Banco De Construcao Da China (Macau), S.A. 31 December 2008
Independent auditor s report to the shareholders of Banco De Construcao Da China (Macau), S.A. (Incorporated in Macau 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 27, which comprise the balance sheet as at 31 December 2008, 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
Independent auditor s report to the shareholders of Banco De Construcao Da China (Macau), S.A. (continued) (Incorporated in Macau 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 2008, 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 24th Floor, B & C Bank of China Building Avendia Doutor Mario Soares Macau, 12 March 2009 2
Income statement for the year ended 31 December 2008 (Expressed in Macau Patacas) Note Interest income 111,882,182 156,987,018 Interest expense (53,167,491) (95,261,015) Net interest income 3 58,714,691 61,726,003 ------------------ ------------------ Fees and commission income 27,263,337 36,830,023 Fees and commission expense (1,571,665) (799,206) Net fees and commission income 4 25,691,672 36,030,817 ------------------ ------------------ Other operating income 5 15,185,080 13,363,551 ------------------ ------------------ Total operating income 99,591,443 111,120,371 Operating expenses 6 (46,943,899) (37,810,276) Operating profit before provision 52,647,544 73,310,095 Charge for provision for advances 8(b) (3,057,522) (3,983,516) Profit before taxation 49,590,022 69,326,579 Taxation 7(a) (5,923,800) (8,347,000) Profit after taxation 43,666,222 60,979,579 Retained profits at the beginning of year 200,486,634 150,507,055 Profits available for appropriation 244,152,856 211,486,634 Appropriation to statutory reserve 14 (13,000,000) (11,000,000) Retained profits at the end of year 231,152,856 200,486,634 The notes on pages 8 to 27 form part of these financial statements. 3
Balance sheet as at 31 December 2008 (Expressed in Macau Patacas) Assets Note Cash and balances with banks and central banks 883,275,450 1,436,102,170 Placements with banks maturing between one and twelve months 252,216,774 120,655,955 Advances to customers 8 2,158,230,615 1,834,126,532 Investment securities 9 745,932,532 112,900,207 Positive fair value of derivative financial instruments 18(b) 320,245,172 110,107,159 Prepayments and other assets 10 37,343,680 60,838,833 Property and equipment 11 24,999,076 17,794,973 Total assets 4,422,243,299 3,692,525,829 Liabilities Deposits and balances of banks 168,732,477 32,601,939 Deposits from customers 2,936,374,574 2,621,227,781 Negative fair value of derivative financial instruments 18(b) 458,018,854 207,367,688 Current taxation 7(c) 6,007,626 8,361,894 Other liabilities 12 33,656,912 47,179,893 Total liabilities 3,602,790,443 2,916,739,195 ------------------ ------------------ Equity Share capital 13 500,000,000 500,000,000 Statutory reserve 14 88,300,000 75,300,000 Retained profits 231,152,856 200,486,634 Total equity 819,452,856 775,786,634 ------------------ ------------------ Total equity and liabilities 4,422,243,299 3,692,525,829 Approved and authorised for issue by the board of directors on 12 March 2009 Director Director Director and General Manager The notes on pages 8 to 27 form part of these financial statements. 4
Statement of changes in equity for the year ended 31 December 2008 (Expressed in Macau Patacas) Share Statutory Retained Note capital reserve profits Total At 1 January 2008 500,000,000 75,300,000 200,486,634 775,786,634 Net profit for the year - - 43,666,222 43,666,222 Appropriation to statutory reserve 14-13,000,000 (13,000,000) - At 31 December 2008 500,000,000 88,300,000 231,152,856 819,452,856 ========= ========= ========= ========= At 1 January 2007 200,000,000 64,300,000 150,507,055 414,807,055 Net profit for the year - - 60,979,579 60,979,579 Appropriation to statutory reserve 14-11,000,000 (11,000,000) - Shares issued 13 300,000,000 - - 300,000,000 At 31 December 2007 500,000,000 75,300,000 200,486,634 775,786,634 ========= ========= ========= ========= The notes on pages 8 to 27 form part of these financial statements. 5
Cash flow statement for the year ended 31 December 2008 (Expressed in Macau Patacas) Note Net cash inflow/(outflow) from operations 17(a) 71,722,498 (136,524,807) Macau complementary tax paid (8,278,068) (7,330,306) Net cash inflow/(outflow) from operating activities 63,444,430 (143,855,113) ----------------- ----------------- Investing activities Payment for purchase of investment securities (515,000,000) - Payment for purchase of property and equipment 11 (10,937,394) (4,360,688) Dividends received 5 126,175 126,175 Net cash outflow from investing activities (525,811,219) (4,234,513) ----------------- ----------------- Financing activities Proceeds from issue of shares 13-300,000,000 Net cash inflow from financing activities - 300,000,000 ----------------- ----------------- Net (decrease)/increase in cash and cash equivalents (462,366,789) 151,910,374 Cash and cash equivalents at 1 January 1,560,536,781 1,408,626,407 Cash and cash equivalents at 31 December 1,098,169,992 1,560,536,781 ========== ========== 6
Cash flow statement for the year ended 31 December 2008 (continued) (Expressed in Macau Patacas) Analysis of balances of cash and cash equivalents Note Cash and balances with banks and central banks 881,448,460 1,411,856,580 Placements with banks with original maturity within three months 155,492,875 40,807,751 Investment securities with original maturity within three months 229,961,134 111,928,809 Deposits and balances of banks with original maturity within three months (168,732,477) (4,056,359) 1,098,169,992 1,560,536,781 ========== ========== The notes on pages 8 to 27 form part of these financial statements. 7
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 is domiciled in the Macau Special Administrative Region ( Macau SAR ) and has its registered office and principal place of business at Nos. 70-76, Avenida de Alemida Ribeiro, Macau. The Bank is engaged in the provision of commercial banking and related financial services. 2 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 Macau Financial Reporting Standards ( 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. (c) Investment securities Investment 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, less impairment losses, if any (see note 2(h)(i)). 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. 8
2 Significant accounting policies (continued) (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 provision is made when there is evidence that advances to customers will not be fully recoverable. Specific provision is made against the difference between the carrying amount of advances and the recoverable amount. 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
2 Significant accounting policies (continued) (g) Finance leases Where the Bank 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) (i) (ii) Impairment of assets Investment securities For debt securities, the impairment allowance is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the asset s original effective interest rate, where the effect of discounting is material. For unlisted equity securities that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the equity securities and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement. A reversal of impairment losses shall not result in the asset s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. Other 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). 10
2 Significant accounting policies (continued) (h) Impairment of assets (continued) - 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. (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. 11
2 Significant accounting policies (continued) (k) Income tax (continued) 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. (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. 12
2 Significant accounting policies (continued) (l) Provisions and contingent liabilities (continued) 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. 13
2 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 Foreign exchange 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 fair value of derivative financial instruments on the balance sheet. 14
3 Net interest income Interest income from: - Balances and placements with banks and central banks 34,174,918 71,519,466 - Advances to customers 64,235,403 81,881,675 - Investment securities 13,471,861 3,585,877 111,882,182 156,987,018 ------------------ ------------------ Interest expense from: - Deposits from customers (47,874,312) (94,381,735) - Deposits and balances of banks (5,293,179) (879,280) (53,167,491) (95,261,015) ------------------ ------------------ Net interest income 58,714,691 61,726,003 4 Net fees and commission income Fees and commission income - Agency fees for investment, securities and insurance services 18,518,480 27,585,036 - Payment and collection services fees 2,869,704 3,822,094 - Others 5,875,153 5,422,893 27,263,337 36,830,023 ------------------ ------------------ Fees and commission expenses (1,571,665) (799,206) ------------------- ------------------- Net fees and commission income 25,691,672 36,030,817 15
5 Other operating income Net gain on foreign exchange trading 15,058,699 13,140,056 Dividend income 126,175 126,175 Others 206 97,320 15,185,080 13,363,551 6 Operating expenses Staff costs 17,218,576 12,184,770 Auditors remuneration 236,900 230,000 Directors emoluments 2,444,545 2,728,944 Management service fees paid to the immediate holding company 5,186,000 5,855,000 Depreciation (note 11) 3,733,281 2,053,203 Others 18,124,597 14,758,359 7 Taxation 46,943,899 37,810,276 (a) For both 2008 and 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. 16
7 Taxation (continued) (a) (continued) The amount of taxation charged to the income statement represents: Macau Complementary Tax provision for current year 5,923,800 8,361,894 Over provision in prior years - (14,894) 5,923,800 8,347,000 (b) Reconciliation between tax expense and accounting profit at applicable tax rates: Profit before taxation 49,590,022 69,326,579 Notional tax on profit before tax, calculated at the applicable rates 5,923,803 8,292,189 Tax effect of non-deductible expenses - 3,628 Over provision in prior years - (14,894) Others (3) 66,077 Actual tax expense 5,923,800 8,347,000 (c) Current taxation in the balance sheet represents: Provision for taxation for the year 5,923,800 8,361,894 Provision for taxation relating to prior years 83,826 - (d) 6,007,626 8,361,894 No deferred taxation has been provided as there were no significant temporary differences at the balance sheet date (2007: Nil). 17
8 Advances to customers (a) Advances to customers less provision for bad and doubtful debts Advances to customers 2,180,955,474 1,853,866,636 Provision for bad and doubtful debts - General (22,685,904) (19,740,104) - Specific (38,955) - 2,158,230,615 1,834,126,532 (b) Movements in provision for bad and doubtful debts: Specific General Total At 1 January 2008-19,740,104 19,740,104 Recoveries of advances written off 37,080-37,080 Allowances charged to the income statement 111,722 2,945,800 3,057,522 Advances written off (109,847) - (109,847) At 31 December 2008 38,955 22,685,904 22,724,859 ========= ========= ========= At 1 January 2007-16,051,674 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 Advances written off (316,716) - (316,716) At 31 December 2007-19,740,104 19,740,104 ========= ========= ========= 18
8 Advances to customers (continued) (c) Net investment in finance leases 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 1,616,023 1,932,155 2,808,109 2,990,995 After 1 year but within 5 years 1,364,975 1,462,100 2,278,825 2,664,481 2,980,998 3,394,255 5,086,934 5,655,476 Unearned future income on finance lease - (413,257) - (568,542) 2,980,998 2,980,998 5,086,934 5,086,934 ========== ========== Provision for bad and doubtful debts: - general (29,420) (5,087) - specific (38,955) - Net investment in finance leases 2,912,623 5,081,847 ========== ========== 9 Investment securities AMCM Monetary Bills 229,961,134 111,928,809 Investment in unlisted equity securities 971,398 971,398 Certificates of deposit 515,000,000-745,932,532 112,900,207 ========== ========== 19
10 Prepayment and other assets Interest receivable 3,407,047 4,204,409 Interest receivable from the immediate holding company 3,056,028 2,682,394 Settlement accounts 19,215,718 29,844,096 Accounts receivable 8,361,128 22,315,685 Others 3,303,759 1,792,249 37,343,680 60,838,833 ========== ========== 11 Property and equipment Cost: Furniture, Land and Leasehold fixtures and buildings improvements equipment Total At 1 January 2008 12,297,216 9,402,583 4,517,457 26,217,256 Additions - 8,769,626 2,167,768 10,937,394 Disposals - - (10) (10) At 31 December 2008 12,297,216 18,172,209 6,685,215 37,154,640 --------------- --------------- --------------- --------------- Accumulated depreciation: At 1 January 2008 2,941,939 3,155,629 2,324,715 8,422,283 Charge for the year (note 6) 411,585 2,503,645 818,051 3,733,281 At 31 December 2008 3,353,524 5,659,274 3,142,766 12,155,564 --------------- --------------- --------------- --------------- Net book value: At 31 December 2008 8,943,692 12,512,935 3,542,449 24,999,076 ========= ========= ========= ========= 20
11 Property and equipment (continued) Cost: Furniture, Land and Leasehold fixtures and buildings improvements equipment Total At 1 January 2007 11,729,624 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 2007 12,297,216 9,402,583 4,517,457 26,217,256 ----------------- ----------------- ----------------- ----------------- Accumulated depreciation: At 1 January 2007 2,367,047 2,218,678 1,994,641 6,580,366 Charge for the year (note 6) 574,892 936,951 541,360 2,053,203 Disposals - - (211,286) (211,286) At 31 December 2007 2,941,939 3,155,629 2,324,715 8,422,283 ----------------- ----------------- ----------------- ----------------- Net book value: At 31 December 2007 9,355,277 6,246,954 2,192,742 17,794,973 ========== ========== ========== ========== The land is held in perpetuity according to the laws of Macau. 12 Other liabilities Interest payable 5,922,532 8,894,738 Settlement accounts 19,215,718 29,844,096 Others 8,518,662 8,441,059 33,656,912 47,179,893 ========== ========== 21
13 Share capital Authorised: 5,000,000 (2007: 5,000,000) ordinary shares of 100 each 500,000,000 500,000,000 Issued and fully paid: At 1 January 5,000,000 (2007: 2,000,000) ordinary shares of 100 each 500,000,000 200,000,000 Nil (2007: 3,000,000) ordinary shares of 100 each issued - 300,000,000 At 31 December 5,000,000 (2007: 5,000,000) ordinary shares of 100 each 500,000,000 500,000,000 On 12 November 2007, the Bank issued 3,000,000 ordinary shares of 100 each, ranking pari passu with the existing ordinary shares of the Bank in all respects. 14 Statutory reserve At 1 January 75,300,000 64,300,000 Appropriation to statutory reserve 13,000,000 11,000,000 At 31 December 88,300,000 75,300,000 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. 22
15 Material related party transactions (a) 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 45,105,565 69,240,839 Interest expense (5,292,951) (879,280) Management service fee expense (5,186,000) (5,855,000) Balance sheet Cash and balances with banks 703,845,331 1,314,512,710 Placements with banks maturing between one and twelve months 252,216,774 120,655,955 Investment securities 515,000,000 - Positive fair value of derivative financial instruments 164,627,247 109,279,265 Prepayments and other assets 3,056,028 2,682,394 Deposits and balances of banks (168,732,477) (32,499,752) Negative fair value of derivative financial instruments (286,668,357) (200,584,849) Other liabilities (92,514) (201,329) Exchange rate contracts at notional amounts Forward contracts 4,063,844,105 3,795,010,430 Options written 22,501,379 24,349,195 With a fellow subsidiary Balance sheet Prepayments and other assets 4,083,218 17,786,802 Other liabilities (15,132,500) (12,057,295) 23
16 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 61,219,553 73,821,526 Transaction-related contingencies 2,086,097 665,022 Trade-related contingencies 88,345,671 154,906,797 Acceptances 20,961,917 31,518,151 Other commitments: - of which are unconditionally cancellable 343,262,155 240,797,398 - with an original maturity of under 1 year 127,582,667 46,453,000 643,458,060 548,161,894 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 7,862,290 4,723,838 Later for one year but not later than five years 10,266,895 10,207,308 Later than five years 490,280 1,596,912 18,619,465 16,528,058 24
17 Notes to cash flow statement (a) Reconciliation of profit before taxation to net cash inflow/(outflow) from operations Operating activities Profit before taxation 49,590,022 69,326,579 Adjustments for: - dividend income (126,175) (126,175) - written-down of property and equipment upon disposal 10 1 Depreciation 3,733,281 2,053,203 Charge for provision for advances 3,057,522 3,983,516 Advances to customers written-off net of recoveries (72,767) (295,086) (Increase)/decrease in operating assets 56,181,893 74,942,038 ----------------- ----------------- Balances and placements with banks and central banks with original maturity over three months 5,542,905 (41,672,370) Gross advances to customers (327,088,838) (412,524,597) Positive fair value of derivative financial instruments (210,138,013) (49,942,426) Prepayments and other assets 23,495,153 2,612,164 Increase/(decrease) in operating liabilities (508,188,793) (501,527,229) ----------------- ----------------- Deposits and balances of banks with original maturity over three months (28,545,580) (9,031,440) Deposits from customers 315,146,793 205,155,567 Negative fair value of derivative financial instruments 250,651,166 88,648,366 Other liabilities (13,522,981) 5,287,891 523,729,398 290,060,384 ----------------- ----------------- Net cash inflow/(outflow) from operations 71,722,498 (136,524,807) ========== ========== 25
17 Notes to cash flow statement (continued) (b) Reconciliation of cash and cash equivalents with the balance sheet Cash and balances with banks and central banks 883,275,450 1,436,102,170 Placements with banks maturing between one and twelve months 252,216,774 120,655,955 Investment securities 745,932,532 112,900,207 Deposits and balances of banks (168,732,477) (32,601,939) Amounts shown in the balance sheet 1,712,692,279 1,637,056,393 Less: Amounts with an original maturity of beyond three months (614,522,287) (76,519,612) Cash and cash equivalents in the cash flow statement 1,098,169,992 1,560,536,781 18 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 7,731,043,647 4,967,055,279 Options purchased 106,799,515 26,575,373 Options written 106,799,515 26,575,373 7,944,642,677 5,020,206,025 26
18 Derivatives (continued) (b) Fair values of derivatives Exchange rate contracts Positive fair Negative fair Positive fair Negative fair value value value value Forwards contracts 319,729,317 457,502,999 110,107,159 207,367,688 Options purchased 515,855 - - - Options written - 515,855 - - 19 Immediate parent and ultimate controlling party 320,245,172 458,018,854 110,107,159 207,367,688 ========= ========= ========= ========= As at 31 December 2008, 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. 27