China Construction Bank Announces 2009 Annual Operating Results

 

Promoting development for the greater good

Delivering outstanding results from prudent operation

28 March 2010 - China Construction Bank Corporation (“CCB” or “the Bank”) released its 2009 annual operating results today. In 2009, at a time when the global financial crisis was spreading around the world and domestic economic development was extremely difficult, CCB earnestly implemented national macroeconomic policies; relentlessly pursued a proactive yet prudent operational strategy; and scientifically coordinated its business development, risk prevention and structural adjustment tasks. The Bank subsequently achieved better than expected operating results and attained its annual business objectives outstandingly.

Zhang Jianguo, president of the Bank, said, “In the past year, CCB had been serving the greater good of the national economy in a spirit of reform and innovation. We have been relentless in pursuing a principle of proactive yet prudent operation, while firmly taking initiatives in controlling risks. Consequently, despite the complicated business environment, we were able to seize market opportunities and achieve solid advancement in all segments of our business, thereby laying a firm foundation for sustainable development in future.”

Operation scale sets a new record

Development quality improves steadily

In 2009, against the backdrop of the national package programme to face the global financial crisis combined with CCB’s development strategy, the Bank redoubled financial support efforts in economic and livelihood areas while it registered historical records in new deposits and loans and sustained asset growth. As of 31 December 2009, the Bank’s total assets were RMB9.623355 trillion (unless otherwise stated, the data hereinafter are calculated in accordance with International Financial Reporting Standards on a consolidated basis and are reckoned in RMB), a growth of 27.37% from the end of the previous year. Of this, net loans and advances to customers were RMB4.692947 trillion, up 27.40% from the previous year-end; total liabilities were RMB9.064335 trillion, up 27.88% from the previous year-end, of which deposits from customers grew 25.49% to RMB8.001323 trillion.

CCB’s focus on raising the quality and efficiency of business development was rewarded with excellent business results. In the year, it realised profit before tax of RMB138.725 billion, a growth of 15.85% from the previous year; its net profit exceeded RMB100 billion for the first time to reach RMB106.836 billion, growing by 15.32% to exceed the annual target for profit. As benchmark interest rates for deposits and loans were revised downwards and market interest rates dropped, the Bank’s net interest margin dropped 0.83 percentage points from the same period in the previous year to 2.41%. However, through innovation of products, expansion of markets and optimisation of investment trading strategies, non-interest income grew by 28.11%, of which net fee and commission income increased 25.00% to RMB48.059 billion, guaranteeing that the Bank’s operating income was basically on a par with that of the previous year. CCB's return on average assets and return on average equity of 1.24% and 20.87% respectively were in leading positions among major international commercial banks.

Sustained improvements were obtained in the Bank’s asset quality: its non-performing loan ratio decreased to 1.50%, representing a drop of 0.71 percentage points from the end of the previous year. The Bank’s capability in withstanding risks was further enhanced. CCB raised its allowances to non-performing loan ratio to 175.77% or an increase of 44.19 percentage points from the end of the previous year. It had a capital adequacy ratio of 11.70% and a core capital adequacy ratio of 9.31%, both meeting management targets. As a result of stringent cost tightening throughout the Bank, the increase in operating expenses was the lowest since its listing in 2005, while the growth in staff costs was lower than the growth in profit before tax and net profit.

The results of CCB’s prudent operation and sustained development have further enhanced its corporate image and brand value. The Bank ranked second in the "Commercial Banking Top 10” by the Banker, a UK magazine, among which CCB ranked first in all Chinese banks. It was also named the “Best Bank in China” by both Euromoney magazine in the UK and Asiamoney magazine in Hong Kong.

Serves greater economic good

Credit placement in a balanced and appropriate manner

 

In 2009, in accordance with national decisions and planning, CCB proactively combined the serving of the greater economic good with the adjustment of its credit structure. By doing so, it boosted credit support to areas and projects related to the national economy and the people’s livelihood. Gross loans and advances to customers increased by RMB1.02583 trillion compared to the previous year, injecting urgently needed “capital blood” to the real economy and the improvement of people’s livelihood. In particular, lending to 14 key credit placement areas meeting the State’s credit policies amounted to RMB576.3 billion for the whole year, which made up 20.41% of all new corporate loans in the same period. The Bank also participated in the support of 446 of the State’s RMB4 trillion investment projects, while new loans to the 10 industries marked for revitalisation were RMB145.1 billion or 22.3% of all new corporate loans. Loans to infrastructure industries amounted to RMB1.539898 trillion. Such new loans made up 53.12% of new corporate loans. Specifically, during the economic trough in the first two months of 2009, when businesses were in dire need of funds, the Bank issued RMB358.2 billion in loans in time for the construction of infrastructures and key projects, based on situations of previous quality reserve projects. Afterwards, it proactively adjusted its tempo of credit placement back to the usual steady rate, thus pre-empting market opportunities and taking the initiative in risk control.

Small enterprises, the “Three Rurals” (the agricultural industry, rural areas and farmers) and livelihood areas are key targets for CCB’s credit placement. The Bank’s business in the small enterprise segment witnessed dramatic growth: almost 10,000 additional small enterprise clients were provided with credit lines and the growth of small enterprise loans was 47.10%. The growth in small enterprise loans was 22.51 percentage points higher than the average growth in corporate loans, and most of the new loans were concentrated in the Yangtze River Delta, the Pearl River Delta and the Bohai Rim areas where small and medium enterprise economies are flourishing. CCB has established 140 small enterprise operations centres in the form of “credit factories”. Products and services such as “Joint Loan & Joint Guarantee”, overdraft facilities for corporate accounts, small amount unsecured credit loans and “e-loans” through Internet banking are multiplying. Solutions to meet the financing difficulties of small enterprises have been met with initial success. The agriculture related loans were increased by RMB163.096 billion or 38.25% from last year. A new model for small amount farming household loans was promoted in Xinjiang, Heilongjiang and Jilin to help raise scientific and intensity levels of local agricultural production. In addition, 7 rural banks were established or planned to further extend the Bank’s “Three Rural” services to the multitude of counties and villages around the country.

The balance of loans to key livelihood areas such as education and healthcare reached RMB190.412 billion—this represented a growth of 48.56%, far exceeding the average growth of corporate loans. Personal consumption loans increased by RMB3.687 billion from the previous year, with a growth of 4.92%. Residential mortgage loans increased by RMB249.384 billion or 41.35% from last year. In particular, in endeavouring to meet the demand for subsidised housing, CCB entered into a total of 52 cooperation agreements for subsidised housing with local government authorities. It also provided support for 506 projects in “affordable housing” and “limited price housing” and issued RMB20.8 billion in commercial mortgages for subsidised housing and in provident fund loans for 122,000 households.

Under a market situation in which credit funds were growing rapidly, CCB adjusted its resource allocation in accordance with national industrial policies and market conditions and reasonably regulated the pace and degree of credit placement on the basis of retaining control of overall credit. It was able to guarantee the balance and steadiness of its credit placement for the whole year, while promoting the optimisation and upgrading of the national industrial structure by credit structure adjustment. CCB’s loan growth for the whole year was below the average for the domestic banking industry and its amount of new loans was the lowest among China's four major commercial banks. Yet in terms of the evenness and steadiness of credit placement it was above the industry average. By focusing on restricting loans to industries with high energy consumption, high pollution or overcapacity (the “two highs one over" sector) and to the real estate sector, the Bank was able to lower corresponding balance of loans by 2.89 and 1.24 percentage points compared to the beginning of the year and, for the whole year, RMB76.7 billion in corporate loans were withdrawn. CCB's customer structure also saw further improvements: the balance of its loans granted to customers with internal ratings of A and above accounted for 91.98% of total loans, up 2.64 percentage points over the preceding year.

Switching business development mode

Rapid growth in intermediary business

In 2009, in proactively adapting to economic conditions and changes in the financial market, CCB intensified its efforts in independent innovation and research and development. By forging into emerging businesses and nurturing new profit growth points, the Bank was able to lay down a solid foundation for long-term development, while achieving its profit targets. In the year, the Bank completed 313 product innovation projects and established the first product innovation laboratory in the banking industry. A range of emerging businesses was launched to help customers out in their times of need. For foreign trade enterprises deeply affected by the global financial crisis, CCB designed a series of products and services under the brand name of “Domestic Trade Pass” covering international trade financing, supply chain financing and Renminbi settlement. As a result, the balance of financing nearly 1,000 or so foreign trade enterprises exceeded RMB15 billion. To help strengthen livelihood areas, the Bank launched a series of “Livelihood Oriented Products” integrated financial service programmes to address needs from education, medical, social insurance and environmental protection sectors. These programmes resulted, for instance, in the improvement in the liabilities and financial structures of banks in full-time institutions of tertiary education and the unimpeded withdrawal of pension funds throughout China by 66 million pensioners. Moreover, other new lending businesses launched in response to market needs such as factoring advances, M&A loans and Internet banking loans grew rapidly.

At a time when traditional interest- earning businesses were under serious challenges, CCB’s intermediary business witnessed robust growth. For the whole year, the Bank realised net fee and commission income of RMB48.059 billion. The ratio of net fee and commission income to operating income was 17.84%. Businesses in financial advisory, underwriting of debt financing instruments and wealth management flourished throughout the year, driving a growth in income of 48.22% for the Bank’s domestic and overseas investment banking business from the previous year. Income from syndicated loans and domestic factoring achieved rapid growth rates of 116% and 300% respectively. The number of personal accounts for enterprise annuities in CCB was 1.9254 million, a growth of 194.04% from the year before. In engineering cost advisory service in which CCB has a unique edge over its peers, income rose 106% on a year-on-year basis. The Bank was granted permission to launch 53 new securities investment funds and take custody of 47 new funds, which were the highest figures in the banking industry. With the net value of securities investment funds under its custody reaching RMB642.1 billion, CCB was the only major state-owned commercial bank whose market share as a custodian bank increased continuously.

CCB’s bank card business developed swiftly while operating efficiency was raised substantially. The total number of debit cards issued was 252 million and the amount of consumption transactions totalled RMB790.663 billion, representing a year-on-year growth of 77.24%. Fee income from this area was RMB4.536 billion, a growth of 14.76% from the previous year. The total number of “wealth management cards” issued was 4.895 million, an increase of 1.2254 million over the end of the preceding year. The Bank’s credit card business continued to develop healthily: the cumulative number of customers was 20.24 million and the cumulative number of cards issued was 24.24 million. With a total of 5.53 million new cards issued, with total spending through credit cards increasing to RMB292.781 billion, with the balance of credit card loans reaching RMB36.332 billion and with asset quality remaining sound, CCB was the leader in the banking industry in terms of the four indexes of cumulative number of customers, transaction amounts, incremental loan balance and asset quality.

Service resource allocation optimized

Customer services reached new level

In 2009, CCB further advanced the development of a system to adopt the customer-focused philosophy. In its endeavour to fully understand and serve the concerns of its customers and improve the system to provide professional, differential and personalised customer services, CCB achieved further enhancements to its service efficiency and service quality. The Bank’s retail outlets basically completed the transformation from a transaction and accounting oriented function to a marketing and service oriented function, which resulted in a considerable increase in teller-client interaction time. Specifically, in retail outlets which had undergone the transformation, transaction efficiency rose by nearly 39%, while the average customer waiting time fell by 40.86%. A programme of second generation of retail outlet transformations to enhance service quality in wealth management centres is progressing steadily. Meanwhile, the Bank continues to build up self-service and electronic channels, which has resulted in an increase in the number of self-service banks to 8,128, while the number of ATMs has increased by 12.93% from the previous year-end, to 36,021—one of the leading figures in the world. CCB had 39.59 million personal online banking customers in 2009, an increase of 12.68 million over the previous year. The amount of personal online banking transaction reached RMB3.01 trillion, a growth of 118% over the previous year. Mobile phone banking developed in great strides: there were 14.28 million customers over the year, an increase of 9.35 million over the previous year. The ratio of transaction volumes through electronic banking compared to that through front desk was 74.89%.

 

On the basis of customer and market segmentation, CCB newly established 928 specialised operating centres to cater to small enterprise loans, wealth management, investment banks and enterprise annuity, etc. As large corporate customers are increasingly served centrally, more resources are being released to provide services to small and medium enterprises. In order to reduce management layers and raise management efficiency, CCB is implementing the reform of organisational flattening in a steady manner. Of the 100 central city branches, the majority have switched from a three-level management structure to the current two or two-and-a-half level management structure. One-third have eliminated the setting up of integrative branches and more than half are now practising direct management of retail outlets. Moreover, a large number of professional teams have been formed to carry out duties in marketing, product development and back-office management, etc.

There was marked improvement in CCB’s service quality. In the second half of 2009, the score from a periodic “mystery customer” survey that dealt with service quality in retail outlets was 93.5 points, an increase of 2.1 points from the same period during the previous year. Surveys carried out by an independent third party revealed that satisfaction from personal customers was 63.9%, an increase of 2.2 percentage points from the previous year and 3.5 percentage points higher than the industry average. The improvement in integrated customer service has brought about the development of business. In the year, CCB ranked first among Chinese major banks in terms of both the growth rate of savings deposits and the average amount of deposits taken by each retail outlet.

2009 was also one in which CCB achieved breakthroughs in the development of its overseas network. The successive opening of a subsidiary bank in London and a branch in New York basically completed the Bank’s layout of overseas organizations in major international financial centres. The establishment of the Ho Chi Minh City branch was also granted approval from the local regulatory authority. With the acquisition of AIG Finance (Hong Kong) Limited by China Construction Bank (Asia), a wholly owned subsidiary of CCB, the Bank now owns a platform for credit card business in Hong Kong and Macau, thereby completing its business layout in these two special administrative regions. As of 31 December 2009, the total assets of CCB’s overseas organisations grew to RMB234.46 billion, up 92.82% from the year before.

Implementation of precision management

Enhancement of internal risk control capability

 

In 2009, in its continuous improvement of risk control and precision management capabilities, CCB focused on efficiency and orienting towards the market. It improved on the mechanism of parallel operations by advancing the intensified and professional management of pre-lending parallel operations and standardising the processes of post-lending parallel operations. It carried out deeper industry segmentation by further classifying a dozen or so sector categories into more than 90 industrial sectors, making the directions and objectives of its business operations clearer. For industry management, credit quota and a “list system” approach was adopted and 16 industrial sectors falling under the characteristic of “two highs and one over” were managed under the list system. Meanwhile, by including all its overseas branches into a centralised framework for risk management, CCB succeeded in further improving the risk management mechanism for these overseas branches.

Capitalising on the implementation of the New Basel Capital Accord, CCB has planned and designed a complete application framework for risk management. With this, the Bank has been able to gradually build up a data base for risk management, advance the development and application of risk measurement tools and continue the optimisation of its corporate rating model and retail scorecard system. Consequently, CCB has been advancing sure-footedly in the development of its overall risk management system, thereby enhancing its core competencies in the process. The professional and precision level of risk management in CCB have also been significantly raised, and this has helped to better serve its needs in implementing a bank wide strategic transformation, business development and risk control.

CCB had been closely monitoring changes in policies and market situations and has taken measures to counteract new incipient risks. When abnormal growth in lending to government financing platforms appeared in the market, CCB was able to introduce new measures in time to strengthen up management and control the loan growth of government financing platforms by stopping further lending to county-level government financing platforms and tightening up credit support to financing platforms of financially weak local governments. CCB had been unequivocal in not lending to developers who had bid up prime sites regardless of the cost and built up land reserves without developing. In addition, the Bank reinforced its risk control in derivative transactions and its risk exposure in this area had been reduced continuously.

Strengthening employee democratic management

Fulfilling all-round corporate social responsibility

In 2009, CCB made new strides towards democratic management and a harmonious corporation. All its employees were able to participate in corporate management through the Staff Representative Assembly system. Throughout the Bank, 1,760 staff representative committees were formed and 2,029 staff representative meetings were held by branches and sub-branches at various tiers to deliberate on rules and regulations related to the vital interests of employees and other matters of importance. Starting with the optimisation of business processes, separation of front- and back-office operations of counter businesses and the centralisation of back-office operations were completed. This was instrumental not only in raising overall service standards, but also in simplifying front desk operations and effectively alleviating the job intensity and pressure of the front-line staff.

CCB regards its staff as the most precious resource and has provided them with an extensive platform for growth. By setting up a sound system of managerial, technical and operational position series, it opened up a large number of career development paths for its staff. In the year, 24,486 training sessions were held both domestically and overseas, involving the participation of 1.31 million person times. These figures were respectively 10.67% and 27.16% higher than those in the same period of the preceding year. Investment in staff training was increased continuously at a time when other expenses were being cut. The results of a recent survey indicated that the total employee satisfaction at CCB is at 94%.

As it achieved steady improvements in operating results, CCB continued to undertake its corporate social responsibility. During the year, it implemented 13 social welfare related projects which involved a total investment of RMB72.74 million. Among this, RMB60 million was donated towards the setting up of a “CCB Ethnic Minority Undergraduate Scholarship (Grant)” for sponsoring needy ethnic minority students with outstanding moral character and academic records. The scholarship will run for five consecutive years in 16 provinces and autonomous regions such as Inner Mongolia, Xinjiang, Tibet, Guangxi and Ningxia, in which ethnic minorities are relatively concentrated. In 2009, CCB was named the “Best Bank with Corporate Social Responsibility” by Banker magazine in China and awarded the honour of being the “Most Responsible Enterprise in China’s 30 Years of Reform and Opening Up” by the Chinese Red Cross Foundation.

Guo Shuqing, chairman of CCB, said, “In 2010, CCB will still face difficulties and challenges in its reform and development. We shall continue the implementation of the scientific viewpoint of development and intensify our support and service for economic structure adjustment as well as the development of small enterprises, the ‘Three Rurals’ and livelihood areas. In striving to create even better business results, we shall maintain our strategy of prudent operation, continue to strengthen risk management and further enhance the professional and precision competencies of our operations and management.”

 

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 13,384 branches and sub-branches in Mainland China, and maintained overseas branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo, Seoul and New York as well as a representative office in Sydney as of 31 December 2009. The Bank has a number of subsidiaries, including China Construction Bank (Asia) Corporation Limited, CCB International (Holdings) Co., Ltd., CCB (London) Limited, CCB Principal Asset Management Co., Ltd., CCB Financial Leasing Corporation Ltd. and Jianxin Trust Co., Ltd. The Bank has a total of approximately 300,000 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 2009, the market capitalisation of CCB reached approximately US$201.4 billion, ranking 2nd among listed banks in the world.