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Reaching newheights

Annual report 2009

We know, we care

Contents

Internal Control Self-Appraisal Report and Internal Control204 Internal Control Self-Appraisal

Report

208 Assessment Report on Internal Control

Cover story

Why climb the mountain? Because it is there, the mountaineer answers.The pioneering spirit guides the mountaineers to keep blazing the trail and challenging new heights in their pursuit of reaching closer to the sky, the clouds and the sun. Resolute and united, SDB makes unceasing efforts to strive for ever higher levels of excellence.

www.sdb.com.cn Service line: 95501

Stock code: 000001

Shenzhen Development Bank Tower,No. 5047 Shennan Road East,Shenzhen, Guangdong Province, ChinaPostal code: 518001Telephone: +86 (755) 8208 8888

Shen

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Develo

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An

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Shenzhen Development Bank Annual Report 200921 Important Notes

21 Basic Facts of the Company

22 Key Financial Data Highlights

26 Key Business Data Highlights

36 Changes in Share Capital and Shareholders

40 Information on Directors, Supervisors, Senior Management and Staff

48 Corporate Governance at the Bank

50 Introduction on General Shareholders’ Meetings

51 Report of the Board of Directors

69 Report of the Board of Supervisors

71 Important Events

77 Financial Results

203 Written Confirmation of Directors and Senior Management on Annual Report 2009

203 Reference Documents

About SDB01 Financial Highlights

02 Message from the Chairman and the President

04 SDB Officers

Review of SDB Business06 SDB Milestones in 2009

08 Review of SDB Business

- Commercial Business

- Retail Banking

- Inter-bank Business

- Business Exploration and Bank Expansion

- Social Responsibility and Environmental Protection

SHENZHEN DEVELOPMENT BANK

About SDB

Beijing Shanghai Shenzhen

2004.12.31 2009.12.31Times /

change %

Compound average

growth rate

RMB billion, %

Business volume

Total deposit 167 455 2.7 22%

Total loans 126 360 2.9 23%

Capital

Total shareholders’ equity 4.3 20.5 4.8 37%

Capital adequacy ratio 2.3% 8.88% 3.9 –

Credit quality

Non-performing loan ratio 11.41% 0.68% -94% –

Provision coverage ratio 35.5% 161.8% 4.6 –

Special mention loan ratio 8.3% 0.4% -95% –

2004 2009Times /

change %

Compound average

growth rate

RMB billion, %

Profitability

Net profit 0.3 5.0 16.8 76%

Return on average equity 7.4% 26.6% 3.6 –

Earnings per share (Yuan) 0.17 1.62 9.5 66%

Market capitalization

Market cap. based on closing price 9.9 75.7 7.6 50%

Number of staff 6,999 11,308 1.6 –

Following the introduction of a foreign strategic investor in 2004, the Bank has carried out a variety of reforms of its operations and management, leveraging both domestic talents and international experience, to accomplish a successful transformation. This has led to significant achievements in its business and financial profile. The Bank is now well positioned to achieve higher standards and to further pursue excellence.

Shenzhen Development Bank is a national joint stock commercial bank headquartered in Shenzhen, P. R. China. The Bank was established in 1987 and was listed on the Shenzhen Stock Exchange in 1991 (abbreviation: SDB A; stock code: SZSE 000001).

Integrity, Professionalism, Service, & Efficiency are the corporate values of SDB. The Bank provides a broad range of financial services to commercial, retail, and government customers, through 302 outlets in 20 major cities across China.

As of December 31st, 2009, the Bank’s total assets recorded RMB 587.8 billion. Total deposits reached RMB 454.6 billion and total loans were RMB 359.5 billion.

As of December 31st, 2009, the total number of shares was 3,105 million, and the total number of shareholders was approximately 230,000.

1Annual report 2009 Shenzhen Development Bank

Financial Highlights

2009 2008 Change in %

For the year ended 31 DecemberRMB million

Net interest income 12,984 12,598 3%

Net fee & commission income 1,181 851 39%

Pre-provision operating profit 7,734 8,138 -5%

Return on average equity 26.59% 4.32% +2227bps

Net profit 5,031 614 719%

Earnings per share (Yuan) 1.62 0.20 719%

Note: In line with regulatory requirements for small and medium sized banks in the fourth quarter of 2008 to deal with current domestic and overseas financial and economic situations, the Bank made a special provision of 5.6 billion Yuan and write-offs of 9.4 billion Yuan at the end of 2008. The total assets impairment provision for 2008 amounts to 7.3 billion Yuan.

At the year endRMB million

Total shareholders’ equity 20,470 16,401 25%

Total assets 587,811 474,440 24%

Total deposits 454,635 360,514 26%

Total loans 359,517 283,741 27%

Book value per share (Yuan) 6.59 5.28 25%

Key ratiosRMB million

Non-performing loan ratio 0.68% 0.68% –

Core capital adequacy ratio 5.52% 5.27% +25bps

Capital adequacy ratio 8.88% 8.58% +30bps

Provision sufficiency ratio 359.24% 364.65% -541bps

Provision coverage ratio 161.84% 105.14% +5670bps

2

Message from the Chairman and the President

Dear Shareholders,

Looking back on the successful year, on behalf of the Board of

Directors and the management team, we are delighted to share with

you significant achievements Shenzhen Development Bank made in

2009. In a year full of economic uncertainties and needs to adapt to

new circumstances, we are pleased to report that the Bank attained

new heights with very strong financial and business accomplishments

as well as further improved credit quality from an extremely clean

balance sheet from last year end, and continued progress in a

number of important areas.

Particular challenges of the year included intense pressure on

banks’ interest spread due to several rates cuts from PBC at end

2008, very rapid lending growth in the Chinese banking industry,

uncertainties in the economy that elevated the difficulty in

maintaining good performance in new credit and collection, and

new policy requirements that banks needed to adopt promptly.

SDB demonstrated great determination, good execution, strong

adaptability, and achieved net profit of 5,031 million Yuan. This

figure was up over 700% up from a year ago when the Bank made

the one-off special large provisions and write-off, but was also by

far the most profitable of any year for the Bank, and represented

strong results by many measures. This was the result of solid growth

in deposits, loans, and fee income, together with conscious balance

sheet management, profitable inter-bank investment, in conjunction

with credit provisions returning to a more normal level from last

year. The Bank took several initiatives to mitigate the negative impact

from rate cuts. Throughout 2009, the Bank continuously invested

in building strength in Supply Chain Finance, SMEs, and retail

business, and the Bank achieved good but not excessive growth in

general loans. 2009 witnessed an important milestone in SDB outlet

expansion endeavor, as the Bank opened the first full branch –

Wuhan in central China – in 6 years.

Credit quality improved further starting from an already very clean

balance sheet from end 2008. In 2009, the Bank continued to

adhere to high credit standards in making new loans, while achieving

very strong results in collections. At end 2009, the NPL ratio was

maintained at 0.68%, and Special Mention Loan Ratio was further

reduced to an extremely low level at 0.38%, the lowest among all

listed banks in China, and an exceptionally strong set of credit quality

measures in any country. Although provisioning was down to a more

normal level, the Provision Coverage Ratio rose to 162% at end 2009.

Despite rapid asset growth, the Capital Adequacy Ratio (“CAR”)

of the Bank maintained largely stable at 8.88% at end 2009,

partly since the Bank issued 1.5 bn Yuan Hybrid Tier 2 Bonds. The

Bank is still in the process of obtaining approvals for the issuance

of new shares privately to Ping An; upon completion, that step

will significantly improve the capital base. Meanwhile, the Bank

continued programs for maintaining CAR through both profit

generation and focused management of risk weighted assets.

Substantial progress was achieved in executing business strategies

with focus on efficiency and customer service, enhancing

infrastructure including IT, operations, further improving overall

Frank N. Newman

Chairman (CEO)


risk management including internal control and compliance, and

stepping up in management processes including Human Resources

and internal approval procedures. The special efforts the Bank put

into these series of initiatives have made the Bank better prepared for

next steps of progress.

In the meantime, the Bank maintained its key principles of integrity,

professionalism, customer service, and efficiency, cultivating a strong

atmosphere internally. The Bank endeavors to keep developing

excellence, to build our competitive edges in key business areas.

A key goal is to position as an excellent bank with innovative

approaches, caring attitude, and efficient operations, that can help

customers with today’s needs and help them be well prepared for

the future.

In 2009, SDB carries forward the best practice of corporate

governance. Directors and supervisors diligently and productively

performed their duties and contributed great values to the Bank.

Guiding and motivating the Bank towards next level of excellence

is a constant objective of the Board of Directors and the Bank has

benefited and will continue to benefit greatly from the experience

and wisdom of its highly qualified directors. The Board of Supervisors

also continued to perform diligent contributions. Special regards are

given to Mr Kang Dian, who has moved on to new responsibilities

and has submitted his resignation as Chairman of Board of

Supervisors, for his years of good service for the Bank.

The guidance from regulatory authorities was also essential for the

Bank to achieve what it has, over the past few years and in 2009.

As a responsible corporate citizen, SDB continued its commitments

to social responsibilities. The Bank sponsored a special South

Pole Exhibition in China, to promote public awareness about the

environment; the Bank initiated the “SDB Love Schooling Project”

and after fiscal donation, organizing a number of volunteers that had

brought both useful knowledge and tremendous love and care to the

children at the earthquake striken area; It also advocated eco-friendly

working environments across the Bank. The Bank is determined to

continue to be a responsible corporate citizen, creating greater value

for shareholders, customers, the economy, society, and employees.

Looking ahead, we understand that 2010 and future years will

present challenges. Yet we have great confidence, based on

spectacular spirits of being innovative, responsive, and adaptable

that SDB people practice daily, and are key to usher in a brighter

tomorrow. In 2010, the Bank will focus on specialized areas and

carry forward with expertise and strength, nurture innovations to

explore in new areas improve operations, keep high standards in

credit management, enhance operation efficiency and accuracy,

further raise customer service to a new level, implement more

sophisticated training to help employees to grow, and continue high

professionalism in all areas.

On this occasion of sharing reports of progress, we would like extend

our sincere thanks to shareholders for your trust and confidence. We

are happy about progress the Bank has made in the past and we will

continue strong efforts towards further success.

Xiao Suining

President and Director

4

SDB Officers

Frank N. NewmanChairman (CEO)

Xiao SuiningPresident and Director

Wang JiParty Secretary, Special Advisor

Hu YuefeiVice President and Director, Head of Corporate Banking

Liu BaoruiVice President and Director, Head of Retail Banking

Zhao NaChief Human Resources Officer

Wang BominChief Financial Officer

Simon LeeChief Credit Officer


He ZhijiangChief Treasury Officer

Chen RongChief Operation Officer

Zhang YuanliangChief Information Officer

Xu JinBoard Secretary, Chief Legal Officer

Zhou LiAssistant President, Shenzhen Branch Manager

Huang ShouyanAssistant President

Zhao WenjieChief Internal Control Officer

Qiu WeipingAssistant President, Shanghai Branch Manager

6

SDB Milestones in 2009

JanuarySDB launched its first eco-friendly theme

card – SDB Green card. Later in the year,

the Bank introduced to the market a

series of cards with themes such as cars,

convenience, houses and fashion.

A platinum card, which aims at the high

end of the market, was also launched,

allowing customers to select additional

value added services, the first card to do

so in China.

SDB won the “Best Bank in Risk

Management Award” in the second

“China Institutional Investors Annual

Forum cum China’s Wealth Management

Hall of Fame”.

FebruarySDB’s annual conference 2009 was

held with the theme of “Adaptability,

Innovation, Team Work, Excellence”.

Individuals and teams with outstanding

performance received awards at the

meeting for their special contributions.

MaySDB issued RMB1.5 billion Hybrid Tier 2

bonds to further consolidate its capital

base, supplement tier 2 capital, and

improve the Capital Adequacy Ratio (CAR).

JuneSDB and Ping An Life Insurance Company

of China, Ltd (PAL) signed a Share

Subscription Agreement to issue designated

new shares to PAL for the Bank to raise

up to RMB 10.68 billion. NewBridge Asia

AIV III, L.P. and Ping An Insurance (Group)

Company of China, Ltd. also entered into

a Share Transfer Agreement. The two deals

are subject to regulatory approvals.

A Small Business Unit was established in

order to improve SDB’s financial services for

small and medium sized enterprises.

The Bank’s upgraded e-banking was

implemented. This will enable the Bank to

better compete for customers, strengthen

marketing and bring customer services to a

higher level.

JulyThe Bank held a special event for three new

factoring products. These new services aim to

provide a more tailor-made service to Supply

Chain Finance customers and help them

with better management and more efficient

turnover of account receivables.

March“SDB Bank Manager Forum on Compliance

and Development (2009-2010),” was

launched to further promote the concepts

of “Compliance starts with management”

and “Compliance creates value”. This

is a further step in consolidating the

compliance culture within the Bank.

AprilThe Strategic Cooperation Agreement

Signing Ceremony between SDB and the

Chongqing municipal government was

held, demonstrating the signing parties’

strong desire to cooperate in working

towards a win-win situation.

SDB and Tianjin Port (Group) Co., Ltd.

entered into a strategic cooperation

agreement.


OctoberThe SDB electronic bill system (2nd Phase)

started online operation and connected to

the national bill system. SDB also

became the first bank in China to process

inter-bank discounted bills.

NovemberThe Bank organized the “Forum on

Custody Business”. After more than one

year of development, the asset custody

business now offers a wider range of

products and achieved its first target of

RMB 10 billion of assets under custody.

August“SDB Inter-bank Cooperation Forum 2009”

was held. Senior management from over 20

local commercial banks across the country

attended to discuss co-operation strategies.

SeptemberThe reconstruction of Dujiangyan Yutang

primary school was completed and the

school was ready to use. This school was

destroyed in the Sichuan earthquake

in 2008, and SDB sponsored the

reconstruction. The Bank also started the

“SDB Love schooling project” during which

the “Top 10 Outstanding Youths” award

ceremony was held.

In the “Election of the Best Board of

Directors from Listed Companies in China

2009”, SDB notched up the “Board of

Directors with the Best Strategic Decisions

Award” and the “Board of Directors

with the Most Outstanding Social

Responsibility Award”.

DecemberSDB Wuhan Branch commenced operation.

A “Salute to the Future” orchestral concert

to support environmental protection was

held.

In the 2nd “Most Respected Bank

Election” and the 3rd “China’s Best Wealth

Management Products Competition”, SDB

won 6 awards altogether including the

“Most Respectable Bank in China 2009”

and the “Best Retail Bank 2009”.

8

Successful 2009

ManageRisk

ImproveCapital

AttainStrong Profit

Invest inthe Future

AchieveExcellence

Review of SDB Business

Despite the uncertainties and complexity of the business environment, SDB carried forward the spirit of professionalism and pursuit of excellence, made sound judgments based on the particular circumstances, adjusted strategies appropriately, took prompt action, and successfully overcame the challenges to deliver good results.

8


Manage Risk

• SDB has always insisted on prudent credit management. In 2009, this has enabled the Bank

to realize rapid and steady credit growth with effective control over non-performing loans

(NPLs) and the NPL ratio. This has allowed us to maintain a stable asset quality and further

improve the provision coverage ratio.

• Major improvements were made in credit management system in relation to investigation,

approval, disbursement and post-loan management.

• The Bank’s professional collection team has enabled SDB to make NPL collections and

disposals in a professional and centralized way. The team becomes involved in safeguarding

assets and reducing potential risks at an early stage, and has achieved very satisfactory

collection results.

• The Bank has further improved the organization and management of its internal audit

function, and streamlined audit rules and regulations. During the year, the Bank completed

the audit of various projects covering all branches. Off-site and IT audits were also conducted.

• More than 2,000 people participated in the Woodpecker Project, in which employees at all

levels submitted suggestions for improvements in internal controls at the Bank. Relevant

measures were taken to eliminate potential risks. Compliance and anti-money laundering

efforts gained high levels of recognition from the regulatory authorities.

Improve Capital

• The Bank and Ping An Life Insurance Company of China, Ltd (PAL) entered into a share

subscription agreement which would provide up to RMB 10.7 billion of core capital for the

Bank. Upon completion, the deal will also bring potential business opportunities for SDB.

• Through a combination of strong earnings, issuance of hybrid tier-2 capital, and effective

control of risk weighted assets, the Bank has maintained a stable CAR in advance of the PAL

capital injection.

10 Review of SDB Business10

Elite management and excellent teamwork


Attain Strong Profit

• In 2009, the Bank operated in a challenging market with uncertainties in the economic

environment together with pressure on interest spreads resulting from multiple rate cuts by

the People’s Bank of China, beginning in late 2008.

• The Bank effectively managed the interest spread and further improved fundamental

profitability. Using various measures, the Bank successfully managed its balance sheet, funding

cost and asset yield, contributing to a slower contraction of interest margin.

• Deposits, loans and fee income all recorded healthy growth. The Bank continued to invest in

Supply Chain Finance, SMEs and retail banking, moves designed to reinforce its competitive

edge in these major business areas.

• The Bank also made continuous improvements in credit management and asset quality, while

credit provisioning returned to a more normal level. Strong collections also made important

contributions to the asset quality and profitability of the Bank.

• With a stable interest spread, growing asset base, increasing fee income and stable asset

quality, the Bank’s fundamental profitability was further enhanced.

Invest in the Future

• To build the Bank as a provider of first rate services, SDB made efforts to optimize

operational processes in order to improve efficiency and enhance internal control. The

Bank established a vertical management structure in its operations, introduced service level

agreements, completed multiple process re-engineering initiatives, improved systems and

policies in key areas and major businesses, and built out its operational risk control system.

• The Bank made improvements in the stability and processing efficiency of its IT systems

and IT has served as a strong pillar for business development. The Bank also upgraded the

system’s operations and management, and completed development of a large number of IT

applications. The Bank’s online business recorded significant growth. Work progressed on a

new data processing center.

• The financial and accounting systems were improved. The integrated accounting system was

put into place to serve as a reliable data source to support good decision making.

• Budget management continued to be implemented throughout SDB and proper expense

management was maintained.

12 Review of SDB Business12

Inventive thinking and far-reaching vision


Achieve Excellence

• The Bank initiated the retail banking strategic project “Project Leapfrog” and also

strengthened the basic settlement platform, while striving to keep its advantages in

innovative retail lending and wealth management.

• The Bank implemented a branch performance improvement project to clarify and improve

decision making processes at the branch level and improve business efficiency.

• The Bank also conducted the Job Evaluation Program, strengthened team morale, reformed

the position management and performance evaluation system, and focused on attracting

and retaining key people while improving training.

• The Excellence Program was implemented at head office to streamline roles and

responsibilities and support the follow up on improvements to key processes.

• In 2009, the Bank embarked on a brand strategy project to establish a more consistent and

stronger brand communication standard.


Commercial Business

Continuous innovation and sophisticated management

In 2009, the Bank witnessed rapid growth in corporate deposits, general loans, trade finance and discounted bills. Fresh ground has also been made in customer relationships, product innovation and brand building.

Achieved sound and stable growth in loans & deposits, further refined pricing managementCorporate loans achieved fast and healthy growth, supporting the country’s infrastructure development, industrial transformation and stimulating domestic demand, while expanding the Bank’s customer base and consolidating profitability. The Bank made continuous yet prudent efforts to grow loans and deposits.

Through a more detailed management of the business and of pricing, the Bank managed to alleviate the impact of tighter loan-to-deposit spreads on the Bank’s net interest margins and income, stabilizing interest margins.

Set up professional industry focused marketing teams at Head Office to take the lead in Supply Chain businessGreater weight has been given to head office-led marketing programs and a matrix structure has been established to balance between expanding in various industries and focusing on key leading businesses. A series of marketing activities was launched during the year.

Remarkable achievements have been made in professional marketing model of “1+ N” in key industries. The Bank set up head office to head office ties with leading companies in 87 industries. Trade finance experienced robust growth again. The Bank’s international and off-shore banking businesses outperformed the competition.

Identified strategic customers & high potential SMEs to apply differentiated serviceThe Bank gave more support to the growth of high contributing and growing customers, identifying the first batches of 196 strategic customers and 166 high potential SMEs.


Enhanced innovation & facilitated online Supply Chain FinanceThe Trade Finance business model saw further innovation. The Bank obtained a license to provide facilities outside Mainland China backed by domestic guarantees. Innovative factoring products were launched, which further enriched the Bank’s trade finance product range and improved service capacity.

A significant number of key systems were developed and put in place, including: automobile supply chain, electronic bills, transaction fund monitoring, legal person account overdraft, “Bank-customs House Guarantee”, data interface standard of the “Direct Connection with the Bank’s Logistics”, and unified SDB product code. Businesses including transaction fund monitoring developed well.

Carried out management of product sales and promoted sale of new productsThe promotion campaign “Smart Account” was conducted. Electronic bills, transaction fund monitoring and corporate third custody business were among the first promotion programs to exceed targets.

The second stage of the electronic bill system was implemented and connected with national electronic bill system. The Bank joined ICBC in handling the first electronic bill business and won a series of top awards.

Published book on Supply Chain Finance which enhanced the reputation and image of the Bank’s Supply Chain FinanceThe Bank co-authored the book “Supply Chain Finance” with the China Europe International Business School. Supply Chain Finance products also received over 10 awards and enjoyed high public recognition. “Supply Chain Finance” was written by SDB and has been used in similar publications, such as “SME Supply Chain Finance” and “Best Business Model”.

General Commercial Loans

RMB million

2007 2008

214,536

2009

+56%137,781

165,773

Commercial Deposits

RMB million

2007 2008

383,663

2009

+60%240,371

302,309

Ending Balance of Trade Finance

%

6%6%

31%

21%

36%

Southwest International trade finance

South ChinaNorth China

East China

Ending balance of trade finance up to 122.6 billion

+41%

Number of trade finance customers up to 5,738

+31%


Retail Business

The Bank further defined its five year strategic goals and strategies for retail banking in 2009 after analyzing the development of its retail business during the past five years. During 2009, the Leapfrog Program was initiated and a number of strategic initiatives, as well as infrastructure building, were accomplished which showed concrete results.

Proceeded with strategic retail project based on Leapfrog Program The Bank’s strategic retail project based on the Leapfrog Program has been initiated. It specifies five-year strategic goals and strategies for the retail business: aim at affluent and high net worth customers; endeavor to become their primary bank or secondary bank; and expand this valuable customer group in a fast but prudent manner.

成為目標客户主辦行

成為目標客户主辦行

擴大价值客户群

擴大价值客户群

加快优化建设银行卡等基礎平台

加快优化建设银行卡等基礎平台

獨具特色交叉營銷

獨具特色交叉營銷

迅速崛起的富裕和大众富裕客户

圍繞產品、服务、方便打造核心競争力

圍繞產品、服务、方便打造核心競争力

迅速崛起的富裕和大众富裕客户

Mass affluent and affluent customers

growing fast

Developing featured cross-selling initiatives

Speeding up in building a better platform for the bank card

Expanding high net-worthcustomers’ base

Becoming the primary bank of our targeted customers

Incresasing our competitive edge by strengthening “Products, Service, Convenience”

The Bank carried out a retail strategy project and accomplished rapid business growth


Important initiatives of Leapfrog Program Phase I were accomplished, with the focus on “Product, Service, Convenience”. Phase II of the Leapfrog Program kicked off. Good achievements have been made with a pilot scheme for frontline business modeling, which brought significant improvements to retail banking.

Built up customer segmentation and cross-selling system, improved customer experience and sales capacityA development plan focusing on the growth of valuable customers has been promoted. Customer segment standards were streamlined and upgraded under which customer value positioning as well as customer privileges were specified. A comprehensive retail customer identification system was formulated.

Cross-selling indicators continued to improve, with more effort being placed on cross-selling system building. The total assets of valuable customers have been increasing steadily and the proportion of high and middle end customers has constantly improved.

Retail business sectors maintained steady growth• The Bank improved and enhanced the settlement platform focusing on the debit card

business, maintaining a competitive edge in the fields of personal loans and wealth management. The Bank introduced a brand new development card system, point mortgage product, E borrow easy repay, and E card lending, which created new growth avenues for mortgages, debit cards and credit cards.

• The retail loan balance grew 32% in 2009 year on year. Driven by active real estate market, mortgages saw the fastest growth.

• Credit card business improved substantially. Significant progress has been made in operational efficiency, as well as cost and expense control. An important transformation was achieved. The Bank is committed to professional management in relation to customer service, focusing on “product, risk, asset portfolio, sales channel optimization and operational efficiency”. Environmentalism, fashion and health have been established as core values for the credit card business.

• Wealth management and fee business recorded sound growth. The trust business has been developing rapidly and in a healthy manner, covering dozens of custody products ranging from funds, securities, trusts and private equity to wealth management products.

• Auto loans made significant progress in terms of profit, loan and deposit growth, fee income, retail customer numbers and the number of partners.

Effectively maintained asset quality of the retail businessThe Bank strengthened research on the economy and property market, reengineered management procedures, improved collection systems, enhanced management of the reliability of credit investigations and appraisals and carried out audits on the authenticity of property ownership certificates. The NPL ratio of personal loans stabilized, with a slight decrease year on year, and asset quality was maintained.

More effort was placed on risk management at the credit card operation. Approval strategies and information verification methods were improved. Approval procedures were optimized and the capacity for early warning of possible risk was enhanced. The Bank also improved its collection strategy, stepped up anti-fraud efforts, and developed and promoted the implementation of safe credit limits, making SDB the pioneer in this field in China.

Service and products well recognized and brand image was further boostedIn 2009, the Bank won over 40 prizes or awards including “The Best Retail Bank in China” and “the Best Wealth Management Banking Brand” awarded by authoritative market research houses and the media.

Retail Loans

RMB million

+54%

2007 2008

63,543

73,906

97,638

2009

Retail Deposit

RMB million

2007 2008

70,972

2009

40,906

58,205

+73.5%

0

10000

20000

30000

40000

50000

60000

70000

80000

Total sales of wealth management products increased by year on year

+64%


Inter-bank Business

The Bank’s inter-bank business fast and solid growth in 2009 guided by the strategy of building out the inter-bank product range, facilitating business and management innovation, improving the balance sheet structure and aiming at high quality growth.

Improved bond portfolio gainsThe Bank realized improved bond gains by leveraging market opportunities and engaging in flexible market operations, subject to the Bank’s risk control and overall liquidity.

Realized high quality and ongoing growth of inter-bank assetsThe Bank laid a solid foundation for the ongoing and high quality growth of inter-bank assets by enhancing liquidity management, gap management and applying liquidity sensitivity analysis and stress tests.

Developed marketing channels with peers and continuously expanded business scopeThe Bank strengthened communication and cooperation with its peers, carrying out in-depth cooperation in wealth management and inter-bank funding and promoting bank to bank co-operation generally. Headway was made in expanding inter-bank marketing channels. The Bank reached agreement with more than 40 securities firms on third party custody business and entered into strategic co-operation initiatives with many financial institutions.

The Bank obtained licenses for inter-bank FX market maker operations, electronic treasury bond agency, gold warehousing business, exchange traded bonds and other activities. This has laid the foundation for the long term development of inter-bank business.

Strengthened product innovation and enriched inter-bank product supplyForeign currency trade recorded steady growth.

The Bank launched the “Ritianli” cash management product to expand its wealth management product range.

A precious metals T+D business for retail customers was introduced to enrich the Bank’s precious metals product offering.

Robustly developed debt financing tool businessUnderwriting of debt financing tools became new profit contributor for the Bank. It was also conducive to deepening the co-operation between the Bank and industrial enterprises. This was achieved through in-depth cooperation between Head Office and branches.

Innovated in management and expanded risk coverageWith more emphasis on credit risk management, the Bank reinforced its management in the areas of market risk and risk compliance. An RMB liquidity management platform was introduced which allows an all-dimension and all-maturity cash flow management of the Bank’s inter-bank RMB business. Greater efficiency and improved accuracy were achieved in relation to liquidity control and approvals.

Expanded inter-bank business products and improved inter-bank asset liability structure


Business Exploration and Bank Expansion

The Bank enhanced its financial services for SMEs, something which is not only important to the healthy and prudent development of the national economy but also a priority for SDB’s transformation of its operations.

SDB is committed to pioneering the improvement of the financing practice of SMEs and to supporting their business development. In June 2009, the Bank set up a special Small Business Unit , with sub units in local branches. These provide a more professional, in-depth and efficient service for SME financing needs.

Developing SME business is full of challenges but also offers opportunities. The Bank adhered to the principle of risk control and economic returns, fully leveraging existing resources and experience in its branches, in order to boost the development of its Small Business Unit.

The new developments of Wuhan CityWuhan City lies in the middle of China. It is the provincial capital of Hubei Province and a political, economic and cultural center. The Yangtze River, the third-longest in the world, and the Han River, a branch of the Yangtze River, merge at the site of this metropolis. As the city is also the largest one in central China, it is a key national industrial base, scientific education base and transportation hub. It has long been the commercial and financial center of the middle reaches of the Yangtze River.

In early 2009, SDB received approval to set up a branch in Wuhan and the SDB Wuhan Branch commenced operation in December 2009.

Wuhan Branch is one of numerous milestones in the continuous pursuit of excellence by SDB. Like other SDB branches, the Wuhan Branch will provide high quality, innovative and efficient services and products which create value for customers and create value, thus making important contributions to the Bank.

Opened new arena and expanded service for SMEs


Social Responsibility and Environmental Protection

Social responsibility is an inherent duty of each corporate citizen and key to long term success

The Bank is committed to environmental protection, and reducing energy consumption and emissions. The Bank has been continuously supporting the sustainable development of society, helping people in need and contributing to charitable works.

China (SDB) 1st Polar Science and Cultural ExhibitionThe year 2009 was the Promotion Year of the International Polar year – Public Advocating Year. It also celebrated the 25th anniversary of China’s first expedition to the South Pole. On February 27th, the China (SDB) 1st Polar Science and Cultural Exhibition was held in Shenzhen. This was another major eco-friendly initiative by the Bank in performing its social responsibilities following its support to the scientific South Pole expedition. The exhibition attracted more than 100,000 citizens to visit.

Eco-Friendly Office and LifeIn June 2009, SDB launched the “Eco-friendly Office and Life” campaign. It encouraged using simple methods to save energy and reduce emissions in the office environment. By promoting the use of video conferences, energy-saving products, paperless office and

online banking services, together with the launch of the “Great Ideas for Office Energy Saving Competition”, SDB succeeded in advocating environmental protection concepts and highlighting its image as a “green service provider”.

“SDB Love Schooling Project” – let love flourishIn order to help children in earthquake-stricken areas rebuild their life and confidence, SDB donated funds to rebuild the Dujiangyan Yutang Primary School, and recruited volunteers to support education by launching the “SDB Love schooling project” on May 12th, 2009.

Over 600 people across the country applied for the charity work and candidates were selected through review and assessment. Correspondents from 14 media went to Kangding area to help primary school students in mountain areas.

On September 3rd, 2009, upon the completion of the SDB Dujiangyan primary school campus, 15 outstanding volunteers, who were carefully selected and trained in child psychology and education, started their 2-week schooling campaign in the school.

“SDB Love Schooling Project” and related charity activities helped children enrich their vision, know more about the world and bring passion to life through specific schooling activities. In addition, nationwide recruitment of volunteer teachers greatly supported educational undertakings in disaster stricken areas and raised public awareness of the earthquake-hit areas.


Legal Name深圳发展银行股份有限公司(SDB or the Bank) Shenzhen Development Bank Co., Ltd.

Legal RepresentativeMr Frank N. Newman

Secretary of the Board of DirectorsMr Xu Jin

Representative of Securities AffairsMr Lv Xuguang

Address: SDB Tower, 5047 Shennan Road East, Shenzhen City, Guangdong Province, China Board Office, Shenzhen Development Bank Tel.: +86 (755) 8208 0387 Fax: +86 (755) 8208 0386 Email address: [email protected]

Registered AddressShenzhen Development Bank Tower, No. 5047 Shennan Road East, Shenzhen, Guangdong Province, China Post code: 518001 Website: www.sdb.com.cn Email address: [email protected]

Periodicals Selected by the Bank for Information DisclosureChina Securities Journal, Securities Times and Shanghai Securities Annual Report Posting Website designated by China Securities Regulatory Commission: www.cninfo.com.cn Place for keeping annual reports of the Bank: Secretariat of the Board of Directors of the Bank

Stock Exchange with which the Shares of the Bank are ListedShenzhen Stock Exchange Abbreviated name of share: SDB A Stock code: 000001

Additional Related Information of the BankDate of initial registration: 22 December 1987 The latest date of change of registration: 22 January 2010

Registered address: 5047 Shennan Road East, Luohu District, Shenzhen City

Business Registration No: 440301103098545

Tax registration numbers: National tax: 440300192185379; local tax: 440300192185379

Domestic accounting firm appointed by the Bank: Ernst & Young Hua Ming Accounting Firm 16/F, E&Y Tower, 1 Chang’an Street, Dongcheng District, Beijing

Overseas accounting firm appointed by the Bank: Ernst & Young Accounting Firm 18/F, Two IFC, 8 Finance St., Central, Hong Kong

This Report is prepared both in Chinese and English. In the event of any dispute over the two versions, the Chinese version shall prevail.

Important NotesThe Board of Directors, Board of Supervisors, Directors, Supervisors and senior management of SDB provide guarantees that this report does not contain any false documentation, misleading representation or material omission and jointly and severally accept responsibility for the authenticity, accuracy and completeness of the content of this report.

The complete version of SDB’s 2009 Annual Report, together with its abstract, was reviewed at the 21st Meeting of the Bank’s 7th Board of Directors. 14 Directors attended this board meeting, and unanimous consent was reached. Mr Robert T. Barnum, a director of the Bank, was absent and has appointed Mr Michael O’Hanlon as his proxy to exercise his voting power.

Each of Ernst & Young Hua Ming and Ernst & Young Accounting Firm has audited the Bank’s 2009 financial and accounting reports in accordance with the auditing standards of the People’s Republic of China and the international auditing standards, and each of them has issued their own auditor’s report with unqualified opinion.

Messrs Frank N. Newman (the Bank’s Chairman and Chief Executive Officer), Xiao Suining (President), Wang Bomin (Chief Financial Officer) and Li Weiquan (Head of the Accounting Department) guarantee the authenticity and completeness of the financial report contained in the 2009 Annual Report.

Basic Facts of the Company

22

A Key Financial Data and Indicators

1 Operating result

Changes fromIn RMB’000 Jan–Dec 2009 Jan–Dec 2008 Jan–Dec 2007 last year (%)

Operating income 15,114,440 14,513,119 10,807,502 4.14

Operating profit before provision 7,734,215 8,137,588 5,775,701 -4.96

Assets impairment provision 1,575,088 7,334,162 2,053,759 -78.52

Operating profit 6,159,127 803,426 3,721,942 666.61

Total profit before tax 6,190,537 792,609 3,771,775 681.03

Net profit attributed to shareholders of listed company 5,030,729 614,035 2,649,903 719.29

Net profit less non-recurring gains/losses attributed to shareholders of listed company 4,939,571 623,941 2,576,586 691.67

Per share:Basic EPS (Yuan) 1.62 0.20 0.97 719.29

Diluted EPS (Yuan) 1.62 0.20 0.95 719.29

Basic EPS less non-recurring gains/losses (Yuan) 1.59 0.20 0.95 691.67

Cash flow:Net cash flows from operating activities 32,193,611 24,342,611 17,051,576 32.25

Net cash flows from operating activities per share (Yuan) 10.37 7.84 7.44 32.25

Items and amount of non-recurring gains/losses

Items of non-recurring gains/losses

In RMB’000 Amount

Gains/Losses on disposal of non-current assets (fixed assets, repossessed assets, gain/loss on disposal of long-term equity investment) 53,478

Gains/Losses from contingency (provisions for contingent liabilities) 3,508

Changes on fair value of investment properties 47,858

Other non-operating income and expenses except the above items 7,337

Impact of income tax (21,023 )

Total 91,158

2 Profitability indicators

Changes from last year endin % Jan–Dec 2009 Jan–Dec 2008 Jan–Dec 2007 (Percentage point)

Return on total assets 0.86 0.13 0.75 0.73

Average return on total assets 0.95 0.15 0.86 0.8

Return on equity (fully diluted) 24.58 3.74 20.37 20.84

Return on equity (fully diluted, less non-recurring gains/losses) 24.13 3.80 19.81 20.33

Return on weighted average equity 26.59 4.32 33.41 22.27

Return on weighted average equity (less non-recurring gains/losses) 26.11 4.39 32.49 21.72

Cost to income ratio 41.76 35.99 38.93 5.77

Credit cost 0.49 2.84 0.95 -2.35

Net interest spread 2.41 2.90 2.99 -0.49

Net interest margin 2.47 3.02 3.10 -0.55

Notes: Credit cost = credit provision / average loan balance (including bills) of the period

Net interest spread = interest-earning asset yield – interest-bearing liability cost

Net interest margin = net interest income / average interest-earning asset balance

Due to change in accounting for bills, the basis of calculation of NIM was varied from that of last year. The NIM in 2008 as shown in the above table has been adjusted in line with new calculation method. Detail can be referred to the Report of the Board of Directors, “daily average balance of major assets and liabilities, and daily average yield or daily average cost”.

Key Financial Data Highlights


3 Size indicators

31 December 31 December 31 December Changes fromIn RMB’000 2009 2008 2007 last year end (%)

Total assets 587,811,034 474,440,173 352,539,361 23.90

Including: financial assets measured at fair value through profit or loss and derivative financial assets 1,232,044 332,192 1,769,441 270.88

Held-to-Maturity investment 34,585,440 15,584,755 15,911,486 121.92

Loans and receivables 454,274,577 363,900,753 270,791,277 24.83

Available-for-sale financial assets 36,998,409 48,799,716 17,850,892 -24.18

Others 60,720,564 45,822,757 46,216,265 32.51

Total liabilities 567,341,425 458,039,383 339,533,298 23.86

Including: financial liabilities measured at fair value through profit or loss and derivative financial liabilities 21,540 98,018 1,501,830 -78.02

Inter-bank borrowing 7,570,118 7,380,000 2,300,000 2.58

Deposits 454,635,208 360,514,036 281,276,981 26.11

Others 105,114,559 90,047,329 54,454,487 16.73

Shareholders’ equity 20,469,609 16,400,790 13,006,063 24.81

Net asset per share attributed to shareholders of listed company (Yuan) 6.59 5.28 5.67 24.81

Total deposits 454,635,208 360,514,036 281,276,981 26.11

Including: Corporate deposits 383,663,003 302,309,165 240,370,951 26.91

Retail deposits 70,972,205 58,204,871 40,906,030 21.94

Total loans 359,517,413 283,741,366 221,035,529 26.71

Including: Corporate loans 261,879,271 209,835,181 157,492,816 24.80

General corporate loans 216,593,743 167,617,360 149,712,815 29.22

Discounted bills 45,285,528 42,217,821 7,780,001 7.27

Retail loans 97,638,142 73,906,185 63,542,713 32.11

Loan impairment provision (3,954,868 ) (2,026,679 ) (6,023,964 ) 95.14

Net loans and advances 355,562,545 281,714,687 215,011,565 26.21

4 Assets quality indicators


Normal 355,717,413 278,119,642 206,550,728 28

Special Mention 1,356,328 3,694,118 2,009,464 -63

Non-performing loans 2,443,672 1,927,606 12,475,337 27

Including: Substandard 1,473,979 1,927,606 7,369,919 -24

Doubtful 528,832 – 4,505,610 –

Loss 440,861 – 599,808 –

Loans impairment provision 3,954,868 2,026,679 6,023,964 95

NPL ratio 0.68% 0.68% 5.64% –

Provision coverage ratio 161.84% 105.14% 48.28% +56.7 percentage points

Provision adequacy ratio 359.24% 364.65% 127.20% -5.41 percentage points

Note: Provision adequacy ratio = actual provision / required provision

Including: required provision = Special mention*2%+substandard*25%+doubtful*50%+loss*100% (in line with Banking Loan Loss Provisioning Guidelines)

Key Financial Data Highlights24

5 Capital adequacy indicators


Net capital 31,905,240 23,959,430 12,691,876 33.16

Including: net core capital 19,854,282 14,710,153 12,692,620 34.97

supplementary capital 12,372,093 9,577,523 112,317 29.18

Net risk-weighted assets 359,508,049 279,112,744 220,056,277 28.80

Capital adequacy ratio 8.88% 8.58% 5.77% +0.3 percentage points

Core capital adequacy ratio 5.52% 5.27% 5.77% +0.25 percentage points

6 Items measured at fair value

Gains/losses Accumulative on fair value fair value Impairment Opening Ending changes during changes recognised provision duringIn RMB’000 balance balance the period in equity the period

Assets

Financial assets measured at fair value through profit or loss 41,441 1,132,048 (5 ) – –

Derivative financial assets 290,751 99,996 (133,101 ) – –

Available-for-sale financial assets 48,799,716 36,998,409 – 26,605 –

Investment properties 411,690 523,846 47,858 53,251 –

Total assets 49,543,598 38,754,299 (85,248 ) 79,856 –

Financial liabilities

Financial liabilities measured at fair value through profit or loss 39,420 – 567 – –

Derivative financial liabilities 58,598 21,540 (20,286 ) – –

Total liabilities 98,018 21,540 (19,719 ) – –

7 Changes in shareholders’ equity in the reported period

In RMB’000 Opening balance Increase Decrease Ending balance

Share capital 3,105,434 – – 3,105,434

Capital reserve 7,978,982 – 961,910 7,017,072

Surplus reserve 780,885 503,072 – 1,283,957

General reserve 3,583,296 1,092,980 – 4,676,276

Unappropriated profit 952,193 5,030,729 1,596,052 4,386,870

Including: dividend proposed for distribution – – – –

Total shareholders’ equity 16,400,790 6,626,781 2,557,962 20,469,609


8 Items with over 30% growth in comparative financial statements

ITEMS Percentage of change (%) Cause for change

Cash on hand and due from the Central Bank 36 Increase of required reserve

Precious metals -64 Decrease volume of gold for interest business

Funds loaned to other financial institutions -42 Structural adjustment of inter-bank business

Financial assets at fair value through profit or loss 2632 Increase of trading bonds with small base of last year

Derivative financial assets -66 Maturity of customer derivative product

Accounts receivables 252 Increase of deputy payment business

Held-to-maturity investments 122 Adjustment of investment structure

Receivable 121 Increase of investment for wealth management product

Intangible assets 38 Increase of computer software

Other assets 30 Increase of property

Placements of deposits from other financial institutions 106 Structural adjustment of inter-bank business

Financial liabilities at fair value through profit or loss -100 Maturity of wealth management product

Derivative financial liabilities -63 Maturity of wealth management product

Repurchased agreements -65 Structural adjustment of inter-bank business

Employee benefits payable 35 Increase of staff and payable performance-related bonus

Tax payables -46 Tax rebate for write-off

Accounts payables 68 Volume growth of deputy payment business

Provisions for contingent liabilities -87 Payment of provisions

Deferred tax liabilities -72 Decreased gains on fair value change of available-for-sale assets due to market factors that led to decreased liabilities of deferred income tax

Other liabilities 121 Increase of bonds payable

Interest expense -35 Capital gain reclassification following change of discounted bills computation method and decrease of interest rate

Investment income 38 Increase of capital gain on selling AFS bonds

Gains from changes in fair values of financial instruments -161 Fair value decrease of interest rate swap led by increasing expectation of rate hike

Gains from changes in fair values of investment properties -417 Fair value increase due to market fluctuations

Exchange gain -48 Decrease of transaction volume, less interest rate fluctuation compared with 2008

Impairment losses on assets -79 Higher comparative figure due to massive provision in 2008

Non-operating expenses -61 Higher comparative figure due to donation for Sichuan earthquake in 2008

Income tax expenses 549 Lower comparative figure due to net profit decline in 2008

26

A Financial Indices for Three Years up to the End of Reported Period

INDICES Data of the bank

31 December 2009 31 December 2008 31 December 2007

Index Monthly Monthly Monthly in % standard Year-end average Year-end average Year-end average

Liquidity ratio RMB ≥25 38.59 27.81 41.50 41.90 39.33 41.85

Foreign currency ≥25 54.02 52.69 49.68 60.75 42.21 57.24

RMB and foreign currency 39.46 41.00 39.49

Loan to deposit ratio (including discounted bills) RMB 79.14 62.02 78.85 78.60

Loan to deposit ratio (excluding discounted bills) RMB 69.12 50.91 67.01 70.20 75.78 73.26

NPL ratio ≤8 0.68 0.50 0.68 3.70 5.64 6.68

Ratio of loans made to top single client to net equity ≤10 7.84 3.86 4.22 3.49 5.41 7.84

Ratio of loans made to top10 clients to net equity 40.85 23.52 26.90 26.58 42.74 63.35

Ratio of accumulated foreign exchange risk position to net equity ≤20 1.11 0.45 1.67

Migration ratio of normal loans 1.31 2.78 1.46

Migration ratio of special mention loans 48.99 1.90 62.22

Migration ratio of substandard loans 23.39 – 13.28

Migration ratio of doubtful loans – – 10.59

Cost to income ratio N/A 41.76 35.99 38.93 (excluding business tax)

Key Business Data Highlights


B Branches of the Bank

Information about the branches of the Bank (excluding the head office, ranked in line with branch assets) was as follows at the end of reported period:

NAME OF BRANCH Outlets Asset size Staff Address number (RMB million) number

Shanghai Branch 1351 Pudong Road S., Pudong, Shanghai 29 81,363 1,117

Shenzhen Branch No.7008, Shennan Road, Futian District, Shenzhen 87 72,187 1,865

Beijing Branch 158 Fuxingmen Nei Dajie, Beijing 24 70,063 859

Guangzhou Branch 66 Huacheng Avenue, New Pearl River City, 22 60,514 849

Tianhe District, Guangzhou

Hangzhou Branch 36 Qingchun Road, Hangzhou 14 35,852 613

Nanjing Branch 28 Zhongshan Road N., Nanjing 13 32,268 494

Dalian Branch 130 Youhao Road, Zhongshan District, Dalian 9 19,310 326

Tianjin Branch 10 Youyi Road, Hexi District, Tianjin 14 18,598 451

Ningbo Branch 138 Jiangdong Road N., Ningbo 9 16,986 421

Wenzhou Branch Guoxin Building, Renmin Road E., Wenzhou 6 15,947 293

Jinan Branch 138 Lishan Road, Jinan 8 15,814 304

Foshan Branch 148 Lianhua Road, Chancheng District, Foshan 10 15,227 398

Chongqing Branch 1 Xuetianwan Main Street, Yuzhong District, Chongqing 11 15,167 311

Head office branch 1/F, SDB Tower, 5047 Shennan Road E., 1 13,418 121

Luohu District, Shenzhen

Chengdu Branch 206 Shuncheng Street, Chengdu 9 13,219 316

Qingdao Branch 6 Hong Kong Road C., Qingdao 8 12,852 325

Wuhan Branch 54 Zhongbei Road, Wuchang District, Wuhan 1 10,111 44

Zhuhai Branch 8 Yinhua Road, Xiangzhou District, Zhuhai 7 8,384 198

Kunming Branch 450 Qingnian Road, Kunming City 9 7,992 229

Haikou Branch 22 Jinlong Road, Haikou 5 7,505 216

Yiwu Branch 223 Bingwang Road, Yiwu 4 6,462 66

Special Assets Management Center No.1054, BaoAn South Road 1 768 60

SMEs Finance Department SDB Tower, 5047 Shennan Road E., Luohu District, Shenzhen 1 New department, assets are recorded at branches 11

Total 302 550,007 9,887

Notes: 1. The outlet numbers as mentioned in the table are the numbers of business outlets with licenses approved by regulator.

2. The assets and headcounts as mentioned in the above table do not include that of HO departments. The whole bank situation could be referred to the Information on Directors, Supervisors, Senior Management and Staff (H) of the Report.

C Loan Quality during the Reported Period

1 5-tier loan classification at the end of reported period

5-TIER GRADING 31 December 2009 31 December 2008 Changes from last year end

In RMB’000 Loan balance % Loan balance % Balance change (%) ±%

Normal 355,717,413 98.94 278,119,642 98.02 28 0.92

Special mention 1,356,328 0.38 3,694,118 1.30 -63 -0.92

Non-performing 2,443,672 0.68 1,927,606 0.68 27 –

Including: Substandard 1,473,979 0.41 1,927,606 0.68 -24 -0.27

Doubtful 528,832 0.15 – – – 0.15

Loss 440,861 0.12 – – – 0.12

Total 359,517,413 100 283,741,366 100 27 –

Note: As of 31 December 2009, NPL balance of the Bank was 2,444 million Yuan, an increase of 516 million Yuan or 26.8% compared with the beginning of the year. NPL ratio was 0.68%, which remains the same as the beginning of the year. 48% of the NPLs were initially made before 2005. NPLs initially issued after (including) 1 January 2005 were 1,278 million Yuan, as 52 % of the total NPLs.

Key Business Data Highlights28

2 Restructured and overdue loans in the reported period

Ending balance as a percentage ofIn RMB’000 Opening balance Ending balance total loans (%)

Restructured loans 1,805,816 1,418,139 0.39

Overdue loans 789,145 163,510 0.05

Non-accrual loans 1,873,642 2,564,851 0.71

Note: Overdue loans refer to uncollected loans with principal overdue no more than 90 days; Non-accrual loans refer to uncollected loans with principal or interest overdue more than 90 days.

i As of the end of the reported period, restructured loan balance was 1,418 million Yuan, decreased by 21.47%, or 388 million Yuan compared with the beginning of the year. Main reasons are that the Bank reinforced management of restructured loans, strengthened collection and disposal of non-performing assets restructured loans, and further improved the disposal efficiency of non-performing assets.

ii As of the end of the reported period, overdue loan balance decreased by 626 million Yuan from the beginning of the year to 164 million Yuan. On the one hand, it is caused by the Bank’s reinforcement on collection and disposal of overdue loans. On the other hand, it is because some overdue loans transferred to non-accruing loans due to principal or interest overdue more than 90 days, impacted by domestic and overseas economic situations.

iii As of the end of the reported period, non-accruing loan balance was 2,565 million Yuan, increased by 691 million Yuan from the beginning of the year. Increase in non-accruing loans was mainly from commercial loans. The new non-accruals occurred in the year include commercial loans of 565 million Yuan, individual loans of 69 million Yuan, and credit card loans of 57 million Yuan.

The non-accruing loans were increased from the beginning of the year but decreased quarter on quarter. Main reasons of the increase are that, first, the non-accruals was down to a very low level after the big provision and write-off at the end of 2008, and in 2009 the previous overdue loans gradually migrated to non-accruing loans after overdue for 90 days; second, some private SMEs suffered from difficulty in operation and intense capital chain, impacted by domestic and overseas economic situations.

3 Loan impairment provision and write-offs in the reported periodOn the basis of a number of factors including borrower’s capacity, principal and interest repayment status, values of collaterals and pledges, guarantor’s capacity, and loan management status, the Bank makes appropriate loan impairment provision from the income statement individually or collectively according to the risk level and recoverability and the estimated present value of future cash flow.

In RMB’000 Amount

Opening balance 2,026,679

Add: Charges for the current year (including non-loan provision charges) 1,575,088

Less: Unwinding of interest of impaired loan 109,510

Less: non-loan provision charges 134,536

Net provisions in the current year 1,331,042

Add: Recoveries of written-off loans in the current year 673,160

Add: Reversal of write-off loans 356,235

Add: Other changes 45,486

Add: Disposal in the year 302,717

Less: Write-off in the current year 175,017

Ending balance 3,954,868

i The Bank reported the fully provisioned NPLs satisfying write-off conditions to board of directors for approval and then wrote off the NPLs from account. The write-off loans are off balance sheet, which are left for the Assets Collection Department for follow-up collection and disposal. For collected write-off loans, litigation fee paid by the Bank that should be assumed by the borrower was deducted first; for the reminader, principal is subtracted prior to unpaid interests. The collected principal part will increase the loans impairment charges of the Bank, and the recovered interest and fee will be added to interest income and loans impairment charges of the period.

ii Reversal of write-off loans means that, in accordance with the requirement of [2009] No. 17 Fiscal Regulatory Reminder issued by the MOF-SZ Fiscal Regulatory Office on 10 October 2009, the written-off loans of 356 million Yuan which are different from the ones as prescribed by the Reminder were reclassified from off-balance-sheet to on-balance-sheet in November 2009 in line with the MOF Financial Institutions Bad Loan Write-off Management Methods, accordingly adding loans of 356 million Yuan and loans impairment charges 356 million Yuan.

iii Disposal in the year refers to the decreased loans impairment charges on the back of NPL disposal in 2009 by the Bank.


D Composition of and Changes in Operating Income in the Reported Period

2009 2008

In RMB’000 Amount % Amount % ±%

Net interest income 12,984,374 85.91 12,597,888 86.80 3.07

Including: Net interest income on deposits and loans 8,685,135 57.46 8,013,514 55.22 8.38

Net interest income/expense on amounts due from banks and placements 410,845 2.72 -181,808 -1.25 N/A

Net interest income on bond business 2,113,358 13.99 2,062,714 14.21 2.46

Net interest income on discounted bills and repo/reverse repo bills 1,775,036 11.74 2,703,468 18.63 -34.34

Net fee and commission income 1,180,784 7.81 851,388 5.87 38.69

Net other operating income 949,282 6.28 1,063,843 7.33 -10.77

Total operating income 15,114,440 100 14,513,119 100 4.14

Note: The bank upgraded the bill business system in May 2009: in the new system, while selling bills at the inter-bank market, the difference between unamortized discount income balance and inter-bank discount cost would be booked as capital gain, which was booked as interest spread income in the old system. Such a change can better reflect actual business status. Discount business in the above table includes the reverse Repo business. Because of that net interest income on discount reduced by 97 million Yuan compared with the figure computed with the previous method.

E Top 10 Industrial and Geographical Segments of Lendings

1 By industry

INDUSTRY 31 December 2009 31 December 2008

In RMB’000 Balance % NPL Ratio (%) Balance % NPL Ratio (%)

Agriculture and fish culture 590,000 0.16 – 598,700 0.21 –

Excavation (Heavy industry) 3,523,490 0.98 – 2,872,440 1.01 –

Manufacturing (Light industry) 59,974,269 16.68 1.35 53,372,139 18.81 1.44

Energy 8,000,990 2.23 0.01 11,786,383 4.15 –

Transportation and communication 17,405,390 4.84 0.34 12,516,879 4.41 0.50

Commerce 36,069,931 10.03 2.13 23,618,771 8.32 0.55

Real estate 23,254,621 6.47 1.48 15,877,985 5.60 5.41

Social service, technology, culture

and sanitation 52,516,681 14.61 0.04 35,628,222 12.56 0.08

Construction 13,405,329 3.73 0.42 10,176,997 3.59 –

Others (mainly personal Loans) 99,491,184 27.67 0.39 75,075,029 26.46 0.11

Discounted bills 45,285,528 12.60 – 42,217,821 14.88 –

Total loans and advances 359,517,413 100 0.68 283,741,366 100 0.68

Note: In light of loans quality by industry, as of 31 December 2009, NPLs of the bank were mainly concentrated on commerce, real estate and manufacturing industries, and NPL ratios of other industries were lower than 1%. Real estate NPLs were primarily legacy development NPLs made before 2005.

2 By geographical region

In RMB’000 Balance %

Southern and Central China 112,690,547 31.34

Eastern China 128,154,646 35.65

Northern and North-Eastern China 91,587,937 25.48

Southwestern China 27,084,283 7.53

Total 359,517,413 100


3 By type of collateral

In RMB’000 Balance %

Unsecured loans 64,776,195 18.02

Guaranteed loans 66,303,241 18.44

Collateralized loans secured by mortgages 156,820,843 43.62

Collateralized loans secured by monetary assets 26,331,606 7.32

Discounted bills 45,285,528 12.60

Total 359,517,413 100

4 Loan balance and percentage in total loans of top 10 loan borrowersAs of the end of the reported period, the balance of the Bank’s top 10 loans was 13.033 billion Yuan, accounting for 3.63% of the year-end loan balance. The main borrowers are as follows: Wuhan City Construction Investment & Development Group Co.,Ltd., Department of Communications of Shanxi Province, Shougang Group, Zhuhai Zhenrong Company, Chongqing Expressway Group Co.,Ltd., BMW (China) Automobile Trading Co., Ltd., Shanghai Huazhe Waitan Property Co., Ltd., Shanxi Coal Transportation and Sales Group Co., Ltd., Beijing Municipal Bureau of Land and Resources Chaoyang Center, and Beijing Gonglian Road Order Wire Limited Liability Company.

F Repossessed Assets at the End of the Reported Period

In RMB’000 Balance

Land, properties and buildings 976,451

Others 51,673

Subtotal 1,028,124

Balance of repossessed assets impairment provisions (360,961 )

Net value of repossessed assets 667,163

G Yearly Average Loan Balance and Interest Rates Calculated on a Monthly Basis

In RMB’000 Average balance Average interest rate (%)

One-year short-term loans (RMB & foreign currencies) 140,843,686 5.51

Medium and long-term loans (RMB & foreign currencies) 130,228,907 5.41

Total 271,072,593 5.46

Note: The above short-term loans and medium and long-term loans exclude the trust receipt loans, discounted bills, overdue loans and non-accruing loans.

H Information on Holdings of Financial Bonds at the End of Reported Period

At the end of the reported period, the face values of holdings of treasury bills and financial bonds (including PBOC bills, policy bank debts, various ordinary financial debts, and financial subordinated debts, excluding corporate debts) of the Bank were 79.4 billion Yuan. The bonds of substantial amount are stated as below:

In RMB’000 Face value Nominal annual interest rate (%) Maturity date Provision

2008 financial bonds 11,240,000 1.98 – 4.9 2010/2/18 – 2018/12/16 –

2009 financial bonds 10,210,000 1.95 – 3.5 2011/9/23 – 2019/9/23 –

2007 financial bonds 5,755,000 2.03 – 5.14 2010/7/13 – 2017/10/25 –

2006 treasury bonds 5,717,000 2.4 – 2.8 2011/5/16 – 2016/3/27 –

2009 treasury bonds 3,930,352 0 – 3.73 2010/2/18 – 2016/6/25 –

2009 other financial bonds 2,779,323 0.7506 – 5.7 2011/5/19 – 2024/3/25 –

2002 financial bonds 2,140,000 2.65 – 4.6 2012/4/19 – 2022/5/9 –

2005 financial bonds 1,610,000 2.66 – 3.82 2010/12/30 – 2020/6/30 –

2008 treasury bonds 1,290,000 2.64 – 4.94 2011/4/14 – 2038/5/8 –

2001 treasury bonds 1,068,266 2.77 – 6.8 2011/3/23 – 2011/8/31 –

PBOC notes 24,790,000 0 – 4.56 2010/2/2 – 2011/5/30 –


I Information on Holdings of Financial Derivative Instruments at the End of the Reported Period

1 Derivatives investment table

1. Market risk. Market risk of derivatives refers to the risk of loss on on-balance-sheet and off-

balance-sheet business due to change of market price (interest rate, exchange rate, stock price,

and goods price). The Bank conducts limit management from sides such as exposure, risk level,

and equity.

2. Liquidity risk. Liquidity risk of derivatives refers to the risk that bank has the solvency but can

not obtain sufficient fund timely or can not obtain sufficient fund in time with reasonable cost

to deal with asset growth or pay off due debts. For derivatives delivered in full amount, the

Bank adopts the measure of integrated position closing to ensure sufficient fund for settlement

while delivery; for derivatives delivered in net amount, there is no major impact as the cash flow

would have minor impact on liquid assets of the Bank.

3. Operational risk. Operational risk is the risk resulting from defective internal procedure,

staff, system, or external events. Including the risks caused by employee, process, system, and

outside factors. The Bank strictly observes the CBRC Guidance on Operational risk Management

of Commercial Banks, staffs specific trader, adopted professional front-middle-back office

monitoring system, set complete business operation process and authorization management

system and improved internal monitoring and auditing mechanism, trying best to avoid

operational risk.

4. Legal risk. Legal risk refers to the possibility of risk exposure caused by business activity

incompliance with legal rules or external legal events. The Bank attaches a lot of importance to

legal documentation related to derivatives transaction, and signed legal agreement including

ISDA, CSA, MAFMII with peer banks to avoid legal dispute and regulate dispute resolving

method. In accordance with regulatory requirement and transaction management necessity, the

Bank also set customer transaction agreement referring to above inter-bank legal agreements,

thus avoid most potential legal disputes.

5. Force Majeure. Force Majeure refers to the objective circumstances that can not be forecast,

avoided, or conquered, including but not limited to fire, earthquake, flood or other natural

disaster, war, military act, strike, pandemic, failure of electricity, telephone service or IT system,

financial crisis, halt of related market transaction, or change of national legal rules or policy that

prevent the derivatives transaction to be implemented normally. The Bank met agreement with all

the individual, institutional and inter-bank customers about force Majeure to exempt obligation of

contract breaching.

In 2009, the Bank did not see big fair value change of invested derivatives during the reported

period. Regarding derivative financial instruments, the Bank engage the evaluation technique

to determine the value. The evaluation technique includes reference to familiar circumstances

and the price used in latest market trading of each party voluntary for trading, and reference

to the current fair values and discounted cash flow technique of other essentially same

financial instruments. Evaluation technique may use market parameter if feasible. However,

the management team needs to evaluate in light of the credit risk, market fluctuation rate and

relevance of itself and the trading counterparts when lack of market parameter.

The branches stipulate accounting policy and accounting settlement principle in line with the

Corporate Accounting Standard. There is no major change of relevant policy.

Independent Directors of the Bank believe: the Bank’s derivatives transaction business is a

commercial banking business approved by regulator. The Bank has established a relative complete

risk management system, which is effective for risk control on derivatives transaction.

Risk analysis on derivatives position-holding

in the reported period and explanations

on controlling measures (including but not

limited to market risk, liquidity risk, credit risk,

operational risk and legal risk)

Changes of market price or product fair value

of invested derivatives in the reported period.

While making analysis on derivatives fair

value, specific methods in use with relevant

presumptions and parameters should be

disclosed.

Explanation on if there is major change of

accounting policy or accounting settlement

principle related to derivatives occurred in the

reported period compared with that of last

reported period.

Specific comments from independent directors,

sponsors or financial advisors on derivatives

investment and risk control.


2 Position-Holding Table of Derivatives Investment at the end of the reported period

Beginning Ending Gains/Losses Percentage of contracted contracted on changes in ending contracted amount amount fair value in the amount (Nominal) toIn RMB’000 (Nominal) (Nominal) reported period ending net assets (%)

Foreign exchange forward agreement 18,974,579 20,137,068 (103,635 ) 98.38

Interest rate swap agreement 1,270,000 800,000 (51,045 ) 3.90

Stock option agreement 2,020,389 93,356 696 0.46

Equity swap agreement 46,767 93,356 597 0.46

Other derivative Instruments 426,279 – – –

Total 22,738,014 21,123,780 (153,387 ) 103.20

J Changes of Interest Receivables and Bad Debt Provisions in the Reported Period

1 Changes of interest receivables

INTEREST RECEIVABLESIn RMB’000 Amount

Opening balance 1,605,636

Increased amount of the reporting period 19,001,762

Collected amount of the reporting period 18,981,698

Ending balance 1,625,700

2 Bad debt provisions for interest receivables

In RMB’000 Amount Provision

Interest receivables 1,625,700 –

3 Analysis on changes for interests receivable and bad debt provisionsAt the end of the reported period, interest receivable rose by 1.2%, or 20 million Yuan compared with the end of last year. Interest receivable arising from interest-earning assets such as loans would offset interest income of the period and be put off balance sheet while interest overdue for 90 days, with no provision set against it.

K Yearly Average Balances and Interest Rates of Principal Types of Deposits in the Reported Period

Average annualIn RMB’000 Average annual balance deposit interest rate (%)

Corporate current deposits (RMB & foreign currencies) 104,914,532 0.55

Corporate fixed deposits (RMB & foreign currencies) 118,125,424 2.65

Personal current deposits (RMB & foreign currencies) 20,961,119 0.35

Personal fixed deposits (RMB & foreign currencies) 43,835,022 2.70

Guarantee deposits (RMB & foreign currencies) 124,556,488 1.62

Total 412,392,585 1.69

L Year-end Balance for Off-balance Sheet Items that may have Significant Impact on the Bank’s Financial Position and Operating Results

In RMB’000 Amount

Banker’s acceptance bills 196,808,019

Issuance of L/C 2,391,676

Issuance of letters of guarantee 2,306,093

Unused credit line 8,447,565

Operating lease commitment 2,241,157

Loans guarantee contract –

Capital expenditure commitment 137,545


M The Implementation and Gains/Loss of Entrusted Wealth Management, Assets Securitization, Various Brokerage and Custody Business in the Reported Period

1 Development of wealth management businessIn 2009, in face of complex economic environment, the Bank appropriately adjusted product development and customer marketing strategy, promoted the business strategy of customer categorization, and saw trend of stable growth of wealth management product sales volume and income. Total sales of individual WM products of the structural and trust categories reach 22 billion, growing by 65%.

2 Development of brokerage businessIn the reporting period, the Bank facilitated fast development of fee business through focus on brokerage business. Sales of insurance grew by 451% over the same period of last year to 800 million Yuan, with income increased by 288%. Fund sales grew by 47% over the same period of last year to 4.7 billion Yuan, with income increased by 23%.

3 Development of custody businessThe Bank obtained the qualification of national social insurance custody business on 2 January 2010. Until now the Bank possesses the qualification of securities investment fund custody and trust assets custody, and can handle a number of custody business including commercial bank wealth management product, securities firm customer assets management, integrated wealth management and equity investment fund. Now the custody business has entered into the stable development and fast expansion period. Until the end of December 2009, the Bank has 125 projects under custody, and grew new business of 9,164 million Yuan.

In 2010, the Bank will build the “Professional Private Equity Custody Bank” on the basis of the trust transaction platform; actively explore customers of fund firm, securities firm and trust company, research on possibility of pension trust business, promote service and efficiency through system upgrading and process management, expand business acceptance capacity of the Bank, and endeavor to develop the trust market.

N Various Risks Facing Commercial Banks and Risk Management Status

1 Credit riskCredit risk refers that borrowers or trading counterparts can not perform their obligations in accordance with agreements reached in advance. Credit risk of the Bank mainly arises from loans and off-balance sheet credit business.

The Bank established Credit Portfolio Management Committee to review and determine the strategies for credit risk management, preference of credit risk and all sorts of credit risk management policies and standards. In 2009, pursuant to changes of industry policy of the country and external economic & financial conditions, the Bank formulated and adjusted credit policy for corporate, retail and inter-bank business cross the bank in a timely manner, actively supported the construction of the country’s key projects, emphasized development of SMEs, trade finance and retail credit, strengthened the management and analysis on credit portfolio, and tracked and monitored “high energy consuming, high pollution” industries, real estate, government finance platform and middle-term and long-term loans; and continued to carry out strategic client classification and management, and continuously optimized and adjusted credit structure.

The bank implemented credit officer system, and appointed Chief Credit Officer in the head office. Credit officers are assigned to each line and branch, and directly report to Chief Credit Risk Officer. The Chief Credit Officer is in charge of the performance evaluation of each credit officer. Thus an independent and transparent system of vertical credit risk management is established.

The Bank established a set of standard procedures for credit approval and management which is implemented in the whole bank. In 2009, the Bank improved credit rating system and enhanced credit authority management, and especially supported development of special business. The Credit noticed to promote credit investigation quality, and conducted deep and all-sided credit survey during the operating process strictly in accordance with “KYC” (Know Your Customer) principle, enhanced strict investigation on rationality of loans usage and authenticity of trade background, and emphasized on analysis of the first repayment source of credit applicants. Facing complex economic situation in 2009, the Bank strictly controlled the review standard and credit threshold, so as to control the new credit risk from the origin.

The Bank emphasized post-lending monitoring and early warning of credit business, in order to get the early warning signal in time and take effective measures to control credit risk; meanwhile build the system of early warning loan special report meeting to prompt fast disposal of major early warning loans. In 2009 the bank focused on the on-site and off-site inspection and compliance monitoring work for credit management, and conducted the credit inspection across the whole bank and focused on major branches, as well as special inspection in the important regions such as loans made through government financing vehicle, real estate loans, bill business, warehouse pledge business, and big credit. There was no major credit case occurred in the year.

Based on the CBRC 5-tier classifications, the Bank categorize credit assets risk into ten tiers, including tier-1 normal, tier-2 normal, tier-3 normal, tier-4 normal, tier-5 normal, tier-1 special mention, tier-2 special mention, subordinated, doubtful, and loss, and beside that a “write-off” tier is set aside. The Bank applies different management policies to different loan classifications.


The Bank set professional NPL collection and disposal team, and conducted centralized and specialized NPL collection and disposal, and got involved into asset security and risk release work early for problematic loans, which obtained good result.

In 2009, the Bank made major achievement in building the credit management system, and the functions of pre-lending and post-lending management was rolled out across the whole bank. The system covers all the steps from investigation, review, disbursement to post-lending management.

In 2009 the Bank enhanced research on economic trend and real estate market, and in the meantime conducted management process reengineering, developed now collection system, emphasized on management of credit authenticity and assessment authenticity, and conducted risk inspection about certificate authenticity.

In 2009, the Bank enhanced risk management measures on credit card, improved credit card approval strategy and information verification method, upgraded approval process and post-lending collection, enhanced anti-fraud measures, and initiated and rolled out the security credit line to become the avant-garde of practicing security credit line in China.

2 Market riskThe principal market risk facing the Bank comes from position of interest rate and exchange rate products. Either trading business or non-trading business of the Bank could incur market risk. The target of market risk management is to avoid excessive loss of revenue or equity caused by it, meanwhile to offset the impact of volatility risk of financial instruments on the Bank. The Bank set up the Asset/Liability Committee to formulate policies of market risk management and to determine the targets of both market risk management and position limit on market risk. The committee is also responsible for dynamically controlling business volume and structure, interest rate and liquidity. The specialized department under the Asset/Liability Management Committee undertakes regular responsibility of market risk monitoring, including determining a reasonable level of market risk exposure, monitoring daily operation of treasury business, giving advice to adjust maturity structure and interest rate structure of assets and liabilities.

Interest rate risk comes from the mismatch of maturity date or contract re-pricing date between interest-earning assets and interest-bearing liabilities. Interest-earning assets and interest-bearing liabilities of the Bank are primarily priced by RMB. PBOC has provisions on the lower rate limit for basic RMB loans and upper rate limit for basic RMB deposits. The bank manages interest rate risk primarily by adjusting assets/liability structure, regularly monitoring sensitive gaps of interest rate, and adopting risk exposure analysis to statically measure characteristics of assets/liability re-pricing. The Bank regularly convenes Assets/Liability Management Committee to predict future interest rate tendency, adjust assets/liability structure and manage interest rate risk exposure.

Exchange rate risk mainly includes risk of loss due to negative exchange rate changes from foreign exchange exposure caused by currency structure imbalance between foreign currency assets and liabilities as well as foreign exchange exposure caused by foreign exchange derivatives trading. Exchange rate risk facing the Bank primarily derives from loans, advances, investment and deposits held by the Bank which are not priced by RMB. The Bank set limits for each currency position, daily monitor scale of currency position and controls the position within a settled limit by hedging strategy.

3 Liquidity riskLiquidity risk refers to the risk that commercial bank has the solvency but can not obtain sufficient fund timely or can not obtain sufficient fund in time with reasonable cost to deal with asset growth or pay off due debts.

The Bank placed a lot of attention to liquidity risk management, and adopted multiple management methods and built a complete liquidity risk management system, so as to effectively identify, measure, monitor, and control liquidity risk, keep sufficient liquidity level to satisfy various fund demand and deal with adverse market situation.

To effectively monitor the liquidity risk, the Bank pays attention to diversity of fund source and use, and keeps a high portion of liquid assets. The bank daily monitors fund source and use, loan and deposit volume, and assets with strong cash-in possibility. The Bank introduces a forward liquidity risk management mechanism, and combines the perceptive forecast with multiple liquidity indicators with the liquidity stress test to make integrated assessment on future liquidity risk level, and propose corresponding solution in light of special circumstances.

4 Operational riskOperational risk is the risk resulting from defective internal procedure, operator error or fraud, and external events.

In 2009, the Bank set the target of “Zero Case” and the internal control requirement of “uniform monitoring, uniform internal control standard, and uniform assessment criterion”, and substantially took the following measures to further complete risk control system and improve operational risk management framework: The Risk Management Committee and Internal Control Committee regularly reviewed the operational risk status of the whole bank and guided the staff to conduct operational risk control in an organized manner; built a three-dimension risk identifying, analyzing, assessing, reporting, and releasing system under the joint-action of head quarter, branch and sub-branch, further improved key risk indicator system, promoted risk information management system, and closely monitor the main risk areas; implemented the process reengineering work to streamline, diagnose and reengineer the business operation process, and centralized some high-risk businesses at head quarter or branch for uniform disposal; set consistent and standardized new product approval process and


operation risk assessment criteria to guarantee controlling the operational risk of relevant new products from the origin; continuously improve the business systems and reinforced safety management and the fast-reaction mechanism to deal with emergency; made on-site inspection and off-site monitoring in line with external regulatory requirement and uniform arrangement of headquarter to do the risk inspection work in a in-depth and all-rounded manner; promoted employees’ integrated quality through professional training, business examination, performance assessment and code of conduct management, and advocated the honest and trustworthy corporate culture, in order to consolidated the foundation of operational risk control.

5 Other risksOther risks facing the Bank include compliance risk and legal risk. The Bank set up complete compliance management system at the Head Office and branches, responsible for such responsibilities as recognition, monitoring, and report of compliance risk, as well as compliance consultancy and education. The department regularly report to the Audit and Related Party Transaction Control Committee under the board, and receive guidance from the committee. In 2009, the Bank made a lot of work in improvement of compliance management structure, promotion of independence and leadership of compliance offices at branches, explanation and advocacy of policies and regulations, compliance risk recognition and control for new product and business, system database building and system planning management, management of related party transaction, anti-money laundering, and cultivation of compliance culture, and as a result effectively managed the compliance risk. In respect of legal risk control, the bank focused on the step of legal approval in business procedures, standardized contract samples and articles, fully involved in the decision-making processes such as system formulation and development of new products. Meanwhile, the Bank engaged a well-known legal firm in China as the external legal consultant, in order to provide professional opinion about major legal affairs. In 2009 the Bank improved the management organization for head quarter and branch legal affairs to enhance centralized management, thus the legal risks of various businesses were effectively under control.

O Social Responsibility ReportSocial responsibility report is considered as an inherent obligation by the Bank, and is also a key to long-term success for company. In 2009, the Management Team for Social Responsibility & Major Events was set up in the Head Office Administrative Department of the Bank, formulating System for Information Reports on the Performance of Corporate Social Responsibility of Shenzhen Development Bank, carrying out all kinds of social responsibility activities in the meantime, and gradually strengthening social responsibility management work.

a. Always committed itself to improving corporate governance system and structure as well as safeguarding shareholders’ equity, in accordance with relevant laws, regulations and regulatory requirements.

b. The Bank established a target of “Best Service Bank”, carried out several procedure reconstruction programs, optimized the quality supervision and control system for customer service, and practically protected customers’ rights and interests.

c. Promoted professional ranking system, expanded employees’ career development channels, provided training and development opportunities for employees, carried out market-oriented compensation policy, built rather complete security system for employees’ benefits, and defended employees’ rights and interests.

d. Took initiative to fully support local economy and industry development, and helped SMEs’ growth; actively supported quality algriculture development and production programs, focused on supporting production and circulation enterprise with large-scale quality agriculture products, and supported the development of “agriculture-related” industry.

e. Observing Anti-Money Laundry Law of People’s Republic of China and relevant laws and regulations, further compacted “risk-oriented” anti-money laundry work system, practically performed all kinds of anti-money laundry obligations, and prevented anti-money and commercial bribery, with the combination of anti-money laundry, anti-terrorism finance and improvement of modern commercial banks’ internal control system.

f. Committed to building green credit culture, carried out energy-saving and emission-reduction policy of the country, launched green series credit card with eco-friendly theme, implemented “Eco-friendly Office and Life” activities, aroused the public’s eco-friendly awareness, and propelled the continuous development of the society.

g. Supported charity works, launched “SDB Love Project”, selected volunteers cross the country to assist teaching, and supported the education in disaster area; helped to build a new Huangwan Qixiu Primary School in Liudu Town, Yun’an County, Guangdong Province, and donated a full set “multi-media classroom” equipment for teachers and students; carried out “Tibet Sight Restoration Trip”, raised 350,000 Yuan donation, and gave free sight restoration operations to Tibetan cataract patients; held “Into the South Pole Science Show” and “Hello Future Green Audiovisual Symphony”, and called on the public to pay attention to climate change and environmental issues; actively participated in “Million Forest” project, donated 20,000 seedlings, and supported eco-friendly and sand-control cause in the west.

In 2009, the Bank was honored several awards in respect of social responsibility, including 2009 Best Enterprise for Social Responsibility Award, 2009 Social Responsibility Contribution Award of China Brand and 2009 Best Board of Directors for Social Responsibility Award.

Specifics can be referred to 2009 Social Responsibility Report of Shenzhen Development Bank disclosed by the Company.

36

A Changes in Share Capital

1 Table of changes in shares

SHARES TYPE Before changes Changes (+, -) After changes Changes of shares Restricted held by shares Directors, released Supervisors, from and SeniorUnit: share Quantity % restriction Management Others Subtotal Quantity %

Restricted shares 320,828,031 10.33 -139,438,176 -70,356 – -139,508,532 181,319,499 5.84

i Held by the state

ii Held by state legal person

iii Held by other domestic bodies 3,933,027 0.13 -3,798,884 -70,356 – -3,869,240 63,787 –

Including: Held by domestic

non-state legal person 3,855,360 0.13 -3,534,168 – -264,716 -3,798,884 56,476 –

Held by domestic

natural person 77,667 – -264,716 -70,356 264,716 -70,356 7,311 –

iv Held by foreign institutions 316,895,004 10.20 -135,639,292 – – -135,639,292 181,255,712 5.84

Including: Held by foreign

legal person 316,895,004 10.20 -135,639,292 – – -135,639,292 181,255,712 5.84

Held by foreign natural person

Unrestricted shares 2,784,605,731 89.67 139,438,176 70,356 – 139,508,532 2,924,114,263 94.16

i Ordinary shares in RMB 2,784,605,731 89.67 139,438,176 70,356 – 139,508,532 2,924,114,263 94.16

ii Foreign holdings of shares listed in China

iii Foreign holdings of shares listed outside China

iv Others

Total 3,105,433,762 100 – – – – 3,105,433,762 100

Note: In the reported period, 139,438,176 restricted shares got released and listed. As a result, restricted shares declined by 139,438,176 shares and unrestricted shares increased by 139,438,176 shares accordingly; In the reported period, 264,716 restricted shares held by Shenzhen Xianke Corporate Group were transferred to a natural person; In the reported period, restricted shares of the Company declined by 70,356 shares due to the expiry of lock-up shares of senior executives held by leaved directors, supervisors and senior executives.

2 Table of changes in restricted shares

SHAREHOLDER Restricted shares held at the Unrestricted Restricted Restricted beginning shares released shares added shares held Reason ofUnit: share of year in the year in the year at year end restriction Date of release

Newbridge Asia AIV III, L.P. 316,895,004 -135,639,292 – 181,255,712 Share reform 20 June 2010

Shenzhen Science & Technology Development Fund 3,441,445 -3,441,445 – – Share reform

Shenzhen XianKe Corporate Group 264,716 -264,716 – – Share reform

Shenzhen XinAn Mall 92,723 -92,723 – – Share reform

Shenzhen SDG Communications

Development Company 40,903 – – 40,903 Share reform Remark

Shenzhen Tourism Association 11,033 – – 11,033 Share reform Remark

Shenzhen Futian District Agriculture Development Service Company Yannan Agriculture Machine Trading 4,540 – – 4,540 Share reform Remark

Total 320,750,364 -139,438,176 – 181,312,188

Notes: 1. Restricted shares held by Shenzhen SDG Communications Development Company, Shenzhen Tourism Association and Shenzhen Futian District Agriculture Development Service Company Yannan Agriculture Machine Trading matured on 20 June 2008, but relevant shareholders have not entrusted any company to apply to handle the procedure of releasing shares restriction.

2. The above table does not include the 7,311 unreleased restricted shares of directors, supervisors and senior executives that have left the Bank.

Changes in Share Capital and Shareholders


B Securities Issue and Listing Information

1 Securities issued by the Bank in three years prior to the end of reported periodIn accordance with the Proposal for Warrants Issue of Shenzhen Development Bank Co., Ltd. reviewed and approved by the 2007 1st

Extraordinary Shareholders’ Meeting & Relevant Shareholders’ Meeting and approved by the China Securities Regulatory Commission,

basing on the total share capital of 2,086,758,346 shares after the share reform, the Bank issued free Bermuda Warrants at the ratio

of 10:1, i.e. 208,675,834 warrants with the duration of 6 months to all shareholders who are registered on the equity registration

day for warrant issue (25 June 2007); and issued free Bermuda Warrants at the ratio of 10:0.5, i.e. 104,337,917 warrants with the

duration of 12 months to all shareholders who are registered on the equity registration day for warrant issue (25 June 2007), as a

total of 313,013,751 warrants issued. Each warrant could prescribe one share newly issued by the Bank at the price of 19.00 Yuan

during the duration of warrants. The warrants were listed on the Shenzhen Stock Exchange on 29 June 2007. The warrants with the

duration of 6 months (29 June 2007 to 28 December 2007) are entitled as “SFC 1”; the warrants with the duration of 12 months

(29 June 2007 to 27 June 2008) are entitled as “SFC 2”. The above warrants were exercised in December 2007 and June 2008

respectively.

2 Changes in outstanding shares and shareholding structure of the BankIn the reported period, there was no change of the Bank’s total shares. Changes in the shareholding structure could be referred to

the Table of changes in shares.

As of the end of the reported period, owners’ equity of the Bank rose by 4,070 million Yuan to 20,470 million Yuan, an increase of

24.8 % compared with the year start.

3 The Bank has no internal staff share

C Shareholder Background Information

1 Number of shareholders and the shareholding position

Number of shareholders: 230,571

Top 10 shareholders

SHAREHOLDER Changes during Shares Nature of Shareholding the reported Restricted collateralizedUnit: share shareholder (%) Shares held period shares held or frozen

Newbridge Asia AIV III, L.P. Foreign 16.76 520,414,439 – 181,255,7124 –

PingAn Life Insurance Company of China, LTD – Tradition – Ordinary insurance products Others 4.54 140,963,528 -10,000,000 – –Shenzhen Zhongdian Investment Co., Ltd. Others 2.81 87,302,302 – – –China Life Insurance Co.,Ltd – dividend – individual dividend-005L-FH002 Shenzhen Others 2.04 63,504,416 63,504,416 – –Rongtong New Bluechip Securities Investment Fund Others 1.49 46,340,003 46,340,003 – –Haitong Securities Co., Ltd. Others 1.49 46,306,896 -192,743 – –CAB – Fuguotianrui Hybrid Open Securities Investment Fund Others 1.42 44,065,519 21,392,532 – –Morgan Stanley & Co. International PLC Others 1.10 34,302,788 34,302,788 – –ICBC – Rongtong Shenzhen 100 Index Securities Investment Fund Others 1.03 31,847,665 10,041,727 – –China Life Insurance Co., Ltd. – Tradition – Ordinary insurance products-005L-CT001 Shenzhen Others 1.01 31,499,998 31,499,998 – –

Changes in Share Capital and Shareholders38

Top 10 unrestricted shareholders

SHAREHOLDERUnit: share Unrestricted shares held Share nature

Newbridge Asia AIV III, L.P. 339,158,727 RMB ordinary shares

PingAn Life Insurance Company of China, LTD – Tradition – Ordinary insurance products 140,963,528 RMB ordinary shares

Shenzhen Zhongdian Investment Co., Ltd. 87,302,302 RMB ordinary shares

China Life Insurance Co., Ltd. – dividend – individual dividend-005L-FH002 Shenzhen 63,504,416

Rongtong New Bluechip Securities Investment Fund 46,340,003 RMB ordinary shares

Haitong Securities Co., Ltd. 46,306,896 RMB ordinary shares

CAB – Fuguotianrui Hybrid Open Securities Investment Fund 44,065,519 RMB ordinary shares

MORGAN STANLEY & CO. INTERNATIONAL PLC 34,302,788 RMB ordinary shares

ICBC – Rongtong Shenzhen 100 Index Securities Investment Fund 31,847,665 RMB ordinary shares

China Life Insurance Co., Ltd. – Tradition – Ordinary insurance products-005L-CT001 Shenzhen 31,499,998 RMB ordinary shares

The relationship of the shareholders above and the explanation of any concerted action Both “China Life

Insurance Co., Ltd –

dividend – individual

dividend-005L-FH002

Shenzhen” and “China

Life Insurance Co., Ltd –

Tradition – Ordinary

insurance products-

005L-CT001 Shenzhen”

are insurance products

of China Life Insurance

Co., Ltd. The Bank is not

aware of the relationship

or concerted action

between any of the

other shareholders.

2 Brief Introduction of the Bank’s largest shareholder: Newbridge Asia AIV III, L.P.Newbridge Asia AIV III, L.P. was established in 2000 in Delaware, USA with a registered capital of US$724 million. It focuses on

strategic investment. All the investment and operational decisions of the company are made by unlimited liabilities partners

Newbridge Asia GenPar AIV III, L.P. while the investment and operational decisions of Newbridge Asia GenPar AIV III, L.P. are made

by unlimited liabilities partners Tarrant Advisors, Inc. and Blum G.A., LLC (of which Blum G.A., LLC is managed by Blum Investment

Partners, Inc.) Tarrant Advisors, Inc and Blum G.A., LLC are controlled by David Bonderman, James G. Coulter and Richard C. Blum

(all of whom are U.S. citizens), namely, these three individuals are the eventual controlling parties of the Company.

David BondermanMr David Bonderman is the partner and co-founder of Texas Pacific Group. Before the establishment of Texas Pacific Group, Mr David

Bonderman served as Chief Executive in RMBG Group (Now Keystone) in Fort Worth, Texas. Before joining RMBG in 1983, Mr David

Bonderman was a partner of Arnold & Porter, a law firm in Washington D.C.

Mr David Bonderman has served and is serving as a director on the boards of many listed and unlisted global corporations as well as

non-profit organizations.

James G. CoulterMr James G. Coulter is the partner and co-founder of Texas Pacific Group. Before Texas Pacific Group was incorporated, Mr James G.

Coulter served as vice president of Keystone from 1986 to 1992. From 1986 to 1988, Mr James G. Coulter was closely associated

with SPO Partners, an investment firm specializing in stock market investment and private placement financing. Mr James G. Coulter

was also the financial analyst for Lehman Brothers Kuhn Loeb. He graduated with honors from Dartmouth College and acquired MBA

degree from Stanford Graduate School of Business.

Mr James G. Coulter is now serving and has served as a director on the boards of many listed and unlisted global companies.


Richard C. BlumMr Richard C. Blum is chairman of Blum Capital Partners. He founded Blum Capital Partners in 1975. Mr Richard C. Blum started his

career in Sutro in 1958 and eventually became the youngest partner in the company’s 130 years history. Mr Blum left Sutro in 1975

as a director, a major shareholder and a senior management leader to found Blum Capital Partners. Mr Richard C. Blum is now

serving and has served as a director on the boards of many listed and unlisted global companies.

Mr Richard C. Blum has a bachelor’s degree and an MBA from University of California at Berkley. He had also studied at Vienna

University.

The relationship between the Bank and the ultimate controlling parties of Newbridge Asia AIV III, L.P. and are charted as follows:

3 Change of the largest shareholders in the reported periodWithin the reported period, there was no change of the largest shareholder of the Bank.

The Bank plans to non-publicly offer (“this offering) no less than 370 million but no more than 585 million shares to PA Life Insurance

of China (“PA Life”) according to the Share Purchase Agreement signed by the Bank and PA Life on 12 June 2009.

According to the Share Purchase Agreement signed by the Bank’s largest shareholder Newbridge Asia AIV III, L.P. (“NB”) and PingAn

Insurance (Group) of China (“China PA”),the actual controller of PA Life Insurance, on 12 June 2009, China PA can purchase all

shares held by NB no later than 31 December 2010 (“this share transfer”).

After the completion of this offering and this share transfer, China PA and PA Life Insurance will be the top two shareholders of the

Bank, and NB will not be the Company’s shareholder.

This offering plan and this share transfer are to be approved by China Banking Regulatory Commission, China Insurance Regulatory

Commission and China Securities Regulatory Commission.

Other specifics of this offering plan and this share transfer can be referred to relevant announcements published by the Bank and

relevant information disclosure obligators on China Securities, Securities Times, Shanghai Securities News, Securities Daily and

www.cninfo.com.cn on 13 June 2009 and 16 June 2009.

In control of

Tarrant Capital Advisors, Inc. Blum Investment Partners, Inc.

Blum G. A., LLCTarrant Advisors, Inc.

Newbridge Asia GenPar AIV III, L.P.

Newbridge Asia AIV III, L.P. Limited Partners

Limited Partners

The Bank

Management & control

James G. CoulterDavid Bonderman Richard C. Blum

Management & control

16.76% shares

Investment

Investment

50% equity 50% equity 100% equity

40

A Brief Introduction

NAME Shares held at the Shares Changes in Year beginning held at shares held Position Gender of birth Office Tenure of year year end and reason

Frank N. Newman Chairman of BOD, CEO M 1942 Director: 2007.12–Expiration – – –

CEO: 2005.5–

Chen Wuzhao Independent Director M 1970 2007.12–Expiration – – –

Daniel A. Carroll Director M 1960 2007.12–Expiration – – –

Hu Yuefei Director M 1962 Director: 2007.12–Expiration 1484 1484

Vice President Vice President: 2006.5–

Li Jinghe Director M 1955 2007.12–Expiration – – –

Liu Baorui Director M 1957 Director: 2007.12–Expiration – – –

Vice President Vice President: 2000.3–

Ricky Lau (Liu Weiqi) Director M 1970 2007.12–Expiration – – –

Mary Ma Director F 1952 2007.12–Expiration – – –

Michael O’Hanlon Independent Director M 1955 2007.12–Expiration – – –

Robert T. Barnum Independent Director M 1945 2007.12–Expiration – – –

Shan Weijian Director M 1953 2007.12–Expiration – – –

Tang Min Independent Director M 1953 2009.5–Expiration – – –

Wang Kaiguo Director M 1958 2007.12–Expiration – – –

Xiao Suining Director, President M 1948 Director: 2007.12–Expiration – – –

President: 2007.2–

Andy Xie (Xie Guozhong) Independent Director M 1960 2007.12–Expiration – – –

Kang Dian External Supervisor M 1948 2007.12–Expiration – – –

Guan Weili External Supervisor M 1943 2007.12–Expiration – – –

Jiao Jisheng Employee Supervisor M 1955 2007.12–Expiration – – –

Ma Limin Employee Supervisor M 1964 2007.12–Expiration – – –

Xiao Geng Supervisor M 1963 2007.12–Expiration – – –

Ye Shuhong Employee Supervisor F 1962 2007.12–Expiration – – –

Zhou Jianguo Supervisor M 1955 2007.12–Expiration 9490 9490 –

Wang Bomin Chief Financial Officer M 1963 2005.5– – – –

Xu Jin Board Secretary & M 1966 Board Secretary: 2005.5– – – –

Chief Legal Officer Chief Legal Officer: 2009.8–

Information on Directors, Supervisors, Senior Management and Staff


B Director Attendance of Board Meetings

NAME If not present in person or No. of Attendance by phone for two scheduled Actual in the manner of Attendance or more than two Position attendance presence telecommunication by proxy Absence consecutive times

Frank N. Newman Chairman & CEO 9 9 – – – No

Chen Wuzhao Independent Director 9 9 – – – No

Daniel A. Carroll Director 9 7 – 2 – No

Hu Yuefei Director & Vice President 9 8 – 1 – No

Li Jinghe Director 9 9 – – – No

Liu Baorui Director & Vice President 9 9 – – – No

Ricky Lau Director 9 9 – – – No

Mary Ma Director 9 6 – 3 – No

Michael O’Hanlon Independent Director 9 9 – – – No

Robert T. Barnum Independent Director 9 8 – 1 – No

Shan Weijian Director 9 7 – 2 – Yes

Tang Min Independent Director 3 3 – – – No

Wang Kaiguo Director 9 5 – 4 – No

Xiao Suining Director & Vice President 9 8 – 1 – No

Andy Xie Independent Director 9 9 – – – No

Director Shan Weijian did not attend the 18th and 19th meeting of the 7th Board of Directors in person due to working reasons, and his proxies for those two meetings were given to Director Ricky Lau.

Number of Board of Directors meetings held in 2009 9Including: number of on-site meetings 9Number of meetings held in the manner of telecommunication 0Number of meetings held on-site plus through telecommunication 0

C Positions held by Directors and Supervisors in Shareholder Company

NAME Name of Shareholder Company Position Tenure

Daniel A. Carroll Newbridge Asia AIV III, L.P. Managing Partner 2000–Now

Li Jinghe China Electronics Shenzhen Company Vice Chairman 10 January 2008–Now

General Manager 2000–Now

Secretary of of CCP Committee 2006–Now

Ricky Lau Newbridge Asia AIV III, L.P. Managing Director 2000–Now

Mary Ma Newbridge Asia AIV III, L.P. Partner September 2007–Now

Shan Weijian Newbridge Asia AIV III, L.P. Managing Partner 2000–Now

Wang Kaiguo Haitong Securities Co., Ltd. Chairman of BOD, CPC Committee Secretary 2001–Now

Information on Directors, Supervisors, Senior Management and Staff42

D Positions held concurrently by Directors, Supervisors and Senior Management in Companies other than Shareholder Company

NAME Name of Company Position

Chen Wuzhao Accounting Research Institute of Tsinghua University Associate Professor Guodu Securities Liability Limited Independent Director Ieslab Electronics Co., Ltd. Independent Director Beijing Hainanxin Data Science & Technology Co., Ltd. Independent Director

Daniel A. Carroll TPG Capital, Limited Partner

Li Jinghe China National Electronics Import & Export Zhuhai Co., Ltd. Chairman China National Electronics Import & Export Zhuhai Technological Industry Co., Ltd. Chairman Shenzhen Jinghua Electronics Co., Ltd. Vice Chairman Shenzhen Huaqiang Industrial Co., Ltd. Independent Director

Liu Baorui China Unionpay Co., Ltd. Supervisor

Ricky Lau TPG Capital, Limited Manager Director Guanghui Automobile Services Co., Ltd. Director Nissin Leasing (H.K.) Limited Director Nissin China Holdings Co., Ltd. (Cayman) Director

Mary Ma TPG Capital, Limited Partner, Manager Director Lenovo Group Co., Ltd. Non-executive Vice Chairman Standard Chartered Bank (HK) Ltd. Independent Non-executive Director Nissin China Holdings Co., Ltd. (Cayman) Director Nissin Leasing (H.K.) Limited Director Daphne International Holdings Limited Director

Michael O’Hanlon Marix Servicing, LLC Director

Robert T. Barnum Ameriquest Mortgage Director, Chairman of Audit Committee Waterfield Bank Director, Risk Management Committee

Shan Weijian Bank of China (Hong Kong) Limited Independent Director Bank of China Hong Kong (Holdings) Co., Ltd. Independent Director EDENVALE HOLDINGS Director Nissin China Holdings, LLC Director TPG Capital, Limited Partner TCC International Holdings Limited Non-executive Director Taiwan Cement Company Independent Director Taishin Financial Holding Co., Ltd. Director China HWA BANK Director Edenvale Holdings Limited Director

Tang Min China Development Research Foundation Deputy Secretary-General Graduate School of the People’s Bank of China Deputy Director

Wang Kaiguo Shanghai Chlor-Alkali Chemical Co., Ltd. Independent Director

Andy Xie Rosetta Stone Advisors Ltd. Director

Kang Dian Shirui Investment Management Co., Ltd. Director Silver Grant International Industries Limited Independent Non-executive Director BYD Co., Ltd. Independent Director Shenzhen Fanxing Technology Co., Ltd. Director New China Life Insurance Co.,Ltd Chairman

Guan Weili Beijing Baihuiqing Investment Management Co., Ltd. Chairman of BOD Zhongfa International Assets Apprasial Co., Ltd. Honorary Chairman DongFeng Automobile Co., Ltd. Independent Director Blue Star New Chemical Material Co., Ltd. Independent Director China Textile Machinery Group Co., Ltd. Director Tianjin Eteda Technology Co., Ltd. Director Zhong Guan-Cun Science & Technology Financial Service Group Company Director

Xiao Geng Brookings-Tsinghua Center for Public Policy Director Brookings Institution Senior Fellow

Zhou Jianguo Shenzhen Investment Holding Corporation Vice General Manager Guotai Junan Securities Co., Ltd. Director Nanfang Fund Management Co., Ltd. Director Shenzhen Capital Group Co., Ltd. Director China Nanshan Development (Group) Co., Ltd. Supervisor Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Chairman

Xu Jin China International Economic and Trade Arbitration Committee Arbitrator Shenzhen Arbitration Committee Arbitrator


E Work Experience of Directors, Supervisors and Senior Executives

NAME Position Work experience

Frank N. Newman Chairman of BOD & CEO 1963–1969 KPMG Consultancy Manager

1969–1973 Citigroup Vice President

1973–1986 Wells Fargo Vice President, Senior Vice President, Executive Vice President,

and Chief Financial Officer

1986–1993 Bank of America Vice Chairman, Chief Financial Officer and Vice Chairman of BOD

1993–1995 Under Secretary for U.S. Finance, and Deputy Treasury Secretary of

the United States Department of the Treasury

1995–1999 Senior Vice Chairman, President, Chairman and CEO of Bankers Trust Co.

2000–2005 Director, Korea First Bank

2004–2004 CEO and Vice Chairman of the Broad Center for Management of School Systems

2004.12–2005.6 Independent Director of SDB

2005.5–2005.6 Acting Chairman and CEO of SDB

2005.6–Now Chairman and CEO of SDB

Chen Wuzhao Independent Director 1995–1998 Zhonghua Accounting Firm, Project Manager

1998–2000 School of Economics and Management, Tsinghua University,

Instructor of Accounting

2000–Now Accounting Research Institute of Tsinghua University, Associate Professor

2007.12–Now Independent Director of SDB

Daniel A. Carroll Director 1995–Now Partner of TPG Capital, Limited

2000–2005 Director of Korea First Bank

2007–2008 Director of BankThai Public Co., Ltd.

2007–2009 Director of Myer Department Stores, Ltd.

2004.12–Now Director of SDB

Hu Yuefei Director Vice President 1990–2006 SDB Nantou Sub-branch manager, SDB Guangzhou Branch Manager,

Assistant President

2006–2007.12 Vice President of SDB

2007.12–Now Director and Vice President of SDB

Li Jinghe Director 1982–1985 Zhuhai Office of China National Electronics Import & Export – South China

Branch Sales Man

1985–1987 Zhuhai Office of China National Electronics Import & Export – South China

Branch Vice Director

1987–2003 VGM, GM of China National Electronics Import & Export – Zhuhai Company

2003–Now COB of China National Electronics Import & Export – Zhuhai Company

2000–2006 Director, GM, Vice Secretary of CCP Committee of the China National Electronics

Import & Export – Shenzhen Company

2006–2008 Director,GM, Secretary of CCP Committee of the China National Electronics

Import & Export – Shenzhen Company

2008–Now Vice Chairman, GM, Secretary of CCP Committee of the China National

Electronics Import & Export – Shenzhen Company


Liu Baorui Director Vice President 1998–2000 Assistant President and Member of CCP Committee, SDB

2000–2007.12 Vice President and Vice Secretary of CCP Committee, SDB

2007.12–Now Director, Vice President and Vice Secretary of the CCP Committee of SDB

Ricky Lau Director 1993–1998 Hopewell Holdings Limited Investment Manager

1998–Now TPG Capital Managing Director


Mary Ma Director 1978–1990 Bureau of International Cooperation, Chinese Academy of Science

1990–2007 Senior Vice President and CFO of Lenovo Group Limited

2007–Now Partner and Managing Director of TPG Capital




Michael O’Hanlon Independent Director 1980–2005 Managing Director of Lehman Brothers Inc.

2000–2002 Director of Aozora Bank Ltd.


2006–2008 Senior Managing Director of Marathon Asset Management, LLC

2007–2007 Director of BankThai

2007–2008 Director of Doral Financial Corporation

2007–Now Director of Marix Servicing, LLC


Robert T. Barnum Independent Director 1969–1970 US Saving & Loan Association, Analyst

1970–1973 VP Finance of FHLB Seattle

1973–1980 VP Finance of PMI Mortgage

1980–1982 VP of FNMA

1982–1984 CFO of Krupp Company EVP

1984–1989 EVP, CFO of First Nationwide Bank (already merged into CITIGROUP)

1989–1997 CFO and President & COO of American Savings Bank

1997–Now Poker Flats Investors


Shan Weijian Director 1998–Now Partner of TPG Capital, Limited



Tang Min Independent Director 1989–2000 Principal Economist, Senior Economist of Economic Research Center of

Asian Development Bank

2000–2004 Chief Economist of Asian Development Bank Resident Mission in China

2004–2007 Deputy Resident Representative of Asian Development Bank Resident Mission

in China

2007–Now Deputy Secretary-General of China Development Research Foundation

2008–Now Deputy Director of Graduate School of the People’s Bank of China


Wang Kaiguo Director 2001–Now Chairman and Party secretary of Haitong Securities Co., Ltd.


Xiao Suining Director President 1990–1995 BOC Chongqing Branch Director of HR & Education Department,

Assistant to General Manager, Vice President, Member of the Party Committee

1995–1999 BOC Zhuhai Branch President, Secretary of CCP Group,

Secretary of CCP Committee

1999–2007.2 BOC Shenzhen Branch President, Secretary of CCP Committee

2007.2–2007.6 President of SDB

2007.6–Now Director and President of SDB

Andy Xie Independent Director 1990–1995 World Bank, Economic Analyst

1995–1997 Associate Director of Macquaire Bank

1997–2006 Managing Director of Morgan Stanley

2007–Now Director of Rosetta Stone Advisors Ltd.


Kang Dian External Supervisor 1984–1987 Vice Director/Director of CITIC

1987–1990 Vice General Manager of China Rural Trust & Investment Co., Ltd.

1990–1994 Vice General Manager of China National Packaging Corporation

1994–2000 Vice Managing Director of Guangdong Holdings Group Co., Ltd.

2001–2005 Chairman and CEO of Shirui Investment Management Co., Ltd.

2005.6–2009.12 Chairman of BOS of SDB

2009.12–Now Chairman of New China Life Insurance Co., Ltd

2005.6–Now External Supervisor of SDB

Guan Weili External Supervisor 1996.3–2004 President of China Enterprises Consulting Co., Ltd.

1997.6–2004 Honorary Chairman of BOD of China Enterprise Appraisals

2004–Now Chairman of BOD of Beijing Baihuiqing Investment Management Co., Ltd.

2005.1–Now External Supervisor of SDB



Jiao Jisheng Employee Supervisor 1993–2007 SDB, Vice president of Shatoujiao Sub-branch and Changcheng Sub-branch,

VGM, GM of H.O Accounting Dept., GM of H.O IA Dept., VP of Dalian Branch,

Financial Officer of Shenzhen Branch, GM of H.O Accounting Dept.

2007–Now VP of SDB Dalian Branch

2007.12–Now Employee Supervisor of SDB

Ma Limin Employee Supervisor 1988–1992 CBC Xi’an Branch, Vice director of International settlement Dept.

1992–1993 Shenzhen Xihu Corporation Development Co., Ltd.

1993–2005 SDB, Officer Manager, VGM, GM of Internationl Settlement Dept.

2005–2008.10 SDB, GM of Trade Finance Dept.

2008.10–Now SDB, Director of Trade Finance Dept.


Xiao Geng External Supervisor 1991–1992 Consultant of the World Bank

1992–2007 University of Hong Kong, Instructor, Associate Professor

2000–2003 Advisor and Head of Research, Securities and Futures Commission of Hong Kong

2007–Now Director of the Brookings-Tsinghua Center for Public Policy

2007–Now Senior Fellow of the Brookings Institution

2007.12–Now Supervisor of SDB

Ye Shuhong Employee Supervisor 1988–2006 SDB, Director of Operation Dept. and Admin. Dept. of Changcheng Sub-Branch,

Chief Auditor, Office Manager of Accounting Office, AGM of H.O IA Dept. GM of

Southwest Audit Center, Head of treasury and accounting line of H.O IA Dept.

2006–2008.1 AGM of H.O IA Dept and, Head of treasury and accounting line of H.O IA Dept.

2008.2–Now Deputy GM of H.O.IA Dept. of SDB


Zhou Jianguo Supervisor 1983–1996 Deputy Dean and Head of Adult Education Dept. of Jiangxi University of Finance &

Economics (Associate Professor)

1996–1997 VGM of Shenzhen Zhong Lv Xin Industrial Co., Ltd.

1997–2004 VGM, GM of Audit Dept. Head of Finance Supervision, Shenzhen Business & Trade

Investment Holding Corporation (2002–2004 Assistant President)

1999–2003 Board Chairman & Secretary of CCP,

Shenzhen Business-holding Industrial Co., Ltd.

2004–Now VGM, Head of Accounting Dept., Shenzhen Investment Holding Corporation

2009.2–Now Chairman of Shenzhen Special Economic Zone Real Estate & Properties (Group)

Co., Ltd.

2007.12–Now Supervisor of SDB

Wang Bomin Chief Financial Officer 1995–2002 Citibank Taiwan, Vice President, Treasury Financial Engineering and Market

Risk Supervision

2002–2003 Head of Treasury Group of Taishin Financial Holding Co., Ltd.

(Senior Vice President, Deputy CFO)

2003–2005 Head of Risk Control Group, Senior Vice President,

Taishin Financial Holding Co., Ltd.

2005–Now Chief financial officer of SDB

Xu Jin Board Secretary & 1999–2003 Vice General Manager of Asset Security Department of SDB Head Office

Chief Legal Officer 2001–2003 Director of Shenzhen Special Asset Management Center of SDB

2003–2005 General Manager of Legal Affairs Department of SDB Head Office

2005.1–2005 Employee Supervisor of 5th BOS of SDB

2005–2009.8 Board Secretary & General Manager of Legal Affairs Department of SDB

2009.8–Now Board Secretary & Chief Legal Officer of SDB


F Annual Compensations

Annual compensation of directors, supervisors and senior executives of the Bank is decided in the following procedures and based on the following resolutions: the compensation program for directors of the 6th board of directors and supervisors of 5th board of supervisors was reviewed and approved by the 2004 SDB Annual Shareholders’ Meeting, and was reviewed and revised by the 2006 & 2007 SDB Annual Shareholders’ Meeting; the compensation program for senior executives of the Bank was reviewed and approved by the 13th, 14th and 15th meeting of the 7th board of directors.

There was no change of non-executive directors’ compensation plan for 2009. The variations of specific compensation numbers were due to different number of board & committee meetings.

The following table shows the compensations (before-tax) paid to directors, supervisors and senior executives of the Bank for 2009 service (including amounts received during 2009 and received in 2010 for 2009 service):

NAME Position 2009 remuneration (in RMB 10,000 Yuan)

Frank N. Newman Chairman of BOD & CEO 1,741

Xiao Suining Director, President 486

Hu Yuefei Director, Vice President 351

Liu Baorui Director, Vice President 327

Chen Wuzhao Independent Director 98

Michael O’Hanlon Independent Director 130

Robert T. Barnum Independent Director 93

Tang Min Independent Director 21

Andy Xie Independent Director 80

Daniel A. Carroll Director 54

Li Jinghe Director 45

Ricky Lau Director 46

Mary Ma Director 51

Shan Weijian Director 41

Wang Kaiguo Director 37

Kang Dian External Supervisor 136

Guan Weili External Supervisor 80

Zhou Jianguo Supervisor 48

Xiao Geng Supervisor 58

Ma Limin Employee Supervisor 215

Jiao Jisheng Employee Supervisor 138

Ye Shuhong Employee Supervisor 126

Wang Bomin CFO 331

Xu Jin Board Secretary, Chief Legal Officer 165Total 4,898

Note: In 2006, the 15th meeting of the 6th Board of Directors of SDB reviewed and approved Proposal for Deferred Bonus Plan for Important Managerial Personnel. According to this proposal, the Bank provided important managerial personnel and key staff with an initial deferred bonus plan in 2006, and the Bank paid this deferred bonus to important managerial personnel and business backbones in 2009 based on specific status of the Bank’s net profit and shareholders’ value growth over 3 years. Specific income (before tax) acquired by the Bank’s senior executives due to implementation of the deferred bonus plan in 2009 is as follows:

NAME Position Cumulative deferred bonus (paid in 2009, in RMB 10,000)

Frank N. Newman Chairman of BOD & CEO 200

Hu Yuefei Vice President 100

Liu Baorui Vice President 100

Jiao Jisheng Employee Supervisor 40

Ma Limin Employee Supervisor 45

Ye Shuhong Employee Supervisor 30

Wang Bomin CFO 150

Xu Jin Board Secretary, Chief Legal Officer 50


G Changes of Directors, Supervisors and Senior Management

1 Changes of directorsOn 18 May 2009, elected by 2008 Annual Shareholders’ Meeting, Mr Tang Min was elected as an independent director of the 7th Board of Directors of the Bank.

2 Changes of supervisorsChairman of the Board of Supervisors Mr Kang Dian filed a written resignation on 24 December 2009, resigning his position as Chairman of the Board of Supervisors of Shenzhen Development Bank. He will continue to undertake all responsibilities as a supervisor of Shenzhen Development Bank in line with laws, and perform relevant responsibilities of convening and presiding Board of Supervisors work during the transition period before a new Chairman of the Board of Supervisors is elected.

3 Changes of senior executivesIn August 2009, Board Secretary Mr Xu Jin was also officially named Chief Legal Officer of the Bank.

H Employees of the Bank

Up to 31 December 2009, the Bank had 11,308 employees, among which there were 6,112 business employees, 3,500 financial and operating employees, and 1034 managing and operation-supportive employees, 662 administrative and other employees. Among the bank’s employees, 71.1% of them have Bachelor’s Degree or the higher, and 95.2% of them have Diploma Degree or the higher. Besides, the Bank has 4,299 contingent employees and contract workers.

48

A Corporate Governance

The Bank abides by the Company Law, the Securities Law, the Commercial Banking Law and relevant rules and regulations, as well as regulatory requirements stipulated by China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC), and commits to improving corporate governance system, improving corporate governance structure, enhancing the relevancy of the board decisions and promoting the overall governance standard.

In the reported period, on the basis of completing the special activity for corporate governance, the Bank revised the Company’s Article of Association, specified nomination and selection system for directors in the Nomination Committee Charter of the Board of Directors of SDB, and further specified selection and engagement standards and procedures, in accordance with the Company’s status quo and regulators’ relevant requirements. All the directors of the Bank have honored their public promises and fulfilled their duties with diligence. They have actively participated in all meetings, fully expressed their opinions, carried out their various duties with seriousness, evaluated the operation efficiency of the board, and formed Self-Evaluation Report of the Board of Directors. The Bank’s Board of Directors is directly responsible to the Shareholders. The Board holds meetings according to due legal procedures and exercises its rights in strict adherence to laws. The Board of Supervisors has focused on maintaining contact and communication with the Board of Directors and senior management levels. By attending various Board of Directors meetings and Audit Committee meetings for special committees within the Board of Directors, our Supervisors have been able to fulfill their responsibilities to provide opinion after reviewing the periodic financial reports drafted by the board of directors. The bank built basic standards in conformity with corporate governance and relevant laws and regulations, and management structure which are applicable for the Bank’s specifics. The duties and reporting lines of the senior management team are clear.

In the reported period, the Bank disclosed information in a truthful, accurate, complete and timely manner. The board reviewed and approved Guidance for Reports on Operation Information and System for the Administration of Insider Information and Insiders, specified the type, content, time and manner of information for report, and strengthened the management of inside information. There was no case of providing unpublished information to large shareholders and actual controllers by the Bank.

In light of regulatory requirement and relevant legal rule, the Board Audit Committee of the Bank reviewed the Shenzhen Development Bank Accountability System for Major Error of Information Disclosed in the Annual Report, which will be further reviewed and then submitted to the Board for approval.

In “Evaluation Activity for 2009 Best Board of Directors of China Listed Companies” jointly organized by Weekly Wealth Management and “CCTV Securities Information Channel”, the Bank’s Board of Directors was honored as “Best Board of Directors for Strategic Decisions” and “Best Board of Directors for Social Responsibility”.

B Duty Performances by Independent Directors

In the reported period, Mr Tang Min was elected as an independent director of the 7th Board of Directors of SDB by the annual shareholders’ meeting. At present, there are 5 independent directors in the board, which is in line with relevant regulations of China Securities Regulatory Commission. Within the reported period, all independent directors performed their duties and participated in important decision-making at the Bank by expressing independent opinions on major events based on relevant laws, rules and regulations and defended the overall interests of the Bank, in particular the legitimate rights of small and medium shareholders.

Meeting attendance record for the Bank’s Independent Directors of the 7th Board:

NAME OF No. of INDEPENDENT scheduled Actual AttendanceDIRECTOR attendances presence by proxy Absence Objections to proposals

Michael O’Hanlon 9 9 0 0 Nil

Robert T. Barnum 9 8 1 0 Nil

Chen Wuzhao 9 9 0 0 Nil

Andy Xie 9 9 0 0 Nil

Tang Min 3 3 0 0 Nil

Note: The post qualification of independent director Tang Min was approved by CBRC-Shenzhen on 3 July 2009.

Corporate Governance at the Bank


C The Separation of the Bank From its Largest Shareholder in Areas Of Business, Personnel, Assets, Organization and Finance

The Bank is completely separate from its largest shareholder in areas of business, structure, personnel, finance and assets. The Bank is equipped to operate independently with its own independent business, complete assets, independent operations, and accountable for its own profitability and loss. Business-wise, the Bank has its own production and management and sales system; Institution-wise, the Bank is structurally organized to be completely independent from its largest shareholders; personnel-wise, the Bank and its largest shareholders are independent in areas such as labor, human resource and wage management, with none of business management personals holding positions at largest shareholder’s institutions; finance-wise, the Bank has its independent financial management regulations and accounting computation systems in place, such that both accounting and tax payments are standalone; assets-wise, the Bank is complete in its assets, and its relations with its assets are well-defined. The Bank is also independent in its business operational space and industrial proprietary rights, trademark registration rights, and possesses intangible assets such as non-proprietary technologies.

In the reported period, there is no corporate governance non-standard that large shareholders and actual controllers interfere with the production, operation and management of listed companies.

D Evaluation and Incentive of Senior Management

During the reported period, the Bank’s Board of Directors further improved the compensation management measures for senior management. The Board of Directors and Compensation Committee under the board evaluated the performances of senior management based on the execution of annual work plan and achievement of major operating results. The bonus paid to senior management is based on the performance appraisal results. The Bank is continually refining the performance appraisal and incentive systems for senior management staff.

E Self-Appraisal Summary on Internal Control

1 Self-appraisal summary on internal controlIn accordance with relevant provisions of the Commercial Banking Law of P.R.C, Guidance for Internal Control of Commercial Banks and Guidance for Internal Control of Listed Companies of Shenzhen Stock Exchange, the Bank always paid attention to internal control system building as business scale continuously grew, established and improved a series of systems, procedures and methods to prevent and control risks, and formulated an all-around, cautious, effective and independent internal control system, taking risk prevention and cautious operation as the starting point. In 2009, the management team of the Bank effectively operated under the guidance of the board with its special committees, and the Compliance & Internal Control Committee was set up to establish a coordination and response mechanism for preventing and controlling compliance risk, operational risk and relevant risk. The internal control system covers each business procedure and operational step as well as the control and management of current managing departments, branches and sub-branches. Although there are some areas needed to be further improved, the management team is highly aware of these issues and has scheduled improvement measures. On balance, internal control mechanism of the Bank is sufficient, solid and effective, internal control system is complete, and there subsists no material internal control deficiencies.

Please refer to 2009 Internal Control Self-Appraisal Report of the Bank disclosed on the same day for specifics.

2 Board of Supervisors’ comments on self-appraisal of internal controlDuring the report period, the Bank adhered to the basic principles of internal control in accordance with relevant provisions of China Securities Regulatory Commission and Shenzhen Stock Exchange, set up complete and rational internal control system based on the Bank’s status quo, and carried out good execution in business activities, which was generally consistent with relevant requirements of China Securities Regulatory Commission and Shenzhen Stock Exchange. The 2009 self-appraisal of internal control of the Bank accurately and completely reflects the current status of internal control and main aspects to be improved. The rectification plan is practical and satisfies the long-term development requirement of internal control.

3 Independent directors’ comments on self-appraisal of internal controlIn accordance with relevant provisions of the Commercial Banking Law of P.R.C, Guidance for Internal Control of Commercial Banks and Guidance for Internal Control of Listed Companies of Shenzhen Stock Exchange, the Bank always paid attention to internal control system building as business scale continuously grew, and established and improved a series of systems, procedures and methods to prevent and control risks, taking risk prevention and cautious operation as the starting point. An all-around, cautious, effective and independent internal control system established by the Bank plays an effective role in maintaining sustainable business development and preventing financial risks. We do not detect any material internal control deficiencies in the Bank. The 2009 Internal Control Self-Appraisal Report of Shenzhen Development Bank is in conformity with the status quo of the Bank.

50

In the report period, the Bank held totally 3 shareholders’ meeting, including 1 annual shareholders’ meeting and 2 extraordinary shareholders’ meeting. The brief information is as below:

A On 27 Febuary 2009, the Bank held 2009 1st Extraordinary Shareholders’ Meeting. The Resolution Announcement for 2009 1st Extraordinary Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd. was disclosed on China Securities, Securities Times and Shanghai Securities News on 28 Feuary 2009.

B On 18 May 2009, the Bank held 2008 Annual Shareholders’ Meeting. The Resolution Announcement for 2008 Annual Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd. was disclosed on China Securities, Securities Times and Shanghai Securities News on 19 May 2009.

C On 29 June 2009, the Bank held 2009 2nd Extraordinary Shareholders’ Meeting. The Resolution Announcement for 2009 2nd Extraordinary Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd. was disclosed on China Securities, Securities Times, Shanghai Securities News and Securities Daily on 30 June 2009.

Introduction on General Shareholders’ Meetings


A Discussion and Analysis of Operations in the Reported Period

1 Range of operationThe Bank engages in the range of various banking operations approved by the relevant authorities, primarily include:

• Renminbideposits,loans,settlement,andremittance;• Renminbidraftsacceptancesanddiscounting;• Trustbusiness;• IssuanceandtradingofRenminbi-denominatedsecuritiespermittedbytheregulatoryauthorities;• Foreigncurrenciesdepositsandremittance;• BorrowinginandoutsideofChina;• Issueandbrokeringtheissueofvaluablesecuritiesofforeigncurrency;• Tradingandnon-tradingsettlement;• Foreigncurrencydraftsacceptancesanddiscounting;• Foreigncurrencyadvances;• Brokeringforeigncurrencyandforeignsecuritiestrading,proprietaryforeigncurrencytrading;• Creditworthinessinvestigation,advisoryandwitnessbusiness;• Insuranceagency;• Goldtrading,goldpurchase,inter-banklendingandborrowingofgold,leasinggoldtoenterprise,goldfinancing,andprovidingretail

product of gold investment to individual citizens.• Otherbusinessesapprovedorpermittedbytheregulatoryauthorities

We are one of the commercial banks licensed to operate nationwide in China. We strategically concentrate our distribution networks in China’s relatively affluent regions such as Pearl Delta Region, Bohai Rim, and Yangtze River Delta and meanwhile develop networks in key cities in Central and Western China.

2 Financial Review

In RMB million Reported year Previous year ±%

Operating Income 15,114 14,513 4.14

Operating expense 7,380 6,376 15.76

Operating profit before provision 7,734 8,138 -4.96

Operating Profit 6,159 803 666.61

Net Profit 5,031 614 719.29

In 2009, due to the lagged impact of a series of interest cuts by PBOC in 2008, the banking industry saw substantial interest spread squeeze; meanwhile the macro economic environment posed challenge to business performance of the whole banking industry. Through good management of assets and liabilities volume, structure, and pricing, the Bank effectively diminished the extent of net interest margin narrowing down. Plus solid volume growth and fee business development, the Bank realized operating income of 15.11 billion Yuan, an increase of 4% compared with the same period of last year. Pre-provision operating profit was down by 5% from 2008, on account of increasing input of operating cost and special payment items. Deducting the impact of special payment items, pre-provision operating profit slightly increased over 2008. In light of regulatory requirements on small and medium sized banks at the end of 2008 to deal with domestic and overseas financial and economic situations, the Bank made a special massive provision and write-offs in the 4th quarter. In 2009, assets quality was stable and credit provision got back to the normal level. Operating profit and net profit grew by 667% and 719% respectively.

Report of the Board of Directors

Report of the Board of Directors52

Income and Profit

(1) Net interest incomeIn 2009, net interest income of the Bank increased by 3.1% compared with the same period of last year to 13,000 million Yuan, which accounts for 85.9% of the operating income, dropped by 0.9 percentage points compared with 86.8% of the same period of last year. Growth of net interest income is attributable to the growth of interest-earning assets.

The following table lists the daily average balance of primary assets and liabilities, and daily average yield or daily average cost of the bank in the reporting period.

Jan–Dec 2009 Jan–Dec2008 Average Average Average Average yield/cost yield/cost yield/cost yield/cost (%) (%) (%) (%) Daily (including (excluding Daily (including (excluding average impaired impaired average impaired impairedIn RMB million balance loan interest) loan interest) balance loan interest) loan interest)

ASSETSLoans and advances (excl. bills) 280,566 5.58 5.55 233,743 7.09 6.93

Bonds investment 82,137 3.21 3.21 64,973 3.68 3.68

Placement at central bank 41,769 1.53 1.53 42,247 1.72 1.72

Discounted bills and inter-bank business 119,321 2.18 2.18 76,490 4.66 4.66

Total interest-earning assets 523,792 4.11 4.09 417,453 5.57 5.48

LIABILITIESDeposits 412,393 1.69 1.69 330,307 2.59 2.59

Bonds issued 8,844 5.90 5.90 5,178 6.29 6.29

Inter-bank business 83,510 1.26 1.26 63,542 2.79 2.79

Total interest-bearing liabilities 504,747 1.70 1.70 399,027 2.67 2.67

Deposit-loan spread 3.89 3.85 4.50 4.34Net interest spread 2.41 2.39 2.90 2.81Net interest margin 2.47 2.45 3.02 2.93

Note: Due to adjustment of computation method, the figures of “average yield of bill discount and inter-bank business” and “average cost of inter-bank business” in 2008 as shown above was adjusted. Therefore, the 2008 NIS was different from the 2.86% as disclosed in the 2008 Annual Report. The deposit loan spread and NIM are not subject to the adjustment.

The 2008 method: average yield of bill discount and inter-bank business = (discount interest income + inter-bank interest income) / (discount ADB + inter-bank assets ADB); average cost of inter-bank business = (inter-bank discount interest cost + inter-bank liabilities interest payment / inter-bank liabilities ADB

The 2009 method: average yield of bill discount and inter-bank business = (discount interest income – inter-bank discount interest cost + inter-bank interest income) / (discount ADB + inter-bank assets ADB); average cost of inter-bank business = inter-bank liabilities interest payment / inter-bank liabilities ADB

Jul–Sep 2009 Oct–Dec2009 Average Average Average Average yield/cost yield/cost yield/cost yield/cost (%) (%) (%) (%) Daily (including (excluding Daily (including (excluding average impaired impaired average impaired impairedIn RMB million balance loan interest) loan interest) balance loan interest) loan interest)

ASSETSLoans and advances (excl. bills) 292,127 5.38 5.34 315,925 5.21 5.17

Bonds investment 81,049 3.09 3.09 87,240 3.05 3.05

Placement at central bank 42,485 1.52 1.52 46,560 1.52 1.52

Discounted bills and inter-bank business 103,764 1.80 1.80 105,018 2.07 2.07

Total interest-earning assets 519,425 3.99 3.97 554,742 3.97 3.94

LIABILITIESDeposits 416,273 1.56 1.56 432,095 1.48 1.48

Bonds issued 9,456 5.81 5.81 9,459 5.93 5.93

Inter-bank business 74,015 1.36 1.36 92,113 1.60 1.60

Total interest-bearing liabilities 499,744 1.61 1.61 533,666 1.58 1.58

Deposit-loan spread 3.82 3.78 3.73 3.69Net interest spread 2.38 2.36 2.39 2.37Net interest margin 2.44 2.42 2.45 2.43


Interests income of loans and advances

Jan–Dec 2009 Jan–Dec2008 Average Average Average Average yield/cost yield/cost yield/cost yield/cost (%) (%) (%) (%) Daily (including (excluding Daily (including (excluding average impaired impaired average impaired impairedIn RMB million balance loan interest) loan interest) balance loan interest) loan interest)

Corporate loans (excl. bills) 196,005 5.52 5.46 165,023 7.08 6.85

Personal loans 84,561 5.73 5.73 68,720 7.12 7.12

Loans and advances (excl. bills) 280,566 5.58 5.55 233,743 7.09 6.93

Jul–Sep 2009 Oct–Dec2009 Average Average Average Average yield/cost yield/cost yield/cost yield/cost (%) (%) (%) (%) Daily (including (excluding Daily (including (excluding average impaired impaired average impaired impairedIn RMB million balance loan interest) loan interest) balance loan interest) loan interest)

Corporate loans (excl. bills) 204,262 5.41 5.35 220,461 5.23 5.18

Personal loans 87,865 5.32 5.32 95,464 5.16 5.16

Loans and advances (excl. bills) 292,127 5.38 5.34 315,925 5.21 5.17

Interests expense of customer deposits

Jan–Dec 2009 Jan–Dec2008 Daily Average Daily AverageIn RMB million average balance cost (%) average balance cost (%)

Corporate deposits 223,040 1.66 183,640 2.43

Including: current deposits 104,915 0.55 90,865 0.90

time deposits 118,125 2.65 92,775 3.93

including: treasury and negotiation deposits 29,456 3.77 27,239 5.33

Retail deposits 64,796 1.94 51,655 2.70


savings deposits 43,835 2.70 34,376 3.74

Guarantee deposits 124,557 1.62 95,012 2.85

Total deposits 412,393 1.69 330,307 2.59

Jul–Sep 2009 Oct–Dec2009 Daily Average Daily AverageIn RMB million average balance cost (%) average balance cost (%)

Corporate deposits 226,819 1.57 248,265 1.50


time deposits 115,534 2.56 128,023 2.39

including: treasury and negotiation deposits 27,566 3.85 31,050 3.56

Retail deposits 64,437 1.81 66,174 1.65


savings deposits 43,313 2.52 44,489 2.29

Guarantee deposits 125,017 1.42 117,656 1.32

Total deposits 416,273 1.56 432,095 1.48


(2) Net fee incomeIn 2009, the net non-interest income of the Bank increased by 11% to 2,100 million Yuan compared with the same period of last year, including net fee and commission income up by 39% to 1,180 million Yuan. The growth of net fee and commission income is as follows:

In RMB million 2009 2008 ±%

Fee income of settlement 387 342 13.27

Fee income of wealth management business 17 2 812.13

Fee income of agency and entrusted business 103 101 2.06

Fee income of credit cards 392 308 27.36

Consultation fee 301 169 78.03

Fee income of trade finance 37 17 113.03

Fee income of accounts management 30 19 53.88

Others 120 98 21.76

Subtotal of fee and commission income 1,387 1,056 31.26

Fee outlay for agency businesses 111 123 –9.77

Outlay for bank cards 73 65 12.08

Others 22 17 29.58

Subtotal of fee and commission outlay 206 205 0.45

Net fee and commission income 1,181 851 38.69

2009 annual settlement fee income (including domestic and international ones) rose by 13% compared with the same period of last year, on account of business volume growth and customer increase.

2009 annual wealth management fee income rose by 812% compared with the same period of last year, largely attributable to variety growth and volume growth of wealth management products.

2009 annual bank card fee income rose by 27% compared with the same period of last year, in the face of growth of effective card number and transaction volume.

In 2009, consultation fee income, fee income of trade finance and fee income of accounts management all recorded good growth.

(3) Net other operating incomeNet other operating income includes investment return, gains/losses from fair value changes, foreign exchange gains/losses and other business income. In 2009, net other operating income decreased by 11% compared with last year, mainly due to decrease of foreign exchange gain and gain on fair value change of financial instrument in relation to market factors.

(4) Operating expenseOperating expenses rose by 21% in 2009 (including the one-off factor of tax self-inspection for previous years), which is largely due to headcount and business volume growth as well as enhanced investment on management process promotion and IT system. Cost to income ratio (excluding business tax) amounted to 41.76%, up by 5.77 percentage points from the 35.99% in 2008. Labor cost increased by 25% over 2008 to 3,360 million Yuan, business expenses increased by 12% to 2,030 million Yuan, and depreciation, amortization and renting fee increased by 26% to 930 million Yuan. Deducting the impact of special one-off factors, operating expenses rose by 18% in 2009.

Average income tax rate was 18.7%, 4 percentage points down from 2008, on the back of change of tax collection and payment method in 2008 (the tax collection and payment was done in the beginning of 2009 and showed effect in 2009). The actual income tax in 2008 and 2009 were as follows:

In RMB million 2009 2008 Growth (%)

Profit before tax 6,191 793 +681.03

Income tax 1,160 179 +549.48

Actual income tax rate 18.74% 22.53% -3.79 percentage points


Assets size

In RMB million 2009 2008 ±%

Total assets 587,811 474,440 23.90

Total liabilities 567,341 458,039 23.86

Deposits 454,635 360,514 26.11

Loans (including bills) 359,517 283,741 26.71

Owners’ equity 20,470 16,401 24.81

In 2009, the Bank’s assets size recorded good growth. As of 31 December 2009, total assets grew by 24% to 587.8 billion Yuan; total loans (including discount bills) grew by 26% to 359.5 billion Yuan; total liabilities grew by 24% to 567.3 billion Yuan; total deposits grew by 26% to 454.6 billion Yuan; and owners’ equity rose by 25% to 20.5 billion Yuan.

Corporate deposits increased by 27% compared with last year to 383.7 billion Yuan, accounting for 84% of total deposits; retail deposits increased by 22% to 71 billion Yuan, as 16% of total deposits; corporate loans (including discount), increased by 25% to 261.9 billion Yuan, as 73% of total loans; and retail loans increased by 32% to 97.6 billion Yuan, as 27% of total loans.

Assets qualityIn 2009, in spite of difficulties and challenges such as deepening impact of global financial crisis, Chain banking industry saw rapid growth of credit volume on the back of national progressive fiscal policy and moderately loosening monetary policy, and drove the China economy trending upward and meeting expected growth target. However, due to uncertainties of national and foreign economic environment, change of national policy, macro control of real estate market and investment behavior, bank credit risk management remains vigilant. The Bank stuck to the credit principle of stable operation, realized stable and moderately rapid credit growth, and effectively controlled the amount of new NPLs and NPL ratio. Assets quality was stable and Provision Coverage Ratio was further promoted. As of 31 December 2009, NPL balance grew by 0.5 billion Yuan from the beginning of the year to 2.4 billion Yuan; the NPL ratio of 0.68% was almost kept the same as the last year; Provision Coverage Ratio reached 162%.

For the full year 2009, the Bank collected non-performing assets of 2.1 billion Yuan in total, including principal of 1.89 billion Yuan. Among collected credit assets principal, there were written-off loans of 0.67 billion Yuan and non-written-off loans of 1.21 billion Yuan. 81% of the credit assets were collected in cash and the remainder in the measure of repossessed assets.

(1) 5-tier loan classificationPlease refers to the Key Business Data Highlights C.1.

(2) Loans structure and quality by regions in the reported period

31 December 2009 31 December 2008In RMB million Balance NPL Ratio (%) Balance NPL Ratio (%)

South and Central China 112,690 1.06 87,983 1.41

East China 128,155 0.56 100,457 0.66

North China & Northeast China 91,588 0.50 75,600 0.01

Southwest China 27,084 0.27 19,701 0.09

Total 359,517 0.68 283,741 0.68

In 2009 new loans made by the Bank were mainly concentrated in the Easten and Southern regions, increased by 27.7 billion Yuan and 24.7 billion Yuan respectively compared with the beginning of the year, and respectively accounting for 37% and 33% of new loans of the year. Considering loan quality of regional segments, NPLs were mainly concentrated in Southern region at 31 December 2008, and NPLs of this region were primarily legacy NPLs initially issued before 2005. NPL rates of the rest regions were all lower than the average NPL rate of the Bank.


(3) Loans structure and quality by products in the reported period

31 December 2009 31 December 2008 Change ofIn RMB million Total loans NPL Ratio (%) Total loans NPL Ratio (%) NPL Ratio (%)

Corporate loans 261,879 0.78 209,835 0.88 -0.10Including: general loans 216,594 0.95 167,617 1.10 -0.15

discounted bills 45,285 – 42,218 – –

Retail loans 97,638 0.40 73,906 0.12 0.27Including: housing mortgage loans 59,399 0.34 44,431 0.07 0.27

operational loans 11,193 0.52 10,305 0.19 0.33

credit cards receivables 4,751 1.68 3,722 0.64 1.04

automobile loans 6,453 0.18 3,275 0.02 0.16

others 15,842 0.25 12,173 0.08 0.17

Total loans 359,517 0.68 283,741 0.68 –

Increase of retail NPL ratio is in relation to the low beginning base after the big provision and write-off in 2008.

Holding of foreign currency financial assetsForeign currency financial assets held by the bank are mainly loans, receivables, and investment. There are two sorts of foreign currency investments held by the Bank; the brokerage investment and proprietary investment. One part of brokerage investment is for close position of wealth management product, structure of which completely matches with wealth management product of the Bank, hedging against market risk entirely; another part of brokerage investment is for brokerage foreign currency exchange, which has simple product structure and adequate liquidity, with most trading partners as domestic major banks. Proprietary investment is mainly for bond investment and inter-bank borrowing and lending. Subjects of bond investment largely are foreign currency bonds issued by the Ministry of Finance of China or domestic policy banks, or bonds issued by overseas major banks backed in full amount by foreign governments. Investment product of this kind comprises simple structure, consistent price and stable market value. Counterparties of inter-bank borrowing and lending mainly are domestic banks, thus fund security is guaranteed. Most overseas trading partners are major international investment/commercial banks, home companies of which are mostly rated AA by Standard & Poor’s. We do not discover any major changes of their ratings despite overseas financial market volatility.

The Bank is always precautious towards overseas securities investment, which does not make up for a big portion of overall investment, thus impact of its market risk on profit is limited.

According to regulatory rules, banks should hold certain amount of foreign currency capital to conduct such businesses as foreign debt guarantee. In accordance with this requirement, the Bank purchased 150 million USD as foreign currency capital during the reported period, which is subject to exchange rate risk in relation to exchange rate change.


At the end of the reported period, foreign currency financial assets and liabilities held by the Bank are as follows:

Gains/losses Accumulated on changes fair value Impairment in fair value changes provision Opening during recognized during EndingIn RMB’000 balance the period in equity the period balance

Financial assetsCash and placement at PBOC 539,331 – – – 558,765

Placement of deposits at other financial institutions 10,866,413 – – – 5,911,196

Funds loaned to other financial institutions 5,325,983 1,084 4,066,139

Financial assets at fair value through profit or loss 9,702 12,073 – – –

Account receivables 1,120,766 – – – 3,171,986

Interest receivables 158,416 – – – 98,517

Loans and advances 3,995,906 – – 54,698 7,909,781

Available-for-sale financial assets 771 – 4,006 – 242,851

Held-to-Maturity investment 499,911 – – – 1,088,117

Long-term equity investment 201 – – – 684

Other assets 18,525 – – (2,808 ) 18,513

Total 22,535,925 12,073 4,006 52,974 23,066,549

Financial liabilitiesPlacement of deposits from other financial institutions 2,633,010 – – – 1,379,918

Funds borrowed from other financial institutions – – – – 1,570,118

Financial liabilities at fair value through profit or loss 44,291 (11,589 ) – – –

Deposits 13,862,856 – – – 17,374,481

Account payables 507,483 – – – 391,318

Interest payables 82,077 – – – 59,078

Other liabilities 15,498 – – – 17,742

Total 17,145,215 (11,589 ) – – 20,792,655

3 Business Review

Corporate Banking BusinessAs of the end of 2009, corporate deposit balance grew by 26.9% compared with the same period of last year, loan balance grew by 24.8%, and net fee income grew by 20.3%. Trade finance credit balance grew by 41.3% over the beginning of the year to 122.6 billion Yuan. In 2009, domestic economy leveled off and picked up in a short period of time, attributable to prompt macro control policy of the government. In the reported period, the Bank saw rapid growth of corporate deposit, general loan, and trade finance and bill businesses all together and also made progress in deepening corporate customer cooperation, product innovation, and brand building.

Corporate loans grew relatively fast in the reported period, compared to the bank’s historical patterns, but grew more conservatively than most other banks and the industry as a whole in China. While supporting national infrastructure building, industry transformation and internal demand increase, the bank effectively expanded the corporate customer base and profitability base. Also, general deposit rate level was substantially reduced through more refined business mix and price control measures which mitigated the effects on loan and deposit interest spread and corporate operating income despite of narrowing PBOC loan and deposit spread.

In 2009, the Bank defined the first batch of strategic customers and SME strong-potential customers, and conducted differential service strategy, thus saw remarkable profitability increase from such high-contribution and high-growth customers.


In the reported period, the innovation edge of corporate business was further enhanced. The Bank developed and launched the auto finance supply chain system, electronic bill system, transaction fund monitoring system, legal person account overdraft system, bank-customerhouse guarantee, interface standard of bank-logistics direct connection, and other electronic systems. The online supply chain finance program was developed smoothly, and businesses such as transaction fund monitoring also showed good momentum. At the end of October, the Bank successfully launched the second phase of electronic bill system and joined the national electronic commercial draft system, and cooperated with ICBC Bill Department to handle the first electronic inter-bank discount business in China, and recorded several No.1 in the country. According to PBOC data, the Bank ranked high in electronic bill number and amount compared with peers in 2009.

The strength of continuous development of SDB corporate business was remarkably consolidated on the back of development and launch of a series of key systems as well as integrated utilization of various innovative products. The brand image and impression of supply chain finance was stably promoted then. During the reported period, the service mode of supply chain fiancé was honored as the First Prize of 3rd Academy Award “Top 10 Management Innovation” co-held by the Beida Business Review Magazine and Shanghai Jiaotong University, and “Best Supply Chain Finance Award” at the 3rd China Financial Innovation Forum. It was also recommended as the “Best Service Provider of Supply Chain Finance” by the logistics industry. The series of pool financing product was granted the Second Prize of Shenzhen Municipal Government 2nd Financial Innovation award, and the “Top 10 Financial Product” of 2008 China Financial Company (Marketing Category) Assessment held by the Banker Magazine, and a number of other awards, which was widely recognized by the public.

Development of trade finance business in 2009 is as follows:

31 December 31 DecemberIn RMB million 2009 % 2008 % Changes (%)

Domestic trade finance 115,134 93.9 81,692 94.10 40.9

Including: South and Central China 43,622 35.6 30,593 35.24 42.6

East China 26,054 21.2 17,618 20.29 47.9

North China & Northeast region 38,249 31.2 28,740 33.11 33.1

Southwest and other regions 7,209 5.9 4,741 5.46 52.1

International trade finance (including off-shore) 7,487 6.1 5,119 5.90 46.2

Including: export trade finance 3,613 2.9 1,436 1.66 151.6

Import trade finance 3,874 3.2 3,683 4.24 5.2

Total balance of trade finance 122,621 100 86,811 100 41.3

In trade finance, the Bank built the industry marketing team at the head quarter to enhance the head quarter’s leading role in development of supply chain finance. In the reported period, the Bank made notable achievement in “1+N” marketing towards major industries, built HO-to-HO relation with 87 core enterprises of industry chains, and continually explored a number of new cooperation model and business opportunities. Although impacted by export situation and slowed down in the first half year, the trade finance regained solid growth in the second half year, and made in-depth business exploration in such industries as auto, steel, fertilizer, and agriculture products. As of the end of the reported period, Trade finance balance amounted to 122.6 billion Yuan, increased by 41.3%, or 35.8 billion Yuan compared with last year, including 24.3 billion Yuan growing in the second half year as 70% of the full-year increase. Trade finance customer number grew by over 30% from the beginning of the year to 5,738. Trade finance NPL ratio was kept very low at 0.37%, rose slightly compared with the beginning of the year. But most of the NPL was pledged with collaterals so the risk of loss is controllable.

Domestic trade finance still accounted for more than 95% of the total profile. However, while export is turning around in the second half year, international trade finance credit grew by 46.9% or 2.4 billion over 2008, showing the momentum of accelerated growth. In face of decline of national total import and export amount in 2009, the international and off-shore settlement amount still increased by 16.4% compared with the same period of last year; off-shore customers grew by 8,192 ones as an increase of 39.3%, all standing above market average.

Retail Banking2009 is the year that the Bank saw an important turning point for retail business. The Bank reviewed the retail development process in the past five years, and clearly defined the strategic goal for the next five years. The Bank initiated the retail banking development strategy (“Leapfrog Plan”) focusing on “product, service, convenience”, and set and implemented a series of strategic actions and infrastructure building work. The project achieved good result at the current stage, which would expedite work toward the goal of retail banking making profit.

In 2009, the Retail continuously proceeded with the development plan taking growth of valuable customers as the core, defined customer value position and basic interests through streamlining and upgrading customer categorization standards, and designed an all-sided retail customer identification system. Through building a cross-selling system of retail banking, the Bank saw product cross-selling indicators climbed fast, value customers and total customer management assets stably grew, and the portion of middle-and-high-end customers to total customers continually increased.

Facing intensive market and policy change for the whole year, the Bank conquered major challenges. Various businesses of retail banking kept the trend of continuous and stable growth and met all the KPI successfully.


As of 31 December 2009, retail lending (including credit card) grew by 32.1% over the beginning of the year to 97,600 million Yuan. Except credit card, the Bank made retail loan of 58,500 million Yuan in 2009, as an increase of 84%. Retail deposit ADB grew by 25. 4% to 64,800 million Yuan. Sales volume of wealth management product grew by 64.3% over the last year to 28,900 million Yuan, including sales of fund grew by 43% to 4,730 million Yuan. Wealth management fee revenue recorded solid grow over the same period of last year.

In 2009, credit card business substantially turned improved. As of 31 December 2009, the Bank accumulatively issued 1.03 million new credit cards, and effective card volume grew by 20% over 2008 to 3.64 million. Credit card loan balance rose by 28% compared with the same period of last year to 4,750 million Yuan. Credit card consumption volume grew by 42%, and operating income grew by 36%. Risk management capacity of credit card was completely promoted, with the annual overdue ratio down by 57%, delinquency ratio down by 26%, and fraud loss rate down by 54%. While operation management efficiency promoted, credit card cost and expenses were effectively controlled. In the meantime, the Credit Card Center strived for achieving professional management in customer service, product, risk management, asset portfolio, channel expansion, and operation efficiency and other aspects, and realized rapid growth with the core value of “environmentalism, fashion, and health”.

The trust business realized breakthrough in securities investment fund, and integrated wealth management trust project with Securities Company, and has launched more than 10 trust products covering 5 major categories of fund, securities, trust, PE, and commercial banking wealth management products. The business entered into the period of positive development and rapid expansion. Accumulatively the volume reached 13,300 million Yuan.

Asset quality of retail loans was subject to good control. The non-accrual loan ratio and NPL ratio were kept at a low level. The Bank also has become an industry leader in credit card risk management.

In 2009, the Bank was awarded as the 2009 “The Best Retail bank in China”, “Best Banking Wealth Management Brand” and other more than 40 prizes by famous market research institutions and press.

Table of personal loans

In RMB million 31 December 2009 % 31 December 2008 %

1. Personal loans excluding credit cards

South and Central China 28,960 31.18 23,145 32.97

East China 38,158 41.08 26,482 37.73

North China 20,381 21.94 16,013 22.82

Southwest 5,385 5.80 4,534 6.46

Head Office 3 – 10 0.02

Total personal loans excluding credit cards 92,887 100 70,184 100

Including: total NPLs 308 0.33 61 0.09

2. Credit card loans

Balance of credit card loans 4,751 100 3,722 100

Balance of credit card NPL 80 1.68 24 0.64

3. Total personal loans (including credit cards) 97,638 100 73,906 100

Total NPL of personal loans including credit cards 388 0.40 85 0.12

4. Mortgage loans in personal loans

Balance of mortgage loans 61,803 66.53 46,538 66.31

Including: housing mortgage loans 59,399 63.95 44,431 63.31

Mortgage NPL 217 0.23 47 0.10

Including: housing mortgage NPL 200 0.34 31 0.07

Note: Credit card is excluded from the total retail loans while computing the proportion of mortgage loan to total retail loans.

As of 31 December 2009, retail loan balance (excluding credit card) grew by 32% from the beginning of the year to 92,900 million Yuan. Mortgage loan is the business product with fastest growth rate in relation to a buoyant real estate market in 2009, growing by 15,000 million Yuan. Mortgage loan accounted for 64% of retail loans. During the period of time, the Bank enhanced research on economic trend and real estate market, expedited development of mortgage business, and in the meantime conducted management process reengineering, developed now collection system, emphasized on management of credit authenticity and assessment authenticity, and conducted risk inspection about certificate authenticity. However, there were more uncertainties due to macro control policy on real estate markets and investment behavior. Considering the full year, the personal loan NPL ratio fell to some extent, and the Bank still kept sound asset quality.

Entering into 2010, there are correction signal for real estate market from the central government. In 2010, the Bank will on the one hand continuously support demand of house purchase for self-living, and on the other hand promote the portion of high return businesses such as individual business loans. In the meantime, the Bank will conduct credit portfolio management for different businesses mix to deal with the circumstance changes, and conduct differential management of customers while developing businesses, in order to promote general interest earning level of retail loan businesses.


Treasury and Inter-Bank BusinessIn 2009, with the strategy of “building a complete IB and treasury product chain, expediting business innovation and management innovation, continuously improve balance sheet structure, and realizing high quality growth of IB business”, the IB and Treasury closely followed the market trend and grasped market opportunities, accelerating product and management innovation, continuously enrich product chain, continuously improve IB balance sheet mix, and enhanced risk management and liquidity management for the whole bank; meantime facilitated establishment of the IB resources and information co-sharing platform, to realize rapid and solid growth of IB business.

(1) Number of core customers continuously grew and business sphere constantly exploredThrough in-depth cooperation with peer banks for treasury and wealth management businesses and promotion of the business mode of “Bank-bank Cooperation”, the bank enhanced cooperation and communication with peers and continuously increased the core customer number. The Bank also obtained the qualification of inter-bank forex market maker, gold warehouse business, bond transaction at exchange and so on, paving the way for long-term development of treasury business.

(2) Debt financing business. The Bank made the first underwriting business in 2009 and achieved milestone development of debt financing business through close cooperation between the head quarter and branches.

(3) Enhanced product innovation and improved the product chainThe Bank launched the “Ritianli” cash management product, individual noble metal T+D business, bank credit non-standard bond investment business, RMB deputy business and other products and services, which enrich the product line and expand business development space.

(4) Promote management innovation and expand the definition of risk managementWhile further enhance credit risk management, the Treasury included market risk and compliance risk into the coverage of risk monitoring, thus deepened the IB risk management work. A RMB liquidity platform was built, which help realize the full-dimension, full-maturity cash flow management of IB RMB business, and promote efficiency and accuracy of liquidity control and business review work.

(5) Increasingly improve the internal control mechanism through enhancing system building and staff trainingThe Bank set and improved various rules and systems, streamlined business operation process, regularly made self-inspection, arranged staff training and adopted other measures to regulate business, promote risk awareness of employees, and strengthened business stability.

SME Financial ServiceOver the years the Bank always strive for making innovation in SME financial model and supporting business development of SMEs. As approved in June 2009, the Bank established the branch-level special division for SME service — SME Financial Division. The Division has three business lines under centralized management, i.e. market, risk control, and operations. It will observe the management concept of target customer base and the principle of wholesale development, providing financial service for SMEs in a more professional, intensive, and efficient manner.

In 2010, the Bank will accelerate development and innovation of special products for SME service and build the product system, enhance work on business exploration and marketing towards target customers, make innovation in management and develop in a scientific way, in order to quickly develop the business of special SME service.

Liquidity managementThe Board and management team of the Bank places great attention to liquidity management. Liquidity status is solid. At the end of 2009, liquidity ratio as defined by CBRC amounted to 39.46%, well in excess of the regulatory requirements.

As of the end of 2009, the Bank recorded stable deposit and loan growth. The Bank still kept a considerable amount of bonds and PBOC bills, which could be sold or repurchased at the secondary market anytime and consolidated capability of the Bank to deal with liquidity pressure. The Bank successfully issued 1.5 billion Yuan HT2 bond in May 2009, which raised liquidity. In addition, the Bank is closely monitoring the capability to raise cash within 1 month, "Quick Cash", on daily basis. The Bank continuously maintains adequate Quick Cash position to cope with potential significant deposit outflow during liquidity crisis. Stress testing is performed monthly to ensure the Bank meets the internal requirement.

Organizational constructionIn 2009, the bank set 20 new sub-branches, among which 3 ones are in Northern and Northeast China, 4 in Southwest China, 9 in Eastern China and 4 in Central and Southern China.

During the reported period, the Bank was approved to set the Wuhan Branch, which was officially opened On 3 December 2009.


4 Segmental operation information

Deposits by geographical region at the end of reported period

REGIONS 31 December 2009 31 December 2008

In RMB million Amount % Amount %

Southern and Central China 160,943 35.40 126,900 35.20

Eastern China 150,534 33.11 123,023 34.12

Northern China and Northeast 115,680 25.45 89,386 24.79

Northwest China 27,478 6.04 21,205 5.89

Total 454,635 100 360,514 100

Loans (including discount) by geographical region at the end of reported period

REGIONS 31 December 2009 31 December 2008

In RMB million Amount % Amount %

Southern and Central China 112,690 31.34 87,983 31.01

Eastern China 128,155 35.65 100,457 35.40

Northern China and Northeast 91,588 25.48 75,600 26.65

Northwest China 27,084 7.53 19,701 6.94

Total 359,517 100 283,741 100

Operating income and operating revenue by geographical region in the reported period

Year 2009

REGIONS Percentage of Pre-provision pre-provision operatingIn RMB million Operating income Operating expenses operating profit profit by regions

Southern and Central China 7,473 3,624 3,849 49.77

Eastern China 4,148 2,003 2,145 27.73

Northern China and Northeast 2,604 1,350 1,254 16.22

Northwest China 889 403 486 6.28

Total 15,114 7,380 7,734 100

Year 2008

REGIONS Percentage of Pre-provision pre-provision operatingIn RMB million Operating income Operating expenses operating profit profit by regions

Southern and Central China 8,040 3,220 4,820 59.23

Eastern China 3,495 1,691 1,804 22.17

Northern China and Northeast 2,150 1,133 1,017 12.50

Northwest China 828 332 496 6.10

Total 14,513 6,376 8,137 100

Business in southern China comprises business at the head office. As the bond and fund trading business are concentrated at the head office, the revenue before provision shows higher proportion in southern China compared with the other regions.

In 2009, the Bank reported operating income decline in the Southern and Central China region, largely due to net interest income decline in Southern region. Compared with other regions, market in South responded to the policy of 30% individual mortgage discount earlier than the other markets. Also, new loans in this region were mainly made in the second half year, later than the other regions, so the contribution of new lending to the full year result was smaller than the other places. For the said two reasons, increase of net interest income brought by volume growth could not completely offset decrease of net interest income brought by interest spread decline, and operating income dropped compared with 2008.


5 Profit by periodsProfit by periods in 2009 is as follows:

In RMB million 1Q 2Q Jan – Jun 3Q 4Q Jul – Dec 2009

Operating income 3,760 3,731 7,491 3,623 4,001 7,624 15,114

Net interest income 3,299 3,065 6,364 3,196 3,425 6,621 12,984

Net fee and commission income 196 282 478 304 399 703 1,181

Net other operating income 266 384 649 123 177 300 949

Operating expenses 1,725 1,741 3,466 1,746 2,168 3,915 7,380

Business tax and surcharge 259 263 522 246 301 547 1,069

General and administrative expenses 1,466 1,478 2,943 1,501 1,867 3,368 6,311

Operating profit before provision 2,035 1,990 4,025 1,876 1,833 3,709 7,734

Asset impairment loss 522 582 1,104 271 200 471 1,575

Operating profit 1,513 1,408 2,921 1,606 1,633 3,238 6,159

Net non-operating gains/losses 3 4 8 6 17 23 31

Profit before tax 1,517 1,412 2,929 1,612 1,650 3,262 6,191

Income tax 395 223 618 285 257 542 1,160

Net profit 1,122 1,189 2,311 1,327 1,393 2,720 5,031

6 Future expectation and action plans

2010 Business PlanIn 2010, the Bank expects that China would still go through the key period of keeping growth rate and adjusting structure. It is expected that the progressive fiscal policy and moderately loose monetary policy will continue. The Bank would engage active balance sheet management, enhance structural and pricing management, and promoting assets yield; pay attention to innovation, pricing, and promoting fee business income, and improve income mix.

a. Continuously enhancing outlet and channel building, increasing investment on IT system. In 2010, on the premise of adding new capital and CAR & CCAR meeting standard, the Bank will continually enhance outlet development and building (including equipping self-service banking devices), and improved the function of online-banking and telephone banking. In the meanwhile, the bank would continue improvement and input on IT system, and make investment on HR, process reengineering and business strategy, in order to realize healthy and sustainable business development.

b. Supplementing core capital and consolidating capital management. The core capital raising plan of non-public offering to Pingan Life is under regulatory review. After the issuance, it is expected that CAR and CCAR of the Bank will exceed 10% and 7%. In 2010, the Bank would conduct prudential balance sheet management policy, and realize balanced growth of assets volume under strict capital constraint through planning & assessment and limit management.

c. Regarding corporate business, the Bank will continually enhance product innovation, expedite development and application of products and tools for settlement & payment and basic service functions, promote customer service capability, and promote stable growth of deposit, good quality assets and effective customers. Noticing the key role of e-commerce to improving supply chain management and financial performance, the Bank will accelerate the progress of on-line supply chain finance, strive for realizing interlink between banks and the core enterprise, up-end and low-end companies and logistics monitoring parities, continuously deepen “head quarter to head quarter” cooperation with core enterprises, and drive for material growth of “1+N” chain businesses.

“Facing SMEs and facing trade finance” is the major strategy that SDB Commercial Banking will emphasize. In the new year, the Bank will get involved in wider industries and areas, provide more innovation products to SMEs, and continuously supporting SME financial development, improving people’s well-being and facilitating economic development.

d. Regarding retail business, in 2010 the bank will implement the “Leapfrog Project”, strive for becoming primary bank for value customers, and promote deposit drawing capability. The Bank will endeavor to become the primary bank or secondary bank for affluent and mass affluent customers to conduct deposit, wealth management, loan and settlement business, promote business capability in an all-around manner and increase total customer assets.


In 2010, the SDB Retail Banking will continually promote product development and innovation capability basing on “product, service, and convenience”, and focus on product innovation in favor of cross-selling and development of product portfolio; through promoting the new front-line model and building the selling model of “one customer manager on behalf of one SDB”, enhance cross-selling between the four teams of retail lending, credit card, wealth management and auto finance, consolidate integrated internal advantage, build cross-assessment mechanism, and promote sales ability of the outlets with the employees; through upgrading the SDB card platform, conduct mobile payment innovation and promote cell phone banking building, enhance convenience of individual e-banking, build sound retail banking infrastructure, and promote channel convenience.

In custody service, the Bank will build the multiple fund source of custody business basing on the custody sales and transaction platform, emphasize differential marketing, and expand customer base through emphasis on “product, service, and efficiency”; build the brand name of “professional custody bank for private equity”, and forge the competitiveness with SDB feature at the private equity custody market.

In the meantime, the Bank will streamline fee business items of retail, improve pricing management, set appropriate KPI, adjust business structure, promote risk pricing and assets portfolio strategy, in order to improve fee income level and substantially increase fee income; gradually narrow the gap between retail deposit and loan, and improve integral retail banking profitability. Through the work of constantly enhancing team building and staff quality, sticking to compliance business and development, and payment attention to balanced and coordinated development of various retail businesses, it is expected that the retail bank will be a substantially growing profit contributor in future 5 years.

e. Inter-bank business. In 2010, the Bank will reinforce inter-bank marketing and channel building, promote refined customer management ability, changed from the original product-centered business model to the business model with product-and-customer-centered double center & double engine, strive for satisfying customer necessity, and promote customer contribution to the Bank.

i. Strive for building the business model with double-center of customer and product. Build complete inter-bank marketing channel, provide product and service that substantially satisfy customer necessity to potential customers and current customers; continually enlarge core customer group and expand market share; always provide value-added service to customers through product marketing and promote customers loyalty and contribution to the Bank; continuously improve assessment and incentive mechanism, stabilize inter-bank assets and liabilities mix of the whole bank, and continue strong asset quality.

ii. Keep on innovation and improve inter-bank product chain. The Bank will build the non-principal-guaranteed asset pool, promote new product, research on and develop net-value debt wealth management product, enlarge volume and promote profitability; substantially develop the individual gold T+D business, and enhance marketing towards third party bank, brokerage cooperation and business model for gold.

iii. Continually pay attention to the fund source and use to ensure balance of assets and liabilities, and conduct various innovation business to realize diversification of inter-bank business and profit source.

f. With respect to risk management, the Bank will stick to the concept of stable operation, consolidate business foundation in line with national industry policy from the four sides of industry, region, customer, and product, promote risk management level, and conduct credit portfolio management on different business mixes. While pursuing development, the Bank would conduct differential customer management, strengthen advantages on businesses facing SMEs and facing trade finance, further improve credit structure, and promote integrated profitability level of credit business.

g. Further streamline and improve business process.


7 Capital PlanIn 1H 2009, the Bank successfully issued hybrid capital bonds of 1.5 billion Yuan to further supplement tier-2 capital. As of 31 December 2009, CAR and CCAR reached 8.88% and 5.52% respectively.

To further build up core capital and enhance capital strength, the Bank held the 2009 2nd Extraordinary Shareholders’ Meeting on 29 June 2009, which approved the Proposal of Non-Public Offering Plan of Shenzhen Development Bank. The plan is to issue to PA Life new shares of no less than 370 million and up to 585 million at 18.26 Yuan per share to raise up to RMB 10,683 million Yuan, which will all be used to supplement core capital after deducting relevant issuance fees. The plan is subject to approval of CBRC, CIRC, CSRC and other related authorities.

After this capital injection, the Bank will materially improve its core capital. After the issuance, the bank expects that CAR will exceed the 10% target as set at the beginning of the year. And CCAR will exceed 7%. Besides, on the basis of the issuance, the Bank will choose appropriate opportunity to further add tier-2 capital.

In RMB million 31 December 2009 31 December 2008 31 December 2007

Core CAR 5.52 5.27 5.77

CAR 8.88 8.58 5.77

Capital compositionsCore capital 20,175 15,038 12,806

Share equity 3,105 3,105 2,293

Capital reserve 6,956 6,963 5,203

Surplus reserve 1,284 781 719

General reserve 4,676 3,583 2,716

Unappropriated profit 4,154 606 1,874

Item deducted from core capital 321 328 113

Net core capital 19,854 14,710 12,693

Supplementary capital 12,372 9,578 112

General loan loss provisions 2,723 1,445

Revaluation reserve2 187 778 112

Long-term subordinated debts 7,973 7,355 –

Hybrid capital bonds 1,490 – –

Total capital 32,548 24,616 12,918

Less: goodwill – – –

Unconsolidated equity investment 362 434 5

Others 280 223 221

Net capital 31,905 23,959 12,692

Total risk-weighted assets 359,508 279,113 220,056

On-balance sheet risk-weighted assets 290,468 220,032 170,779

Off-balance sheet risk-weighted assets 69,040 59,081 49,278

Note: 1. Capital reserve and unappropriated profit in the above table have deducted unrealized gain caused by change of assets fair value, in accordance with the CBRC computation method.

2. Revaluation reserve includes revaluation reserve for available-for-sale financial assets and investment properties.


8 Investments of the Bank in the reported period

Shareholding of other listed company

CODE Gains/losses Change of Initial % of Ending in reported equity in Accounting SharesIn RMB’000 Name investment shareholding book value period period subjects sources

000040 Shen Hong Ji 3,215 0.30 5,757 – 2,967 Available-for-Sale Historic investment

000150 Yihua Property 10,000 2.79 59,455 – 49,455 Available-for-Sale Repossessed equity

000505 Zhujiang Real Estate 9,650 0.27 – – – Long-term equity Historic investment

600515 ST Zhuxin 664 0.22 – 3,309 – Long-term equity Historic investment

600038 Hafei Shares 39,088 0.37 – 6,278 -776 Available-for-Sale Repossessed equity

600664 Hayao shares 80,199 0.39 – 26,595 -12,875 Available-for-Sale Repossessed equity

000892 ST Xingmei 2,911 0.14 5,451 – 2,540 Available-for-Sale Repossessed equity

600094 ST Huayuan 4,248 0.23 4,260 – 12 Available-for-Sale Repossessed equity

Visa Inc. – 0.01 1,324 – 553 Available-for-Sale Historic investment

Total 149,975 76,247 36,182 41,876

Shareholding of other unlisted financial institutions and unlisted companies

INVESTMENT COMPANY NAMEIn RMB’000 Investment amount Impairment provision Ending book value

China Bank Unionpay Co. Ltd. 50,000 – 50,000

SWIFT 684 – 684

Total 50,684 – 50,684

Controlling companyIn the reported period, there was no investment of controlling shareholder or any other equity.

Usage of raised fundIn the reported period, no funds were raised by the Bank. Funds raised last time were used up as scheduled before the reported period.

Actual process of and return on major non-share-offering investment projectIn the reported period, the Bank has no non-share-offering investment project.

9 Fair valuesSubject to the existence of financial instruments in an active market, the bank adopts the price of active markets to determine its fair values for preference. Subject to the existence of financial instruments in an inactive market, the bank adopts evaluation technique to determine its fair values. The evaluation technique includes reference to familiar circumstances and the price used in latest market trading of each party voluntary for trading, and reference to the current fair values and discounted cash flow technique of other essentially same financial instruments. Evaluation technology may use market parameter if feasible. However, the management team needs to evaluate in light of the credit risk, market fluctuation rate and relevance of itself and the trading counterparts when lack of market parameter. The change of those relevant assumptions will influence the fair values of financial instruments. At present, the Bank has no such financial instrument.

The following methods and assumptions have been used in estimating fair value by the bank:

i Financial assets/financial liabilities at fair value through profit or loss (including derivative financial assets/derivative financial liabilities) are measured at fair value by reference to the quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of discounted cash flows or by reference to the quotes provided by counterparty. The carrying amounts of these items are equal to their fair values.


ii The fair values of the held-to-maturity investments and the receivables-bond investments are determined with reference to the available market values. If quoted market prices are not available, then fair values are estimated on the basis of discounted cash flows. The fair values of bonds assets of receivables are determined by the cost;

iii The fair values of other financial assets and financial liabilities maturing within 12 months are assumed to be approximately equal to their carrying amounts due to their short maturity.

iv The fair values of the fixed rate loans are estimated by comparing the market interest rates when the loans are granted with the current market rates offered on similar loans. Changes in credit quality of loans within the portfolio are not taken into account in determining gross fair values as the impact of credit risk is recognised separately by deducting the amount of the impairment provision from both the carrying amount and the fair value.

v Interest rates on customer deposits might either be floating or fixed depending on the types of products. The fair values of saving accounts and deposits without maturity date are the amounts payable on demand to customers. The fair values of deposits with fixed terms are determined by the discounted cash flow method. The discount rate adopted is the current interest rate on deposits with the same maturity as the remaining maturity of those deposits.

vi Investment real estate is evaluated by independent value with certified qualification each year, and analysis report is issued every quarter.

10 The work summary of the Board of Directors

Meetings and resolutions of the board of directors in the reported periodThe 11th meeting of the 7th board of directors of the Bank was convened on 12 January 2009. The meeting reviewed and approved the Proposal for Provision in 2008 4Q, Proposal for Write-offs in 2008 4Q, and 2008 Performance Forecast of Shenzhen Development Bank. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 13 January 2009.

The 12th meeting of the 7th Board of Directors was convened on 10 Febuary 2009. The meeting reviewed and approved Proposal for Convening 2009 1st Extraordinary Shareholders’ Meeting of Shenzhen Development Bank. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 12 Febuary 2009.

The 13th meeting of the 7th Board of Directors was convened on 19 March 2009. The meeting reviewed and approved the Proposal for Compensation for Some Senior Executives, Proposal for Write-offs of Non-Credit Assets for 2008 4Q, Annual Accounting Statement and Audit Report as of 31 December 2008 of Shenzhen Development Bank, the Annual Audit Report of Shenzhen Development Bank (12 December 2008), 2008 Annual Profit Distribution Plan, 2008 Annual Report of Shenzhen Development Bank, 2008 Annual Report Abstract of Shenzhen Development Bank, 2008 Annual Internal Control Self-Appraisal Report of Shenzhen Development Bank, Social Responsibility Report of Shenzhen Development Bank, 2008 Board of Directors Work Report, 2008 Independent Directors’ Work Report, 2008 Financial Results Report, 2009 Business and Financial Plan, and Proposal for Engaging Haitong Securities Co., Ltd. as the Underwritter for the Company’s Hybrid Bonds. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 20 March 2009.

The 14th meeting of the 7th Board of Directors was convened on 23 April 2009. The meeting reviewed and approved 2009 1Q Report of Shenzhen Development Bank, Proposal for Engagement of Accounting Firm for 2009, 2008 Related Party Transactions of Shenzhen Development Bank, Proposal for Purchase of Responsibility Insurance for Directors and Senior Staff, Proposal for Credit Line to China National Electronics Import & Export Corporation, Proposal for Credit Line to China Electronics Corporation Holdings, Co., Ltd., Proposal for Deferred Bonus Plan for 2009, Proposal for Total Bonus Target Amount for Senior Executives for 2009, General Guidance on Performance Evaluation for Senior Executives for 2009, Proposal for Nominating MrTang Min as Independent Director Candidate of the 7th Board of Directors of Shenzhen Development Bank, 2009 Budget Report of Shenzhen Development Bank, Proposal for Revision of Article of Association of Shenzhen Development Bank and Proposal for Convening 2008 Annual Shareholders’ Meeting of Shenzhen Development Bank. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 24 April 2008.

The 15th meeting of the 7th Board of Directors was convened on 14 May 2009. The meeting reviewed and approved Proposal for Modifications to 2009 Guidelines for Senior Executive Performance Assessment, Establishment of Specifics for Special Deferred Bonus Program, Proposal for Compensation and Target Bonus for Some Senior Executives and Proposal for the Purchase of Office Building for Tianjin Branch. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 15 May 2009.

The 16th meeting of the 7th Board of Directors was convened on 12 June 2009. The meeting reviewed and approved Proposal of the Non-Public Offering Plan of Shenzhen Development Bank, Proposal for Non-Public Offering Pre-scheme of Shenzhen Development Bank, Proposal of Report on Usage of Fund Raised Last Time of Shenzhen Development Bank, Proposal of Feasibility Report on Usage of Fund Raised by the Non-Public Offering of Shenzhen Development Bank, Proposal of Signing the Subscription Contract of Non-Public Offering with Effective Terms Between Specific Subject and Shenzhen Development Bank, Proposal of Satisfying Non-Public Offering Conditions of Shenzhen Development Bank, Proposal of Authorizing the Board by Shareholders’ Meeting to Fully Handle the Issues Related to the Non-Public


Offering, Proposal for Authorizing the Chairman to Handle the Issues Related to the Non-Public Offering, Proposal for Engaging CITICS and Haitong Securities to be Sponsors for Non-Public Offering, Proposal for Convening the 2009 2nd Extraordinary Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd. and Proposal for Related Party Transactions Announcement of Non-Public Offering of Shenzhen Development Bank. Relevant resolutions were published on China Securities, Securities Times, Shanghai Securities News and Securities Daily on 13 June 2009.

The 17th meeting of the 7th Board of Directors was convened on 24 July 2009. The meeting reviewed and approved Proposal for the Board of Directors’ Agreement on the Change of Shareholders of Shenzhen Development Bank. Relevant resolutions were published on China Securities, Securities Times, Shanghai Securities News and Securities Daily on 25 July 2008.

The 18th meeting of the 7th Board of Directors was convened on 20 August 2009. The meeting reviewed and approved Proposal for Write-offs for 1H 2009, Accounting Statements and Auditor’s Report of Shenzhen Development Bank as of 30 June 2009, 2009 1st Half Report of Shenzhen Development Bank, the Abstract of 2009 1st Half Report of Shenzhen Development Bank, Proposal for Credit Line to Shenzhen Small & Medium Enterprises Credit Guarantee Center Co.,Ltd., Nomination Committee Charter of Shenzhen Development Bank (Revised in August 2009), Shenzhen Development Bank Board of Directors Self-Appraisal Report for 2008, Proposal for Adding a Member of Relevant Committees, Guidelines for Reports on Operation Information of Shenzhen Development Bank, Proposal for Revised Sponsor Arrangements for Non-Public Offering, Proposal for Revision of 2009 Deferred Bonus Plan, and Proposal for Establishing a Quasi-Branch Institution for Credit Card. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 21 August 2008.

The 19th meeting of the 7th Board of Directors was convened on 28 October 2009. The meeting reviewed and approved Proposal for Write-offs for 3Q 2009, Shenzhen Development Bank 2009 3Q Report, Proposal for 300mm Yuan Credit Line to Legend Holdings, System for Selecting and Engaging Accounting Firms of Shenzhen Development Bank, System for the Administration of Inside Information and Insiders of Shenzhen Development Bank and Proposal for Modification of the Company’s Name on Business License. Relevant resolutions were published on China Securities, Securities Times and Shanghai Securities News on 29 October 2009.

The Execution of Shareholders’ Meeting Resolution by the BoardThe Board of Directors of the Bank seriously exercised every resolution of shareholders’ meeting during the reported period. As of the end of report period, except the proposals need to get regulators approval, such as Proposal for the Non-Public Offering Plan of Shenzhen Development Bank approved by the 2009 2nd Extraordinary Shareholders’ Meeting, the Bank exercised and implemented all the shareholders’ meeting resolutions including 2008 annual profit distribution plan.

Duty Performance of Audit and Related Party Transaction Control CommitteeDuring the reported period, the Audit and Related Party Transaction Control Committee held totally 6 meetings, assisting the Board of Directors to supervise the completeness of corporate financial report and internal control system and the effectiveness of internal audit function; supervising the annual independent audit on corporate financial statement, and made evaluation on independent auditors qualification, independence and working behavior; supervising the compliance in meeting legal requirements and regulatory requirements; supervising the exercise of corporate information disclosure control and procedure and its efficiency; supervising the fairness and justice of related party transaction and performed other duties specified by the Working Rules of the Audit and Related Party Transaction Control Committee.

In the reported period, Audit and Related Party Transaction Control Committee under the Board of Directors carried out communications and coordination with the accounting firm for annual audit, in accordance with Working Rules for Annual Audit and relevant rules of the Committee.

(a) Two audit opinions on corporate financial reportThe Audit and Related Party Transaction Control Committee already negotiated the time arrangement for 2009 annual report auditing work with the accounting firm, and urged accounting firm to submit auditors’ report within the specified time limit.

The Audit and Related Party Transaction Control Committee reviewed the financial statement prepared by the company before the annual auditing CPA officially came into work, and believed that the financial report prepared in accordance with the rules of new accounting standard fully reflected the asset-liability situation as of 31 December 2009 and the business result and cash flow of the company in 2009 in all significant respects.

After annual auditing CPA came to work, the Audit and Related Party Transaction Control Committee strengthened the communication with them. After issuing the preliminary audit opinion by the annual auditing CPA, the Audit and Related Party Transaction Control Committee reviewed corporate financial report the second time in the meeting held on 9 March 2010, and believed that the financial report is true, accurate and complete, and is in accordance with corporate accounting standards and relevant regulations, there is no dispute with the accountant on significant issues.


(b) Supervision on audit workThe Audit and Related Party Transaction Control Committee made annual audit deployment in advance, and negotiated the scale and time progress of auditors’ report with the accounting firm. After auditors came to work, they made communication with main project managers and know the auditing progress and issue that CPA pay attention to. the Audit and Related Party Transaction Control Committee also urged auditors to hand in the report according to specified time limit so as to ensure the progress and accomplishment of annual auditing and information disclosure work, under the pre-condition of ensuring auditing work quality.

(c) Submitted summary report on auditors work in last year to the Board of DirectorsCurrent CPA completed the auditing work on 2009 annual report and 1st half report, and the review work of agreed upon procedure of 1Q report and 3Q report.

According to the working rules of the Audit and Related Party Transaction Control Committee, it will carry out annual evaluation on the working behavior of independent auditors. In the review process, the Audit and Related Party Transaction Control Committee and management will communicate with the principles of internal audit and review the report getting from the independent auditors.

The Audit and Related Party Transaction Control Committee is satisfied with the qualifications and independence of current CPA. They completed the 2009 financial statement review and other work satisfactorily according to audit regulations and rules.

(d) Resolution on reappointing accounting firm in the next yearSuggest the Bank engage E&Y Huaming Accounting Firm as the domestic audit service agency, and engage E&Y Accounting Firm as the international audit service agency in 2010. The total auditing fee is up to 7 million Yuan.

Performance of Compensation CommitteeWithin the report period, the Compensation Committee held totally 8 meetings, reviewed senior management examination benchmark and carried out examination, and made investigation on compensation policy and plan of directors, supervisors and senior management, and implemented other compensation relevant issue authorized by the Board of Directors.

(a) Examination opinion of compensation of directors, supervisors and senior management disclosed by this reportThe Compensation Committee paid special attention to senior executives’ compensation needed to be disclosed, on the basis of regulatory requirements. The Compensation Committee examined the compensation of directors, supervisors and senior management disclosed by this report, and believed that it is consistent with relevant resolutions of shareholders’ meeting, Board of Directors meeting, Compensation Committee meeting, and relevant system of the Bank. The disclosure is truthful, accurate and complete.

(b) The Bank didn’t implement equity incentive plan

11 The 2009 profit distribution planThe 2009 legitimated financial statement (audited by domestic CPA – E&Y Huaming Accounting Firm) reported net profit 5,030,729,129 Yuan, and distributable profits 5,982,921,713 Yuan.

According to the said profit result and relevant state regulations, the profits distribution for the 2009 full year is as follows:

i The Bank should appropriate RMB 503,072,913 Yuan legitimated surplus reserve as 10% of the annual net profit.

ii Appropriated general provision of 1,092,979,241 Yuan;

iii In order to facilitate the long-term development of the bank, the Bank has no cash dividends or no statutory common reserve converting into capital at present;

iv Upon the said profits distribution, as of 31 December 2009, balance of surplus reserve amounted to 1,283,957,457 Yuan; general provision 4,676,275,655 Yuan; and undistributed profit 4,386,869,560 Yuan, used for supplementing capital, left for profit distribution in the future years.

The above plan is subject to review and approval by 2009 Annual Shareholders’ Meeting of the Bank.

Cash dividend in prior three years:

YEAR Net profit attributed to Ratio of dividends to net profit shareholders of listed attributed to shareholders Cash dividend company in the consolidated of listed company in (tax included) report of the dividend year the consolidated report Annual distributable profit (In RMB’000) (In RMB’000) (%) (In RMB’000)

2006 – 1,411,947 – 868,506

2007 12,666 2,649,903 0.48 2,063,817

2008 80,024 614,035 13.03 952,193

Ratio of accumulative cash dividends in prior three years to average annual net profit (%) 5.95


In 2009, the Board of Supervisors (BOS) of Shenzhen Development Bank has seriously exercised its responsibilities and obligations, and fully implemented its supervising functions on directors and senior executives, on the basis of being responsible for our shareholders and staff, in accordance with Corporate Law, Securities Law, Articles of Association of the Bank and Rules of Procedure for BOS. This has had positively effect on the standardized operation and development of the Bank.

A Meetings of the BOS

7 BOS meetings were held during the reported period. Detailed contents of the meetings are as follows:

1 The 9th meeting by the 6th BOSThe BOS held the 9th meeting of the 6th BOS on 11 Febuary 2009 by telephone conference. The meeting reviewed and approved Proposal for Write-off in 4Q 2009 by telecommunication voting.

2 The 10th meeting by the 6th BOSThe BOS held the 10th meeting on the afternoon of 18 March 2009 at No.2 conference room on 6th floor of the head office. In the meeting, Chairman of the BOS Kang Dian reported recent work of the BOS; fully discussed with present supervisors regarding 2009 Patrol and Inspection of the BOS; the Chairman of Audit and Risk Management Committee of the BOS Guang Weili reported relevant status of meetings of the Audit and Related Party Transaction Committee of the Board of Directors; reviewed and approved 2008 Annual Report of Shenzhen Development Bank; reviewed and approved BOS’s Review Opinions Report on 2008 Annual Report of Shenzhen Development Bank; reviewed and approved 2009 Internal Control Self-Appraisal Report of Shenzhen Development Bank, and issued opinions of the BOS on this report; reviewed and approved 2008 Report of Board of Supervisors of Shenzhen Development Bank.

3 The 11th meeting by the 6th BOSThe BOS held the 11th meeting on the afternoon of 23 April 2009 at No.1 conference room on 6th floor of the head office. The meeting reviewed and approved the 10th meeting minutes of the 6th BOS of SDB; reviewed and approved 2009 1Q Report of SDB; approved Review Opinions Report on 2009 1Q Report of SDB; reviewed and approved 2008 Work Report of the BOS of SDB.

4 The 12th meeting by the 6th BOSThe BOS held the 12th meeting on the afternoon of 5 June 2009 at No.2 conference room on 6th floor of the head office. In the meeting, Chairman of the BOS reported relevant status of 2008 annual supervisory report issued by CBRC recently to the Bank; discussed relevant filling out status involved in the BOS part in the question list of CBRC’s supervisory report for 2008; Chairman of the BOS Kang Dian reported relevant status of the handling report on insiders’ buying or selling stock in violation of laws in listed companies.

5 The 13th meeting by the 6th BOSThe BOS held the 13th meeting on the afternoon of 19 August 2009 at No.2 conference room on 6th floor of the head office. The meeting reviewed and approved the 12th (the 4th in 2009) meeting minutes of the 6th BOS of SDB; the Chairman of Audit and Risk Management Committee of the BOS Guang Weili reported relevant status of 14th meetings of the Audit and Related Party Transaction Committee of the Board of Directors; reviewed and approved 2009 1H Report of SDB; reviewed “explanation on internal control system by the BOD” and discussed and issued comments of the BOS; the Chairman of Audit and Risk Management Committee of the BOS Guang Weili reported relevant status of relevant personnel’s deferred bonus; discussed 2009 Patrol and Inspection Report of the BOS (draft).

6 The 14th meeting by the 6th BOSThe BOS held the 14th meeting on the afternoon of 27 October 2009 at No.2 conference room on 6th floor of the head office. The meeting reviewed the 13th (the 5th in 2009) meeting minutes of the 6th BOS of SDB; the Chairman of Audit and Risk Management Committee of the BOS Guang Weili reported relevant status of 15th meetings of the Audit and Related Party Transaction Committee of the Board of Directors; reviewed 2009 3Q Report of SDB; the Chairman of Audit and Risk Management Committee of the BOS Guang Weili reported relevant status of relevant personnel’s deferred bonus; discussed 2009 Patrol and Inspection Report of the BOS and sent it to the regulators, and the feedbacks from the BOS and senior management team of the Bank.

7 The 15th meeting by the 6th BOSThe BOS held the 15th meeting on the afternoon of 17 December 2009 at Chairman Kang Dian’s office. The meeting reviewed the 14th (the 6th in 2009) meeting minutes of the 6th BOS of SDB; Chairman of the BOS Kang Dian reported relevant status of the package sale of non-performing assets of the Bank.

Report of Board of Supervisors

Report of Board of Supervisors70

B BOS hereby express its independent opinion on the following matters:

1 Operation in conformity with lawsIn the reported period, the Company observed relevant laws, administrative rules and the Bank’s Articles of Association, established and consolidated corporate governance structure, and decision-making procedures were basically in accordance with relevant regulations; as of the reported date, there is no discoveries of BOD or senior executives breaching the laws, policies, AOA of the bank or resolutions of the Shareholders meeting.

2 Inspection of the Bank’s financial statusIn 2009, the Bank standardized the conducts in conformity with the AOA of the Bank in terms of major aspects including financial accounting, and there is no discovery of displaying conducts which are detrimental to the interest of the bank and the shareholders.

3 Fund raising, purchase/sale of assetsDuring the reported period, no major purchase or sale of assets happened.

4 Related party transactionAll Related party transactions are conducted under normal business processes and policies during the reporting period and there is no occurrence of any actions that might detriment to the interest of the bank and the shareholders.


A Material Lawsuits and Arbitrations

Within the reported period, there were no lawsuits and arbitrations that have material impact on operation of the Bank. The Bank, as defendant, was involved in 55 lawsuits and up to RMB 175 million Yuan in disputed funds, all of which had no verdicts yet.

B There were no Merger and Acquisition, Asset Sales in the Reported Period

C Important Related Party Transactions during the Reported Period

1 Related party loans to legal persons where the Bank’s directors, supervisors and senior executives with their close relatives hold positionsUp to 31 December 2009, the Bank approved related party loans to legal persons where the Bank’s directors, supervisors and senior executives with their close relatives hold positions totaling 1,732 million Yuan with 605 million in outstanding balance. The off-balance sheet credit line balance totaled 76 million Yuan. In accordance with the CBRC Management Methods on RPT Between Commercial Banks and Insider & Shareholders, besides the foresaid RPTs, it shall also comprise transactions with the employees at the head quarter and branches who are authorized to make or involve into decision of credit line or assets transfer of commercial banks. As of 31 December 2009, balance of such kind of loans amounted to 160 million Yuan. All the mentioned RPTs have been approved in line with RPT review process of the Bank.

2 The Bank plans to non-publicly offer no less than 370 million but no more than 585 million shares. to Pingan Life Insurance of China (“PA Life”) according to the Share Purchase Agreement signed by the Bank and PA Life Insurance on 12 June 2009. The subscription price will be 100% of the average weighted price of the trading of the Bank’s shares for the 20 trading days immediately before the basis pricing day, i.e. 18.26 Yuan per share. So the total proceeds will be up to 10,683 million Yuan.

According to the Share Purchase Agreement signed by the Bank’s first largest shareholder Newbridge Asia AIV III, L.P. (“NB”) and PingAn Insurance (Group) of China (“China PA”), the actual controller of PA Life Insurance, on 12 June 2009, China PA can purchase all shares held by NB no later than 31 December 2010. In Line with the Shenzhen Stock Exchange Listing Rule, the arrangement of share transfer will make China PA become the related legal person of the Bank. Therefore, the non-public offering made to the subsidiary of China PA, PA Life, is a related party transaction. This offering plan and this share transfer are subject to approval by CBRC, CIRC and CSRC. Except for the above non-public offering trading with PA Life, there was no material RPT between the Bank and China PA in 2009.

D Important Contracts and their Implementation

1 There were no significant custodian, contracting and leasing business in the reported period.

2 Except normal guarantees business approved by the China Banking Regulatory Commission, the Bank had no other significant guarantees.

3 The Bank did not entrust others to handle management of cash assets in the reported period.

4 Significant contract commitment: The Bank had no significant contract disputes in the reported period.

Important Events

Important Events72

E Commitment by the Bank and Relevant Parties

COMMITMENTS Promiser Contents Performance

Commitments in Share Reform NEWBRIDGE ASIA AIV III, L.P. Promises no transferring/trading the holding Performed

non-tradable shares in the securities exchange relevant

market within 12 months since the day acquiring commitments

trading right (first trading day after the implementation

of share reform plan). After the expiration of above

commitment term, the previous non-tradable shares

traded through the stock exchange shall not be over 5%

of total shares in 12 months, not over 10% in 24 months.

Restricted Shares Commitments NEWBRIDGE ASIA AIV III, L.P. a. Our company has no plan at present to publicly Performed

sell the released shares which account for 5% of the relevant

total shares through SSE trading system in six months commitments

after the release. If our company plans to sell the

released SDB shares through SSE trading system

in the future and the sold amount in six months

would be over 5% from the first batch of selling,

our company would disclose a reminding

announcement for the selling through SDB in two

trading days prior to the first batch of selling.

b. If we expect to publicly sell the released shares

which accounts for more than 1% of the total shares

of SDB within one month in the future, our company

would sell the shares through SSE block trading system.

c. If we sell the shares through SSE block trading

system, our company would promise to observe

the relevant rules and regulations of the SSE and

Clearing Company-Shenzhen Branch.

d. While the SDB shares we sell reach 1% of released

shares or above, our company would promise to

perform the obligation of information disclosure

timely and accurately in accordance with the SSE rules.

e. Our company understands and would strictly abide

by the “Guidance on Transfer of Released Shares

of Listed Company and other rules and regulations.

Commitments made in NEWBRIDGE ASIA AIV III, L.P. On the conditions that the information disclosure Performed

Acquisition Report or obligor is able to carry out all rights as the relative relevant

Equity Change Report controlling shareholder of SDB, they commit not to commitments

sell or transfer 348,103,305 SDB ordinary shares

purchased from the seller within five years after the

value date. Unless approval is obtained from banking

regulator, the sale or transfer of the above shares are

not abided by the above restriction of this rule.

Commitments made in – – –

Material Assets Restructuring

Commitments made upon Issues – – –

Other Commitments (including – – –

Retrospective Commitments)


F Certified Public Accountants Engagement

The Bank engaged the Ernst & Young Hua Ming Accounting Firm for the auditing assignment in the reported period. The Bank engaged the Ernst & Young Accounting Firm to work out the supplementary financial statement under IFRS.

In 2009, the Bank paid 4.93 million Yuan to the Ernst & Young Hua Ming Accounting Firm, and 0.6 million Yuan to the Ernst & Young Accounting Firm, so in aggregate 5.53 million Yuan. Travel expenses of these two accountant firms were not reimbursed by the Bank.

The Ernst & Young Hua Ming Accounting Firm has provided services for the Bank for 3 years; the Ernst & Young Accounting Firm has provided services for the Bank for 10 years;

G During the reported period, the Bank, the Board of Directors and its members were not examined or penalized by the China Securities Regulatory Commission, nor publicly denounced by the Shenzhen Stock Exchange.

H Fund Utilization by Controlling Shareholder and its Subsidiaries

At the end of the report period, there were no funds used by controlling shareholders of the Bank its subsidiaries and other related parties.

I Explanations and Independent Opinions of Independent Directors Concerning External Guarantee offered by the Bank

We, as independent directors of Shenzhen Development Bank, checked the external guarantee offered by the Bank in an impartial, fair and objective manner pursuant to Document [2003] 56 of China Securities Regulatory Commission. We think that the external guarantee business conducted by Shenzhen Development Bank is a regular banking business approved by the People’s Bank of China and China Banking Regulatory Commission. Shenzhen Development Bank attaches importance to the risk management of this business, and strictly follows the relevant operation flow and examination and approval procedures, thus ensuring effective control of the risk of the external guarantee business.

J Bonds Issuance

In line with CBRC Approval of Permitting Hybrid Capital Bonds ([2009] No.79) and PBOC Administrative Permission Letter (Inter-bank Market Permission [2009] No.26), the Bank successfully issued hybrid capital bonds of 1.5 billion Yuan to the inter-bank bond market on 26 May 2009. The Bonds are fixed rate bonds with duration of 15 years. The Bank is entitled redemption rights at the end of the 10th year. According to the book-keeping result, the face interest rate is 5.7% for the first 10 interest-counting years.

K Reception of Investigation, Communication and Interview within the Reported Period

In the reported period, the Bank conducts communication with institutions for many times in the manner of performance press conference, analyst meeting, and investor investigation in respect of performance, financial status, and other issues. The Bank also accepts inquiry by phone from individual investors. The contents mainly include: development strategy, non-public offering, periodic report, interim report with illustration, disclosed business and management information and major events, corporate culture, and other related information. According to the requirement of SSE Guidelines on Fair Information Disclosure of Listed Company, the Bank and relevant information disclosure obligators strictly observe the principle of fair information disclosure, and there is no situation in violation of it.

The main information of investors received by the Bank within the reported period is as follows:

TIME Locale Reception manner Interviewer Contents and provided materials

13 January 2009 Shenzhen Field survey, telephone All sorts of investors including Press conference for 2008 communication securities traders and funds investors performance forecast

14 January 2009 Shanghai Visits of investors All sorts of investors including Investors communications meeting securities traders and funds investors for 2008 performance forecast

14 January 2009 Beijing Visits of investors All sorts of investors including Investors communications meeting securities traders and funds investors for 2008 performance forecast

16 January 2009 Hong Kong Telephone All sorts of investors including Investors communications meeting communication securities traders and funds investors for 2008 performance forecast

20 March 2009 Shenzhen Field survey, telephone All sorts of investors including Press conference for 2008 communication securities traders and funds investors Annual Report

23 March 2009 Guangzhou Visits of investors All sorts of investors including Press conference for 2008 securities traders and funds investors Annual Report

Important Events74


24 March 2009 Beijing Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting for 2008 Annual Report

26 March 2009 Shenzhen Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting for 2008 Annual Report

27 March 2009 Shenzhen Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting for 2008 Annual Report

24 April 2009 Shenzhen Field survey, telephone All sorts of investors including Press release for 2009 1Q report communication securities traders and funds investors

27 April 2009 Shanghai Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting for 2009 1Q Report

30 April 2009 Hong Kong Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting for 2009 1Q Report

15 June 2009 Shenzhen Field survey, telephone All sorts of investors including Non-public offering and communication securities traders and funds investors introduction of new strategic investor

16 June 2009 Shenzhen Field survey Genesis investment company Operational status; development strategies

18 June 2009 Shenzhen Visits of investors Institutional investors including Non-public offering and Boshi Fund and Dacheng Fund introduction of new strategic investor

19 June 2009 Shenzhen Visits of investors Institutional investors including China Non-public offering and Merchant Fund and Great Wall Fund introduction of new strategic investor

22 June 2009 Shanghai Visits of investors Haitong Securities strategy meeting, Operational status; all sorts of investors including development strategies securities traders and funds investors

23 June 2009 Shanghai Communications GuoTai JuAn strategy meeting, Operational status; of investors all sorts of investors including development strategies securities traders and funds investors

24 June 2009 Beijing Communications Everbright Securities strategy meeting, Operational status; of investors all sorts of investors including development strategies securities traders and funds investors

25 June 2009 Shenzhen Field survey T-Rowe Price Operational status; development strategies

1 July 2009 Shenzhen Field survey ABN Amro Bank Operational status; development strategies

10 July 2009 Shenzhen Field survey Boshi Fund, ICBC Credit Suisse Operational status; development strategies

16 July 2009 Shenzhen Field survey Robeco investment company Operational status; development strategies

17 July 2009 Shenzhen Field survey Qilu Securities, Zheshang Securities, Operational status; Nanjing Securities and Qunyi development strategies

21 August 2009 Shenzhen Field survey, telephone All sorts of investors including Half Year performance

communication securities traders and funds investors press release

24 August 2009 Shanghai Visits of investors All sorts of investors including Investors communications

securities traders and funds investors meeting of Annual Report

26 August 2009 Beijing Visits of investors Analysts and investors Investors communications meeting of Annual Report

31 August 2009 Shenzhen Telephone Sloane Robinson LLP Operational status; communication development strategies

1 September 2009 Shenzhen Field survey Huaxia Fund, GuoTai JunAn Securities Operational status; development strategies

9 September 2009 Beijing Communications Nomura Securities Financial Real Estate Operational status; of investors Forum, all sorts of investors including development strategies securities traders and funds investors

11 September 2009 Shenzhen Communications UBS Corporate Day, Operational status; of investors all sorts of investors including development strategies securities traders and funds investors

16 September 2009 Shenzhen Field survey 22 persons from PingAn Securities, Operational status; Southern Fund, Huaxia Fund, development strategies Penghua Fund and etc.



18 September 2009 Shenzhen Field survey Chartered Bank Cazenove Asia Operational status; development strategies

29 October 2009 Shenzhen Field survey, telephone All sorts of investors including Performance press release communication securities traders and funds investors for 3Q Report

30 October 2009 Shanghai Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting of 3Q Report

2 November 2009 Beijing Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting of 3Q Report

5 November 2009 Hong Kong Visits of investors All sorts of investors including Investors communications securities traders and funds investors meeting of 3Q Report

10 November 2009 Shenzhen Field survey JP Morgan Chase Operational status; development strategies

17 November 2009 Shenzhen Field survey Invesco Operational status; development strategies

19 November 2009 Shenzhen Communications Credit Suisse strategy meeting, Operational status; of investors all sorts of investors including development strategies securities traders and funds investors

24 November 2009 Shenzhen Communications 5 persons from Jianxin Fund, Operational status; of investors Xiangcai Securities, Guangfa Securities, development strategies Hezong Life Insurance and etc.

1 December 2009 Shenzhen Field survey 12 persons from BOCOM International, Operational status; Great Wall Fund, Southern Fund and etc. development strategies

9 December 2009 Shenzhen Field survey Lansdowne Partners Operational status; development strategies

10 December 2009 Shenzhen Field survey GuoTai JunAn strategy meeting, Operational status; all sorts of investors including development strategies securities traders and funds investors

16 December 2009 Shenzhen Field survey Everbright strategy meeting, Operational status; all sorts of investors including development strategies securities traders and funds investors

17 December 2009 Shenzhen Field survey Anxin Securities strategy meeting, Operational status; all sorts of investors including development strategies securities traders and funds investors

L Reference of Other Important Information Disclosure

ISSUE Date Publication

2008 Annual Performance Forecast, 13 January 2009 China Securities, Securities Times Resolution Announcement of the Board of Directors Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Directors, 12 February 2009 China Securities, Securities Times Resolution Announcement of the Board of Supervisor Shanghai Securities News, and www.cninfo.com.cn

Notice of Convening 2009 1st Extraordinary Shareholders’ Meeting, 12 February 2009 China Securities, Securities Times Materials for 2009 1st Extraordinary Shareholders’ Meeting Shanghai Securities News, and www.cninfo.com.cn

Trading Halt Announcement 24 February 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Clarification Announcement 25 February 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolutioan Announcement of 2009 1st Extraordinary Shareholders’ Meeting, 28 February 2009 China Securities, Securities Times Legal Opinions Shanghai Securities News, and www.cninfo.com.cn

2008 Annual Report, Audit Report of 2008 Annual Financial Statements, 20 March 2009 China Securities, Securities Times 2008 Annual Report Abstract, Shanghai Securities News, Resolution Announcement of the Board of Directors, and www.cninfo.com.cn Resolution Announcement of the Board of Supervisors, 2008 Social Responsibility Report, 2008 Annual Internal Control Self-Appraisal Report, Special Explanation on Funds Impropriation by Controlling Shareholders and the Related Parties

Important Events76

ISSUE Date Publication

2009 1Q Report, Resolution Announcement of the Board of Directors, 24 April 2009 China Securities, Securities Times Resolution Announcement of the Board of supervisors, Shanghai Securities News, Notice of Convening 2008 Annual Shareholders’ Meeting, and www.cninfo.com.cn Materials for 2008 Annual Shareholders’ Meeting, Declaration of Independent Director Nominator

Resolution Announcement of the Board of Directors 15 May 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of 2008 Annual Shareholders’ Meeting, 19 May 2009 China Securities, Securities Times Legal Opinions Shanghai Securities News, and www.cninfo.com.cn

Completion Announcement of Hybrid Capital Bonds Issuance 1 June 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Directors, 13 June 2009 China Securities, Securities Times 2009 Non-Public Offering Pre-scheme, Shanghai Securities News, Related Party Transactions Announcement of Non-Public Offering, and www.cninfo.com.cn Notice of Convening 2009 2nd Extraordinary Shareholders’ Meeting, Materials for 2009 2nd Extraordinary Shareholders’ Meeting, Reminding Announcement of Possible Changes of the Largest Shareholder, Report on Usage of Fund Raised Last Time and Special Verification Report

Simplified Equity Change Report, Detailed Equity Change Report, 16 June 2009 China Securities, Securities Times Financial Advisory Opinions on Detailed Equity Change Report, Shanghai Securities News, Legal Opinions on China PingAn and PingAn Life Insurance’s Shares Investment and www.cninfo.com.cn

Reminding Announcement of the Release of Restricted Shares 19 June 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Reminding Announcement of Convening 2009 2nd Extraordinary Shareholders’ Meeting 26 June 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of 2009 2nd Extraordinary Shareholders’ Meeting, 30 June 2009 China Securities, Securities Times Legal Opinions Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Directors 25 July 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Clarification Announcement 1 August 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Directors, 21 August 2009 China Securities, Securities Times 2009 1H Report & Abstract, Shanghai Securities News, Audit Report of 2009 1H Report and www.cninfo.com.cn

Reminding Announcement of Restricted Shares Listed for Trading 14 October 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Directors, 2009 3Q Report 29 October 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Supervisors 25 December 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

Resolution Announcement of the Board of Supervisors 29 December 2009 China Securities, Securities Times Shanghai Securities News, and www.cninfo.com.cn

PRC GAAP Financial Statements

IFRS Financial Statements

Financial Results

PRC GAAP Financial Statements

79 Auditors’ Report

80 Balance Sheet

81 Income Statement

82 Cash Flows Statement

84 Statement of Changes in Shareholders’ Equity

85 Notes to the Financial Statements

143 Appendix: Supplementary Financial Information

IFRS Financial Statements

144 Independent Auditors’ Report

145 Income Statement

146 Statement of Comprehensive Income

147 Statement of Financial Position

148 Statement of Changes in Equity

149 Cash Flows Statement

150 Notes to the Financial Statements


Ernst & Young Hua Ming (2010) Shenzi No. 60438538_H01

To the shareholders of Shenzhen Development Bank Co., Limited

We have audited the accompanying financial statements of Shenzhen Development Bank Co., Ltd. (the “Company”), which comprise the balance sheet as at 31 December 2009, and the income statement, statement of changes in shareholders’ equity and cash flow statement for the year then ended and notes to the financial statements.

Management’s Responsibility for the Financial StatementsThe management is responsible for preparing financial statements in accordance with Accounting Standards for Business Enterprises. This responsibility includes (1) designing, implementing and maintaining the internal control relevant to the preparation of the financial statements that are free from material misstatement whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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 consider the internal control relevant to the entity’s preparation of 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 the accounting polices used and the reasonableness of the accounting estimates made by management, 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 basis for our audit opinion.

OpinionIn our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises, and present fairly, in all material aspects, the financial position of the Company as of 31 December 2009 and the results of its operations and its cash flows for the year ended.

Ernst & Young Hua Ming Chinese Certified Public Accountant

Beijing, the People’s Republic of China Zhang Xiaodong11 March 2010

Chinese Certified Public Accountant

Xu Xuming

Auditors’ Report

80 PRC GAAP Financial Statements

Balance Sheetat 31 December 2009

In RMB’000 Note D 31 December 2009 31 December 2008

ASSETSCash on hand and due from the Central Bank 1 54,243,952 39,767,901

Precious metals 3,302 9,225

Placements of deposits with other financial institutions 2 15,592,536 21,500,809

Funds loaned to other financial institutions 3 5,361,139 9,236,676

Financial assets at fair value through profit or loss 4 1,132,048 41,441

Derivative financial assets 5 99,996 290,751

Reverse repurchase agreements 6 40,923,396 34,733,353

Accounts receivable 7 4,782,161 1,359,592

Interest receivable 8 1,625,700 1,605,636

Loans and advances 9 355,562,545 281,714,687

Available-for-sale financial assets 10 36,998,409 48,799,716

Held-to-maturity investments 11 34,585,440 15,584,755

Receivables 12 30,427,100 13,750,000

Long term equity investments 13 392,705 417,390

Investment properties 14 523,846 411,690

Fixed assets 15 1,714,461 1,674,924

Intangible assets 156,788 113,917

Deferred tax assets 16 1,582,934 1,811,816

Other assets 17 2,102,576 1,615,894

Total assets 587,811,034 474,440,173

LIABILITIESPlacements of deposits from other financial institutions 19 74,139,673 36,063,032

Funds borrowed from other financial institutions 20 7,570,118 7,380,000

Financial liabilities at fair value through profit or loss 4 – 39,420

Derivative financial liabilities 5 21,540 58,598

Repurchase agreements 21 13,733,384 38,916,115

Customer deposits 22 454,635,208 360,514,036

Employee benefits payable 23 1,681,728 1,247,420

Tax payable 24 652,289 1,197,849

Accounts payable 850,881 507,483

Interest payable 25 2,682,162 2,963,224

Bonds payable 26 9,462,714 7,964,282

Provisions 27 3,358 25,809

Deferred tax liabilities 16 94,525 341,679

Other liabilities 28 1,813,845 820,436

Total liabilities 567,341,425 458,039,383

SHAREHOLDERS’ EQUITYShare capital 29 3,105,434 3,105,434

Capital reserve 30 7,017,072 7,978,982

Surplus reserve 31 1,283,957 780,885

General reserve 32 4,676,276 3,583,296

Unappropriated profit 33 4,386,870 952,193

Total shareholders’ equity 20,469,609 16,400,790

Total liabilities and shareholders’ equity 587,811,034 474,440,173

The financial statements have been signed by:

Legal Representative President Chief Financial Officer Accounting ManagerFrank N. Newman Xiao Suining Wang Bomin Li Weiquan


Income Statementfor the year ended 31 December 2009

In RMB’000 Note D 2009 2008

Operating incomeInterest income 34 21,985,512 26,465,264

Interest expense 34 (9,001,138 ) (13,867,376 )

Net interest income 34 12,984,374 12,597,888

Fee and commission income 35 1,386,972 1,056,647

Fee and commission expense 35 (206,188 ) (205,259 )

Net fee and commission income 35 1,180,784 851,388

Investment income 36 580,286 421,556

Share of profits of associates 18,336 22,675

Gains or losses from changes in fair values of financial instruments 37 (49,190 ) 80,887

Gains or losses from changes in fair values of investment properties 47,858 (15,087 )

Net foreign exchange difference 38 241,623 462,543

Other operating income 39 128,705 113,944

Total operating income 15,114,440 14,513,119

Operating costsBusiness tax and surcharge 40 (1,069,134 ) (1,151,665 )

General and administrative expenses 41 (6,311,091 ) (5,223,866 )

Total operating costs (7,380,225 ) (6,375,531 )

Operating profit before impairment losses on assets 7,734,215 8,137,588

Impairment losses on assets 42 (1,575,088 ) (7,334,162 )

Operating profit 6,159,127 803,426

Add: Non-operating income 55,805 52,310

Less: Non-operating expenses (24,395 ) (63,127 )

Profit before tax 6,190,537 792,609

Less: Income tax expense 43 (1,159,808 ) (178,574 )

Profit for the year 5,030,729 614,035

Earnings per shareBasic earnings per share (Renminbi Yuan) 44 1.62 0.20

Diluted earnings per share (Renminbi Yuan) 44 1.62 0.20

Other comprehensive income for the year, net of tax 45 (961,910 ) 1,055,592

Total comprehensive income for the year, net of tax 4,068,819 1,669,627




Cash Flows Statementfor the year ended 31 December 2009

In RMB’000 Note D 2009 2008

Cash flows from operating activitiesNet increase in customer deposits and placements of deposits from other financial institutions 132,197,813 82,911,325

Net decrease in funds loaned to other financial institutions 1,263,609 –

Net increase in funds borrowed from other financial institutions 190,118 5,080,000

Net increase in accounts payable 343,398 167,186

Net decrease in reverse repurchase agreements 1,584,998 –

Net increase in repurchase agreements – 22,448,533

Cash receipts from interest and fee and commission income 20,713,796 24,691,230

Cash receipts relating to other operating activities 47 1,459,726 2,058,378

Subtotal of cash inflows from operating activities 157,753,458 137,356,652

Net increase in loans and advances 76,230,806 73,638,472

Net increase in amounts due from the Central Bank and placements of deposits with other financial institutions 3,562,647 14,782,982

Net increase in funds loaned to other financial institutions – 2,090,056

Net increase in accounts receivable 3,422,569 581,524

Net increase in reverse repurchase agreements – 648,650

Net decrease in repurchase agreements 25,182,731 –

Cash payments for interest and fee and commission expenses 9,019,496 12,813,497

Cash payments for salaries and staff expenses 2,913,635 2,363,094

Cash payments for taxes 2,602,116 1,821,485

Cash payments relating to other operating activities 48 2,625,847 4,274,281

Subtotal of cash outflows from operating activities 125,559,847 113,014,041

Net cash flows generated from operating activities 32,193,611 24,342,611

Cash flows from investing activitiesCash receipts from disposal of a subsidiary – 61,000

Cash receipts from investments upon disposal/maturity 139,269,639 104,701,106

Cash receipts from investment income 2,490,274 1,509,948

Cash receipts from disposal of fixed assets and investment properties 672 42,977

Subtotal of cash inflows from investing activities 141,760,585 106,315,031

Cash payments for investments 156,416,547 133,691,351

Cash payments for investment properties, fixed assets, intangible assets, construction in progress and leasehold improvements 985,252 838,003

Subtotal of cash outflows from investing activities 157,401,799 134,529,354

Net cash flows used in investing activities (15,641,214 ) (28,214,323 )

Cash flows from financing activitiesCash receipts from exercise of warrants – 2,602,335

Cash receipts from bond issue 1,500,000 8,000,000

Subtotal of cash inflows from financing activities 1,500,000 10,602,335

Cash payments for dividend distribution and bond interest 463,562 101,712

Cash payments for bond issue 9,810 37,865

Cash payments for exercise of warrants – 22,003

Subtotal of cash outflows from financing activities 473,372 161,580

Net cash flows generated from financing activities 1,026,628 10,440,755

Effect of exchange rate changes on cash and cash equivalents – –

Net increase in cash and cash equivalents 17,579,025 6,569,043

Add: Cash and cash equivalents at beginning of the year 37,124,458 30,555,415

Cash and cash equivalents at end of the year 46 54,703,483 37,124,458




In RMB’000 Note D 2009 2008

SUPPLEMENTARY INFORMATIONAdjustment of profit for the year to cash flows generated from operating activitiesProfit for the year 5,030,729 614,035

Impairment losses on assets 1,575,088 7,334,162

Interests related to unwinding of discounts of provisions for impaired financial assets (109,510 ) (384,238 )

Depreciation of fixed assets 264,134 211,925

Amortisation of intangible assets 36,032 20,852

Amortisation of long term deferred expenses 91,732 78,108

Losses/(gains) on disposal of fixed assets and investment properties (289 ) 158

Losses/(gains) from changes in fair values of financial instruments 49,190 (80,887 )

Losses/(gains) from changes in fair values of investment properties (47,858 ) 15,087

Interest on investment securities and investment income (3,093,826 ) (2,694,272 )

Decrease/(increase) in deferred tax assets 228,882 (830,289 )

Decrease in deferred tax liabilities (10,972 ) (8,781 )

Interest paid on bonds 520,356 325,488

Increase in operating receivables (80,106,599 ) (90,547,530 )

Increase in operating payables 107,173,843 110,229,494

Collections of amounts already written-off 596,187 29,587

Increase/(decrease) in provisions (3,508 ) 29,712


Net increase in cash and cash equivalentsCash at end of the year 46 779,169 981,859

Less: Cash at beginning of the year 981,859 1,062,241

Add: Cash equivalents at end of the year 46 53,924,314 36,142,599

Less: Cash equivalents at beginning of the year 36,142,599 29,493,174





Statement of Changes in Shareholders’ Equityfor the year ended 31 December 2009

Of which: Of which: Cumulative Revaluation changes in surplus on fair value of owner-occupied available- properties for-sale transferred to Share Capital financial investment Surplus General UnappropriatedIn RMB’000 Note D capital reserve assets properties reserve reserve profit Total

2009At 1 January 2009 3,105,434 7,978,982 1,002,795 13,043 780,885 3,583,296 952,193 16,400,790

Movements in the year 1. Profit for the year – – – – – – 5,030,729 5,030,729

2. Other comprehensive income 45 – (961,910 ) (982,296 ) 27,987 – – – (961,910 )

Subtotal of 1 and 2 – (961,910 ) (982,296 ) 27,987 – – 5,030,729 4,068,819

3. Profit appropriation

(i) Appropriation to surplus reserve 33 – – – – 503,072 – (503,072 ) –

(ii) Appropriation to general reserve 33 – – – – – 1,092,980 (1,092,980 ) –

(iii) Dividends – stock dividends 33 – – – – – – – –

Dividends – cash dividends 33 – – – – – – – –

At 31 December 2009 3,105,434 7,017,072 20,499 41,030 1,283,957 4,676,276 4,386,870 20,469,609

2008At 1 January 2008 2,293,407 5,213,654 (60,120 ) 10,240 719,481 2,715,704 2,063,817 13,006,063

Movements in the year 1. Profit for the year – – – – – – 614,035 614,035

2. Other comprehensive income 45 – 1,055,592 1,062,915 2,803 – – – 1,055,592

Subtotal of 1 and 2 – 1,055,592 1,062,915 2,803 – – 614,035 1,669,627

3. Exercise of warrants 95,388 1,709,736 – – – – – 1,805,124

4. Profit appropriation

(i) Appropriation to surplus reserve – – – – 61,404 – (61,404 ) –

(ii) Appropriation to general reserve 33 – – – – – 867,592 (867,592 ) –

(iii) Dividends – stock dividends 716,639 – – – – – (716,639 ) –

Dividends –

cash dividends – – – – – – (80,024 ) (80,024 )

At 31 December 2008 3,105,434 7,978,982 1,002,795 13,043 780,885 3,583,296 952,193 16,400,790




A General Information

Shenzhen Development Bank Co., Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) as a result of the restructuring of six agricultural credit co-operatives into a joint stock commercial bank with limited liability. The Company was established on 22 December 1987 after the initial public offering of its RMB ordinary shares on 10 May 1987. The Company was listed on the Shenzhen Stock Exchange on 3 April 1991 and the stock code is 000001.

The institution number of the Company on the 00000028 approval document issued by the China Banking Regulatory Commission is B0014H144030001. The business licence number of the Company issued by the Shenzhen Municipal Administration of Industry and Commerce is 440301103098545.

The Company is principally engaged in authorised commercial and retail banking activities in Mainland China.

The registered office of the Company is located at No. 5047, Shennan Road East, Luohu District, Shenzhen, Guangdong Province, PRC. Headquartered in Shenzhen, the Company operates its business in Mainland China.

B Basis of Preparation

The financial statements have been prepared in accordance with the “Accounting Standards for Business Enterprises – Basic Standard” and 38 specific standards, Implementation Guidance, Interpretations and other relevant regulations (hereafter collectively referred to as “ASBEs”), issued by the Ministry of Finance, PRC (hereafter referred to as the “MOF”) in February 2006.

In accordance with the “Notice of the Ministry of Finance on Publishing the Accounting Standards for Business Enterprises Interpretation No.3” (Cai Kuai [2009] No.8), the Company applies “Accounting Standards for Business Enterprises Interpretation No.3” on 1 January 2009. In connection with this, the Company has retrospectively restated the comparative financial information as stipulated in the Interpretation. Please refer to Note C.34 for the related impact on the financial statements.

The financial statements of the Company are prepared on a going concern basis.

Statement of complianceThe financial statements have been prepared in accordance with ASBEs and present fairly the financial position of the Company as at 31 December 2009 and the results of its operation and its cash flows for the year ended 31 December 2009.

C Summary of Significant Accounting Policies and Accounting Estimates

1 Accounting yearThe accounting year of the Company is from 1 January to 31 December.

2 Functional currencyThe Company’s functional and presentation currency is Renminbi (“RMB”). Unless otherwise stated, the values are rounded to the nearest thousand of Renminbi.

3 Basis of accounting and measurementThe Company’s financial statements have been prepared on an accrual basis using the historical cost as the basis of measurement, except for financial assets and financial liabilities held at fair value through profit or loss, available-for-sale financial assets, investment properties and cash-settled share-based payments that have been measured at fair value. If an asset is impaired, a provision for impairment loss of the asset is recognised in accordance with the relevant requirements.

4 Foreign currency translationThe Company translates the amount of foreign currency transactions into its functional currency.

A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated using the spot exchange rate at the balance sheet date. All exchange differences are recognised in the income statement in “Net foreign exchange difference”. Foreign currency non-monetary items measured at historical cost continue to be translated at the spot exchange rates at the dates of the transactions. Non-monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined. All exchange differences are recognised in the income statement in “Net foreign exchange difference” or “Other comprehensive income”.

5 Precious metalsThe Company’s precious metals represent gold. Precious metals are initially measured at cost. At the balance sheet date, precious metals are measured at the lower of cost and net realisable value. If the cost of precious metals is higher than the net realisable value, a provision for the decline in value of precious metals is recognised in the income statement in “Impairment losses on assets”.

Notes to the Financial Statements



C Summary of Significant Accounting Policies and Accounting Estimates (Continued)

6 Reverse repurchase and repurchase agreementsAssets sold under agreements to repurchase at a specific future date are not derecognised from the balance sheet. The corresponding proceeds are recognised on the balance sheet under “Repurchase agreements”. The difference between the sale price and the repurchase price is treated as interest expense and is accrued over the life of the agreement using the effective interest method.

Conversely, assets purchased under agreements to resell at a specific future date are not recognised on the balance sheet. The corresponding cost is recognised on the balance sheet under “Reverse repurchase agreements”. The difference between the purchase price and the resale price is treated as interest income and is accrued over the life of the agreement using the effective interest method.

7 Financial assetsThe Company classifies its financial assets into four categories: financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale financial assets. When financial assets are recognised initially, they are measured at fair value. In the case of a financial asset at fair value through profit or loss, transaction costs are charged to the income statement. For other financial assets, transaction costs are included in their initial recognition amounts.

Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss include financial assets held for trading and those designated as at fair value through profit or loss by management upon initial recognition. Financial assets classified as held for trading include those financial assets that meet one of the following conditions: 1) they are acquired principally for the purpose of selling in the near term; 2) they are part of a portfolio of identified financial instruments that are managed together and for which there is objective evidence of a recent pattern of short-term profit-taking; or 3) they are derivative instruments unless they are designated and effective hedging instruments. After initial recognition, these financial assets are measured at their fair values. All related realised and unrealised gains or losses are included in the income statement. Of which, changes in fair value are recognised in “Gains or losses from changes in fair values of financial instruments” and interest earned is accrued in interest income according to the terms of the contract.

A hybrid instrument can be designated as a financial asset or financial liability at fair value through profit or loss unless the embedded derivative does not significantly modify the cash flows of the hybrid instrument; or it is clear with little or no analysis when a similar hybrid instrument is considered that separation of the embedded derivative is prohibited.

A financial asset or financial liability may be designated, on initial recognition, as at fair value through profit or loss only when one of the following conditions is met:

(i) the designation eliminates or significantly reduces a measurement or recognition inconsistency of the related gains or losses that would otherwise result from measuring assets or liabilities on a different basis.

(ii) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, and the information about the group is reported on that basis to the Company’s key management personnel. Formal documentation has been prepared with respect to such risk management or investment strategy.

(iii) the hybrid instrument is embedded with derivatives which are required to be separately accounted for.

Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed maturity date that the Company has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the effective interest method. Gains or losses are recognised in the income statement when the held-to-maturity investments are derecognised or impaired, and through the amortisation process. If the Company has, during the current financial year, sold or reclassified (to available-for-sale financial assets) items of held-to-maturity investments, whose amount is significant in relation to the total amount of the held-to-maturity investments before the sale or reclassification, the Company shall reclassify the remaining portion of the held-to-maturity investments as available-for-sale investments, and the Company shall not again classify any financial assets as held-to-maturity investments in the current and the next two financial years. However, sales or reclassifications under the following circumstances are exceptions to the above:

(i) sales or reclassifications are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value.

(ii) sales or reclassifications of the remaining portion of the financial asset occur after the Company has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments.

(iii) sales or reclassifications are attributable to an isolated event that is beyond the Company’s control and is non-recurring and could not have been reasonably anticipated by the Company.



7 Financial assets (Continued)

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method. Gains or losses are recognised in the income statement when the loans and receivables are derecognised or impaired, and through the amortisation process. Loans and receivables mainly include loans and advances to customers, receivables and discounted bills.

Discounted bills are granted by the Company to its customers based on the bank acceptance held which has not matured. Discounted bills are carried at face value less unrealised interest income. The interest income of the discounted bills is recognised on an accrual basis.

Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative financial assets that are designated on initial recognition as available-for-sale or those financial assets that are not classified as other categories. After the initial recognition, available-for-sale financial assets are subsequently measured at fair value. Interest earned whilst holding available-for-sale financial assets is reported as interest income using the effective interest rate. Gains or losses arising from a change in the fair value of available-for-sale financial assets are recognised directly in owner’s equity, except for impairment losses and foreign exchange gains and losses resulted from monetary financial assets, until the financial assets are derecognised, at which time the cumulative gains or losses previously recognised in other comprehensive income are removed from equity and recognised in the income statement in “Investment income”.

8 Impairment of financial assetsAn assessment is made at each balance sheet date to determine whether there is evidence of impairment of financial assets (other than those at fair value through profit or loss) as a result of one or more events that occur after the initial recognition of those assets (an incurred “loss event”) and whether that loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised costIf there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments has been incurred, the carrying amount of the financial asset is reduced to the present value of estimated future cash flows (excluding future credit losses that have not been incurred). The amount of reduction is recognised as an impairment loss in the income statement. Present value of estimated future cash flows is discounted at the financial asset’s original effective interest rate and includes the value of any related collateral.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

Future cash flows of a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the year on which the historical loss experience is based and to eliminate the impact of historical conditions that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company.

If, subsequent to the recognition of an impairment loss on a financial asset carried at amortised cost, there is objective evidence of a recovery in value of the financial asset which can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed and recognised in the income statement. However, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed.

Financial assets carried at costIf there is objective evidence that an impairment loss on a financial asset has been incurred, the amount of the impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss on the financial asset shall not be reversed.




8 Impairment of financial assets (Continued)

Available-for-sale financial assetsIf an available-for-sale asset is impaired, the cumulative loss arising from the decline in fair value that had been recognised directly in owners’ equity shall be removed from owners’ equity and recognised in the income statement in “Impairment losses on assets”. The amount of the accumulated loss that is removed from owners’ equity shall be the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement. A provision for impairment is made for available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below its cost or where objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgement.

If, after an impairment loss has been recognised on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss shall be reversed, with the amount of the reversal recognised in the income statement. Impairment losses recognised for an investment in an equity instrument classified as available-for-sale shall not be reversed through the income statement.

9 Financial liabilitiesThe Company classifies its financial liabilities into financial liabilities at fair value through profit or loss, financial guarantee contracts, deposits and other financial liabilities.

Financial liabilities at fair value through profit or lossThe Company classifies its financial liabilities at fair value through profit or loss into financial liabilities held for trading and financial liabilities designated as at fair value through profit or loss by management upon initial recognition. Changes in fair value are recognised in “Gains or losses from changes in fair values of financial instruments” and interest incurred is accrued in interest expense according to the terms of the contract.

Financial guarantee contractsThe Company gives financial guarantees consisting of letters of credit, guarantees, and acceptances. Financial guarantee contracts are initially recognised at fair value, in “Other liabilities”, being the premium received. The guarantee fee is amortised over the period of the contract and is recognised as fee and commission income. Subsequent to initial recognition, the Company’s liability under each guarantee contract is measured at the higher of the initial fair value less cumulative amortisation, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is taken to profit or loss for the period.

Other financial liabilitiesExcept for financial liabilities at fair value through profit or loss and financial guarantee contracts, deposits and other financial liabilities are subsequently measured at amortised cost using the effective interest method.

10 Recognition and derecognition of financial instrumentsA financial asset or a financial liability is recognised when the Company becomes a party to the contractual provisions of the financial instrument.

A financial asset is derecognised when one of the following conditions is met:

(i) the contractual rights to the cash flows from the financial asset expire; or

(ii) the financial asset has been transferred and the transfer qualifies for derecognition as set out below.

Transfer of financial assetsThe Company transfers a financial asset in one of the following ways:

(i) the Company transfers the contractual rights to receive the cash flows of the financial asset to another party; or

(ii) the Company retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to the eventual recipient(s) in an arrangement that meets all of the following conditions:

(a) the Company’s obligation to pay amounts to the eventual recipient(s) arises only when it has collected equivalent amounts from the original financial asset. Short-term advances by the Company with the right of full recovery of the amount lent plus accrued interest at market rates for bank loans of equivalent terms do not violate this condition.

(b) the Company is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipient(s) for the obligation to pay them cash flows.

(c) the Company has an obligation to remit any cash flows it collects on behalf of the eventual recipient(s) without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents during the intervening period between two consecutive payments, which are invested in accordance with the terms of the contract. Income earned on such investments (i.e., reinvesting the cash flows according to the terms of the contract) is passed to the eventual recipient(s) according to the contract terms.



10 Recognition and derecognition of financial instruments (Continued)

Transfer of financial assets (Continued)

When the Company transfers substantially all the risks and rewards of ownership of a financial asset to the transferee, the financial asset is derecognised. When the Company retains substantially all the risks and rewards of ownership of a financial asset, the financial asset is not derecognised.

When the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, it accounts for the transaction as follows:

(i) when the Company has not retained control of the financial asset, the financial asset is derecognised;

(ii) when the Company has retained control of the financial asset, the financial asset is recognised to the extent of the Company’s continuing involvement in the transferred financial asset and an associated liability is recognised.

Financial liabilitiesA financial liability is derecognised when the underlying present obligation is performed, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss for the period.

11 Derivative financial instrumentsDerivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with the changes in fair value recognised in profit or loss for the period.

Certain derivative transactions, while providing effective economic hedges under the Company’s risk management positions, do not qualify for hedge accounting and are therefore treated as derivatives held for trading with fair value gains or losses recognised in profit or loss for the period.

12 Long term equity investmentsA long term equity investment is measured initially at its investment cost.

A long term investment is accounted for using the cost method if the Company can exercise control over the investee, or does not have joint control or significant influence over the investee and the investment is not quoted in an active market and its fair value cannot be reliably measured.

Under the cost method, a long term equity investment is measured at its initial investment cost. Cash dividends or profit distributions declared by the investee are recognised as investment income in the current period, except for those declared but not yet paid and included in the actual purchase price or the consideration of the investment. Furthermore, the Company assesses whether there is an indictor of impairment in accordance with the related policy of asset impairment when a dividend from the investment is recognised.

When the Company can exercise joint control or significant influence over the investee, a long term equity investment is accounted for using the equity method.

Under the equity method, when the initial investment cost of a long term equity investment exceeds the Company’s interest in the fair values of the investee’s identifiable net assets at the acquisition date, no adjustment is made to the initial investment cost. When initial investment cost is less than the Company’s interest in the fair value of the investee’s identifiable net assets at the acquisition date, the difference is charged to profit or loss for the current period, and the cost of the long term equity investment is adjusted accordingly.

Under the equity method, after acquiring a long term equity investment, the Company recognises its share of the net profits or losses made by the investee as investment income or losses, and adjusts the carrying amount of the investment accordingly. The carrying amount of the investment is reduced by the portion of any profit distributions or cash dividends declared by the investee that is attributed to the Company. The Company shall discontinue recognising its share of net losses of the investee after the carrying amount of the long term equity investment together with any long term interest that in substance form part of the investor’s net investment in the investee are reduced to zero, except to the extent that the Company has incurred obligations to assume additional losses. The Company shall adjust the carrying amount of the long term investment for other changes in owners’ equity of the investee (other than net profits or losses), and include the corresponding adjustment in other comprehensive income.




12 Long term equity investments (Continued)

On disposal of a long term equity investment, the difference between the proceeds actually received and the carrying amount is recognised in the income statement in “Investment income”. For a long term equity investment accounted for using the equity method, any changes in the owners’ equity of the investee (other than net profits or losses) included in the owners’ equity of the Company, is transferred to the income statement in “Investment income” on a pro-rata basis according to the proportion disposed of.

For a long term equity investment accounted for using the cost method and which is not quoted in an active market and its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss is recognised in the income statement in “Impairment losses on assets” and shall not be reversed. For long term equity investments accounted for using the equity method, any impairment is accounted for in accordance with the accounting policy set out in Note C.18.

13 Investment propertiesInvestment properties are properties held to earn rentals or for capital appreciation or both. The investment properties of the Company are buildings that are leased out. The Company adopts the fair value model for the measurement of investment properties which are not depreciated or amortised. At each period end, the carrying value of the investment properties is adjusted based on the fair value, and any difference between the carrying amount and the fair value is accounted for in the income statement “Gains or losses from changes in fair values of investment properties”.

For a transfer of owner-occupied property to investment property, the investment property is measured at its fair value at the date of transfer. If the fair value at the date of transfer is less than the original carrying amount, the difference is charged to the income statement. If the fair value at the date of transfer exceeds the original carrying amount, the difference is recognised in “Other comprehensive income”. On disposal of an investment property, the amount that had been recognised in “Other comprehensive income” is transferred to the income statement in “Other operating income”.

For a transfer from investment property to owner-occupied property, its fair value at the date of transfer is regarded as the carrying amount of the owner-occupied property.

14 Fixed assets and accumulated depreciation

Recognition of fixed assetsFixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have useful lives more than one accounting year.

A fixed asset is recognised only when it is probable that economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably.

Subsequent expenditures incurred for a fixed asset that meet the above conditions are included in the cost of the fixed asset, otherwise they are recognised in the income statement in the period in which they are incurred.

Measurement and depreciation of fixed assetsFixed assets are initially measured at cost. All fixed assets are stated at cost less any accumulated depreciation and any impairment losses. The cost of an asset comprises the purchase price, related taxes, and any directly attributable expenditures of bringing the asset to working condition for its intended use, such as delivery and handling costs, installation costs and professional fees.

Depreciation is calculated using the straight-line method. The Company reasonably determines the useful lives and estimated net residual values of the fixed assets according to the natures and use patterns of the fixed assets as follows:

Estimated net Annual depreciation Useful life residual value (%) rate (%)

Properties and buildings 30 years 1 3.3

Transportation vehicles 6 years 3 16.2

Computers 3 or 5 years 1 33.0 or 19.8

Electronic appliances 5 or 10 years 1 19.8 or 9.9

Owner-occupied property improvements 5 or 10 years – 20.0 or 10.0

The useful life and estimated net residual value of a fixed asset and the depreciation method applied are reviewed at each balance sheet date.



15 Construction in progressConstruction in progress represents costs incurred in the construction of fixed assets. Costs comprise direct costs incurred during the period of construction. Interest charged on related borrowings for the construction is capitalised and such capitalisation of interest ceases when the assets under construction are completed and are ready for their intended use. No capitalisation of interest is made if the cost incurred during the construction is from the Company’s own fund. Construction in progress is not depreciated.

Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use.

16 Intangible assetsIntangible assets are identifiable non-monetary assets without physical substance owned or controlled by the Company. The Company’s intangible assets comprise the value of computer software.

Intangible assets are measured initially at cost. The Company analyses and assesses the useful life of an intangible asset on its acquisition. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Company.

When the asset is available for use, an intangible asset with a finite useful life is amortised over its useful life. The amortisation method selected reflects the pattern in which the asset’s economic benefits are expected to be realised. If that pattern cannot be determined reliably, the straight-line method is used. An intangible asset with an indefinite useful life is not amortised.

The useful life and amortisation method of intangible assets with finite useful lives are reviewed at each balance sheet date. If the expected useful life of the asset or the amortisation method differs significantly from previous assessments, the amortisation period or amortisation method is changed accordingly as a change in accounting estimate.

The useful life of intangible assets with indefinite useful lives is reassessed at each balance sheet date. If there is evidence that the useful life of the asset becomes definite, the accounting policies for intangible assets with definite useful life described above are then applied.

17 Long term deferred expensesLong term deferred expenses are those prepaid expenses with an amortisation period of more than one year (excluding one year), mainly includes rental expenses and leasehold improvements.

Rental expenses are operating lease rental of fixed assets and are amortised over the lease term. Other long-term deferred expenses are amortised evenly according to their beneficial periods or legal periods of validity, whichever is shorter.

When long term deferred expenses no longer provide future economic benefits, the unamortised amount is recognised in profit of loss for the period.

18 Impairment of assetsFor assets excluding financial assets, repossessed assets and goodwill, the Company assesses impairment of assets as follows.

At each balance sheet date, the Company assesses whether there is any indication that assets may be impaired. If there is any indication that an asset may be impaired, a recoverable amount is estimated for the asset. For an asset with an indefinite useful life, the asset is tested for impairment at least at each financial year-end, irrespective of whether there is any indication of impairment.

The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. The Company estimates the recoverable amount of an asset on an individual basis.

If the result of the recoverable amount calculation indicates the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is recognised as an impairment loss and charged to profit or loss for the period. A provision for impairment loss of the asset is recognised accordingly.

Once an impairment loss is recognised, it shall not be reversed in a subsequent period.

19 Repossessed assetsRepossessed assets are initially recognised at fair value. The difference between the initial fair value and the sum of the related loan principal, interest receivable and impairment provision is taken into the income statement. At the balance sheet date, the repossessed assets are measured at the lower of their carrying value and net realisable value. When the carrying value of the repossessed assets is higher than the net realisable value, a provision for the decline in value of repossessed assets is recognised in the income statement in “Impairment losses on assets”.




20 Recognition of income and expenseRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and when the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Interest income and interest expenseFor all financial instruments measured at amortised cost and interest-bearing financial instruments classified as available for sale and held for trading, interest income or expense is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial instrument. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not the future credit losses.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Fee and commission incomeThe Company earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee income earned from services that are provided over a certain period of timeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.

Fee income from providing transaction servicesFees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or component of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

The fair value of the award credits granted by the Company to the bank card holders under customer loyalty programmes are deferred and recognised as fee and commission income when the award credits are redeemed or expired.

Dividend incomeRevenue is recognised when the Company’s right to receive the payment is established.

21 Income taxIncome tax comprises current income tax and movements in deferred tax balances. Except to the extent that the tax arises from a business combination; or a transaction or event which is recognised directly in other comprehensive income, all the income tax should be expensed or credited to profit or loss as appropriate.

Current income taxCurrent tax is the amount of income taxes payable in respect of the taxable profit for a period. Taxable profit is the profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable.

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities.

Deferred taxDeferred tax is provided using the balance sheet liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

(i) where the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or deductible loss;

(ii) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly-controlled enterprises, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.



21 Income tax (Continued)

Deferred tax (Continued)

For deductible temporary differences, carryforward of unused deductible losses and tax credits, the Company recognises the corresponding deferred tax asset to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, the deductible losses and tax credits can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable income or deductible loss.

For deductible temporary differences arising from investments in subsidiaries, associates and interests in jointly-controlled enterprises, the corresponding deferred income tax asset is recognised, to the extent that, it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available in the future, against which the temporary differences can be utilised.

At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the requirements of tax laws.

At the balance sheet date, the Company reviews the carrying amount of a deferred tax asset. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available in future periods to allow the benefit of the deferred tax asset to be utilised. Any such reduction in the amount is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

22 Employee benefits

Short term employee benefitsSalaries and bonuses, social security contributions and other short-term employee benefits are accrued in the period in which services are rendered by the employees of the Company.

Defined contribution plansAccording to the statutory requirements in Mainland China, the Company is required to make contributions to the pension and insurance schemes that are separately administered by the local government authorities. Contributions to these plans are recognised in the income statement as incurred. In addition, the Company participates in a defined contribution retirement benefit insurance plan managed by an insurance company. Obligation for contributions to the insurance plan is borne by the Company, and contributions paid by the Company are recognised in profit or loss for the period as incurred.

Supplementary retirement benefitsCertain employees of the Company in Mainland China can enjoy supplementary retirement benefits after retirement. These benefits are unfunded. The cost of providing benefits is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in profit or loss for the period in which they occur.

Share-based payment transactionsThe Company grants equity instruments or incurs liabilities for amounts that are determined based on the price of equity instruments, in return for services rendered by employees or other parties.

The cost of cash-settled transactions is measured initially at fair value at the grant date using an appropriate pricing model taking into account the terms and conditions upon which the instruments were granted. The fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date, with changes in fair value recognised in profit or loss for the period.

23 Definition of cash equivalentsCash equivalents are short term, highly liquid monetary assets that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash equivalents comprise investments that have a short maturity of generally within three months when acquired, the unrestricted balance with the Central Bank, amounts due from banks and other financial institutions and reverse repurchase agreements that have a short original maturity of generally within three months.




24 Related partiesIf a party has the power to control, jointly control or exercise significant influence over another party in making financial and operating decisions, they are regarded as related parties. Two or more parties are also regarded as related parties if they are subject to control, joint control or significant influence from the same party. The following are related parties of an enterprise:

(1) the enterprise’s parents;(2) the enterprise’s subsidiaries;(3) other enterprises which are controlled by the enterprise’s parents;(4) an investor who has joint control over the enterprise;(5) an investor who can exercise significant influence over the enterprise;(6) a joint venture in which the enterprise is a venturer;(7) an associate of the enterprise;(8) principal individual investors of the enterprise, and close family members of such individuals;(9) key management personnel of the enterprise or its parent, and close family members of such individuals;(10) other enterprises that are controlled, jointly controlled, or significantly influenced by the enterprise’s principal individual investors, key management personnel, or close family members of such individuals.

Enterprises are not regarded as related parties simply because they are under common control from the state, if no other related party relationships exist between them.

25 Fiduciary activitiesWhere the Company acts in a fiduciary capacity such as nominee, trustee or agent, assets arising thereon together with the related undertakings to return such assets to customers are excluded from the financial statements.

Entrusted loans granted by the Company on behalf of third-party lenders are recorded as off-balance sheet items. The Company acts as an agent and grants such entrusted loans to borrowers under the direction of the third-party lenders who fund these loans. The Company has been contracted by the third-party lenders to manage the administration and collection of these loans on their behalf. The third-party lenders determine both the underwriting criteria for and the terms of all entrusted loans including their purposes, amounts, interest rates, and repayment schedules. The Company charges a commission related to the management of the entrusted loans. The commission income is recognized pro rata over the period in which the service is provided. The risk of loan loss is borne by the third-party lenders.

26 LeasesA lease that transfers in substance all the risks and rewards incident to ownership of an asset is classified as a finance lease. An operating lease is a lease other than a finance lease.

As a lessee under operating leasesLease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of another related asset or charged to profit or loss for the period.

As a lessor under operating leasesLease income from operating leases is recognised by the lessor in profit or loss for the period on a straight-line basis over the lease term.

27 Contingent liabilitiesA contingent liability is a possible obligation that arises from past transactions or events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events. It can also be a present obligation arising from past transactions or events but is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

28 ProvisionsAn obligation related to a contingency is recognised as a provision when all of the following conditions are satisfied:

(i) the obligation is a present obligation of the Company;

(ii) it is probable that an outflow of economic benefits will be required to settle the obligation; and

(iii) the amount of the obligation can be measured reliably.

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors pertaining to a contingency such as the risks, uncertainties and time value of money are taken into account as a whole in reaching the best estimate. The Company reviews the carrying amount of a provision at the balance sheet date. When there is clear evidence that the carrying amount of a provision does not reflect the current best estimate, the carrying amount is adjusted to the current best estimate.



29 Trade date accountingAll regular way purchases and sales of financial assets are recognised on the trade date, that is, the date on which the Company commits to purchase or sell the asset. A regular way purchase or sale of financial assets is the purchase or sale of financial assets that requires delivery of assets within the time frame generally established by regulation or convention in the marketplace.

30 OffsettingFinancial assets and financial liabilities are offset only when the Company has a legally enforceable right to offset the recognised amounts and both parties of the transaction intend to settle on a net basis.

31 DividendsDividends are recognised as a liability and deducted from equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Company. Dividends for the year that are approved after the balance sheet date are disclosed as an event after the balance sheet date.

32 Significant accounting judgements and estimatesThe preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the balance sheet date. However, the uncertainty of these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets and liabilities affected in the future.

Designation of held-to-maturity investmentsNon-derivative financial assets with fixed or determinable payments and a fixed maturity are classified as held-to-maturity investments when the Company has the positive intention and ability to hold the investments to maturity. Accordingly, in evaluating whether a financial asset shall be classified as held-to-maturity investment, significant management judgement is required. If the Company fails to correctly assess its intention and ability to hold the investments to maturity and the Company sells or reclassifies more than an insignificant amount of held-to-maturity investments before maturity, the Company shall classify the whole held-to-maturity investment portfolio as available for sale.

Impairment losses of loans and advancesThe Company determines periodically whether there is any objective evidence that an impairment loss on loans and advances has been incurred. If any such evidence exists, the Company assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated future cash flows. Assessing the amount of impairment losses requires significant judgement on whether objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows.

Income taxDetermining income tax provisions requires the Company to estimate the future tax treatment of certain transactions. The Company carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. This requires significant estimates on the tax treatments of certain transactions and also significant assessment on the probability that adequate future taxable profits will be available for the deferred income tax assets to be recovered.

Fair value of financial instrumentsIf the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable willing parties, if available, reference to the current fair value of another instrument that is substantially the same, and a discounted cash flow analysis. To the extent practicable, the valuation technique makes maximum use of market inputs. However, where market inputs are not available, management needs to make estimates on areas such as credit risk (both the Company’s and the counterparty’s), volatility and correlation. Changes in assumptions about these factors could affect the reported fair values of financial instruments.

Impairment of available-for-sale and held-to-maturity investmentsIn determining whether there is any objective evidence that impairment losses on available-for-sale and held-to-maturity investments have been incurred, the Company assesses periodically whether there has been a significant or prolonged decline in the fair value of the investment below its cost or carrying amount, or whether other objective evidence of impairment exists based on the investee’s financial conditions and business prospects, including industry environment, change of technology, operating and financing cash flows, etc. This requires significant level of judgement of the management, which would affect the amount of impairment losses.




33 TaxesMajor taxes and related tax rates applicable to the Company are as follows:

TAX Basis of tax assessment Tax rate (%)

Business Tax Business income (not including interest income from transactions 5 with financial institutions)

City Maintenance and Construction Tax Amount of business tax 1 to 7

Corporate Income Tax Amount of taxable income 20, 25

During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the PRC Corporate Income Tax Law (“the New Corporate Income Tax Law”) was approved and became effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unification of the income tax rate for domestic-invested and foreign-invested enterprises at 25%. The income tax rate applicable to the branches in Shenzhen, Zhuhai and Haikou will progressively increase to the tax rate of 25% in five years. The income tax rate applicable to the branches in other regions decreased from 33% to 25% effective from 1 January 2008. During the year, the income tax rate applicable to the branches in Shenzhen, Zhuhai and Haikou has adjusted to 20% from 18% in 2008.

34 Change in accounting policies, presentation and disclosures of financial statementsAs stated in the Note B, the Company applies the “Accounting Standards for Business Enterprises Interpretation No.3” on 1 January 2009. In accordance with this Interpretation, the Company has changed its accounting policies and the related impact on the financial statements is as follows:

Under the cost method, investment income recognised is originally limited to the amount distributed to it out of accumulated net profits of the investee arising after the investment was made. Any cash dividends or distributions received in excess of this amount are treated as a recovery of initial investment cost. In accordance with the “Accounting Standards for Business Enterprises Interpretation No.3”, the Company changed its accounting policy on 1 January 2009 and no distinction between pre-acquisition and post-acqusition profits is made. After the adoption of the Interpretation, cash dividends or profit distributions declared by the investee are recognised as investment income in the current period, except for those declared but not yet paid and included in the actual purchase price or the consideration of the investment. In connection with this, the adoption of the Interpretation did not have any effect on the financial statements of the Company.

Furthermore, in accordance with the “Accounting Standards for Business Enterprises Interpretation No.3”, the Company has changed the presentation and disclosures of the financial statements as follows:

Income statementItems of “Other comprehensive income” and “Total comprehensive income” are introduced after the item of “Earnings per share” in the income statement. The “Other comprehensive income” reflects all items of income and expenses which are not recognised in the profit or loss for the period. The “Total comprehensive income” represents the total of the profit or loss and the other comprehensive income. In connection with this, details of other comprehensive income and related tax effects as well as amounts removed from other comprehensive income and recognised in the profit or loss are disclosed in the Note D.45. The comparative financial information of the financial statements has been adjusted accordingly.

Operating segment informationReportable segments for the purpose of disclosing segment information in the financial statements are determined based on operating segments which are defined by the Company in accordance with its internal organisation structure, management requirements and internal reporting system. The original disclosure requirements to report segment information on a geographical or business basis and in a primary and a secondary basis of reporting formats are not applicable. The comparative financial information of the financial statements has been adjusted accordingly.


D Notes to Key Items in the Financial Statements

1 Cash on hand and due from the Central Bank

In RMB’000 31 December 2009 31 December 2008

Cash on hand 779,169 981,859

Statutory reserve with the Central Bank – RMB 38,650,469 29,321,249

Statutory reserve with the Central Bank – foreign currency 327,335 309,783

Unrestricted balance with the Central Bank 14,354,511 9,144,712

Other deposits with the Central Bank – fiscal deposits 132,468 10,298

Total 54,243,952 39,767,901

Based on the related RMB and foreign currency deposits, the Company places respective statutory reserves with the Central Bank in accordance with the requirements from the People’s Bank of China. These reserve deposits are not available for use in the Company’s daily operations.

Fiscal deposits represent the amounts received from government-related bodies that are required to be deposited with the Central Bank according to the relevant regulations.

2 Placements of deposits with other financial institutions

Analysed by location and counterparty


Domestic banks 14,074,591 18,313,172

Other domestic financial institutions 42,222 45,462

Overseas banks 1,516,418 3,182,870

Subtotal 15,633,231 21,541,504

Less: Impairment provision (Note D.18) (40,695 ) (40,695 )

Total 15,592,536 21,500,809

As at 31 December 2009, included in this total amount of placements of deposits with other financial institutions was an amount of RMB41,520 thousand (31 December 2008: RMB44,520 thousand) impaired assets brought forward from prior years.



D Notes to Key Items in the Financial Statements (Continued)

3 Funds loaned to other financial institutions



Domestic banks 1,204,596 4,101,050


Overseas banks 3,653,129 4,981,133

Subtotal 5,391,118 9,265,755

Less: Impairment provision (Note D.18) (29,979 ) (29,079 )

Total 5,361,139 9,236,676

As at 31 December 2009, included in this total amount of loans funded to other financial institutions was an amount of RMB33,393 thousand (31 December 2008: RMB33,572 thousand) impaired assets brought forward from prior years.

4 Financial assets/financial liabilities at fair value through profit or loss

Financial assets at fair value through profit or loss


Bonds held for trading 1,132,048 36,610

Financial assets designated as at fair value through profit or loss – 4,831

Total 1,132,048 41,441

Bond investments analysed by issuerPolicy banks 1,132,048 36,610

Other banks and non-bank financial institutions – 4,831

Total 1,132,048 41,441

In the opinion of management, there are no significant restrictions on realising the financial assets at fair value through profit or loss.

Financial liabilities at fair value through profit or loss


Financial liabilities designated at fair value through profit or loss – 39,420

During 2008, the change in fair value of financial liabilities designated at fair value through profit or loss that was attributable to changes in the credit risk was not significant as the credit spread of the Company remained stable. As at 31 December 2008, the difference between the carrying amount and the amount that the Company would be contractually required to pay at maturity to the holders of these financial liabilities was RMB567 thousand.



5 Derivative financial instrumentsA derivative is a financial instrument, the value of which is derived from the value of another “underlying” financial instrument, an index or some other variables. Typically, an “underlying” financial instrument is a share, a commodity or bond price, an index value or an exchange or interest rate. The Company uses derivative financial instruments such as forward contracts, swaps and options.

The notional amount of a derivative represents the amount of an underlying asset upon which the value of the derivative is based. It indicates the volume of business transacted by the Company but does not reflect the risk.

The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction.

At each balance sheet date, the Company has positions in the following types of derivatives:

31 December 2009

Notional amounts with remaining lives of Fair value Up to 3 monthsIn RMB’000 3 months to 1 year 1 to 5 years Total Assets Liabilities

Foreign exchange derivative instrumentsForward foreign exchange contracts 9,599,495 9,634,913 682,660 20,917,068 71,142 (19,448 )

Interest rate derivative instrumentsInterest rate swap contracts – – 800,000 800,000 28,854 –

Equity derivative instrumentsEquity option contracts – 93,356 – 93,356 – (337 )Equity swap contracts – 93,356 – 93,356 – (1,755 )Total 9,599,495 9,821,625 1,482,660 21,903,780 99,996 (21,540 )

31 December 2008



Interest rate derivative instrumentsInterest rate swap contracts – 130,000 1,140,000 1,270,000 86,632 (6,733 )

Equity derivative instrumentsEquity option contracts 511,437 1,508,952 – 2,020,389 21,312 (21,312 )

Equity swap contracts – 46,767 – 46,767 – (3,075 )

Other derivative instruments 19,219 407,060 – 426,279 462 (462 )

Total 12,250,804 9,274,089 1,213,121 22,738,014 290,751 (58,598 )

As at 31 December 2009 and 31 December 2008, no derivatives were designated as hedging instruments.




6 Reverse repurchase agreements

Analysed by counterparty


Banks 40,152,396 34,542,353

Non-bank financial institutions 806,000 220,000

Subtotal 40,958,396 34,762,353

Less: Impairment provisions (Note D.18) (35,000 ) (29,000 )

Total 40,923,396 34,733,353

As at 31 December 2009, included in this total amount of reverse repurchase agreements is an amount of RMB50 million (31 December 2008: RMB50 million) impaired assets brought forward from prior years.

Analysed by collateral


Securities 50,000 1,020,000

Bills 40,152,396 33,572,353

Loans 150,000 170,000

Receivables under finance leases 606,000 –

Subtotal 40,958,396 34,762,353

Less: Impairment provisions (Note D.18) (35,000 ) (29,000 )

Total 40,923,396 34,733,353

Fair value of collateralUnder certain reverse repurchase agreements, the Company has held collateral that is permitted to be sold or re-pledged in the absence of default by the owners of the collateral. At the balance sheet date, the fair values of the collateral held on such terms are as follows:

31 December 2009 31 December 2008

Amount of Amount of reverse repurchase Fair value reverse repurchase Fair valueIn RMB’000 agreements of collateral agreements of collateral

Bills 21,994,768 21,994,768 33,572,353 33,572,353

Loans – – 170,000 170,000

As at 31 December 2009, no collateral above was sold or re-pledged. As at 31 December 2008, included in the above fair value of collateral were bills of RMB15,578,493 thousand that had been re-pledged and the Company had an obligation to return such collateral.



7 Accounts receivable


Receivables with respect to making payments on behalf of customers (Note) 3,169,088 1,119,445

Receivables under factoring 676,502 240,147

Receivables with respect to making payments on behalf of other banks under letters of credit 491,328 –

Receivables under discounted bills 445,243 –

Total 4,782,161 1,359,592

Note: The above receivables are related to the provision of trade finance services for customers by making payments on their behalf via the offshore business unit of the Company or other overseas banks in accordance with the terms of agreements signed with the customers. In connection with this, the payments made by other overseas banks are correspondingly recorded in “Accounts payable”.

As at 31 December 2009 and 31 December 2008, the Company did not make any impairment provisions for the above outstanding balances of accounts receivable.

8 Interest receivable

Balance at beginning Increase during Collection during Balance at end In RMB’000 of the year the year the year of the year

Interest receivable on bond investments and wealth management products 860,227 2,543,910 (2,488,368 ) 915,769

Interest receivable on loans and amounts due from other financial institutions 745,409 16,457,852 (16,493,330 ) 709,931

Total 1,605,636 19,001,762 (18,981,698 ) 1,625,700

As at 31 December 2009, included in the interest receivable was an amount of RMB 7,305 thousand (31 December 2008: RMB25,285 thousand) that is past due. Such interest receivables are related to interest income on loans and are aged within 90 days.




9 Loans and advances

a Analysed by corporation and individual


Loans and advances to corporationsLoans 216,593,743 167,617,360

Discounted bills 45,285,528 42,217,821

Subtotal 261,879,271 209,835,181

Loans and advances to individualsCredit cards 4,750,620 3,722,178

Residential mortgages 85,800,764 65,861,574

Others 7,086,758 4,322,433

Subtotal 97,638,142 73,906,185

Total loans and advances 359,517,413 283,741,366

Less: Loan impairment provisions (Note D.9f) (3,954,868 ) (2,026,679 )

Loans and advances, net 355,562,545 281,714,687

As at 31 December 2009, included in the discounted bills was an amount of RMB5,260,731 thousand (31 December 2008:RMB12,691,340 thousand) that had been pledged for repurchase agreements.

In addition, as at 31 December 2009, the Company transferred out (without recourse) discounted bills amounting to RMB56.5 billion (31 December 2008: RMB30.5 billion) that have not yet matured at the year end.

b Analysed by industry


Agriculture, husbandry and fisheries 590,000 598,700

Extraction (Heavy industry) 3,523,490 2,872,440

Manufacturing (Light industry) 59,974,269 53,372,139

Energy 8,000,990 11,786,383

Transportation, storage and communication 17,405,390 12,516,879

Commercial 36,069,931 23,618,771

Real estate 23,254,621 15,877,985

Service, technology, culture and sanitary industries 52,516,681 35,628,222

Construction 13,405,329 10,176,997


Loans and advances to individuals 97,638,142 73,906,185

Others 1,853,042 1,168,844




c Analysed by type of collateral held or other credit enhancement


Unsecured 64,776,195 47,041,232

Guaranteed 66,303,241 59,769,814

Secured by collateral 183,152,449 134,712,499

Of which: secured by mortgages 156,820,843 111,667,469

secured by monetary assets 26,331,606 23,045,030

Subtotal 314,231,885 241,523,545







9 Loans and advances (Continued)

d Aging analysis of past due loans

31 December 2009

Overdue by Overdue by 90 days to Overdue by Overdue by 1 to 90 days, 1 year, 1 to 3 years, more thanIn RMB’000 inclusive inclusive inclusive 3 years Total

Unsecured 173,864 80,390 190 – 254,444Guaranteed 28,237 278,579 84,564 63,288 454,668Secured by collateral 1,458,413 455,196 927,866 573,478 3,414,953Of which: secured by mortgages 1,432,051 388,525 597,893 434,730 2,853,199 secured by monetary assets 26,362 66,671 329,973 138,748 561,754Total 1,660,514 814,165 1,012,620 636,766 4,124,065

31 December 2008


Unsecured 480,859 23,932 – – 504,791

Guaranteed 217,842 221,673 6,204 261,646 707,365

Secured by collateral 2,554,398 494,824 586,104 640,253 4,275,579

Of which: secured by mortgages 2,315,592 466,465 406,337 520,253 3,708,647

secured by monetary assets 238,806 28,359 179,767 120,000 566,932

Total 3,253,099 740,429 592,308 901,899 5,487,735

Overdue loans refer to the loans with either principal or interest being overdue by one day or more.

e Analysed by geographical region


Southern and Central China 110,844,053 86,815,602

Eastern China 128,154,646 100,457,432

Northern and North-eastern China 91,587,937 75,600,230

South-western China 27,084,283 19,700,651

Offshore businesses 1,846,494 1,167,451




f Movements in impairment provisions for loans and advances

2009 2008

In RMB’000 Indiviual Collective Total Individual Collective Total

Balance at beginning of the year 481,327 1,545,352 2,026,679 5,073,555 950,409 6,023,964

Charge for the year 9,802 1,430,750 1,440,552 5,667,836 1,305,003 6,972,839

Amounts written off – (175,017 ) (175,017 ) (9,896,652 ) (710,060 ) (10,606,712 )

Reversal for the year

Add-back of loans written off previously (Note) 356,235 – 356,235 – – –

Recovery of loans written off previously 514,312 158,848 673,160 29,944 – 29,944

Amounts released upon disposal of loans (302,717 ) – (302,717 ) – – –

Interest accrued on impaired loans and advances (109,510 ) – (109,510 ) (384,238 ) – (384,238 )

Other changes for the year 45,486 – 45,486 (9,118 ) – (9,118 )

Balance at end of the year (Note D.18) 994,935 2,959,933 3,954,868 481,327 1,545,352 2,026,679

Note: In accordance with the reminder letter CaiZhuShenJianHan No. [2009] 17 dated 10 October 2009 issued by the MOF Shenzhen Office, the Company compared the “Administrative Measures of Write-off of Doubtful Debts for Financial Institutions” and recorded a total amount of RMB356 million loans, which had been written off at the year end of 2008, in its general ledger in November 2009. Simultaneously, the Company booked the corresponding loan impairment provisions amounting to RMB356 million.




10 Available-for-sale financial assets


Bond investments analysed by issuerGovernments and the Central Bank 17,205,253 29,697,175

Policy banks 18,192,544 18,789,453

Other banks and non-bank financial institutions 634,433 112,335

Corporations 889,933 133,094

Total bond investments 36,922,163 48,732,057

Equity investments 76,246 67,659

Total 36,998,409 48,799,716

As at 31 December 2009, included in the bond investments were amounts of RMB5,319,856 thousand (31 December 2008: RMB1,984,666 thousand) and RMB1,269,572 thousand (31 December 2008: nil) that had been pledged for repurchase agreements and agreements of time deposit from the PBOC, respectively.

As a result of the change in intention, the Company reclassified available-for-sale financial assets with a total carrying amount of RMB6,764,847 thousand (2008: nil) to the category of held-to-maturity investments during the year.

As at 31 December 2009, included in the available-for-sale financial assets were restricted tradable shares of RMB7,343 thousand (31 December 2008: RMB10,000 thousand). These tradable shares would become unrestricted by the first half of 2010.

11 Held-to-maturity investments



Policy banks 13,758,516 5,786,616

Other banks and non-bank financial institutions 2,924,145 649,751

Corporations 6,292,739 435,568

Total 34,585,440 15,584,755

As at 31 December 2009, included in the bond investments were amounts of RMB8,777,992 thousand (31 December 2008: RMB3,612,979 thousand) and RMB1,208,175 thousand (31 December 2008: RMB5,405,600 thousand) that had been pledged for agreements of time deposit from the PBOC and repurchase agreements, respectively. As at 31 December 2008, the Company pledged RMB205,485 thousand of held-to-maturity bond investments for loan guarantee contracts.

In November 2009, the Company sold held-to-maturity investments with a carrying value of RMB519,960 thousand (2008: nil), which represented 1.3% of the total held-to-maturity investments prior to the sale. The above held-to-maturity investments sold were subordinated debts issued by other commercial banks that were originally purchased during the period between July 2009 and August 2009.

There are no changes in the assessment of the Company’s intention and ability to hold the investments to maturity.

12 Receivables


PBOC bills 13,450,000 13,450,000

Subordinated bonds issued by financial institutions 500,000 300,000

Principal guaranteed wealth management products issued by financial institutions 16,477,100 –Total 30,427,100 13,750,000

The PBOC bills and subordinated bonds are non-transferrable debt securities with fixed or determinable payments.

As at 31 December 2009, included in the bond investments is an amount of RMB2,000,000 thousand (31 December 2008: RMB3,000,000 thousand) that was pledged for repurchase agreements.



13 Long term equity investments

NAME OF INVESTEE 2009

Percentage Percentage of Initial Balance at Balance at of equity voting right Provision Net balance cost of beginning end of held bythe held by the charged for Impairment at end of investment of the year Movements the year Company (%) Company (%) the year provisions the yearIn RMB’000 (Note D.18)

Cost methodChina UnionPay Co., Ltd. 50,000 50,000 – 50,000 1.71 1.71 – – 50,000Gintian Industry (Group) Co., Ltd. 9,662 9,662 – 9,662 2.03 2.03 – (9,662 ) –Hainan Pearl River Holdings Co., Ltd. 9,650 9,650 – 9,650 0.27 0.27 – (9,650 ) –Hainan Wuzhou Travel Co., Ltd. 5,220 5,220 – 5,220 3.70 3.70 – (5,220 ) –Meizhou Polyester (Group) Co. 1,100 1,100 – 1,100 0.41 0.41 – (1,100 ) –Shenzhen Zoto Investment Co.,Ltd. 2,500 2,500 – 2,500 4.10 4.10 – – 2,500Hainan Junhe Travel Co., Ltd. 2,800 2,800 (2,800 ) – – – – – –Guangdong Sanxing Enterprises (Group) Co., Ltd. 500 500 – 500 0.05 0.05 – (500 ) –Hainan Baiyunshan Co., Ltd. 1,000 1,000 – 1,000 0.91 0.91 – (1,000 ) –Hainan Saige Co., Ltd. 1,000 1,000 – 1,000 0.56 0.56 – (1,000 ) –Hainan Zhuxin Investment Co., Ltd. 500 500 (500 ) – – – – – –Hainan Zhonghailian Real Estate Co., Ltd. 1,000 1,000 – 1,000 0.74 0.74 – (1,000 ) –Shenzhen Jiafeng Textile Industrial Co., Ltd 16,725 16,725 – 16,725 13.82 13.82 – (16,725 ) –SWIFT 684 230 454 684 0.03 – – – 684Yong An Property Insurance Co., Ltd. 67,000 67,000 – 67,000 4.03 4.03 (28,530 ) (67,000 ) –Wuhan Steel Electricity Co., Ltd. 32,175 32,175 – 32,175 3.37 3.37 – – 32,175Founder Securities Co., Ltd. 4,283 4,283 (4,283 ) – – – – – –Chengdu Unionfriend Network Co. Ltd. 20,000 20,000 – 20,000 14.13 14.13 – – 20,000Subtotal 225,799 225,345 (7,129 ) 218,216 (28,530 ) (112,857 ) 105,359

Equity methodAssociates

Chengdu Gongtou Assets Management Co., Ltd. 259,836 269,065 10,735 279,800 33.20 33.20 – (20,000 ) 259,800Shandong Xinkaiyuan Real Estate Co., Ltd. 30,607 30,607 – 30,607 15.42 15.42 (3,061 ) (3,061 ) 27,546Subtotal 290,443 299,672 10,735 310,407 (3,061 ) (23,061 ) 287,346Total 516,242 525,017 3,606 528,623 (31,591 ) (135,918 ) 392,705





NAME OF INVESTEE 2008

Percentage Percentage of Initial Balance at Balance at of equity voting right Provision Net balance cost of beginning end of held bythe held by the charged for Impairment at end of investment of the year Movements the year Company (%) Company (%) the year provisions the yearIn RMB’000 (Note D.18)

Cost methodChina UnionPay Co., Ltd. 50,000 50,000 – 50,000 1.71 1.71 – – 50,000

Gintian Industry (Group) Co., Ltd. 9,662 9,662 – 9,662 2.03 2.03 – (9,662 ) –

Hainan Pearl River Holdings Co., Ltd. 9,650 9,650 – 9,650 0.27 0.27 – (9,650 ) –

Hainan Wuzhou Travel Co., Ltd. 5,220 5,220 – 5,220 3.70 3.70 – (5,220 ) –

Meizhou Polyester (Group) Co. 1,100 1,100 – 1,100 0.41 0.41 – (1,100 ) –

Shenzhen Zoto Investment Co.,Ltd. 2,500 2,500 – 2,500 4.10 4.10 – – 2,500

Hainan Junhe Travel Co., Ltd. 2,800 2,800 – 2,800 9.30 9.30 – (2,800 ) –

Guangdong Sanxing Enterprises (Group) Co., Ltd. 500 500 – 500 0.05 0.05 – (500 ) –

Hainan Baiyunshan Co., Ltd. 1,000 1,000 – 1,000 0.91 0.91 – (1,000 ) –

Hainan Saige Co., Ltd. 1,000 1,000 – 1,000 0.56 0.56 – (1,000 ) –

Hainan Zhuxin Investment Co., Ltd. 500 500 – 500 0.27 0.27 – (500 ) –

Hainan Zhonghailian Real Estate Co., Ltd. 1,000 1,000 – 1,000 0.74 0.74 – (1,000 ) –

Shenzhen Jiafeng Textile Industrial Co., Ltd 16,725 16,725 – 16,725 13.82 13.82 – (16,725 ) –

SWIFT 684 230 – 230 0.03 – – – 230

Yong An Property Insurance Co., Ltd. 67,000 67,000 – 67,000 4.03 4.03 (8,000 ) (38,470 ) 28,530

Wuhan Steel Electricity Co., Ltd. 32,175 32,175 – 32,175 3.37 3.37 – – 32,175

Founder Securities Co., Ltd. 4,283 4,283 – 4,283 0.26 0.26 – – 4,283

Chengdu Unionfriend Network Co. Ltd. 20,000 – 20,000 20,000 14.13 14.13 – – 20,000

Shenzhen Yuan Sheng Industrial Co., Ltd. 507,348 507,348 (507,348 ) – 100 100 – – –

Yihua Real Estate Co., Ltd. 10,000 10,000 (10,000 ) – 2.79 2.79 – – –

Subtotal 743,147 722,693 (497,348 ) 225,345 (8,000 ) (87,627 ) 137,718

Equity methodAssociates

Chengdu Gongtou Assets Management Co., Ltd. 259,836 – 269,065 269,065 33.20 33.20 (20,000 ) (20,000 ) 249,065

Shandong Xinkaiyuan Real Estate Co., Ltd. 30,607 – 30,607 30,607 15.42 15.42 – – 30,607

Subtotal 290,443 – 299,672 299,672 (20,000 ) (20,000 ) 279,672

Total 1,033,590 722,693 (197,676 ) 525,017 (28,000 ) (107,627 ) 417,390

The movement in impairment provisions for long term equity investments is as follows:

Balance at beginning Charged for Balance at endIn RMB’000 of the year the year Other movements of the year

Chengdu Gongtou Assets Management Co., Ltd. 20,000 – – 20,000

Yong An Property Insurance Co., Ltd. 38,470 28,530 – 67,000

Others 49,157 3,061 (3,300 ) 48,918

Total 107,627 31,591 (3,300 ) 135,918




The movements in the associates during the year are as follows:

Movements in equity Impairment provision Movement Balance at in other Initial cost of beginning Share of profit comprehensive Charge for Accumulated Balance at end investment of the year for the year income the year balance of the yearIn RMB’000 (Note D.45)

Chengdu Gongtou Assets Management Co., Ltd. (Note 1) 259,836 249,065 18,336 (7,601 ) – (20,000 ) 259,800Shandong Xinkaiyuan Real Estate Co., Ltd. (Note 2) 30,607 30,607 – – (3,061 ) (3,061 ) 27,546Total 290,443 279,672 18,336 (7,601 ) (3,061 ) (23,061 ) 287,346

Notes: 1. At 30 January 2008, the Company obtained 33.2% of the shareholding of Chengdu Gongtou Assets Management Co., Ltd. as repossessed assets.

2. At 18 August 2008, the Company obtained 15.42% of the shareholding of Shandong Xinkaiyuan Real Estate Co., Ltd. as repossessed assets. The Company has appointed a representative at the board of the investee and has significant influence over the investee.

3. As at 31 December 2009, there were no significant restrictions on the ability of associates to transfer funds to the Company. In 2009, the Company received cash dividends of RMB3,320 thousand from Chengdu Gongtou Assets Management Co., Ltd. Such dividends were recorded by the Company as a dividend receivable as at 31 December 2008.

The key financial information of the associates is as follows:

Place of registration Nature of business Registered capital

Chengdu Gongtou Assets Management Co., Ltd. Chengdu Asset management 518,700

Shandong Xinkaiyuan Real Estate Co., Ltd. Jinan Real estate 210,000

31 December 2009 2009

In RMB’000 Total assets Total liabilities Operating income Net profit (Note 1)

Chengdu Gongtou Assets Management Co., Ltd. 1,545,541 648,916 81,955 97,422

Shandong Xinkaiyuan Real Estate Co., Ltd. 369,065 169,238 – (10,176 )

31 December 2008 2008 (Note 2)

In RMB’000 Total assets Total liabilities Operating income Net profit


Shandong Xinkaiyuan Real Estate Co., Ltd. 288,105 78,102 – –

Notes: 1. The amount represents the net profit attributable to the parent company on the face of the consolidated income statement of the associate.

2. The operating income and net profit for 2008 represented the operating income and the net profit attributable to the parent company on the face of the consolidated income statement of the associate for the period from the date the Company acquired the shareholding of the associate up to 31 December 2008.

14 Investment properties


Balance at beginning of the year 411,690 441,098Purchase during the year 54,306 –Disposals during the year – (2,058 )Fair value changes recognised in profit or loss 47,858 (15,087 )Transfer from/(to) owner-occupied properties during the year, net 9,992 (12,263 )Balance at end of the year 523,846 411,690

The Company’s investment properties are mainly properties and buildings, which are rented to third parties under operating leases. The investment properties are situated in locations where there are active property markets and the fair value of the investment properties can be reliably determinable on a continuing basis. Accordingly, management decided to adopt the fair value model for subsequent measurement of the investment properties, which are valued by independent professionally qualified valuers on, at least, an annual basis. The revaluation as at 31 December 2009 was performed by Shenzhen Guozi Land and Real Estate Valuation Co., Ltd. In connection with this, the valuation was carried out by qualified persons who are members of the Shenzhen Institute of Real Estate Appraisers. During the year, certain investment properties were transferred from owner-occupied properties mainly because these properties were leased out.




14 Investment properties (Continued)

As at 31 December 2009, included in the investment properties was an amount of RMB23,322 thousand (31 December 2008: RMB6,930 thousand) that did not have the corresponding registration certificates of property rights.

The gross rental income earned from the investment properties during the year amounted to RMB40,086 thousand (2008: RMB38,982 thousand). The total direct operating expense (including repairs and maintenance expenses) for the investment properties, with or without rental income generated during the year, was RMB2,907 thousand (2008: RMB2,589 thousand).

15 Fixed assets

2009

Balance at Transfer from beginning of construction Balance at endIn RMB’000 the year Additions in progress Subtraction of the year

At costProperties and buildings 1,538,502 43,921 – (30,125 ) 1,552,298Transportation vehicles 82,794 13,687 – (12,331 ) 84,150Computers 776,036 111,126 172 (54,253 ) 833,081Electronic appliances 393,232 122,396 31,434 (31,173 ) 515,889Owner-occupied property improvements 335,628 14,480 22,393 (1,605 ) 370,896Total 3,126,192 305,610 53,999 (129,487 ) 3,356,314

Accumulated depreciationProperties and Buildings 455,371 53,386 – (14,294 ) 494,463Transportation vehicles 55,446 7,288 – (11,331 ) 51,403Computers 448,730 86,603 – (18,289 ) 517,044Electronic appliances 223,235 93,005 – (28,749 ) 287,491Owner-occupied property improvements 262,197 23,852 – (886 ) 285,163Total 1,444,979 264,134 – (73,549 ) 1,635,564Less: Impairment provision (Note D.18) (6,289 ) (6,289 )Net book value 1,674,924 1,714,461

2008


At costProperties and buildings 1,536,206 35,262 – (32,966 ) 1,538,502

Transportation vehicles 95,235 15,612 957 (29,010 ) 82,794

Computers 700,932 194,663 7,132 (126,691 ) 776,036

Electronic appliances 307,632 88,250 16,383 (19,033 ) 393,232

Owner-occupied property improvements 318,845 6,677 10,759 (653 ) 335,628

Total 2,958,850 340,464 35,231 (208,353 ) 3,126,192

Accumulated depreciationProperties and Buildings 413,076 51,594 – (9,299 ) 455,371

Transportation vehicles 73,338 7,278 – (25,170 ) 55,446

Computers 471,129 97,726 – (120,125 ) 448,730

Electronic appliances 203,740 36,116 – (16,621 ) 223,235

Owner-occupied property improvements 243,289 19,211 – (303 ) 262,197

Total 1,404,572 211,925 – (171,518 ) 1,444,979

Less: Impairment provision (Note D.18) – (6,289 )

Net book value 1,554,278 1,674,924

As at 31 December 2009, the original cost and net book value of properties and buildings amounting to RMB140,603 thousand (31 December 2008: RMB143,053 thousand) and RMB83,033 thousand (31 December 2008: RMB88,723 thousand) respectively, are in use by the Company without having the registration certificates of property rights.



16 Deferred tax assets/deferred tax liabilities

2009

Recognised Balance at in other beginning Recognised in comprehensive Balance at end of the year profit or loss income of the yearIn RMB’000 (Note D.43) (Note D.45)

Deferred tax assetsImpairment provisions 1,742,460 (250,454 ) – 1,492,006Others 69,356 21,572 – 90,928Subtotal 1,811,816 (228,882 ) – 1,582,934

Deferred tax liabilitiesChanges in fair values

Financial instruments at fair value through profit or loss and derivative financial instruments (46,585 ) 27,905 – (18,680 )Available-for-sale financial assets (251,248 ) – 245,142 (6,106 )Revaluation surplus on owner-occupied properties transferred to investment properties (43,846 ) (16,933 ) (8,960 ) (69,739 )Subtotal (341,679 ) 10,972 236,182 (94,525 )Total 1,470,137 (217,910 ) 236,182 1,488,409

2008

Recognised

Balance at in other

beginning Recognised in comprehensive Balance at end

of the year profit or loss income of the yearIn RMB’000 (Note D.43) (Note D.45)

Deferred tax assetsImpairment provisions 945,647 796,813 – 1,742,460

Changes in fair values of available-for-sale financial assets 12,862 – (12,862 ) –

Others 35,880 33,476 – 69,356

Subtotal 994,389 830,289 (12,862 ) 1,811,816

Deferred tax liabilitiesTax losses deducted against taxable profits of different tax rates (54,135 ) 54,135 – –

Changes in fair values

Financial instruments at fair value through profit or loss and derivative financial instruments (4,365 ) (42,220 ) – (46,585 )

Available-for-sale financial assets (345 ) – (250,903 ) (251,248 )

Revaluation surplus on owner-occupied properties transferred to investment properties (39,699 ) (3,134 ) (1,013 ) (43,846 )

Subtotal (98,544 ) 8,781 (251,916 ) (341,679 )

Total 895,845 839,070 (264,778 ) 1,470,137




17 Other assets

a Analysed by nature


Prepayments (Note D.17b) 118,255 167,323

Prepaid legal expenses (Note D.17c) 68,697 113,948Repossessed assets (Note D.17d) 1,028,124 937,303

Construction in progress (Note D.17e) 673,587 257,040Receivable of bills due from other banks 1,977 54,274

Receivable of deferred consumption payments 141,141 57,017

Long term deferred expenses (Note D.17f) 429,279 355,458

Others (Note D.17g) 156,885 205,648

Total other assets 2,617,945 2,148,011

Less: Impairment provisions

Prepaid legal expenses (Note D.17c) (61,636 ) (82,275 )

Repossessed assets (Note D.17d) (360,961 ) (319,480 )

Others (Note D.17g) (92,772 ) (130,362 )

Total impairment provisions (515,369 ) (532,117 )

Other assets, net 2,102,576 1,615,894

b Aging analysis of prepayments


In RMB’000 Amount % Amount %

Less than 1 year 77,536 65.57 130,549 78.02

1 to 2 years 15,768 13.33 9,221 5.51

2 to 3 years 6,178 5.22 4,510 2.70

Over 3 years 18,773 15.88 23,043 13.77

Total 118,255 100 167,323 100

As at 31 December 2009 and 31 December 2008, the Company has not made any provision for prepayments.

c Prepaid legal expenses


Carrying amount Impairment provision Carrying amount Impairment provision

In RMB’000 Amount % Amount Coverage (%) Amount % Amount Coverage (%)

Individual assessment 63,071 91.81 (58,155 ) 92.21 89,071 78.17 (64,858 ) 72.82

Collective assessmentAging less than 1 year 2,865 4.17 (956 ) 33.37 5,462 4.79 (3,733 ) 68.34

Aging between 1 and 2 years 790 1.15 (554 ) 70.13 2,824 2.48 (2,364 ) 83.71


Aging over 3 years 1,449 2.11 (1,449 ) 100.00 13,404 11.76 (9,597 ) 71.60

Subtotal 5,626 8.19 (3,481 ) 61.87 24,877 21.83 (17,417 ) 70.01

Total 68,697 100 (61,636 ) 89.72 113,948 100 (82,275 ) 72.20



17 Other assets (Continued)

d Repossessed assets


Land, properties and buildings 976,451 915,282

Others 51,673 22,021

Total 1,028,124 937,303

Less: Provision for decline in value (Note D.18) (360,961 ) (319,480 )

Repossessed assets, net 667,163 617,823

During the year, the Company took possession of collateral held as security with a carrying amount of RMB404,393 thousand (2008: RMB52,152 thousand). The collateral mainly comprises buildings. During the year, the Company disposed of repossessed assets with their gross carrying value amounting to RMB313,572 thousand (2008: RMB120,167 thousand). The Company plans to dispose of the repossessed assets through auctions, bidding or transfers in future.

e Construction in progress


Balance at beginning of the year 257,040 10,809

Additions 592,473 367,942

Transfer to fixed assets (53,999 ) (35,231 )

Transfer to intangible assets (19,592 ) (15,692 )

Transfer to long-term deferred expenses (102,335 ) (70,788 )

Balance at end of the year 673,587 257,040

Movements in key projects of construction in progress during the year are as follows:

Balance at Balance at Percentage Budget beginning of end of of budget Progress of FundingProject name amount the year Additions the year incurred (%) project (%) sources

Property development project for Information Technology Building of SDB 217,095 – 176,788 176,788 81 90 Internal

Bank premises of Tianjin Branch 268,548 – 197,504 197,504 74 10 Internal

Bank premises of Nanjing Branch (Hetai Building) 253,444 215,444 18,354 233,798 92 92 Internal

f Long term deferred expenses



Additions 165,984 158,451

Amortisation (91,731 ) (78,108 )

Others (432 ) (1,643 )





17 Other assets (Continued)

g Others





Collective assessmentAging less than 1 year 11,030 7.03 (114 ) 1.03 10,782 5.24 (269 ) 2.49

Aging between 1 and 2 years – – – – 81 0.04 (70 ) 86.42

Aging between 2 and 3 years 7 0.00 (7 ) 100.00 38 0.02 (38 ) 100.00

Aging over 3 years 72 0.05 (40 ) 55.56 355 0.17 (353 ) 99.44

Subtotal 11,109 7.08 (161 ) 1.45 11,256 5.47 (730 ) 6.49

Total 156,885 100 (92,772 ) 59.13 205,648 100 (130,362 ) 63.39

18 Impairment losses on assets

2009

Amounts Interest Add-back Recovery released accrued on Balance at Charge/ of loans of assets upon impaired Balance at beginning (reversal) Amounts written off written off disposal loans and Other end of of the year for the year written off previously previously of assets advances movements the yearIn RMB’000 Note D (Note D.42)

Provision for decline in value of precious metals 259 (181 ) – – – – – – 78Impairment provision for placements of deposits with other financial institutions 2 40,695 – – – – – – – 40,695Impairment provision for funds loaned to other financial institutions 3 29,079 (1,166 ) – – 1,774 – – 292 29,979Impairment provision for reverse repurchase agreements 6 29,000 6,000 – – – – – – 35,000Impairment provision for loans and advances 9f 2,026,679 1,440,552 (175,017 ) 356,235 673,160 (302,717 ) (109,510 ) 45,486 3,954,868Impairment provision for long term equity investments 13 107,627 31,591 – – – (3,300 ) – – 135,918Provision for decline in value of repossessed assets 17d 319,480 88,861 – – – (47,380 ) – – 360,961Impairment provision for fixed assets 15 6,289 – – – – – – – 6,289Impairment provision for other assets 17c&g 212,637 5,459 (64,340 ) – – – – 652 154,408Total 2,771,745 1,571,116 (239,357 ) 356,235 674,934 (353,397 ) (109,510 ) 46,430 4,718,196

Provision for financial guarantee contracts 3,972Total impairment losses 1,575,088



18 Impairment losses on assets (Continued)

2008

Amounts Interest released accrued on Balance at Charge/ Recovery of upon impaired Balance at beginning (reversal) Amounts loans written disposal loans and Other end of of the year for the year written off off previously of assets advances movements the yearIn RMB’000 Note D (Note D.42)

Provision for decline in value of precious metals 61 198 – – – – – 259

Impairment provision for placements of deposits with other financial institutions 2 66,786 (1,496 ) (25,400 ) – – – 805 40,695

Impairment provision for funds loaned to other financial institutions 3 309,897 8,619 (284,987 ) – – – (4,450 ) 29,079

Impairment provision for reverse repurchase agreements 6 30,549 172 (1,721 ) – – – – 29,000

Impairment provision for loans and advances 9f 6,023,964 6,972,839 (10,606,712 ) 29,944 – (384,238 ) (9,118 ) 2,026,679

Impairment provision for long term equity investments 13 470,745 83,184 – – (446,302 ) – – 107,627

Provision for decline in value of repossessed assets 17d 198,143 126,114 – – (7,577 ) – 2,800 319,480

Impairment provision for fixed assets 15 – 6,289 – – – – – 6,289

Impairment provision for other assets 17c&g 238,448 37,990 (61,447 ) – – – (2,354 ) 212,637

Total 7,338,593 7,233,909 (10,980,267 ) 29,944 (453,879 ) (384,238 ) (12,317 ) 2,771,745

Impairment losses on available-for-sale financial assets carried at fair value 100,253

Total impairment losses 7,334,162




19 Placements of deposits from other financial institutions


Domestic banks 53,708,335 22,881,311

Domestic non-bank financial institutions 20,431,338 13,181,721

Total 74,139,673 36,063,032

20 Funds borrowed from other financial institutions


Domestic banks 7,570,118 7,380,000

21 Repurchase agreements


Analysed by collateralSecurities 8,448,000 10,360,000

Bills 5,285,384 28,556,115

Total 13,733,384 38,916,115

Analysed by counterpartyBanks 13,733,384 38,916,115

22 Customer deposits


Current depositsCorporate customers 116,998,653 86,279,463

Personal customers 27,243,974 19,234,242

Subtotal 144,242,627 105,513,705

Fixed depositsCorporate customers 125,519,956 100,842,409


Subtotal 168,695,652 139,679,311

Guarantee deposits 121,671,280 104,393,453

Fiscal deposits 9,936,132 6,772,448

Time deposits from PBOC 8,320,000 3,000,000

Inward and outward remittances 1,769,517 1,155,119

Total 454,635,208 360,514,036



23 Employee benefits payable

2009

Balance at beginning Increase during Payment made Balance at end of the year the year during the year of the yearIn RMB’000 (Note 2)

Salaries, bonuses, allowances and subsidies 1,000,417 2,507,090 (2,088,164 ) 1,419,343 including: Deferred bonus accrual (Note 1) 108,200 91,334 (39,932 ) 159,602Social insurance, supplementary pension contributions and staff welfare 247,003 641,287 (625,905 ) 262,385Housing funds – 121,418 (121,418 ) –Labour union and training expenses – 73,380 (73,380 ) –Others – 4,768 (4,768 ) –Total 1,247,420 3,347,943 (2,913,635 ) 1,681,728

2008


Salaries, bonuses, allowances and subsidies 706,104 2,034,524 (1,740,211 ) 1,000,417

including: Deferred bonus accrual (Note 1) 42,800 65,400 – 108,200

Social insurance, supplementary pension contributions and staff welfare 219,307 494,408 (466,712 ) 247,003

Housing funds – 89,934 (89,934 ) –

Labour union and training expenses – 56,875 (56,875 ) –

Others – 9,362 (9,362 ) –

Total 925,411 2,685,103 (2,363,094 ) 1,247,420

Notes: 1. The amount of deferred bonus is determined based on the indicators of profitability and the share price of the Company as well as the share prices of certain other domestic listed banks; and will be settled in cash in accordance with the terms of the arrangement.

2. As at 31 December 2009, included in the outstanding balances of employee benefits payable was an approximate amount of RMB1.4 billion that is expected to be settled in 12 months.

24 Tax payable


Corporate income tax 294,784 688,812

Business tax and surcharges 328,507 382,269

Withholding tax on deposit interests 281 43,632

Others 28,717 83,136

Total 652,289 1,197,849

25 Interest payable

Balance at beginning of Increase during Payment made Balance at endIn RMB’000 the year the year during the year of the year

Interest payable for deposits from customers and financial institutions 2,661,721 7,766,552 (8,099,078 ) 2,329,195

Interest payable for bonds 301,503 512,114 (460,650 ) 352,967

Total 2,963,224 8,278,666 (8,559,728 ) 2,682,162




26 Bonds payable


Subordinated bonds (Note 1) 7,972,653 7,964,282

Hybrid capital debt instrument (Note 2) 1,490,061 –

Total 9,462,714 7,964,282

As at 31 December 2009 and 31 December 2008, the Company did not have any defaults of principal, interest or other breaches with respect to the subordinated bonds and the hybrid capital debt instrument.

Notes: 1. As approved by the PBOC and CBRC, the Company issued three sets of subordinated bonds with a total amount of RMB8 billion in the inter-bank bond market on 21 March 2008 and 28 October 2008. These subordinated bonds comprise two sets of fixed-rate bonds with nominal values of RMB6 billion and RMB1.5 billion respectively; and one set of floating-rate bonds with a nominal value of RMB0.5 billion. The term of the bonds is of 10 years with a call option at the end of the fifth year. The coupon rates for the first five years are 6.10% and 5.30% for the two sets of fixed-rate bonds; and SHIBOR3M+1.40% for the floating-rate bonds. If the Company does not exercise the call option at the end of the fifth year, both the fixed and floating coupon rates will increase by 3%.

2. As approved by the PBOC and CBRC, the Company issued a fixed-rate hybrid capital debt instrument amounting to RMB1.5 billion in the inter-bank market on 26 May 2009. The debt instrument has 15 years to maturity. The Company has the option to redeem the debt instrument at face value on 26 May 2019. The coupon rate for the first ten years is 5.70%. If the Company does not exercise this option, the coupon rate will increase by 3% thereafter.

27 Provisions



Charge/(reversal) for the year (3,508 ) 29,712

Amounts paid or released (18,943 ) (81,350 )


28 Other liabilities


Bank drafts 189,471 195,295

Amounts pending for settlement and clearing 88,739 57,917

Financial guarantee contracts 54,692 53,324

Amounts payable for bond redemption as intermediaries 29,994 29,456

Accrued expenses 129,483 108,002

Amounts payable for acquisition of bonds 794,952 –

Inactive deposit account balances 39,457 44,414

Dividends payable (Note) 11,260 14,172

Subscription monies of open-ended funds – 16,798

Advanced receipts of proceeds from disposal of repossessed assets 89,795 18,448

Others 386,002 282,610

Total 1,813,845 820,436

Note: The above-mentioned balance of dividends payable has been outstanding for more than one year as the related shareholders have not collected the dividends.

29 Share capitalAs at 31 December 2009, the number of the Company’s ordinary shares issued and fully paid was 3,105,434 thousand, with a price of RMB1 Yuan each. The nature and the structure of the share capital are as follows:

2008-12-31 31 December Movement for 31 DecemberIn RMB’000 2008 % the year 2009 %

Restricted tradable sharesDomestic non-state-owned corporation shares 3,855 0.13 (3,799 ) 56 0.00

Domestic individual shares 78 0.00 (70 ) 8 0.00

Foreign corporation shares 316,895 10.20 (135,639 ) 181,256 5.84

Total restricted tradable shares 320,828 10.33 (139,508 ) 181,320 5.84

Unrestricted tradable sharesRMB ordinary shares 2,784,606 89.67 139,508 2,924,114 94.16

Total shares 3,105,434 100.00 – 3,105,434 100.00



29 Share capital (Continued)

In accordance with the Measures for the Administration of the Share-trading Reform of Listed Companies, the original non-tradable shareholders of the Company promised not to conduct any transfer or trading of the non-tradable shares held within 12 months since the day when the trading right is acquired. After the expiration of the above commitment term, the former non-tradable shares trading through the stock exchange shall not be over 5% of the total shares of the Company within 12 months, and not over 10% within 24 months.

There were changes in the structure of the share capital during the year because some of the restricted tradable shares became unrestricted upon the expiry of the respective lock-up periods.

The Company signed a share placement agreement with Ping An Life Insurance Company of China, Ltd. (“Ping An Life”) on 12 June 2009. Such agreement has been approved by the Board of Directors and the shareholders’ meeting of the Company on 12 June 2009 and 29 June 2009, respectively. In accordance with the agreement, the Company would issue no less than 370 million but not more than 585 million shares to Ping An Life who would subscribe these new shares. The shares would be issued at a price of RMB18.26 Yuan per share, an average of the Company’s share prices in the past 20 trading days before the announcement date of the resolution of the Company’s Board of Directors relating to the approval of the share placement. The above agreement is still subject to the approval from the relevant regulars and the final arrangement of the share placement would be based on the terms approved by the regulators.

30 Capital reserve


Share premium 6,973,270 6,973,270

Cumulative changes in fair value of available-for-sale financial assets 20,499 1,002,795

Revaluation surplus on owner-occupied properties transferred to investment properties 41,030 13,043

Share of the changes in owners’ equity of an associate (17,727 ) (10,126 )

Total 7,017,072 7,978,982

31 Surplus reserveIn accordance with the Company Law, the Company is required to appropriate 10% of its profit after tax to its statutory surplus reserve until the reserve balance reaches 50% of its registered capital. Subject to the approval of the shareholders, the statutory surplus reserve may be used to offset accumulated losses, if any, and may also be converted into capital, provided that the balance of the statutory surplus reserve after such capitalisation is not less than 25% of the registered capital. The Company may also appropriate its profit after tax to the discretionary surplus reserve upon approval of the shareholders in general meetings.

As at 31 December 2009 and 31 December 2008, the amount of the surplus reserve represented the statutory surplus reserve.

32 General reservePursuant to the relevant regulations issued by the MOF, the Company is required to maintain a general reserve within equity, through the appropriation of net profit, which should not be less than 1% of the period end balance of its risk assets.

33 Unappropriated profitPursuant to a board resolution on 20 August 2008, an appropriation of RMB214,384 thousand based 10% of net profit as reported in the Company’s statutory financial statements for the first half of 2008 was made to the statutory surplus reserve; an appropriation of RMB608,624 thousand was made to the general reserve; and dividends of 3 shares and RMB0.335 Yuan for every 10 shares were appropriated from the unappropriated profit, amounting to RMB796,663 thousand in total. The above appropriations were approved at the shareholders’ meeting of the Company held on 15 October 2008.

Pursuant to a board resolution on 19 March 2009, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2008, the Company reversed the statutory surplus reserve amounting to RMB152,980 thousand in the second half of the year considering the respective appropriation in the first half of 2008, with the result that an appropriation of RMB61,404 thousand was made to the statutory surplus reserve for 2008 based on 10% of the profit for the year; and an appropriation of RMB258,968 thousand was made to the general reserve for the second half of 2008. The above appropriations were approved at the shareholders’ meeting of the Company held on 18 May 2009.

Pursuant to a board resolution on 11 March 2010, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2009, the Company appropriated RMB503,072 thousand to the statutory surplus reserve based on 10% of the net profit and RMB1,092,980 thousand to the general reserve for the year of 2009. The above proposed appropriations are pending approval from shareholders at the forthcoming annual general meeting.




34 Net interest income

In RMB’000 2009 2008

Interest incomeDue from the Central Bank 639,322 728,694

Due from financial institutions

Rediscounted bills and reverse repurchase agreements collateralised by bills 1,629,764 3,079,231

Others 823,984 862,748

Loans and advances

Corporate loans and advances 10,817,870 11,686,554

Individual loans and advances 4,849,172 4,891,174

Discounted bills 591,686 2,828,661

Interest income on investment securities (excluding financial assets at fair value through profit or loss) 2,601,525 2,330,843

Subtotal 21,953,323 26,407,905

Interest income on financial assets at fair value through profit or loss 32,189 57,359

Total 21,985,512 26,465,264

Including: Interest income accrued on impaired financial assets 109,510 384,238

Interest expenseDue to financial institutions

Redisounted bills and repurchase agreements collateralised by bills 446,414 3,204,424

Others 1,052,461 1,773,250

Customer deposits 6,981,323 8,556,601

Bonds payable 520,356 325,488

Subtotal 9,000,554 13,859,763

Interest expense on financial liabilities at fair value through profit or loss 584 7,613

Total 9,001,138 13,867,376

Net interest income 12,984,374 12,597,888

35 Net fee and commission income

In RMB’000 2009 2008

Fee and commission incomeSettlement fee income 387,014 341,688

Wealth management products related fee income 17,025 1,867

Agency business fee income 102,718 100,645

Credit card fee income 392,259 307,981

Advisory and consulting fee income 301,182 169,170

Trade finance related fee income 36,839 17,293

Account management fee income 29,966 19,474

Others 119,969 98,529

Subtotal 1,386,972 1,056,647

Fee and commission expenseAgency business fee expenses 111,021 123,036

Bank card fee 72,884 65,026

Others 22,283 17,197

Subtotal 206,188 205,259

Net fee and commission income 1,180,784 851,388



36 Investment income

In RMB’000 2009 2008

Net gain/(loss) on disposal of bond investments held for trading (10,783 ) 41,810

Net gain/(loss) on disposal of bond investments designated as at fair value through profit or loss 12 (91 )

Net gain on disposal of available-for-sale bond investments 435,403 322,953

Net gain on disposal of available-for-sale equity investments 32,872 804

Net loss on disposal of held-to-maturity bond investments (Note D.11) (29,128 ) –

Gain on disposal of long term equity investments 32,913 12,443

Share of profits of associates under equity method of accounting 18,336 22,675

Dividend income 1,905 4,554

Net realised gain on derivative financial instruments (excluding foreign exchange derivative financial instruments) 1,463 16,408

Gain on disposal of bills 97,293 –

Total 580,286 421,556

37 Gains or losses from changes in fair values of financial instruments

In RMB’000 2009 2008

Financial instruments held for trading 78 1,241

Financial assets designated as at fair value through profit or loss (83 ) 4,729

Financial liabilities designated as at fair value through profit or loss 567 2,740

Derivative financial instruments (excluding foreign exchange derivative financial instruments) (49,752 ) 72,177

Total (49,190 ) 80,887

38 Net foreign exchange difference

In RMB’000 2009 2008

Gains or losses from changes in fair values on foreign exchange derivative financial instruments (103,635 ) 128,809

Others 345,258 333,734

Total 241,623 462,543

39 Other operating income

In RMB’000 2009 2008

Rental income 67,053 63,365

Others 61,652 50,579

Total 128,705 113,944

40 Business tax and surcharge

In RMB’000 2009 2008

Business tax 977,281 1,048,561

City maintenance and construction tax 54,691 61,547

Education surcharge 36,627 39,757

Others 535 1,800

Total 1,069,134 1,151,665




41 General and administrative expenses

In RMB’000 2009 2008

Staff expensesSalaries, bonuses, allowances and subsidies 2,507,090 2,034,524

Social insurance, supplementary pension contributions and staff welfare 641,287 494,408

Housing funds 121,418 89,934

Labour union and training expenses 73,380 56,875

Others 4,768 9,362

Subtotal 3,347,943 2,685,103

General and administrative expensesRental expenses 533,212 421,725

Computer system maintenance fees 140,042 168,425

Telecommunication and postage expenses 98,813 95,546

Water and electricity expenses 58,721 47,769

Publication and stationery expenses 210,738 197,604

Travel expenses 95,734 90,173

Marketing and public relation expenses 475,516 358,019

Motor vehicle expenses 133,344 128,463

Legal expenses 87,907 44,080

Professional fees 280,427 169,425

Sundry tax expenses 45,524 30,269

CBRC supervisory fee 62,702 51,582

Amortisation of leasehold improvements 78,094 61,179

Others 362,208 441,727

Subtotal 2,662,982 2,305,986

Depreciation and amortisationDepreciation of fixed assets 264,134 211,925


Subtotal 300,166 232,777

Total 6,311,091 5,223,866

42 Impairment losses on assets

In RMB’000 2009 2008

Charge/(reversal) of impairment losses on

Precious metals (181 ) 198

Placements of deposits with other financial institutions – (1,496 )

Funds loaned to other financial institutions (1,166 ) 8,619

Reverse repurchase agreements 6,000 172

Loans and advances 1,440,552 6,972,839

Long term equity investments 31,591 83,184

Available-for-sale financial assets – 100,253

Repossessed assets 88,861 126,114

Fixed assets – 6,289

Other assets 5,459 37,990

Subtotal 1,571,116 7,334,162

Provision for financial guarantee contracts 3,972 –

Total 1,575,088 7,334,162



43 Income tax expense

In RMB’000 2009 2008

Current taxCharge for the year 1,151,737 1,381,363

Adjustment in respect of current income tax for prior years (209,839 ) (363,719 )

Subtotal 941,898 1,017,644

Deferred income tax (Note D.16) 217,910 (839,070 )

Total 1,159,808 178,574

The reconciliation of income tax expense applicable to profit before tax at the statutory tax rate to income tax expense at the Company’s effective income tax rate is as follows:

In RMB’000 2009 2008


Income tax at the statutory rate of 25% 1,547,634 198,152

Effects of 20% tax rate (2008: 18%) applicable to the regions of Shenzhen, Zhuhai and Haikou (211,555 ) (1,971 )


Non-taxable income (111,777 ) (131,617 )

Non-deductible expenses and other adjustments 145,345 477,729

Income tax expense 1,159,808 178,574

44 Earnings per shareThe Company’s basic earnings per share amount is calculated as follows:

In RMB’000 2009 2008

Net profit attributable to ordinary shareholders of the Company 5,030,729 614,035

The weighted average number of ordinary shares outstanding (in thousands) 3,105,434 3,060,103

Basic earnings per share (Renminbi Yuan) 1.62 0.20

The Company’s diluted earnings per share amount is calculated as follows:

In RMB’000 2009 2008



Dilutive effect – weighted average number of ordinary shares

Warrants – 17,984

Adjusted weighted average number of ordinary shares outstanding (in thousands) 3,105,434 3,078,087

Diluted earnings per share (Renminbi Yuan) 1.62 0.20

There have been no transactions involving ordinary shares or potential ordinary shares between the balance sheet date and the date the financial statements are authorised for issue.




45 Other comprehensive income

In RMB’000 2009 2008

Net gain/(loss) on available-for-sale financial assets (764,156 ) 1,276,798

Less: income tax effect 152,616 (253,848 )

Net gain/(loss) previously recognised in other comprehensive income transferred to profit or loss during the year (463,282 ) 49,882

Less: income tax effect 92,526 (9,917 )

Subtotal (982,296 ) 1,062,915

Share of the changes in owners’ equity of an associate (7,601 ) (10,126 )

Less: income tax effect – –

Subtotal (7,601 ) (10,126 )

Revaluation surplus on owner-occupied properties transferred to investment properties 36,947 3,816Less: income tax effect (8,960 ) (1,013 )

Subtotal 27,987 2,803

Total (961,910 ) 1,055,592

The above items are recorded in the capital reserve of the shareholders’ equity in accordance with the requirements of the Accounting Standards for Business Enterprises.

46 Cash and cash equivalents


Cash on hand 779,169 981,859

Cash equivalentsWithin three months before original maturity date

Placements of deposits with other financial institutions 5,487,900 5,489,878

Funds loaned to other financial institutions 3,234,997 5,846,025

Reverse repurchase agreements 23,443,025 15,661,984


Bond investments (with maturity of less than three months when acquired 7,403,881 –

Subtotal 53,924,314 36,142,599

Total 54,703,483 37,124,458

47 Cash receipts relating to other operating activities

In RMB’000 2009 2008

Collections of amounts already written-off 596,187 29,587

Cash receipts from disposal of repossessed assets 313,573 120,167

Held-for-trading financial instruments and derivative financial instruments – 1,479,081

Others 549,966 429,543

Total 1,459,726 2,058,378

48 Cash payments relating to other operating activities

In RMB’000 2009 2008

Held-for-trading financial instruments and derivative financial instruments 10,787 –

Derivative financial liabilities 103,764 1,306,628

Other administrative expenses 2,511,296 2,215,167

Others – 752,486

Total 2,625,847 4,274,281


E Operating Segment Information

For management purposes, the Company is organised into operating segments based on the internal organisation structure, management requirements and internal reporting. The Company’s reportable segments are as follows:

Corporate bankingThe corporate banking segment covers the provision of financial products and services to corporations and government agencies. The products and services include corporate loans, deposit-taking activities, trade financing, corporate wealth management services and various types of corporate intermediary services.

Retail bankingThe personal banking segment covers the provision of financial products and services to individual customers. The products and services include personal loans, deposit-taking activities, bank card business, personal wealth management services and various types of personal intermediary services.

Interbank businessThe interbank business segment covers the Company’s interbank business and money market business. This segment mainly serves the liquidity management of the Company and facilitates the needs of customers of other operating segments.

OtherThis category consists of debt and equity investments and assets, liabilities, income and expenses that are not directly attributable to individual segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resources allocations and performance assessment. Segment assets and liabilities, and segment revenues and profit are calculated according to the accounting policies of the Company. Income taxes are managed on a company basis and are not allocated to operating segments. Interest income is reported net since the majority of the segment’s revenues are from interest. Management primarily relies on net interest revenue, not the gross revenue and expense amounts.

Transactions between segments mainly represent transfer of funding to or from individual operating segments. These transactions are conducted on terms determined with reference to the average cost of funding and have been reflected in the performance of each segment. Net interest income and expense arising on internal charges are referred to as “internal net interest income/expense”. Such transfer prices between operating segments are internally eliminated when the operating results of individual segments are aggregated. Furthermore, interest income and expense relating to third parties are referred to as “external net interest income/expense” and the aggregated amount of the external net interest income/expense of the operating segments is the same as the net interest income in the income statement.

Segment revenues, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.



E Operating Segment Information (Continued)

2009

In RMB’000 Corporate banking Retail banking Interbank business Other Total

Net interest income 8,567,920 2,837,599 934,202 644,653 12,984,374Including: External net interest income 6,831,683 3,501,759 1,317,172 1,333,760 12,984,374 Internal net interest income/(expense) 1,736,237 (664,160 ) (382,970 ) (689,107 ) –Net non-interest income (Note 1) 892,708 368,331 246,432 622,595 2,130,066Including: Share of profits of associates – – – 18,336 18,336Operating income 9,460,628 3,205,930 1,180,634 1,267,248 15,114,440Operating costs (Note 2) (3,897,918 ) (2,573,700 ) (230,800 ) (677,807 ) (7,380,225 )Including: Depreciation, amortisation and rental expenses (476,083 ) (422,428 ) (22,563 ) (4,036 ) (925,110 )Impairment losses on assets (1,645,801 ) (176,327 ) (4,834 ) 251,874 (1,575,088 )Net non-operating income – – – 31,410 31,410Segment profit 3,916,909 455,903 945,000 872,725 6,190,537Income tax expense (1,159,808 )Profit for the year 5,030,729

31 December 2009Total assets 256,927,202 101,868,661 121,910,029 107,105,142 587,811,034

Total liabilities 342,559,690 70,944,657 95,443,175 58,393,903 567,341,425

Notes: 1. Included net fee and commission income, investment income, gains or losses from changes in fair values of financial instruments, gains or losses from changes in fair values of investment properties, net foreign exchange difference and other operating income.

2. Included business tax and surcharge, and general and administrative expenses.

2008


Net interest income 9,685,975 2,467,491 900,912 (456,490 ) 12,597,888

Including: External net interest income 7,297,380 3,656,653 984,304 659,551 12,597,888

Internal net interest income/(expense) 2,388,595 (1,189,162 ) (83,392 ) (1,116,041 ) –

Net non-interest income (Note 1) 652,784 300,105 507,562 454,780 1,915,231

Including: Share of profits of associates – – – 22,675 22,675

Operating income 10,338,759 2,767,596 1,408,474 (1,710 ) 14,513,119

Operating costs (Note 2) (3,757,883 ) (2,331,228 ) (204,659 ) (81,761 ) (6,375,531 )

Including: Depreciation, amortisation and rental expenses (410,882 ) (295,416 ) (21,712 ) (4,600 ) (732,610 )

Impairment losses on assets (3,606,948 ) (522,865 ) (7,295 ) (3,197,054 ) (7,334,162 )

Net non-operating expenses – – – (10,817 ) (10,817 )

Segment profit/(loss) 2,973,928 (86,497 ) 1,196,520 (3,291,342 ) 792,609

Income tax expense (178,574 )

Profit for the year 614,035



Notes: 1. Included net fee and commission income, investment income, gains or losses from changes in fair values of financial instruments, gains or losses from changes in fair values of investment properties, net foreign exchange difference and other operating income.


Geographical informationThe Company's external operating income and non-current assets are mainly attributable to Mainland China based on the location of the customers and assets respectively for the years ended 31 December 2009 and 2008. Non-current assets for this purpose consist of investment properties, fixed assets, construction in progress and intangible assets.

Information about a major customerNo revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Company’s total revenue in 2009 or 2008.


F Commitments and Contingent Liabilities

1 Capital commitments


Authorised, but not contracted for 62,464 –

Contracted, but not provided for 75,081 144,000

Total 137,545 144,000

2 Operating lease commitmentsThe Company has entered into commercial leases on certain premises and equipment. At the balance sheet date, the total future minimum lease payments under non-cancellable operating leases were as follows:


Within one year, inclusive 443,244 370,634

One to two years, inclusive 360,606 320,964

Two to three years, inclusive 316,079 281,920

More than three years 1,121,228 962,438

Total 2,241,157 1,935,956

3 Credit commitments


Financial guarantee contracts

Bank acceptances 196,808,019 164,888,094

Guarantees issued 2,306,093 1,884,883

Letters of credit issued 2,391,676 1,826,290

Loan guarantee contracts – 177,698

Subtotal 201,505,788 168,776,965

Unused limit of credit cards 8,447,565 15,343,716

Total 209,953,353 184,120,681

Credit risk weighted amounts of credit commitments 69,039,949 59,080,564

Financial guarantee contracts commit the Company to make payments on behalf of customers upon the failure of the customers to perform the terms of the contracts.

Commitments to extend credit represent contractual commitments to make loans to customers. Commitments generally have fixed expiry dates. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.

4 Fiduciary transactions


Entrusted deposits 9,028,475 10,867,862

Entrusted loans 9,028,475 10,867,862

Entrusted funding 3,319,686 3,427,869

Entrusted investments 3,319,686 3,427,869

Entrusted deposits represent funds that depositors have instructed the Company to use to make loans to third parties as designated by them. The credit risk remains with the depositors.

Entrusted funding and entrusted investments represent the investment and asset management services provided by the Company to third parties in accordance with the agreed investment plans. The third parties provide funding for the related investments. Income from such investment activities is collected on behalf of and paid to the third parties according to the relevant contractual terms.



F Commitments and Contingent Liabilities (Continued)

5 Contingent liabilities

Legal proceedingsAs at 31 December 2009, the total claimed amount of the litigation cases of which the Company is the defendant was RMB175 million (31 December 2008: RMB179 million). These litigation cases are under legal proceedings. In the opinion of management, the Company has made adequate allowance for any probable losses based on the prevailing facts and circumstances.

Apart from the above pending litigation cases, the respective liquidators of DeHeng Securities Co., Ltd. and the China Southern Securities Co., Ltd. had requested the Company to repay a total amount of RMB430 million. The Company had opposed all such repayment requests. At year end, based on the legal opinion from an independent third-party lawyer, the Company had no immediate obligation to repay the monies.

Redemption commitments of voucher-type government bonds and savings bonds (electronic)As an underwriting agent of the MOF, the Company underwrites PRC voucher-type government bonds and savings bonds (electronic) and sells the bonds to the general public. The Company is obliged to redeem the bonds at the discretion of the holders at any time prior to maturity. The redemption price for the bonds is based on the nominal value of the bonds plus any interest accrued up to the redemption date. As at 31 December 2009, the Company has sold voucher-type government bonds and savings bonds (electronic) with accumulated amounts of RMB2,911,597 thousand (31 December 2008: RMB3,100,574 thousand) and RMB99,648 thousand (31 December 2008: nil) respectively, to the general public that the Company has the obligation of early redemption.

The MOF will not provide funding for the early redemption of these government bonds on a back-to-back basis but is obliged to repay the principal and the respective interest upon maturity.

As at 31 December 2009, there is no unexpired underwriting commitment of the government bonds (31 December 2008: RMB2,354,426 thousand).

G Capital Management

The primary objectives of the Company’s capital management are to ensure that the Company complies with regulatory capital requirements, to maximise shareholders’ value and to support the continuous growth in business. The Company regularly reviews its capital structure and makes adjustments to it through asset and liability management, so as to maintain the overall balance of the capital structure and maximisation of capital return. The required information of capital adequacy is filed with the CBRC by the Company on a quarterly basis.

The CBRC requires banks that are established in Mainland China to maintain the capital adequacy ratio and core capital ratio not below the minimum of 8% and 4%, respectively. The risk-weighted assets are measured according to the nature of individual assets and counterparty, reflecting an estimate of related credit, market and other risks after taking into account of any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposures, with adjustments made to reflect the contingent nature of any potential losses.

The Company calculated and reported the core capital adequacy ratio and capital adequacy ratio in accordance with the “Regulation Governing Capital Adequacy Ratio of Commercial Banks” promulgated by the CBRC and other related regulations.

The core capital includes share capital, capital reserve, surplus reserve, general reserve and unappropriated profit. The supplementary capital includes revaluation surplus, long term subordinated bonds, hybrid capital debt instrument and other supplementary capital.


Net core capital 19,854,282 14,710,153

Supplementary capital 12,372,093 9,577,523

Net capital 31,905,240 23,959,430

Risk-weighted assets and market risk capital adjustment 359,508,049 279,112,744

Core capital adequacy ratio 5.5% 5.3%

Capital adequacy ratio 8.9% 8.6%


H Risk Disclosure

1 Credit riskCredit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. The Company’s credit risk mainly arises from the loans and advances to customers, financial guarantees and loan commitments.

The Company has established a Credit Portfolio Management Committee, which approves and determines the Company’s credit risk management strategies, credit risk preferences as well as its various credit risk management policies and standards. The Company has also formulated guidelines on corporate and retail credit policies across the Company and for specific industries. Furthermore, the Company has implemented a strategic customer categorisation management system, and set up a customer entry and exit mechanism to facilitate the sustainable development of its credit underwriting business.

The Company implements a credit risk officer system, in which the Chief Credit Officer at the Head Office appoints credit officers to various business lines and branches. The credit officers directly report to the Chief Credit Officer, who is responsible for evaluating the performance of the credit officers and establishing an independent and transparent vertical credit risk management system.

The Company has formulated a complete set of operational procedures for credit approval and management. These procedures are being enforced across the Company. Credit management procedures for its corporate and retail loans comprise the processes of credit origination, credit review, credit approval, disbursement, post-disbursement monitoring and collection. In addition, the Company has formulated the “Policies of Credit Underwriting”, which have defined the functions and responsibilities of different credit operational processes, and have enhanced the monitoring of the related compliance for improving the overall effective control of credit risk.

The Company has strengthened its early warning monitoring system for the credit business with measures applicable to the portfolio level and to individual customers, resulting in early detection and effective management of credit risks.

The Company sub-divides credit asset risks into 10 categories based on the five-tier loan classification system promulgated by the CBRC, namely, Pass One, Pass Two, Pass Three, Pass Four, Pass Five, Special Mention One, Special Mention Two, Substandard, Doubtful and Loss. Furthermore, a separate “Write-off” category has been added to the classification system. The Company applies different management policies to the loans in accordance with their respective loan categories.

Risks arising from financial guarantees and loan commitments are similar to those associated with loans and advances. Transactions of financial guarantees and loan commitments are, therefore, subject to the same portfolio management and the same requirements for application and collateral as loans and advances to customers.

Maximum exposure to credit risk without taking account of any collateral and other credit enhancements


Due from the Central Bank 53,464,783 38,786,042



Financial assets at fair value through profit or loss 1,132,048 41,441

Derivative financial assets 99,996 290,751



Available-for-sale financial assets (excluding equity investments) 36,922,163 48,732,057

Held-to-maturity investments 34,585,440 15,584,755

Receivables 30,427,100 13,750,000

Other assets 6,622,153 3,350,801

Total 580,693,299 467,721,372

Credit commitments 209,953,353 184,120,681

Maximum exposure to credit risk 790,646,652 651,842,053



H Risk Disclosure (Continued)

1 Credit risk (Continued)

Risk concentration of the maximum exposure to credit riskCredit risk is often greater when counterparties are concentrated in a single industry or geographic location or have comparable economic characteristics.

The majority of the loans and financial guarantee contracts of the Company are related to the local customers within Mainland China. However, different areas in Mainland China have their own unique characteristics in terms of economic development. Therefore, each area in Mainland China could present different credit risks.

Please refer to Note D.9 for an analysis of concentration of loans and advances by industry and geographical region.

Collateral and other credit enhancementsThe amount and type of collateral required are determined by the Company based on its assessment of the credit risk of the counterparty. The Company has implemented guidelines regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

• Forreverserepurchasetransactions,mainlybills,loansorsecurities• Forcommerciallending,mainlychargesoverrealestateproperties,inventories,sharesortradereceivables• Forretaillending,mainlymortgagesoverresidentialproperties.

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the provision for impairment losses.

Credit qualityThe credit quality by class of financial assets (gross amount before deducting any impairment provision) of the Company is analysed as follows:

31 December 2009

Neither past due Past due but nor impaired not impaired Impaired TotalIn RMB’000 (Note)

Placements of deposits with other financial institutions 15,591,711 – 41,520 15,633,231Funds loaned to other financial institutions 5,357,725 – 33,393 5,391,118Financial assets at fair value through profit or loss 1,132,048 – – 1,132,048Reverse repurchase agreements 40,908,396 – 50,000 40,958,396Accounts receivable 4,782,161 – – 4,782,161Loans and advances 355,276,052 1,764,663 2,476,698 359,517,413Available-for-sale financial assets (excluding equity investments) 36,922,163 – – 36,922,163Held-to-maturity investments 34,585,440 – – 34,585,440Receivables 30,427,100 – – 30,427,100Total 524,982,796 1,764,663 2,601,611 529,349,070

31 December 2008


Placements of deposits with other financial institutions 21,496,984 – 44,520 21,541,504

Funds loaned to other financial institutions 9,232,183 – 33,572 9,265,755

Financial assets at fair value through profit or loss 41,441 – – 41,441

Reverse repurchase agreements 34,712,353 – 50,000 34,762,353

Accounts receivable 1,359,592 – – 1,359,592

Loans and advances 278,084,078 3,601,124 2,056,164 283,741,366

Available-for-sale financial assets (excluding equity investments) 48,732,057 – – 48,732,057

Held-to-maturity investments 15,584,755 – – 15,584,755

Receivables 13,750,000 – – 13,750,000

Total 422,993,443 3,601,124 2,184,256 428,778,823

Note: Impaired corporate loans comprise loans and advances graded at the last three tiers (i.e., "Substandard", "Doubtful" or "Loss") under the five-tier loan classification system maintained by the Company. Impaired personal loans comprise "Pass" or "Special Mention" loans overdue more than 90 days as well as loans graded at the last three tiers. As at 31 December 2009, impaired loans and advances comprise overdue loans of RMB2,359,402 thousand (31 December 2008: RMB1,886,611 thousand) and non-overdue loans of RMB117,296 thousand (31 December 2008: RMB169,553 thousand).



1 Credit risk (Continued)

Credit quality (Continued)

Neither past due nor impaired loans and advancesAt the balance sheet date, the aggregate amounts of neither past due nor impaired loans and advances to customers are “Pass” and “Special Mention” loans graded in accordance with the five-tier classification.


Pass 354,198,769 275,466,761

Special mention 1,077,283 2,617,317

Total 355,276,052 278,084,078

Past due but not impaired loans and advancesAt the balance sheet date, an aging analysis of the past due but not yet impaired loans and advances was as follows:

31 December 2009

Within 1 to 2 2 to 3 More than Fair valueIn RMB’000 1 month months months 3 months Total of collateral

Corporate loans and advances 78,070 18,325 5,000 129,928 231,323 169,402Personal loans 1,286,773 188,524 58,043 – 1,533,340 3,271,790Total 1,364,843 206,849 63,043 129,928 1,764,663 3,441,192

31 December 2008

Within 1 to 2 2 to 3 More than Fair valueIn RMB’000 1 month months months 3 months Total of collateral

Corporate loans and advances 475,139 112,009 56,624 268,810 912,582 231,650

Personal loans 2,305,914 247,719 134,909 – 2,688,542 4,528,426

Total 2,781,053 359,728 191,533 268,810 3,601,124 4,760,076

Impaired loans and advancesImpaired loans and advances are defined as those loans and advances having objective evidence of impairment as a result of one or more events that occur after initial recognition, resulting in an impact on the estimated future cash flows of loans and advances that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

The fair value of the collateral that the Company holds relating to corporate loans and advances individually determined to be impaired at 31 December 2009 amounted to RMB841 million (31 December 2008: RMB859 million).

Impaired amounts due from other financial institutionsImpaired amounts due from other financial institutions are all determined based on individual assessments. In determining whether an item is impaired, the Company considers the evidence of loss event and the decreases in estimated future cash flows. No collateral was held by the Company as security of the impaired amounts due from other financial institutions.

The carrying amount of loans and advances that would otherwise be past due or impaired and whose terms have been renegotiated is as follows:


Loans and advances to customers 282,172 215,638




2 Liquidity riskLiquidity risk is the risk that the Company will be unable to meet its payment obligations when they fall due. The risk is attributable to any mismatch in amounts and terms between the assets and liabilities. To limit the risk, management has arranged diversified funding sources, and monitors loan and deposit balances on a daily basis. The Company also maintains a portfolio of highly marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flows. Furthermore, the Company performs stress testing regularly to assess and identify the actions that can meet the payment obligations under different critical scenarios.

As at 31 December 2009, the remaining contractual maturity analysis of the Company’s financial assets and financial liabilities (based on contractual undiscounted cash flows) was as follows:

31 December 2009

Overdue/ Within 1 to 3 3 monthsIn RMB’000 On demand 1 month months to 1 year 1 to 5 years Over 5 years Undated Total

Non-derivative cash flowsFINANCIAL ASSETSCash on hand and due from the Central Bank 15,133,680 27 21,369 – – – 39,110,272 54,265,348Amounts due from other financial institutions (Note 1) 2,377,217 40,411,958 11,779,672 7,323,035 290,701 – – 62,182,583Financial assets at fair value through profit or loss – – 7,115 21,198 821,239 381,711 – 1,231,263Accounts receivable – 727,738 1,659,487 2,430,835 – – – 4,818,060Loans and advances 1,430,288 13,388,685 69,440,359 143,205,819 95,886,404 80,827,104 – 404,178,659Available-for-sale financial assets – 372,032 9,321,356 7,988,728 15,472,421 6,700,861 76,246 39,931,644Held-to-maturity investments – 98,313 190,412 1,996,538 25,430,290 12,847,495 – 40,563,048Receivables – 139,308 4,951,392 24,754,827 1,638,704 111,990 – 31,596,221Long term equity investments – – – – – – 392,705 392,705Other financial assets 50,689 – 30,189 – – 14,737 – 95,615Total financial assets 18,991,874 55,138,061 97,401,351 187,720,980 139,539,759 100,883,898 39,579,223 639,255,146

FINANCIAL LIABILITIESAmounts due to other financial institutions (Note 2) 25,372,481 45,824,394 21,827,086 2,743,611 – – – 95,767,572Accounts payable – 128,765 202,851 529,318 – – – 860,934Customer deposits 206,325,253 60,122,412 66,345,753 90,308,325 37,560,031 501,682 – 461,163,456Bonds payable – – 370,025 177,075 9,714,725 1,927,500 – 12,189,325Other financial liabilities 1,582,642 1,310 1,366,277 215,762 176,936 51,706 – 3,394,633Total financial liabilities 233,280,376 106,076,881 90,111,992 93,974,091 47,451,692 2,480,888 – 573,375,920

Derivative cash flowsDerivative financial instruments settled on net basis – – – 9,301 34,178 – – 43,479

Derivative financial instruments settled on gross basis

Of which: Cash inflow – 5,850,886 3,762,857 9,594,670 673,786 – – 19,882,199 Cash outflow – (5,846,045 ) (3,753,452 ) (9,557,389 ) (673,501 ) – – (19,830,387 ) – 4,841 9,405 37,281 285 – – 51,812

Notes: 1. Amounts due from other financial institutions included financial assets of placements of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.

2. Amounts due to other financial institutions included financial liabilities of placements of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.



2 Liquidity risk (Continued)

As at 31 December 2008, the remaining contractual maturity analysis of the Company’s financial assets and financial liabilities (based on contractual undiscounted cash flows) was as follows:

31 December 2008


Non-derivative cash flowsFINANCIAL ASSETSCash on hand and due from the Central Bank 10,126,571 – 16,172 14 – – 29,641,330 39,784,087

Amounts due from other financial institutions (Note 1) 3,519,455 23,253,047 16,249,397 23,157,756 – – – 66,179,655

Financial assets at fair value through profit or loss – – – 41,971 – – – 41,971

Accounts receivable – 280,151 815,359 174,561 131,346 – – 1,401,417

Loans and advances 1,143,450 18,997,224 45,723,741 144,324,383 57,233,863 50,539,389 – 317,962,050

Available-for-sale financial assets – 1,251,174 577,858 20,909,548 20,479,700 9,694,987 67,659 52,980,926

Held-to-maturity investments – 17,508 92,812 2,400,633 13,164,405 2,245,821 – 17,921,179

Receivables – – – 515,735 14,319,015 – – 14,834,750

Long term equity investments – – – – – – 417,390 417,390

Other financial assets 81,762 2,103 126,460 568 100 7,257 – 218,250

Total financial assets 14,871,238 43,801,207 63,601,799 191,525,169 105,328,429 62,487,454 30,126,379 511,741,675

FINANCIAL LIABILITIESAmounts due to other financial institutions (Note 2) 12,283,928 47,033,925 19,854,362 3,394,422 – – – 82,566,637

Financial liabilities at fair value through profit or loss – 483 – 39,325 – – – 39,808

Accounts payable – 25,243 482,385 39,269 – – – 546,897

Customer deposits 125,935,704 48,911,972 60,430,312 96,550,156 37,119,340 2 – 368,947,486

Bonds payable – – 370,537 93,363 9,843,008 – – 10,306,908

Other financial liabilities 620,318 60 947,503 176,041 176,381 56,937 – 1,977,240

Total financial liabilities 138,839,950 95,971,683 82,085,099 100,292,576 47,138,729 56,939 – 464,384,976

Derivative cash flowsDerivative financial instruments settled on net basis – – – (4,965 ) 81,789 – – 76,824

Derivative financial instruments settled on gross basis

Of which: Cash inflow – 7,075,865 4,677,483 7,299,089 73,801 – – 19,126,238

Cash outflow – (7,052,537 ) (4,622,963 ) (7,223,253 ) (72,156 ) – – (18,970,909 )

– 23,328 54,520 75,836 1,645 – – 155,329






2 Liquidity risk (Continued)

Analysis of credit commitments by contractual expiry date:

31 December 2009

Repayable Within 1 to 3 3 monthsIn RMB’000 on demand 1 month months to 1 year 1 to 5 years Over 5 years Undated Total

Off-balance sheet credit commitments 9,232,655 39,599,210 76,524,196 83,888,728 708,564 – – 209,953,353

31 December 2008

Repayable Within 1 to 3 3 monthsIn RMB’000 on demand 1 month months to 1 year 1 to 5 years Over 5 years Undated Total

Off-balance sheet credit commitments 16,766,967 30,099,458 63,373,841 73,454,735 425,680 – – 184,120,681

Management expects that not all of the commitments will be drawn before expiry of the commitments.

3 Market riskMarket risk is the risk of loss, in respect of the Company’s on or off-balance sheet activities, arising from adverse movements in market rates including foreign exchange rates, interest rate, commodity prices and stock prices. Market risk arises from both the Company’s trading and non-trading businesses. The aim of market risk management of the Company is to mitigate undue losses of income and equity, and simultaneously, to reduce the Company’s exposure to the volatility inherent in financial instruments. The Company considers the market risk arising from commodity or stock prices in respect of its investment portfolio is immaterial.

The Company’s Risk Management Committee and the Asset and Liability Management Committee are responsible for setting up market risk management policies, establishing market risk management objectives and determining market risk limits. The Asset and Liability Management Committee is responsible for controlling the volume, structure, interest rate and liquidity of the Company’s business. The Company’s Financial Information and Asset and Liability Management Department discharges the daily market risk monitoring function on behalf of the Asset and Liability Management Committee, including the determination of reasonable levels of market risk exposures, monitoring the daily treasury operation and proposing adjustments to the maturity profile of the assets and liabilities and the interest rate structure.

Gap analysis is the key method used by the Company to monitor the market risk of its non-trading business activities. This method measures the impact of interest rate changes on income, with interest-earning assets and interest-bearing liabilities grouped by their respective re-pricing bands for the calculation of the re-pricing gap. By multiplying this position with an assumed interest rate change, an approximate effect on the net interest income resulting from the assumed interest rate change is quantified.

Financial derivative transactions entered into by the Company primarily provide effective economic hedges to other financial instruments held by the Company for the mitigation of interest and exchange rate risks. In the opinion of management, as the market risk of the Company’s trading business activities is not material, the Company has not separately disclosed quantitative information about exposure to market risk arising from the trading portfolio.



3 Market risk

Currency riskThe Company's foreign exchange risk exposure mainly comprises exposures from the mismatch of foreign currency assets and liabilities, and off-balance sheet foreign exchange position arisen from derivative transactions. The currency risk of the Company mainly arises from loans and advances, investments and deposits denominated in foreign currencies. The Company has set limits on positions by currency. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.

As at 31 December 2009, the Company’s assets and liabilities by currency were analysed as follows:

31 Decemer 2009

RMB USD HKD Others Total (RMB (RMB (RMBIn RMB’000 equivalent) equivalent) equivalent)

ASSETSCash on hand and due from the Central Bank 53,685,187 386,339 160,973 11,453 54,243,952Precious metals 3,302 – – – 3,302Amounts due from other financial institutions (Note 1) 51,899,736 8,151,882 672,300 1,153,153 61,877,071Financial assets at fair value through profit or loss and derivative financial assets 1,232,044 – – – 1,232,044Accounts receivable 1,610,175 3,040,441 – 131,545 4,782,161Loans and advances 347,652,764 6,709,044 1,160,499 40,238 355,562,545Available-for-sale financial assets 36,756,882 241,527 – – 36,998,409Held-to-maturity investments 33,497,323 1,039,253 – 48,864 34,585,440Receivables 30,427,100 – – – 30,427,100Long term equity investments 392,705 – – – 392,705Fixed assets 1,714,461 – – – 1,714,461Others 5,874,813 104,175 11,265 1,591 5,991,844Total assets 564,746,492 19,672,661 2,005,037 1,386,844 587,811,034

LIABILITIESAmounts due to other financial institutions (Note 2) 92,493,139 2,885,061 64,975 – 95,443,175Derivative financial liabilities 21,540 – – – 21,540Accounts payable 459,563 391,318 – – 850,881Customer deposits 437,260,727 13,782,860 2,232,455 1,359,166 454,635,208Bonds payable 9,462,714 – – – 9,462,714Others 6,850,999 72,184 4,073 651 6,927,907Total liabilities 546,548,682 17,131,423 2,301,503 1,359,817 567,341,425Net position of foreign currency (Note 3) Not applicable 2,541,238 (296,466 ) 27,027 Not applicableNotional amount of foreign exchange derivative financial instruments Not applicable (1,598,058 ) 380,281 (11,929 ) Not applicableTotal Not applicable 943,180 83,815 15,098 Not applicable

Off-balance sheet credit commitments 206,283,431 3,368,490 126 301,306 209,953,353



3. The net position of foreign currency comprised the related net position of monetary assets and liabilities.




3 Market risk (Continued)

Currency risk (Continued)


31 December 2008


ASSETSCash on hand and due from the Central Bank 39,228,570 372,005 155,085 12,241 39,767,901

Precious metals 9,225 – – – 9,225

Amounts due from other financial institutions (Note 1) 49,278,442 14,267,058 964,733 960,605 65,470,838

Financial assets at fair value through profit or loss and derivative financial assets 322,490 9,549 – 153 332,192

Accounts receivable 238,826 1,108,327 12,439 – 1,359,592

Loans and advances 277,718,781 3,736,356 217,667 41,883 281,714,687

Available-for-sale financial assets 48,799,716 – – – 48,799,716

Held-to-maturity investments 15,084,844 452,928 – 46,983 15,584,755

Receivables 13,750,000 – – – 13,750,000

Long term equity investments 417,390 – – – 417,390

Fixed assets 1,674,924 – – – 1,674,924

Others 5,386,789 154,191 14,933 3,040 5,558,953

Total assets 451,909,997 20,100,414 1,364,857 1,064,905 474,440,173

LIABILITIESAmounts due to other financial institutions (Note 2) 79,726,137 2,568,477 64,533 – 82,359,147

Financial liabilities at fair value through profit or loss and derivative financial liabilities 53,727 44,138 – 153 98,018

Accounts payable – 507,483 – – 507,483

Customer deposits 346,651,180 10,959,758 1,923,193 979,905 360,514,036

Bonds payable 7,964,282 – – – 7,964,282

Others 6,498,739 81,888 14,020 1,770 6,596,417

Total liabilities 440,894,065 14,161,744 2,001,746 981,828 458,039,383

Net position of foreign currency (Note 3) Not applicable 5,938,670 (636,889 ) 83,077 Not applicable

Notional amount of foreign exchange derivative financial instruments Not applicable (5,911,075 ) 197,768 (47,636 ) Not applicable

Total Not applicable 27,595 (439,121 ) 35,441 Not applicable

Off-balance sheet credit commitments 180,573,370 3,085,518 17,499 444,294 184,120,681








The table below indicates the sensitivity analysis of exchange rate changes of the currencies to which the Company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement in the exchange rates against the RMB, with all other variables held constant on profit before tax. A negative amount in the table reflects a potential net reduction in profit before tax, while a positive amount reflects a net potential increase. As the Company has no cash flow hedges and has only a minimal amount of available-for-sale equity instruments denominated in foreign currencies, changes in exchange rates do not have any material potential impact on the equity.

CURRENCY 31 December 2009

Change in exchange rate in % Effect on profit before tax (RMB equivalent)

USD +/-3 +/-28,295

HKD +/-3 +/-2,514


Change in exchange rate in % Effect on profit before tax (RMB equivalent)

USD +/-1 +/-276

HKD +/-1 -/+4,391





Interest rate riskThe Company’s interest rate risk mainly arises from the mismatch of contractual maturity or re-pricing dates between interest-earning assets and interest-bearing liabilities. The interest-earning assets and interest-bearing liabilities of the Company are mainly denominated in RMB. The PBOC sets a cap and a floor on interest rates on deposits and loans, respectively.

The Company manages its interest rate risk by adjusting the composition of assets and liabilities, monitoring indicators such as the interest rate sensitivity gap on a regular basis and measuring risk exposure in accordance with the re-pricing characteristics of assets and liabilities. The Asset and Liability Management Committee meets regularly and manages interest rate risk exposures by adjusting the composition of the assets and liabilities in accordance with movement in market interest rates.

As at 31 December 2009, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s balance sheet were analysed as follows:

31 December 2009

Within 3 months More than Non-interest-In RMB’000 3 months to 1 year 1 to 5 years 5 years bearing Total

ASSETSCash on hand and due from the Central Bank 52,863,536 – – – 1,380,416 54,243,952Precious metals – – – – 3,302 3,302Amounts due from other financial institutions (Note 1) 54,350,284 7,240,255 286,532 – – 61,877,071Financial assets at fair value through profit or loss and derivative financial assets 935,600 101,595 94,853 – 99,996 1,232,044Accounts receivable 2,047,627 1,612,790 – – 1,121,744 4,782,161Loans and advances 180,379,059 164,044,284 8,219,018 2,920,184 – 355,562,545Available-for-sale financial assets 16,537,017 14,338,674 5,738,171 141,831 242,716 36,998,409Held-to-maturity investments 1,938,023 7,970,016 19,354,225 5,291,830 31,346 34,585,440Receivables 5,037,100 23,890,000 1,500,000 – – 30,427,100Long term equity investments – – – – 392,705 392,705Fixed assets – – – – 1,714,461 1,714,461Others – – – – 5,991,844 5,991,844Total assets 314,088,246 219,197,614 35,192,799 8,353,845 10,978,530 587,811,034

LIABILITIESAmounts due to other financial institutions (Note 2) 92,742,045 2,701,130 – – – 95,443,175Derivative financial liabilities – – – – 21,540 21,540Accounts payable – 390,740 – – 460,141 850,881Customer deposits 335,186,700 88,234,946 30,537,951 500,001 175,610 454,635,208Bonds payable 500,000 – 7,472,653 1,490,061 – 9,462,714Others – – – – 6,927,907 6,927,907Total liabilities 428,428,745 91,326,816 38,010,604 1,990,062 7,585,198 567,341,425Interest rate risk exposure (114,340,499 ) 127,870,798 (2,817,805 ) 6,363,783 Not applicable Not applicable






Interest rate risk (Continued)

As at 31 December 2008, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s balance sheet were analysed as follows:

31 December 2008


ASSETSCash on hand and due from the Central Bank 38,671,784 – – – 1,096,117 39,767,901

Precious metals – – – – 9,225 9,225

Amounts due from other financial institutions (Note 1) 42,794,464 22,676,374 – – – 65,470,838

Financial assets at fair value through profit or loss and derivative financial assets – 41,441 – – 290,751 332,192

Accounts receivable 1,053,623 65,822 – 240,147 1,359,592

Loans and advances 136,284,356 138,707,587 6,144,749 577,995 – 281,714,687

Available-for-sale financial assets 5,677,900 27,529,814 10,196,378 5,187,617 208,007 48,799,716

Held-to-maturity investments 946,344 5,547,784 8,499,347 515,680 75,600 15,584,755

Receivables – – 13,750,000 – – 13,750,000

Long term equity investments – – – – 417,390 417,390

Fixed assets – – – – 1,674,924 1,674,924

Others – – – – 5,558,953 5,558,953

Total assets 225,428,471 194,568,822 38,590,474 6,281,292 9,571,114 474,440,173

LIABILITIESAmounts due to other financial institutions (Note 2) 78,992,335 3,356,887 – – 9,925 82,359,147

Financial liabilities at fair value through profit or loss and derivative financial liabilities – 39,420 – – 58,598 98,018

Accounts payable 442,000 65,483 – – – 507,483

Customer deposits 240,037,645 86,149,026 33,050,066 2 1,277,297 360,514,036

Bonds payable 498,195 – 7,466,087 – – 7,964,282

Others – – – – 6,596,417 6,596,417

Total liabilities 319,970,175 89,610,816 40,516,153 2 7,942,237 458,039,383

Interest rate risk exposure (94,541,704 ) 104,958,006 (1,925,679 ) 6,281,290 Not applicable Not applicable



The Company principally uses sensitivity analysis to measure and control interest rate risk. In respect of the financial assets and liabilities at fair value through profit or loss, in the opinion of management, the interest rate risk to the Company arising from this portfolio is not significant. For other financial assets and liabilities, the Company mainly uses gap analysis to measure and control the related interest rate risk.

As at 31 December 2009 and 31 December 2008, the gap analyses of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) were as follows:


Changes in interest rate (basis point) Changes in interest rate (basis point) In RMB’000 -100 +100 -100 +100

Effect on the net interest income increase/(decrease) 529,531 (529,531 ) 433,655 (433,655 )

Effect on equity increase/(decrease) 166,225 (166,225 ) 649,171 (649,171 )

The above gap analyses assume that the interest rate risk profile of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) remains static.






The sensitivity of the net interest income is the effect of a reasonable possible change in interest rates on the net interest income for one year, in respect of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) held at the balance sheet date. The sensitivity of equity is calculated by revaluing the year end portfolio of fixed-rate available-for-sale financial assets, based on a reasonable possible change in interest rates.

The above sensitivity analyses are based on the following assumptions: (i) all assets and liabilities that are re-priced/due within three months (inclusive), and between three months and one year (inclusive) are assumed to be re-priced in the mid of the respective bands; and (ii) there are parallel shifts in the yield curve.

Regarding to the above assumptions, the effect on the net interest income and equity as a result of the actual increases or decreases in interest rates may differ from that of the above sensitivity analyses.

4 Fair value of financial instrumentsThe following table summarises the carrying values and the fair values of receivables, held-to-maturity debt securities and bonds payable for which their fair values have not been presented or disclosed above:

31 December 2009

In RMB’000 Carrying value Fair value

Receivables 30,427,100 30,489,418Held-to-maturity debt securities 34,585,440 34,412,902Bonds payable 9,462,714 9,599,219

31 December 2008


Receivables 13,750,000 13,926,630

Held-to-maturity debt securities 15,584,755 16,093,150

Bonds payable 7,964,282 8,574,308

Subject to the existence of an active market, such as an authorised securities exchange, the market value is the best reflection of the fair value of financial instruments. As there is no available market value for certain financial assets and liabilities held and issued by the Company, the discounted cash flow method or other valuation methods described below are adopted to determine the fair values of these assets and liabilities:

(1) The receivables are non-transferable. The fair values of these receivables are estimated on the bases of discounted cash flows.

(2) The fair value of held-to-maturity debt securities and bonds are determined with reference to the available market values. If quoted market prices are not available, fair values are estimated on the bases of pricing models or discounted cash flows.

All of the above-mentioned assumptions and methods provide a consistent basis for the calculation of the fair values of the Company’s assets and liabilities. However, other institutions may use different assumptions and methods. Therefore, the fair values disclosed by different financial institutions may not be entirely comparable.

Financial instruments, for which their carrying amounts are the reasonable approximation of their fair values because, for example, they are short term in nature or are re-priced to current market rates frequently, are as follows:

Assets Liabilities

Cash and due from the Central Bank Placement of deposits from other financial institutions

Placements of deposits with other financial institutions Funds borrowed from other financial institutions

Funds loaned to other financial institutions Repurchase agreements

Reverse repurchase agreements Customer deposits

Loans and advances Other financial liabilities

Other financial assets



4 Fair value of financial instruments (Continued)

The following table shows an analysis of financial instruments recorded at fair value.

31 December 2009

Valuation Valuation techniques – techniques – market non-market Quoted observable observable market price inputs inputsIn RMB’000 (“Level 1”) (“Level 2”) (“Level 3”) Total

FINANCIAL ASSETSFinancial assets at fair value through profit or loss – 1,132,048 – 1,132,048Derivative financial assets – 99,996 – 99,996Available-for-sale financial assets 66,536 36,931,873 – 36,998,409Total 66,536 38,163,917 – 38,230,453

FINANCIAL LIABILITIESDerivative financial liabilities – 21,540 – 21,540

31 December 2008


FINANCIAL ASSETSFinancial assets at fair value through profit or loss – 41,441 – 41,441

Derivative financial assets – 290,751 – 290,751

Available-for-sale financial assets 57,659 48,742,057 – 48,799,716

Total 57,659 49,074,249 – 49,131,908

FINANCIAL LIABILITIESFinancial liabilities at fair value through profit or loss – 39,420 – 39,420

Derivative financial liabilities – 58,598 – 58,598

Total – 98,018 – 98,018

During the year ended 31 December 2009, there were transfers of available-for-sale equity investments amounting to RMB10 million from Level 2 to Level 1 fair value measurements as the related tradable shares became unrestricted during the year.

I Related Party Relationships and Transactions

Details of the Company’s major shareholder are as follows:

NAME Place of registration Percentage of equity interest held (%)


Newbridge Asia AIV III, L.P. Delaware, USA 16.76 16.76

Newbridge Asia AIV III, L.P. is an investment fund whose register form is a limited partnership and its registered capital is USD724 million. It focuses on strategic investment. It was established on 22 June 2000 and its initial existing period is 10 years. The ultimate controlling parties of Newbridge Asia AIV III, L.P. are Mr David Bonderman, Mr James G. Coulter and Mr Richard C. Blum.



I Related Party Relationships and Transactions (Continued)

The related party transactions between the Company and the key management personnel during the year are listed below:

LOANSIn RMB’000 2009 2008

Balance at beginning of the year 543 712

Increase during the year – –

Decrease during the year (88 ) (169 )

Balance at end of the year 455 543

Interest income on loans 9 9

At the year end of 2009, the annual interest rates of these loan transactions ranged from 1.62% to 1.8%.

DEPOSITSIn RMB’000 2009 2008


Increase during the year 199,840 116,066

Decrease during the year (194,994 ) (127,257 )


Interest expense on deposits 48 40

These deposit transactions were under normal business terms and conditions and were processed under normal procedures.

As at 31 December 2009, the Company has authorised a total credit facility of RMB1.732 billion (31 December 2008: RMB2.602 billion) for entities relating to the key management personnel of the Company and their close family members, which included an outstanding loan balance amounting to RMB0.605 billion (31 December 2008: RMB1.089 billion) and an outstanding facility of the off-balance sheet items amounting to RMB0.076 billion (31 December 2008: RMB0.267 billion).

Details of the compensation for key management personnel are as follows:

In RMB’000 2009 2008

Salaries and other short term employee benefits 48,242 43,071

Post-employment benefits 759 665

Other long term employee benefits 18,798 19,119

Termination benefits – –

Deferred bonus accrual (Note) 15,527 9,765

Total 83,326 72,620

Note: The amount of deferred bonus is determined based on the indicators of profitability and the share price of the Company as well as the share prices of certain other domestic listed banks; and will be settled in cash in accordance with the terms of the arrangement.

Furthermore, according to the share purchase agreement signed by the Company’s major shareholder, Newbridge Asia AIV III, L.P. and Ping An Insurance (Group) of China, Ltd. (“China Ping An”) who is the holding company of Ping An Life, China Ping An can purchase all the Company’s shares held by Newbridge Asia AIV III, L.P. no later than 31 December 2010. In accordance with the Shenzhen Stock Exchange Listing Rules, China Ping An becomes the related legal person of the Company as a result of the share transfer arrangement. Consequently, the non-public share placement to Ping An Life (see Note D.29), a principal subsidiary of China Ping An, is a related party transaction. The above share transfer and the non-public share placement are subject to approval by the CBRC, the CIRC and the CSRC.


J Post Balance Sheet Events

Up to the date that these financial statements are authorised for issue, there were no other significant post balance sheet events which required disclosure or adjustment to the financial statements.

K Other Significant Items

1 Assets and liabilities carried at fair value

Accumulated valuation gain/ Gains or (loss) taken Balance at (losses) from into other beginning changes in comprehensive Balance at endIn RMB’000 of the year fair values income of the year

ASSETSFinancial assets at fair value through profit or loss 41,441 (5 ) – 1,132,048

Derivative financial assets 290,751 (133,101 ) – 99,996

Available-for-sale financial assets 48,799,716 – 26,605 36,998,409

Investment properties 411,690 47,858 53,251 523,846

Total 49,543,598 (85,248 ) 79,856 38,754,299

LIABILITIESFinancial liabilities at fair value through profit or loss 39,420 567 – –

Derivative financial liabilities 58,598 (20,286 ) – 21,540

Total 98,018 (19,719 ) – 21,540



K Other Significant Items (Continued)

2 Foreign currency financial assets and foreign currency financial liabilities

Accumulated valuation gain/ Impairment (loss) taken provision Balance at Gains or (losses) into other charged/ beginning of from changes comprehensive (reversed) Balance at end(RMB equivalent) the year in fair values income for the year of the year

Foreign currency financial assetsCash on hand and due from the Central Bank 539,331 – – – 558,765

Placements of deposits with other financial institutions 10,866,413 – – – 5,911,196

Funds loaned to other financial institutions 5,325,983 – – 1,084 4,066,139

Financial assets at fair value through profit or loss and derivative financial assets 9,702 12,073 – – –

Accounts receivable 1,120,766 – – – 3,171,986

Interest receivable 158,416 – – – 98,517

Loans and advances 3,995,906 – – 54,698 7,909,781

Available-for-sale financial assets 771 – 4,006 – 242,851

Held-to-maturity investments 499,911 – – – 1,088,117

Long term equity investments 201 – – – 684

Other assets 18,525 – – (2,808 ) 18,513

Total 22,535,925 12,073 4,006 52,974 23,066,549

Foreign currency financial liabilitiesPlacements of deposits from other financial institutions 2,633,010 – – – 1,379,918

Funds borrowed from other financial institutions – – – – 1,570,118

Financial liabilities at fair value through profit or loss and derivative financial liabilities 44,291 (11,589 ) – – –

Customer deposits 13,862,856 – – – 17,374,481

Accounts payable 507,483 – – – 391,318

Interest payable 82,077 – – – 59,078

Other liabilities 15,498 – – – 17,742

Total 17,145,215 (11,589 ) – – 20,792,655

L Comparative Figures

Certain comparative figures have been restated in accordance with the requirements of “Accounting Standards for Business Enterprises Interpretation No.3” and reclassified to conform with the current year’s presentation.

M Approval of the Financial Statements

The financial statements were approved and authorised for issue by the board of directors on 11 March 2010.


Net Asset Return and Earnings per Share

2009

Profit for the year Net asset return Earnings per share (In RMB'000) (In RMB) Fully Weighted diluted (%) average (%) Basic Diluted

Net profit attributable to ordinary shareholders of the Company 5,030,729 24.58 26.59 1.62 1.62Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss 4,939,571 24.13 26.11 1.59 1.59

2008

Profit for the year Net asset return Earnings per share (In RMB'000) (In RMB) Fully Weighted diluted (%) average (%) Basic Diluted

Net profit attributable to ordinary shareholders of the Company 614,035 3.74 4.32 0.20 0.20

Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss 623,941 3.80 4.39 0.20 0.20

Of which, net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss:

In RMB’000 2009 2008


Add/(deduct)Non-recurring profit and loss items

Gain on disposal of fixed assets and settled assets (20,565) (12,527 )

Gain on disposal of investment properties – 419

Gain on disposal of long term equity investments (32,913) (12,443 )

Provision for litigation (3,508) 29,712

Changes in fair value of investment properties (47,858) 15,087

Reversal of provisions for placement of deposits with other financial institutions – (1,800 )

Other non-operating income and expenses (7,337) (6,368 )

Income tax effect 21,023 (2,174 )

Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss 4,939,571 623,941

The above net asset return and earnings per share are calculated in accordance with the rules stipulated in the Regulation on Information Disclosure of Public Companies No. 9 as revised by the China Securities Regulatory Commission on 11 January 2010. The non-recurring profit and loss is calculated in accordance with the rules stipulated in the Interpretation of Information Disclosure of Public Companies No.1 – Non-recurring profit and loss, effective from 1 December 2008.

Appendix: Supplementary Financial Information

144 IFRS Financial Statements

Independent Auditors’ Report

To the shareholders of Shenzhen Development Bank Co., Limited(Established in the People’s Republic of China with limited liability)

We have audited the accompanying financial statements of Shenzhen Development Bank Co., Ltd. (the “Company”) set out on pages 145 to 202, which comprise the statement of financial position as at 31 December 2009 and the income statement, statement of comprehensive income, 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 statementsThe directors of the Company are responsible for the preparation and the fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the fair 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.

Auditors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, 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 International Standards on Auditing. 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 procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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, the auditors consider internal control relevant to the entity’s preparation and fair 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 basis for our audit opinion.

OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2009 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Certified Public AccountantsHong Kong11 March 2010


Income Statementfor the year ended 31 December 2009

In RMB’000 Note 2009 2008

Interest income 4 21,985,512 26,465,264

Interest expense 4 (9,001,138 ) (13,867,376 )

Net interest income 4 12,984,374 12,597,888

Fee and commission income 5 1,386,972 1,056,647

Fee and commission expense 5 (206,188 ) (205,259 )

Net fee and commission income 5 1,180,784 851,388

Investment income 6 561,950 398,881

Gains or losses from changes in fair values of financial instruments 7 (49,190 ) 80,887

Gains or losses from changes in fair values of investment properties 47,858 (15,087 )

Net foreign exchange difference 241,623 462,543

Other net income 8 160,115 103,127

Total operating income 15,127,514 14,479,627

Staff expenses 9 (3,347,943 ) (2,685,103 )

General and administrative expenses 9 (2,584,888 ) (2,244,807 )

Depreciation and amortisation 9 (378,260 ) (293,956 )

Business tax and surcharges (1,069,134 ) (1,151,665 )

Profit before impairment losses on assets 7,747,289 8,104,096

Impairment losses on assets 10 (1,575,088 ) (7,334,162 )

Operating profit 6,172,201 769,934

Share of profits of associates 18,336 22,675


Income tax expense 11 (1,159,808 ) (178,574 )


Earnings per shareBasic earnings per share (Renminbi Yuan) 12 1.62 0.20

Diluted earnings per share (Renminbi Yuan) 12 1.62 0.20

The accounting policies and explanatory notes on pages 150 through 202 form an integral part of the financial statements.


Statement of Comprehensive Incomefor the year ended 31 December 2009

In RMB’000 Note 2009 2008


Other comprehensive incomeNet gain/(loss) on available-for-sale financial assets (764,156 ) 1,276,798

Less: Income tax effect 27 152,616 (253,848 )

Net gain or loss previously recognised in other comprehensive income transferred to income statement during the year (463,282 ) 49,882

Less: Income tax effect 27 92,526 (9,917 )

Subtotal (982,296 ) 1,062,915

Share of the other comprehensive income of associates (7,601 ) (10,126 )

Less: Income tax effect – –

Subtotal (7,601 ) (10,126 )


Less: Income tax effect 27 (8,960 ) (1,013 )

Subtotal 27,987 2,803

Total other comprehensive income (961,910 ) 1,055,592

Total comprehensive income for the year, net of tax 4,068,819 1,669,627



Statement of Financial Position31 December 2009

In RMB’000 Note 31 December 2009 31 December 2008

ASSETSCash on hand and due from the Central Bank 13 54,243,952 39,767,901

Precious metals 3,302 9,225

Placements of deposits with other financial institutions 14 15,592,536 21,500,809

Funds loaned to other financial institutions 15 5,361,139 9,236,676

Financial assets at fair value through profit or loss 16 1,132,048 41,441

Derivative financial assets 17 99,996 290,751

Reverse repurchase agreements 18 40,923,396 34,733,353

Accounts receivable 19 4,782,161 1,359,592

Loans and advances 20 355,562,545 281,714,687

Available-for-sale financial assets 21 36,937,298 48,797,086

Held-to-maturity investments 22 34,554,094 15,509,155

Receivables 23 30,427,100 13,750,000

Investments in associates 24 287,346 279,672

Investment properties 25 523,846 411,690

Property and equipment 26 2,034,301 1,915,446

Intangible assets 156,788 113,917

Deferred tax assets 27 1,582,934 1,811,816

Other assets 28 3,606,252 3,196,956

Total assets 587,811,034 474,440,173

LIABILITIESPlacements of deposits from other financial institutions 29 74,139,673 36,063,032

Funds borrowed from other financial institutions 30 7,570,118 7,380,000

Financial liabilities at fair value through profit or loss 16 – 39,420

Derivative financial liabilities 17 21,540 58,598

Repurchase agreements 31 13,733,384 38,916,115

Customer deposits 32 454,635,208 360,514,036

Employee benefits payable 33 1,681,728 1,247,420

Corporate income tax payable 294,784 688,812

Accounts payable 850,881 507,483

Bonds payable 34 9,462,714 7,964,282

Provisions 35 3,358 25,809

Deferred tax liabilities 27 94,525 341,679

Other liabilities 36 4,853,512 4,292,697

Total liabilities 567,341,425 458,039,383

SHAREHOLDERS’ EQUITYShare capital 37 3,105,434 3,105,434

Share premium 6,973,270 6,973,270

Reserves 38 6,004,795 5,370,653

Unappropriated profit 39 4,386,110 951,433

Total shareholders’ equity 20,469,609 16,400,790

Total shareholders’ equity and liabilities 587,811,034 474,440,173



Statement of Changes in Equityfor the year ended 31 December 2009

Of which: Revaluation Of which: surplus on Cumulative owner- changes in occupied fair value of properties available-for- transferred to Of which: Share Share sale financial investment general Unappropriated capital premium Reserves assets properties reserve profit TotalIn RMB’000 (Note 38) (Note 39)

2009At 1 January 2009 3,105,434 6,973,270 5,370,653 1,002,795 13,803 3,583,296 951,433 16,400,790

Movements in the year (i) Profit for the year – – – – – – 5,030,729 5,030,729

(ii) Other comprehensive income – – (961,910 ) (982,296 ) 27,987 – – (961,910 )

Subtotal of (i) and (ii) – – (961,910 ) (982,296 ) 27,987 – 5,030,729 4,068,819

(iii) Profit appropriation – – 1,596,052 – – 1,092,980 (1,596,052 ) –

At 31 December 2009 3,105,434 6,973,270 6,004,795 20,499 41,790 4,676,276 4,386,110 20,469,609

2008At 1 January 2008 2,293,407 5,263,534 3,386,065 (60,120 ) 11,000 2,715,704 2,063,057 13,006,063

Movements in the year (i) Profit for the year – – – – – – 614,035 614,035

(ii) Other comprehensive income – – 1,055,592 1,062,915 2,803 – – 1,055,592

Subtotal of (i) and (ii) – – 1,055,592 1,062,915 2,803 – 614,035 1,669,627

(iii) Exercise of warrants 95,388 1,709,736 – – – – – 1,805,124

(iv) Profit appropriation 716,639 – 928,996 – – 867,592 (1,725,659 ) (80,024 )

At 31 December 2008 3,105,434 6,973,270 5,370,653 1,002,795 13,803 3,583,296 951,433 16,400,790



Cash Flows Statementfor the year ended 31 December 2009

in RMB’000 Note 2009 2008

Cash flows from operating activities 40 33,529,537 25,491,200

Income tax paid (1,335,926 ) (1,148,589 )


Cash flows from investing activitiesPurchases of property and equipment (865,602 ) (798,627 )

Purchases of intangible assets (54,306 ) (39,376 )

Purchases of investment properties (65,344 ) –

Proceeds from disposal of items of property and equipment 672 17,158

Proceeds from disposal of investment properties – 25,819

Interest received from investment securities 2,488,369 1,508,070

Dividend received from investment securities 1,905 1,878

Purchases of bond investments (156,416,547 ) (133,691,351 )

Proceeds from disposal of bond investments 139,159,125 104,670,827

Proceeds from disposal of a subsidiary – 61,000

Proceeds from disposal of equity investments 110,514 30,279

Net cash flows used in investing activities (15,641,214 ) (28,214,323 )

Cash flows from financing activitiesProceeds from exercise of warrants – 2,602,335

Cash payments for dividend distribution and bond interest (463,562 ) (101,712 )

Cash payments for exercise of warrants – (22,003 )

Cash receipts from bond issue 1,500,000 8,000,000

Cash payments for bond issue (9,810 ) (37,865 )

Net cash flows generated from financing activities 1,026,628 10,440,755


Cash and cash equivalents at beginning of the year 37,124,458 30,555,415

Cash and cash equivalents at end of the year 54,703,483 37,124,458

Analysis of balances of cash and cash equivalentsCash on hand 779,169 981,859

Cash equivalents

Within three months before original maturity date





Bond investments (with maturity of less than three months when acquired) 7,403,881 –

54,703,483 37,124,458

Supplementary informationInterest received 21,798,323 25,090,736

Interest paid (9,273,958 ) (12,630,076 )




1 General Information

Shenzhen Development Bank Co., Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) as a result of the restructuring of six agricultural credit co-operatives into a joint stock commercial bank with limited liability. The Company was established on 22 December 1987 after the initial public offering of its RMB ordinary shares on 10 May 1987. The Company was listed on the Shenzhen Stock Exchange on 3 April 1991 and the stock code is 000001.

The institution number of the Company on the 00000028 approval document issued by the China Banking Regulatory Commission is B0014H144030001. The business licence number of the Company issued by the Shenzhen Municipal Administration of Industry and Commerce is 440301103098545.

The Company is principally engaged in authorised commercial and retail banking activities in Mainland China.

The registered office of the Company is located at No. 5047, Shennan Road East, Luohu District, Shenzhen, Guangdong Province, PRC. Headquartered in Shenzhen, the Company operates its business in Mainland China.

2 Accounting Policies

Basis of preparationThe financial statements have been prepared on a historical cost basis, except for derivative financial instruments, financial assets and financial liabilities held at fair value through profit or loss, available-for-sale financial assets, investment properties and cash-settled share-based payments, that have been measured at fair value, as further explained in the respective accounting policies below.

The Company maintains its books and prepares its statutory financial statements in accordance with “Accounting Standards for Business Enterprises — Basic Standard” and 38 specific standards, Implementation Guidance, Interpretations and other relevant regulations (hereafter collectively referred to as “ASBEs”) issued by the Ministry of Finance (the “MOF”) of the PRC in February 2006. As the accounting policies adopted in the preparation of the statutory financial statements are basically the same as those adopted in these financial statements, there is no significant difference in the results of operations and financial performance.

Statement of complianceThese financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and its interpretations promulgated by the International Accounting Standards Board (the “IASB”).

Significant accounting judgements and estimatesThe preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, the uncertainty of these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets and liabilities affected in the future.

Designation of held-to-maturity investmentsNon-derivative financial assets with fixed or determinable payments and a fixed maturity are classified as held-to-maturity investments when the Company has the positive intention and ability to hold the investments to maturity. Accordingly, in evaluating whether a financial asset shall be classified as held-to-maturity investment, significant management judgement is required. If the Company fails to correctly assess its intention and ability to hold the investments to maturity and the Company sells or reclassifies more than an insignificant amount of held-to-maturity investments before maturity, the Company shall classify the whole held-to-maturity investment portfolio as available for sale.

Impairment losses of loans and advancesThe Company determines periodically whether there is any objective evidence that an impairment loss on loans and advances has been incurred. If any such evidence exists, the Company assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated future cash flows. Assessing the amount of impairment losses requires significant judgement on whether objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows.

Income taxDetermining income tax provisions requires the Company to estimate the future tax treatment of certain transactions. The Company carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. This requires significant estimation on the tax treatments of certain transactions and also significant assessment on the probability that adequate future taxable profits will be available for the deferred income tax assets to be recovered.


2 Accounting Policies (Continued)

Basis of preparation (Continued)

Fair value of financial instrumentsIf the market for a financial instrument is not active, the Company establishes fair value for using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. To the extent practicable, the chosen valuation technique makes maximum use of market inputs. However, where market inputs are not available, management needs to make estimates on areas such as credit risk (both the Company’s and the counterparty’s), volatility and correlation. Changes in assumptions about these factors could affect the reported fair values of financial instruments.

Impairment of available-for-sale and held-to-maturity investmentsIn determining whether there is any objective evidence that impairment losses on available-for-sale and held-to-maturity investments have been incurred, the Company assesses periodically whether there has been a significant or prolonged decline in the fair value of the investment below its cost or carrying amount, or whether other objective evidence of impairment exists based on the investee’s financial conditions and business prospects, including industry environment, change of technology, operating and financing cash flows, etc. This requires significant level of judgement of the management of the Company, which would affect the amount of impairment losses.

Impact of new and revised International Financial Reporting StandardsThe Company has adopted the following new and revised IFRSs for the first time for the current year’s financial statements. Except for in certain cases, giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised IFRSs has had no significant effect on these financial statements.

IFRS 1 and IAS 27 Amendments to IFRS 1 First-time Adoption of IFRSs and IAS 27 Consolidated Amendments and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRS 2 Amendments Amendments to IFRS 2 Share-based Payment – Vesting Conditions and CancellationsIFRS 7 Amendments Amendments to IFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial InstrumentsIFRS 8 Operating SegmentsIAS 1 (Revised) Presentation of Financial StatementsIAS 18 Amendment1 Amendment to Appendix to IAS 18 Revenue – Determining whether an entity is acting as a principal or as an agentIAS 23 (Revised) Borrowing CostsIAS 32 and IAS 1 Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements Amendments – Puttable Financial Instruments and Obligations Arising on LiquidationIFRIC – Int 9 and IAS 39 Amendments to IFRIC – Int 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Amendments Recognition and Measurement – Embedded Derivatives IFRIC – Int 15 Agreements for the Construction of Real EstateIFRIC – Int 16 Hedges of a Net Investment in a Foreign OperationIFRIC – Int 18 Transfers of Assets from Customers (adopted from 1 July 2009)Improvements to IFRSs Amendments to a number of IFRSs (May 2008)2

1 Included in Improvements to IFRSs 2009 (as issued in April 2009)2 The Company adopted all the improvements to IFRSs issued in May 2008 except for the amendments to IFRS 5 Non-current assets Held for Sale and Discontinued

Operations – Plan to sell the controlling interest in a subsidiary, which is effective for annual periods beginning on or after 1 July 2009.

Other than as further explained below regarding the impact of IAS 1 (Revised), IFRS 7 Amendments and IFRS 8, the adoption of these new and revised IFRSs has had no significant financial effect on these financial statements.

Amendments to IFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial InstrumentsThe IFRS 7 Amendments require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by sources of inputs using a three-level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance is now required for Level 3 fair value measurements, as well as significant transfers between Level 1 and Level 2 in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement disclosures are presented in Note 44d to the financial statements while the revised liquidity risk disclosures are presented in Note 44b to the financial statements.




Impact of new and revised International Financial Reporting Standards (Continued)

IFRS 8 Operating SegmentsIFRS 8, which replaces IAS 14 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Company operates, and revenue from the Company’s major customers. These revised disclosures, including the related revised comparative information, are shown in Note 3 to the financial statements.

IAS 1 (Revised) Presentation of Financial StatementsIAS 1 (Revised) introduces changes in the presentation and disclosures of financial statements. The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owners changes in equity presented as a single line. In addition, this standard introduces the statement of comprehensive income, with all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Company has elected to present two statements.

Summary of significant accounting policies

Investments in associatesAn associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Company has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Company’s investments in associates are accounted for under the equity method of accounting. Under the equity method, an investment in an associate is carried in the statement of financial position at cost plus post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment losses. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Company determines whether it is necessary to recognise any additional impairment loss with respect to the Company’s net investment in the associate. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of comprehensive income. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate.

The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances.

Recognition of income and expenseRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and when the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Interest income and interest expenseFor all financial instruments measured at amortised cost and interest-bearing financial assets classified as available for sale and held for trading, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial instrument. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.



Summary of significant accounting policies (Continued)

Recognition of income and expense (Continued)

Fee and commission incomeThe Company earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

(i) Fee income earned from services that are provided over a certain period of timeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.

(ii) Fee income from providing transaction servicesFees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or component of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

The fair value of the award credits granted by the Company to the bank card holders under customer loyalty programmes are deferred and recognised as fee and commission income when the award credits are redeemed or expired.

Dividend incomeRevenue is recognised when the Company’s right to receive the payment is established.

Precious metalsThe Company’s precious metals represent gold. Precious metals are initially measured at cost. At the reporting date, precious metals are measured at the lower of cost and net realisable value. If the cost of precious metals is higher than the net realisable value, a provision for the decline in value of precious metals is recognised in the income statement in “Impairment losses on assets”.

Financial instruments

(a) Initial recognition of financial instrumentsThe classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

(b) Determination of fair valueThe fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations, without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, option pricing models, credit models and other relevant valuation models.

(c) “Day 1” profit or lossWhen the transaction price is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Company immediately recognises the difference between the transaction price and fair value (a “Day 1” profit or loss) in the income statement. In cases where fair value is determined using data which is not observable, the difference between the transaction price and the model value is only recognised in the income statement when the inputs become observable, or when the instrument is derecognised.

(d) Financial assets or financial liabilities held for tradingIncluded in this classification are debt securities, equities, derivatives (except for a derivative that is designated and an effective hedging instrument) and short positions which have been acquired principally for the purpose of selling or repurchasing in the near term. Financial assets or financial liabilities held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in “Gains or losses from changes in fair values of financial instruments”.





Financial instruments (Continued)

(e) Financial assets and financial liabilities designated as at fair value through profit or lossA financial instrument may be designated as a financial asset or financial liability at fair value through profit or loss upon initial recognition, if it meets the criteria set out below, and is so designated by management:

• Thedesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythatwouldotherwisearisefrommeasuringthe financial assets or the financial liabilities or recognising the gains and losses on them on a different basis;

• Theassetsandliabilitiesarepartofagroupoffinancialassets,financialliabilitiesorbothwhicharemanagedandtheirperformanceevaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

• Thefinancialinstrumentcontainsoneormoreembeddedderivativesthatsignificantlymodifythecashflowsthatotherwisewouldberequired by the contract.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in “Gains or losses from changes in fair values of financial instruments”.

(f) Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Company has the intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the effective interest rate, less impairment provision. The amortisation is included in “Net Interest Income” in the income statement. The losses arising from impairment of such investments are recognised in the income statement line “Impairment losses on assets”.

The Company shall reclassify any remaining held-to-maturity investments as available for sale and shall not classify any financial assets as held to maturity if it has, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity other than sales or reclassifications that:

(i) are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value;

(ii) occur after the Company has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or

(iii) are attributable to an isolated event that is beyond the Company’s control and is non-recurring and could not have been reasonably anticipated by the Company.

(g) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Company has no intention of trading the assets immediately or in the near term. Loans and receivables mainly include loans and advances to customers, receivables and discounted bills. After initial measurement, loans and receivables are subsequently measured at amortised cost using the effective interest rate, less allowance for impairment. The amortisation is included in “Net interest income” in the income statement. The losses arising from impairment are recognised in the income statement in “Impairment losses on assets”.

Discounted bills are granted by the Company to its customers based on the bank acceptance held which has not matured. Discounted bills are carried at face value less unrealised interest income. The interest income of the discounted bills is recognised on an accrual basis.

(h) Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. After initial recognition, financial assets which are classified as available for sale are stated at fair value. Premiums and discounts on available-for-sale financial assets are amortised using the effective interest method and taken to the interest income.

Changes in fair value of available-for-sale financial assets are reported as a separate component of other comprehensive income until the financial asset is derecognised or the financial asset is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported as “cumulative changes in fair value – available-for-sale financial assets” within other comprehensive income is included in the income statement for the year.

In the case of an equity investment classified as available for sale, if neither a quoted market price in an active market exists nor its fair value can be reliably measured, it will be measured at cost.

(i) Deposits, debt securities issued and other financial liabilitiesDeposits, debt securities issued other than those designated as trading liabilities or at fair value through profit or loss, and other financial liabilities are carried at amortised cost using the effective interest method.




Impairment of financial assetsThe Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets (other than those at fair value through profit or loss) is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(a) Financial assets carried at amortised costIf there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an impairment provision account and the amount of the loss is recognised in the income statement.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

Future cash flows of a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the period on which the historical loss experience is based and to eliminate the impact of historical conditions that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company.

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be attributed objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

When a loan and receivable is uncollectible, it is written off against the related allowance for impairment losses. Such loans and receivables are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of the amounts previously written off decrease the amount of the provision for impairment losses in the income statement.

(b) Financial assets carried at costIf there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

(c) Available-for-sale financial assetsFor available-for-sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income.

In case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.





Derecognition of financial assets and financial liabilities

(a) Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• Therightstoreceivecashflowsfromtheassethaveexpired;or• TheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetsorhasassumedanobligationtopaythereceivedcashflowsin

full without material delay to a third party under a “pass-through” arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset; or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

(b) Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

Derivative financial instrumentsDerivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with the changes in fair value recognised in the income statement.

Certain derivative transactions, while providing effective economic hedges under the Company’s risk management positions, do not qualify for hedge accounting and are therefore treated as derivatives held for trading with fair value gains or losses recognised in the income statement.

Trade date accountingAll regular way purchases and sales of financial assets are recognised on the trade date, that is, the date on which the Company commits to purchase or sell the asset. A regular way purchase and sale is the purchase or sale of financial assets that requires delivery of assets within the time frame generally established by regulation or convention in the marketplace.

OffsettingFinancial assets and liabilities are offset and the net amount is reported in the statement of financial position only when the Company currently has a legally enforceable right to offset the recognised amounts; and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Reverse repurchase agreements and repurchase agreementsAssets sold under agreements to repurchase at a specified future date are not derecognised from the statement of financial position. The corresponding cash received is recognised in the statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within “Repurchase agreements”. The difference between the sale and the repurchase prices is treated as interest expense and is accrued over the life of the agreement using the effective interest rate.

Conversely, assets purchased under agreements to resell at a specified future date are not recognised in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position within “Reverse repurchase agreements”. The difference between the purchase and the resale prices is treated as interest income and is accrued over the life of the agreement using the effective interest rate.




LeasesA lease that transfers in substance all the risks and rewards incident to ownership of an asset is classified as a finance lease. An operating lease is a lease other than a finance lease.

As a lessee under operating leasesLease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of another related asset or charged to the income statement.

As a lessor under operating leasesLease income from operating leases is recognized by the lessor in the income statement on a straight-line basis over the lease term.

Construction in progressConstruction in progress represents costs incurred in the construction of office premises including furniture and fixtures. Costs comprise direct costs incurred during the period of construction. Interest charged on related borrowings for the construction is capitalised and such capitalisation of interest ceases when the assets under construction are completed and are ready for their intended use. No capitalisation of interest is made if the cost incurred during the construction is from the Company’s own fund. Construction in progress is not depreciated.

Construction in progress is reclassified to the appropriate category of property and equipment when completed and ready for use.

Property and equipmentAll property and equipment are stated at cost less any accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the items of property and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Properties and buildings 3.3%

Transportation vehicles 16.2%

Computers 19.8% or 33.0%

Electronic appliances 9.9% or 19.8%

Owner-occupied property improvements 10.0% or 20.0%

Leasehold improvements Over the lease terms

Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year/period the asset is derecognised.

Intangible assetsIntangible assets are identifiable non-monetary assets without physical substance owned or controlled by the Company. The Company’s intangible assets comprise the value of computer software.

Intangible assets are measured initially at cost. The Company analyses and assesses the useful life of an intangible asset on its acquisition. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Company.

When the asset is available for use, an intangible asset with a finite useful life is amortised over its useful life. The amortisation method selected reflects the pattern in which the asset’s economic benefits are expected to be realised. If that pattern cannot be determined reliably, the straight-line method is used. An intangible asset with an indefinite useful life is not amortised.

The useful life and amortisation method for intangible assets with finite useful lives are reviewed at each reporting date. If the expected useful life of the asset or the amortisation method differs significantly from previous assessments, the amortisation period or amortisation method is changed accordingly as a change in accounting estimate.

The useful life of intangible assets with indefinite useful lives is reassessed at each balance sheet date. If there is evidence that the useful life of the asset becomes definite, the accounting policies for intangible assets with definite useful life described above are then applied.





Impairment of non-financial assets excluding goodwillThe Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined on an individual basis, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. In assessing value in use of an asset, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement under those expense categories consistent with the function of the impaired assets.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of any depreciation/amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation/amortisation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Investment propertiesInvestment properties are interests in land or buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business. The Company adopts the fair value model for the measurement of investment properties which are not depreciated or amortised. At each period end, the carrying value of the investment properties is adjusted based on the fair value, and any difference between the carrying amount and the fair value is accounted for in the income statement.

Repossessed assetsRepossessed assets are initially recognised at fair value. The difference between the initial fair value and the sum of the related loan principal, interest receivable and impairment provision is taken into the income statement. At the reporting date, the repossessed assets are measured at the lower of their carrying value and net realisable value. When the carrying value of the repossessed assets is higher than the net realisable value, a provision for the decline in value of the repossessed assets is recognised in the income statement in “Impairment losses on assets”.

Foreign currency translationThe financial statements are presented in RMB, being the functional currency of the Company’s operations.

Transactions in foreign currencies are initially recorded at the functional currency rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Exchange differences arising on the settlement of monetary items or on translating monetary items at period end rates are taken to the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Fiduciary activitiesWhere the Company acts in a fiduciary capacity such as nominee, trustee or agent, assets arising thereon together with the related undertakings to return such assets to customers are excluded from the financial statements.

Entrusted loans granted by the Company on behalf of third-party lenders are recorded as off-balance sheet items. The Company acts as an agent and grants such entrusted loans to borrowers under the direction of the third-party lenders who fund these loans. The Company has been contracted by the third-party lenders to manage the administration and collection of these loans on their behalf. The third-party lenders determine both the underwriting criteria for and the terms of all entrusted loans including their purposes, amounts, interest rates, and repayment schedules. The Company charges a commission related to the management of the entrusted loans. The commission is recognised pro rata over the period in which the service is provided. The risk of loan loss is borne by the third-party lenders.




Financial guarantee contractsThe Company gives financial guarantees consisting of letters of credit, letters of guarantees, and acceptances. These financial guarantee contracts provided for specified payments to be made to reimburse the holder for a loss it incurs when a guaranteed party defaults under the original or modified terms of a debt instrument, loan or other obligation.

Financial guarantee contracts are initially recognised at fair value, in “Other liabilities”, being the premium received. The guarantee fee is amortised over the period of the contract and is recognised as fee and commission income. Subsequent to initial recognition, the Company’s liabilities under such contracts are each measured at the higher of the initial fair value less cumulative amortisation, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is taken to the income statement.

Related partiesA party is considered to be related to the Company if:

(i) the party, directly or indirectly through one or more intermediaries: (a) controls, is controlled by, or is under common control with, the Company; (b) has an interest in the Company that gives it significant influence over the Company; or (c) has joint control over the Company;

(ii) the party is an associate of the Company;

(iii) the party is joint venture in which the Company is a venturer;

(iv) the party is a member of the key management personnel of the Company or its parent;

(v) the party is a close member of the family of any individual referred to in (i) or (iv);

(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or

(vii) the party is a post-employment benefit plan for the benefit of the employees of the Company, or of any entity that is a related party of the Company.

Income taxIncome tax comprises current income tax and movements in deferred tax balances. Except to the extent that the tax arises from a business combination; or a transaction or event which is recognised directly in other comprehensive income, all the income tax should be expensed or credited to the income statement as appropriate.

Current income taxCurrent tax is the amount of income taxes payable in respect of the taxable profit for a period. Taxable profit is the profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable.

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities.

Deferred taxDeferred tax is provided using the balance sheet liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

(i) where the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or deductible loss;

(ii) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly-controlled enterprises, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

For deductible temporary differences, carryforward of unused deductible losses and tax credits, the Company recognises the corresponding deferred tax asset to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, the deductible losses and tax credits can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable income or deductible loss.





Income tax (Continued)

Deferred tax (Continued)

For deductible temporary differences arising from investments in subsidiaries, associates and interests in jointly-controlled enterprises, the corresponding deferred income tax asset is recognised, to the extent that, it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available in the future, against which the temporary differences can be utilised.

At the reporting date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the requirements of tax laws.

At the reporting date, the Company reviews the carrying amount of a deferred tax asset. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available in future periods to allow the benefit of the deferred tax asset to be utilised. Any such reduction in the amount is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Employee benefits

(a) Short term employee benefitsSalaries and bonuses, social security contributions and other short term employee benefits are accrued in the period in which services are rendered by the employees of the Company.

(b) Defined contribution plansAccording to the statutory requirements in Mainland China, the Company is required to make contributions to the pension and insurance schemes that are separately administered by the local government authorities. Contributions to these plans are recognised in the income statement as incurred. In addition, the Company participates in a defined contribution retirement benefit insurance plan managed by an insurance company. Obligation for contributions to the insurance plan is borne by the Company, and contributions paid by the Company are recognised in the income statement as incurred.

(c) Supplementary retirement benefitsCertain employees of the Company in Mainland China can enjoy supplementary retirement benefits after retirement. These benefits are unfunded. The cost of providing benefits is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in the income statement in the period in which they occur.

(d) Share-based payment transactionsThe Company grants equity instruments, or incurs liabilities for amounts that are determined based on the price of equity instruments, in return for services rendered by employees or other parties.

The cost of cash-settled transactions is measured initially at fair value at the grant date using an appropriate pricing model taking into account the terms and conditions upon which the instruments were granted. The fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each reporting date up to and including the settlement date, with changes in fair value recognised in the income statement.

Definition of cash equivalentsCash equivalents are short term, highly liquid monetary assets that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the cash flow statement, cash equivalents comprise investments that have a short maturity of generally within three months when acquired, the unrestricted balance with the Central Bank, amounts due from banks and other financial institutions and reverse repurchase agreements that have a short original maturity of generally within three months.

ProvisionsProvisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the income statement net of any reimbursement.

Contingent liabilitiesA contingent liability is a possible obligation that arises from past transactions or events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events. It can also be a present obligation arising from past transactions or events but is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

DividendsDividends are recognised as a liability and deducted from equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Company. Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.



Issued but not yet effective International Financial Reporting StandardsThe Company has not applied the following new and revised IFRSs and IFRIC interpretations that have been issued but are not yet effective, in these financial statements.

IFRS 1 (Revised) First-time Adoption of IFRSs 1

IFRS 1 Amendments Amendments to IFRS 1 First-time Adoption of IFRSs – Additional Exemptions for First-time Adopters 2

IFRS 1 Amendment Amendment to IFRS 1 Limited Exemption from Comparatives IFRS 7 Disclosures for First-time Adopters 4

IFRS 2 Amendments Amendments to IFRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions 2

IFRS 3 (Revised) Business Combinations 1

IFRS 9 Financial Instruments 6

IAS 24 (Revised) Related Party Disclosures 5

IAS 27 (Revised) Consolidated and Separate Financial Statements 1

IAS 32 Amendment Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues 3

IAS 39 Amendment Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items 1

IFRIC – Int 14 Amendments Amendments to IFRIC – Int 14 Prepayments of a Minimum Funding Requirement 5 IFRIC – Int 17 Distribution of Non-cash Assets to Owners 1

IFRIC – Int 19 Extinguishing Financial Liabilities with Equity Instruments 4

Amendments to Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 5 included in – Plan to sell the controlling interest in a subsidiary 1 Improvements to IFRSs issued in May 20081 Effective for annual periods beginning on or after 1 July 20092 Effective for annual periods beginning on or after 1 January 20103 Effective for annual periods beginning on or after 1 February 20104 Effective for annual periods beginning on or after 1 July 20105 Effective for annual periods beginning on or after 1 January 20116 Effective for annual periods beginning on or after 1 January 2013

Apart from the above, the IASB has issued Improvements to IFRSs 2009 which sets out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to IFRS 2, IAS 38, IFRIC – Int 9 and IFRIC – Int 16 are effective for annual periods beginning on or after 1 July 2009 while the amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010 although there are separate transitional provisions for each standard or interpretation.

The Company is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. So far, the Company considers that except for the adoption of IFRS 9 as further explained below, these new and revised IFRSs are unlikely to have a significant impact on the Company’s results of operations and financial position.

IFRS 9 issued in November 2009 is the first part of phase 1 of a comprehensive project to entirely replace IAS 39 Financial Instruments: Recognition and Measurement. This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value, on the basis of both the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared with the requirements of IAS 39. IAS 39 is aimed to be replaced by IFRS 9 in its entirety by the end of 2010.

3 Operating Segment Information

For management purposes, the Company is organised into operating segments based on the internal organisation structure, management requirements and internal reporting. The Company’s reportable segments are as follows:

Corporate bankingThe corporate banking segment covers the provision of financial products and services to corporations and government agencies. The products and services include corporate loans, deposit-taking activities, trade financing, corporate wealth management services and various types of corporate intermediary services.

Retail bankingThe personal banking segment covers the provision of financial products and services to individual customers. The products and services include personal loans, deposit-taking activities, bank card business, personal wealth management services and various types of personal intermediary services.



3 Operating Segment Information (Continued)

Interbank businessThe interbank business segment covers the Company’s interbank business and money market business. This segment mainly serves the liquidity management of the Company and facilitates the needs of customers of other operating segments.

OtherThis category consists of debt and equity investments and assets, liabilities, income and expenses that are not directly attributable to individual segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resources allocations and performance assessment. Segment assets and liabilities, and segment revenues and profit are calculated according to the accounting policies of the Company. Income taxes are managed on a company basis and are not allocated to operating segments. Interest income is reported net since the majority of the segment’s revenues are from interest. Management primarily relies on net interest revenue, not the gross revenue and expense amounts.

Transactions between segments mainly represent transfer of funding to or from individual operating segments. These transactions are conducted on terms determined with reference to the average cost of funding and have been reflected in the performance of each segment. Net interest income and expense arising on internal charges are referred to as “internal net interest income/expense”. Such transfer prices between operating segments are internally eliminated when the operating results of individual segments are aggregated. Furthermore, interest income and expense relating to third parties are referred to as “external net interest income/expense” and the aggregated amount of the external net interest income/expense of the operating segments is same as the net interest income in the income statement.

Segment revenues, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

2009


Net interest income 8,567,920 2,837,599 934,202 644,653 12,984,374Including: external net interest income 6,831,683 3,501,759 1,317,172 1,333,760 12,984,374 internal net interest income/(expense) 1,736,237 (664,160 ) (382,970 ) (689,107 ) –Net non-interest income (Note 1) 892,708 368,331 246,432 635,669 2,143,140Operating income 9,460,628 3,205,930 1,180,634 1,280,322 15,127,514Operating costs (Note 2) (3,897,918 ) (2,573,700 ) (230,800 ) (677,807 ) (7,380,225 )Including: Depreciation, amortisation and rental expenses (476,083 ) (422,428 ) (22,563 ) (4,036 ) (925,110 )Impairment losses on assets (1,645,801 ) (176,327 ) (4,834 ) 251,874 (1,575,088 )Share of profits of associates – – – 18,336 18,336Segment profit 3,916,909 455,903 945,000 872,725 6,190,537Income tax expense (1,159,808 )Profit for the year 5,030,729


Including: Investments in associates – – – 287,346 287,346Total liabilities 342,559,690 70,944,657 95,443,175 58,393,903 567,341,425

Notes: 1. Included net fee and commission income, investment income, gains or losses from changes in fair values of financial instruments, losses from changes in fair values of investment properties, net foreign exchange difference and other operating income.



3 Operating Segment Information (Continued)

Other (Continued)

2008


Net interest income 9,685,975 2,467,491 900,912 (456,490 ) 12,597,888

Including: external net interest income 7,297,380 3,656,653 984,304 659,551 12,597,888

internal net interest income/(expense) 2,388,595 (1,189,162 ) (83,392 ) (1,116,041 ) –

Net non-interest income (Note 1) 652,784 300,105 507,562 421,288 1,881,739

Operating income 10,338,759 2,767,596 1,408,474 (35,202 ) 14,479,627

Operating costs (Note 2) (3,757,883 ) (2,331,228 ) (204,659 ) (81,761 ) (6,375,531 )

Including: Depreciation, amortisation and rental expenses (410,882 ) (295,416 ) (21,712 ) (4,600 ) (732,610 )

Impairment losses on assets (3,606,948 ) (522,865 ) (7,295 ) (3,197,054 ) (7,334,162 )

Share of profits of associates – – – 22,675 22,675

Segment profit/(loss) 2,973,928 (86,497 ) 1,196,520 (3,291,342 ) 792,609

Income tax expense (178,574 )

Profit for the year 614,035


Including: Investments in associates – – – 279,672 279,672


Notes: 1. Included net fee and commission income, investment income, gains or losses from changes in fair values of financial instruments, losses from changes in fair values of investment properties, net foreign exchange difference and other operating income.


Geographical informationThe Company's external operating income and non-current assets are mainly attributable to Mainland China based on the location of the customers and assets respectively for the years ended 31 December 2009 and 2008. Non-current assets for this purpose consist of investment properties, property and equipment, construction in progress and intangible assets.

Information about a major customerNo revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Company’s total revenue in 2009 or 2008.



4 Net Interest Income

In RMB’000 2009 2008

Interest incomeInterest income on loans and advances (Note) 16,258,728 19,406,389

Interest income on amounts due from financial institutions 3,093,070 4,670,673

Interest income on investment securities (excluding financial assets at fair value through profit or loss) 2,601,525 2,330,843

Subtotal 21,953,323 26,407,905

Interest income on financial assets at fair value through profit or loss 32,189 57,359

Total 21,985,512 26,465,264

Interest expenseInterest expense on amounts due to financial institutions 1,498,875 4,977,674

Interest expense on customer deposits 6,981,323 8,556,601

Interest expense on bonds 520,356 325,488

Subtotal 9,000,554 13,859,763

Interest expense on financial liabilities at fair value through profit or loss 584 7,613

Total 9,001,138 13,867,376

Net interest income 12,984,374 12,597,888

Note: Included in interest income was RMB110 million (2008: RMB384 million) in respect of interest income accrued on impaired financial assets (see Note 20f).

5 Net Fee and Commission Income

In RMB’000 2009 2008

Fee and commission incomeSettlement fee income 387,014 341,688

Wealth management products related fee income 17,025 1,867

Agency business fee income 102,718 100,645

Credit card fee income 392,259 307,981

Advisory and consulting fee income 301,182 169,170

Trade finance related fee income 36,839 17,293

Account management fee income 29,966 19,474

Others 119,969 98,529

Subtotal 1,386,972 1,056,647

Fee and commission expenseAgency business fee expenses 111,021 123,036

Bank card fee 72,884 65,026

Others 22,283 17,197

Subtotal 206,188 205,259

Net fee and commission income 1,180,784 851,388

6 Investment Income

In RMB’000 2009 2008

Net gain/(loss) on disposal of bond investments held for trading (10,783 ) 41,810

Net gain/(loss) on disposal of bond investments designated as at fair value through profit or loss 12 (91 )

Net gain on disposal of available-for-sale bond investments 435,403 322,953

Net gain on disposal of available-for-sale equity investments 65,785 13,247

Net loss on disposal of held-to-maturity bond investments (Note 22) (29,128 ) –

Dividend income 1,905 4,554

Net realised gain on derivative financial instruments (excluding foreign exchange derivative financial instruments) 1,463 16,408

Gain on disposal of bills 97,293 –

Total 561,950 398,881


7 Gains or Losses from Changes in Fair Values of Financial Instruments

In RMB’000 2009 2008

Financial instruments held for trading 78 1,241

Financial assets designated as at fair value through profit or loss (83 ) 4,729

Financial liabilities designated as at fair value through profit or loss 567 2,740

Derivative financial instruments (excluding foreign exchange derivative financial instruments) (49,752 ) 72,177

Total (49,190 ) 80,887

8 Other Net Income

In RMB’000 2009 2008

Gain on disposal of property and equipment, net 289 261

Loss on disposal of investment properties, net – (419 )

Rental income 67,053 63,365

Gain on disposal of repossessed assets, net 20,276 12,266

Provision against litigation claims 3,508 (29,712 )

Others 68,989 57,366

Total 160,115 103,127

9 Operating Expenses

In RMB’000 2009 2008

Staff expensesSalaries, bonuses, allowances and subsidies 2,507,090 2,034,524

Including: Deferred bonus accrual (Note 33) 91,334 65,400

Social insurance, supplementary pension contributions and staff welfare 641,287 494,408

Housing funds 121,418 89,934

Labour union and training expenses 73,380 56,875

Others 4,768 9,362

Subtotal 3,347,943 2,685,103

General and administrative expensesRental expenses 533,212 421,725

Computer system maintenance fees 140,042 168,425

Telecommunication and postage expenses 98,813 95,546

Water and electricity expenses 58,721 47,769

Publication and stationery expenses 210,738 197,604

Travel expenses 95,734 90,173

Marketing and public relation expenses 475,516 358,019

Motor vehicle expenses 133,344 128,463

Legal expenses 87,907 44,080

Professional fees 280,427 169,425

Sundry tax expenses 45,524 30,269

CBRC supervisory fee 62,702 51,582

Others 362,208 441,727

Subtotal 2,584,888 2,244,807

Depreciation and amortisationDepreciation of property and equipment 342,228 273,104


Subtotal 378,260 293,956

Total operating expenses 6,311,091 5,223,866

IncludingAuditors’ remuneration – audit service fees 5,530 5,635



10 Impairment Losses on Assets

2009

Amounts Interest Add-back Recovery released accrued on Balance at Charge/ of loans of assets upon impaired Balance at beginning (reversal) Amounts written off written off disposal loans and Other end ofIn RMB’000 Notes of the year for the year written off previously previously of assets advances movements the year

Provision for decline in value of precious metals 259 (181 ) – – – – – – 78Impairment provision for placements of deposits with other financial institutions 14 40,695 – – – – – – – 40,695Impairment provision for funds loaned to other financial institutions 15 29,079 (1,166 ) – – 1,774 – – 292 29,979Impairment provision for reverse repurchase agreements 18 29,000 6,000 – – – – – – 35,000Impairment provision for loans and advances 20 2,026,679 1,440,552 (175,017 ) 356,235 673,160 (302,717 ) (109,510 ) 45,486 3,954,868Impairment provision for available-for-sale financial assets carried at cost 21 87,627 28,530 – – – (3,300 ) – – 112,857Impairment provision for investments in associates 24 20,000 3,061 – – – – – – 23,061Provision for decline in value of repossessed assets 28 319,480 88,861 – – – (47,380 ) – – 360,961Impairment provision for property and equipment 26 6,289 – – – – – – – 6,289Impairment provision for other assets 212,637 5,459 (64,340 ) – – – – 652 154,408Total 2,771,745 1,571,116 (239,357 ) 356,235 674,934 (353,397 ) (109,510 ) 46,430 4,718,196

Impairment losses on financial guarantee contracts 3,972Total impairment losses 1,575,088


10 Impairment Losses on Assets (Continued)

2008

Amounts Interest released accrued on Balance at Charge/ Recovery of upon impaired Balance at beginning (reversal) Amounts loans written disposal loans and Other end ofIn RMB’000 Notes of the year for the year written off off previously of assets advances movements the year

Provision for decline in value of precious metals 61 198 – – – – – 259

Impairment provision for placements of deposits with other financial institutions 14 66,786 (1,496 ) (25,400 ) – – – 805 40,695

Impairment provision for funds loaned to other financial institutions 15 309,897 8,619 (284,987 ) – – – (4,450 ) 29,079

Impairment provision for reverse repurchase agreements 18 30,549 172 (1,721 ) – – – – 29,000

Impairment provision for loans and advances 20 6,023,964 6,972,839 (10,606,712 ) 29,944 – (384,238 ) (9,118 ) 2,026,679

Impairment provision for available-for-sale financial assets carried at cost 21 470,745 63,184 – – (446,302 ) – – 87,627

Impairment provision for investments in associates 24 – 20,000 – – – – – 20,000

Provision for decline in value of repossessed assets 28 198,143 126,114 – – (7,577 ) – 2,800 319,480

Impairment provision for property and equipment 26 – 6,289 – – – – – 6,289

Impairment provision for other assets 238,448 37,990 (61,447 ) – – – (2,354 ) 212,637

Total 7,338,593 7,233,909 (10,980,267 ) 29,944 (453,879 ) (384,238 ) (12,317 ) 2,771,745

Impairment losses on available-for-sale financial assets carried at fair value 100,253

Total impairment losses 7,334,162



11 Income Tax Expense

In RMB’000 2009 2008

Current taxCharge for the year 1,151,737 1,381,363


Subtotal 941,898 1,017,644

Deferred income tax (Note 27) 217,910 (839,070 )

Total 1,159,808 178,574

The reconciliation of income tax expense applicable to profit before tax at the statutory tax rate to income tax expense at the Company’s effective income tax rate is as follows:

In RMB’000 2009 2008


Income tax at the statutory rate of 25% 1,547,634 198,152

Effects of 20% tax rate (2008: 18%) applicable to the regions of Shenzhen, Zhuhai and Haikou (211,555 ) (1,971 )


Non-taxable income (111,777 ) (131,617 )

Non-deductible expenses and other adjustments 145,345 477,729

Income tax expense 1,159,808 178,574

12 Earnings per Share

The Company’s basic earnings per share amount is calculated as follows:

In RMB’000 2009 2008



Basic earnings per share (Renminbi Yuan) 1.62 0.20

The Company’s diluted earnings per share amount is calculated as follows:

In RMB’000 2009 2008



Dilutive effect – weighted average number of ordinary shares

Warrants – 17,984

Adjusted weighted average number of ordinary shares outstanding (in thousands) 3,105,434 3,078,087

Diluted earnings per share (Renminbi Yuan) 1.62 0.20

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date the financial statements are authorised for issue.


13 Cash on Hand and due from the Central Bank


Cash on hand 779,169 981,859

Statutory reserve with the Central Bank – RMB 38,650,469 29,321,249

Statutory reserve with the Central Bank – foreign currency 327,335 309,783


Other deposits with the Central Bank – fiscal deposits 132,468 10,298

Total 54,243,952 39,767,901

Based on the related RMB and foreign currency deposits, the Company places respective statutory reserves with the Central Bank in accordance with the requirements from the People’s Bank of China. These reserve deposits are not available for use in the Company’s daily operations.

Fiscal deposits represent the amounts received from government-related bodies that are required to be deposited with the Central Bank according to the relevant regulations.

14. Placements of Deposits with other Financial Institutions



Domestic banks 14,074,591 18,313,172


Overseas banks 1,516,418 3,182,870

Subtotal 15,633,231 21,541,504

Less: Impairment provision (Note 10) (40,695 ) (40,695 )

Total 15,592,536 21,500,809

As at 31 December 2009, included in this total amount of placements of deposits with other financial institutions was an amount of RMB41,520 thousand (31 December 2008: RMB44,520 thousand) impaired assets brought forward from prior years.

15 Funds Loaned to other Financial Institutions



Domestic banks 1,204,596 4,101,050


Overseas banks 3,653,129 4,981,133

Subtotal 5,391,118 9,265,755


Total 5,361,139 9,236,676

As at 31 December 2009, included in this total amount of loans funded to other financial institutions was an amount of RMB33,393 thousand (31 December 2008: RMB33,572 thousand) impaired assets brought forward from prior years.



16 Financial Assets/Financial Liabilities at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss


Bonds held for trading 1,132,048 36,610

Financial assets designated as at fair value through profit or loss – 4,831

Total 1,132,048 41,441


Bond investments analysed by issuerPolicy banks 1,132,048 36,610

Other banks and non-bank financial institutions – 4,831

Total 1,132,048 41,441

In the opinion of management, there are no significant restrictions on realising the financial assets at fair value through profit or loss.

Financial liabilities at fair value through profit or loss


Financial liabilities designated at fair value through profit or loss – 39,420

During 2008, the change in fair value of financial liabilities designated at fair value through profit or loss that was attributable to changes in the credit risk was not significant as the credit spread of the Company remained stable. As at 31 December 2008, the difference between the carrying amount and the amount that the Company would be contractually required to pay at maturity to the holders of these financial liabilities was RMB567 thousand.


17 Derivative Financial Instruments

A derivative is a financial instrument, the value of which is derived from the value of another “underlying” financial instrument, an index or some other variables. Typically, an “underlying” financial instrument is a share, commodity or bond price, an index value or an exchange or interest rate. The Company uses derivative financial instruments such as forward contracts, swaps and options.

The notional amount of a derivative represents the amount of an underlying asset upon which the value of the derivative is based. It indicates the volume of business transacted by the Company but does not reflect the risk.

The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction.

At each reporting date, the Company has positions in the following types of derivatives:

31 December 2009



Interest rate derivative instrumentsInterest rate swap contracts – – 800,000 800,000 28,854 –

Equity derivative instrumentsEquity option contracts – 93,356 – 93,356 – (337 )Equity swap contracts – 93,356 – 93,356 – (1,755 )Total 9,599,495 9,821,625 1,482,660 20,903,780 99,996 (21,540 )

31 December 2008



Interest rate derivative instrumentsInterest rate swap contracts – 130,000 1,140,000 1,270,000 86,632 (6,733 )

Equity derivative instrumentsEquity option contracts 511,437 1,508,952 – 2,020,389 21,312 (21,312 )

Equity swap contracts – 46,767 – 46,767 – (3,075 )

Other derivative instruments 19,219 407,060 – 426,279 462 (462 )

Total 12,250,804 9,274,089 1,213,121 22,738,014 290,751 (58,598 )

As at 31 December 2009 and 31 December 2008, no derivatives were designated as hedging instruments.



18 Reverse Repurchase Agreements

a Analysed by counterparty


Banks 40,152,396 34,542,353

Non-bank financial institutions 806,000 220,000

Subtotal 40,958,396 34,762,353


Total 40,923,396 34,733,353

As at 31 December 2009, included in this total amount of reverse repurchase agreements was an amount of RMB50 million (31 December 2008: RMB50 million) impaired assets brought forward from prior years.

b Analysed by collateral


Securities 50,000 1,020,000

Bills 40,152,396 33,572,353

Loans 150,000 170,000

Receivables under finance leases 606,000 –

Subtotal 40,958,396 34,762,353


Total 40,923,396 34,733,353

c Fair value of collateralUnder certain reverse repurchase agreements, the Company has held collateral that is permitted to be sold or re-pledged in the absence of default by the owners of the collateral. At the reporting date, the fair values of the collateral held on such terms are as follows:


Amount of Amount of reverse repurchase Fair value reverse repurchase Fair valueIn RMB’000 agreements of collateral agreements of collateral

Bills 21,994,768 21,994,768 33,572,353 33,572,353

Loans – – 170,000 170,000

As at 31 December 2009, no collateral above was sold or re-pledged. As at 31 December 2008, included in the above fair value of collateral were bills of RMB15,578,493 thousand that had been re-pledged and the Company had an obligation to return such collateral.

19 Accounts Receivable


Receivables with respect to making payments on behalf of customers (Note) 3,169,088 1,119,445

Receivables under factoring 676,502 240,147

Receivables with respect to making payments on behalf of other banks under letters of credit 491,328 –

Receivables under discounted bills 445,243 –

Total 4,782,161 1,359,592

Note: The above receivables are related to the provision of trade finance services for customers by making payments on their behalf via the offshore business unit of the Company or other overseas banks in accordance with the terms of agreements signed with the customers. In connection with this, the payments made by other overseas banks are correspondingly recorded in “Accounts payable”.

As at 31 December 2009 and 31 December 2008, the Company did not make any impairment provisions for the above outstanding balances of accounts receivable.


20 Loans and Advances

a Analysed by corporation and individual


Loans and advances to corporationsLoans 216,593,743 167,617,360


Subtotal 261,879,271 209,835,181

Loans and advances to individualsCredit cards 4,750,620 3,722,178

Residential mortgages 85,800,764 65,861,574

Others 7,086,758 4,322,433

Subtotal 97,638,142 73,906,185


Less: Loan impairment provisions (Notes 20f & 10) (3,954,868 ) (2,026,679 )


As at 31 December 2009, included in the discounted bills was an amount of RMB5,260,731 thousand (31 December 2008: RMB12,691,340 thousand) that had been pledged for repurchase agreements.

In addition, as at 31 December 2009, the Company transferred out (without recourse) discounted bills amounting to RMB56.5 billion (31 December 2008: RMB30.5 billion) that have not yet matured at the year end.

b Analysed by industry


Agriculture, husbandry and fisheries 590,000 598,700

Extraction (Heavy industry) 3,523,490 2,872,440

Manufacturing (Light industry) 59,974,269 53,372,139

Energy 8,000,990 11,786,383

Transportation, storage and communication 17,405,390 12,516,879

Commercial 36,069,931 23,618,771

Real estate 23,254,621 15,877,985

Service, technology, culture and sanitary industries 52,516,681 35,628,222

Construction 13,405,329 10,176,997


Loans and advances to individuals 97,638,142 73,906,185

Others 1,853,042 1,168,844




c Analysed by type of collateral held or other credit enhancements


Unsecured 64,776,195 47,041,232

Guaranteed 66,303,241 59,769,814

Secured by collateral 183,152,449 134,712,499

Of which: secured by mortgages 156,820,843 111,667,469

secured by monetary assets 26,331,606 23,045,030

Subtotal 314,231,885 241,523,545







20 Loans and Advances (Continued)

d Aging analysis of past due loans

31 December 2009


Unsecured 173,864 80,390 190 – 254,444Guaranteed 28,237 278,579 84,564 63,288 454,668Secured by collateral 1,458,413 455,196 927,866 573,478 3,414,953Of which: secured by mortgages 1,432,051 388,525 597,893 434,730 2,853,199 secured by monetary assets 26,362 66,671 329,973 138,748 561,754Total 1,660,514 814,165 1,012,620 636,766 4,124,065

31 December 2008


Unsecured 480,859 23,932 – – 504,791

Guaranteed 217,842 221,673 6,204 261,646 707,365

Secured by collateral 2,554,398 494,824 586,104 640,253 4,275,579

Of which: secured by mortgages 2,315,592 466,465 406,337 520,253 3,708,647

secured by monetary assets 238,806 28,359 179,767 120,000 566,932

Total 3,253,099 740,429 592,308 901,899 5,487,735

Overdue loans refer to the loans with either principal or interest being overdue by one day or more.

e Analysed by geographical region


Southern and Central China 110,844,053 86,815,602

Eastern China 128,154,646 100,457,432

Northern and North-eastern China 91,587,937 75,600,230

South-western China 27,084,283 19,700,651

Offshore businesses 1,846,494 1,167,451


Less: Loan impairment provisions (Notes 20f &10) (3,954,868 ) (2,026,679 )


f Movements in impairment provisions for loans and advances

2009 2008

In RMB’000 Indiviual Collective Total Individual Collective Total

Balance at beginning of the year 481,327 1,545,352 2,026,679 5,073,555 950,409 6,023,964

Charge for the year 9,802 1,430,750 1,440,552 5,667,836 1,305,003 6,972,839

Amounts written off – (175,017 ) (175,017 ) (9,896,652 ) (710,060 ) (10,606,712 )

Reversal for the year

Add-back of loans written off previously (Note) 356,235 – 356,235 – – –

Recovery of loans written off previously 514,312 158,848 673,160 29,944 – 29,944

Amounts released upon disposal of loans (302,717 ) – (302,717 ) – – –

Interest accrued on impaired loans and advances (109,510 ) – (109,510 ) (384,238 ) – (384,238 )

Other changes for the year 45,486 – 45,486 (9,118 ) – (9,118 )

Balance at end of the year (Note 10) 994,935 2,959,933 3,954,868 481,327 1,545,352 2,026,679

Note: In accordance with the reminder letter CaiZhuShenJianHan No. [2009] 17 dated 10 October 2009 issued by the MOF Shenzhen Office, the Company compared the “Administrative Measures of Write-off of Doubtful Debts for Financial Institutions” and recorded a total amount of RMB356 million loans, which had been written off at the year end of 2008, in its general ledger in November 2009. Simultaneously, the Company booked the corresponding loan impairment provisions amounting to RMB356 million.


21 Available-for-sale Financial Assets



Policy banks 18,192,544 18,789,453

Other banks and non-bank financial institutions 634,433 112,335

Corporations 885,227 133,094

Subtotal 36,755,693 48,591,709

Equity investments (Note 21a)

Tradable shares 76,246 67,659

Non-tradable shares (Note) 218,216 225,345

Less: Impairment provisions (Note 10) (112,857 ) (87,627 )

Non-tradable shares, net 105,359 137,718

Subtotal 181,605 205,377

Total available-for-sale financial assets 36,937,298 48,797,086

Note: These available-for-sale unlisted equity investments which do not have any quoted market prices and whose fair values cannot be reliably measured are stated at cost.

As at 31 December 2009, included in the bond investments were amounts of RMB5,319,856 thousand (31 December 2008: 1,984,666 thousand) and RMB1,269,572 thousand (31 December 2008: nil) that had been pledged for repurchase agreements and agreements of time deposit from the PBOC, respectively.

As a result of the change in intention, the Company reclassified available-for-sale financial assets with a carrying amount of RMB6,764,847 thousand (2008: nil) to the category of held-to-maturity investments during the year.

As at 31 December 2009, included in the available-for-sale financial assets were restricted tradable shares of RMB7,343 thousand (31 December 2008: RMB10,000 thousand). These shares would become unrestricted by the first half of 2010.

a Equity investments


Tradable sharesShenzhen Hongkai (Group) Co., Ltd. 5,757 2,790

Hafei Aviation Industry Co., Ltd. – 5,631

Harbin Pharmaceutical Group Co., Ltd. – 48,467

Yihua Real Estate Co., Ltd. 59,455 10,000

Visa Inc. 1,324 771

Stellar Megaunion Corporation 5,450 –

Shanghai Worldbest Co., Ltd. 4,260 –

Subtotal 76,246 67,659

Non-tradable sharesChina UnionPay Co., Ltd 50,000 50,000

Gintian Industry (Group) Co., Ltd. 9,662 9,662

Hainan Pearl River Holdings Co., Ltd. 9,650 9,650

Hainan Wuzhou Travel Co., Ltd. 5,220 5,220

Meizhou Polyester (Group) Co. 1,100 1,100

Shenzhen Zoto Investment Co., Ltd. 2,500 2,500

Hainan Junhe Travel Co., Ltd. – 2,800

Guangdong Sanxing Enterprises (Group) Co., Ltd. 500 500

Hainan Baiyunshan Co., Ltd. 1,000 1,000

Hainan Saige Co., Ltd. 1,000 1,000

Hainan Zhuxin Investment Co., Ltd. – 500

Hainan Zhonghailian Real Estate Co., Ltd. 1,000 1,000

Shenzhen Jiafeng Textile Industrial Co., Ltd. 16,725 16,725

SWIFT 684 230

Yong An Property Insurance Co., Ltd. 67,000 67,000

Wuhan Steel Electricity Co., Ltd. 32,175 32,175

Founder Securities Co., Ltd. – 4,283

Chengdu Unionfriend Network Co., Ltd. 20,000 20,000


Subtotal 105,359 137,718

Equity investments, net 181,605 205,377



22 Held-to-maturity Investments



Policy banks 13,758,516 5,786,616

Other banks and non-bank financial institutions 2,924,145 649,751

Corporations 6,292,739 435,568

Total 34,554,094 15,509,155

As at 31 December 2009, included in the bond investments were amounts of RMB8,777,992 thousand (31 December 2008: RMB3,612,979 thousand) and RMB1,208,175 thousand (31 December 2008: RMB5,405,600 thousand) that had been pledged for agreements of time deposit from the PBOC and repurchase agreements, respectively. As at 31 December 2008, the Company pledged RMB205,485 thousand of held-to-maturity bond investments for loan guarantee contracts.

In November 2009, the Company sold held-to-maturity investments with a carrying value of RMB519,960 thousand (2008: nil), which represented 1.3% of the total held-to-maturity investments prior to the sale. The above held-to-maturity investments sold were subordinated debts issued by other commercial banks that were originally purchased during the period between July 2009 and August 2009.

There are no changes in the assessment of the Company’s intention and ability to hold the investments to maturity.

23 Receivables


PBOC bills 13,450,000 13,450,000

Subordinated bonds issued by financial institutions 500,000 300,000

Principal guaranteed wealth management products issued by financial institutions 16,477,100 –

Total 30,427,100 13,750,000

The PBOC bills and subordinated bonds are non-transferrable debt securities with fixed or determinable payments.

As at 31 December 2009, included in the bond investments is an amount of RMB2,000,000 thousand (31 December 2008: RMB3,000,000 thousand) that was pledged for repurchase agreements.


24 Investments in Associates


Associates

Chengdu Gongtou Assets Management Co., Ltd. 279,800 269,065

Shandong Xinkaiyuan Real Estate Co., Ltd. 30,607 30,607

Subtotal 310,407 299,672


Net investment balance 287,346 279,672

The movements in the associates during the year are as follows:

Movements in equity Impairment provision Movement Balance at in other Initial cost of beginning Share of profit comprehensive Charge for Accumulated Balance at endIn RMB’000 investment of the year for the year income the year balance of the year

Chengdu Gongtou Assets Management Co., Ltd. (Note 1) 259,836 249,065 18,336 (7,601 ) – (20,000 ) 259,800

Shandong Xinkaiyuan Real Estate Co., Ltd. (Note 2) 30,607 30,607 – – (3,061 ) (3,061 ) 27,546

Total 290,443 279,672 18,336 (7,601 ) (3,061 ) (23,061 ) 287,346

Notes: 1. At 30 January 2008, the Company obtained 33.2% of the shareholding of Chengdu Gongtou Assets Management Co., Ltd. as repossessed assets.

2. At 18 August 2008, the Company obtained 15.42% of the shareholding of Shandong Xinkaiyuan Real Estate Co., Ltd. as repossessed assets. The Company has appointed a representative at the board of the investee and has significant influence over the investee.

3. As at 31 December 2009, there were no significant restrictions on the ability of associates to transfer funds to the Company. In 2009, the Company received cash dividends of RMB3,320 thousand from Chengdu Gongtou Assets Management Co., Ltd. Such dividends were recorded by the Company as a dividend receivable as at 31 December 2008.

The key financial information of the associates is as follows:

Place of registration Nature of business Registered capital

Chengdu Gongtou Assets Management Co., Ltd. Chengdu Asset management 518,700

Shandong Xinkaiyuan Real Estate Co., Ltd. Jinan Real estate 210,000

31 December 2009 2009

In RMB’000 Total assets Total liabilities Operating income Net profit (Note 1)


Shandong Xinkaiyuan Real Estate Co., Ltd. 369,065 169,238 – (10,176 )

31 December 2008 2008 (Note 2)

In RMB’000 Total assets Total liabilities Operating income Net profit


Shandong Xinkaiyuan Real Estate Co., Ltd. 288,105 78,102 – –

Notes: 1. The amount represents the net profit attributable to the parent company on the face of the consolidated income statement of the associate.

2. The operating income and net profit for 2008 represented the operating income and the net profit attributable to the parent company on the face of the consolidated income statement of the associate for the period from the date the Company acquired the shareholding of the associate up to 31 December 2008.



25 Investment Properties



Purchase during the year 54,306 –

Disposals during the year – (2,058 )

Fair value changes recognised in the income statement 47,858 (15,087 )

Transfer from/(to) owner-occupied properties during the year, net 9,992 (12,263 )


The Company’s investment properties are mainly properties and buildings, which are rented to third parties under operating leases. The investment properties are situated in locations where there are active property markets and the fair value of the investment properties can be reliably determinable on a continuing basis. Accordingly, management decided to adopt the fair value model for subsequent measurement of the investment properties, which are valued by independent professionally qualified valuers on, at least, an annual basis. The revaluation as at 31 December 2009 was performed by Shenzhen Guozi Land and Real Estate Valuation Co., Ltd. In connection with this, the valuation was carried out by qualified persons who are members of the Shenzhen Institute of Real Estate Appraisers. During the year, certain investment properties were transferred from owner-occupied properties mainly because these properties were leased out.

As at 31 December 2009, included in the investment properties was an amount of RMB23,322 thousand (31 December 2008: RMB6,930 thousand) that did not have corresponding registration certificates of property rights.

The gross rental income earned from the investment properties during the year amounted to RMB40,086 thousand (2008: RMB38,982 thousand). The total direct operating expense (including repairs and maintenance expenses) for the investment properties, with or without rental income generated during the year, was RMB2,907 thousand (2008: RMB2,589 thousand).


26 Property and Equipment

2009


At costProperties and buildings 1,538,502 43,921 – (30,125 ) 1,552,298Transportation vehicles 82,794 13,687 – (12,331 ) 84,150Computers 776,036 111,126 172 (54,253 ) 833,081Electronic appliances 393,232 122,396 31,434 (31,173 ) 515,889Owner-occupied property improvements 335,628 14,480 22,393 (1,605 ) 370,896Leasehold improvements 673,109 57,487 102,335 (3,514 ) 829,417Total 3,799,301 363,097 156,334 (133,001 ) 4,185,731

Accumulated depreciationProperties and buildings 455,371 53,386 – (14,294 ) 494,463Transportation vehicles 55,446 7,288 – (11,331 ) 51,403Computers 448,730 86,603 – (18,289 ) 517,044Electronic appliances 223,235 93,005 – (28,749 ) 287,491Owner-occupied property improvements 262,197 23,852 – (886 ) 285,163Leasehold improvements 432,587 78,094 – (1,104 ) 509,577Total 1,877,566 342,228 – (74,653 ) 2,145,141Less: Impairment provision (Note 10) (6,289 ) 6,289 )Net book value 1,915,446 2,034,301

2008


At costProperties and buildings 1,536,206 35,262 – (32,966 ) 1,538,502

Transportation vehicles 95,235 15,612 957 (29,010 ) 82,794

Computers 700,932 194,663 7,132 (126,691 ) 776,036

Electronic appliances 307,632 88,250 16,383 (19,033 ) 393,232

Owner-occupied property improvements 318,845 6,677 10,759 (653 ) 335,628

Leasehold improvements 527,275 76,094 70,788 (1,048 ) 673,109

Total 3,486,125 416,558 106,019 (209,401 ) 3,799,301

Accumulated depreciationProperties and buildings 413,076 51,594 – (9,299 ) 455,371

Transportation vehicles 73,338 7,278 – (25,170 ) 55,446

Computers 471,129 97,726 – (120,125 ) 448,730

Electronic appliances 203,740 36,116 – (16,621 ) 223,235

Owner-occupied property improvements 243,289 19,211 – (303 ) 262,197

Leasehold improvements 371,459 61,179 – (51 ) 432,587

Total 1,776,031 273,104 – (171,569 ) 1,877,566

Less: Impairment provision (Note 10) – (6,289 )

Net book value 1,710,094 1,915,446

As at 31 December 2009, the original cost and net book value of properties and buildings amounting to RMB140,603 thousand (31 December 2008: RMB143,053 thousand) and RMB83,033 thousand (31 December 2008: RMB88,723 thousand) respectively, were in use by the Company without having the registration certificates of property right.



27 Deferred Tax Assets/Liabilities

2009

Recognised Balance at Recognised in in other beginning the income comprehensive Balance at end of the year statement income of the yearIn RMB’000 (Note 11)

Deferred tax assetsImpairment provisions 1,742,460 (250,454 ) – 1,492,006Others 69,356 21,572 – 90,928Subtotal 1,811,816 (228,882 ) – 1,582,934

Deferred tax liabilitiesChanges in fair values

Financial instruments at fair value through profit or loss and derivative financial instruments (46,585 ) 27,905 – (18,680 )Available-for-sale financial assets (251,248 ) – 245,142 (6,106 )Revaluation surplus on owner-occupied properties transferred to investment properties (43,846 ) (16,933 ) (8,960 ) (69,739 )Subtotal (341,679 ) 10,972 236,182 (94,525 )Total 1,470,137 (217,910 ) 236,182 1,488,409

2008

Recognised Balance at Recognised in in other beginning the income comprehensive Balance at end of the year statement income of the yearIn RMB’000 (Note 11)

Deferred tax assetsImpairment provisions 945,647 796,813 – 1,742,460

Changes in fair values of available-for-sale financial assets 12,862 – (12,862 ) –

Others 35,880 33,476 – 69,356

Subtotal 994,389 830,289 (12,862 ) 1,811,816

Deferred tax liabilitiesTax losses deducted against taxable profits of different tax rates (54,135 ) 54,135 – –

Changes in fair values

Financial instruments at fair value through profit or loss and derivative financial instruments (4,365 ) (42,220 ) – (46,585 )

Available-for-sale financial assets (345 ) – (250,903 ) (251,248 )

Revaluation surplus on owner-occupied properties transferred to investment properties (39,699 ) (3,134 ) (1,013 ) (43,846 )

Subtotal (98,544 ) 8,781 (251,916 ) (341,679 )

Total 895,845 839,070 (264,778 ) 1,470,137


28 Other Assets

a Analysed by nature


Interest receivable on bond investments and wealth management products 1,113,585 1,076,175

Interest receivable on loans and amounts due from other financial institutions 709,931 745,409

Long term prepayments 109,439 114,936

Prepayments (Note 28b) 118,255 167,323

Prepaid legal expenses (Note 28c) 68,697 113,948

Repossessed assets (Note 28d) 1,028,124 937,303

Construction in progress (Note 28e) 673,587 257,040

Receivable of bills due from other banks 1,977 54,274

Receivable of deferred consumption payments 141,141 57,017

Others (Note 28f) 156,885 205,648

Total other assets 4,121,621 3,729,073

Less: Impairment provisions

Prepaid legal expenses (Note 28c) (61,636 ) (82,275 )

Repossessed assets (Note 28d) (360,961 ) (319,480 )

Others (Note 28f) (92,772 ) (130,362 )

Total impairment provisions (515,369 ) (532,117 )

Other assets, net 3,606,252 3,196,956

b Aging analysis of prepayments


In RMB’000 Amount % Amount %

Less than 1 year 77,536 65.57 130,549 78.02

1 to 2 years 15,768 13.33 9,221 5.51

2 to 3 years 6,178 5.22 4,510 2.70

Over 3 years 18,773 15.88 23,043 13.77

Total 118,255 100 167,323 100

As at 31 December 2009 and 31 December 2008, the Company has not made any provision for prepayments.

c Prepaid legal expenses





Collective assessmentAging less than 1 year 2,865 4.17 (956 ) 33.37 5,462 4.79 (3,733 ) 68.34



Aging over 3 years 1,449 2.11 (1,449 ) 100.00 13,404 11.76 (9,597 ) 71.60

Subtotal 5,626 8.19 (3,481 ) 61.87 24,877 21.83 (17,417 ) 70.01

Total 68,697 100 (61,636 ) 89.72 113,948 100 (82,275 ) 72.20



28 Other Assets (Continued)

d Repossessed assets


Land, properties and buildings 976,451 915,282

Others 51,673 22,021

Total 1,028,124 937,303

Less: Provision for decline in value (Note 10) (360,961 ) (319,480 )

Repossessed assets, net 667,163 617,823

During the year, the Company took possession of collateral held as security with a carrying amount of RMB404,393 thousand (2008: RMB52,152 thousand). The collateral mainly comprises buildings. During the year, the Company disposed of repossessed assets with their gross carrying value amounting to RMB313,572 thousand (2008: RMB120,167 thousand). The Company plans to dispose of the repossessed assets through auctions, bidding or transfers in future.

e Construction in progress



Additions 592,473 367,942

Transfer to property and equipment (156,334 ) (106,019 )

Transfer to intangible assets (19,592 ) (15,692 )


Movements in key projects of construction in progress during the year are as follows:

Balance at Balance at Percentage Budget beginning of end of of budget Progress of FundingProject name amount the year Additions the year incurred (%) project (%) sources

Property development project for Information Technology Building of SDB 217,095 – 176,788 176,788 81 90 Internal

Bank premises of Tianjin Branch 268,548 – 197,504 197,504 74 10 Internal

Bank premises of Nanjing Branch (Hetai Building) 253,444 215,444 18,354 233,798 92 92 Internal

f Others





Collective assessmentAging less than 1 year 11,030 7.03 (114 ) 1.03 10,782 5.24 (269 ) 2.49

Aging between 1 and 2 years – – – – 81 0.04 (70 ) 86.42

Aging between 2 and 3 years 7 0.00 (7 ) 100.00 38 0.02 (38 ) 100.00

Aging over 3 years 72 0.05 (40 ) 55.56 355 0.17 (353 ) 99.44

Subtotal 11,109 7.08 (161 ) 1.45 11,256 5.47 (730 ) 6.49

Total 156,885 100 (92,772 ) 59.13 205,648 100 (130,362 ) 63.39


29 Placements of Deposits from other Financial Institutions


Domestic banks 53,708,335 22,881,311

Domestic non-bank financial institutions 20,431,338 13,181,721

Total 74,139,673 36,063,032

30 Funds Borrowed from other Financial Institutions


Domestic banks 7,570,118 7,380,000

31 Repurchase Agreements


Analysed by collateralSecurities 8,448,000 10,360,000

Bills 5,285,384 28,556,115

Total 13,733,384 38,916,115

Analysed by counterpartyBanks 13,733,384 38,916,115

32 Customer Deposits


Current depositsCorporate customers 116,998,653 86,279,463


Sub-total 144,242,627 105,513,705

Fixed depositsCorporate customers 125,519,956 100,842,409


Sub-total 168,695,652 139,679,311

Guarantee deposits 121,671,280 104,393,453

Fiscal deposits 9,936,132 6,772,448

Time deposits from the PBOC 8,320,000 3,000,000

Inward and outward remittances 1,769,517 1,155,119

Total 454,635,208 360,514,036



33 Employee Benefits Payable

2009


Salaries, bonuses, allowances and subsidies 1,000,417 2,507,090 (2,088,164 ) 1,419,343 including: Deferred bonus accrual (Note 1) 108,200 91,334 (39,932 ) 159,602Social insurance, supplementary pension contributions and staff welfare 247,003 641,287 (625,905 ) 262,385Housing funds – 121,418 (121,418 ) –Labour union and training expenses – 73,380 (73,380 ) –Others – 4,768 (4,768 ) –Total 1,247,420 3,347,943 (2,913,635 ) 1,681,728

2008


Salaries, bonuses, allowances and subsidies 706,104 2,034,524 (1,740,211 ) 1,000,417

including: Deferred bonus accrual (Note 1) 42,800 65,400 – 108,200

Social insurance, supplementary pension contributions and staff welfare 219,307 494,408 (466,712 ) 247,003

Housing funds – 89,934 (89,934 ) –

Labour union and training expenses – 56,875 (56,875 ) –

Others – 9,362 (9,362 ) –

Total 925,411 2,685,103 (2,363,094 ) 1,247,420

Notes: 1. The amount of deferred bonus is determined based on the indicators of profitability and the share price of the Company as well as the share prices of certain other domestic listed banks; and will be settled in cash in accordance with the terms of the arrangement.

2. As at 31 December 2009, included in the outstanding balances of employee benefits payable was an approximate amount of RMB1.4 billion that is expected to be settled in 12 months.

34 Bonds Payable


Subordinated bonds (Note 1) 7,972,653 7,964,282

Hybrid capital debt instrument (Note 2) 1,490,061 –

Total 9,462,714 7,964,282

As at 31 December 2009 and 31 December 2008, the Company did not have any defaults of principal, interest or other breaches with respect to the subordinated bonds and the hybrid capital debt instrument.

Notes: 1. As approved by the PBOC and CBRC, the Company issued three sets of subordinated bonds with a total amount of RMB8 billion in the inter-bank bond market on 21 March 2008 and 28 October 2008. These subordinated bonds comprise two sets of fixed-rate bonds with nominal values of RMB6 billion and RMB1.5 billion respectively; and one set of floating-rate bonds with a nominal value of RMB0.5 billion. The term of the bonds is of 10 years with a call option at the end of the fifth year. The coupon rates for the first five years are 6.10% and 5.30% for the two sets of fixed-rate bonds; and SHIBOR3M+1.40% for the floating-rate bonds. If the Company does not exercise the call option at the end of the fifth year, both the fixed and floating coupon rates will increase by 3%.

2. As approved by the PBOC and CBRC, the Company issued a fixed-rate hybrid capital debt instrument amounting to RMB1.5 billion in the inter-bank market on 26 May 2009. The debt instrument has 15 years to maturity. The Company has the option to redeem the debt instrument at face value on 26 May 2019. The coupon rate for the first ten years is 5.70%. If the Company does not exercise this option, the coupon rate will increase by 3% thereafter.

35 Provisions



Charge/(reversal) for the year (3,508 ) 29,712

Amounts paid or released (18,943 ) (81,350 )



36 Other Liabilities


Interest payable 2,682,162 2,963,224

Bank drafts 189,471 195,295

Financial guarantee contracts 54,692 53,324

Tax payable – other than income tax 357,505 509,037

Amounts pending for settlement and clearing 88,739 57,917

Amounts payable for bond redemption as intermediaries 29,994 29,456

Inactive deposit account balances 39,457 44,414

Accrued expenses 129,483 108,002

Amounts payable for acquisition of bonds 794,952 –

Dividends payable (Note) 11,260 14,172

Subscription monies of open-ended funds – 16,798

Advanced receipts of proceeds from disposal of repossessed assets 89,795 18,448

Others 386,002 282,610

Total 4,853,512 4,292,697

Note: The above-mentioned balance of dividends payable has been outstanding for more than one year as the related shareholders have not collected the dividends.

37 Share Capital

As at 31 December 2009, the number of the Company’s ordinary shares issued and fully paid was 3,105,434 thousand, with RMB1 Yuan each. The nature and the structure of the share capital are as follows:

31 December Movement for 31 DecemberIn RMB’000 2008 % the year 2009 %

Restricted tradable sharesDomestic non-state-owned corporation shares 3,855 0.13 (3,799 ) 56 0.00

Domestic individual shares 78 0.00 (70 ) 8 0.00

Foreign corporation shares 316,895 10.20 (135,639 ) 181,256 5.84

Total restricted tradable shares 320,828 10.33 (139,508 ) 181,320 5.84

Unrestricted tradable sharesRMB ordinary shares 2,784,606 89.67 139,508 2,924,114 94.16

Total shares 3,105,434 100.00 – 3,105,434 100.00

In accordance with the Measures for the Administration of the Share-trading Reform of Listed Companies, the original non-tradable shareholders of the Company promised not to conduct any transfer or trading of the non-tradable shares held within 12 months since the day when the trading right is acquired. After the expiration of the above commitment term, the former non-tradable shares trading through the stock exchange shall not be over 5% of the total shares of the Company within 12 months, and not over 10% within 24 months.

There were changes in the structure of the share capital during the year because some of the restricted tradable shares became unrestricted upon the expiry of the respective lock-up periods.

The Company signed a share placement agreement with Ping An Life Insurance Company of China, Ltd. (“Ping An Life”) on 12 June 2009. Such agreement has been approved by the Board of Directors and the shareholders’ meeting of the Company on 12 June 2009 and 29 June 2009, respectively. In accordance with the agreement, the Company would issue no less than 370 million but not more than 585 million shares to Ping An Life who would subscribe these new shares. The shares would be issued at a price of RMB18.26 Yuan per share, an average of the Company’s share prices in the past 20 trading days before the announcement date of the resolution of the Company’s Board of Directors relating to the approval of the share placement. The above agreement is still subject to the approval from the relevant regulars and the final arrangement of the share placement would be based on the terms approved by the regulators.



38 Reserves


Statutory surplus reserve 1,283,957 780,885

General reserve 4,676,276 3,583,296

Accumulated share of the other comprehensive income of associates (17,727 ) (10,126 )

Cumulative changes in fair value of available-for-sale financial assets 20,499 1,002,795


Total 6,004,795 5,370,653

In accordance with the Company Law, the Company is required to appropriate 10% of its profit after tax to its statutory surplus reserve until the reserve balance reaches 50% of its registered capital. Subject to the approval of the shareholders, the statutory surplus reserve may be used to offset accumulated losses, if any, and may also be converted into capital, provided that the balance of the statutory surplus reserve after such capitalisation is not less than 25% of the registered capital. The Company may also appropriate its profit after tax to the discretionary surplus reserve upon approval of the shareholders in general meetings.

As at 31 December 2008 and 31 December 2009, the amount of the surplus reserve represented the statutory surplus reserve.

Pursuant to the relevant regulations issued by the MOF, the Company is required to maintain a general reserve within equity, through the appropriation of net profit, which should not be less than 1% of the year end balance of its risk assets.

39 Unappropriated Profit

Pursuant to a board resolution on 20 August 2008, an appropriation of RMB214,384 thousand based 10% of net profit as reported in the Company’s statutory financial statements for the first half of 2008 was made to the statutory surplus reserve; an appropriation of RMB608,624 thousand was made to the general reserve; and dividends of three shares and RMB0.335 Yuan for every 10 shares were appropriated from the unappropriated profit, amounting to RMB796,663 thousand in total. The above appropriations were approved at the shareholders’ meeting of the Company held on 15 October 2008.

Pursuant to a board resolution on 19 March 2009, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2008, the Company reversed the statutory surplus reserve amounting to RMB152,980 thousand in the second half of the year considering the respective appropriation in the first half of 2008, with the result that an appropriation of RMB61,404 thousand was made to the statutory surplus reserve for 2008 based on 10% of the profit for the year; and an appropriation of RMB258,968 thousand was made to the general reserve for the second half of 2008. The above proposed appropriations were approved at the shareholders’ meeting of the Company held on 18 May 2009.

Pursuant to a board resolution on 11 March 2010, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2009, the Company appropriated RMB503,072 thousand to the statutory surplus reserve based on 10% of the net profit and RMB1,092,980 thousand to the general reserve for the year of 2009. The above proposed appropriations are pending approval from shareholders at the forthcoming annual general meeting.


40 Note to the Cash Flow Statement

In RMB’000 2009 2008


Adjustments to reconcile profit before tax to cash flows arising from operating activities

Non-cash items included in profit before tax and other adjustmentsDepreciation of property and equipment 342,228 273,104

Impairment provision on loans 1,440,552 6,972,839

Interest income accrued on impaired financial assets (109,510 ) (384,238 )

Impairment provisions on other assets 134,536 361,323

Increase/(decrease) in provisions (3,508 ) 29,712

Amortisation of long term prepayments 13,638 16,929


Net unrealised gain of financial assets/liabilities at fair value through profit or loss 49,190 (80,887 )

Net gain on disposal of property and equipment (289 ) (261 )

Interest income on debt investments (2,601,525 ) (2,330,843 )

Dividend income from investment securities (1,905 ) (4,554 )

Net gain on disposal of investment securities (472,060 ) (336,200 )

Net loss on disposal of investment properties – 419

Changes in fair value of investment properties (47,858 ) 15,087

Interest expense on bonds 520,356 325,488

Share of profits of associates (18,336 ) (22,675 )

Net decrease/(increase) in operating assetsDeposit reserves with the Central Bank (9,468,942 ) (413,525 )

Placements of deposits with other financial institutions 5,906,295 (14,369,457 )

Funds loaned to other financial institutions 1,263,609 (2,090,056 )

Reverse repurchase agreements 1,584,997 (648,650 )

Financial assets at fair value through profit or loss (98,772 ) 1,420,953

Loans and advances (76,230,806 ) (73,638,472 )

Long term prepayments (8,271 ) (11,568 )

Other assets (2,458,522 ) (767,168 )

Net increase/(decrease) in operating liabilitiesPlacements of deposits from other financial institutions 38,076,641 3,674,270

Interbank borrowings 190,118 5,080,000

Repurchase agreements (25,182,731 ) 22,448,533

Financial liabilities at fair value through profit or loss (103,764 ) (1,306,628 )

Customer deposits 93,506,775 79,216,880

Inward and outward remittances 614,398 20,175

Other liabilities 466,434 1,227,209

Cash flows from operating activities 33,529,537 25,491,200



41 Commitments and Contingent Liabilities

a. Capital commitments

At the reporting date, the Company had capital commitments as follows:


Authorised, but not contracted for 62,464 –

Contracted, but not provided for 75,081 144,000

Total 137,545 144,000

b. Operating Lease commitments

Operating lease commitments – Company as lesseeThe Company has entered into commercial leases on premises and equipment. At the reporting date, the total future minimum lease payments under non-cancellable operating leases were as follows:



In the second to fifth years, inclusive 1,180,074 1,021,447

More than five years 617,839 543,875

Total 2,241,157 1,935,956

Operating lease commitments – Company as lessorThe Company has entered into commercial property leases on its investment portfolio. All investment properties are leased out under operating leases. Future minimum rentals receivable under non-cancellable operating leases at the reporting date were as follows:



In the second to fifth years, inclusive 39,883 45,254

More than five years 2,424 252

Total 79,819 79,392

c. Credit commitments


Financial guarantee contractsBank acceptances 196,808,019 164,888,094

Guarantees issued 2,306,093 1,884,883

Letters of credit issued 2,391,676 1,826,290

Loan guarantee contracts – 177,698

Subtotal 201,505,788 168,776,965

Unused limit of credit cards 8,447,565 15,343,716

Total 209,953,353 184,120,681

Credit risk weighted amounts of credit commitments 69,039,949 59,080,564

Financial guarantee contracts commit the Company to make payments on behalf of customers upon the failure of the customers to perform the terms of the contracts.

Commitments to extend credit represent contractual commitments to make loans to customers. Commitments generally have fixed expiry dates. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.


41 Commitments and Contingent Liabilities (Continued)

d. Fiduciary transactions


Entrusted deposits 9,028,475 10,867,862

Entrusted loans 9,028,475 10,867,862

Entrusted funding 3,319,686 3,427,869

Entrusted investments 3,319,686 3,427,869

Entrusted deposits represent funds that depositors have instructed the Company to use to make loans to third parties as designated by them. The credit risk remains with the depositors.

Entrusted funding and entrusted investments represent the investment and asset management services provided by the Company for third parties in accordance with the agreed investment plans. The third parties provide funding for the related investments. Income from such investment activities is collected on behalf of and paid to the third parties according to the relevant contractual terms.

e. Contingent liabilities

(1) Legal proceedingsAs at 31 December 2009, the total claimed amount of the litigation cases of which the Company is the defendant was RMB175 million (31 December 2008: RMB179 million). These litigation cases are under legal proceedings. In the opinion of management, the Company has made adequate allowance for any probable losses based on the prevailing facts and circumstances.

Apart from the above pending litigation cases, the respective liquidators of DeHeng Securities Co., Ltd. and the China Southern Securities Co., Ltd. had requested the Company to repay a total amount of RMB430 million. The Company had opposed all such repayment requests. At year end, based on the legal opinion from an independent third-party lawyer, the Company had no immediate obligation to repay the monies.

(2) Redemption commitments of voucher-type government bonds and savings bonds (electronic)As an underwriting agent of the MOF, the Company underwrites PRC voucher-type government bonds and savings bonds (electronic) and sells the bonds to the general public. The Company is obliged to redeem the bonds at the discretion of the holders at any time prior to maturity. The redemption price for the bonds is based on the nominal value of the bonds plus any interest accrued up to the redemption date. As at 31 December 2009, the Company has sold voucher-type government bonds and savings bonds (electronic) with accumulated amounts of RMB2,911,597 thousand (31 December 2008: RMB3,100,574 thousand) and RMB99,648 thousand (31 December 2008: nil) respectively, to the general public that the Company has the obligation of early redemption.

The MOF will not provide funding for the early redemption of these government bonds on a back-to-back basis but is obliged to repay the principal and the respective interest upon maturity.

As at 31 December 2009, there is no unexpired underwriting commitment of the government bonds (31 December 2008: RMB2,354,426 thousand).

42 Capital Management

The primary objectives of the Company’s capital management are to ensure that the Company complies with regulatory capital requirements, to maximise shareholders’ value and to support the continuous growth in business. The Company regularly reviews its capital structure and makes adjustments to it through asset and liability management, so as to maintain the overall balance of the capital structure and maximisation of capital return. The required information of capital adequacy is filed with the CBRC by the Company on a quarterly basis.

The CBRC requires banks that are established in Mainland China to maintain the capital adequacy ratio and core capital ratio not below the minimum of 8% and 4%, respectively. The risk-weighted assets are measured according to the nature of individual assets and counterparty, reflecting an estimate of related credit, market and other risks after taking into account of any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposures, with adjustments made to reflect the contingent nature of any potential losses.

The Company calculated and reported the core capital adequacy ratio and capital adequacy ratio in accordance with the “Regulation Governing Capital Adequacy Ratio of Commercial Banks” promulgated by the CBRC and other related regulations.



42 Capital Management (Continued)

The core capital includes share capital, capital reserve, surplus reserve, general reserve and unappropriated profit. The supplementary capital includes revaluation surplus, long term subordinated bonds, hybrid capital debt instrument and other supplementary capital.


Net core capital 19,854,282 14,710,153

Supplementary capital 12,372,093 9,577,523

Net capital 31,905,240 23,959,430

Risk-weighted assets and market risk capital adjustment 359,508,049 279,112,744

Core capital adequacy ratio 5.5% 5.3%

Capital adequacy ratio 8.9% 8.6%

43 Maturity Analysis of Assets and Liabilities

A maturity analysis of the assets and liabilities of the Company as at 31 December 2009 was as follows:

31 December 2009


ASSETSCash on hand and due from the Central Bank 15,133,680 – – – – – 39,110,272 54,243,952Precious metals 3,302 – – – – – – 3,302Amounts due from other financial institutions (Note 1) 2,377,139 40,295,852 11,677,293 7,240,255 286,532 – – 61,877,071Financial assets at fair value through profit or loss and derivative financial assets – 7,637 11,205 49,100 794,011 370,091 – 1,232,044Accounts receivable – 725,992 1,654,232 2,401,937 – – – 4,782,161Loans and advances 1,304,424 12,592,417 65,908,873 136,032,782 77,603,938 62,120,111 – 355,562,545Available-for-sale financial assets – 350,221 9,188,618 7,368,260 13,863,505 5,985,089 181,605 36,937,298Held-to-maturity investments – 68,267 61,552 1,049,169 22,153,872 11,221,234 – 34,554,094Receivables – 135,000 4,902,100 23,890,000 1,500,000 – – 30,427,100Investments in associates – – – – – – 287,346 287,346Property and equipment – – – – – – 2,034,301 2,034,301Others 51,141 147,056 539,713 982,325 1,795,474 105,032 2,249,079 5,869,820Total assets 18,869,686 54,322,442 93,943,586 179,013,828 117,997,332 79,801,557 43,862,603 587,811,034

LIABILITIESAmounts due to other financial institutions (Note 2) 25,363,893 45,678,632 21,699,520 2,701,130 – – – 95,443,175Derivative financial liabilities – 2,797 1,917 13,910 2,916 – – 21,540Accounts payable – 128,765 202,851 519,265 – – – 850,881Customer deposits 206,237,520 59,737,139 65,560,566 88,261,790 34,338,193 500,000 – 454,635,208Bonds payable – – – – 7,967,482 1,495,232 – 9,462,714Others 821,277 2,035,632 2,014,217 1,059,949 888,314 107,618 900 6,927,907Total liabilities 232,422,690 107,582,965 89,479,071 92,556,044 43,196,905 2,102,850 900 567,341,425Liquidity net value (213,553,004 ) (53,260,523 ) 4,464,515 86,457,784 74,800,427 77,698,707 43,861,703 20,469,609




43 Maturity Analysis of Assets and Liabilities (Continued)

A maturity analysis of the assets and liabilities of the Company as at 31 December 2008 was as follows:

31 December 2008


ASSETSCash on hand and due from the Central Bank 10,126,571 – – – – – 29,641,330 39,767,901

Precious metals 9,225 – – – – – – 9,225

Amounts due from other financial institutions (Note 1) 3,519,315 23,226,652 16,048,497 22,676,374 – – – 65,470,838

Financial assets at fair value through profit or loss and derivative financial assets – 28,202 68,279 147,433 88,278 – – 332,192

Accounts receivable – 277,498 779,875 170,873 131,346 – – 1,359,592

Loans and advances 1,100,587 18,084,808 42,767,591 137,094,540 41,978,384 40,688,777 – 281,714,687

Available-for-sale financial assets – 1,219,607 458,485 19,866,795 18,354,295 8,692,528 205,376 48,797,086

Held-to-maturity investments – – 71,510 1,879,307 11,641,589 1,916,749 – 15,509,155

Receivables – – – – 13,750,000 – – 13,750,000

Investments in associates – – – – – – 279,672 279,672

Property and equipment – – – – – – 1,915,446 1,915,446

Others 81,765 797,038 237,479 795,307 1,932,804 7,257 1,682,729 5,534,379

Total assets 14,837,463 43,633,805 60,431,716 182,630,629 87,876,696 51,305,311 33,724,553 474,440,173

LIABILITIESAmounts due to other financial institutions (Note 2) 12,277,306 46,961,045 19,773,124 3,347,672 – – – 82,359,147

Financial liabilities at fair value through profit or loss and derivative financial liabilities – 4,873 13,760 74,541 4,844 – – 98,018



Bonds payable – – – – 7,964,282 – – 7,964,282

Others 652,830 1,773,034 1,869,207 1,295,128 949,281 56,937 – 6,596,417

Total liabilities 161,764,638 92,975,336 70,371,547 90,902,450 41,968,473 56,939 – 458,039,383

Liquidity net value (146,927,175 ) (49,341,531 ) (9,939,831 ) 91,728,179 45,908,223 51,248,372 33,724,553 16,400,790





44 Risk Disclosure

a. Credit riskCredit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. The Company’s credit risk mainly arises from the loans and advances to customers, financial guarantees and loan commitments.

The Company has established a Credit Portfolio Management Committee, which approves and determines the Company’s credit risk management strategies, credit risk preferences as well as its various credit risk management policies and standards. The Company has also formulated guidelines on corporate and retail credit policies across the Company and for specific industries. Furthermore, the Company has implemented a strategic customer categorisation management system, and set up a customer entry and exit mechanism to facilitate the sustainable development of its credit underwriting business.

The Company implements a credit risk officer system, in which the Chief Credit Officer at the Head Office appoints credit officers to various business lines and branches. The credit officers directly report to the Chief Credit Officer, who is responsible for evaluating the performance of the credit officers and establishing an independent and transparent vertical credit risk management system.

The Company has formulated a complete set of operational procedures for credit approval and management. These procedures are being enforced across the Company. Credit management procedures for its corporate and retail loans comprise the processes of credit origination, credit review, credit approval, disbursement, post-disbursement monitoring and collection. In addition, the Company has formulated the “Policies of Credit Underwriting”, which have defined the functions and responsibilities of different credit operational processes, and have enhanced the monitoring of the related compliance for improving the overall effective control of credit risk.

The Company has strengthened its early warning monitoring system for the credit business with measures applicable to the portfolio level and to individual customers, resulting in early detection and effective management of credit risks.

The Company sub-divides credit asset risks into 10 categories based on the five-tier loan classification system promulgated by the CBRC, namely, Pass One, Pass Two, Pass Three, Pass Four, Pass Five, Special Mention One, Special Mention Two, Substandard, Doubtful and Loss. Furthermore, a separate “Write-off” category has been added to the classification system. The Company applies different management policies to the loans in accordance with their respective loan categories.

Risks arising from financial guarantees and loan commitments are similar to those associated with loans and advances. Transactions of financial guarantees and loan commitments are, therefore, subject to the same portfolio management and the same requirements for application and collateral as loans and advances to customers.

Maximum exposure to credit risk without taking account of any collateral and other credit enhancements


Due from the Central Bank 53,464,783 38,786,042



Financial assets at fair value through profit or loss 1,132,048 41,441

Derivative financial assets 99,996 290,751



Available-for-sale financial assets (excluding equity investments) 36,755,693 48,591,709

Held-to-maturity investments 34,554,094 15,509,155

Receivables 30,427,100 13,750,000

Other assets 6,819,969 3,566,749

Total 580,693,299 467,721,372

Credit commitments 209,953,353 184,120,681

Maximum exposure to credit risk 790,646,652 651,842,053


44 Risk Disclosure (Continued)

a. Credit risk (Continued)

Risk concentration of the maximum exposure to credit riskCredit risk is often greater when counterparties are concentrated in a single industry or geographic location or have comparable economic characteristics.

The majority of the loans and financial guarantee contracts of the Company are related to the local customers within Mainland China. However, different areas in Mainland China have their own unique characteristics in terms of economic development. Therefore, each area in Mainland China could present different credit risks.

Please refer to Note 20 for an analysis of concentration of loans and advances by industry and geographical region.

Collateral and other credit enhancementsThe amount and type of collateral required are determined by the Company based on its assessment of the credit risk of the counterparty. The Company has implemented guidelines regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

• Forreverserepurchasetransactions,mainlybills,loansorsecurities• Forcommerciallending,mainlychargesoverrealestateproperties,inventories,sharesortradereceivables• Forretaillending,mainlymortgagesoverresidentialproperties

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the provision for impairment losses.

Credit qualityThe credit quality by class of financial assets (gross amount before deducting any impairment provision) of the Company is analysed as follows:

31 December 2009


Placements of deposits with other financial institutions 15,591,711 – 41,520 15,633,231Funds loaned to other financial institutions 5,357,725 – 33,393 5,391,118Financial assets at fair value through profit or loss 1,132,048 – – 1,132,048Reverse repurchase agreements 40,908,396 – 50,000 40,958,396Accounts receivable 4,782,161 – – 4,782,161Loans and advances 355,276,052 1,764,663 2,476,698 359,517,413Available-for-sale financial assets (excluding equity investments) 36,755,693 – – 36,755,693Held-to-maturity investments 34,554,094 – – 34,554,094Receivables 30,427,100 – – 30,427,100Total 524,784,980 1,764,663 2,601,611 529,151,254

31 December 2008


Placements of deposits with other financial institutions 21,496,984 – 44,520 21,541,504

Funds loaned to other financial institutions 9,232,183 – 33,572 9,265,755

Financial assets at fair value through profit or loss 41,441 – – 41,441

Reverse repurchase agreements 34,712,353 – 50,000 34,762,353

Accounts receivable 1,359,592 – – 1,359,592

Loans and advances 278,084,078 3,601,124 2,056,164 283,741,366

Available-for-sale financial assets (excluding equity investments) 48,591,709 – – 48,591,709

Held-to-maturity investments 15,509,155 – – 15,509,155

Receivables 13,750,000 – – 13,750,000

Total 422,777,495 3,601,124 2,184,256 428,562,875

Note: Impaired corporate loans comprise loans and advances graded at the last three tiers (i.e., "Substandard", "Doubtful" or "Loss") under the five-tier loan classification system maintained by the Company. Impaired personal loans comprise "Pass" or "Special Mention" loans overdue more than 90 days as well as loans graded at the last three tiers. As at 31 December 2009, impaired loans and advances comprise overdue loans of RMB2,359,402 thousand (31 December 2008: RMB1,886,611 thousand) and non-overdue loans of RMB117,296 thousand (31 December 2008: RMB169,553 thousand).




a. Credit risk (Continued)

Credit quality (Continued)

Neither past due nor impaired loans and advancesAt the reporting date, the aggregate amounts of neither past due nor impaired loans and advances to customers are “Pass” and “Special Mention” loans graded in accordance with the five-tier classification.


Pass 354,198,769 275,466,761

Special mention 1,077,283 2,617,317

Total 355,276,052 278,084,078

Past due but not impaired loans and advancesAt the reporting date, an aging analysis of the past due but not yet impaired loans and advances was as follows:

31 December 2009

Within 1 1 to 2 2 to 3 More than Fair value ofIn RMB’000 month months months 3 months Total collateral

Corporate loans and advances 78,070 18,325 5,000 129,928 231,323 169,402Personal loans 1,286,773 188,524 58,043 – 1,533,340 3,271,790Total 1,364,843 206,849 63,043 129,928 1,764,663 3,441,192

31 December 2008

Within 1 1 to 2 2 to 3 More than Fair value ofIn RMB’000 month months months 3 months Total collateral

Corporate loans and advances 475,139 112,009 56,624 268,810 912,582 231,650

Personal loans 2,305,914 247,719 134,909 – 2,688,542 4,528,426

Total 2,781,053 359,728 191,533 268,810 3,601,124 4,760,076

Impaired loans and advancesImpaired loans and advances are defined as those loans and advances having objective evidence of impairment as a result of one or more events that occur after initial recognition, resulting in an impact on the estimated future cash flows of loans and advances that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

The fair value of the collateral that the Company holds relating to corporate loans and advances individually determined to be impaired at 31 December 2009 amounted to RMB841 million (31 December 2008: RMB859 million).

Impaired amounts due from other financial institutionsImpaired amounts due from other financial institutions are all determined based on individual assessments. In determining whether an item is impaired, the Company considers the evidence of loss event and the decreases in estimated future cash flows. No collateral was held by the Company as security of the impaired amounts due from other financial institutions.

The carrying amount of loans and advances that would otherwise be past due or impaired and whose terms have been renegotiated is as follows:


Loans and advances to customers 282,172 215,638

b. Liquidity riskLiquidity risk is the risk that the Company will be unable to meet its payment obligations when they fall due. The risk is attributable to any mismatch in amounts and terms between assets and liabilities. To limit the risk, management has arranged diversified funding sources, and monitors loans and deposit balances on a daily basis. The Company also maintains a portfolio of highly marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flows. Furthermore, the Company performs stress testing regularly to assess and identify the actions that can meet the payment obligations under different critical scenarios.



b. Liquidity risk (Continued)

At the reporting date, the remaining contractual maturity analysis of the Company’s financial liabilities (based on contractual undiscounted cash flows) was as follows:

31 December 2009


Amounts due to other financial institutions (Note 1) 25,372,481 45,824,394 21,827,086 2,743,611 – – – 95,767,572Derivative financial instruments

Contractual amounts payable – 2,410,381 1,476,607 3,003,302 338,351 – – 7,228,641 Contractual amounts receivable – (2,407,585 ) (1,474,807 ) (2,989,392 ) (335,435 ) – – (7,207,219 )Accounts payable – 128,765 202,851 529,318 – – – 860,934Customer deposits 206,325,253 60,122,412 66,345,753 90,308,325 37,560,031 501,682 – 461,163,456Bonds payable – – 370,025 177,075 9,714,725 1,927,500 – 12,189,325Other financial liabilities 1,582,642 1,310 1,366,277 215,762 176,936 51,706 – 3,394,633Subtotal 233,280,376 106,079,677 90,113,792 93,988,001 47,454,608 2,480,888 – 573,397,342Credit commitments 9,232,655 39,599,210 76,524,196 83,888,728 708,564 – – 209,953,353Total 242,513,031 145,678,887 166,637,988 177,876,729 48,163,172 2,480,888 – 783,350,695

31 December 2008


Amounts due to other financial institutions (Note 1) 12,283,928 47,033,925 19,854,362 3,394,422 – – – 82,566,637

Financial liabilities at fair value through profit or loss and derivative financial liabilities – 483 – 39,325 – – – 39,808

Derivative financial instruments

Contractual amounts payable – 2,500,170 1,107,226 484,693 4,844 – – 4,096,933

Contractual amounts receivable – (2,495,298 ) (1,093,466 ) (449,571 ) – – – (4,038,335 )



Bonds payable – – 370,537 93,363 9,843,008 – – 10,306,908

Other financial liabilities 620,318 60 947,503 176,041 176,381 56,937 – 1,977,240

Subtotal 138,839,950 95,976,555 82,098,859 100,327,698 47,143,573 56,939 – 464,443,574

Credit commitments 16,766,967 30,099,458 63,373,841 73,454,735 425,680 – – 184,120,681

Total 155,606,917 126,076,013 145,472,700 173,782,433 47,569,253 56,939 – 648,564,255

Note: 1. Amounts due to other financial institutions included financial liabilities of placements of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.

c. Market riskMarket risk is the risk of loss, in respect of the Company’s on or off-balance sheet activities, arising from adverse movements in market rates including foreign exchange rates, interest rate, commodity prices and stock prices. Market risk arises from both the Company’s trading and non-trading businesses. The aim of market risk management of the Company is to mitigate undue losses of income and equity, and simultaneously, to reduce the Company’s exposure to the volatility inherent in financial instruments. The Company considers the market risk arising from commodity or stock prices in respect of its investment portfolio is immaterial.

The Company’s Risk Management Committee and the Asset and Liability Management Committee are responsible for setting up market risk management policies, establishing market risk management objectives and determining market risk limits. The Asset and Liability Management Committee is responsible for controlling the volume, structure, interest rate and liquidity of the Company’s business. The Company’s Financial Information and Asset and Liability Management Department discharges the daily market risk monitoring function on behalf of the Asset and Liability Management Committee, including the determination of reasonable levels of market risk exposures, monitoring the daily treasury operation and proposing adjustments to the maturity profile of the assets and liabilities and the interest rate structure.

Gap analysis is the key method used by the Company to monitor the market risk of its non-trading business activities. This method measures the impact of interest rate changes on income, with interest-earning assets and interest-bearing liabilities grouped by their respective re-pricing bands for the calculation of the re-pricing gap. By multiplying this position with an assumed interest rate change, an approximate effect on the net interest income resulting from the assumed interest rate change is quantified.




c. Market risk (Continued)

Financial derivative transactions entered into by the Company primarily provide effective economic hedges to other financial instruments held by the Company for the mitigation of interest and exchange rate risks. In the opinion of management, as the market risk of the Company’s trading business activities is not material, the Company has not separately disclosed quantitative information about exposure to market risk arising from the trading portfolio.

Currency riskThe Company's foreign exchange risk exposure mainly comprises exposures from the mismatch of foreign currency assets and liabilities, and off-balance sheet foreign exchange position arisen from derivative transactions. The currency risk of the Company mainly arises from loans and advances, investments and deposits denominated in foreign currencies. The Company has set limits on positions by currency. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits.


31 Decemer 2009


ASSETSCash on hand and due from the Central Bank 53,685,187 386,339 160,973 11,453 54,243,952Precious metals 3,302 – – – 3,302Amounts due from other financial institutions (Note 1) 51,899,736 8,151,882 672,300 1,153,153 61,877,071Financial assets at fair value through profit or loss and derivative financial assets 1,232,044 – – – 1,232,044Accounts receivable 1,610,175 3,040,441 – 131,545 4,782,161Loans and advances 347,652,764 6,709,044 1,160,499 40,238 355,562,545Available-for-sale financial assets 36,695,088 242,210 – – 36,937,298Held-to-maturity investments 33,465,977 1,039,253 – 48,864 34,554,094Receivables 30,427,100 – – – 30,427,100Investments in associates 287,346 – – – 287,346Property and equipment 2,034,301 – – – 2,034,301Others 5,753,472 103,492 11,265 1,591 5,869,820Total assets 564,746,492 19,672,661 2,005,037 1,386,844 587,811,034

LIABILITIESAmounts due to other financial institutions (Note 2) 92,493,139 2,885,061 64,975 – 95,443,175Derivative financial liabilities 21,540 – – – 21,540Accounts payable 459,563 391,318 – – 850,881Customer deposits 437,260,727 13,782,860 2,232,455 1,359,166 454,635,208Bonds payable 9,462,714 – – – 9,462,714Others 6,850,999 72,184 4,073 651 6,927,907Total liabilities 546,548,682 17,131,423 2,301,503 1,359,817 567,341,425Net position of foreign currency (Note 3) Not applicable 2,541,238 (296,466 ) 27,027 Not applicableNotional amount of foreign exchange derivative financial instruments Not applicable (1,598,058 ) 380,281 (11,929 ) Not applicableTotal Not applicable 943,180 83,815 15,098 Not applicable

Off-balance sheet credit commitments 206,283,431 3,368,490 126 301,306 209,953,353









31 December 2008


ASSETSCash on hand and due from the Central Bank 39,228,570 372,005 155,085 12,241 39,767,901

Precious metals 9,225 – – – 9,225

Amounts due from other financial institutions (Note 1) 49,278,442 14,267,058 964,733 960,605 65,470,838

Financial assets at fair value through profit or loss and derivative financial assets 322,490 9,549 – 153 332,192

Accounts receivable 238,826 1,108,327 12,439 – 1,359,592

Loans and advances 277,718,781 3,736,356 217,667 41,883 281,714,687

Available-for-sale financial assets 48,797,086 – – – 48,797,086

Held-to-maturity investments 15,009,244 452,928 – 46,983 15,509,155

Receivables 13,750,000 – – – 13,750,000

Investments in associates 279,672 – – – 279,672

Property and equipment 1,915,446 – – – 1,915,446

Others 5,362,215 154,191 14,933 3,040 5,534,379

Total assets 451,909,997 20,100,414 1,364,857 1,064,905 474,440,173

LIABILITIESAmounts due to other financial institutions (Note 2) 79,726,137 2,568,477 64,533 – 82,359,147

Financial liabilities at fair value through profit or loss and derivative financial liabilities 53,727 44,138 – 153 98,018

Accounts payable – 507,483 – – 507,483

Customer deposits 346,651,180 10,959,758 1,923,193 979,905 360,514,036

Bonds payable 7,964,282 – – – 7,964,282

Others 6,498,739 81,888 14,020 1,770 6,596,417

Total liabilities 440,894,065 14,161,744 2,001,746 981,828 458,039,383

Net position of foreign currency (Note 3) Not applicable 5,938,670 (636,889 ) 83,077 Not applicable

Notional amount of foreign exchange derivative financial instruments Not applicable (5,911,075 ) 197,768 (47,636 ) Not applicable

Total Not applicable 27,595 (439,121 ) 35,441 Not applicable

Off-balance sheet credit commitments 180,573,370 3,085,518 17,499 444,294 184,120,681




The table below indicates the sensitivity analysis of exchange rate changes of the currencies to which the Company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement in the exchange rates against the RMB, with all other variables held constant on profit before tax. A negative amount in the table reflects a potential net reduction in profit before tax, while a positive amount reflects a net potential increase. As the Company has no cash flow hedges and has only a minimal amount of available-for-sale equity instruments denominated in foreign currencies, changes in exchange rates do not have any material potential impact on the equity.


Change in exchange rate in % Effect on profit before tax

USD +/-3 +/-28,295HKD +/-3 +/-2,514







Change in exchange rate in % Effect on profit before tax

USD +/-1 +/-276

HKD +/-1 -/+4,391

Interest rate riskThe Company’s interest rate risk mainly arises from the mismatch of contractual maturity or re-pricing dates between interest-earning assets and interest-bearing liabilities. The interest-earning assets and interest-bearing liabilities of the Company are mainly denominated in RMB. The PBOC sets a cap and a floor on interest rates on deposits and loans, respectively.

The Company manages its interest rate risk by adjusting the composition of assets and liabilities, monitoring indicators such as the interest rate sensitivity gap on a regular basis and measuring risk exposure in accordance with the re-pricing characteristics of assets and liabilities. The Asset and Liability Management Committee meets regularly and manages interest rate risk exposures by adjusting the composition of the assets and liabilities in accordance with movement in market interest rates.

As at 31 December 2009, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s statement of financial position were analysed as follows:

31 December 2009

Within 3 months More than Non-interestIn RMB’000 3 months to 1 year 1 to 5 years 5 years bearing Total

ASSETSCash on hand and due from the Central Bank 52,863,536 – – – 1,380,416 54,243,952Precious metals – – – – 3,302 3,302Amounts due from other financial institutions (Note 1) 54,350,284 7,240,255 286,532 – – 61,877,071Financial assets at fair value through profit or loss and derivative financial assets 935,600 101,595 94,853 – 99,996 1,232,044Accounts receivable 2,047,627 1,612,790 – – 1,121,744 4,782,161Loans and advances 180,379,059 164,044,284 8,219,018 2,920,184 – 355,562,545Available-for-sale financial assets 16,537,017 14,338,674 5,738,171 141,831 181,605 36,937,298Held-to-maturity investments 1,938,023 7,970,016 19,354,225 5,291,830 – 34,554,094Receivables 5,037,100 23,890,000 1,500,000 – – 30,427,100Investments in associates – – – – 287,346 287,346Property and equipment – – – – 2,034,301 2,034,301Others – – – – 5,869,820 5,869,820Total assets 314,088,246 219,197,614 35,192,799 8,353,845 10,978,530 587,811,034

LIABILITIESAmounts due to other financial institutions (Note 2) 92,742,045 2,701,130 – – – 95,443,175Derivative financial liabilities – – – – 21,540 21,540Accounts payable – 390,740 – – 460,141 850,881Customer deposits 335,186,700 88,234,946 30,537,951 500,001 175,610 454,635,208Bonds payable 500,000 – 7,472,653 1,490,061 – 9,462,714Others – – – – 6,927,907 6,927,907Total liabilities 428,428,745 91,326,816 38,010,604 1,990,062 7,585,198 567,341,425Interest rate risk exposure (114,340,499 ) 127,870,798 (2,817,805 ) 6,363,783 Not applicable Not applicable







As at 31 December 2008, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s statement of financial position were analysed as follows:

31 December 2008


ASSETSCash on hand and due from the Central Bank 38,671,784 – – – 1,096,117 39,767,901

Precious metals – – – – 9,225 9,225

Amounts due from other financial institutions (Note 1) 42,794,464 22,676,374 – – – 65,470,838

Financial assets at fair value through profit or loss and derivative financial assets – 41,441 – – 290,751 332,192

Accounts receivable 1,053,623 65,822 – – 240,147 1,359,592

Loans and advances 136,284,356 138,707,587 6,144,749 577,995 – 281,714,687

Available-for-sale financial assets 5,677,900 27,529,814 10,196,378 5,187,617 205,377 48,797,086

Held-to-maturity investments 946,344 5,547,784 8,499,347 515,680 – 15,509,155

Receivables – – 13,750,000 – – 13,750,000

Investments in associates – – – – 279,672 279,672

Property and equipment – – – – 1,915,446 1,915,446

Others – – – – 5,534,379 5,534,379

Total assets 225,428,471 194,568,822 38,590,474 6,281,292 9,571,114 474,440,173

LIABILITIESAmounts due to other financial institutions (Note 2) 78,992,335 3,356,887 – – 9,925 82,359,147

Financial liabilities at fair value through profit or loss and derivative financial liabilities – 39,420 – – 58,598 98,018

Accounts payable 442,000 65,483 – – – 507,483

Customer deposits 240,037,645 86,149,026 33,050,066 2 1,277,297 360,514,036

Bonds payable 498,195 – 7,466,087 – – 7,964,282

Others – – – – 6,596,417 6,596,417

Total liabilities 319,970,175 89,610,816 40,516,153 2 7,942,237 458,039,383

Interest rate risk exposure (94,541,704 ) 104,958,006 (1,925,679 ) 6,281,290 Not applicable Not applicable



The Company principally uses sensitivity analysis to measure and control interest rate risk. In respect of the financial assets and liabilities at fair value through profit or loss, in the opinion of management, the interest rate risk to the Company arising from this portfolio is not significant. For other financial assets and liabilities, the Company mainly uses gap analysis to measure and control the related interest rate risk.

As at 31 December 2009 and 31 December 2008, the gap analyses of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) were as follows:


Changes in interest rate (basis point) Changes in interest rate (basis point) In RMB’000 –100 +100 –100 +100

Effect on the net interest income increase/(decrease) 529,531 (529,531 ) 433,655 (433,655 )

Effect on equity increase/(decrease) 166,225 (166,225 ) 649,171 (649,171 )

The above gap analyses assume that the interest rate risk profile of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) remains static.






The sensitivity of the net interest income is the effect of a reasonable possible change in interest rates on the net interest income for one year, in respect of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) held at the reporting date. The sensitivity of equity is calculated by revaluing the year end portfolio of fixed-rate available-for-sale financial assets, based on a reasonable possible change in interest rates.

The above sensitivity analyses are based on the following assumptions: (i) all assets and liabilities that are re-priced/due within three months (inclusive), and between three months and one year (inclusive) are assumed to be re-priced in the mid of the respective bands; and (ii) there are parallel shifts in the yield curve.

Regarding to the above assumptions, the effect on the net interest income and equity as a result of the actual increases or decreases in interest rates may differ from that of the above sensitivity analyses.

d. Fair value of financial instrumentsThe following table summarises the carrying values and the fair values of receivables, held-to-maturity debt securities and bonds payable for which their fair values have not been presented or disclosed above:

31 December 2009


Receivables 30,427,100 30,489,418


Bonds payable 9,462,714 9,599,219

31 December 2008


Receivables 13,750,000 13,926,630


Bonds payable 7,964,282 8,574,308

Subject to the existence of an active market, such as an authorised securities exchange, the market value is the best reflection of the fair value of financial instruments. As there is no available market value for certain financial assets and liabilities held and issued by the Company, the discounted cash flow method or other valuation methods described below are adopted to determine the fair values of these assets and liabilities:

(1) The receivables are non-transferable. The fair values of these receivables are estimated on the bases of discounted cash flows.

(2) The fair value of held-to-maturity debt securities and bonds are determined with reference to the available market values. If quoted market prices are not available, fair values are estimated on the bases of pricing models or discounted cash flows.

All of the above-mentioned assumptions and methods provide a consistent basis for the calculation of the fair values of the Company’s assets and liabilities. However, other institutions may use different assumptions and methods. Therefore, the fair values disclosed by different financial institutions may not be entirely comparable.

Financial instruments, for which their carrying amounts are the reasonable approximation of their fair values because, for example, they are short term in nature or are re-priced to current market rates frequently, are as follows:

Assets Liabilities

Cash and due from the Central Bank Placements of deposits from other financial institutions

Placements of deposits with other financial institutions Funds borrowed from other financial institutions

Funds loaned to other financial institutions Repurchase agreements

Reverse repurchase agreements Customer deposits

Loans and advances Other financial liabilities

Other financial assets



d. Fair value of financial instruments (Continued)

The following table shows an analysis of financial instruments recorded at fair value.

31 December 2009


FINANCIAL ASSETSFinancial assets at fair value through profit or loss – 1,132,048 – 1,132,048Derivative financial assets – 99,996 – 99,996Available-for-sale financial assets 66,536 36,765,403 – 36,831,939Total 66,536 37,997,447 – 38,063,983

FINANCIAL LIABILITIESDerivative financial liabilities – 21,540 – 21,540

31 December 2008


FINANCIAL ASSETSFinancial assets at fair value through profit or loss – 41,441 – 41,441

Derivative financial assets – 290,751 – 290,751

Available-for-sale financial assets 57,659 48,601,709 – 48,659,368

Total 57,659 48,933,901 – 48,991,560

FINANCIAL LIABILITIESFinancial liabilities at fair value through profit or loss – 39,420 – 39,420

Derivative financial liabilities – 58,598 – 58,598

Total – 98,018 – 98,018

During the year ended 31 December 2009, there were transfers of available-for-sale equity investments amounting to RMB10 million from Level 2 to Level 1 fair value measurements as the related tradable shares became unrestricted during the year.

45 Related Party Relationships and Transactions

Details of the Company’s major shareholder are as follows:

NAME Place of registration Percentage of equity interest held (%)


Newbridge Asia AIV III, L.P. Delaware, USA 16.76 16.76

Newbridge Asia AIV III, L.P. is an investment fund whose register form is a limited partnership and its registered capital is USD724 million. It focuses on strategic investment. It was established on 22 June 2000 and its initial existing period is 10 years. The ultimate controlling parties of Newbridge Asia AIV III, L.P. are Mr David Bonderman, Mr James G. Coulter and Mr Richard C. Blum.



45 Related Party Relationships and Transactions (Continued)

The related party transactions between the Company and the key management personnel during the year are listed below:

LOANSIn RMB’000 2009 2008

Balance at beginning of the year 543 712

Increase during the year – –

Decrease during the year (88 ) (169 )

Balance at end of the year 455 543

Interest income on loans 9 9

At the year end of 2009, the annual interest rates of these loan transactions ranged from 1.62% to 1.8%.

DEPOSITSIn RMB’000 2009 2008


Increase during the year 199,840 116,066

Decrease during the year (194,994 ) (127,257 )


Interest expense on deposits 48 40

These deposit transactions were under normal business terms and conditions and were processed under normal procedures.

As at 31 December 2009, the Company has authorised a total credit facility of RMB1.732 billion (31 December 2008: RMB2.602 billion) for entities relating to the key management personnel of the Company and their close family members, which included an outstanding loan balance amounting to RMB0.605 billion (31 December 2008: RMB1.089 billion) and an outstanding facility of the off-balance sheet items amounting to RMB0.076 billion (31 December 2008: RMB0.267 billion).

Details of the compensation for key management personnel are as follows:

In RMB’000 2009 2008

Salaries and other short term employee benefits 48,242 43,071

Post-employment benefits 759 665

Other long term employee benefits 18,798 19,119

Termination benefits – –

Deferred bonus accrual (Note) 15,527 9,765

Total 83,326 72,620

Note: The amount of deferred bonus is determined based on the indicators of profitability and the share price of the Company as well as the share prices of certain other domestic listed banks; and will be settled in cash in accordance with the terms of the arrangement.

Furthermore, according to the share purchase agreement signed by the Company’s major shareholder, Newbridge Asia AIV III, L.P. and Ping An Insurance (Group) of China, Ltd. (“China Ping An”) who is the holding company of Ping An Life, China Ping An can purchase all the Company’s shares held by Newbridge Asia AIV III, L.P. no later than 31 December 2010. In accordance with the Shenzhen Stock Exchange Listing Rules, China Ping An becomes the related legal person of the Company as a result of the share transfer arrangement. Consequently, the non-public share placement to Ping An Life (see Note 37), a principal subsidiary of China Ping An, is a related party transaction. The above share transfer and the non-public share placement are subject to approval by the CBRC, the CIRC and the CSRC.

46 Events after the Reporting Period

Up to the date that these financial statements are authorised for issue, there were no other significant events after the reporting period which required disclosure or adjustment to the financial statements.

47 Comparative Figures

Certain comparative figures have been restated in accordance with the requirements of IFRSs and reclassified to conform with the current year’s presentation.

48 Approval of the Financial Statements

The financial statements were approved and authorised for issue by the board of directors on 11 March 2010.


In accordance with Securities Law and No. 2 Regulation on Contents and Format of Information Disclosure on Publicly Listed

Companies – Contents and Format of Annual Report (Revised in 2007), we, as directors and senior executives of Shenzhen

Development Bank Co., Ltd., provide the following opinions after studying and checking Annual Report 2009 of Bank and

its “Abstract”:

1. The Bank operates in strict accordance with Accounting Standards for Enterprises, Accounting System for Enterprises and

Accounting System for Financial Enterprises, and the Bank’s 2009 Annual Report and its abstract give a fair view of the financial

position and operating results of the Bank.

2. Ernst & Young Huaming Accounting firm and Ernst & Young Accounting firm have audited the annual financial statement of the

Bank in compliance with the national and international audit standards, have audited the annual financial statement of the Bank,

and have issued standard unqualified audit reports.

3. We undertake that the information disclosed in Bank’s 2009 Annual Report and its abstract is true, accurate and complete and

that this Annual Report contains no false record, misrepresentation or material omissions, and we are severally and jointly liable for

the truthfulness, accuracy and completeness thereof.

1. Financial statements bearing the signatures and stamps of the chairman of BoD, chief executive officer and officer-in-charge of the

accounting institution.

2. Original copies of the audit reports bearing the chop of the accounting firm and signatures of CPAs.

3. Original copies of all documents and notices disclosed on the China Securities, Securities Times and Shanghai Securities by the

Bank during the report period.

Board of Directors of Shenzhen Development Bank

11 March 2010

Written Confirmation of Directors and Senior Management on Annual Report 2009

Reference Documents

204

According to the requirement of the Law of the People's Republic of China on Commercial Banks, the Guidelines for Internal control of Commercial Banks, and the Shenzhen Stock Exchange Guidelines upon Internal Controls of Listed Companies, the bank has formulated a set of risk prevention rules, procedures and mechanism with the consideration of risk prevention and prudent operation. A sufficient, effective and independent internal control system has been built up, which enable the bank to develop healthily and continuously in all business areas and to prevent financial risk effectively.

A OverviewIn 2009, the bank’s management operated effectively under the guidance of the BOD and its special committees. To build a coordination and management mechanism of compliance risk, operational risk and related risk prevention and control, Compliance and Internal Control Committee were established for further improvement of internal control. The management believes that there are no material weaknesses in the Bank’s internal control. Nonetheless, the Bank will continue to improve its internal control in areas such as accounting, branch operation and information technology.

B Material Internal Control Activities

1 Related Party TransactionsIn 2009, The Bank modified “Shenzhen Development Bank Related Party Transaction Policy”, in which the review authorities and procedures are further stipulated: any significant RPT must be reported to AC and BOD for approval; CCO or CEO has the authority to approve ordinary RPT under certain amount with regular report to AC and BOD required. In 2009, the total number of deals, the maximum amount for a single deal, standards and processes of RPT approval and review are all strictly in compliance with the bank’s RPT management policy and regulatory stipulations; special process has been put in place for RPTs regarding large shareholders, in which the RPTs shall be reported to the Audit Committee and the Board for approval regardless of the involving transaction amount.

2 GuaranteeGuarantee business is a common banking business approved by PBOC and CBRC. The Bank has paid great attention to risk management of the business by strictly following related operational processes and approval procedures. Risks in the guarantee business are effectively controlled.

In 2009, except for guarantee letters issuance business, the Bank has no significant guarantee transactions without the approval from the Board of Directors.

3 Use of Raised CapitalThe Bank issued Hybrid Capital Bond in accordance with “the Proposal for Hybrid Capital Bond Issuance of Shenzhen Development Bank Co., Ltd.”, which were approved at the 2007 2nd Extraordinary Shareholders’ Meeting and “the Modification of Proposal for Hybrid Capital Bond Issuance of Shenzhen Development Bank Co., Ltd.”, which were approved at the 2008 1st Extraordinary Shareholders’ Meeting. In 25 May 2009, a total amount of RMB 1.5 billion was raised, all of which has been used for supplementary capital after the deduction of related expenses.

4 Significant InvestmentsThe Bank has no material outbound investment in the reporting period.

5 Information ReleaseThe Bank formulated and executed “Shenzhen Development Bank Administrative Rules of Information Release”, in which the scope and content of material information is clearly defined. The chairman was designated as the first responsible person for information releases while the BOD Office was the directly responsible person. Principles, areas of responsibilities, procedures and other related matters have also been clarified in this rule.

In 2009, all public information were released in a timely manner strictly following the rules, and ensured the information was released in a timely, accurate, legal, authentic and integrated manner.

6 H.O. Framework Restructuring& Function, Responsibility and Procedure Improvement ProjectSDB started the H.O. internal reform program “Project Excellence” H.O. in July 2008 and put in execution in Aug 2009. The project contents include the improvement of H.O. organizational structure and responsibility, H.O.(which includes the redefinition of organizational structure and job responsibilities of all departments in H.O.; the establishment of post rating system, bank staff rating system, database of key staff and electric posts management procedure; launch of pilot branches position management project), and H.O. official documentation management, new product development, approval management, brand/advertising management, budget management and the optimization of other key management system. The execution of the plan enhanced the efficiency of H.O. management by establishing and consummating a quick-responding organizational mechanism, a clearly-defined responsibility system, full-competent employee system and a fair and reasonable post/staff rating system, which promoted the realization of the bank’s operational goal and the success of future strategy.

Internal Control Self-Appraisal Report


7 Operation Management Reform and Operation ControlIn order to prevent operational risk, improve operation and service efficiency and quality, SDB started the system reform on vertical operation management in 2008 and successfully completed the project in Mar, 2009. For the construction of organizational framework, the Bank established “H.O–Branch–Sub-branch” vertical management structure, integrated the back-office function of accounting clearance, retail, treasury and inter-bank business, and established integrated platform of operation management and centralized proceeding for business operating support. The H.O. sends operation executive officer or supervisor to branches for the head role of branch’s operation management. Branch operation executive officers directly report to H.O. COO. For business procedure reform, the bank launched “Operation Process Re-engineering” program for 39 sub-items, of which 33 were successfully promoted and implemented bank-wide. The bank’s core competences were further strengthened in the terms of its “Service, Efficiency, Internal Control and Adaptability”, which accelerate the transformation from the traditional “department based bank” to modern “procedure based bank”. For policy construction, the bank reviewed current operation policies and established a new operation system framework. According to the requirement of business development and procedure restructure, the bank has completed the composition and refinement of policies on basic operation staff and service management, operation supervision, product operation, accounts management and other policies on key field and business In the operational risk monitoring aspect, with stressed risk monitoring in daily monitoring, system control and new products approval, the bank has built a rigorous operational risk monitoring system with H.O.-Branch-sub branch incorporated. In 2009, the bank had successfully prevented 11 cases which could have caused a potential loss of RMB 5,759.8 thousands and achieved zero case in operation. In the aspect of operation system management, the bank has accelerated the construction of IT system in operation line, centralized the management of operation system overall the bank, and improved the supporting capability of operations system.

While carrying out operation management reform, the Bank also worked on intensifying operational risk control and achieved considerable accomplishment.

(1) According to the high centralization model in Accounting, the bank restructured the accounting business procedures and operation programs, such as taking centralized management on the accounting subsequent supervision, corporation accounts opening, reconciliation between bank and corporation, customer contact check and so on, to further standardize accounting business operation, improve the accounting quality and perfect the internal control monitoring system.

(2) The bank implemented accounting review policy for disbursement of all businesses to ensure the completeness and effectiveness of legal information and formalities before disbursement.

(3) The bank implemented monthly operational risk report system for accounting settlement operational risk, analyzing the distribution of operational risk, incentives of occurrence, to ensure all sorts of accounting settlement operational risk are prevented and eliminated effectively.

8 Controls on Financial Planning and Financial InformationSince 2005, vertical management structures have been applied to financial planning of the bank: a financial officer is assigned to each branch to manage the financial operation and report to H.O. CFO.

In recent years, the bank standardized the reimbursement procedure through the implementation of a series of expense administration policy which further enhance internal control level and improved the diligence and rationality of expense management. Meanwhile, by implementing Capital Expenditure Management Manuals, the authenticity, rationality and completeness of capital expenditure is assured.

In 2009, the bank effectively reduced costs through management refinement and accounting practice enhancement to ensure that the total expenses were under the year budget.

In 2009, the bank continued to optimize the SAP1 managerial accounting system, utilize the system to complete the summary of capital expenditure budget in 2009, and incorporate performance assessment statements in prospective system functions to be developed in the future. Such efforts achieved automation of statement making and management for hundreds of statements including bank-wide and branch-level comparison analysis between actual and budgetary expenditures (AB statements), supplementary analysis statement, key index ranking statement, patterns of interest gap statement and separation of performance assessment statements, which greatly enhance the variety of output category and output efficiency and provide better support to the meticulous management of budgetary assessment; the SAP2 financial reconciliation and management system were put into production. The bank fully utilized system functions such as budget control, statement analysis and automated configurations, reduced manual work and improve work efficiency; the SAP3 financial statement creation system was under development, which would automate the creation of financial statements and their appendixes, reduce manual inputs and adjustments, and improve the timeliness of financial statement creation.

9 Controls on Credit RiskSince 2005, vertical credit risk management structure was implemented: a credit officer was assigned to each branch to manage corporation credit operation and report to H.O. Chief Credit Officer. In June 2009, in order to enhance the retailing credit risk management and realize the separation of retailing credit risk management and marketing business development, the bank carried out the reform of branch retailing credit risk management structure, which set up retailing credit risk management department. A retailing credit officer was assigned by H.O. to each branch to manage retail credit risk operation and report to H.O. Chief Credit Officer.

206 Internal Control Self-Appraisal Report

The bank established Credit Portfolio Management Committee to deliberate and determine important credit management policies. Based on the principle of “Separation of credit administrations and credit review”, independent credit approval centers were established in both the H.O. and branches to enhance portfolio management and monitoring of important loans. Business control lines were set up to target important loans such as new loans to industries that are highly energy consuming or heavily polluting, government-related loans, loans to China Development Bank, medium and long-term loans, real estate loans and so on; the bank strengthened credit assignment on Related Legal Entities. In 2009, the bank continued to promote the launch of credit management system bank wide to further enhance credit risk management. The bank adapted to external changes and used stress test to enhance credit business subsequent monitoring and checking.

Meanwhile, in an effort to achieve the year-target of asset quality, the bank conducted serious performance evaluation on business units and personnel at key posts with respect to asset quality.

After the establishment of professional NPL collecting team in 2005, In May 2009, the bank further divided non-performing assets into “good bank” and “bad bank” to integrate resource, conduct intensive colleting and enhance the effectiveness of NPL recovery.

10 Controls on Treasury BusinessRisk monitoring procedures were set up to improve monitoring and control of liquidity risk. As regards external aspect, SDB strictly controlled all types of risks and concentrated on the development of low risk business. As regards internal aspect, the bank focused on improving risk management and internal control, refinement of administrative policies and procedure reengineering. Moreover, the bank continuously worked on the enhancement of monitoring of net cash flow, liquidity indicators, liquidity gap and cash reserves. In addition, the bank refined its Asset Liability Management System and by using other tools, the banks further improved the quality of its dynamic and scenario analysis.

With respect to market risk and portfolio risk management, the bank has developed an effective daily monitoring process. On the premise of risk management, the bank emphasized the “risk-profit” balanced development. For RMB trading, the bank strictly controls the average duration and over-night exposure limits.

11 Controls on ITIn 2009, according to the bank’s business development strategy and IT development planning, and based on the optimization of the application system structure, the bank upgraded IT service management, and performed a series of development work as following:

i Through the comprehensive integration of application systems such as core system, personal credit system, treasury system, factoring system, corporation product system, bank-corporation reconciliation system, the counter operation model is more simplified. The centralized counter log-in management of business and authority control become more standard with more rigid operational risk control. The bank raised a set of construction standard of front-end operating platform for subsequent business system.

ii The bank reclaimed the front-end operating platform from 18 branches, which completely solved the problems of obsolete equipment, high operation fault and low system development efficiency related to branch front-end operating platforms.

iii The bank implemented categorized management to access of the Internet to ensure safe and smooth operation of the bank’s network system and provide safe, steady and unobstructed network condition for all staff.

iv Through innovation and development of the bank’s business operation system, including internet banking system in new edition, picture and subsequent review system, commercial bill system, new collection and payment agent system, inter-bank system (Phase Two), international trade and finance system, gold trading system, related party information management system and etc, the bank reached the target that IT shall play an importance role on to business development support providing, risk reduction, cost control and service enhancement. Meanwhile, in order to reduce the operational risk and related investment risk caused by different technical structure, to promote unified and standardized IT management, the bank formulated a series of technical standards and guidance. The bank’s preliminary standard technical mechanism has been built up.

v Further build and update the policies of hardware equipment backup, periodic maintenance and register of breakdown recovery, standardize preservation and maintenance of electronic equipments, and ensure their continuous operation; optimize IT system disaster recovery plan and conduct periodic exercises, so as to ensure date safety of the open-platform application system, promote integration of the open-platform application and enhance quality and efficiency of storage management.

12 Internal Audit and Compliance Management

Internal AuditIn Aug 2005, vertical management structure has been put in practice for internal audit. The Internal Audit Department directly reports to the Audit Committee, which complies with Internal Audit Guidance for Banking Institutions. In Dec 2009, in order to further increase the audit coverage and the efficiency, the bank set up the Internal Audit Department in each branch. The branch Internal Audit Department managers are in charge of the branch’s audit management and report to H.O. IAD. Meanwhile, the branch Internal Audit Departments are guided in business by H.O. Internal Audit Department and report to branch presidents as well.

In 2009, Internal Audit Department completed all audit projects required by AC. All audit findings and issues have been reported to AC and BOS timely with their remediation status being timely and responsibly tracked.


Audit projects carried out in 2009 included: special assessment/audit of the bank’s internal control quality and RPT management, full audit on 9 branches; 24 special audit projects in the areas of Retail Banking, Finance & Accounting, Corporate Banking, Trade Finance, and IT; tenure/leave audit for 93 staffs; spot audit on internal reconciliation (between branch and department, branch and sub-branches), counter management (counter card wearing and keeping), external reconciliation, accounts opening and large-amount transfer verification, safeguard, vault and cash box, self-service facilities and etc. Meanwhile, the internal audit department followed up the supervisory instructions from CBRC, audit recommendations from external audit and audit issues found by internal audit on a monthly basis and conducted on-field remediation inspection in 18 branches and H.O. Branch. Besides, all typical issues identified in full audits and special audits have been circulated to branches for comparison remediation. Meanwhile, issues found in branches were circulated to corresponding management departments so that the department can urge and follow up branch remediation and enhance management for representative issues in a bank wide scale. The bank also researched on and analyzed the current status and existing problems of the bank business being audited in an analytical perspective, provided value added management recommendations and issued research reports for reference of management decision making. Beside, the Internal Audit Department actively advocated the conduct of risk self-assessment by business lines and branches in order to increase their ability of risk self-identification and self-control.

According to the new demand of audit work, the bank recruited professionals with financial skills and expertise in banking industry. The overall capability of the audit team was significantly increased. By the end of 2009, there were 123 full-time Internal Auditors in total.

Compliance ManagementThe bank consummated compliance organizational and management structure, formed compliance committees for H.O. business lines, established independent compliance departments for each branch, and increased compliance management staffs. By the end of December 2009, there were 73 compliance staffs bank-wide.

For compliance risk management, the bank continued to carry out the “woodpecker” risk preventive recommendation campaign, set up effective operating procedures to encourage all employees to participate actively. Suggestions are tracked throughout the whole process aiming to eliminate all types of risk hazard and increase the bank’s internal control level. Moreover, the bank built unified and effective policy framework and actively carried out policy integration and review project to improve the effectiveness and feasibility of the policies; formulated standard template for compliance examination, which standardized and unified compliance examination routines. ; carried out compliance self-inspection to improve the compliance of business operation; conducted Anti-Money-Laundry special investigations, improved the quality of suspicious transfer report, continue to optimize the AML system. Meanwhile, the “negative” were developed for anti terrorism financing purpose. Through organizing staff to study the “Travel of Compliance”, founding electronic publications of "Compliance Development”, establishing the “compliance development” bank president forum and compliance line communication corner, the bank progressively worked onsite compliance culture construction.

The Whistle-blowing Policies and ProceduresThe bank formulated “Whistle-blowing Administration Policy” and the “Whistle-blowing Implementation Rules”, which further defined the channels and processing procedures of “whistle-blowing” in order to assist the bank to identify, investigate and prosecute violation behaviors to protect the assets and reputation of the Bank.

In 2009, the bank did not receive public punishment from CSRC or Shenzhen Stock Exchange.

Establishment of the New Accountability Jurisdiction and Investigation MechanismIn order to further improve the bank’s internal control policies, enhance the strength of responsibility identification and punishment, and feasibly improve staffs’ awareness of responsibility, in December 2009, the H.O. established the Accountability Jurisdiction and Investigation Committee Circulated “SDB Accountability Jurisdiction and Investigation Management Policies” (Ver.1.0, 2009) and “SDB Accountability Jurisdiction and Investigation Guidelines” (Ver.1.0, 2009).

In conclusion, the bank has placed significant emphasis on the construction of internal control systems as business scale continuously grows. The internal control system covered all business process, operating procedures, and the management and control of all departments/branches of the bank. Although there still are areas that require further improvement, both the BOD and the management team have paid great attention to these issues with scheduled improvement measures. In general, the internal control system of the Bank is sufficient, rational and effective, and the internal control mechanism is sound with no material internal control deficiencies exist.

208

E&Y Huaming (2010) Special No. 60438538 H02

The board of directors of Shenzhen Development,

We audited the Self-appraisal Report on Internal Control of Shenzhen Development Bank prepared by the senior management of Shenzhen Development Bank (“your Bank”) under your delegation, with respect to establishment and implementation of internal control related to financial statement on 31December 2009 of your Bank as stated in the Report. Your Bank made self-appraisal on the availability of establishment and implementation of internal control related to financial statement on 31 December 2009 in accordance with the relevant rules on normative standard set out in the MOF Internal Accounting Control Regulation – Basic Regulation (Pilot Version). It is responsibility of senior management of your Bank to establish an integral and reasonable internal control system and maintain its availability, ensure the availability of establishment and implementation of internal control related to financial statement as stated in the said Self-appraisal Report, and also guarantee the authenticity and integrity of the said Self-appraisal Report.

Our audit is based on the Guidance Opinion about Internal Control Audit issued by the China Institute of Certified Public Accountants. In the process of auditing, we implemented the procedures including inquiry, test, assessment on establishment and implementation of internal control, and other procedures as we deemed necessary. We believe that our audit provided reasonable basis for issuing opinion.

Subject to inherent limit of internal control, there is possibility of mistakes incurred by errors or frauds but not observed. Besides, there is certain risk of deducing the future availability of internal control on the basis of current assessment result, because the change of environment may lead to inappropriate internal control, or decline in compliance with internal policies and procedures. Therefore, the valid internal control in this term may not guarantee the validity in the future.

We are of the view that on 31 December 2009, the internal control related to financial statement of your Bank as stated in the said Self-appraisal Report is in line with the relevant rules on normative standard set out in the MOF Internal Accounting Control Regulation – Basic Regulation (Pilot Version) in all major aspects.

The Report is just for the purpose of filing with relevant departments of the China Securities Regulatory Commission and the Shenzhen Stock Exchange. Any aftereffect resulted from misusage will be irrelevant with the CPA executing the business and the accounting firm.

Ernest & Young Hua Ming CICPA

People's Republic of China Beijing, Zhang Xiaodong11 March 2010

CICPA

Steven Xu

Assessment Report on Internal Control

Reaching newheights

Annual report 2009

We know, we care

Contents

Internal Control Self-Appraisal Report and Internal Control204 Internal Control Self-Appraisal

Report

208 Assessment Report on Internal Control

Cover story

Why climb the mountain? Because it is there, the mountaineer answers.The pioneering spirit guides the mountaineers to keep blazing the trail and challenging new heights in their pursuit of reaching closer to the sky, the clouds and the sun. Resolute and united, SDB makes unceasing efforts to strive for ever higher levels of excellence.

www.sdb.com.cn Service line: 95501

Stock code: 000001

Shenzhen Development Bank Tower,No. 5047 Shennan Road East,Shenzhen, Guangdong Province, ChinaPostal code: 518001Telephone: +86 (755) 8208 8888

Shen

zhen

Develo

pm

ent B

ank

An

nu

al Rep

ort 2009

Shenzhen Development Bank Annual Report 200921 Important Notes

21 Basic Facts of the Company

22 Key Financial Data Highlights

26 Key Business Data Highlights

36 Changes in Share Capital and Shareholders

40 Information on Directors, Supervisors, Senior Management and Staff

48 Corporate Governance at the Bank

50 Introduction on General Shareholders’ Meetings

51 Report of the Board of Directors

69 Report of the Board of Supervisors

71 Important Events

77 Financial Results

203 Written Confirmation of Directors and Senior Management on Annual Report 2009

203 Reference Documents

About SDB01 Financial Highlights

02 Message from the Chairman and the President

04 SDB Officers

Review of SDB Business06 SDB Milestones in 2009


- Commercial Business

- Retail Banking

- Inter-bank Business

- Business Exploration and Bank Expansion

- Social Responsibility and Environmental Protection

SHENZHEN DEVELOPMENT BANK

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