Data Analysis: Substantial Achievements of CCB Shareholding Restructuring Program

Published time:2005-06-09

——China Construction Bank Corporation Annual Report 2004

 

  • Profit before tax reached RMB 50,216 million and hit a historical high.
  • Non-performing loan ratio fell to 3.92% and asset quality was improved significantly.
  • Return on asset and return on capital were 1.3% and 25.4% respectively and profitability enjoyed a sound growth. Excluding the impact of income tax exemption relating to the shareholding restructuring, return on asset and return on capital were 0.88% and 17.28%.
  • Capital adequacy ratio was 11.29% and the capital base was strengthened considerably
  • Cost to income ratio was 39.17% and the operation costs were controlled through effective measures.

 

 China Construction Bank Corporation (CCB) has released the first annual report to the public after its incorporation. The accounting policies introduced by CCB in the financial statements of the annual report 2004 and 2003 are based on the Accounting Standards for Business Enterprises, the Accounting Regulations for Financial Enterprises issued by the Ministry of Finance (“MOF”) (in 2001) and other relevant regulations. The financial statements have been audited by KPMG Huazhen, who has issued a standard and unqualified auditor’s report.

The annual report discloses that in 2004 when CCB recognized the strategic opportunity to focus on the shareholding restructuring program in line with the requirement of building up a mechanism of the modern financial institution, CCB, in response to the national macro control policy, took great efforts in strengthening risk management and internal control, improving asset quality, progressively facilitating system changes and mechanism transformation, and strengthening scientific management and administration to reduce non-performing assets, expand service scope and improve service quality, promote the advance of technologies and financial innovation and explore the market. In this way, all business lines of CCB experienced a rapid development and asset quality and operational efficiency were further enhanced resulting in record highs in key performance indicators.

CCB Annual Report 2004 shows that in 2004, CCB realized profit before tax of RMB 50,216 million, an increase of RMB 12,743 million or 34.0% over the previous year. Of this, the net interest income was RMB 100,296 million, an increase of RMB 11,349 million over the previous year.  Provision for impairment losses was RMB 8,830 million, an increase of RMB 661 million over the previous year.  And return on asset was 1.30% and return on capital was 25.40%. Excluding the impact of income tax exemption received as part of the shareholding restructuring program, return on asset and return on capital were 0.88% and 17.28% respectively. Based on effective cost cutting measures, the cost to income ratio was lowered to 39.17%, a decrease of 1.97 percentage points compared to the previous year. At the end of 2004, the capital adequacy ratio was strengthened to 11.29%, and non-performing loan ratio was lowered to 3.92%. These data indicate that the key performance indicators of CCB in 2004 have ranked upper middle position amongst the international 100 large banks.

In 2004, CCB is based on the shareholding restructuring program throughout the whole bank to speed up the restructuring of the system and mechanism to ensure the successful completion of CCB’s objective in this period. The capital base, asset quality and financial condition have been improved dramatically by means of financial restructuring measures and competent legal procedures such as dissolving non-performing loans and asset loss, classifying asset quality and introducing promoters and shareholders after the national capital injection. Since the incorporation of China Construction Bank Corporation in September of 2004, in accordance with competent rules and regulations, CCB has held Shareholders General Meetings, formed a Board of Directors and a Board of Supervisors, and appointed the senior management. CCB also established several Board Committees, including a Strategy and Nomination Committee, an Audit Committee, a Risk Management Committee, a Compensation and Evaluation Committee and a Related Party Transactions Committee. CCB has framed related articles and detailed implementation procedures in response to the corporate governance structure. CCB Shareholders General Meeting, Board of Directors, Board of Supervisors and the senior management have started to conduct operations effectively. CCB has established a sound and efficient structure for policy making, enforcement and oversight, ensuring that effective checks and balances are in place between the supervisory levels.

While establishing the modern corporate governance structure, CCB has remained focus on strengthening the internal control and risk management. The Credit Risk Rating and Early Warning System was enhanced by incorporating modern techniques and measures, such as standardized credit risk ratings based on geographical regions, industries and customer types. And CCB became the first bank amongst domestic commercial banks to establish an economic capital driven risk and reward performance system and further improve the economic capital budgeting and the performance assessment and incentive system.   

In 2004, CCB deposit business maintained a rapid growth and loans enjoyed a proper increase. Deposits increased by RMB 295,258 million or 9.2% compared to the previous year. Loans increased by RMB 229,595 million, an increase of 11.5%, and mainly went to personal housing, infrastructure construction and discounting products that have the characteristic of low risks. While maintaining the leading market positions in core products, CCB was active in exploiting new market opportunities, such as developing strategic businesses, including bank cards, foreign exchange, and electronic banking services with considerable success. CCB also sustained the rapid growth experienced in our intermediary services with an increase of 39.0% in terms of net income of fees over the previous year. CCB demonstrated its commitment to continuous product innovation with the launch of a number of new products, such as the pilot launch of the “Happy Investor” wealth management card and the bank-wide unified brand for foreign exchange structured deposit products, “Profit from Exchange” (“匯得盈”). CCB became the first domestic commercial bank to launch an independent custodial banking system for securities settlement funds as part of our custodial services.

Meanwhile, the annual report 2004 of CCB nearly meets the requirement for listed companies with regard to its format and content. And the level of transparency in the information disclosure has been improved and increased considerably. 

As to the deferring of its disclosure over the annual report 2004, an insider said CCB had received the approval from competent authorities. 2004 is a special year for CCB that experienced the separation, the incorporation, the financial restructuring, external auditing, and changes within the bank in terms of organizational structure and administration. In particular CCB engaged in the reform of financial policies and needed to receive the approval from competent government authorities. All CCB businesses shall be conducted strictly in accordance with its Articles of Association and relevant rules and regulations. There are some new issues and conditions that have no suit to be followed by commercial banks and need time to find solutions. This insider also said, in accordance with competent rules and regulations, CCB will continue to release its information in time so that all shareholders interests can be guaranteed.

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