China Construction Bank Corporation Announces 2007 Interim Results

Acceleration of Strategic Transformation

Lead to Steady, Rapid Business Development

·Operating income rose 40.81% to RMB99.786 billion

(1H2006: RMB70.864 billion)   

·Profit before tax increased 54.03% to RMB50.542 billion

(1H2006: RMB32.814 billion)  

·Net profit increased 47.50% to RMB34.255 billion

(1H2006: RMB23.223 billion)

·Earnings per share increased 50% to RMB0.15

(1H2006: RMB0.10)

·Annualized return on average assets¹ rose 0.23 percentage points, to 1.18%

(1H2006: 0.95%)  

·Annualized return on average equity² advanced 5.21 percentage points, to 20.88%

(1H2006: 15.67%)  

·Net interest margin rose 0.41 percentage points, to 3.11%

(1H2006: 2.70%)  

·Cost-to-income ratio declined 4.30 percentage points, to 37.35%

(1H2006: 41.65%)

·Total assets increased 12.28% to RMB6,117.791 billion compared to the end of last year

(As at 31 December 2006: RMB5,448.511 billion) 

·Capital adequacy ratio³ decreased 0.77 percentage points, to 11.34% compared to the end of last year

(As at 31 December 2006: 12.11%)  

·Core capital adequacy ratio³ decreased 0.49 percentage points, to 9.43% compared to the end of last year

(As at 31 December 2006: 9.92%)  

·Allowances to non-performing loans ratio rose 8.43 percentage points, to 90.67% compared to the end of last year

(As at 31 December 2006: 82.24%)

·Non-performing loan ratio decreased 0.34 percentage points, to 2.95% compared to the end of last year

(As at 31 December 2006: 3.29%)

·The Board has declared an interim cash dividend of RMB0.067 per share for the six months ended 30 June 2007 and a special cash dividend of RMB0.072716 per share, totaling approximately RMB0.14 per share.

Notes:

¹ calculated by dividing net profit by the average of total assets as at the beginning and end of the period under review, and then multiplying by two

² calculated by dividing net profit attributable to shareholders by the average of total equity attributable to shareholders of the Bank as at the beginning and end of the period under review and then multiplying by two

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

Hong Kong, 26 August, 2007 – China Construction Bank Corporation (“CCB” or the “Bank”) (Stock Code: 939) today announced its operating results for the first half of 2007. During the period, CCB captured important opportunities derived from the PRC’s rapid economic growth and the booming capital market to accelerate the strategic transformation of its businesses.  The Bank both consolidated its intrinsic strengths, and aggressively expanded into new business segments, creating positive results.

As at 30 June, 2007, the total assets of CCB rose above RMB6 trillion. Operating income grew by 40.81% year-on-year, or RMB28.922 billion, to RMB99.786 billion, while profit before tax reached RMB50.542 billion, representing a 54.03% growth or an increase of RMB17.728 billion. CCB was one of the leading Chinese banks in terms of the ratios of return on average equity and return on average assets, as well as the balance and incremental increase in personal loans and the balance of residential mortgage loans. In addition, net interest income increased steadily. Net fee and commission income increased by 101.79% year-on-year to RMB12.660 billion. The Bank made significant achievements in risk control and successfully reduced both the amount and ratio of its non-performing loans, where the ratio fell to 2.95%.

“In line with the world’s economic development and the robust growth of the Chinese economy, CCB responded quickly to market forces with a forward-looking perspective. This approach has allowed us to fully implement our development strategy, seizing opportunities, deepening reforms, strengthening our management, better conforming to laws and regulations, and making important innovations, resulting in overall improvements in service standards and efficiency,” said Zhang Jianguo, President of CCB. “In the first half of 2007, the Bank achieved a rapid, healthy and steady development in operations. This helped establish a solid foundation for fulfilling our operating targets for the full year.”

Focus on Development and Acceleration in Loan Restructuring

In the first half of 2007, CCB focused on systematic, prudent development and operation. While consolidating and developing its intrinsic strengths in business, the Bank sped up operational adjustments, maintained a quality portfolio of key clients and maintained control over incremental growth in loans and their flow onto the market.  The Bank also paid strong attention to the movement of the Chinese government’s austerity control measures and market changes.

Furthermore, the Bank enhanced the management of loan access, so as to ensure the quality of new grants. In response to the government’s warning on risks, CCB promptly adjusted its loan flow and strictly upheld the standards for loan access and approval for 15 key industries under the country’s macro-control framework.

In order to control the loan flows onto the market, the Bank examined its business structure and the quality of client assets from 11 industries with excessive productivity. In addition, CCB fully employed a list system to manage its loan clients from high-pollution, high-energy consumption sectors and formulated relevant policies for entry into and withdrawal from various industry sectors. By maintaining a “one ballot against the veto system” (“环保一票否决制”), CCB firmly refused to issue loans to projects and corporations which were officially prohibited from operation due to their breach of the regulations for environmental protection.  At the same time, CCB gave preference in terms of loan access to environmentally-friendly projects, such as wind power generation, sewage treatment for urban areas, removal of sulphur from fired-coal for thermal power plants, and the collection of coke-oven tail gas.

CCB also gave substantial support to construction projects included in the country’s focused “Two Bases and One Pillar” (“两基一柱”) sectors, namely infrastructure facilities, fundamental industries, and "pillar" industries.  In these industries, the Bank maintained its leading position in the infrastructure loan market.

CCB strongly bolstered the economic development of Chinese citizens by increasing loans to small-sized enterprises and individuals. As of June 30, 2007, loans granted to customers with internal ratings of A or above accounted for 85.96% of CCB’s corporate loans, representing an increase of 2.39 percentage points when compared with the end of 2006, thanks to a further structural optimization of the portfolio.

As of June 30, 2007, CCB’s gross loans and advances to customers were RMB3165.567 billion, an increase of RMB291.958 billion or 10.16% compared to the end of 2006. Of which, corporate loans comprised RMB2254.083 billion, a rise of 9.53% or RMB196.122 billion compared to the end of 2006. Personal loans accounted for RMB680.571 billion, representing an increase of 16.32% or RMB95.486 billion. For corporate loans, medium to long-term loans reached RMB1466.834 billion and short-term loans were RMB787.249 billion, up 11.61% or RMB152.574 billion, and 5.86% or RMB43.548 billion respectively against those as at the end of 2006. The Bank’s balance of residential mortgage loans, a composition of personal loans, was RMB474.037 million, up 10.75% or RMB45.998 billion when compared to the end of last year. The balance from personal consumer loans increased by RMB7.083 billion or 9.75% in the first half to RMB79.703 billion. Income from corporate banking grew by 32.84% or RMB13.344 billion to RMB53.973 billion. Moreover, CCB recorded an operating income of RMB32.196 billion for its personal banking business. The amount represented an increase of RMB11.675 billion, or a 56.89% rise, when compared with that as of December 31, 2006.

Capture of Market Opportunities and Advancement in Business Innovations

For the first half of 2007, CCB grasped the edges favorable to the growth of  the capital market delivered an “extraordinary” growth in its intermediary business to reach a net fee and commission income of RMB12.660 billion for the first half year, translating to a 101.79% growth or an addition of RMB6.386  billion from a year earlier. CCB marketed 115 funds in the first half of 2007, with a year-on-year growth of 778% in sales. The Bank also established settlement networks for 10 new corporate clients and set up cooperative platforms with more than 50 insurance companies countrywide. The collaboration with 87.96% of the domestic securities companies on independent custodial services for stock trading settlement funds helps the Bank retaining its leadership in the cooperation between the banking and the securities markets.

CCB has been actively exploring ways to expand its services designed for small enterprises, and has formulated strategies for the loan business for these companies. CCB's “Quick Finance“ and “Road to Growth” products, serving start-ups, growing and mature small enterprises, have become reputable brands in China. Riding on its risk control expertise, the Bank has simplified its business procedures and opened the door to growing small enterprises that possess good credit records and strong potential for sustainable development. On average, the Bank can complete the assessment of an application within ten working days. Based on this strong foundation, the Bank has launched a range of innovative loan products for small enterprises, including joint loan and joint guarantee business model (联贷联保贷款) and factoring businesses (保理业务). As of June 30, 2007, the balance of CCB’s loans to small businesses was RMB 222.357 billion, up 15.24% against the amount recorded at the end of 2006.

Rapid developments are seen in CCB’s investment banking operations, including wealth management, consultancy and advisory services, trust business, assets securitization and short-term bond sales.  With prompt adjustments to product research and development, as well as accommodation for target customers, CCB successfully sold 60 batches of wealth-management products for renminbi and foreign currency denominated deposits, an average of one batch launched per week.  CCB also saw a rapid business development in its CCB Principal Asset Management Co., Ltd., a unit which has been operating for two years and which was set up as a pilot for the Bank’s promotion of integrated operations. This business arm showed positive results for the size of assets under management, fund performance and financial benefits. These helped form a solid foundation for future development.

CCB grew rapidly in its international operations and steadily carried out its business strategy for the overseas markets. As of June 30, 2007, CCB’s operating income from its overseas operations was RMB1.453 billion, representing a rise of 240.28% or an increase of RMB1.026 billion from a year earlier, while profit before tax grew by 251.87%, or RMB675 million, to RMB943 million. The Bank’s application for setting up a representative office in Sydney, Australia was approved by the China Banking Regulatory Commission (the “CBRC”) and the Australian Prudential Regulation Authority. Also, approval for CCB’s application for establishing a branch in Ho Chi Minh City in Vietnam was granted by the CBRC. For the Hong Kong operations, the Bank has preliminarily completed the integration of its organizational and business resources.

Promotion of Operational Transformation and Continuous Enhancement in Service Capability

In line with its “Customer-centric, Market-driven” philosophy, CCB identified the development of the retail banking business the most important in its strategic transformation for the first half of 2007. In addition, the Bank also sped up its operational transformation and put effort into improving its service standards as well as customer satisfaction.

With an aim to segregate operations into front- and back-office functions and enhance the service standards and ability to sell of front-office, CCB accelerated its branch transformation program. By putting in place branch managers, optimizing operational procedures, adopting intelligent queue management systems, dynamically allocating teller services and implementing flexible duty shifts, the Bank’s transformed branches have shown notable improvements in front-office operations, resulting in further enhancements for its personal-banking services. As of June 30, 2007, CCB completed its transformation in 1,320 domestic retail outlets, where service turnover time was about 40% faster, and over 90% of customers could be attended to within 10 minutes.

CCB successfully reallocated duties in the front office, expanding its marketing channels as well as customer services. The bank enhanced its sales channels through the full engagement of its domestic outlets, personal-loan centers, wealth-management centers, the “95533” service hotline and customer-service managers. Furthermore, the Bank introduced more self-service facilities and optimized the functions of its on-line banking services, so as to drive customers to its e-banking system for standard and transaction services. CCB launched fund trading services in its mobile-phone banking operations, insurance services via on-line banking and transfers between banks and securities houses via the Bank’s “95533” service hotline. As of June 30, 2007, CCB possessed 2,213 self-service banking centers and more than 27,600 self-service facilities, as well as providing more than 100 types of transactions via self-service banking outlets. In the same period, the amount of cash deposits and withdrawals at the Bank’s ATMs grew by 30% when compared with June 30, 2006. In addition, the transaction volume of self-service banking doubled from a year earlier.

Aiming to meet customers’ diversified needs for services, CCB further enhanced its three-tier organization for personal finance, namely wealth management offices, banking centers and wealth management centers. As of June 30, 2007, CCB operated 1,021 banking centers and 21 wealth management centers, providing customers with private-banking services in cash management, property purchases, investment and trust, allocation of equity interest, tax planning, as well as budgeting for children’s education, cultural activities, traveling and business purposes. The total income from agency business operations accounted for an increasing proportion of the Bank’s personal banking business.

Establishment of Risk Management System and Boost in Asset Quality

CCB continued to improve its asset quality in the first half of 2007, as highlighted by the achievement of declines in both the balance and ratio of non-performing loans, having the best asset quality of any commercial bank in the PRC..  The balance was reduced by RMB989 million from the end of 2006 to RMB93.410 billion, while the non-performing loan ratio fell to 2.95%, representing a decrease of 0.34 percentage points when compared with the end of 2006. The Bank’s non-performing loan ratios for corporate and personal loans dropped by 0.42 and 0.19 percentage points from the end of last year to 3.65% and 1.58% as of June 30, 2007 respectively.

In the first half of 2007, the Bank emphasized its deepening reforms in its risk management system. In order to supervise all of the Bank’s organizational structures, business segments and operational procedures, CCB also sped up the establishment of a risk management system.

CCB was the first bank in China to implement loan limits and establish a systematic alert mechanism in identifying, assessing and monitoring market risks. CCB actively recalled its delegation of authority for customers belonging to the key industries monitored under the country’s austerity control measures. Coupled with effective delegation management for various other industries, the Bank successfully reduced the influence of industry-linked risks to the quality of its loan assets. In addition, CCB formulated an “Implementation Plan for Market Risk Management” (《市场风险管理实施方案》) to include all of its assets, liabilities, as well as off-balance sheet businesses in the market risk management system. Furthermore, CCB also set rigid constraints on loan limits and delegation, so as to effectively control market risks over the treasury operations at its headquarters and overseas branches.

Determined to prevent operational risks, establish monitoring systems for front-office and form a professional team responsible for managing operational risks, CCB has inserted risk control and monitoring professionals into each of its business units to provide expertise and technical support, as well as training for its employees.

Complying with requests from the CBRC, CCB has fully implemented measures for crime prevention and control, as well as for rectification and reform. A pioneer among Chinese banks, CCB reviewed and analyzed all legal infringements occurring in the Bank in the past three years, with an aim to identify patterns and potential risks involved. CCB identified nine key categories for crime prevention and 108 practical measures for rectification and reform. Of the 108 measures, 26 items were completed in the first half of 2007. In addition, the Bank carried out monitoring and examination of 13 key risk points at fundamental units. CCB is also committed to expanding its strengthened internal controls as well as reforms and rectifications into its performance appraisal systems at every level of the Bank.

Enhance in Foundation, Accelerate the pace of cooperation and Execution of Corporate Social Responsibility

CCB embarked on eight major infrastructure projects during the first half of 2007. These include: human resources reform, organizational framework restructuring, product research and innovation mechanism building, IT project development and integration, information integration and control, procedure operation, overall cost management, and comprehensive risk management. A number of remarkable accomplishments were achieved in the fields of product development, procedure operations as well as cost and risk management, resulting in a further enhancement of the Bank’s foundation management.

The Bank also continued to reinforce its strategic partnership with Bank of America and Temasek Holdings (Private) Limited. All of its 20 joint projects with Bank of America, which focused on fields including retail banking, risk management, information technology and product management, have been progressing well and are expected to be completed progressively by the end of this year as planned.  Among these projects, the three pilot schemes in branch transformation, individual residential mortgage center establishment and call center improvement have all achieved impressive results, helping the Bank to change the nature of its retail outlets from trade settlement-based to retail-based while boosting its sales capability as well as customer satisfaction.

While seeking its own rapid growth, CCB also continues to attach great importance to the interests of the nation, stakeholders, employees, clients, business partners and the public. The Bank was the first commercial bank in China to release a formal corporate social responsibility report in the first half of 2007. As the official bank and partner of the 2007 Special Olympics World Summer Games, the Bank rolled out a range of charity events to raise funds for the Games at around 3,000 branches in the 11 host cities of the Games, including Beijing and Shanghai as well as in Hong Kong. “Tsinghua University – CCB Scholarships & Bursaries” was also set up to help Tsinghua University improve the quality of its research and teaching. The Bank also supported charitable causes including “Village improvement project”(中国村落工程) and Hong Kong Federation of Youth Groups’ “Youth Employment Network” (青年就业网络项目), and was awarded “The Diamond Award” for the “Corporate and Employee Contribution Program ” of the Community Chest of Hong Kong.

The attainments of CCB have gained the recognition from various social sectors. In 2007, CCB was selected “Best Emerging Market Banks in Asia - Best Bank in China 2007” by Global Finance. CCB won accolade in “The Asset Corporate Governance Ranking 2007”. It was also awarded as “Country Achievement Award – Excellence in Mortgage Business in China” by the Asian Banker. Recently, the Bank was named one of the ”Most Influential Overseas Listed Chinese Companies”, in a domestic poll called “2006 Most Influential China-based Listed Companies”, In the “2006-2007 Best Customer Service in China” assessment programme, CCB won the “Best Customer Service in China”, the “Best Customer Service in China - Outstanding Contribution Honorary Award”and the “Best Customer Service in China Management”. The assessment programme was jointly run by China Information Industry Association and Asia Customer Service Association. 

The outstanding first-half performance this year reinforced the results of the Bank’s pioneering reforms over the years, confirmed the operating edge it has held since its initial public offering and has laid a strong foundation for the realization of its annual business goals and long-term strategic targets. Mr. Guo Shuqing, Chairman of CCB, said, “With the joint efforts of our Board of Directors, Board of Supervisors, Management and staff force, we are confident that we can realize our goal of “pioneering China’s economic modernization and becoming a world-class commercial bank’, while fulfilling the mission of “providing the best services to our customers, creating the highest value for our shareholders, establishing a development platform for employees and fully executing our corporate social responsibilities”.

Background Information:

The history of the China Construction Bank Corporation (“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 the first half of 2007, and maintained overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo and Seoul, representative offices in London and New York. The Bank holds 100% interest of China Construction Bank (Asia) Corporation Limited, 75.1% interest of Sino-German Bausparkasse, and a 65% interest in CCB Principal Asset Management Co. Ltd.  It has a total of about 300,000 staff.

The business of CCB consists of three principal business segments:

-          Corporate banking, which provides financial products and services to corporations, government agencies and financial institutions, including corporate loans, trade financing, 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 operations, 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 on their accounts.

Shares of CCB began trading on the Stock Exchange of Hong Kong Limited on 27 October 2005 (Stock Code: 0939).

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Forward Looking Statements

This press release contains certain forward-looking statements regarding the Group's financial condition, operating results and businesses. Such forward looking statements represent the Group's expectations of or beliefs in future events, and involve known or unknown risks and uncertain factors that may lead to material deviations of actual results, performance or events from the results, performance or events explicitly stated or implied in such statements. Certain statements, e.g., those containing words such as "potential”, "estimate", and similar wordings or different expressions of such wording, may all be considered "forward looking statements".