Driving changes in development mode

Sustained excellence in operating results

On 27 March 2011, China Construction Bank Corporation (“CCB” or “the Bank”) announced its 2010 operating results. During the year, national macro-economic policies were conscientiously carried out and a strategy of prudent development was upheld. Under effective management, business development was smooth and well-coordinated, service quality was continually enhanced and operating results were excellent.

Asset size exceeded RMB10 trillion

Development qualities substantially rose

In 2010, domestic and international financial situations were complicated and volatile. Capitalising on its own development strategy, CCB provided increased financial support for economic and social development as well as livelihood areas. A sustained growth in asset size was achieved. As of 31 December 2010, total assets amounted to RMB10.810317 trillion (unless otherwise stated, the data herein are calculated in accordance with the International Financial Reporting Standards on a consolidated basis. The data specified is the data of the Group and is denominated in RMB), up 12.33% from the end of the previous year. Net loans and advances to customers stood at RMB5.526026 trillion or a growth of 17.75% year-on-year. Total liabilities were RMB10.109412 trillion, up 11.53% year-on-year. In particular, deposits from customers grew by 13.42% to RMB9.075369 trillion.

For the whole year, CCB realised profit before tax of RMB175.156 billion, an increase of 26.26% year-on-year. Net profit reached RMB135.031 billion, representing a growth of 26.39%. A moderate increase in interest-earning assets resulted in growth of RMB39.615 billion or 18.70% in net interest income and resulted in a net interest margin of 2.49%. By actively pursuing service and product innovations, net fee and commission income kept on with a healthy growing trend and reported an increase of RMB18.073 billion or 37.61% from the previous year. Return on average assets at 1.32% and return on average equity of 22.61% represented an increase of 0.08 and 1.74 percentage points respectively over the previous year, representing the best performance among all major international commercial banks.

With sustained improvement in asset quality, CCB’s non-performing loan ratio dropped by 0.36 percentage points from the previous year end to 1.14%. With the ratio of allowances to non-performing loans raised by 45.37 percentage points from the previous year end to 221.14%, risk mitigation capability was further enhanced. After the A+H share rights issue, the Bank’s capital adequacy ratio and core capital adequacy ratio were raised to 12.68% and 10.40% respectively, thus strengthening its capital base. With the continued implementation of comprehensive cost management, cost output efficiency was further raised and cost-to-income ratio decreased by 1.79 percentage points to 37.25%.

CCB’s achievements in prudent operations won high recognition in external markets. Over the year, it was acclaimed as the “Best Bank in China” by The Banker in UK as well as FinanceAsia and The Asset magazine in Hong Kong. The Bank’s ranking in the Fortune’s “Global 500” rose to 116th while it topped the banking sector in the list of the “Top 50 Most Valuable Chinese Brands” released by Forbes.

Serving the overall socio-economic situation

Credit structure optimised continuously

In 2010, CCB conscientiously implemented the State’s macro-economic policies. In accordance with the country’s changing pattern of development and industrial structure adjustment, the Bank took the initiative of combining its efforts in serving the overall socio-economic situation with adjustment in its own credit structure. This was achieved by providing greater credit support to areas related to national development and people’s livelihood. In the year, the balance of CCB’s corporate loans rose by 18.67% year-on-year to RMB3.976865 trillion. Specifically, the credit demands from small enterprises, the “Three Rurals” (the agricultural industry, rural areas and farmers) and other livelihood areas was met; development of the western regions in China was further supported and special funds to finance subsidised housing were arranged.

The balance of CCB’s loans to small and medium-sized enterprises grew by 28.6% and reached RMB1.58522 trillion, which surpassed the growth rate of corporate loans by a wide margin. A new breakthrough in online banking business was achieved and provided online banking financing services to over 7,000 customers with the growth in the balance of loans reaching 470%. The balance of agriculture-related loans was RMB822.1 billion, including a newly added amount of RMB232.6 billion. In the year, the establishment of nine rural banks was initiated to boost economic development at the county level. Total loans from these banks were RMB1.343 billion with no non-performing loans so far. In personal mortgage loans, the focus was to support the purchasing of owner-occupied housing. Loans in this area grew by 27.99% to RMB1.091116 trillion in the year. The balance for provident fund personal mortgage loans grew by 24.66% to RMB516.733 billion and maintained the leading market share in the industry. The Bank was qualified in all 28 pilot cities involved in providing services using housing provident funds to support subsidised housing construction in pilot cities. Its series of “livelihood-oriented” financial products for supporting construction in various livelihood areas were well received by different parties and 5,457 customers were added since these products were first promoted. The series of “Domestic Trade Express” products have cumulatively provided comprehensive financial services to 2,166 domestic foreign traders in their transformation into domestic traders. Over the course of all this, a credit balance of RMB122.5 billion was extended.

In response to the national policy to adjust the industrial structure, CCB placed the issuance of loans to sectors with overcapacity under strict control. In response to the State’s call for macro-economic control, CCB’s credit balance and loan balance to the “6+1” sectors with overcapacity were both lowered. The Bank also followed the request from regulatory bodies to help with restoring proper order to loans for government financing vehicles by thorough checks and restructuring of excessive loans. By strictly categorising customers into different priority lists for receiving loans, new lending in real estate loans was lower than the growth in corporate loans by 6.33 percentage points. Over the year, the Bank voluntarily withdrew credit amounting to RMB104.5 billion. Meanwhile, it ensured that newly issued loans were used mainly in ordinary residential housing projects so as to support the construction of government subsidised housing.

Emerging businesses developed robustly

New breakthroughs in integrated operation

In 2010, CCB redoubled its independent innovation and R&D efforts, expanding into emerging strategic businesses and accelerating the pace of integrated operation. A total of 316 product innovations were completed in the year.

The Bank’s intermediary business grew strongly, resulting in a net fee and commission income of RMB66.132 billion, which accounted for 20.30% of the total operating income. Its investment banking business grew rapidly, in terms of short-term financing bill underwriting, modern financial advisory services and M&A loans, CCB was the industry leader. The Bank’s financial market business advanced at a good tempo, with money market transactions growing by 16.72% to RMB13.75 trillion year-on-year. In domestic factoring, a year-on-year growth of 227% was recorded. Income from the insurance agency business reached a record-breaking RMB3.664 billion. The size of the investment and custodian business grew by 31.31% to RMB1.307942 trillion while the size of the corporate annuity scheme grew to RMB36.647 billion, propelling the Bank to the second place in the domestic market. The number of cash management accounts increased by 90.00% over the previous year.

The Bank’s card business grew rapidly with substantial rises in operating efficiency. Debit and credit card transactions totalled RMB1.303653 trillion and RMB406.521 billion, representing growths of 64.88% and 38.85% respectively and the balance of its credit card loans grew by 52.30% to RMB55.44 billion. The Bank led the industry in terms of core credit card business indices including number of card accounts, transaction volume of consumption, loan balance and asset quality.

CCB has essentially completed its strategic deployment for integrated operation. In 2010, on top of its non-banking institutions in funds, trust, financial leasing and investment banking, a project in the merger and acquisition of equities in insurance companies was implemented. At the same time, it was active in developing housing savings banks, rural banks and overseas retail banks. In the year, the total assets of CCB’s subsidiaries increased by 48.36% to RMB153.993 billion while a net profit of RMB2.166 billion was realised.

Improved allocation of service resources

Raising Professional and Dedicated Standards

In 2010, CCB succeeded in further improving its specialised and differentiated customer service system resulting in new enhancements in service efficiency and quality. The Bank had a network of 13,415 branches and sub-branches in Mainland China, an increase of 31 over the previous year-end. It had 39,874 installed and operative ATMs and 9,677 self-service banks, up 10.70% and 19.06% respectively from the previous year. The ratio of e-banking transactions to over-the-counter transactions reached 142%, an increase of 67 percentage points from the beginning of the year. Specifically, the Bank can boast 57.05 million personal online banking accounts and an online banking transaction total of RMB8.75 trillion, a 191% growth over the previous year. The Bank’s mobile phone banking recorded 8.16 million new accounts and realised a transaction amount of RMB491.0 billion or a 99% growth year-on-year.

In the year, all CCB retail outlets had completed marketing service transformation and 4,000 outlets had completed a second generation of transformation. Inroads in high-net-worth customer services were made and the number of high-net-worth customers grew 34% from the previous year. The financial assets of these high-net-worth customers accounted for 11% of the total financial assets of all personal customers, as compared to the 8% share in the previous year. There was a growth of almost 50% in the number of private banking accounts. At present CCB owns 192 wealth management centres and 10 private banks.

There were continuous breakthroughs in CCB’s overseas network deployment. Following the setting up of its Ho Chi Minh City Branch in Vietnam and Sydney Branch in Australia, the Bank now has 12 branches and wholly-owned subsidiaries, with more than 60 business organisations overseas. The total assets of the overseas subsidiaries amounted to RMB272.829 billion or a growth of 16.36% from the previous year. In the year, CCB carried out international settlements valued at US$667.026 billion, a growth of 43.42% on the year, representing the largest growth among China’s four major state-owned commercial banks.

Basic management becoming increasingly sound

Internal risk control continually strengthened

In 2010, CCB used the implementation of the New Basel Capital Accord as an opening to advance the development of a total risk management system to bolster its business development and innovation. By further refining its credit policy framework of “starting to provide credits to certain sectors and guaranteeing credits to others while controlling, suppressing or withdrawing credits from yet others”, CCB managed to strengthen specifically basic areas of post-lending, collateral, off-balance sheet, overseas and consolidation management.

By innovating and enriching its risk management methods, CCB succeeded in forming a credit rating system which covers its corporate, small enterprises and retail customers. An internal rating model and system were also developed independently with reference to the realities of the Chinese market and the accumulated data of the Bank. In accordance with the characteristics of different customer groups, 27 credit rating models for corporate and small enterprise customers, and 9 retail banking score cards were established and adopted. Quantification of economic capital was optimised and applied to the Bank’s business operations and management. In addition, the pace of development of market risk measurement tools and systems were accelerated, risk limit management was perfected and an approval system for new products was established.

In the year, the Bank’s basic management was enhanced to a new level. Over 50 projects listed in the overall planning for the implementation of the New Capital Accord were basically completed. The Bank’s internal rating was able to cover all customers. With the completion of the reconstruction of 20 existing systems and the development of 6 new systems, and with successive launches of a portfolio risk management system, financial market business risk management system and operational risk management information system, an integrated platform for bankwide risk management was set up. Also, by setting up a data quality control mechanism and establishing a management system for operational risk loss data, the standards for basic data management were substantially raised.

Management for credit risk, liquidity risk, market risk, operational risk and reputational risk as well as balance sheet consolidation management were strengthened. There was a drastic drop in the number of criminal cases as a result of bolstering self-assessment of operational risk, thorough monitoring and inspection of critical risk points and by setting up a centralised operational risk management application platform and an integrated information analysis platform. The smooth running of the Bank’s business was guaranteed by strengthening business continuity management policies, fortifying emergency responses and disaster recovery systems, improving contingency planning as well as undertaking regular drills. By promulgating measures in reputational risk management, no major reputational risk incidents took place over the year.

Undertaking corporate social responsibility

Promoting the harmonious development of society

Insofar as CCB employees are always regarded as CCB’s most valuable resources, large-scale staff training was conducted. Over the whole year, 26,393 different training sessions were conducted domestically and overseas, involving the participation of 1.225 million person-times. In particular, 51 middle-level managers were sent to the Bank of America to participate in 4 sessions of business training. 65 experience sharing or short-term training sessions were also conducted jointly with Bank of America.

CCB has been actively undertaking corporate social responsibility practices. Since the Bank’s shareholding restructuring, it has paid a total of RMB691.233 billion of taxes and bonuses to the State. The Bank implemented 22 projects related to social welfare causes over the year and contributed a total sum of RMB95.2799 million, of which RMB28.23 million was donated by its employees. In response to the earthquake in Yushu County, the drought in the south, the mudslide in Zhouqu of Gansu and floods in various regions, a total of RMB53.1315 million was donated. Under the “CCB Scholarship and Grants for College Students from Ethnic Minorities”, 4,259 minority students from 97 colleges were sponsored and a total of RMB12.03 million in scholarships and assistantships were granted. Under the “Build for the Future—CCB Sponsorship Programme for Impoverished High School Students”, a total of RMB120 million was invested and a cumulative sponsorship of 51,300 person-times was made. Through the “Sponsorship Programme for Impoverished Mothers of Heroes and Exemplary Workers in China”, a total of RMB50 million was invested and financial support for 5,425 person-times was provided. In 2010, the Bank was recognised by the Red Cross Society of China, China Women’s Development Foundation, People’s Daily Online and Xinhua Net with the “China Red Cross Outstanding Contribution Award”, “China Women Charity Award”, “Most Responsible Enterprise Award 2010” and the “China Outstanding Enterprise in Corporate Social Responsibility Award” etc.

Background Information:

The history of the China Construction Bank Corporation (“the Bank”) dates back to 1954 when the Peoples 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 13,415 branches and sub-branches in Mainland China, and maintained overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo, Seoul, New York, Ho Chi Minh City, and Sydney, as well as a representative office in Moscow as of 31 December 2010. The Bank has a number of subsidiaries, including China Construction Bank (Asia) Corporation Limited, CCB International (Holdings) Co., Ltd., CCB Financial Leasing Corporation Ltd., CCB Trust Co. Limited, Sino-German Bausparkasse Co. Ltd, CCB (London) Limited, and CCB Principal Asset Management Co., Ltd. The Bank has a total of approximately 310,000 staff, and provides comprehensive financial services to its customers.

The Bank was listed on the Stock Exchange of Hong Kong Limited (Stock Code: 939) in October 2005 and was listed on the Shanghai Stock Exchange (SSE Code: 601939) in September 2007. At of 31 December 2010, the market capitalisation of CCB reached approximately US$220 billion, ranking 2nd among listed banks in the world.