China Construction Bank Corporation

2008 Interim Results - Major Financial Indicators

 (As of 30 June 2008)

 

·       Operating income rose by 36.04% y-o-y to RMB135.736 billion

(1H2007: RMB99.773 billion)

 

·       Profit before tax increased by 49.69% y-o-y to RMB75.655 billion

(1H2007: RMB50.542 billion)

 

·       Net profit increased by 71.34% y-o-y to RMB58.692 billion

(1H2007: RMB34.255 billion)

 

·       Earnings per share (basic and diluted) increased by 66.67% y-o-y to RMB0.25

(1H2007: RMB0.15)

 

·       Annualised return on average assets¹ rose by 0.54 percentage points y-o-y to 1.72%

(1H2007: 1.18%)

 

·       Annualised return on average equity² advanced by 6.56 percentage points y-o-y to 26.36%

(1H2007: 19.80%)

 

·       Net interest spread rose by 0.15 percentage points y-o-y to 3.16%

(1H2007: 3.01%)

 

·       Net interest margin rose by 0.18 percentage points y-o-y to 3.29%

(1H2007: 3.11%)

 

·       Net fee and commission income to operating income increased by 2.17 percentage points y-o-y to 14.86%

(1H2007: 12.69%)

 

·       Cost-to-income ratio declined by 3.33 percentage points y-o-y to 34.03%

(1H2007: 37.36%)

 

·       Total assets increased by 6.96% to RMB7,057.706 billion compared to the end of last financial year

(As at 31 December 2007: RMB6,598.177 billion)

 

·       Core capital adequacy ratio³ decreased by 0.29 percentage points to 10.08% compared to the end of last financial year

(As at 31 December 2007: 10.37%)

 

·       Capital adequacy ratio³ decreased by 0.52 percentage points to 12.06% compared to the end of last financial year

(As at 31 December 2007: 12.58%)

 

·       Allowances to non-performing loans ratio rose by 12.82 percentage points to 117.23% compared to the end of last financial year

(As at 31 December 2007: 104.41%)

 

·       Non-performing loan ratio decreased by 0.39 percentage points to 2.21% compared to the end of last financial year

(As at 31 December 2007: 2.60%)

 

Notes:

1.Calculated by dividing net profit by the average of total assets as at the beginning and end of the period and then multiplying two.

2.Calculated by dividing net profit attributable to shareholders of the Bank by the monthly average of total equity attributable to shareholders of the Bank for the period and then multiplying two.

3.Calculated in accordance with the guidelines issued by the China Banking Regulatory Commission (“CBRC”).

 

China Construction Bank Corporation

2008 Interim Result Announcement

 

Sustainable Growth in Profitability- Assets Exceeded RMB7 Trillion

 

22 August 2008 - China Construction Bank Corporation (”CCB” or “the Bank”) today announced its 2008 interim results. In the first half of 2008, facing complex international and domestic economic situations, CCB had been comprehensively adopting a scientific approach towards development, stringently executing national macro-economic adjustment policies, entrenching reforms in operational and management systems, continuously pushing forward with strategic transformation in business development and concentrating on lifting customer service levels. In this period, remarkable improvements in business structure were made; strong income growth momentum in intermediary business was maintained; risk mitigation capability was further strengthened; and sound operating results were achieved.

 

As at 30 June, CCB‘s total assets exceeded RMB7 trillion, reaching RMB7.057706 trillion (all figures below are calculated in accordance with the International Accounting Standards and are denominated in RMB unless otherwise specified), which was an increase of 6.96% over the end of last financial year. Profit before tax was 75.655 billion, a year-on-year increase of 25.113 billion or 49.69%. Benefiting from business development and an adjustment in the rate of enterprise income tax for domestic enterprises, a net profit of 58.692 billion was realised, which was a year-on-year increase of 24.437 billion or 71.34%. The realised operating income was 135.736 billion, representing a 36.04% year-on-year increase. The net interest income reached 111.080 billion and net fee and commission income reached 20.168 billion, up by 24.51% and 59.30% from the same period of the previous year respectively. CCB continued leading the mainland banking industry in terms of overall profitability: the Bank achieved an annualised return on average assets of 1.72%, an annualised return on average equity of 26.36% and a net interest margin of 3.29%, representing increases of 0.54, 6.56 and 0.18 percentage points over the same period of the previous year respectively. Its capital adequacy ratio was 12.06% while its core capital adequacy ratio was 10.08%. CCB’s asset quality had improved steadily: the amount and ratio of its non-performing loans continued to decrease; the ratio of non-performing loans fell to 2.21%, which was a drop of 0.39 percentage points from the end of last year. There was also further improvement in CCB’s risk mitigation capability: the ratio of allowances to non-performing loans was 117.23%, an increase of 12.82 percentage points over the end of the previous year.

 

Mr. Guo Shuqing, Chairman of CCB, said that CCB achieved good operating results for the first half of 2008 because it had benefited from China’s overall economic and financial environment and from the Bank’s own internal reform and innovation, and had availed itself of the wisdom and efforts of all staff. While striving for business development, CCB had seriously concerned itself with the livelihood of the people of China. Following the snowstorm disaster early this year and the severe earthquake in Wenchuan, Sichuan, the whole Bank focused its attention on the disaster areas and joined efforts in providing quick and effective financial services and credit support for disaster relief and reconstruction work, thereby carrying out its noble mission: “assume full responsibilities as a corporate citizen”.

 

 

Stronger Efforts in Business Innovation and Significant Enhancement of Overall Competitiveness

 

Since the beginning of this year, in response to market and customer demands, CCB has been putting additional effort in the innovation of financial products and services, resulting in significant enhancement in its overall competitiveness and profitability.

 

While consolidating its traditional business areas, CCB saw a rapid development in its newly developed businesses such as investment banking, which realised an income of 3.203 billion, representing a year-on-year increase of 195.71%. In particular, by launching new types of financial advisory business such as IPO and re-financing; mergers & acquisitions and restructuring; equity investment; and project financing, it had been acquiring incessantly customers in financial advisory services from the ranks of customers graded AA or above, multinational corporations, foreign banks and large to medium-sized enterprises. Financial advisory business fees for the period was 2.377 billion, a substantial increase of 165.10%.

 

Tailor-made new financial products had been offered to small enterprises continuously. By 30 June, loans to small enterprises reached a balance of 249.532 billion, an increment of 11.16% from the beginning of the year. It has also been cooperating with Alibaba to develop new electronic corporate banking products such as “Joint Borrowing & Joint Guarantee Loans”, “Quick Finance” and “Single Order Financing”. Within the half year, loans amounting to 520 million had been extended to 175 customers.

 

CCB was a pioneer in the mainland to establish a “Customer Day” system in which management personnel from headquarters, branches and sub-branches would meet customers on constant basis. From January to June, more than 1,500 customers were received and over 1,700 issues received from customers were tackled. Progress in customisation and differentiation of customer services was achieved. While solid work on branch transformation was being carried out, CCB set up teams of private banking consultants and experts, establishing 81 wealth management centres and more than 1,570 VIP centres. Its private banking business in Beijing and Shanghai had commenced operation successively, providing comprehensive and customised services in exclusive financial management products, asset management, advice and consultation, public welfare and charity trusts for medium to high-end customers.

 

CCB was the first in China to establish a centralized network of the 95533 Customer Service Hotline system for its call centres, providing a unified 95533 customer service platform for the whole bank. By moving forward the "agent service" choice in the menu, the average speed of answering customer’s enquiry was reduced from 45 seconds to 15 seconds and the rate of successful connection was raised to 98%. By 30 June, with 21.4030 million new customers in its electronic banking business, CCB boasted a cumulative customer count of 92.1006 million, an increase of 30.27% from the end of the previous year. The transaction volume for the period amounted to 77.64 trillion, a 143.92% increase over the same period last year and setting a historical record.

 

The competitiveness of CCB’s credit card business was further lifted. During the period, CCB launched a number of new Olympic-themed products including an Olympic platinum card and an “Elite Entrepreneur Card” specifically targeting successful entrepreneurs. The number of additional dual currency cards issued during the period was 3.01 million, the highest among all Chinese domestic banks. Credit card spending increased by 95.7% over the same period last year, while the amount of credit card overdrafts saw an increase of 38.7% over the beginning of this year, launching CCB into the leading position among the four major Chinese commercial banks in terms of both credit card spending and overdrafts amount.

 

In providing services to the Olympics, CCB was actively getting involved in relevant services such as foreign exchange, travellers cheques and foreign currency acceptance etc. In addition, in an endeavour to enhance the Bank’s capabilities in serving foreigners, CCB launched the multi-language service functions in its call centres to provide service support in English, French, German, Russian, Japanese and Korean. Meanwhile, it cooperated with the Bank of America in developing a business in which ATM cash withdrawal handling fee would be mutually waived between the two banks. This allowed tourists and athletes holding Bank of America debit cards or credit cards to enjoy withdrawal services on CCB ATMs free-of-charge.

 

 

Further Optimisation of Credit Structure and Continued Enhancement of Asset Quality

 

During the first half of 2008, CCB continued to entrench reforms in its risk management system, adjusted its credit structure and raised the standards of refined management. These resulted in steady improvement in its asset quality.

 

There was further optimisation in the customer structure for corporate loans. By 30 June, the balance of corporate loans granted to customer with internal credit ratings of A and above reached 89.50%, which was 0.89 percentage points higher than that at the end of the previous year. The effectiveness of CCB’s “Green Credit” project was in evidence. It has taken initiatives to retreat from lending to industries which were known for poor asset quality, excess capacity, high energy consumption and high pollution and which were not able to meet the Green Credit criteria. In the first half of the year, the balance of loans in the “opt-ed out” category was reduced by 31.876 billion compared to the end of the previous year.

 

 

By implementing differentiated measures according to regions, products and customers, CCB focused on meeting the credit needs of premium personal customers. In the first half of 2008, the balance of personal loans reached 772.613 billion, which was 21.84% of the total amount of loans. Of these personal loans, personal residential mortgage loans witnessed an increase of 39.415 billion or 7.47% from the end of last year, while personal consumer loans saw a growth of 3.535 billion or 5.31% from the same period.

 

Optimisation of risk management tools. In the first half of this year, CCB continued its optimisation of economic capital management and the implementation of risk limit management by industry. It had refined its economic capital quantification project, optimised respectively the probability of default for small enterprises, the risk exposure of some of its products, the installation of loss given default parameters, and the risk quantification of treasury business products. Originally, 20 some industries were under risk limit management; now it has been diversified to more than 50 industries, covering over 80% of CCB’s corporate loans. By implementing two-track control of economic capital limits and industrial loan limits, CCB has also raised the standard of its asset portfolio risk management. At the same time, CCB was the first among its counterparts in adopting a credit grading methodology based on a model of probability of default (PD). By monitoring the composition of the loan portfolio by industry on a real time basis and releasing information of such monitoring on a regular basis, the Bank was able to optimise the industrial loan structure and lower the extent of industry concentration risk.

 

Strengthening of operational risk control and the introduction of business continuity management. Since this year, in order to prevent the occurrence of serious operational risks and offences, CCB has steadily introduced self assessment of operational risks and internal controls. In addition, it had stepped up the monitoring and inspection of critical risk points at the front-lines. Using Olympic-related services as a pivot, CCB introduced business continuity management measures by developing contingency plans for its key production systems and strengthend its emergency management. Concurrently, it kicked off the medium to long-term planning projects in an effort to establish a sound business continuity management system.

 

 

Optimisation of risk monitoring measures and strong efforts in disposing of non-performing loans. In the first half of 2008, CCB further improved its early warning mechanism for risk monitoring of credit extension. For large credit customers, centralised risk assessment, follow-up and problem solving were implemented. Efforts were redoubled for the risk handling of customers with large special-mention loans, large non-performing loans or for the risk handling of key subsidiaries. Mechanism for risk handling of customers with large loan extension was established to expedite the disposal of non-performing loans. Research in new channels for the disposal of non-performing loans was carried out. For example, to dispose existing non-performing loans, CCB was the first among China’s banking industry in issuing the first securitised bond of non-performing assets amounting to 2.765 billion to handle non-performing loans.

 

Strengthening of risk management of retail business. CCB has structured a professional risk management framework for all types of products and workflows of its retail business. It is the first bank among its national counterparts to develop an online scorecard system for its retail business based on a credit ratings model. The advanced system enabled automatic examination procedures for crucial retail credit business and the tracking and monitoring of the risks involved, and as well lifted the level of risk management in retail business.

 

The enhancement of credit structure and advancement in internal risk control together contributed to a continuous improvement in the overall loan quality of CCB. As of 30 June, 2008, the non-performing loan ratio and the balances of the non-performing loans in wholesale and retail trade, real estate and manufacturing industries, the three industries which CCB used to record higher non-performing loan ratios continued to decline and reported a drop of 2.38, 0.64 and 1.01 percentage points in their non-performing loan ratios respectively when compared to the figures at the end of 2007.

 

Intensification of Cooperation with Strategic Alliances and Undertaking of Corporate Social Responsibility

 

During the first half of the year, CCB not only intensified its cooperation with strategic investors, but also actively fulfilled its corporate social responsibility through providing financing services and donations for the relief of the earthquake in China and the reconstruction work after the earthquake. CCB has attained impressive results in all aspects.

 

CCB has been deepening and widening its cooperation with strategic investors. With the assistance of Bank of America, branch transformation has continued. By the end of June, CCB had transformed 9,207 branches to provide marketing services, accounting for 68.69% of the total number of branches. The transformed branches recorded an improved average daily sales volume for 67%, 2.15 times of the sales volume prior to transformation. The average waiting time for customers has also been significantly reduced by 39%. In the first half of the year, CCB and Bank of America together designed a new sales and service process for its VIP customers in transformed branches. The advancement boosted up the average sales volume by 144% in pilot branches. To accommodate the latest trends and customer needs, CCB is conducting the second generation of branch transformation with good progress. In addition, CCB also cooperated intensively with Bank of America in developing products for small and medium enterprises, stabilising the online banking system and improving customer satisfaction. The Bank’s IT management, data management and risk control capabilities have been vastly improved through cooperative projects on IT planning, data governance as well as the scorecards for credit card and mortgage loan.

 

Out of the 42 collaborative projects spanning retail business, corporate business, information technology, human resources management and risk management, CCB and Bank of America have completed 28 projects as of 30 June. For example, the “Voice of Customers” project has provided an important measurable guide for various departments and branches to improve their customer services, operations management and process design. Innovative responsibility systems for new products, quantified monitoring and assessment and the divisional decision-making model are being tested in different business areas.

 

While achieving sound and rapid development of the Bank's businesses, CCB is highly concerned about its undertaking of corporate social responsibilities. After the severe earthquake in Wenchuan, Sichuan, CCB has donated 156 million to the disaster-stricken areas, of which over 86 million were donated by CCB staff and the “Special party fees” submitted by the members of the Communist Party of China amounted to over 47 million. Approximately 10,000 staff across CCB participated in voluntary blood donation and over 300 volunteers went to the disaster-stricken areas to offer rescue services to the victims.

 

In terms of financial services, CCB dealt with extraordinary events with exceptional measures by implementing a series of contingency measures to effectively and promptly support quake relief and reconstruction work. The Bank has adopted a medium-free cash withdrawal measure to verify urgent cash withdrawals by any valid identification document or passcode. Various services and measures, such as express remittance channels, free-of-charge online remittance, tent bank and mobile bank were launched. The Bank has also increased the loan extension to the power supply, transportation and manufacturing industries in the disaster-affected areas and set up an “Express Credit Channel” for credit approval in those areas to ensure the timely delivery of disaster relief loans.

 

In the first half of 2008, CCB donated 12 million to the victims of provinces stricken by extreme snow fall, including Hunan, Hubei, Anhui and Guizhou, and donated 1 million to victims in Guizhou who suffered from a severe flood to support rescue, relief and rebuilding efforts.

 

In 2007, CCB made a donation of 120 million to the China Education Development Foundation in starting up a sponsorship programme for impoverished high school students. As at the first half of 2008, over 20 million of education subsidy was granted to nearly 14,000 impoverished high school students across the country. The 50-million CCB financing programme for “Impoverished Mothers of Heroes and Exemplary Workers in China” which was launched last year has completed its first year of subsidy programme by donating 5 million in the first half of 2008.

 

During the first half of the year, CCB published the Corporate Social Responsibility Report 2007. Being the first state-owned commercial bank in China to publish a report of this kind in 2006, this is the second annual report that reported CCB’s corporate social responsibility achievements.

 

CCB’s performances in pushing forward reform and development and its dedication to undertaking its social responsibilities have won well recognition and positive appraisals from various sectors of society. In the first half of 2008, CCB was ranked 18th in The Banker’s Global 500 Financial Brands, 62nd in the Forbes’ Global 2000 leading public companies and 20th in Financial Times’ FT Global 500. The Bank also won the “Best Real Estate Investment, China” award by Euromoney and the “Outstanding Retail Bank in China” award by Capital. CCB was awarded the “Best Business Card”, the “Best Co-branded Card” and the “Best Product Design” by the MasterCard Worldwide and the “Best Subcustodian Bank, China” award by The Asset.

 

Mr. Zhang Jianguo, President of CCB, said the good results in the first half of 2008 have laid a solid foundation for the Bank to achieve its annual operational goal. The Bank will pay close attention to the changes in the macro-economic and financial situation, conduct comprehensive researches on the impact of market fluctuations on our operations and management and adopt responsive measures in advance in order to avoid risks, to further uplift operational and management standards and to successfully accomplish the operational goals of the year.

 

 

 

Background Information:

The history of the China Construction Bank Corporation (“CCB” or the “Bank”) dates back to 1954 when the People’s Construction Bank of China was founded. This entity was renamed China Construction Bank in 1996. China Construction Bank Corporation was formed in September 2004 when it separated from its predecessor, China Construction Bank, and assumed its commercial banking business and related assets and liabilities. Headquartered in Beijing, CCB had a network of over 13,000 branches and sub-branches in Mainland China as of 30 June 2008, and maintained overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo and Seoul, as well as representative offices in London, New York and Sydney. The Bank holds a 100% interest of China Construction Bank (Asia) Corporation Limited, CCB International (Holdings) Co., Ltd., a 75.1% interest of Sino-German Bausparkasse, a 65% interest in CCB Principal Asset Management Co. Ltd and a 75.1% interest of CCB Financial Leasing Corporation Ltd. It has a total of approximately 300,000 staff.

 

CCB’s H-share was listed on the Stock Exchange of Hong Kong Limited (SEHK Code: 939) on 27 October 2005 and the Bank’s A-share was listed on the Shanghai Stock Exchange (SSE Code: 601939) on 25 September 2007.

 

Principal business segments:

-          Corporate banking, which provides financial products and services to corporations, government agencies and financial institutions, including corporate loans, trade finance, deposit taking, agency services, consulting and advisory, cash management, remittance, settlement, custody and guarantee services;

 

-          Personal banking, which provides financial products and services to individual customers, including personal loans, deposit taking, bank cards, personal wealth management, remittance and securities agency services; and

 

-          Treasury business, which involves money market businesses, consisting of inter-bank transactions and repurchase transactions; covers investment portfolio management, including securities held for both trading and investment purposes; and conducts trading on behalf of customers, including foreign currency and derivatives trading.