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Banking Newsletter

Analysis of China Listed Banks' Results for the Third Quarter of 2015

November 2015

www.pwccn.com

Editor in Chief: Linda Yip

Deputy Editor-in-Chief：Annie Zou

Members of the editorial team：

Amelie Cao, Jeff Deng, Ivy Meng, Allen Ran

Editorial Team：

Advisory Board：

Raymond Yung, Jimmy Leung, Margarita Ho, Richard Zhu

PwC

Banking Newsletter November 2015

3

We are pleased to present our Banking Newsletter, PwC’s analysis of China’s Listed Banks and the wider industry, which is now in its 25th edition. As of 30 October 2015, 18 Chinese Listed Banks (in A-share and/or H-share markets) announced their Q3 results, which forms the sample of our analysis.

These 18 banks, as defined by the China Banking Regulatory Commission (CBRC), include:

Large Commercial Banks (LCBs)

Industrial and Commercial Bank of China (ICBC) China Construction Bank (CCB) Agricultural Bank of China (ABC) Bank of China (BOC) Bank of Communications (BOCOM)

Joint-Stock Commercial Banks (JSCBs)

China Merchants Bank (CMB) Industrial Bank (CIB) Shanghai Pudong Development Bank (SPDB) China CITIC Bank Corporation (CITIC) China Minsheng Banking Corporation (CMBC) China Everbright Bank (CEB) Ping An Bank (PAB) Hua Xia Bank (HXB)

City Commercial Banks (CCBs)

Bank of Beijing (BOB) Bank of Nanjing (NJB) Bank of Ningbo (NBB) Bank of Chongqing (BCQ)

Rural Commercial Banks (RCBs)

Chongqing Rural Commercial Bank (CQRCB)

The total assets of these banks as of 30 September 2015 accounted for 75.24% of the assets of China’s commercial banking sector. Unless otherwise stated, all the information in this newsletter comes from publicly available sources, such as the Listed Banks’ interim reports and statistics published by regulatory bodies, and are presented in RMB where applicable.

Preface

For more information, please talk to your PwC contacts or any of those listed in the Appendix as Banking and Capital Markets contacts.

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4

Table of Contents

Macro overview

5

Operating results

9

Financial position

13

Capital adequacy ratio

19

Appendix

23

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1. Macro overview

• China’s growth continues to find its bottom

• Policy rate & RRR are cut while restrictions on interest rates lifted

• Money supply growth rebounds and exchange rates fluctuate

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In the first three quarters of 2015, world economies recovered slowly at different rates and in varied forms. The Q3 growth in the US showed signs of slowing, while leading indicators for Japanese and European economies all indicate a less than optimistic growth prospect.

There is continued downward pressure on emerging economies. The China economy continues to find its bottom as GDP growth for the first three quarters slowed, reaching 6.90% in Q3.

Growth for China, including manufacturing, investment and consumption, remained in the low single-digits. Year on year, total imports and exports also decreased in the first nine months, with a very notable QoQ drop in imports.

2009 Q1,

6.60%

2015 Q3,

6.90%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Source: National Bureau of Statistics

Note: The figures represent growth rates at the end of the quarter so that 2013 Q2

represents that of the first two quarters of 2013, and 2013 Q3 represents that of the

first three quarters of 2013.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Total exports Total Imports

Total imports and exports (In RMB 100 million)

Source: General Administration of Customs

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

Industrial production

Fixed asset

investments

Retail sales

Source: National Bureau of Statistics Note: Due to the Spring Festival, the National Bureau of Statistics usually releases

data for January and February at the same time.

China’s growth continues to find its bottom

Figure 1 China GDP growth since 1992

Figure 3 Trade volumes, import vs. export Figure 2 Growth of FAI, retail sales and IP

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Policy rate & RRR are cut while restrictions on interest rates are lifted

Commodity prices remained stable as the economy continued to slow in the first three quarters of 2015. In September, the consumer price index (CPI) increased 1.60% on the same period last year, while the CPI for the first nine months remained at 2.00% or below. There was a QoQ drop in producer price index (PPI) of 5.90%, as it continued to move downward in the first three quarters, indicating further pressure on material prices for upstream producers and that over-capacity remains an issue to tackle.

The stability in commodity prices offered further room for adjusting fiscal and monetary policies. In February, May, June and August, the PBOC cut benchmark interest rates to reduce the financing costs of the real economy. There was a fifth cut in October.

Since the beginning of this cycle of interest rate cuts in November 2014, the PBOC has cut

interest rates by 1.65%. The frequency of cuts surpassed that of the financial crisis in 2008. The prevailing benchmark interest rates are the lowest since the PBOC started publishing data in 1991.

The PBOC also made multiple cuts to reserve requirement ratios (RRRs) to ensure sufficient liquidity for banking institutions.

The lifting of deposit interest rate caps by the PBOC came in the wake of these simultaneous cuts to interest rates and RRRs, signifying that interest rate liberalisation is now basically in place in China.

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

201

2.0

1

201

2.0

3

201

2.0

5

201

2.0

7

201

2.0

9

201

2.1

1

201

3.0

1

201

3.0

3

201

3.0

5

201

3.0

7

201

3.0

9

201

3.1

1

201

4.0

1

201

4.0

3

201

4.0

5

201

4.0

7

201

4.0

9

201

4.1

1

201

5.0

1

201

5.0

3

201

5.0

5

201

5.0

7

201

5.0

9

CPI PPI

Source: National Bureau of Statistics

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

1Y deposits 1Y (and shorter term) loans

Source: People’s Bank of China

Figure 4 CPI & PPI Figure 5 RMB benchmark interest rates

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In the first three quarters, the growth in broad money supply (M2) accelerated to 13.1% - 1.30ppts higher than in 1H. At the end of September, the ratio of M2 to GDP growth reverted to the historical mean of 1.90.

PBOC explains in its 2015 Q3 Monetary Policies Report that this acceleration was due to commercial banks investing in local government debt.

In addition to the rebound in money supply, the RMB exchange rates also demonstrated notable changes. On 11 August, PBOC said it would improve mechanisms for determining the mid-point for exchange rates. This was followed the same day by a massive fall in the exchange rate. The midpoint devalued by 4.05ppts between end-June and end-September due to continued fluctuations.

The Report states that the remarkable deviation

of the RMB mid-point from market rates was due to market expectation of a US$ rate rise in 2015. The general strengthening of the US dollar, the strength of the RMB against other world currencies and China’s consistently large trade surpluses also contributed. This adjustment was made to build mechanisms that enable supply and demand to play a more decisive role in determining exchange rates, enabling them rates to revert to market levels.

PBOC stresses that there is no basis for continued RMB devaluation given the current economic and financial situations at home and abroad.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Source：National Bureau of Statistics & the PBoC

6.05

6.10

6.15

6.20

6.25

6.30

6.35

6.40

6.45

Source：China foreign exchange trading system

Money supply growth rebounds and exchange rates fluctuate

Figure 6 M2 growth Vs. GDP growth Figure 7 RMB exchange rate against USD

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2. Operating performance

• Net profit growth slows

• ROE falls but cost control strengthened

• NIM narrows while intermediary business continues to expand

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The economic downturn, cuts in interest rates, rate liberalisation and mounting pressures on the profitability meant that Listed Banks’ total net profit for the first three quarters of 2015 amounted to RMB 1,050 bn. This is a moderate increase of 2.26% compared to 10.02% for the same period in 2014.

Compared to the same period last year, the growth rate for the five Large Commercial Banks (LCBs) fell to below 1.00%, that of the eight Joint-stock Commercial Banks (JSCBs) dropped from two digits to 5.66%, while that of the five City Commercial Banks & Rural Commercial Banks (CCBs & RCBs) shrank to 13.86%, with most retaining double digit growth.

Figure 8 Net profit growth of Listed Banks

Table 1 Net profit and growth, as at 30 September 2015

Listed Banks Net profit (in million) Growth rate (2015) Growth rate (2014)

ICBC 222,291 0.65% 7.33%

CCB 192,076 0.73% 7.81%

ABC 137,874 0.79% 10.48%

BOC 153,370 0.57% 9.16%

BOCOM 52,305 1.18% 5.84%

LCBs total 757,916 0.71% 8.31%

CMB 48,786 6.24% 16.28%

CIB 41,512 7.63% 24.24%

SPDB 37,475 6.56% 8.92%

CITIC 33,434 1.77% 5.17%

CMBC 39,063 4.36% 9.74%

CEB 23,916 2.37% 7.66%

PAB 17,740 13.04% 34.18%

HXB 13,980 5.79% 18.77%

JSCBs total 255,906 5.66% 13.88%

BOB 14,177 12.47% 14.36%

NBB 5,795 16.53% 16.28%

NJB 5,344 24.60% 21.75%

BCQ 5,228 10.40% —

CQRCB 2,675 8.02% 12.61%

CCBs&RCBs total 33,219 13.86% 25.88%

Listed Banks total 1,047,041 2.26% 10.02%

12.11%

7.86%

1.43%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Net profit QoQ growth

Net profit (RMB 100 billion) QoQ growth

2013 2014 2015

Note: Bank of Chongqing did not disclose its data for the first three quarters in 2013, so that for the purpose of

comparison, Bank of Chongqing is excluded from the above Figure.

Note: Bank of Chongqing did not disclose its data for the first three quarters in 2013, so that the QoQ growth rate

for 2014 is not available.

The growth rate of net profit in Q3 was 1.43% for these Listed Banks – much lower than the 7.86% in Q3 2014.

By category, the growth rate for the five LCBs shrank from 6.18% in Q3 2014 to a mere 0.16%, that of the eight JSCBs fell from 12.28% to 4.05%, while that of the five CCBs & RCBs dropped from 16.80% to 12.97%.

Net profit growth slows

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Due to slower net profit growth, the return on equity (ROE) for the first three quarters of 2015 decreased in varying degrees for most of these Listed Banks.

The five LCBs experienced the most notable decrease of 2.60ppts in their average ROE over the first three quarters of 2015. They recorded the lowest average of the Listed Banks at 17.33%. The ROE of the eight JSCBs dropped 2.09ppts to an average of 18.17%. The five CCBs & RCBs had an average ROE of 19.15%, down 1.22ppts.

ICBC CCB ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB BOB NJB

NBB BCQ

CQRCB

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

2015 Q1-Q3 2014 Q1-Q3

Figure 9 Movements in ROE of Listed Banks

Pressure on profitability drove the Listed Banks to tighten their cost controls in the first three quarters of 2015. Most banks reported a lower cost-to-income ratio, though three did not disclose.

Figure 10 Movements in cost-to-income ratio of Listed Banks

ICBC CCB

ABC

BOC

BOCOM CMB

CIB

CMBC

PAB HXB

BOB

NJB

NBB

BCQ

CQRCB

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

2015 Q1-Q3 2014 Q1-Q3

Note: SPDB, CITIC and CEB did not disclose their cost to income ratios for the first three quarters of 2015.

ROE falls but cost control strengthened

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NIM narrows while intermediary business continues to expand

Figure 12 Fee and commission income growth

ICBC CCB

ABC BOC

BOCOM

CMB

CIB

SPDB CITIC

CMBC

CEB

PAB

HXB

BOB

NJB

NBB

BCQ

CQRCB

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2015 Q1-Q3 2014 Q1-Q3

In response to the economic downturn and the lowering of interest rates, all Listed Banks increased efforts to expand their intermediary business. In the first three quarters of 2015, 17 Listed Banks (excluding Bank of Chongqing) reported total fee and commission income of RMB 580.2 bn, growing 16.41% on a QoQ basis, against 13.10% for 2014.

Growth in this income was 5.71% for the five LCBs, 40.03% for the eight JSCBs, and 51.25% for the four CCBs & RCBs.

Figure 11 Movement in NIM of Listed Banks

CCB

BOC

BOCOM

CMB

CITIC

CMBC

PAB

NJB

NBB

BCQ

CQRCB

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

2015 Q1-Q3 2015 1H

Note: All data have been annualized, and ICBC, ABC, SPDB, CIB, CEB, HXB and BOB did not disclose their NIM for

the first three quarters of 2015.

Eleven of the 18 Listed Banks disclosed their net interest margin (NIM) for the first three quarters of 2015. For most, NIM shrank compared to 1H 2015.

The three LCBs reported a negligible reduction; there was a mixed picture for the four JSCBs. Of the four CCBs & RCBs, three saw a reduction, while Bank of Ningbo reported no change.

Note: No comparison can be made for Bank of Chongqing as it did not disclose its fee and commission income for

the first three quarters of 2013.

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3. Financial position

• Assets continue to grow steadily, with investments increasing in proportion

• Loan growth slows as credit demand weakens

• Non-performing loans continue to emerge

• Liabilities continue to grow steadily, with bonds payable increasing in proportion

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Assets continue to grow steadily, with investments increasing in proportion

At the end of September 2015, total assets of the listed banks were RMB118,220 bn - up 10.84% from end-2014 and 1.22% from end-June 2015. Listed Banks maintained their main asset structures. In response to the lowering of the RRR and the overhaul of non-standard interbank transactions by regulators, the five LCBs and eight JSCBs generally reduced their cash, deposits with the central bank and financial assets purchased under resale agreements; the proportion of investments also continued to rise.

Given their relatively limited size of loan portfolio and lower risk appetites, the interbank assets of the five CCBs & RCBs accounted for a higher percentage of their total assets compared to the LCBs and JSCBs.

At the end of September 2015, total investments of the Listed Banks amounted to RMB 28,970 bn, up 4.72% from the end of the previous quarter. Their main investment structures remained

roughly the same, as the five LCBs continued to focus on held-to-maturity investments, while the eight JSCBs and most of the CCBs & RCBs retained their interest in investments in receivables. This is most manifest in the case of the eight JSCBs, as their total investments in receivables amounted to RMB5,630 bn at the end of September, up 4.46% from end-June and up 110.34% from end-2014.

In Q3 2015, the diversion of more funds to longer term bonds by the majority of Listed Banks and the increase in local government debt swaps led to a higher proportion of held-to-maturity investments. Month-end balances for the five LCBs were RMB10,210 bn (+6.58%) and for the eight JSCBs were RMB1,770 bn (+13.71%) .

Figure 13 Changes in the asset structures of Listed Banks

52.02% 51.44% 44.71% 44.85%

37.09% 37.92%

22.24% 21.36% 29.13% 28.49%

33.55% 33.62%

14.49% 15.24% 10.63% 11.25% 10.04% 10.76%

7.40% 8.54% 11.88% 11.91% 17.45% 15.78%

3.85% 3.42% 3.65% 3.51% 1.87% 1.91%

2015.09.30 2015.06.30 2015.09.30 2015.06.30 2015.09.30 2015.06.30

Five LCBs Eight JSCBs Five CCBs & RCBs

Loans and advances Investments Cash and deposits with central bank Interbank assets Others

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Due to a lack of deposit growth and weak demand for loans, the loan growth of Listed Banks slowed down in Q3 2015, as the combined total loan balance increased only 1.83% to RMB58,530 bn compared to the end of June.

By category, the five LCBs reported a combined total of RMB42,660 bn, up 1.73% from the end of June; the combined total of the eight JSCBs was up 1.91% to RMB14,310 bn; the five CCBs & RCBs delivered fast loan growth of 3.67% over the same period.

The change in the pace of loan growth in Q3 2015 was mainly due to the combined effects of the increasing economic downturn, structural adjustments to the economy, the onslaught of Internet-based financial options, and the volume of seasonal lending.

Figure 14 Changes in growth rates of loan balances, QoQ

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB

BOB

NJB

NBB

BCQ

CQRCB

0%

2%

4%

6%

8%

10%

2015.09.30 vs 2015.06.30 2015.06.30 vs 2015.03.31

Loan growth slows as credit demand weakens

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Non-performing loans continue to emerge

At the end of Q3, total NPLs of the Listed Banks amounted to RMB911.580 bn, up 6.91% from the end of Q2; the NPL ratio rose 0.07% to 1.51% QoQ. NPLs continued to increase both in terms of balance and ratio.

Relative to NPL ratios at the end of June, the five LCBs reported a rise of 0.07ppts in their NPL ratio to 1.56%; the eight JSCBs saw their NPL ratio raised by 0.1ppt to 1.46%; the five CCBs & RCBs maintained the same level of NPL ratio at 0.91%.

In terms of growth in NPL balance, the eight JSCBs topped the list with a total NPL balance of RMB214.401 bn at the end of September, up 9.39% from the end of June; the total NPL balance of the five LCBs amounted to RMB682.484 bn, up 6.21% from the end of June; the growth in NPL balance was slowest for the five CCBs & RCBs at 4.38% compared to Q2.

Figure 15 Changes in NPLs, end of Q3 vs. end of Q2

Figure 16 Growth of NPL balances, 2015 Q3 Vs. 2015 1H

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB

BOB

NJB

NBB BCQ

CQRCB

0.7%

0.9%

1.1%

1.3%

1.5%

1.7%

1.9%

2.1%

2015.09.30 2015.06.30

4.84%

3.89%

12.29%

3.21%

5.43%

9.55%

23.80%

7.52%

10.79%

8.82%

4.43%

2.99%

1.98%

2.20%

5.25%

3.15%

13.25%

7.21%

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB

BOB

NJB

NBB

BCQ

CQRCB

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17

Higher pressure on provisions

Two key ratios of a bank’s position with respect to its allowance for loan losses are provisions-to-loans ratio and provision coverage ratio. These indicate that provisioning for loan losses at these Listed Banks demands attention.

There have been no significant changes to the provisions-to-loans ratios of the five LCBs, while the eight JSCBs have experienced more noticeable increases in their provisions-to-loans ratios.

The provision coverage ratios of Listed Banks have continued to fall as a consequence of their NPLs continuing to grow and their profit growth levelling out. This leaves the banks under greater pressure to increase their provisions.

At the end of September 2015, the provision coverage ratios of the five LCBs, the eight JSCBs and the five CCBs & RCBs were 178.11%, 189.20% and 352.47% respectively.

Figure 17 Provisions-to-loans ratio

Figure 18 Provision coverage ratio

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB

BOB

NJB

NBB

BCQ

CQRCB

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2015.09.30 2015.06.30

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC CEB

PAB

HXB

BOB

NJB

NBB

BCQ

CQRCB

100%

150%

200%

250%

300%

350%

400%

450%

2015.09.30 2015.06.30

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In Q3 2015, total liabilities of these Listed Banks continued to grow steadily, amounting to RMB109,850 bn at the end of September. This is up 10.75% from end-2014 and up 0.99% on the previous quarter.

There were slight changes to the liability structures of Listed Banks at the end of September 2015. In Q3, a host of measures were adopted by PBOC to maintain liquidity in the monetary market, including interest rate cuts, reserve requirement ratio cuts, reverse repo, short-term liquidity operations (SLOs), mid-term lending facilities (MFLs), and pledged supplementary lending (PSL), which further brought down the proportions due to banks and central bank borrowing.

In Q3 2015, the volume of interbank certificates of deposits further expanded and the balance of bonds payable continued to grow as a proportion. The growth was most evident among JSCBs. Bonds payable were higher in proportion among CCBs & RCBs than they were in JSCBs or LCBs.

78.94% 78.51%

66.00% 66.32% 64.31% 65.91%

13.37% 14.54%

25.15% 26.70% 22.72% 22.81%

1.83% 1.46% 5.73% 4.23% 9.60% 8.05%

5.86% 5.48% 3.12% 2.75% 3.37% 3.23%

2015.09.30 2015.06.30 2015.09.30 2015.06.30 2015.09.30 2015.06.30

Five LCBs Eight JSCBs Five CCBs & RCBs

Deposits Due to banks and central bank borrowing Bonds payable Others

Figure 19 Changes in the liability structures of Listed Banks

Note: Other liabilities mainly include financial liabilities and derivative financial liabilities at fair value through profit or loss.

Liabilities continue to grow steadily, with bonds payable increasing in proportion

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4. Capital adequacy ratio

• Capital raising increasingly reliant on external sources

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Capital raising increasingly reliant on external sources

At the end of September 2015, thanks to the issuing of short-term capital instruments to top up capital, most of the Listed Banks reported a slight rise in their capital adequacy ratios compared to the end of June.

However, due to the continued rise of credit exposures and the manifest slowdown in profit growth, internal forces are less able to drive the capital adequacy of these listed commercial banks.

Supplementary capital instruments, including preferred stock, tier-2 capital bonds and follow-on offerings of common stock, are expected to become the norm when listed commercial banks opt to top up their capital.

ICBC

CCB

ABC

BOC BOCOM

CMB

CIB SPDB

CITIC

CMBC

CEB PAB

HXB NJB

NBB

BCQ

CQRCB

7%

8%

9%

10%

11%

12%

13%

14%

2015.09.30 2015.06.30

ICBC

CCB

ABC

BOC

BOCOM

CMB

CIB

SPDB

CITIC

CMBC

CEB

PAB

HXB

NJB

NBB

BCQ

CQRCB

10%

11%

12%

13%

14%

15%

2015.09.30 2015.06.30

Figure 20 Tier-one core capital adequacy ratios of Listed Banks

Figure 21 Changes in capital adequacy ratios of Listed Banks

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Capital raising increasingly reliant on external sources (Cont’d)

Table 2 Issuances of capital instruments by Listed Banks (in RMB unless otherwise specified)

Banks Issuances in Q1-3Q of 2015 Future issuances announced

ICBC Overseas issuance of tier-2 capital bonds: RMB 2 bn Domestic issuance of no more than 450 m shares of

preferred stock: less than RMB 45 bn

CCB Overseas issuance of tier-2 capital bonds: USD 2 bn Domestic issuance of preferred stock: RMB 60 bn

Overseas issuance of preferred stock: RMB 20 bn

ABC Domestic issuance of 400 m shares of preferred stock:

RMB 40 bn N/A

BOC Domestic issuance of 280 m shares of preferred stock:

RMB 28 bn N/A

BOCOM Overseas issuance of preferred stock: USD 2.45 bn Domestic issuance of no more than 450 m shares of


CIB Domestic issuance of 130 m shares of preferred stock:

RMB 13 bn N/A

SPDB

Domestic issuance of 150 m shares of preferred stock:

RMB 15 bn

Overseas issuance of tier-2 capital bonds: RMB 30 bn

N/A

CITIC N/A Domestic issuance of no more than 350 m shares of


CMBC Domestic issuance of tier-2 capital bonds: less than RMB

20 bn

Domestic issuance of no more than 200 m preferred stock:

less than RMB 20 bn

CEB Domestic issuance of no more than 300 m preferred

stock: less than RMB 30 bn N/A

PAB Issuance of 599 m shares of A-share common stock:

RMB 9.94 bn

Issuance of no more than 200 m shares of preferred stock:

less than RMB 20 bn

HXB N/A Issuance of no more than 200 m shares of preferred stock:

less than RMB 20 bn

BOB N/A Domestic issuance of tier-2 capital bonds: less than RMB 18

bn

NJB Domestic non-public offering of A-shares: less than RMB

8 bn

Domestic issuance of no more than 100 m preferred stock:

RMB 10 bn

NBB Domestic issuance of tier-2 capital bonds: RMB 7 bn Domestic issuance of preferred stock: RMB 4.85 bn

BCQ N/A Private placement of 810 m shares of H-share common stock:

HKD 6.1965 bn

SJB N/A Domestic issuance of tier-2 capital bonds: RMB 10 bn

HSB N/A Overseas placement of 632.5 m shares of H-share common

stock, with issue price to be determined

At the end of Q3, a host of Listed Banks topped up their capital through tier-2 capital bonds and the offering of preferred and common stock, among other methods.

As seen from announcements made as of the date of this report, quite a few Listed Banks expect to issue various capital instruments in the near future. Issuances of capital instruments are summarised as follows:

Banking Newsletter

22

November 2015

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23

5. Appendix

• Financial highlights of Listed Banks

• Banking and Capital Markets Contacts

• PwC Offices in China

普华永道

Banking Newsletter

24

November 2015

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25

Financial highlights of Listed Banks (I)

Operating Results, Q1-Q3 2015 ICBC CCB ABC BOC BOCOM LCBs Total

Operating income 524,628 457,391 407,276 356,773 146,413 1,892,481

Net interest income 379,945 340,808 328,740 246,280 107,975 1,403,748

Non-interest income 144,683 116,583 78,536 110,493 38,438 488,733

Net fee & commission income 111,183 88,686 66,612 71,484 27,428 365,393

Other non-interest income 33,500 27,897 11,924 39,009 11,010 123,340

Operating expenses (235,754) (214,519) (211,461) (178,761) (79,281) (919,776)

Business tax and surcharges (32,266) (27,174) (22,187) (20,392) (10,921) (112,940)

Business & administration

expenses (120,815) (105,784) (123,794) (94,777) (41,209) (486,379)

Allowance for impairment losses (61,569) (64,123) (57,365) (44,893) (20,878) (248,828)

Other business expenses (21,104) (17,438) (8,115) (18,699) (6,273) (71,629)

Operating profit 288,874 242,872 195,815 178,012 67,132 972,705

Profit before tax 290,521 244,584 197,016 178,396 67,387 977,904

Income tax expense (68,230) (52,508) (43,646) (40,522) (15,082) (219,988)

Net profit 222,291 192,076 153,370 137,874 52,305 757,916

Non-controlling interests 530 519 160 6,329 265 7,803

Profit attributable to

shareholders 221,761 191,557 153,210 131,545 52,040 750,113

Five Large Commercial Banks (In RMB millions)

Financial Position,

as of 30 September 2015 ICBC CCB ABC BOC BOCOM LCBs Total

Total assets 22,104,917 18,321,375 17,709,510 16,672,018 7,206,866 82,014,686

Loans and advances, net 11,610,463 10,091,195 8,482,659 8,837,177 3,639,712 42,661,206

Investments 5,039,814 3,939,542 4,261,708 3,460,414 1,537,758 18,239,236

Interbank assets 1,420,374 1,118,205 1,723,018 1,089,956 720,244 6,071,797

Cash & deposits with central bank 3,273,308 2,667,037 2,724,711 2,278,906 939,642 11,883,604

Others assets 760,958 505,396 517,414 1,005,565 369,510 3,158,843

Total liabilities 20,414,265 16,946,975 16,534,383 15,362,957 6,684,766 75,943,346

Deposits from customers 16,521,828 13,827,713 13,554,404 11,548,697 4,493,337 59,945,979

Interbank liabilities 2,379,867 2,084,394 1,757,025 2,316,163 1,618,020 10,155,469

Debt securities issued 278,277 389,523 308,323 277,084 137,401 1,390,608

Due to central bank 338 36,128 16,250 421,737 78,194 552,647

Other liabilities 1,233,955 609,217 898,381 799,276 357,814 3,898,643

Total owners’ equity 1,690,652 1,374,400 1,175,127 1,309,061 522,100 6,071,340

Non-controlling interests 10,624 11,025 1,622 50,214 3,089 76,574

Total equity attributable to equity

shareholders 1,680,028 1,363,375 1,173,505 1,258,847 519,011 5,994,766

PwC


26

Financial highlights of Listed Banks (II)

Operating Results, Q1-Q3 2015 CMB CIB SPDB CITIC CMBC CEB PAB HXB JSCBs Total

Operating income 156,224 112,354 108,632 107,453 116,170 70,047 71,152 43,172 785,204

Net interest income 101,159 88,008 82,529 76,746 70,489 49,658 48,206 35,058 551,853

Non-interest income 55,065 24,346 26,103 30,707 45,681 20,389 22,946 8,114 233,351

Net fee & commission income 44,977 23,479 21,222 26,068 37,952 20,261 20,223 8,220 202,402

Other non-interest income 10,088 867 4,881 4,639 7,729 128 2,723 (106) 30,949

Operating expenses (92,637) (60,230) (60,271) (63,722) (65,565) (38,436) (47,847) (24,585) (453,293)

Business tax and surcharges (9,268) (9,428) (6,701) (7,470) (7,534) (5,293) (5,046) (3,197) (53,937)

Business & administration

expenses (39,204) (22,846) (22,109) (27,787) (32,352) (18,519) (22,866) (15,313) (200,996)

Allowance for impairment losses (43,952) (27,576) (30,950) (28,465) (24,844) (14,550) (19,935) (6,061) (196,333)

Other business expenses (213) (380) (511) - (835) (74) - (14) (2,027)

Operating profit 63,587 52,124 48,361 43,731 50,605 31,611 23,305 18,587 331,911

Profit before tax 63,990 52,372 48,990 43,842 50,926 31,664 23,286 18,638 333,708

Income tax expense (15,204) (10,860) (11,515) (10,408) (11,863) (7,748) (5,546) (4,658) (77,802)

Net profit 48,786 41,512 37,475 33,434 39,063 23,916 17,740 13,980 255,906

Non-controlling interests 286 291 313 508 686 41 - 68 2,193

Profit attributable to

shareholders 48,500 41,221 37,162 32,926 38,377 23,875 17,740 13,912 253,713

Eight Joint-stock Commercial Banks (In RMB millions)

Financial Position,

as of 30 September 2015 CMB CIB SPDB CITIC CMBC CEB PAB HXB JSCBs Total

Total assets 5,222,292 5,289,398 4,822,629 4,653,138 4,374,847 3,086,815 2,599,060 1,950,115 31,998,294

Loans and advances, net 2,633,672 1,701,725 2,113,767 2,317,329 1,932,309 1,433,869 1,182,226 991,110 14,306,007

Investments 1,329,212 2,380,429 1,609,087 1,429,932 818,882 835,491 526,675 391,502 9,321,210

Interbank assets 489,449 545,653 457,161 314,697 917,094 376,631 466,437 235,789 3,802,911

Cash & deposits with

central bank 616,953 429,398 492,380 469,535 444,377 351,074 297,223 299,393 3,400,333

Others assets 153,006 232,193 150,234 121,645 262,185 89,750 126,499 32,321 1,167,833

Total liabilities 4,872,327 4,983,559 4,519,009 4,357,002 4,074,112 2,869,908 2,441,924 1,837,244 29,955,085

Deposits from customers 3,467,658 2,431,748 3,001,090 3,148,587 2,708,015 1,958,935 1,723,328 1,332,133 19,771,494

Interbank liabilities 1,004,639 2,034,639 1,070,233 889,632 1,060,843 627,315 452,591 394,200 7,534,092

Debt securities issued 203,916 370,447 313,757 201,234 194,993 197,067 192,325 41,913 1,715,652

Due to central bank 31,000 51,800 43,825 18,550 17,979 14,040 3,600 30,050 210,844

Other liabilities 165,114 94,925 90,104 98,999 92,282 72,551 70,080 38,948 723,003

Total owners’ equity 349,965 305,839 303,620 296,136 300,735 216,907 157,136 112,871 2,043,209

Non-controlling interests 1,003 3,415 3,355 1,952 8,234 546 - 709 19,214

Total equity attributable

to equity shareholders 348,962 302,424 300,265 294,184 292,501 216,361 157,136 112,162 2,023,995

PwC


27

Financial highlights of Listed Banks (III)

Operating Results, Q1-Q3 2015 BOB NJB NBB BCQ* CRCB* CCBs & RCBs total

Operating income 32,974 16,605 14,124 6,398 16,155 86,256

Net interest income 26,132 13,714 11,636 5,176 14,919 71,577

Non-interest income 6,842 2,891 2,488 1,222 1,236 14,679

Net fee & commission income 5,775 2,627 2,906 1,122 1,111 13,541

Other non-interest income 1,067 264 (418) 100 125 1,138

Operating expenses (15,127) (9,962) (7,495) (2,733) (8,475) (43,792)

Business tax and surcharges (2,140) (1,267) (777) - - (4,184)

Business & administration expenses (7,602) (3,957) (4,292) (2,112) (6,421) (24,384)

Allowance for impairment losses (5,372) (4,679) (2,414) (621) (2,054) (15,140)

Other business expenses (13) (59) (12) - - (84)

Operating profit 17,847 6,643 6,629 3,665 7,680 42,464

Profit before tax 17,845 6,669 6,625 3,666 7,680 42,485

Income tax expense (3,668) (1,441) (1,281) (991) (1,885) (9,266)

Net profit 14,177 5,228 5,344 2,675 5,795 33,219

Non-controlling interests 41 50 23 - 55 169

Profit attributable to shareholders 14,136 5,178 5,321 2,675 5,740 33,050

Five City Commercial Banks & Rural Commercial Banks (In RMB millions)

Financial Position,

as of 30 September 2015 BOB NJB NBB BCQ* CRCB* CCBs & RCBs total

Total assets 1,787,799 770,197 658,505 292,973 697,409 4,206,883

Loans and advances, net 730,084 207,080 235,464 116,658 271,033 1,560,319

Investments 409,440 404,752 320,763 94,695 181,951 1,411,601

Interbank assets 458,561 63,317 27,413 38,888 145,835 734,014

Cash & deposits with central bank 161,699 77,009 61,101 36,691 85,934 422,434

Others assets 28,015 18,039 13,764 6,041 12,656 78,515

Total liabilities 1,679,696 725,538 620,022 274,890 650,477 3,950,623

Deposits from customers 1,020,520 490,996 359,306 194,450 475,285 2,540,557

Interbank liabilities 465,533 140,463 99,917 61,825 129,787 897,525

Debt securities issued 130,120 76,342 128,205 12,472 32,113 379,252

Due to central bank 20,025 2,400 1,000 - 2,755 26,180

Other liabilities 43,498 15,337 31,594 6,143 10,537 107,109

Total owners’ equity 108,103 44,659 38,483 18,083 46,932 256,260

Non-controlling interests 256 372 97 - 1,575 2,300

Total equity attributable to equity

shareholders 107,847 44,287 38,386 18,083 45,357 253,960

*SJB, HSB, HRB, BCQ, CRCB are listed in Hong Kong Exchanges.

PwC


28

Financial highlights of Listed Banks (IV)

Financial Ratios for Q1-Q3 2015 ICBC CCB ABC BOC BOCOM

Profitability (Jan - Sep 2015)

Return on average total assets (ROA) 1.39% 1.46% 1.21% 1.15% 1.04%

Return on weighted average equity (ROE) 18.60% 19.45% 19.41% 15.02% 14.15%

Net Interest Spread (NIS) - 2.47% - - 2.08%

Net Interest Margin (NIM) - 2.64% - 2.14% 2.24%

Cost to income ratio 23.03% 24.04% 30.40% 26.57% 28.57%

Income Mix (Jan - Sep 2015)

Net interest income* 72% 75% 81% 69% 74%

Other non-interest income* 6% 6% 3% 11% 8%

Fee and commission income* 21% 19% 16% 20% 19%

Asset Quality (As of 30 Sep, 2015)

Non performing loan (NPL) balance, in millions 171,408 149,971 179,158 129,072 52,875

NPL ratio 1.44% 1.45% 2.02% 1.43% 1.42%

Allowance to total loans ratio 2.27%* 2.59%* 4.41%* 2.20%* 2.35%

Provision coverage ratio 157.63% 178.99% 218.30% 153.72% 165.33%

Capital Adequacy (As of 30 Sep, 2015)

Common Equity Tier 1 capital adequacy ratio 12.41% 12.73% 9.72% 10.71% 10.97%

Tier 1 capital adequacy ratio 12.67% 12.73% 10.43% 11.68% 11.29%

Capital adequacy ratio 14.43% 14.97% 13.21% 13.65% 13.30%

Total equity to total assets ratio* 8% 8% 7% 8% 7%

Risk-weighted assets to total assets ratio* - 61% 63% - 64%

Financial Ratios for Q1-Q3 2015 CMB CIB SPDB CITIC CMBC CEB PAB HXB


Return on average total assets (ROA) - 0.86% 0.83% 1.02% - - 0.74% - Return on weighted average equity (ROE) 19.50% 15.75% 14.37% 15.89% 19.29% 16.83% 12.39% 12.90%

Net Interest Spread (NIS) 2.59% - - - - - 2.59% -

Net Interest Margin (NIM) 2.75% - - 2.33% 2.29% - 2.73% -

Cost to income ratio 25.09% 20.67% - - 27.85% - 32.14 35.47%


Net interest income* 65% 78% 76% 71% 61% 71% 68% 81%

Other non-interest income* 6% 1% 4% 4% 7% 0% 4% 0%

Fee and commission income* 29% 21% 20% 24% 33% 29% 28% 19%


Non performing loan (NPL) balance, in millions 43,397 27,487 29,829 33,763 28,753 21,034 16,199 13,939

NPL ratio 1.60% 1.57% 1.36% 1.42% 1.45% 1.43% 1.34% 1.37%

Allowance to total loans ratio 3.12% 2.97% 3.39% 2.53% 2.35% 2.36%* 2.24% 2.57%

Provision coverage ratio 195.47% 189.64% 248.67% 178.42% 161.62% 164.75% 166.97% 187.31%


Common Equity Tier 1 capital adequacy ratio 10.83% 8.45% 8.42% 8.99% 9.00% 9.23% 9.14% 8.82%

Tier 1 capital adequacy ratio 10.83% 9.23% 9.38% 9.04% 9.02% 10.18% 9.14% 8.82%

Capital adequacy ratio 12.79% 11.20% 12.33% 12.00% 11.36% 11.91% 11.08% 10.87%

Total equity to total assets ratio* 7% 6% 6% 6.36% 7% 7% 6% 6%

Risk-weighted assets to total assets ratio* 59% 62% 65% 69.86% - 68% 61.35% 66%

Five Large Commercial Banks

Eight Joint-stock Commercial Banks

PwC


29

Financial highlights of Listed Banks (V)

Financial Ratios for Q1-Q3 2015 BOB NJB NBB BCQ* CRCB*


Return on average total assets (ROA) - 1.08% 1.17% 1.26% 1.17%

Return on weighted average equity (ROE) 13.88% 14.77% 14.65% 21.04% 16.99%

Net Interest Spread (NIS) - 2.45% 2.41% - -

Net Interest Margin (NIM) - 2.61% 2.39% 2.56% 3.22%

Cost to income ratio 23.00% 23.83% 30.39% 26.59% 32.95%


Net interest income* 79% 83% 82% 81% 92%

Other non-interest income* 3% 2% -3% 2% 1%

Fee and commission income* 18% 16% 21% 18% 7%


Non performing loan (NPL) balance, in millions 6,936 2,044 2,117 1,177 2,421

NPL ratio 0.94% 0.95% 0.88% 0.98% 0.86%

Allowance to total loans ratio 3.30%* 3.59%* 2.62% 2.15%* 3.65%*

Provision coverage ratio 359.23%* 377.41% 299.26% 217.26% 424.32%


Common Equity Tier 1 capital adequacy ratio - 9.14% 8.92% 9.73% 9.57%

Tier 1 capital adequacy ratio - 9.14% 8.92% 9.73% 9.57%

Capital adequacy ratio - 12.11% 12.53% 10.78% 11.76%

Total equity to total assets ratio* 6% 6% 6% 6% 7%

Risk-weighted assets to total assets ratio* - - - - -

Five City Commercial Banks & Rural Commercial Banks

Note: the ratio marked with * are calculated by PwC.

PwC


30

Banking and Capital Markets Contacts

Assurance Advisory Tax

Raymond Yung – Beijing James Chang – Beijing Oliver Kang – Beijing

Tel: +86 (10) 6533 2121 Tel: +86 (10) 6533 2755 Tel：+86 (10) 6533 3012

[email protected] [email protected] [email protected]

Margarita Ho – Beijing Addison Everett – Beijing Matthew Wong – Shanghai

Tel: +86 (10) 6533 2368 Tel: +86 (10) 6533 2345 Tel: +86 (21) 2323 3052


Richard Zhu – Beijing William Gee – Beijing Florence Yip – Hong Kong

Tel: +86 (10) 6533 2236 Tel：+86 (10) 6533 2269 Tel：+852 2289 1833


Jimmy Leung – Shanghai William Yung – Shanghai

Tel: +86 (21) 2323 3355 Tel：+86 (21) 2323 1984

[email protected] [email protected]

Michael Hu －Shanghai Matthew Phillips – Hong Kong Assurance – Risk & Quality

Tel: +86 (21) 2323 2718 Tel: +852 2289 2303

[email protected] [email protected] Tracy Chen – Shanghai

Tel: +86 (21) 2323 3070

Shirley Yeung – Guangzhou Chris Chan – Hong Kong [email protected]

Tel：+86 (20) 3819 2218 Tel：+852 2289 2824

[email protected] [email protected] Nigel Dealy – Hong Kong

Tel: +852 2289 1221

Charles Chow – Shenzhen [email protected]

Tel: +86 (755) 8261 8988

[email protected]

PwC


31

PwC Offices in China

Beijing Shanghai Hong Kong 26/F, Office Tower A, Beijing Fortune Plaza 11/F, PricewaterhouseCoopers Center, 2 Corporate Avenue 22/F, Prince's Building

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Zip: 100020 Zip: 200021 Fax: +852 2810 9888

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Zip: 518001 Zip: 510623 Zip: 300051

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Dalian Qingdao Hangzhou 8F Senmao Building 37/F, Tower One, HNA IMC Centre Unit 3205, Canhigh Center

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Dalian, P.R.C Qingdao, P.R.C Hangzhou, P.R.C

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Chongqing Ningbo Xiamen Room 1905, 19/F Metropolitan Tower Room 1203, Tower E, Ningbo International Financial Center Unit B, 11/F, International Plaza

68 Zou Rong Road 268 Min An Road East, Jiangdong District 8 Lujiang Road, Siming District

Chongqing, P.R.C. Ningbo, P.R.C Xiamen, P.R.C.

Zip: 400010 Zip: 315040 Zip: 361001

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Suzhou Nanjing Xi'an

Room 1501, Genway Tower Unit 12A01, Nanjing International Centre 7/F, Block D, Chang'an Metropolis Center

188 Wang Dun Road, Suzhou Industrial Park 201 Zhongyang Road, Gulou District 88 Nanguan Street

Suzhou, P.R.C Nanjing, P.R.C Xi'an, P.R.C

Zip: 215028 Zip: 210009 Zip: 710068

Tel: +86 (512) 6273 1888 Tel: +86 (25) 6608 6288 Tel: +86 (29) 8469 2688

Fax: +86 (512) 6273 1800 Fax: +86 (25) 6608 6210 Fax: +86 (29) 8469 2600

Macau Wuhan Shenyang 29/F, Bank of China Building Unit 04, 41/F Wuhan Wanda Centre Room 705, EnterpriseSquare Tower A

323 Avenida Doutor Mario Soares, Macau 96 Linjiang Avenue, Jiyuqiao, Wuchang District 121 Qingnian Avenue, Shenhe District

Tel: +853 8799 5111 Wuhan, P.R.C Shenyang, P.R.C

Fax: +853 8799 5222 Zip: 430060 Zip: 110013

Tel: +86 (27) 5974 5818 Tel: +86 (24) 2332 1888

Fax: +86 (27) 5974 5800 Fax: +86 (24) 2326 3888

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