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1、,Banking Newsletter,Analysis of major banks resultsfor the first half of 2011,PwC,3,Overview,Highlight of major Chinese banks financial results of the first half of 2011,Economic environment and banking industry developments in the first half of 2011 Analysis of operating results Analysis of financi
2、al positions Analysis of capital Regulatory updates,Banking newsletter,4,Introduction,This newsletter provides a snapshot of the financial results of major Chinese banks in the first half of 2011.It provides aquick comparison of the key ratios,indicators,results and financial positions published by
3、the ten largest Chinese banks,where the ranking is based on their asset size as at 31 December 2010(the“Ten Largest Banks”).The Ten Largest Banks are as follow:,Industrial and Commercial Bank of China(“ICBC”)China Construction Bank(“CCB”)Bank of China(“BOC”),Agricultural Bank of China(“ABC”)Bank of
4、Communications(“BOCOM”)China Merchants Bank(“CMB”),Shanghai Pudong Development Bank(“SPDB”)China CITIC Bank(“CITIC”)China Industrial Bank(“CIB”),China Minsheng Banking Corporation(“CMBC”),Unless otherwise stated,the sources of financial information presented are extracted from the consolidated finan
5、cialstatements of the above listed banks as of 30 June 2011,and for the period then ended,prepared under ChineseAccounting Standards.,Banking newsletter,5,Highlight of major Chinese banks financialresults of the first half of 2011,During the first half of 2011,the operating environment of China bank
6、ing industry had been complicated.Externally,theeconomic downturn in Europe and U.S.had led to reducing demand of exported goods from China.Internally,theeconomy has maintained relatively high grow rate whilst the monetary supply has been tightened to control inflationand more robust controls over r
7、eal estate market has been introduced.Listed banks are facing number of challenges,forexample the heightened risk of local government platforms and the increasing need of regulatory capital.Despites theabove factors,we observed satisfactory results for major Chinese banks in the first half of 2011.P
8、rofitability,Earnings per shares(EPS)of the Ten Largest Banks recorded an average growth of 28%comparing to the same periodlast year.CMBC had the largest growth of 58%among the Ten Largest Banks,followed by CITIC which had 40%increase.ICBC,ABC,BOC and CCB maintained EPS growth above 20%.,For another
9、 performance indicator,return on average total assets,the Ten Largest Banks had an average growth of 20%.CMBC led at a growth rate of 30%.CMB,CITIC,CCB and ABCs growth were more than 20%.,In terms of absolute value of return on average total assets,CCB had the highest of 1.65%,followed by ICBC and C
10、MBwith 1.55%and 1.47%,respectively.CMBC and CITICs return on average total assets was 1.41%,both ranked numberfour among the Ten Largest Banks.All Ten Largest Banks had recorded increase in return on average total assets in therising interest rate environment.,One point worth noting is that when com
11、paring the second quarter against the first quarter of 2011 the net profit growthshowed sign of slowing down.This trend is notable in particular for the top five largest banks.The other five banks stillmaintained a range of 11%to 34%increase in their net profit in the second quarter.,Banking newslet
12、ter,6,Highlight of major Chinese banks financialresults of the first half of 2011(continue),Operating models,During the first half of 2011,the Ten Largest Banks net profit recorded an average growth of 39%comparing to thesame period last year.Net interest income increased by 29%,whereas non-interest
13、 income increased by 54%.Itdemonstrated that growth of non-interest income was the major driver of net profit growth.During the first half of 2011,ICBC,ABC,BOC and CCB had stable growth of non-interest income with growth rate above 20%.This proved bankseffort in transforming their operating models.,
14、Increased contribution from intermediary business activities proved the result of integrated banking operation,shiftingfrom the credit-centric operating model.This provides a sustainable operating model which consumes less capital.Taking HSBC and Standard Chartered Bank as references,non-interest in
15、come constituted over 43%of total revenue inthe first half of 2011.,Analysing non-interest income,we found that proportion of income arising from clearing,settlement,foreign exchange,wealth management,private banking and asset custody businesses for the top five largest banks was relatively higherth
16、an the other five banks.,Another good sign in the first half of 2011 was that the cost-to-income ratios of Ten Largest Banks decreased despiteincrease of operating expenses.Regarding effective tax rate,except CCB and ICBC,a slight rise of effective tax rate wasseen for the other eight banks.,Banking
17、 newsletter,7,Highlight of major Chinese banks financialresults of the first half of 2011(continue),Assets and liabilities structureA trend of decrease in non-performingloans and NPL ratio was noted.Duringthe first half of 2011,customer depositstaken by Ten Largest Banks recorded anincrease.The depo
18、sit balance increasedby 8.54%from the end of 2010,reaching51.38 trillion as at 30 June 2011.Overall assets and liabilities structure didnot differ significantly from the end of2010.Loans and advances to customersstill constituted over 50%of total assets,with only a slight decrease of 0.87percentage
19、points from the end of 2010.With respect to loans and advancesbalances,the growth rate of 8.6%in thefirst half of 2011 was slightly higher thanthe growth rate of 6.7%in the second halfof 2010.Compared to the end of 2010,growth ofpersonal loans reached 11.8%,which washigher than the corporate loans g
20、rowth of7.5%.While there was an overall increaseof loan balance,the discounted billsdecreased by 22.3%from the end of 2010.Banking newsletter,According to the Peoples Bank of China(“PBOC”)statistic,housing related loansin major financial institutions,ruralcooperative financial institutions andurban
21、credit cooperatives increased butthe increase was reduced by 598.5 billioncomparing to the same period last year.On the other hand,the growth of low-income public housing developmentloans was 54.8%,where the growth washigher than the growth rate of otherhousing related loan of 48.3%.Thisindicated th
22、at more loans were directedfor low-income public housingdevelopment.Provision coverage ratio for Ten LargestBanks were above the regulatoryminimum level of 150%and a trend ofincreasing provision coverage was notedwhich showed banks proposition to faceadverse risk situations.Off-balance sheetcredit c
23、ommitment increased steadily inTen Largest Banks,among which CMBChad the largest growth rate of 42%.,8,Highlight of major Chinese banks financialresults of the first half of 2011(continue),Capital adequacyAccording to China Banking RegulatoryCommission(CBRC)published statisticsin the second quarter
24、of 2011,overallChina banking industry had a weightedaverage capital adequacy ratio andweighted average core capital adequacyratio of 12.2%and 9.9%respectively,which were higher than the respectiveratios of 11.8%and 9.8%in the firstquarter of 2011.Through the analyses of the financialresults,banks ge
25、nerally maintained fairlystrong conditions in terms of profitability,operating models,asset quality andcapital adequacy,while in the same timebanks and the regulatory bodies arepaying more attention to emerging risks.For example,management andmonitoring of government financingplatform loans have bee
26、n strengthened inthe first half of 2011.With respect towealth management products,CBRC hasclearly stated the importance of puttingeffective measures in place for riskidentification and control by banks.Banking newsletter,Risk and return are always linked,andthis relation is even more prominent inban
27、king industry.Performance of banksis often regarded as a reflection of overallChina economy,with time lag in certainextent.About a month afterannouncement of interim financialperformance of major China banks,morenegative news about economies of Europeand U.S.came out and the credit issues inWen Zhou
28、 surfaced.This newsletterprovides recap and analysis of Chinabanking industry based on the publishedpublic data and facts.We wish thenewsletter will provide you with usefuland objective information,and we lookforward to observing the developments ofChina banking industry in the thirdquarter of 2011
29、with you.,5,0,9,Overview of economic environment and bankingindustryAccording to the statistics of the National Bureau of Statistics of China,the Gross Domestic Product(“GDP”)increasedby 9.6%in the first half of 2011.Whilst the GDP growth slowed down when compared to the same period last year,itwas
30、better than market expectation.The Consumer Price Index(“CPI”)in June 2011 increased by 6.4%compared to thesame period last year,which was the record high since June 2008.Total retail sales in the first half of 2011 increased by16.8%over the same period last year.,CPI growth rate,GDP,7.00%,6.40%,Uni
31、t:RMB trillion45,13.00%,14.00%,6.00%5.00%,4.70%,5.00%,403530,11.60%,9.00%,9.20%,10.30%,9.60%,12.00%10.00%,4.00%,3.50%,25,8.00%,3.00%2.00%,2.20%,2.40%,201510,6.00%4.00%,1.00%,2.00%,0.00%,2010 Q1,2010 Q2,2010 Q3,2010 Q4,2011 Q1,2011 Q2,2006,2007,2008GDP,2009 2010Growth rate,2011 H1,0.00%,Banking newsl
32、etter,Overview of economic environment and bankingindustry(continued),The domestic banking sector has experiencedsignificant growth in recent years,driven byrapid expansion of the banking creditbusiness in the past two years,resulting inincreasing demands for capital.New capitalrequirements includin
33、g the“Basel III Accord”have been continuously introduced,leading toincreasing capital pressures on the banks toseek more capital.Although numerous bankshave indicated that they have no need forincreased financing in the current year,thefact is that more than ten banks had alreadyimplemented re-capit
34、alization initiatives inthe first half of 2011.The Big Five commercialbanks have already boosted their capital by atotal of RMB 220,000 million via debtfinancing,with ICBC,CCB,BOC and ABCissuing subordinated debts of RMB 32,000million,RMB 50,000 million,RMB 38,000million and RMB 80,000 million respe
35、ctively,and BOCOM choosing to issue RMB 20,000million worth of RMB-denominated bonds inHong Kong.Banking newsletter,In addition,CMB,a joint-stock commercialbank,has recently announced a RMB 35,000million share placement plan for its A-sharesand H-shares.This came shortly after thecompletion of a RMB
36、 22,000 million shareplacement plan.Under the steady monetary policyimplemented by the central bank,the broadmoney supply(“M2”)and the narrow moneysupply(“M1”)increased by 15.86%and 13.1%respectively as of June 2011,as comparedwith the same period last year.Since the endof 2010,it is clear that the
37、growth rate of M1has become slower than that of M2,indicating a slowdown in economic activities.In the first half of 2011,RMB depositsincreased by RMB 7.34 trillion,a decrease ofRMB 184.6 billion from the same period inprevious year.In comparison,foreigncurrency deposits have increased significantly
38、by USD 30,700 million.In the first half of2011,new loans amounted to RMB 4.17trillion.Such increase was less than theincrease in the corresponding period last yearby RMB 449.7 billion.The declining growth innew loans indicate the stricter credit controlmeasures.,10,RMB:Yuan,0.6,0.61,Basic earnings p
39、er share(EPS)and annualizedreturn on average total assets,In the first half of 2011,EPS andreturn on average total assets of theTen Largest Banks increased indifferent magnitudes.Comparing tothe same period last year,the averagegrowth rate of return on average totalassets and EPS were 20%and 28%resp
40、ectively.,Basic EPS1.21.00.80.310.4 0.250.20.0,0.37,0.30 0.240.20 0.210.17,0.43,0.36,0.86,0.65 0.69,0.380.27,1.13,0.92,0.52,0.33,2011 H1,2010 H1,Annualized return on average total assets2.00%,1.60%1.20%0.80%,1.55%1.32%,1.65%1.32%,1.28%1.14%,1.22%0.99%,1.27%1.08%,1.47%1.15%,1.12%1.01%,1.41%1.13%,1.24
41、%1.16%,1.41%1.09%,Banking newsletter,2011 H1,2010 FY,11,Net profit analysisHalf-year on half-year,For the first half of 2011,the net profitof the Ten Largest Banks increased by39%on average compared to the sameperiod last year.Net interest incomeincreased by 29%while non-interestincome increased by
42、54%.Thisshowed income growth was mainlydriven by growth in non-interestincome.,RMB:Million120,000100,00080,00060,00040,00020,0000,29%,31%,29%,45%,29%,56%48%40%32%24%16%8%0%,20,00018,00016,00014,00012,00010,0008,0006,0004,0002,0000,41%,42%,41%,58%40%,56%48%40%32%24%16%8%0%,When comparing Q2 results a
43、gainst,CMB SPDB CITIC,CIB,CMBC,Q1 of 2011,the growth of net profitswas only modest and the sign of,2011 H1,2010 H1,Growth rate,2011 H1,2010 H1,slowing down was particularly obviousfor the top five largest banks.,Quarter on quarter,60,00050,00040,00030,00020,00010,0000-10,000,4%,-3%,0%,-4%,30%25%20%1
44、5%10%5%-1%0%-5%,12,00010,0008,0006,0004,0002,0000,11%13%,32%,34%,24%,40%35%30%25%20%15%10%5%0%,CMB SPDB CITIC CIB CMBC,2011 Q2,2011 Q1,Growth rate,2011 Q2,2011 Q1,Banking newsletter,12,3.10%,Net interest margin,Net interest margins continued togrow.The increase in net interestincome was primarily du
45、e to the,Net interest margin,expansion of interest-generatingassets and higher net interest spread.Please refer to later section for an,2.90%,2.99%,2.89%,3.00%2.94%,analysis of banks asset structure.,2.79%,2.70%2.50%,2.60%2.44%,2.66%2.49%,2.57%,2.54%2.46%,2.65%,2.49%2.49%,2.63%,2.30%,2.10%1.90%,2.11
46、%2.07%,ICBC,CCB,BOC,ABC,BOCOM,CMB,SPDB,CITIC,CMBC,Banking newsletter,2011 H1,2010 FY,13,46%,Net fee and commission income analysisHalf-year on half-year,In the first half of 2011,Ten LargestBanks net fee and commissionincome significantly increased by 56%on average when compared to thesame period la
47、st year.When comparing Q2 against Q1 of2011,the growth rate showed sign ofslow down with the exception ofCMBC which maintained a relatively,RMB:Million60,00050,00040,00030,00020,00010,0000,42%,24%,65%,41%,90%80%70%60%50%40%30%20%10%0%,9,0008,0007,0006,0005,0004,0003,0002,0001,0000,81%54%54%CMB SPDB
48、CITIC,78%76%CIB CMBC,90%80%70%60%50%40%30%20%10%0%,high growth rate in Q2.,2011 H1,2010 H1,Growth rate,2011 H1,2010 H1,Quarter on quarter,30,00025,00020,00015,00010,0005,0000,7%,6%,9%,61%46%31%16%3%1%,6,0005,0004,0003,0002,0001,000,8%,24%,11%,35%,68%,80%70%60%50%40%30%20%10%,-5,000,-12%,-14%,0,0%,CM
49、B SPDB CITIC,CIB CMBC,2011 Q2,2011 Q1,Growth rate,2011 Q2,2011 Q1,Banking newsletter,14,Components of net fee and commission income,In terms of fee and commissionincome structure,the proportion ofincome from settlement,clearing and,Classification of fee and commissionincome of the top 5 commercial b
50、anks,Classification of fee and commissionincome of the top 5 joint-stockcommercial banks,foreign exchange,wealthmanagement,private banking andassets custody businesses wasrelatively higher for the top fivecommercial banks than the five joint-stock commercial banks.,Guaranteeand Creditcommissionfees8
