the loan has no reasonable prospect of recovery, the loan is written off. Amount recovered from a loan that has been written off will be recognised as income in the income statement. (e) Property and equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated to write off the assets over their estimated useful lives on a straight-line basis as follows: Buildings Leasehold improvements Furniture, fixtures and equipment 33 1 / 3 to 50 years remaining life of the lease term 2 to 20 years No depreciation is provided on land held in perpetuity. Profits and losses on disposal of property and equipment are determined as the differences between the net disposal proceeds and the carrying amounts of the property and equipment. They are accounted for in the income statement as they arise. (f) Operating leases Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the income statement on a straight-line basis over the lease periods. 9

11 3 Significant accounting policies (continued) (g) Finance leases Where the Group is a lessor under finance leases, an amount representing the net investment in the lease is included in the balance sheet as advances to customers. (h) Impairment of assets The carrying amount of the Bank s assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, the carrying amount is reduced to the estimated recoverable amount by means of a charge to the income statement. Internal and external sources of information are reviewed at each balance sheet date to identify indications that the assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the asset s recoverable amount is estimated. - Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). - Recognition of impairment losses An impairment loss is recognised in the income statement whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. - Reversals of impairment losses An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A reversal of impairment losses is limited to the asset s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to income statement in the year in which the reversals are recognised. (i) Cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. 10

12 3 Significant accounting policies (continued) (j) Employees benefits Salaries, annual bonuses, paid annual leave, contributions to defined contribution plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. (k) Income tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the income statement except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. All deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available. Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if the Bank has the legally enforceable right to set off current tax assets against current tax liabilities. 11

13 3 Significant accounting policies (continued) (l) Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Bank has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (m) Revenue recognition Provided it is probable that the economic benefits will flow to the Bank and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the income statement as follows: (i) Interest income Interest income is recognised in the income statement as it accrues, except in the case of doubtful debts where interest is credited to a suspense account which is netted in the balance sheet against the relevant balances. (ii) Fees and commission income Fees and commission income is recognised when the corresponding service is provided. (iii) Dividend income Dividend income from unlisted investments is recognised when the shareholder s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment is quoted ex-dividend. (n) Translation of foreign currencies Foreign currency transactions during the year are translated into at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into using the foreign exchange rates ruling at the transaction dates. 12

14 3 Significant accounting policies (continued) (o) Related parties For the purposes of these financial statements, a party is considered to be related to the Bank if: (i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Bank or exercise significant influence over the Bank in making financial and operating policy decisions, or has joint control over the Bank; (ii) the Bank and the party are subject to common control; (iii) the party is an associate of the Bank; (iv) the party is a member of key management personnel of the Bank or the Bank s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; (v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or (vi) the party is a post-employment benefit plan which is for the benefit of employees of the Bank or of any entity that is a related party of the Bank. Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. (p) Foreign exchange contracts Forward transactions are undertaken by the Bank in the foreign exchange market as part of the Bank s trading activities. These transactions are marked to market value and are carried at fair value on the balance sheet with changes in fair value included in the income statement in the period in which they arise. Unrealised gains/losses on transactions which are marked to market are included in Positive/Negative value of derivative financial instruments on the balance sheet. 13

15 4 Net interest income Interest income from: - Balances and placements with banks and central banks 71,519,466 72,262,607 - Advances to customers 81,881,675 80,647,983 - Investment securities 3,585,877 5,227, ,987, ,137, Interest expense from: - Customer deposits (94,381,735) (100,045,641) - Deposits and balances of banks (879,280) (4,436,692) (95,261,015) (104,482,333) Net interest income 61,726,003 53,655,458 5 Net fees and commission income Fee and commission income - Agency fees for securities, foreign currency dealing and insurance services 27,585,036 14,297,720 - Payment and collection services fees 3,822,094 4,625,071 - Others 5,422,893 3,667,960 36,830,023 22,590, Fees and commission expenses (799,206) (483,667) Net fees and commission income 36,030,817 22,107,084 6 Other operating income Net gain on foreign exchange trading 13,140,056 12,753,076 Dividend income 126, ,425 Others 97,320 23, ,363,551 12,876,973

16 7 Operating expenses Staff costs 12,184,770 9,778,831 Auditors remuneration 230, ,357 Directors emoluments 2,728,944 1,816,901 Management service fees paid to the immediate holding company 5,855,000 5,070,000 Depreciation (note 12) 2,053,203 1,443,778 Others 14,758,359 10,491,705 8 Taxation 37,810,276 28,842,572 (a) For 2007, Macau Complementary Tax is assessed at a fixed rate of 9% on the taxable income between 200,001 and 300,000 and at a fixed rate of 12% on the taxable income in excess of 300,000. Taxable income below 200,000 is exempted from taxation. For 2006, Macau Complementary Tax is assessed at progressive rates ranging from 3% to 9% on the taxable income below 300,000 and at a fixed rate of 12% on the taxable income in excess of 300,000. The amount of taxation charged to the income statement represents: Macau Complementary Tax provision for current year 8,361,894 7,345,200 (Over)/under provisions in prior years (14,894) 11,080 8,347,000 7,356,280 15

17 8 Taxation (continued) (b) Reconciliation between tax expense and accounting profit at applicable tax rates Profit before tax 69,326,579 61,149,153 Notional tax on profit before tax, calculated at the applicable rates 8,292,189 7,320,639 Tax effect of non-deductible expenses 3,628 9,667 (Over)/under provision in prior years (14,894) 11,080 Others 66,077 14,894 Actual tax expense 8,347,000 7,356,280 (c) Current taxation in the balance sheet represents Provision for taxation for the year 8,361,894 7,345,200 (d) No deferred taxation has been provided as there were no significant temporary differences at the balance sheet date (2006: Nil). 16

18 9 Advances to customers (a) Advances to customers less provision for bad and doubtful debts Advances to customers 1,853,866,636 1,441,342,039 Provision for bad and doubtful accounts - General (19,740,104) (16,051,674) - Specific - - 1,834,126,532 1,425,290,365 (b) Movements in provision for bad and doubtful debts Specific General Total At 1 January ,051,674 16,051,674 Recoveries of advances written off 21,630-21,630 Allowances charged to the income statement 295,086 3,688,430 3,983,516 Amount written off (316,716) - (316,716) At 31 December ,740,104 19,740,104 ========= ========= ========= At 1 January ,704,564 15,704,564 Recoveries of advances written off in previous years 1,769,152-1,769,152 Allowances (released)/charged to the income statement (1,699,320) 347,110 (1,352,210) Amount written off (69,832) - (69,832) At 31 December ,051,674 16,051,674 ========= ========= ========= 17

19 9 Advances to customers (continued) (c) Net investment in finance leases Loans and advances to customers include net investments in equipment leased to customers under finance leases. The contracts usually run for an initial period of 1 to 5 years, with an option for acquiring the leased asset at nominal value. The total minimum lease payments receivable under finance leases and their present values at the year end are as follows: Present value Present value of the Total of the Total minimum minimum minimum minimum lease lease lease lease payments payments payments payments Within 1 year 2,808,109 2,990,995 4,048,026 4,314,060 After 1 year but within 5 years 2,278,825 2,664,481 4,058,127 4,785,336 5,086,934 5,655,476 8,106,153 9,099,396 Unearned future income on finance lease - (568,542) - (993,243) 5,086,934 5,086,934 8,106,153 8,106,153 ========== ========== Provision for bad and doubtful debts: - general (5,087) (8,106) Net investment in finance leases 5,081,847 8,098,047 ========== ========== 10 Investment securities AMCM Monetary Bills 111,928,809 66,485,207 Investment in unlisted equity securities 971, , ,900,207 67,456,605 ========== ========== 18

20 11 Prepayment and other assets (restated) Interest receivable 4,204,409 4,392,702 Interest receivable from the immediate holding company 2,682,394 1,749,887 Settlement accounts 29,844,096 30,533,967 Accounts receivable 22,315,685 25,221,905 Others 1,792,249 1,552,536 60,838,833 63,450,997 ========== ========== 12 Property and equipment Cost: Furniture, Land and Leasehold fixtures and buildings improvements equipment Total At 1 January ,729,624 6,909,391 3,428,840 22,067,855 Additions 567,592 2,493,192 1,299,904 4,360,688 Disposals - - (211,287) (211,287) At 31 December ,297,216 9,402,583 4,517,457 26,217, Accumulated depreciation: At 1 January ,367,047 2,218,678 1,994,641 6,580,366 Charge for the year (note 7) 574, , ,360 2,053,203 Disposals - - (211,286) (211,286) At 31 December ,941,939 3,155,629 2,324,715 8,422, Net book value: At 31 December ,355,277 6,246,954 2,192,742 17,794,973 ========== ========== ========== ========== 19

21 12 Property and equipment (continued) Cost: Furniture, Land and Leasehold fixtures and buildings improvements equipment Total At 1 January ,933,500 2,384,888 2,924,866 17,243,254 Additions 737,402 4,906, ,185 6,543,095 Disposals (941,278) (382,005) (395,211) (1,718,494) At 31 December ,729,624 6,909,391 3,428,840 22,067, Accumulated depreciation: At 1 January ,884,331 1,985,188 1,932,222 6,801,741 Charge for the year (note 7) 423, , ,289 1,443,778 Disposals (941,278) (382,005) (341,870) (1,665,153) At 31 December ,367,047 2,218,678 1,994,641 6,580, Net book value: At 31 December ,362,577 4,690,713 1,434,199 15,487,489 ========== ========== ========== ========== The land is held in perpetuity according to the laws of Macau. 13 Other liabilities Interest payable 8,894,738 6,228,058 Settlement accounts 29,844,096 30,533,967 Others 8,441,059 5,129,977 47,179,893 41,892,002 ========== ========== 20

22 14 Share capital Authorised: 5,000,000 (2006: 5,000,000) ordinary shares of 100 each 500,000, ,000,000 Issued and fully paid: At 1 January 2,000,000 (2006: 1,000,000) ordinary shares of 100 each 200,000, ,000,000 3,000,000 (2006: 1,000,000) ordinary shares of 100 each issued 300,000, ,000,000 At 31 December 5,000,000 (2006: 2,000,000) ordinary shares of 100 each 500,000, ,000,000 On 12 November 2007 and 8 May 2006, the Bank issued 3,000,000 ordinary shares and 1,000,000 ordinary shares respectively of 100 each, ranking pari passu with the existing ordinary shares of the Bank in all respects. 15 Statutory reserve At 1 January 64,300,000 60,300,000 Appropriation to statutory reserve 11,000,000 4,000,000 At 31 December 75,300,000 64,300,000 The statutory reserve is maintained in accordance with the banking laws of Macau and is only distributable in accordance with certain limited circumstances prescribed by statute. 21

23 16 Material related party transactions During the year, the Bank entered into transactions with the immediate holding company in the normal course of banking business including lending, acceptance and placement of inter-bank deposits and corresponding banking transactions. The transactions were priced at the relevant market rates at the time of each transaction. In addition, the immediate holding company provides management services to the Bank in support of the daily operation of the Bank. Furthermore, the Bank also appoints a fellow subsidiary to act as an agent in dealing with securities transactions. In addition to the transactions and balances disclosed elsewhere in these financial statements, the material related party transactions are set out below: With immediate holding company Income statement Interest income 69,240,839 70,305,278 Interest expense (879,280) (4,435,261) Management service fee expense (5,855,000) (5,070,000) Balance sheet Cash and balances with banks 1,314,512, ,426,946 Placements with banks maturing between one and twelve months 120,655, ,783,620 Prepayments and other assets 2,682,394 1,749,887 Deposits and balances of banks (32,499,752) (37,620,324) Other liabilities (201,329) (118,377) With a fellow subsidiary Balance sheet Prepayments and other assets 17,786,802 19,962,152 Other liabilities 12,057,295 10,571,814 22

24 17 Commitments and contingent liabilities (a) Contingent liabilities and commitments to extend credit The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments: Direct credit substitutes 73,821,526 78,558,594 Transaction-related contingencies 665,022 1,319,713 Trade-related contingencies 154,906, ,567,536 Other commitments with an original maturity of: - under 1 year or which are unconditionally cancellable 240,797, year and over 46,453, ,842, ,643, ,288,542 Contingent liabilities and commitments are credit-related instruments which include letters of credit, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are, therefore, subject to the same credit application, portfolio maintenance and collateral requirements as for customers applying for loans. The contractual amounts represent the amounts at risk should the contract be fully drawn upon and the client default. As the facilities may expire without being drawn upon, the contractual amounts do not represent expected future cash flows. (b) Lease commitments At 31 December, the total future minimum lease payments under non-cancellable operating leases on land and buildings are payable as follows: No later than one year 4,723,838 3,260,486 Later for one year but not later than five years 10,207,308 6,627,065 Later than five years 1,596,912-16,528,058 9,887,551 23

25 18 Notes to cash flow statement (a) Reconciliation of profit before taxation to net cash (outflow)/inflow from operations Operating activities Profit before taxation 69,326,579 61,149,153 Adjustment for: - dividend income (126,175) (100,425) - written-down of property and equipment upon disposal 1 8 Depreciation 2,053,203 1,443,778 Charge/(release) of provision for advances 3,983,516 (1,352,210) Advances to customers written-off net of recoveries (295,086) 1,699,320 (Increase)/decrease in operating assets 74,942,038 62,839, Balances and placements with banks with original maturity over three months (41,672,370) 87,906,393 Gross advances to customers (412,524,597) (93,772,307) Positive value of derivative financial instruments (49,942,426) (23,420,757) Prepayments and other assets 2,612,164 (19,957,871) Increase/(decrease) in operating liabilities (501,527,229) (49,244,542) Deposits and balances of banks with original maturity over three months (9,031,440) (220,983,114) Deposits from customers 205,155, ,058,778 Negative value of derivative financial instruments 88,648,366 27,564,063 Other liabilities 5,287,891 15,257, ,060, ,897, Net cash (outflow)/inflow from operations (136,524,807) 323,492,543 24

26 (b) Reconciliation of cash and cash equivalents with the balance sheet Cash and balances with banks 1,436,102,170 1,055,897,194 Placements with banks maturing between one and twelve months 120,655, ,783,620 Investment securities 112,900,207 67,456,605 Deposits and balances of banks (32,601,939) (37,695,210) Amounts shown in the balance sheet 1,637,056,393 1,434,442,209 Less: Amounts with an original maturity of beyond three months (76,519,612) (25,815,802) Cash and cash equivalents in the cash flow statement 1,560,536,781 1,408,626, Derivatives (a) Notional amount of derivatives Derivatives refer to financial contracts whose value depends on the value of one or more underlying assets or indices. The notional amounts of these instruments indicate the volume of outstanding transactions and do not represent amounts at risk. Exchange rate contracts Forwards contracts 4,967,055,279 3,967,768,727 Options purchased 26,575,373 - Options written 26,575,373-5,020,206,025 3,967,768,727 == (b) Fair values of derivatives Exchange rate contracts Positive fair Negative fair Positive fair Negative fair value value value value Forwards contracts 110,107, ,367,688 60,164, ,719,322 ========== ========== ========== ========== 25

27 20 Comparative figures With effect from 1 January 2007, certain items on the balance sheet as detailed below have been reclassified. These changes have been made to conform with the current year presentation of the immediate holding company. Separate interest As previously reported receivable and payable from principal outstanding amount Separate disclosure of placements with banks maturing between one and twelve months Separate disclosure of derivative financial instruments Separate disclosure of current taxation Effect of increase/ (decrease) in balance sheet As restated Cash and balances with banks 1,406,430,701 (1,749,887) (348,783,620) - - (350,533,507) 1,055,897,194 Placements with banks maturing between one and twelve months ,783, ,783, ,783,620 Advances to customers 1,425,290, ,425,290,365 Prepayments and other assets 121,865,843 1,749,887 - (60,164,733) - (58,414,846) 63,450,997 Positive value of derivative financial instruments ,164,733-60,164,733 60,164,733 Other balance sheet asset items 82,944, ,944,094 Total assets 3,036,531, ,036,531,003 ======== ====== ======== ======== ====== ======== ======== Deposits and balances of banks 37,813,588 (118,378) (118,378) 37,695,210 Deposits from customers 2,416,072, ,416,072,214 Negative value of derivative financial instruments ,719, ,719, ,719,322 Current taxation ,345,200 7,345,200 7,345,200 Other liabilities 167,838, ,378 - (118,719,322) (7,345,200) (125,946,144) 41,892,002 Total liabilities 2,621,723, ,621,723,948 ======== ====== ======== ======== ====== ======== ======== 21 Immediate parent and ultimate controlling party As at 31 December 2007, the directors consider the Bank s immediate parent to be China Construction Bank (Asia) Corporation Limited, which is an authorised institution incorporated in Hong Kong, and the ultimate controlling party to be China Construction Bank Corporation, a listed bank incorporated in the People s Republic of China. 26