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+2.
+China Merchants Fund or CMFM:
+China Merchants Fund
+Management Co., Ltd.
+CMB International Capital or CMBIC:
+CMB International Capital Holdings
+Corporation Limited
+CMB Financial Leasing or CMBFL:
+CMB Financial Leasing Co., Ltd.
+Wing Lung Bank and its subsidiaries
+Wing Lung Group:
+Wing Lung Bank Limited
+Wing Lung Bank or WLB:
+The Rules Governing the Listing of
+Securities on the SEHK
+Hong Kong Listing Rules:
+CIGNA & CMB Life Insurance:
+The Stock Exchange of Hong Kong
+Limited
+China Insurance Regulatory
+Commission
+Commission or CIRC:
+China Insurance Regulatory
+China Securities Regulatory
+Commission or CSRC:
+China Securities Regulatory
+Commission
+China Banking Regulatory
+Commission or CBRC:
+China Banking Regulatory
+Commission
+China Merchants Bank Co., Ltd.
+and its subsidiaries
+The Group:
+The Company, the Bank, CMB or
+China Merchants Bank:
+China Merchants Bank Co., Ltd.
+Definitions
+Hong Kong Stock Exchange or
+SEHK:
+CIGNA & CMB Life Insurance Co., Ltd.
+CM Securities:
+China Merchants Securities Co., Ltd.
+1.1.1 Registered Company Name in Chinese: RESORA (Abbreviated
+Name in Chinese: 招商銀行)
+1.1 Company Profile
+Company Information
+Annual Report 2016
+I Company Information
+China Merchants Bank
+4
+The Company has disclosed herein the major risks involved in its operations and the
+proposed risk management measures. Please refer to Chapter V for the details in
+relation to risk management.
+Significant Risk Warning
+Model Code for Securities Transactions by
+Directors of Listed Issuers of Hong Kong
+Stock Exchange
+Model Code:
+(Chapter 571 of the Laws of Hong Kong)
+Securities and Futures Ordinance
+SFO:
+People's Bank of China
+PBOC:
+(Special General Partnership)
+Public Accountants LLP
+Deloitte Touche Tohmatsu Certified
+Public Accountants LLP:
+Deloitte Touche Tohmatsu Certified
+3
+Registered Company Name in English: China Merchants Bank Co., Ltd.
+Definitions/Significant Risk Warning
+We have included in this report certain forward-looking statements with respect to the
+financial position, operating results and business development of the Group. We use
+words such as "will", "may", "expect", "try", "strive", "plan", "anticipate", "aim
+at", and similar expressions to indicate forward-looking statements. These statements
+are based on current plans, estimates and projections. Although we believe that the
+expectations reflected in these forward-looking statements are reasonable, we give no
+assurance that these expectations will turn into reality or prove to be correct. Therefore
+they should not be deemed as the Group's commitments. Investors should not place
+undue reliance on such statements and should pay attention to investment risks. You
+are cautioned that such forward-looking statements are related to future events or
+future financial position, business, or other performances of the Group, and are subject
+to a number of uncertainties which may cause substantial differences from those in the
+actual results.
+VI Important Events
+101
+100 5.16 Permitted Indemnity Provision
+100 5.15 Management Contracts
+5.14 Compliance with Laws and Regulations
+and Governance Report
+5.13 Requirements of the Guidelines for Environmental, Social
+5.12 Profit Appropriation
+99
+112
+99
+97
+5.11 Risk Management
+87
+5.10 Business Operations
+64
+5.9 Changes in the External Environment and Corresponding Measures
+54
+5.8 Business Development Strategies
+49
+40
+VII Changes in Shares and Information on Shareholders
+119 VIII Directors, Supervisors, Senior Management, Employees,
+and Organisational Structure
+138
+Proposal of profit appropriation: As stated in the audited PRC financial statements of
+the Company for 2016, 10% of the profit after tax of RMB56.990 billion, equivalent to
+RMB5.699 billion, was transferred to the statutory surplus reserve, while 1.5% of the
+total amount of the risk assets, equivalent to RMB3.102 billion, was appropriated to
+the general reserve. Based on the total share capital of A Shares and H Shares on the
+record date for implementation of the profit appropriation, the Company proposed to
+declare a cash dividend of RMB0.74 (tax included) for every share to all shareholders
+of the Company whose names appear on the register, payable in RMB for holders of A
+Shares and in HKD for holders of H Shares. The retained profit will be carried forward
+to the next year. In 2016, the Company did not transfer any capital reserve into share
+capital. The above proposal of profit appropriation is subject to consideration and
+approval at the 2016 Annual General Meeting of the Company.
+Li Jianhong, Chairman of the Company, Tian Huiyu, President and Chief Executive
+Officer, Li Hao, First Executive Vice President and Chief Financial Officer, and Li Li,
+the person in charge of the Finance and Accounting Department, hereby make
+representations in respect of the truthfulness, accuracy and completeness of the
+financial statements in this annual report.
+Unless otherwise stated, all monetary sums stated in this annual report are expressed in
+RMB.
+Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche
+Tohmatsu (both being auditors of the Company) have separately reviewed the 2016
+annual financial report prepared in accordance with the PRC Generally Accepted
+Accounting Principles and International Financial Reporting Standards, and issued
+standard auditing reports with unqualified opinions.
+The 10th meeting of the Tenth Session of the Board of Directors of the Company was
+held at its Shekou Training Center on 24 March 2017. The meeting was presided by Li
+Jianhong, Chairman of the Board. 15 out of 16 eligible directors attended the meeting
+in person. Li Xiaopeng (Vice Chairman) was unable to attend the meeting because of
+other business appointments, and entrusted Hong Xiaoyuan (Non-Executive Director)
+to attend and exercise his voting right at the meeting. 9 supervisors of the Company
+were present at the meeting. The convening of the meeting complied with the relevant
+provisions of the "Company Law of the People's Republic of China" and the "Articles
+of Association of China Merchants Bank Co., Ltd.".
+The Board of Directors, the Board of Supervisors, directors, supervisors and senior
+management of the Company confirm that the contents in this annual report are true,
+accurate, and complete and have no false representations, misleading statements or
+material omissions, and they will individually and collectively accept legal responsibility
+for such contents.
+7.
+6.
+5.
+4.
+3.
+1.
+Important Notice
+Annual Report 2016
+Important Notice
+China Merchants Bank
+XI Financial Reports
+161
+X Report of the Board of Supervisors
+160
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+5.7 Others
+1.1.2 Legal Representative: Li Jianhong
+Secretary of the Board of Directors: Wang Liang
+Proactively occupy the strategic dominant position in the future. Firstly, the
+Company will continually promote structural adjustment and operational
+transformation to realise the objective of a "Light-operation Bank". Secondly,
+the Company will strengthen the proactive management of risks and
+maintain sound operation in responding to the deceleration of economic
+growth. Thirdly, the Company will promote digitalisation in a comprehensive
+manner to build a digitalised CMB and realise leaping development. Fourthly,
+the Company will build a professional system of "investment banking
+asset management wealth management", so as to form its new core
+competitive edges.
+Development Strategies:
+Strategic positioning: Adhering to the strategic positioning of "One Body
+with Two Wings", focusing on the construction of basic
+customer base and core customer base, enriching two
+product systems namely basic products and professional
+products, and equipping retail business with significant
+competitive edges and corporate business with
+distinguished features.
+Closely adhering to the transformation objective of
+building a "Light-operation Bank", realising balanced
+development among efficiency, quality and scale,
+continually optimising operational structure, basically
+completing the system of a "Light-operation Bank",
+initially achieving digitalisation of the Bank, and vigorously
+promoting internationalisation and integration.
+Strategic objective:
+Development vision: Building the "Best Commercial Bank in China" with
+innovation-driven development, leading retail banking and
+distinguished features.
+1.3 Development Strategies, Investment
+Value and Core Competitiveness
+I Company Information
+China Merchants Bank
+Annual Report 2016
+Push forward the transformation of the business model. The Company
+will strive to combine "experience" with "technology", build a leading
+digitalised innovative bank and an excellent wealth management bank, form
+a new model for retail banking service in the internet era, and bring the
+systematic competitiveness of retail finance to a new height. Focusing on
+"promoting transformation, adjusting structure and improving quality", the
+Company will promote in-depth transformation of the development model
+of corporate finance, and vigorously forge our differentiated competitive
+advantages. The Company will adhere to the integration of investment
+banking and commercial banking, capitalise on the overall strength of
+corporate finance and vigorously promote the coordinated development
+between "transaction banking" and "investment banking" so as to build
+a leading business system of transaction banking and investment banking.
+The Company will also strengthen business synergy, exert its unique
+advantage of "One Body with Two Wings" and steadily promote integration
+so as to provide all-inclusive financial services to customers. In addition,
+the Company will push forward internationalisation so as to enhance our
+overseas operational and management level.
+In 2016, the Company proactively adapted to changes in external environment, steadily
+pushed forward its strategic transformation and made concerted effort to maintain a
+moderate growth momentum. For further details, please refer to the sections headed
+"Chairman's Statement" and "President's Statement".
+Founded in 1987 with its head office in Shenzhen, China, the Company is a national
+commercial bank with sizeable scale and strength in China. The Company mainly focuses
+on the market in China. The Company's distribution network primarily covers China's
+more economically developed regions such as Yangtze River Delta, Pearl River Delta and
+Bohai Rim, and some large and medium cities in other regions. For details, please refer
+to the section headed "Distribution channels" and the section headed "Branches and
+representative offices". As at the end of the reporting period, the Company has 1,921
+domestic and overseas correspondent banks in 113 countries (including China) and regions.
+The Company was listed on the Shanghai Stock Exchange in April 2002 and on the SEHK
+in September 2006.
+1.2 Corporate Overview
+I Company Information
+China Merchants Bank
+Annual Report 2016
+6
+5
+LO
+Unified Social Credit Code: 9144030010001686XA
+Shekou Branch
+The Company provides customers with various wholesale and retail banking products
+and services, and maintains treasury businesses for proprietary purpose and on behalf of
+customers. Many innovative products and services of the Company, such as "All-in-one
+Card", a multi-function debit card, "All-in-one Net", a comprehensive online banking
+service platform, credit cards, the "Sunflower Wealth Management" services and private
+banking services, Mobile Banking and CMB Life () App, global cash management,
+bills business, offshore finance and other transaction banking services, as well as asset
+management, asset custody, investment banking and other services, have been widely
+recognised by consumers in China.
+7
+8
+China Merchants Bank
+9
+16
+Continuously growing brand influence.
+Sound customer base and rapidly increasing high-value customers.
+Leading quality financial service in the industry.
+The powerful IT team and IT capability as well as the leading IT platform
+have enabled us to embrace internet development, constantly innovate
+products, services, channels and business model, and improve the efficiency
+and quality of customer services and reduce operating costs.
+The Company has been constantly improving its organisational management
+system, optimising its operation process, and improving its management and
+operation efficiency. Guided by the goals of "professionalism, delayering
+and intensification", the Company has made initial achievements in the
+structural reform of branches, effectively improving the seamless structural
+integration between our headquarters and branches.
+The comprehensive, modern and scientific risk management system, the
+capital management system, the operational management system, the
+information management system, the performance appraisal system and
+the human resource management system of the Company which have been
+put in place and the relevant capabilities acquired can guarantee the steady
+development of business operation in the long run.
+The comprehensive operation system has been initially established, and
+cross-segment product innovation and business coordination have been
+actively promoted, therefore the benefits of strategic synergy and financial
+synergy have been revealed.
+I Company Information
+China Merchants Bank
+Annual Report 2016
+The "three-in-one" cross-border finance platform, comprising overseas
+institutions (Wing Lung Bank and overseas branches) undergoing relatively
+complete global penetration and gradual business expansion, offshore
+finance units and domestic branches, is producing new growth drivers and
+competitive edges.
+The financial institutions finance has formed new profit drivers through the
+dual-engines of macro asset management and financial market transactions.
+Various businesses such as bills business, asset management business,
+custody business and financial market business have all achieved healthy
+development.
+The Company has featured corporate finance business up to professional
+management standard. Our transaction banking business maintains obvious
+competitive advantages while our investment banking business is gaining
+competitive strength.
+The Company has a leading position in retail finance business with unique
+competitive advantage. Our retail finance has formed structural advantages
+in customers, products, channels and brand, etc., and is growing stronger
+and bigger.
+The Company has established a sound corporate governance mechanism
+and a scientific decision-making system, which are working effectively and in
+line with the development of the operation and management of commercial
+banks.
+The Company persistently follows the operation concept of "keeping
+balance among efficiency, quality and scale", and has built up a professional
+team, which boasts good execution and strong capabilities in business
+innovation. In addition, it has established a sound corporate culture of
+"compliant operation, scientific management and steady development". The
+operation management of the Bank remains "reasonable, effective, healthy
+and stable".
+Investment Value and Core Competitiveness:
+Build a strong strategic supporting system. Firstly, the Company will
+realise the transformation into the "dual-model IT", (i.e. continuously
+optimising and upgrading the traditional IT supporting capability and
+developing the IT capability to promote digital innovation), so as to
+enhance its digital innovation capability. Secondly, the Company will
+transform from management-orientation to service-orientation, and build
+a "light-operation" human resources management system. Thirdly, the
+Company will optimise its resources allocation, and further strengthen
+asset and liability management and financial management. Fourthly, the
+Company will strive to enhance its risk management level, so as to build
+a professional, independent and vertical comprehensive risk management
+system. Fifthly, the Company will form an integrated internal control and
+management system to reinforce the foundation of its internal control and
+compliance. Sixthly, the Company will push forward the structural reform of
+organisations, so as to build a flexible and efficient operating mechanism.
+Seventhly, the Company will promote the structural reform of operations
+and procedures, so as to form a "light-operation" system. Eighthly, the
+Company will optimise channel construction and management to enhance
+the efficiency of channel operation. Ninthly, the Company will enhance the
+cultural brand image of CMB and cultivate the driving force for sustainable
+development.
+I Company Information
+Annual Report 2016
+Initial registration place: Shenzhen Administration for Industry and Commerce,
+Authorised Representatives: Tian Huiyu, Li Hao
+Initial registration date: 31 March 1987
+Place of maintenance of annual reports: Office of the Board of Directors of the
+Company
+H Shares:
+Stock Code: 600036
+Abbreviated Name of A Shares: CMB
+Shanghai Stock Exchange
+A Shares:
+1.1.6 Share Listing:
+21st Floor, Bank of America Tower, 12 Harcourt Road, Hong Kong
+1.1.5 Principal Place of Business in Hong Kong:
+Customer service hotline: 95555
+SEHK
+Website: www.cmbchina.com
+Fax: 86755-83195109
+Tel: 86755-83198888
+7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
+Postcode: 518040
+1.1.4 Mailing Address:
+7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
+1.1.3 Registered and Office Address:
+Securities Representative: Zheng Xianbing
+(FCIS, FCS(PE), FHKIOD, FTIHK)
+Joint Company Secretaries: Wang Liang, Seng Sze Ka Mee Natalia
+E-mail: cmb@cmbchina.com
+Abbreviated Name of H Shares: CM BANK
+Stock Code: 03968
+1.1.7 Domestic Auditor:
+website of the Company (www.cmbchina.com)
+website of SEHK (www.hkex.com.hk),
+website of Shanghai Stock Exchange (www.sse.com.cn),
+website of the Company (www.cmbchina.com)
+"Shanghai Securities News"
+Hong Kong:
+"China Securities Journal", "Securities Times",
+Mainland China:
+Disclosure:
+1.1.11 Websites and Newspapers designated by the Company for Information
+Shops 1712-1716, 17/F, Hopewell Center, 183 Queen's Road East, Wanchai,
+Hong Kong
+1.1.10 Share Register and Transfer Office as to H Shares:
+Computershare Hong Kong Investor Services Ltd.
+China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
+1.1.9 Depository for A Shares:
+Annual Report 2016
+I Company Information
+Legal Advisor as to Hong Kong Law: Herbert Smith Freehills
+1.1.8 Legal Advisor as to PRC Law: Jun He Law Offices
+Office Address: 35th Floor, One Pacific Place,
+88 Queensway, Hong Kong
+International Auditor: Deloitte Touche Tohmatsu
+Yan'an Road East, Shanghai, China
+Certified Public Accountants for Signature:
+Liu Minghua, Zeng Hao
+Deloitte Touche Tohmatsu Certified Public Accountants LLP
+Office Address: 30th Floor, Bund Center, 222
+1.1.12 Other Information about the Company:
+49
+China Merchants Bank
+47
+Significant Risk Warning
+3
+Definitions
+3
+Important Notice
+2
+Contents
+4
+1
+China Merchants Bank
+Annual Report 2016
+Just for you
+We are here
+1987-2017
+2016 Annual Report
+CHINA MERCHANTS BANK
+CHINA MERCHANTS BANK CO., LTD.
+(a joint stock company incorporated in the
+People's Republic of China with limited liability)
+Stock Code 03968
+M 招商銀行
+Contents
+12
+5.6 Results of Operating Segments
+Il Summary of Accounting Data and Financial Indicators
+I Company Information
+5.5 Analysis of Capital Adequacy Ratio
+44
+5.4 Analysis of Loan Quality
+38
+32
+5.2 Analysis of Income Statement
+24
+5.3 Analysis of Balance Sheet
+23
+V Report of the Board of Directors
+23
+IV President's Statement
+18
+III Chairman's Statement
+15
+5.1 Analysis of the Overall Operation
+The Company's liquidity risk management is conducted under a model that requires overall coordination by the Head
+Office with each of the branches acting in concert. The Asset and Liability Management Department of the Head
+Office as a treasurer of the Company is in charge of routine liquidity risk management. The treasurer is responsible
+for managing liquidity on a prudent basis in compliance with relevant regulatory requirements, and conducting
+centralized liquidity management through limit management, budget control, active liability as well as internal
+funds transfer pricing, etc. The Company measures, monitors and identifies liquidity risk for short-term reserves and
+duration structure and emergency purpose. It monitors the limit indicators closely at fixed intervals. Specifically, the
+Company adopts information outsourced from Wind, Reuters and other systems as its external liquidity indicators,
+and uses self-developed liquidity risk management system to measure its internal liquidity indicators and cash flow
+statements.
+In response to the market environment and the liquidity profile of the Company, the Company implemented the
+following measures to enhance liquidity management. Firstly, the Company directed its business development by
+continually using FTP and achieved a balance between the source of funds and use of funds so as to better match
+assets and liabilities. Secondly, the Company flexibly conducted short-, medium- and long-term active liability
+taking, including proactively participating in the medium-term lending facility from and the operation in the open
+market launched by the Central Bank, the issuance of negotiable interbank certificates of deposits and certificates
+of large-amount deposits. Thirdly, the Company carried out proactive risk management and closely monitored
+the market trends. Taking into consideration of the development of assets and liabilities business, the Company
+proactively laid down investment and financing strategies based on its dynamic future cash flow gap forecast, in an
+attempt to improve capital utilisation efficiency. Fourthly, the Company strengthened liquidity risk management of
+business lines. Specifically, as for standalone business lines such as bills business and wealth management business,
+the Company implemented limit management to improve maturity mismatch so as to ensure liquidity risk is under
+control. Fifthly, the Company progressively pushed forward asset securitisation. In 2016, the Company launched
+asset securitised products of RMB15 billion.
+In 2016, with market liquidity at a moderately steady level, the Central Bank adopted a flexible and sound monetary
+policy which focused on stabilising capital fluctuations by using monetary policy instruments such as open market
+operations and medium-term lending facility. The liquidity of the Company was relatively stable. As at the end of the
+reporting period, the Company's liquidity coverage ratio was 111.64%³, representing 31.64 percentage points higher
+than the requirement of the CBRC (2016: not less than 80%); while average liquidity coverage ratio for the three
+months of the fourth quarter of 2016 was 114.59%. Stress test conducted for local currency and foreign currencies
+at light, medium and heavy levels all reached their respective minimum sustainable requirements of no less than 30
+days, leading to a better contingency buffer capacity for both local currency and foreign currencies.
+The Company regularly carries out stress tests to find out whether the Company is able to meet liquidity
+requirements under extreme circumstances. In addition to the annual stress tests required by the regulatory
+authorities, the Company conducts stress tests on the liquidity risk associated with domestic and foreign currencies
+on a monthly basis. In addition, the Company has put in place liquidity contingency plans and organized regular
+liquidity contingency drillings to guard against any liquidity crisis.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+Under the principle of separating the formulation, implementation and monitoring functions of liquidity risk
+management policies, the Company has established a liquidity risk management governance structure, defined the
+roles, duties and reporting lines of the Board of Directors, the senior management, special committees and related
+departments in liquidity risk management, so as to enhance the effectiveness of liquidity risk management. The
+Board of Directors shall accept the ultimate responsibility for liquidity risk management, ensure the Company can
+effectively identify, measure, monitor and control liquidity risk and are responsible for determining liquidity risk level
+which the Group can withstand. The Risk and Capital Management Committee under the Board of Directors shall
+discharge responsibilities in liquidity risk management on behalf of the Board of Directors. The senior management
+(being the Executive Office of President of the Head Office) shall be responsible for the concrete management
+work relating to liquidity risk and developing a timely understanding of changes in liquidity risks, and shall report
+the same to the Board of Director. Assets and Liabilities Committee (ALCO) shall, under the authority of the
+senior management, exercise the corresponding liquidity risk management functions. The Assets and Liabilities
+Management Department of the Head Office is a day-to-day working body of ALCO, and shall be responsible
+for various concrete management work including formulating policies and procedures relating to liquidity risk
+management and conducting qualitative and quantitative analysis of liquidity risk. The Audit Department of the
+Head Office shall perform duties in respect of audit work of liquidity risk management, and conduct comprehensive
+audit on the Company's liquidity risk management.
+93
+Liquidity risk is the risk where the Company is unable to raise sufficient funds on a timely basis or at reasonable
+costs to settle liabilities as they fall due, perform other payment obligations and satisfy the funding demand for its
+normal business development.
+5.11.5 Liquidity risk management
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+94
+=4
+As at the end of the reporting period, 15% (2015: 15%) of the total RMB deposits and 5% (2015: 5%) of the total
+foreign currency deposits of the Company were required to be placed with the PBOC.
+The Company's cautious attitude towards liquidity risk is more appropriate for the current development stage of
+the Company. The current liquidity risk management policies and systems of the Company are basically in line with
+regulatory requirements and its own management requirements.
+5.11.6 Reputational risk management
+96
+Reputational risk management is an important part of the corporate governance and the overall risk management
+system of the Company, covering all activities, operations and businesses undertaken by the Company and its
+subsidiaries. The Company established and formulated the reputational risk management system and relevant
+requirements and took initiatives to effectively prevent the reputational risk and respond to any reputational
+incidents, so as to reduce loss and negative impact to the greatest extent.
+During the reporting period, in order to prevent loss arising from systematic operational risk and material operational
+risk, the Company took various actions. Firstly, we further optimised the operational risk management tools. Based
+on the current operational risk management during the reporting period, the Company adjusted the assessment
+method and organisational structure of operational risk, improved the economic capital allocation indicator system
+for operational risk by making further adjustments, published the management rules for the events and losses
+associated with operational risk, and standardised the reporting of large-amount losses, financial treatments and
+management responsibilities. Secondly, the Company conducted various operational risk assessments. Focusing on
+its major and key businesses, the Company adopted five approaches, namely trigger assessment, open assessment,
+questionnaire assessment, routine assessment, and the assessment on new products and businesses, to carry out
+an in-depth analysis and a comprehensive assessment from various perspectives including personnel, structure, risk
+management, rule-making and system building. Thirdly, the Company tightened its control over manual business
+operations, conducted a comprehensive review on the manual operation products of the whole Bank, formulated the
+IT revamping plan for manual business operations and completed the development of the deposit system. Fourthly,
+the Company strengthened the management of outsourcing-related risk, business continuity and IT risk. The
+Company carried out onsite inspections on the risk management of certain outsourced products, conducted prudent
+review on the demands for new outsourcing products, completed the risk assessment and drillings on the business
+continuity of the whole Bank and optimised the IT risk indicator monitoring system.
+97
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+In 2016, the Company set up an anti-money laundering management center in the Legal Compliance Department
+of the Head Office, to take charge of the anti-money laundering compliance management of the whole Bank.
+The Company has established three professional anti-money laundering teams in the anti-money laundering
+management center to improve its expertise in anti-money laundering. The Company also made assessments on the
+effectiveness of anti-money laundering system and continuously improved the suspicious transaction monitoring
+system for anti-money laundering, the name-list verification system and the customer risk rating system. In line with
+its internationalisation drive, the Company has developed the name-list verification system for global anti-money
+laundering and put it online, tightened the anti-money laundering management on foreign institutions and
+cross-border businesses and formulated the "Guide for Self-assessment on Anti-money Laundering for Overseas
+Institutions (£). Furthermore, the Company earnestly implemented the reporting
+system of large-amount transactions and suspicious transactions, consistently strengthened the identity recognition
+of customers and due diligence work and carried out the screening and elimination of customers with high risk.
+5.11.8 Anti-money laundering management
+Compliance risk refers to the risk of being subject to legal sanctions, regulatory punishments, material financial
+losses, and reputational loss as a result of the failure to observe the laws, rules and standards. The Board of
+Directors of the Company is ultimately responsible for the compliance of the operating activities, and delegates
+the Risk and Capital Management Committee under the Board to supervise the compliance risk management. The
+Risk and Compliance Management Committee of the Head Office is the supreme governing body under the senior
+management of the Company to manage the compliance risk of the whole Company. The Company has established
+a comprehensive and effective compliance risk management system, optimised the organizational management
+structure which comprises the risk and compliance management committees, compliance supervisors, compliance
+officers and legal and compliance departments under the Head Office and its branches, and compliance supervisors
+at branch and sub-branch levels, improved the three lines of defence for compliance risk management and the
+double-line reporting mechanism, and achieved effective management and control of compliance risk by improving
+the operation mechanism of the compliance risk management and the risk management expertise and processes.
+During the reporting period, the Company proactively adapted to the adjustments in regulatory policies, positively
+addressed the significant changes in financial situations and risk control. Concentrating its efforts on strategic
+transformation and the reform of business model as well as management system, the Company formulated and
+carried out Guiding Opinions for 2016 Internal Control and Compliance Work of the Bank; strengthened the
+understanding of polices and the circulation and delivery of new regulations in a more timely and targeted manner;
+carried out legal compliance verification covering all businesses, products, systems and procedures; identified and
+assessed the compliance risks associated with new products, new businesses and major projects, and supported
+value innovation on the premise of legal compliance; promoted all entities and organizations of the Bank to develop
+compliance teams for standardising the duties of compliance staff and performance-related appraisal requirements
+of the Bank; organized staff of the Bank to conduct incompliance-correction campaign; carried out bank-wide test
+of compliance knowledge, and actively promoted compliance training with various levels, including requiring the
+vice president and compliance officer of each domestic branch to attend compliance courses, so as to improve the
+compliance risk management ability and compliance consciousness of the employees of the whole Bank; enhanced
+the centralised management of supervision and inspection and rectification of issues to ensure the effectiveness and
+seriousness of compliance.
+Reputational risk refers to the risk that the Company might be negatively evaluated by relevant interested parties
+due to the Company's operations, management and other activities or external incidents.
+5.11.7 Compliance risk management
+China Merchants Bank
+Annual Report 2016
+95
+The stress test is the Company's internal management indicator - the domestic calibre
+4
+Liquidity coverage ratio is an external regulatory indicator - the consolidation calibre, same as below
+3
+During the reporting period, the Company continuously improved the reputational risk management and further
+strengthened the pre- and post-risk accountability mechanism for reputational risk management, thereby effectively
+mitigating reputational risks, improving the efficiency in responding to public opinions and maintaining the brand
+reputation of the Company. At the same time, the Company proactively strengthened public relations and guided
+public opinions, thereby creating a good public opinion environment for business development.
+V Report of the Board of Directors
+Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, people, IT systems,
+or external events.
+(1)
+During the reporting period, the Company paid close attention to exchange rate movements, took initiative
+to analyse the impact of exchange rate changes in light of the macroeconomic conditions at home
+and abroad, and proposed a balance sheet optimization programme as a reasonable reference for the
+management's decision-making. In the future, the Company will continue to watch exchange rate movements
+closely, strengthen exchange rate risk monitoring of banking book and limit authority management to ensure
+that risks are kept within reasonable limits.
+The Company measures and monitors interest rate risk of banking book through the asset and liability
+management system. Major models and parameter assumptions used in the course of measurement shall be
+verified independently by the Risk Management Department before official use and shall be reviewed and
+verified regularly upon official use. In order to better meet the latest regulatory requirements of Basel and
+CBRC on interest rate risk management of banking book, and constantly improve the lean level of interest
+rate risk management of the Company, it has started the upgrading and revamping of its existing asset and
+liability management system in the second half of 2016, and plans to launch the system in the second half of
+2017.
+The Company has formulated the principles for risk control at different interest rate risk levels. Based on the
+risk measurement and monitoring results, the Company will propose the corresponding risk management
+policy at the regular meetings of the assets and liabilities management committee and through the reporting
+mechanism, and the Assets and Liabilities Management Department is responsible for its implementation.
+The major measures for risk management include the adjustment in business volume, duration structure and
+interest rate structure of on-balance sheet asset and liability business and the utilisation of off-balance sheet
+derivative tools to offset risk exposure.
+Stress test is a form of scenario simulation used to assess the changes in NII and EVE indicators when there
+is an extreme fluctuation in interest rates. The Company conducts stress test on interest rate risk of banking
+book on a monthly basis. The results of stress test for 2016 showed that the interest rate risk of banking
+book of the Company was generally stable with various indicators staying within the set limits.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+2.
+The Company mainly adopts the re-pricing gap analysis, duration analysis, benchmark correlation analysis,
+scenario simulation and other methods to measure and analyse interest rate risk of banking book on a
+monthly basis. The re-pricing gap analysis mainly monitors the distribution of re-pricing duration and
+mismatch of assets and liabilities; the duration analysis monitors the duration of major product types
+and the change in the duration gap of assets and liabilities of the whole bank; the benchmark-correlated
+analysis assesses the benchmark risk existing between different pricing benchmark interest rate curves, as
+well as between the different duration points on each of such curves based on the benchmark correlation
+coefficients calculated using our internal models; the scenario simulation is the major approach for the
+Company to conduct interest rate risk analysis and measurement, which comprise 17 ordinary scenarios and
+stress scenarios, including the interest rate benchmark impact, the parallel move and the change in the shape
+of yield curves, the extreme changes in interest rates over the past decade, the most possible changes in
+interest rates in future as judged by experts and other scenarios. The net interest income (NII) for the future
+one year and the changes in economic value (EVE) indicator are calculated through simulation of the scenario
+of changes in interest rates. The NII fluctuation ratio and the EVE fluctuation ratio of certain scenarios are
+included into the interest rate risk limit system of the whole bank.
+In 2016, the Company continued to closely monitor the changes in external interest rate environment,
+conducted the rolling forecast for future movements in interest rates and leveraged on the optimisation
+model for the asset and liability portfolio. On the premise of ensuring the stability of interest rate risk and
+liquidity risk and putting capital occupation under control, the Company proactively put forward the proposal
+for optimisation of the structure of assets and liabilities, so as to achieve steady growth in net interest
+income.
+The Company manages interest rate risk of banking book on a healthy and prudent basis, actively adjusts
+the structure of assets and liabilities on the premise of putting risk under control, and bears interest rate
+risk moderately. The Company has established the governance structure for interest rate risk management
+in accordance with the bank book interest rate risk management policy, which specifies the duties, division
+of responsibilities and reporting lines of the Board of Directors, senior management, special committees and
+related departments in the management of interest rate risk of banking book, thus ensuring the effectiveness
+of interest rate risk management. The interest rate risk of banking book of the Company is subject to
+centralized management by the Assets and Liabilities Management Department. The Audit Department is
+responsible for internal auditing of management structure, management process and management methods
+of interest rate risk of banking book.
+(2)
+The RMB bond market continued the bull trend in the first three quarters of 2016, and the market price of
+bonds reached the peak value in the middle of August. In late October, in response to the combined impact
+of deleveraging, tightening of liquidity, inflation expectation, exchange rate fluctuation and the US interest
+rate hike, the terminal interest rates fell significantly, and the bond prices dropped sharply to a level lower
+than those at the beginning of the year. As the speed and extent of slumps in the bond market in this round
+were by far beyond market expectation, the RMB bonds in the trading book of financial institutions suffered
+losses in general. The Company proactively implemented strict control over the volume and variety of the
+RMB bond portfolio under the trading book, therefore, the losses for the year were still controlled within the
+range preset at the beginning of the year.
+The Company uses various risk indicators, including volume indicators, market risk value indicators (VaR,
+covering various interest rate risk factors relating to trading book business), interest rate stress testing loss
+indicators, interest rate sensitivity indicators and accumulative loss indicators, to measure and manage the
+interest rate risk of trading book. The interest rate risk factors used for risk measurement cover all businesses
+under the trading account, and are comprised of more than 100 yield curves of interest rates or bonds.
+VaR includes general VaR and stress VaR, which are both calculated using the historical simulation model
+and adopt a confidence coefficient of 99%, an observation period of 250 days and a holding period of 10
+days. The interest rate stress testing scenario includes the parallel move, steep move and twisted change of
+interest rates at various degrees and various unfavourable market scenarios designed on the characteristics
+of investment portfolios. Among which, the extreme interest rate scenario may move up to 500bp and cover
+the unfavourable conditions of extreme market. Major interest rate sensibility indicator reflects the change
+in market value of bonds and interest rate derivatives when an interest rate fluctuates unfavourably by 1bp.
+As for daily risk management, the scope of authorisation and the market risk limits for the interest rate risk
+businesses under the trading account are set in accordance with the risk appetite, operation plan and risk
+prediction of the Board of Directors at the beginning of the year for which the market risk management
+department is responsible for daily monitoring and continuous reporting.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+90
+90
+Banking book
+5.11.4 Operational risk management
+Exchange rate risk management
+97
+The Company regularly measures and analyses foreign exchange exposure of banking book and scenario
+simulation results, monitors and reports exchange rate risk on a monthly basis under its quota limit
+framework, and adjusts its foreign exchange exposure accordingly based on the trend of foreign exchange
+movements, so as to mitigate the relevant foreign exchange risk of banking book. At present, the exchange
+rate risk of the Company is generally stable with all the core limit indicators, general scenario and stress
+testing results satisfying the regulatory limit monitoring requirement. The Audit Department of the Company
+is responsible for overall auditing of our exchange rate risk.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+The data for measurement of exchange rate risk of banking book of the Company was derived mainly from
+database, and the Company mainly uses foreign exchange exposure analysis, scenario simulation analysis,
+stress test, and other methods for measurement and analysis. The foreign exchange exposure measurement
+primarily uses the short-sided method and the correlation approach; scenario simulation and stress test
+analysis are two important exchange rate risk management tools of the Company for managing foreign
+exchange rate risk in respect of fluctuation of all currency exchange rates, including the standard scenario,
+historical scenario, forward scenario and stress scenario. Based on the forward exchange rate fluctuation
+and the scenario of extreme fluctuations over the past decade, each scenario could simulate the impact
+on the Company's profit or loss. The effects of certain scenarios on the profit and loss and its percentage
+to net capital as a limit indicator are taken as reference in the daily management. The Company conducts
+back-testing and assessment on relevant model parameters on a regular basis to verify the effectiveness of
+measurement models.
+The primary exchange rate risk of banking book of the Company comes from the maturity mismatch
+between foreign currency positions of its non-RMB denominated assets and liabilities. Through rigorous
+management of exchange rate risk, the Company has kept the exchange rate risk of its banking book within
+the acceptable range.
+The exchange rate risk management of banking book of the Company is coordinated by the Head Office.
+The Asset and Liability Management Department under the Head Office as a treasurer of the Company is
+in charge of exchange rate risk management of banking book. The treasurer is responsible for managing
+exchange rate risk of banking book on a prudent basis in accordance with relevant regulatory requirements,
+and conducting the centralized exchange rate management of banking book through limit management,
+budget control and other approaches.
+Banking book
+Exchange rate risk arises from the holding of assets, liabilities and equity items denominated in foreign currencies,
+foreign currencies and foreign currency derivative positions which may expose banks to potential losses in their
+gross profit in the event of adverse movement in exchange rate. The Company's functional currency is RMB. The
+majority of assets and liabilities of the Company are denominated in RMB and the rest mainly in USD and HKD.
+Under the principle of separating the formulation, implementation and monitoring functions of exchange rate risk
+management policies, the Company has established its exchange rate risk management governance framework,
+specifying the roles, duties and reporting lines of the Board of Directors, the senior management, special committees
+and relevant departments in the Bank in exchange rate risk management. The Company's cautious attitude towards
+exchange rate risk, meaning in principle the Company does not bear risks voluntarily, is more appropriate for the
+current development stage of the Company. The current exchange rate risk management policies and systems of the
+Company are basically in line with relevant regulatory requirements and its own management requirements.
+Trading book
+(2)
+The Company uses the risk indicators such as risk exposure indicator, market risk value indicator (VaR,
+including interest rate, exchange rate and commodity risk factors), the loss indicator for exchange rate
+scenario stress test, exchange rate sensitivity indicator and accumulated loss indicator to conduct risk
+measurement and daily management. As for risk measurement, the selected exchange rate risk factor is
+applied on spot and forward prices in all transaction currencies under the Trading Book. Market value risk
+indicators comprise general market value at risk and stress market value at risk, and are calculated using
+historical simulation based on a confidence coefficient of 99%, an observation period of 250 days and
+a holding period of 10 days. Exchange rate stress test scenarios cover 5%, 10%, 15% or more adverse
+changes in each of transaction currency against RMB, increased volatility of foreign exchange options. Major
+exchange rate sensitivity indicators are Delta, Gamma and other indicators for exchange rate derivatives. For
+daily management, we set limits on authority associated with exchange rate risks under the trading book and
+relevant market exposure at the beginning of the year according to the risk appetite, business planning and
+risk forecast determined by the Board, and delegated the Market Risk Management Department to perform
+daily monitoring and on-going reporting.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+92
+92
+91
+The Company has established the market risk (including exchange rate risk) management structure and
+system of trading book to implement centralized management on exchange rate risk of trading book using
+quantitative indicators. The structure, procedure and method of exchange rate risk management of trading
+book are in line with those of interest risk management of trading book.
+The RMB exchange rates showed a depreciating trend, in which the more obvious "irreversible downward
+trend" and the "range-bound fluctuation" appeared alternately throughout 2016. Meanwhile, the global
+political and financial conditions remained volatile. The unexpected Brexit after a referendum and Donald
+Trump's victory in U.S. presidential election further increased the volatility in the global exchange market.
+Under this backdrop, the Company proactively reduced the risk exposure to proprietary foreign exchange
+business on the one hand, and timely adjusted the quotations for foreign exchange trading on behalf of
+customers on other hand. As a result, the Company has not only fended off market turbulence successfully,
+but also recorded satisfactory gains.
+5.12 Profit Appropriation
+96
+As stated in the audited financial statements of the Company for 2016, 10% of the profit after tax of RMB56.990
+billion, equivalent to RMB5.699 billion, was allocated to the statutory surplus reserve, while 1.5% of the total
+balance of the risk assets, equivalent to RMB3.102 billion, was appropriated to the general reserve.
+(4)
+(3)
+(2)
+profit appropriation of the Company shall focus on reasonable returns on investment of the investors,
+and such policies shall maintain continuity and stability;
+(1)
+As specified in the Articles of Association of China Merchants Bank Co., Ltd. (revised in 2014) (the "Articles
+of Association"), the profit appropriation policies of the Company are:
+1.
+5.12.3 The formulation and implementation of the Company's cash dividend policies
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+98
+The proposal of profit appropriation for 2016 is subject to consideration and approval at the 2016 Annual General Meeting of the Company.
+Note:
+30.06
+62,081
+(5)
+18,663
+(6)
+the Company may distribute dividends in cash, shares or a combination of cash and shares, and
+it shall distribute dividends mainly in cash. Subject to compliance with prevailing laws, regulations
+and the requirements of relevant regulatory authority on the capital adequacy ratio, as well as
+the requirements of general working capital, business development and the need for substantial
+investment, merger and acquisition plans of the Company, the cash dividend to be distributed by the
+Company each year in principle shall not be less than 30% of the net profit after taxation audited
+in accordance with the PRC accounting standards for that year. The Company may pay interim cash
+dividend. Unless another resolution is passed at the shareholders' general meeting, the Board of
+Directors shall be authorized by the shareholder at a general meeting to approve the interim profit
+appropriation plan;
+During 2016, so far as the Board is aware, the Company has complied in all material respects with the relevant laws
+and regulations that have a significant impact on the operations of the Company.
+5.14 Compliance with Laws and Regulations.
+During the reporting period, adhering to the social responsibility principle of "Gain from society and contribute to
+society", the Company launched poverty alleviation in Wuding County and Yongren County of Yunnan Province and
+actively made contribution and fulfilled its social responsibilities on green loans, support to SMEs and employee care.
+For the environmental, social and governance report prepared and disclosed in accordance with the Hong Kong
+Listing Rules "Guides for Environmental, Social and Governance Report" and the details of the Company in
+fulfillment of its social responsibilities, please refer to the "Corporate Social Responsibility Report of China Merchants
+Bank for 2016", which form an integral part of this report, and is available on the websites of the Company, the
+Shanghai Stock Exchange and the Hong Kong Stock Exchange.
+5.13 Requirements of the Guidelines for Environmental,
+Social and Governance Report
+5.12.1 The profit appropriation plan for 2016
+2.
+99
+99
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+the Company shall disclose the implementation progress of the cash dividend policy and other
+relevant matters in its periodic reports in accordance with the applicable requirements.
+where appropriation of the Company's fund by a shareholder, which is in violation of relevant rules,
+has been identified, the Company shall make deduction against the cash dividend to be paid to such
+shareholder, and such amount shall be used as the reimbursement of the funds appropriated; and
+the Company shall pay cash dividends and other amounts to holders of domestic shares and such
+sums shall be calculated, declared and paid in Renminbi. The Company shall pay cash dividends and
+other amounts to holders of H Shares and such sums shall be calculated and declared in Renminbi
+and paid in Hong Kong dollars. The foreign currencies required by the Company for payment of cash
+dividends and other sums to shareholders of overseas listed foreign shares shall be handled according
+to the relevant requirements of foreign exchange administration of the State;
+if the Board of Directors considers that the price of the shares of the Company does not match the
+size of share capital of the Company or where the Board of Directors considers necessary, the Board
+of Directors may propose a dividend appropriation plan and implement the same upon consideration
+and approval at a general meeting, provided that the abovementioned cash profit appropriation
+requirements are satisfied;
+if the Company generated profits in the previous accounting year but the Board of Directors did
+not make any cash profit appropriation proposal after the end of the previous accounting year, the
+Company shall state the reasons for not distributing the profit and the usage of the profit retained in
+the periodic report and the independent directors shall give an independent opinion in such regard;
+(7)
+0.74
+During the reporting period, the profit appropriation plan of the Company for 2015 was implemented in
+strict accordance with the relevant provisions of the Articles of Association. It was considered and approved
+by the 45th meeting of the Ninth Session of the Board of Directors of the Company, and submitted for
+consideration and approval at the 2015 Annual General Meeting. The criteria and proportion of cash dividend
+were clear and specific, and the Board of Directors of the Company has implemented the profit appropriation
+plan. The profit appropriation plan of the Company for 2016 will also be implemented in strict accordance
+with the relevant provisions of the Articles of Association. It will be considered and approved by the 10th
+meeting of the Tenth Session of the Board of Directors of the Company, and submitted for consideration and
+approval at the 2016 Annual General Meeting. The independent directors of the Company have expressed
+their independent opinions on the profit appropriation plans for 2015 and 2016 that the profit appropriation
+plans of the Company and their implementation process have provided adequate protection for the legitimate
+rights and interests of minority investors.
+57,696
+Net profit
+attributable to
+Total cash
+dividends
+(inclusive of
+tax, in millions
+reserve for
+of surplus
+on capitalisation
+shares issued
+shareholders in
+the consolidated
+financial
+statements for
+the year
+Number of
+Number of Cash dividend
+every share
+held (No. of
+for every
+share held
+(RMB, inclusive
+5.12.2 Profit appropriation for the last three years:
+Based on the then total share capital of A Shares and H Shares on the record date for implementation of the profit
+appropriation, the Company proposes to declare a cash dividend of RMBO.74 (tax included) for every share to all
+shareholders of the Company whose names appear on the register, payable in Renminbi for holders of A Shares and
+in Hong Kong Dollars for holders of H Shares. The actual appropriation amount in HKD will be calculated based on
+the average RMB/HKD benchmark rates to be released by the PBOC for the week before the date of the general
+meeting (inclusive of the day of the general meeting). The retained profit will be carried forward to the next year. In
+2016, the Company did not transfer any capital reserve into share capital. The above proposal of profit appropriation
+is subject to consideration and approval at the 2016 Annual General Meeting of the Company.
+30.16
+bonus shares
+(in millions
+for every
+share held
+net profit
+attributable to
+shareholders in
+Proportion of
+cash bonus to
+0.69
+30.22
+55,911
+16,897
+0.67
+2014
+2015
+2016 Note
+financial
+statements (%)
+17,402
+of RMB)
+shares)
+of tax)
+(No. of shares)
+Year
+the consolidated
+of RMB)
+6.3 Reserve
+Details are set out in Chapter II Summary of Accounting Data and Financial Indicators of this annual report.
+6.2 Financial highlights
+The Company is engaged in banking and related financial services.
+6.1 Principal business activities
+101
+Annual Report 2016
+(1)
+VI Important Events
+For details of changes in the Company's reserves, please refer to the "Consolidated Statement of Changes in Equity"
+in the financial report of the Company.
+Chairman of the Board of Directors
+24 March 2017
+Important Events
+China Merchants Bank
+6.6 Pre-emptive rights
+Changes in fixed assets of the Company as at 31 December 2016 are set out in Note 25 to the financial statements
+in this annual report.
+6.9 Interests and short positions of directors, supervisors
+and chief executives under Hong Kong laws and
+regulations
+VI Important Events
+Li Jianhong
+China Merchants Bank
+Annual Report 2016
+As at the end of the reporting period, the net operating income from the top 5 customers of the Company did not
+exceed 30% of the total net operating income of the Company.
+6.8 Principal customers
+6.4 Fixed assets
+Details about retirement and welfare provided by the Company to its employees are set out in Note 38 to the
+financial statements in this annual report.
+There is no provision for pre-emptive rights under the Articles of Association of the Company and the shareholders
+of the Company have not been granted any pre-emptive rights.
+Neither the Company nor its subsidiaries had purchased, sold or repurchased any of the Company's listed securities
+during the reporting period.
+6.5 Purchase, sale or repurchase of listed securities of
+the Company
+VI Important Events
+China Merchants Bank
+Annual Report 2016
+102
+6.7 Retirement and welfare
+By order of the Board of Directors
+During the reporting period, none of the material contracts of the Company involving holding in custody, contracting
+or hiring or leasing of any assets of other companies by the Company or vice versa was entered into beyond the
+normal business scope of the Bank.
+5.16 Permitted Indemnity Provision
+(4)
+As at 31 December 2016, the interests and short positions of the directors, supervisors and chief executives of
+the Company in the shares, underlying shares and debentures of the Company and its associated corporations
+(as defined in the SFO in Hong Kong), which are required to be notified to the Company and Hong Kong Stock
+Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, including interests and short positions which the
+directors, supervisors and chief executives of the Company are taken or deemed to have under such provisions of
+the SFO, or which are required to be and are recorded in the register required to be kept pursuant to Section 352
+of the SFO or as otherwise required to be notified to the Company and Hong Kong Stock Exchange pursuant to the
+Model Code set out in Appendix 10 to the Hong Kong Listing Rules, were as follows:
+the transactions were entered into on normal commercial terms or better terms; and
+(3)
+the terms of the transactions are fair and reasonable, and are in the interest of the Company and its
+shareholders as a whole;
+(2)
+the transactions were entered into in the ordinary and usual course of business of the Company;
+the transactions were conducted in accordance with the terms of relevant agreements.
+Furthermore, the Company has engaged Deloitte Touche Tohmatsu to review the continuing connected transactions
+of the Group in accordance with Hong Kong Standard on Assurance Engagements 3000 "Assurance Engagements
+Other Than Audits or Reviews of Historical Financial Information" and with reference to Practice Note 740 "Auditor's
+Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute
+of Certified Public Accountants. The Board has confirmed the findings, conclusions and the unqualified letter issued
+by Deloitte Touche Tohmatsu in respect of the aforesaid transactions in accordance with Rule 14A.56 of the Hong
+Kong Listing Rules. A copy of the letter has been provided by the Company to SEHK.
+6.17 Material transactions with related parties
+The Company's material transactions with related parties are set out in Note 56 to the financial statements. These
+transactions entered into with related parties of the Company were in the ordinary course of its business including
+lending, investment, deposit-taking, securities trading, agency services, custody and other trust services and
+off-balance sheet transactions. These transactions were entered into by the Company on normal commercial terms
+in the ordinary and usual course of business, and those which constituted connected transactions under the Hong
+Kong Listing Rules were in compliance with the applicable requirements of the Hong Kong Listing Rules.
+6.18 Material litigations and arbitrations
+Several lawsuits were filed during daily operation of the Company, most of which were filed for the purpose of
+recovering of the non-performing loan. As at 31 December 2016, the number of pending litigation and arbitration
+cases in which the Company was involved totalled 397 with a total amount of principal and interest of approximately
+RMB1.849 billion. The Company believed that none of the above litigation and arbitration cases would have a
+significant adverse impact on the financial position or operating results of the Company.
+China Merchants Bank
+Annual Report 2016
+VI Important Events
+6.19 Material contracts and their performance
+Significant events in respect of holding in custody, contracting, hiring or
+leasing of assets
+Significant entrustments in respect of fund and asset management
+No contracts concerning the management and administration of the whole or any substantial part of the business of
+the Company were entered into or existing during the year.
+5.15 Management Contracts
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+100
+109
+The Company has maintained appropriate insurance coverage for directors' and officers' liabilities in respect of legal
+actions against its directors and senior management arising out of corporate activities.
+As considered and approved by the Board of Directors of the Company, during the reporting period, the Company
+won the bid for the land use right for commercial use of Shenzhen Bay Super Headquarters Base in Nanshan
+District, Shenzhen (land parcel no. T207-0051) at a total consideration of RMB5.95 billion. The acquisition of the
+land use right of the land parcel is for the construction of CMB Global Headquarters. For details, please refer to the
+announcement of the Company on the Acquisition of State-owned Land Use Right dated 26 December 2016.
+China Merchants Bank emphasises risk management of the guarantee business. It has formulated specific
+management measures and operation workflow according to the risk profile of this business. In addition, the
+Company has enhanced risk monitoring and safeguarded this business through management means such as on-site
+and off-site checks. During the reporting period, the guarantee business of China Merchants Bank was in normal
+operation and there were no non-compliant guarantees.
+After review, it was ascertained that the guarantee business of CMB was approved by the CBRC, and it was carried
+out in the ordinary course of business of the banks as a conventional business. As at 31 December 2016, the
+balance of the irrevocable guarantees of China Merchants Bank was RMB242.579 billion.
+In accordance with CSRC Approval [2003] No.56 and the relevant provisions of Shanghai Stock Exchange, the
+independent non-executive directors of China Merchants Bank carried out a due diligence review of the guarantees
+of China Merchants Bank for 2016 on an open, fair and objective basis, and their opinions are as follows:
+Explanatory notes and independent opinions of the independent non-executive
+directors towards the guarantees of China Merchants Bank
+Guarantee business falls within the Company's ordinary course of business. During the reporting period, save for the
+financial guarantees entered into in our normal business scope approved by the CBRC, there was no other significant
+discloseable guarantees.
+During the reporting period, there was no significant entrustment in respect of fund and asset management.
+Significant guarantees
+Other matters
+Percentage
+of the
+relevant
+VI Important Events
+Position
+Supervisor
+All the connected transactions of the Company have been conducted on normal commercial principles, and on
+terms which are fair and reasonable and in the interest of the Company and its shareholders as a whole. Pursuant to
+Chapter 14A of the Hong Kong Listing Rules, the transactions between the Company and China Merchants Group
+and its member companies, Anbang Insurance Group Co., Ltd. and its member companies constituted non-exempt
+continuing connected transactions within the meanings of Hong Kong Listing Rules, and shall comply with the
+requirements of non-exempt continuing connected transactions set by the Hong Kong Stock Exchange.
+6.16.2 Non-exempt continuing connected transactions
+Pursuant to Chapter 14A of the Hong Kong Listing Rules, the non-exempt continuing connected transactions of the
+Company were those conducted by the Company with CMFM and its associates (hereinafter referred to as "CMFM
+Group"), CM Securities and its associates (hereinafter referred to as "CM Securities Group") and Anbang Insurance
+Group Co., Ltd. and its associates (hereinafter referred to as "Anbang Insurance Group"), respectively.
+On 26 August 2014, with the approval of the Board of Directors of the Company, the Company announced that
+the annual caps for the continuing connected transactions with CMFM Group for the year of 2015 and 2016 would
+be RMB3 billion. On 28 April 2015, with the approval from the Board of Directors of the Company, the Company
+announced that the annual caps for the continuing connected transactions with CM Securities Group for the year
+of 2015, 2016 and 2017 would be RMB500 million. On 16 June 2015, with the approval of the Board of Directors
+of the Company, the Company announced that the annual caps for the continuing connected transactions with
+Anbang Insurance Group for the year of 2015, 2016 and 2017 would be RMB1.2 billion, respectively. On 24 August
+2016, with the approval from the Board of Directors of the Company, the Company announced that the annual
+caps for the continuing connected transactions with Anbang Insurance Group for the year of 2016 and 2017 were
+adjusted from RMB 1.2 billion to RMB1.5 billion. Further details were disclosed in the Announcements on Continuing
+Connected Transactions issued by the Company on 26 August 2014, 28 April 2015, 16 June 2015 and 24 August
+2016 respectively.
+CMFM Group
+The fund distribution agency services between the Company and CMFM Group constituted continuing connected
+transactions of the Company under the Hong Kong Listing Rules.
+At the end of reporting period, the Company and CM Securities held 55% and 45% of the equity interest in CMFM
+respectively. CMFM Group is a connected person of the Company under the Hong Kong Listing Rules.
+On 26 August 2014, the Company entered into a Service Cooperation Agreement with CMFM for a term
+commencing on 1 January 2015 and expiring on 31 December 2016. The Agreement was entered into on normal
+commercial principles after an arm's length negotiation. The service fees payable by CMFM Group will be calculated
+at the rates specified in the fund offering documents and/or the offering prospectuses and shall be settled to the
+Company under the Agreement.
+The annual cap for the continuing connected transactions between the Company and CMFM Group for 2016
+was RMB3 billion, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07
+of the Hong Kong Listing Rules was less than 5%. Therefore, these transactions would only be subject to the
+reporting, announcement and annual review requirements under the Hong Kong Listing Rules, and exempt from the
+independent shareholders' approval requirement.
+As at 31 December 2016, the amount of the continuing connected transactions between the Company and CMFM
+Group was RMB1,524 million.
+China Merchants Bank
+Annual Report 2016
+VI Important Events
+CM Securities Group
+The third-party custody business, the asset management plan agency services, collective investment products and
+other services between the Company and CM Securities Group constituted continuing connected transactions of the
+Company under the Hong Kong Listing Rules.
+6.16.1 Overview of connected transactions
+At the end of reporting period, China Merchants Group indirectly held 29.97% of equity interest in the Company (by
+way of equity interests held, right of control or relationship of parties acting in concert), as China Merchants Group
+also held 44.09% equity interest in CM Securities, pursuant to the Hong Kong Listing Rules, CM Securities Group is
+a connected person of the Company.
+The annual cap for the continuing connected transactions between the Company and CM Securities Group for
+2016 was RMB500 million, in respect of which the relevant percentage ratios calculated in accordance with Rule
+14.07 of the Hong Kong Listing Rules was less than 5%. Therefore, these transactions would only be subject to the
+reporting, announcement and annual review requirements, and exempt from the independent shareholders' approval
+requirement under the Hong Kong Listing Rules.
+As at 31 December 2016, the amount of the continuing connected transactions between the Company and CM
+Securities Group was RMB459 million.
+Anbang Insurance Group
+The insurance agency sales services provided by the Company to Anbang Insurance Group constitute continuing
+connected transactions of the Company under the Hong Kong Listing Rules.
+Anbang Property & Casualty Insurance Company Ltd. is one of the Company's substantial shareholders. As at the end
+of the reporting period, Anbang Insurance Group Co., Ltd. held 97.56% of the equity interest in Anbang Property
+& Casualty Insurance Company Ltd., and indirectly held over 10% equity interest in the Company. According to the
+Hong Kong Listing Rules, Anbang Insurance Group became the connected party of the Company.
+On 16 June 2015, the Company entered into a Service Cooperation Agreement with Anbang Insurance Group Co.,
+Ltd. for a term commencing on 1 January 2015 and expiring on 31 December 2017. The Agreement was entered
+into on normal commercial terms after an arm's length negotiations. The service fees payable by Anbang Insurance
+Group to the Company should be determined in accordance with the normal market prices.
+On 24 August 2016, with the resolution considered and passed at the 3rd Meeting of Tenth Session of the Board of
+Directors of the Company, the Company announced that the annual caps for the continuing connected transactions
+with Anbang Insurance Group for the year of 2016 were adjusted from the previously approved RMB1.2 billion to
+RMB1.5 billion, of which the relevant percentage ratios calculated in accordance with Rule 14.07 of the Hong Kong
+Listing Rules was less than 5%. Therefore, these transactions would be subject only to the reporting, announcement
+and annual review requirements, and exempt from the independent shareholders' approval requirement under the
+Hong Kong Listing Rules.
+As at 31 December 2016, the amount of the continuing connected transactions between the Company and Anbang
+Insurance Group was RMB1,270 million.
+107
+108
+China Merchants Bank
+Annual Report 2016
+VI Important Events
+6.16.3 Confirmation from the Independent Non-executive Directors and Auditors
+Name
+Jin Qingjun
+On 28 April 2015, the Company entered into a Service Cooperation Agreement with CM Securities for a term
+commencing on 1 January 2015 and expiring on 31 December 2017. The agreement was entered into on normal
+commercial terms after an arm's length negotiation. The service fees payable by CM Securities Group to the
+Company should be determined in accordance with the normal market prices.
+6.16 Significant connected transactions
+The independent non-executive directors of the Company had reviewed the above-mentioned non-exempt
+continuing connected transactions between the Company and each of CMFM Group, CM Securities Group and
+Anbang Insurance Group and confirmed that:
+China Merchants Bank
+Annual Report 2016
+VI Important Events
+Class of
+shares
+Long/short
+position
+Capacity
+No. of
+shares
+class of
+shares in
+issue (%)
+A Share Long position Beneficial owner
+65,800
+0.00032
+0.00026
+6.10 Directors' interests in the businesses competing with
+those of the Company
+As far as the Company is aware, none of the Directors of the Company has any interests in the businesses which
+compete or are likely to compete, either directly or indirectly, with those of the Company.
+6.11 Financial, business and kinship relations among
+directors, supervisors and senior management
+Save as disclosed herein, the Company is not aware that the directors, supervisors and senior management of the
+Company have any relations between each other with respect to financial, business, kinship or other material or
+connected relations.
+103
+Percentage
+of all the
+issued
+shares (%)
+China Merchants Bank
+Annual Report 2016
+106
+104
+As far as the Company is aware, as at the date of the report, the above shareholders had not violated the aforesaid
+undertakings.
+In the course of the rights issue of A shares and H shares in 2013, each of China Merchants Group Ltd. (hereinafter
+referred to as "China Merchants Group"), China Merchants Steam Navigation Company Ltd. and China Ocean
+Shipping (Group) Company had undertaken that they would not seek for related party transactions on terms more
+favorable than those given to other shareholders; they would repay the principal and interest of the loans granted by
+the Company on time; they would not interfere with the daily operations of the Company. Should they participate
+in the subscription of the rights shares, they would neither transfer nor entrust others to manage the allocated
+shares within five years from the delivery of such shares, nor would they seek for a repurchase by the Company of
+the allocated shares held by them. Upon expiration of the lock-up period of the allocated shares, they would not
+transfer their allocated shares until they obtain the approval from the regulatory authorities on the share transfer
+and the shareholder qualification of transferees; and upon obtaining the approval from the Board of Directors and
+shareholders' general meeting of the Company, they would continue to support the reasonable capital needs of the
+Company; they would not impose unreasonable performance indicators on the Company. For details, please refer to
+the A Share Rights Issue prospectus dated 22 August 2013 on the website of the Company (www.cmbchina.com).
+In order to promote the sustainable, steady and healthy development of the capital market, China Merchants Group
+and its subsidiaries have undertaken that during periods of exceptional volatility in the stock market(s), they would
+not dispose of their shareholdings in the Company and instead, they would increase their shareholdings in the
+Company at appropriate times. For further details, please refer to the announcement of the Company dated 10 July
+2015 published on our website.
+6.15 Undertakings made by the Company, directors,
+supervisors, senior management and other
+connected persons
+China Merchants Bank
+Annual Report 2016
+So far as the Company is aware, there has not been any significant court judgment with which the Company has
+not complied, nor has there been any outstanding debt of significant amount during the reporting period.
+105
+6.14 Explanation about the integrity profile of the Company
+So far as the Company is aware, during the reporting period, none of the Company, its directors, supervisors or
+senior management was subject to investigation by relevant authorities or to mandatory measures imposed by
+judicial organs or disciplinary inspection authorities. None of them had been referred or handed over to judicial
+authorities or prosecuted for criminal liability, under investigation or administrative sanction by the CSRC, nor
+had they been prohibited from engagement in the securities markets, determined as unqualified, or been publicly
+censured by any stock exchange. The Company has not been penalised by other regulatory bodies which have
+significant impact on the business of the Company.
+VI Important Events
+6.13 Disciplinary actions imposed on the Company,
+directors, supervisors, senior management
+During the reporting period, the directors and supervisors of the Company have no material interests in contracts of
+significance to which the Company or any of its subsidiaries was a party. None of the directors and supervisors of
+the Company has entered into any service contract with the Company which is not determinable by the Company
+within one year without payment of compensation (excluding statutory compensation).
+6.12 Contractual rights and service contracts of directors
+and supervisors
+Yes
+2014.9-2019.6
+Non-Executive Director
+Female 1968.2
+Su Min
+Yes
+2007.6-2019.6
+2007.6-2019.6 (note 1)
+2010.8-2019.6
+No
+427.14
+Zhang Jian
+Yes
+Male 1964.10
+Antony
+2016.11-2019.6
+Yes
+Wang Daxiong
+Male
+1960.12
+Leung Kam Chung,
+Male
+1952.1
+Non-Executive Director
+Independent Non-Executive Director
+2016.11-2019.6
+Yes
+2015.1-2019.6
+50.00
+Wong Kwai Lam
+Non-Executive Director
+Executive Director, First Executive Vice
+President and Chief Financial Officer
+Non-Executive Director
+Non-Executive Director
+2013.8-2019.6
+Hong Xiaoyuan
+ten thousand)
+Male
+from the related
+parties of the
+Company during
+the reporting
+period
+Yes
+Non-Executive Director
+2014.7-2019.6
+Vice Chairman
+2015.11-2019.6
+Li Xiaopeng
+Male
+1959.5
+Yes
+Non-Executive Director
+2014.11-2019.6
+Male 1966.12
+Fu Gangfeng
+Male 1959.3
+Li Hao
+Yes
+2001.4-2019.6
+Male 1963.3
+2013.9-2019.6
+Female 1958.6
+No
+474.60
+Male 1965.12
+Tian Huiyu
+Sun Yueying
+Executive Director
+President and Chief Executive Officer
+Non-Executive Director
+Pan Chengwei
+No
+1949.5
+Male 1946.2
+Female 1955.6
+1976.8
+Shareholder Supervisor
+2016.6-2019.6
+Yes
+Jin Qingjun
+Male 1957.8
+External Supervisor
+2014.10-2019.6
+65,800
+65,800
+40.00
+Ding Huiping
+Male 1956.6
+External Supervisor
+Male
+2016.6-2019.6
+Han Zirong
+Xu Lizhong
+Male 1963.7
+External Supervisor
+2016.6-2019.6
+20.00
+Male 1964.3
+Employee Supervisor
+2016.6-2019.6
+193.92
+z z z z ÁÁÁ
+No
+No
+No
+reporting
+period (RMB
+20.00
+Pan Yingli
+Wu Heng
+No
+Zhao Jun
+Wong See Hong
+Male 1962.9
+Male 1953.6
+Liu Yuan
+Male
+1962.1
+Independent Non-Executive Director
+Independent Non-Executive Director
+Independent Non-Executive Director
+Independent Non-Executive Director
+Independent Non-Executive Director
+Chairman of Board of Supervisors,
+Employee Supervisor
+2011.7-2017.7 (note 2)
+2012.7-2018.7 (note 2)
+2011.11-2017.11
+(note 2)
+50.00
+50.00
+50.00
+2015.1-2019.6
+50.00
+2017.2-2019.6
+2014.8-2019.6
+No
+Fu Junyuan
+Shareholder Supervisor
+2015.9-2019.6
+Wen Jianguo
+Male 1962.10
+Shareholder Supervisor
+2016.6-2019.6
+379.68
+No
+Yes
+Yes
+2 2 2 2 2 2 2
+No
+No
+No
+Male 1961.5
+the Company
+during the
+The Company had not issued internal staff shares during the reporting period.
+at the end of
+As at 31 December 2016, as far as the Company is aware, the following persons (other than the directors, supervisors
+and chief executives (as defined in the Hong Kong Listing Rules) of the Company) had interests and short positions
+in the shares of the Company as recorded in the register required to be kept by the Company pursuant to Section
+336 of the SFO:
+Percentage of
+the relevant
+Percentage
+Class of
+Name of Substantial Shareholder
+shares
+Long/short
+position
+class of shares
+of all issued
+Capacity
+No. of shares
+Notes
+in issue (%)
+underlying shares under Hong Kong laws and
+regulations
+shares (%)
+A
+Long
+Interest of controlled corporation
+6,752,746,952
+1
+32.73
+26.78
+H
+Long
+Interest of controlled corporation
+806,680,423 1
+17.57
+3.20
+China Merchants Group Ltd.
+China Merchants Steam Navigation Company Ltd.
+7.3 Substantial shareholders' and other persons'
+interests and short positions in shares and
+China Merchants Bank
+Annual Report 2016
+Shenzhen Chu Yuan Investment and
+State-owned legal person
+944,013,171
+Development Company Ltd.
+3.74 A Shares not subject to
+trading moratorium
+8
+China Securities Finance Corporation
+Limited
+Domestic legal person
+819,311,178
+3.25 A Shares not subject to
+trading moratorium
+220,876,436
+9
+COSCO Shipping (Guangzhou) Co., Ltd. State-owned legal person
+VII Changes in Shares and Information on Shareholders
+696,450,214
+10
+China Communications Construction
+Company Limited
+State-owned legal person
+450,164,945
+1.78 A Shares not subject to
+trading moratorium
+Notes:
+(1)
+(2)
+Shares held by HKSCC Nominees Ltd. are the total shares in the accounts of holders of H Shares of the Company trading on the
+transaction platform of HKSCC Nominees Ltd.
+Of the aforesaid top 10 shareholders, China Merchants Steam Navigation Company Ltd., Shenzhen Yan Qing Investment and
+Development Company Ltd., China Merchants Finance Investment Holdings Co. Ltd. and Shenzhen Chu Yuan Investment and
+Development Company Ltd. are subsidiaries of China Merchants Group Ltd. As at 31 December 2016, China Merchants Group Ltd.
+indirectly held an aggregate of 29.97% of the total issued shares of the Company (by way of equity interests held, right of control
+or relationship of parties acting in concert). Among which, the shares acquired by China Merchants Finance Investment Holdings
+Co., Ltd. through block trades during the reporting period are all the shares (223,523,762 A Shares) in the Company held by
+China Merchants Zhi Yuan Zeng Chi Bao No.1 Collective Asset Management Plan (##¹ªÂ¤¥) and China
+Merchants Zhi Yuan Zeng Chi Bao No.2 Collective Asset Management Plan (2ª¦¤à¥¤††ª), both are under its
+control. Guangzhou Maritime Transport (Group) Company Ltd. was the predecessor of COSCO Shipping (Guangzhou) Co., Ltd.. China
+Ocean Shipping (Group) Company and COSCO Shipping (Guangzhou) Co., Ltd. are controlled by China COSCO Shipping Corporation
+Limited. The Company is not aware of any affiliated relationships among other shareholders.
+(3)
+The above shareholders did not hold the shares of the Company through credit securities accounts.
+114
+2.76 A Shares not subject to
+trading moratorium
+A
+Long
+Beneficial owner
+0.28
+0.23
+H
+Long
+Beneficial owner
+328,776,923
+7.16
+the period
+(share)
+1.30
+Shenzhen Yan Qing Investment and
+A
+Long
+Beneficial owner
+58,147,140
+1,258,542,349
+Interest of controlled corporation
+944,013,171
+1
+2,202,555,520
+10.68
+8.73
+2,704,596,216
+13.11
+10.72
+Anbang Property & Casualty Insurance
+A
+Long
+Beneficial owner
+Long
+Beneficial owner
+Long
+A
+3,289,470,337
+Long
+Interest of controlled corporation
+58,147,140 1
+3,347,617,477
+16.23
+13.27
+H
+Long
+Interest of controlled corporation
+806,680,423
+17.57
+3.20
+China Merchants Finance Investment Holdings
+Co., Ltd.
+A
+Long
+Beneficial owner
+1,147,377,415
+Long
+Interest of controlled corporation
+2,202,555,520
+1
+Long
+Other
+55,196,540
+3,405,129,475
+16.50
+13.50
+Best Winner Investment Limited
+7
+Company Ltd. -traditional products
+223,523,762
+1,147,377,415
+Percentage
+reporting period
+(%)
+Quantity (share)
+Quantity
+(share)
+Percentage
+(%)
+I.
+Shares subject to trading moratorium
+II.
+Shares not subject to trading moratorium
+1. Ordinary shares in RMB (A Shares)
+25,219,845,601
+20,628,944,429
+100.00
+Quantity
+(share)
+25,219,845,601
+81.80
+-
+20,628,944,429
+81.80
+2. Foreign shares listed domestically
+3. Foreign shares listed overseas (H Shares)
+4. Others
+4,590,901,172
+18.20
+4,590,901,172
+18.20
+III.
+Total shares
+25,219,845,601
+100.00
+100.00
+31 December 2016
+31 December 2015
+110
+China Merchants Bank
+Annual Report 2016
+VI Important Events
+6.20 Significant event in respect of fund entrusting
+During the reporting period, there was no event in respect of fund entrusting beyond our normal business.
+6.21 Use of funds by related parties.
+During the reporting period, neither the substantial shareholders of the Company nor their related parties had used
+any funds of the Company for non-operating purposes, and none of them had used the funds of the Company
+through (among others) any related transactions not entered into on an arm's length basis. Deloitte Touche Tohmatsu
+Certified Public Accountants LLP, being the auditor of the Company, has issued a special audit opinion in this regard.
+6.22 Appointment of accounting firms
+According to the resolutions passed at the 2015 Annual General Meeting, the Company engaged Deloitte Touche
+Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company for 2016 and Deloitte
+Touche Tohmatsu as the international accounting firm of the Company for 2016. These two certified public
+accountants have been engaged as auditors of the Company since 2016.
+The financial statements of the Group for 2016 prepared under the PRC Generally Accepted Accounting Principles
+and the internal control of the Group as at the year end of 2016 were audited by Deloitte Touche Tohmatsu Certified
+Public Accountants LLP, and the financial statements for 2016 prepared under International Financial Reporting
+Standards were audited by Deloitte Touche Tohmatsu Certified Public Accountants. The total audit fees amounted to
+approximately RMB14.17 million (including fees for the audit on the financial statements of our overseas branches,
+subsidiaries and their respective subsidiaries), among which the audit fees for internal control was approximately
+RMB1.24 million. The auditor's responsibility statements made by Deloitte Touche Tohmatsu Certified Public
+Accountants LLP and Deloitte Touche Tohmatsu Certified Public Accountants regarding their responsibilities for the
+financial statements are set out in the Auditors' Reports in the Annual Reports of the Company's A Shares and H
+Shares, respectively.
+Prior to the engagement of Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche
+Tohmatsu, the Company's domestic and international accounting firms were KPMG Huazhen (Special General
+Partnership) and KPMG, respectively.
+6.23 Review of annual results
+Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu, our external auditors,
+have audited the financial statements of the Company prepared in accordance with the PRC Generally Accepted
+Accounting Principles and the International Financial Reporting Standards respectively, and each has issued an
+unqualified audit report respectively. The Audit Committee under the Board of Directors of the Company has
+reviewed the financial results and financial statements of the Company for the year ended 31 December 2016.
+Changes in the
+China Merchants Bank
+Annual Report 2016
+6.24 Annual general meeting
+For the convening of its 2016 Annual General Meeting, the Company will make further announcement.
+6.25 Publication of annual report
+The Company prepared the annual report in both English and Chinese versions in accordance with the International
+Financial Reporting Standards and the Hong Kong Listing Rules. These reports are available on the websites of Hong
+Kong Stock Exchange and the Company. In the event of any discrepancies in interpretation between the English and
+Chinese versions, the Chinese version shall prevail.
+The Company also prepared the annual report in Chinese version in accordance with the PRC Generally Accepted
+Accounting Principles and the preparation rules for annual reports, which is available on the websites of Shanghai
+Stock Exchange and the Company.
+111
+112
+China Merchants Bank
+VII Changes in Shares and Information on Shareholders
+Annual Report 2016
+Changes in Shares and
+Information on Shareholders
+7.1 Changes in shares of the Company during the
+reporting period
+VI Important Events
+25,219,845,601
+100.00
+As at the end of the reporting period, the Company had a total of 214,596 shareholders, including 177,249 holders
+of A Shares and 37,347 holders of H Shares. None of their shareholdings is subject to trading moratorium.
+2
+China Merchants Steam Navigation
+State-owned legal person
+3,289,470,337
+13.04 A Shares not subject to
+Company Ltd.
+trading moratorium
+3
+Anbang Property & Casualty Insurance
+Domestic legal person
+2,704,596,216
+10.72 A Shares not subject to
+Company Ltd. - traditional products
+402,469
+trading moratorium
+China Ocean Shipping (Group) Company State-owned legal person
+1,574,729,111
+6.24 A Shares not subject to
+trading moratorium
+5
+Shenzhen Yan Qing Investment and
+State-owned legal person
+1,258,542,349
+Development Company Ltd.
+4.99 A Shares not subject to
+trading moratorium
+6
+China Merchants Finance Investment
+Holdings Co. Ltd.
+State-owned legal person
+4
+18.00 H Shares
+4,539,126,386
+HKSCC Nominees Ltd.
+As at the end of the previous month (namely 28 February 2017) preceding the date for disclosure of the annual
+report, the Company had a total of 207,411 shareholders, including 170,232 holders of A Shares and 37,179
+holders of H Shares. None of their shareholdings is subject to trading moratorium.
+Based on the publicly available information and so far as the Company's directors were aware, as at 31 December
+2016, the Company had met the public float requirement of the Hong Kong Listing Rules.
+China Merchants Bank
+Annual Report 2016
+VII Changes in Shares and Information on Shareholders
+113
+7.2 Top ten shareholders and top ten shareholders
+whose shareholdings are not subject to trading
+moratorium
+Shares held
+Number of
+shares subject
+Shares
+at the end
+Percentage
+Changes in
+to trading
+pledged
+Serial
+No.
+Name of shareholder
+Type of
+shareholder
+of the period
+of total share
+the reporting
+moratorium
+or frozen
+(share)
+capital (%) Type of shares
+period (share)
+(share)
+(share)
+1
+4.55 A Shares not subject to
+trading moratorium
+China Ocean Shipping (Group) Company
+Development Company Ltd.
+Long
+BlackRock, Inc. was deemed to hold interests in a total of 239,286,538 H shares (Long position) and 183,500 H Shares (Short position) in the
+Company (of which, 399,500 H shares (Long position) and 24,000 H Shares (Short position) were held through cash settled derivatives (off
+exchange) by virtue of its control over a number of corporations, which were all indirectly wholly-owned by BlackRock, Inc. except for the
+following:
+(4.1)
+(4.2)
+BR Jersey International Holdings L.P. was indirectly held as to 86% by BlackRock, Inc. BR Jersey International Holdings L.P. held
+interests in the Company through the following companies:
+(4.1.1)
+(4.1.2)
+BlackRock Japan Co., Ltd. (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 5,392,945 H shares (Long
+position) in the Company.
+BlackRock Asset Management Canada Limited held 658,000 H shares (Long position) in the Company. BlackRock Asset
+Management Canada Limited was indirectly owned as to 99.9% by BR Jersey International Holdings L.P..
+(4.1.3) BlackRock Investment Management (Australia) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
+535,000 H shares (Long position) in the Company.
+(4.1.4)
+BlackRock Asset Management North Asia Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
+1,935,122 H shares (Long position) in the Company.
+(4.1.5) BlackRock (Singapore) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 123,500 H shares (Long
+position) in the Company.
+BlackRock Group Limited was held as to 90% by BR Jersey International Holdings L.P.(referred to in (4.1)). BlackRock Group Limited
+held equity interest in the Company through its direct or indirect wholly-owned companies as follows:
+(4.2.1)
+BlackRock (Netherlands) B.V. held 840,500 H shares (Long position) in the Company.
+(4.2.2) BlackRock Advisors (UK) Limited held 49,848,895 H shares (Long position) in the Company.
+(4.2.3) BlackRock International Limited held 1,553,498 H shares (Long position) in the Company.
+(4.2.4)
+BlackRock Asset Management Ireland Limited held 24,869,784 H shares (Long position) in the Company.
+(4.2.5)
+10%
+100%
+The Company does not have any controlling shareholder or de facto controller. So far as the Company is
+aware, as at the end of the reporting period, the equity relationship between the Company, and its largest
+shareholder and parent company of its largest shareholder is illustrated as follows5:
+China Merchants Group Ltd. directly holds 100% equity interest in China Merchants Steam Navigation
+Company Ltd. and is the parent company of the Company's largest shareholder. Its legal representative is
+Mr. Li Jianhong. China Merchants Group Ltd. is one of the state-owned backbone enterprises under the
+direct control of State-owned Assets Supervision and Administration Commission of the State Council. Its
+predecessor, China Merchants Steam Navigation Company, was incorporated in 1872, when China was in its
+late Qing Dynasty and was undergoing the Westernisation Movement, and was one of the enterprises which
+played a significant role in promoting the modernisation of China's national industries and commerce at that
+time. Nowadays, it has developed into a conglomerate, with its businesses focusing on three core industries,
+namely traffic (harbour, highway, shipping and transportation, logistics, ocean engineering and trade),
+financial (bank, securities, funds and insurance) and real estates (industrial zone development and real estate
+development).
+China Merchants Steam Navigation Company Ltd., the largest shareholder of the Company, was founded on
+22 February 1992 in Beijing with a registered capital of RMB5.9 billion (organisation code: 10001145-2). Its
+legal representative is Mr. Li Jianhong. It is a wholly owned subsidiary of China Merchants Group Ltd., and
+mainly engaged in passenger and cargo shipping businesses; dockyard, warehouse and vehicle transportation;
+sale, purchase and supply of various transportation equipments, spare parts and materials; ship and
+passenger/goods shipping agency, international maritime cargo, etc; as well as investment and management
+of transportation-related financial businesses including banking, securities and insurance.
+(2)
+(3.4) The 477,903,500 H shares referred to in (3) and (3.1) to (3.3) represented the same shares.
+(1)
+VII Changes in Shares and Information on Shareholders
+China Merchants Bank
+Annual Report 2016
+Save as disclosed above, the Company is not aware of any other person (other than the directors, supervisors and chief executives (as defined in the
+Hong Kong Listing Rules) of the Company) who has any interests or short positions in the shares and underlying shares of the Company as at 31
+December 2016 as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.
+(4.2.10) BlackRock Asset Management (Schweiz) AG held 12,000 H shares (Long position) in the Company.
+(4.2.6) BlackRock Investment Management (UK) Limited held 16,533,992 H shares (Long position) in the Company.
+(4.2.7) BlackRock Asset Management Deutschland AG held 230,731 H shares (Long position) in the Company.
+(4.2.8) BlackRock Fund Managers Limited held 1,630,211 H shares (Long position) in the Company.
+(4.2.9) BlackRock Life Limited held 307,500 H shares (Long position) in the Company.
+BLACKROCK (Luxembourg) S.A. held 631,792 H shares (Long position) and 24,000 H shares (Short position) in the
+Company.
+7.4 Information on the Company's largest shareholder
+and its parent company
+10.55%
+Compass Investment Company Limited (referred to in (3)) was deemed to hold the 477,903,500 H shares in the Company which
+CNIC Corporation Limited was deemed to hold by virtue of holding 98.9% interest in CNIC Corporation Limited.
+China Merchants Union (BVI) Limited held 477,903,500 H shares (Long position) in the Company. Verise Holdings Company Limited
+was deemed to hold interests in a total of 477,903,500 H shares in the Company held by China Merchants Union (BVI) Limited by
+virtue of holding 50% interest in China Merchants Union (BVI) Limited.
+China Merchants Group Ltd. was deemed to hold interests in a total of 6,752,746,952 A shares (Long position) and 806,680,423 H Shares
+(Long position) in the Company by virtue of its control over the following corporations, which held direct interests in the Company:
+(1.1) China Merchants Steam Navigation Company Ltd. held 3,289,470,337 A shares (Long position) in the Company. China Merchants
+Steam Navigation Company Ltd. was a wholly-owned subsidiary of China Merchants Group Ltd..
+(1.2)
+A
+(1.4)
+(1.5)
+(1.6)
+(1.7)
+China Merchants Finance Investment Holdings Co., Ltd. held 1,147,377,415 A shares (Long position) in the Company. China
+Merchants Finance Investment Holdings Co., Ltd. was owned as to 90% and 10% by China Merchants Group Ltd. and China
+Merchants Steam Navigation Company Ltd., referred to in (1.1) above, respectively.
+Best Winner Investment Limited held 58,147,140 A shares (Long position) and 328,776,923 H Shares (Long position) in the Company.
+Best Winner Investment Limited was an indirect wholly-owned subsidiary of China Merchants Steam Navigation Company Ltd..
+Shenzhen Yan Qing Investment and Development Company Ltd. held 1,258,542,349 A shares (Long position) in the Company.
+Shenzhen Yan Qing Investment and Development Company Ltd. was owned as to 51% and 49% by China Merchants Finance
+Investment Holdings Co. Ltd., referred to in (1.2) above, and China Merchants Group Ltd. respectively.
+Shenzhen Chu Yuan Investment and Development Company Ltd. held 944,013,171 A shares (Long position) in the Company.
+Shenzhen Chu Yuan Investment and Development Company Ltd. was owned as to 50% by each of China Merchants Finance
+Investment Holdings Co. Ltd., referred to in (1.2) above, and Shenzhen Yan Qing Investment and Development Company Ltd.,
+referred to in (1.4) above, respectively.
+China Merchants Union (BVI) Limited held 477,903,500 H shares (long position) in the Company. China Merchants Union (BVI)
+Limited was held as to 50% by China Merchants Holdings (Hong Kong) Company Limited, which was held as to 10.55% and 89.45%
+by China Merchants Group Ltd. and China Merchants Steam Navigation Company Ltd., referred to in (1.1) above, respectively.
+On 23 December 2015, China Merchants Finance Investment Holdings Co. Ltd., a wholly owned subsidiary of China Merchants
+Group Ltd. issued a letter of undertaking that: China Merchants Finance Investment Holdings Co. Ltd. undertook to acquire the
+55,196,540 A shares in China Merchants Bank held by China Merchants Industry Development (Shenzhen) Limited (a wholly owned
+subsidiary of China Merchants China Direct Investments Limited) through block trade or other means permitted by laws provided that
+the latter gives at least 10 trading days prior notice in writing. As such, China Merchants Finance Investment Holdings Co., Ltd. held
+55,196,540 A shares (Long position) in the Company.
+JPMorgan Chase & Co. was deemed to hold interests in a total of 321,929,530 H shares (Long position) and 3,923,451 H Shares (Short
+position) in the Company by virtue of its control over a number of corporations.
+115
+116
+(3.3)
+(3.2)
+(3.1)
+Pagoda Tree Investment Company Limited was deemed to hold interests in a total of 477,903,500 H shares in the Company held by China
+Merchants Union (BVI) Limited by virtue of its wholly-owned subsidiary of Compass Investment Company Limited :
+through physically settled derivatives (on exchange)
+through cash settled derivatives (on exchange)
+through physically settled derivatives (off exchange)
+through cash settled derivatives (off exchange)
+11,005,000 H shares (Long position) and 3,161,000 H shares (Short position)
+Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited, which was deemed to hold the 477,903,500 H
+shares in the Company which Verise Holdings Company Limited was deemed to hold.
+58,451 H shares (Long position) and 58,451 H shares (Short position)
+130,000 H shares (Long position) and 405,000 H shares (Short position)
+The entire interest and short position of JPMorgan Chase & Co. in the Company included a lending pool of 78,961,871 H shares. Besides,
+11,193,451 H shares (Long position) and 3,923,451 H shares (Short position) were held through derivatives as follows:
+(4)
+(3)
+VII Changes in Shares and Information on Shareholders
+China Merchants Bank
+Annual Report 2016
+299,000 H shares (Short position)
+China Merchants Steam Navigation
+Company Ltd.
+89.45%
+China Merchants Holdings
+118
+China Merchants Bank
+Annual Report 2016
+VII Changes in Shares and Information on Shareholders
+(3) On 28 December 2015, the State-owned Assets Supervision and Administration Commission of the State
+Council (hereinafter referred to as the "SASAC of the State Council") approved the allocation of Sinotrans
+& CSC Holdings Co., Ltd. ("Sinotrans & CSC") into China Merchants Group Ltd. at nil consideration. As the
+relevant change in equity interest triggered an obligation to make a general offer, China Merchants Steam
+Navigation Company Ltd., as an applicant, has applied to the CSRC for a waiver of its obligation to make a
+general offer. In order to implement the overall strategy of the CPC Central Committee and the State Council
+regarding further deepening the reform of state-owned enterprises, and in accordance with the relevant work
+arrangement of the SASAC, Sinotrans & CSC Holdings Co., Ltd. and its subsidiary Wuhan Changjiang Shipping
+Company (I) subsequently transferred at nil consideration all their shares in the Company
+to Guoxin Investment Co., Ltd. (ª¤¶¶Ã¬), a subsidiary of China Reform Holdings Corporation Ltd..
+Therefore, China Merchants Group Ltd. remained to hold an aggregate of 29.97% of the total issued shares
+of the Company indirectly by way of equity interest, right of control or companies controlled by the parties
+acting in concert, and will no longer trigger the obligation to make a general offer. In view of this, the CSRC
+has suspended the examination on the application for administrative permission in relation to a waiver of
+general offer obligation upon receipt of an application from China Merchants Steam Navigation Company Ltd..
+For details, please refer to the relevant announcements published by the Company in China Securities Journal,
+Shanghai Securities News and Securities Times, and on the websites of Shanghai Stock Exchange, Hong Kong
+Stock Exchange and the Company.
+7.5 Information on other shareholders holding more
+than 10% shares of the Company
+As at the end of the reporting period, Anbang Property & Casualty Insurance Company Ltd. held 10.72% of the
+Company's shares through the securities account for "Anbang Property & Casualty Insurance Company Ltd. -
+traditional products". Anbang Property & Casualty Insurance Company Ltd. was founded on 31 December 2011 with
+a registered capital of RMB37.0 billion (Unified Social Credit Code: 91440300599638085R). Its legal representative is
+Zhang Feng. Anbang Property & Casualty Insurance Company Ltd. is held as to 97.56% by Anbang Insurance Group
+Co., Ltd.. The business scope of Anbang Property & Casualty Insurance Company Ltd. includes: property damage
+insurance; liability insurance; credit insurance and guarantee insurance; short-term health insurance and accident
+insurance; reinsurance of the aforesaid businesses; the investment of insurance premiums as permitted under the
+national laws and regulations; other businesses as approved by China Insurance Regulatory Commission.
+7.6 Share issuance and listing
+During the reporting period, the Company did not issue new shares.
+Internal staff shares
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 119
+Directors, Supervisors, Senior Management,
+Employees and Organisational Structure
+8.1 Directors, Supervisors and Senior Management
+Aggregate
+pre-tax
+Whether
+remunerations
+Shareholding
+1956.5
+Male
+Li Jianhong
+2014.8-2019.6
+Chairman
+117
+of the period
+(share)
+Term of office
+Date of
+Gender Birth(Y/M) Title
+Name
+remunerations
+received from
+having received
+Shareholding
+at the beginning
+China Merchants Finance Investment Holdings Co., Ltd. undertook to acquire the shares in China Merchants Bank held by China
+Merchants Industry Development (Shenzhen) Limited through block trade or other means permitted by laws provided that the latter
+gives at least 10 trading days prior notice in writing.
+5
+China Merchants Group Ltd. and China Merchants Steam Navigation Co., Ltd. entered into relevant
+agreement on 24 February 2017, pursuant to which China Merchants Group Ltd. will transfer its 90% equity
+interest in China Merchants Finance Investment Holdings Co., Ltd., its 49% equity interest in Shenzhen
+Yan Qing Investment and Development Company Ltd., and its 10.55% equity interest in China Merchants
+Holdings (Hong Kong) Company Limited to China Merchants Steam Navigation Co., Ltd. at nil consideration.
+For details, please refer to the relevant announcement of the Company dated 24 February 2017.
+China Merchants China
+27.59%
+49%
+1.89%
+Best Winner Investment
+Limited
+China Merchants Union
+(BVI) Limited
+Direct Investments Limited
+50%
+50%
+China Merchants Finance
+Investment Holdings Co., Ltd.
+90%
+China Merchants Group Ltd.
+100%
+(Hong Kong) Ltd.
+China Merchants International
+Finance Company Limited
+100%
+(2)
+51%
+Investment and
+So far as the Company is aware, as at 31 December 2016, China Merchants Group Ltd. indirectly held an
+aggregate of 29.97% of the total shares of the Company, consisting of 26.78% of A Shares and 3.20% of
+H Shares of the Company. (In the report, any discrepancies between the total shown and the sum of the
+amounts listed are due to rounding.)
+China Merchants Bank Co., Ltd.
+1.53%
+0.22%
+4.99%
+3.74%
+Shenzhen Yan Qing
+13.04%
+Investment and
+Development Company Ltd.
+Shenzhen Chu Yuan
+50%
+China Merchants
+Industry Development
+(Shenzhen) Limited
+100%
+Development Company Ltd.
+4.55%
+(1)
+(1.3)
+0.0007
+Percentage
+Class of
+Name of Substantial Shareholder
+shares
+Long/short
+position
+class of shares
+of all issued
+Capacity
+No. of shares
+Notes
+in issue (%)
+Notes:
+Pagoda Tree Investment Company Limited
+H
+Long
+Interest of controlled corporation
+477,903,500
+3
+10.41
+1.89
+(中國華馨投資有限公司)
+Compass Investment Company Limited
+H
+Long
+Interest of controlled corporation
+Percentage of
+the relevant
+477,903,500
+VII Changes in Shares and Information on Shareholders
+China Merchants Bank
+Beneficial owner
+1,574,729,111
+7.63
+6.24
+34
+JPMorgan Chase & Co.
+H
+Long
+Beneficial owner
+57,264,109
+Long
+Investment manager
+185,703,550
+Long
+Custodian
+78,961,871
+321,929,530
+Short
+Beneficial owner
+3,923,451
+22
+7.01
+1.27
+0.08
+0.01
+Annual Report 2016
+3
+shares (%)
+1.89
+Beneficial owner
+Short
+0.94
+5.21
+4
+239,286,538
+Interest of controlled corporation
+183,500
+Long
+BlackRock, Inc.
+1.89
+10.41
+3
+477,903,500
+10.41
+Beneficial owner
+H
+4
+0.003
+Verise Holdings Company Limited
+477,903,500 3
+10.41
+H
+1.89
+Long
+H
+Long
+Interest of controlled corporation
+477,903,500
+3
+10.41
+1.89
+China Merchants Union (BVI) Limited
+H
+CNIC Corporation Limited
+Long
+Interest of controlled corporation
+For details of the above-mentioned matters, please refer to the relevant announcements published by the Company
+in China Securities Journal, Shanghai Securities News and Securities Times, and on the websites of Shanghai Stock
+Exchange, Hong Kong Stock Exchange and the Company.
+122
+China Merchants Bank
+Annual Report 2016
+According to the resolutions passed at the 2015 Annual General Meeting of the Company, Mr. Wen Jianguo and
+Mr. Wu Heng were newly elected as Shareholder Supervisors of the Tenth Session of the Board of Supervisors of the
+Company. Mr. Ding Huiping and Mr. Han Zirong were newly elected as External Supervisors of the Tenth Session of
+the Board of Supervisors of the Company. Mr. Zhu Genlin and Mr. Liu Zhengxi ceased to be Shareholder Supervisors
+of the Company. Mr. Pan Ji and Mr. Dong Xiande ceased to be External Supervisors of the Company. According to
+the voting results at the meeting of employee representatives held on 20 May 2016, Mr. Xu Lizhong was newly
+elected as Employee Supervisor of the Tenth Session of the Board of Supervisors of the Company, with effect from
+28 June 2016. Mr. Xiong Kai, former Employee Supervisor, ceased to be Employee Supervisor of the Company.
+According to the resolution passed at the first meeting of the Tenth Session of the Board of Directors of the
+Company, the Board of Directors appointed Mr. Wang Liang to be the Secretary of the Board of Directors of the
+Company and his appointment qualification for serving as the Secretary of the Board of Directors was approved
+by the CBRC in November 2016. The Board of Directors ceased to employ Mr. Wang Qingbin as the Executive Vice
+President of the Company for reason of his age. Mr. Xu Shiqing ceased to be the Secretary of the Board of Directors
+of the Company due to job change.
+Mr. Li Hao, Executive Director and First Executive Vice President of the Company, concurrently serves as
+the Vice Chairman of Wing Lung Bank, Director of Merchants Union Consumer Finance Co., Ltd., Vice
+President of Payment and Settlement Association of China, Director and Vice President of Asset Management
+Association of China and Director of National Internet Finance Association of China.
+Mr. Fu Gangfeng, Non-executive Director of the Company, ceased to be the Executive Director of China
+Merchants Port Holdings Company Limited (formerly known as China Merchants Holdings (International) Co.,
+Ltd.) (a company listed on Hong Kong Stock Exchange).
+Wang Daxiong
+COSCO Shipping Financial Holdings Chairman
+Co., Limited
+Mr. Hong Xiaoyuan, Non-executive Director of the Company, concurrently serves as the CEO of China
+Merchants Finance Holdings Co., Limited, and ceased to be the Chairman of China Merchants Holdings (U.K.)
+Co., Ltd..
+Term of office
+From July 2014 up to now
+From March 2016 up to now
+From July 2014 up to now
+From January 2016 up to now
+Chief Financial Officer
+Assistant General Manager
+General Manager
+From November 2011 up to now
+From September 2011 up to now
+From September 2015 up to now
+General Manager of Finance
+Department
+From September 2015 up to now
+From May 2016 up to now
+Ms. Su Min, Non-executive Director of the Company, concurrently serves as the Director of China Merchants
+Securities Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange) and
+China Merchants Innovative Investment Management Co., Ltd..
+Li Xiaopeng
+Mr. Liu Yuan, Chairman of the Board of Supervisors of the Company, concurrently serves as a member of the
+council of Shenzhen Finance Institute, CUHK (SZ).
+2.
+3.
+4.
+5.
+6.
+7.
+1.
+8.
+10.
+11.
+Mr. Li Xiaopeng, Vice Chairman of the Company, concurrently serves as the Vice Chairman of China
+Merchants Group Ltd., and ceased to concurrently serve as the Chairman of China Merchants Capital
+Investments Co., Ltd..
+Mr. Tian Huiyu, Executive Director, President and Chief Executive Officer of the Company, concurrently serves
+as the Chairman of Wing Lung Bank, Chairman of CMB International Capital Holdings Corporation Limited,
+Chairman of China Merchants International Finance Company Limited and Chairman of Board of Supervisors
+of National Association of Financial Market Institutional Investors.
+Ms. Sun Yueying, Non-executive Director of the Company, concurrently serves as the Chairman of COSCO
+SHIPPING Development Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock
+Exchange), and ceased to be the Director of China Merchants Securities Co., Ltd. (a company listed on
+Hong Kong Stock Exchange and Shanghai Stock Exchange) and the Non-executive Director of China COSCO
+Holdings Company Ltd..
+Holdings Co., Limited
+China Merchants Group Ltd.
+9.
+8.3 Changes of Information of Directors and Supervisors
+China Merchants Finance
+China Merchants Group Ltd.
+China Merchants Group Ltd.
+Mr. Fu Junyuan, Shareholder Supervisor of the Company, concurrently serves as the Director of China
+Structural Reform Fund Co., Ltd.(+1Ĵ&G).
+Mr. Jin Qingjun, External Supervisor of the Company, concurrently serves as the Independent Director of
+Sino-Ocean Group Holding Limited (a company listed on Hong Kong Stock Exchange), and ceased to be
+the Independent Director of Tianjin Changrong Print and Packing Equipment Co., Ltd. (a company listed on
+Shenzhen Stock Exchange).
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 123
+8.4 Current Positions Held by Directors and Supervisors
+in the Shareholders' Companies
+Name
+Li Jianhong
+Name of Company
+China Merchants Group Ltd.
+China Merchants Group Ltd.
+Title
+Chairman
+Vice Chairman
+General Manager
+Sun Yueying
+Fu Gangfeng
+Hong Xiaoyuan
+Su Min
+Zhang Jian
+China COSCO Shipping Corporation Chief Accountant
+Limited
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+Mr. Leung Kam Chung, Antony, Independent Non-executive Director of the Company, concurrently serves as
+the Chairman of Nan Fung Group, Co-Founder and Chairman of New Frontier () and Director of
+the Board of Athenex Inc.
+Fu Junyuan
+Directors
+Executive Director & Chief Financial From September 2006 up to now
+Officer
+Mr. Wong Kwai Lam is an Independent Non-executive Director of the Company. Mr. Wong obtained a bachelor's
+degree from The Chinese University of Hong Kong and Ph. D from Leicester University, U.K.. He is concurrently an
+honorary fellow of The Chinese University of Hong Kong. He is the Chairman of IncitAdv Consultants Ltd., a Director
+of Opera Hong Kong, a member of the Strategic Investment Society of The Chinese University of Hong Kong, the
+Vice Chairman of the Board of Trustee and a member of the Strategic Investment Society of New Asia College of
+The Chinese University of Hong Kong, the manager of Prosperity Real Estate Investment Trust, an Independent
+Non-executive Director of K. Wah International Holdings Limited (a company listed on Hong Kong Stock Exchange),
+and an Independent Non-executive Director of Langham Hospitality Investments Limited (a company listed on Hong
+Kong Stock Exchange), LHIL Manager Limited and Hutchison Port Holdings Trust (a company listed on SGX-ST). He is
+concurrently a member of the Governance Committee of Chinese University of Hong Kong Medical Center Co., Ltd.
+(+±‡ÙÁRA) and a member of the Governance Committee of Prince of Wales Hospital located
+in Shatin, Hong Kong. He has been an Independent Non-executive Director of the Company since July 2011. He was
+the managing director of Merrill Lynch (Asia Pacific) Limited and the chairman of Asia Pacific Investment Banking.
+Mr. Wong was also a member of Advisory Committee under the Securities and Futures Commission in Hong Kong
+and its committee on Real Estate Investment Trusts, and a member of the China Committee to the Hong Kong Trade
+Development Council.
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 127
+Mr. Pan Chengwei is an Independent Non-executive Director of the Company. Mr. Pan obtained an associate
+bachelor's degree from Cadre Institute under the Ministry of Transport and is an accountant. He is currently an
+Independent Non-executive Director of Shenzhen Nanshan Power Co., Ltd. (a company listed on Shenzhen Stock
+Exchange) and China International Marine Containers (Group) Co., Ltd. (a company listed on Hong Kong Stock
+Exchange and the Shenzhen Stock Exchange). He has been an Independent Non-executive Director of the Company
+since July 2012. He was the general manager of the Finance Department of China Ocean Shipping (Group) Company,
+the general manager of the Finance Department of COSCO (Hong Kong) Group Limited, the general manager of
+COSCO (H.K.) Property Development Limited, the general manager of COSCO (H.K.) Industry & Trade Holdings Ltd.,
+the chief representative of Shenzhen Representative Office of COSCO HK Group, the general manager of COSCO
+(Cayman) Fortune Holding Co., Ltd. and its Hong Kong branch, and the compliance manager of the Fuel Oil Futures
+Department of China Ocean Shipping (Group) Company.
+Ms. Pan Yingli is an Independent Non-executive Director of the Company. Ms. Pan obtained a bachelor's degree in
+Economics from East China Normal University, a master's degree in Economics from Shanghai University of Finance
+and Economics and a doctorate degree in World Economics from East China Normal University. She is concurrently a
+Director of Research Center for Global Finance, Shanghai Jiao Tong University, a professor and a tutor of doctorate
+candidates in Finance at Antai College of Economics and Management of Shanghai Jiao Tong University, the Vice
+President of Shanghai World Economy Association, the Vice President of Shanghai Institute of International Financial
+Centers, and the chief expert of Pan Yingli Studio of the Decision-making Consultation Research Base of Shanghai
+Municipal Government (Ø✯✯✯FLI). She has been an Independent Non-executive
+Director of the Company since November 2011. She was an associate professor, a professor and a tutor of doctorate
+candidates in East China Normal University, and became a faculty member at Shanghai Jiao Tong University in
+November 2005. From 1998 to 2007, she served as an invited expert of Shanghai Municipal Government on
+decision-making consultation.
+Mr. Zhao Jun is an Independent Non-executive Director of the Company. Mr. Zhao obtained a bachelor's degree
+from the Department of Shipbuilding Engineering of Harbin Engineering University, a master's degree from the
+Department of Ocean Engineering of Shanghai Jiao Tong University, a doctorate degree in Civil Engineering from
+the University of Houston and a master's degree in Financial Management from the School of Management of Yale
+University. Mr. Zhao is currently the Chairman of Beijing Fellow Partners Investment Management Ltd.. He has been
+an Independent Non-executive Director of the Company since January 2015. He was a managing partner of DT
+Capital Partners, the managing director and the chief representative in China of ChinaVest, Ltd..
+Mr. Wong See Hong is an Independent Non-executive Director of the Company. Mr. Wong obtained a bachelor's
+degree in Business Administration from the National University of Singapore, a master's degree in Investment
+Management from Hong Kong University of Science and Technology, and a doctoral degree in Transformational
+Leadership (DTL) from Bethel Bible Seminary. He is an Independent Director of The Frasers Hospitality Assets
+Management Pte., Ltd. (¥Â¤ÂÂÌÊ) and EC World Asset Management Private Limited. He
+has been an Independent Non-executive Director of the Company since February 2017. He previously served as the
+deputy chief executive of BOCHK, executive vice president and country executive of ABN AMRO Bank, managing
+director and president for the Southeast Asia region, and the head of the Financial Market Department in Asia (
+), a director of Bank of China Group Insurance Company Limited, the chairman of the board
+of BOC Group Trustee Company Limited, the chairman of BOCI-Prudential MPF (+), the chairman
+of BOCHK Asset Management Limited, a member of the board of directors of the Civil Servants Institute of Prime
+Minister's Office Singapore (A), Client Consulting Commission of Thomson Reuters
+(Thomson Reuters) and Financial Management Commission of the Hong Kong Administration Society
+(香港管理學會財務管理委員會).
+128
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+Mr. Leung Kam Chung, Antony is an Independent Non-executive Director of the Company. Mr. Leung obtained
+a bachelor's degree in Social Sciences from the University of Hong Kong, and attended Harvard Business School's
+Program for Management Development and Advanced Management Program. He is concurrently the Chairman and
+Chief Executive Officer of Nan Fung Group, the Co-founder and Chairman of New Frontier, a member of the Board
+of Directors of Athenex Inc, the Chairman of charitable organizations, Heifer International - Hong Kong and "Food
+Angel", and the Chairman of Harvard Business School Association of Hong Kong. He has been an Independent
+Non-executive Director of the Company since January 2015. Mr. Leung served as a member of Blackstone's Executive
+Committee, the senior managing director and the chairman of Greater China Region. He also acted as the chairman
+of Asia for JP Morgan Chase and worked for Citi in various positions, including the country corporate officer for
+Hong Kong SAR and China, the regional treasurer for North Asia, head of Investment Banking for North Asia, South
+West Asia and head of Private Banking for Asia. Past board membership of Mr. Leung included an independent
+director of Industrial and Commercial Bank of China Limited (a company listed on Hong Kong Stock Exchange and
+Shanghai Stock Exchange), China Mobile Hong Kong Company Limited and American International Assurance, the
+vice chairman of China National Bluestar Group, a member of the international advisory board of China Development
+Bank and European Advisory Group. In terms of government services, Mr. Leung had served as Financial Secretary,
+Non-Official Member of the Executive Council of Hong Kong SAR, Chairman of the Education Commission,
+Chairman of the University Grants Committee, Member of the Exchange Fund Advisory Committee, Member of the
+Preparatory Committee for the Hong Kong Special Administrative Region and Election Committee and Hong Kong
+Affairs Advisors to the Chinese Government, a member of the Board of Hong Kong Airport Authority and a Director
+of the Hong Kong Futures Exchange.
+Supervisors
+), head of the regulatory office III of the banking regulatory division II (¥=¬£¥=&&) and head
+of the regulatory office VII of the banking regulatory division II (¡£¥=¬£¥Ł) of the People's Bank of
+China from February 1994 to July 2003. He served as the deputy head of the Banking Supervision Department II (
+1) of the CBRC, director of CBRC Shanxi Bureau, director of CBRC Shenzhen Bureau, head of the
+banking related case audit bureau (Rí¯####) of the CBRC and head of the banking related consumer
+protection bureau () of the CBRC from July 2003 to July 2014.
+Mr. Fu Junyuan is a Shareholder Supervisor of the Company, a PhD of Management and a senior accountant at
+the professor level. Mr. Fu has been a Shareholder Supervisor of the Company since September 2015. He has been
+an Executive Director and Chief Financial Officer of China Communications Construction Co., Ltd. (a company
+listed on Hong Kong Stock Exchange and Shanghai Stock Exchange) and has concurrently been the Chairman of
+CCCC Finance Company Limited, the Vice Chairman of Jiang Tai Insurance Broker Co., Ltd. and a Director of China
+Structural Reform Fund Co., Ltd. (**). He served as the chief accountant of
+China Harbour Engineering (Group) Ltd. and China Communications Construction Company Ltd. from October 1996
+to September 2006. He once served as a Non-executive Director of the Company from March 2000 to August 2015.
+Mr. Wen Jianguo is a Shareholder Supervisor, a university graduate and an accountant. Mr. Wen has been a
+Shareholder Supervisor of the Company since June 2016. He has been a Director and Chief Accountant of Hebei
+Port Group Co., Ltd.
+). He has concurrently been a Director and Vice Chairman of Hebei Port
+Group Finance Company Limited and a Director of Caida Securities and Bank of Hebei Co., Ltd.. He once served
+as a Deputy Head and Head of Finance Department of Qinhuangdao Port Bureau () as well as Head
+of Finance Department of Qinhuangdao Port Group Co., Ltd.. He served as a Director and Chief Accountant of
+Qinhuangdao Port Group Co., Ltd. from July 2007 to July 2009. He once served as a Shareholder Supervisor of the
+Company from June 2010 to May 2013.
+Mr. Wu Heng is a Shareholder Supervisor of the Company and a postgraduate from the Department of Accounting
+of Shanghai University of Finance and Economics. Mr. Wu obtained a master's degree in Management and is a senior
+accountant. He has been a Shareholder Supervisor of the Company since June 2016. He has been a Deputy General
+Manager of Business Division of SAIC Motor Corporation Limited. He served as a deputy manager and manager
+of Planning and Finance Department as well as a manager of Fixed Income Department of Shanghai Automotive
+Group Finance Company, Ltd. from March 2000 to March 2005. He served as a Division Head, Assistant to Executive
+Controller and Manager of Accounting Division of Finance Department of SAIC Motor Corporation Limited from
+March 2005 to April 2009, the Chief Financial Officer of Huayu Automotive Systems Co., Ltd. (a company listed
+on Shanghai Stock Exchange) from April 2009 to May 2015, during which he has concurrently been a Director and
+General Manager of Huayu Automotive Systems (Shanghai) Co., Ltd. (
+(1) ĦRA).
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 129
+Mr. Jin Qingjun is an External Supervisor of the Company. He obtained a master's degree in Law from the Graduate
+School of China University of Political Science and Law. Mr. Jin has been an External Supervisor of the Company
+since October 2014. He has been the senior partner of King & Wood Mallesons, Beijing. He is concurrently a
+part-time professor at the School of Law, China University of Political Science and Law and the School of Law,
+Renmin University of China; a co-tutor for students of master's degree at the School of Law, Tsinghua University; an
+arbitrator of Shenzhen Court of International Arbitration, Shanghai International Arbitration Center and Arbitration
+Foundation of Southern Africa; a mediator of Shenzhen Securities and Futures Dispute Resolution Centre; and the
+PRC legal counsel of US Court of Appeals for the Washington D.C. Circuit. Currently, he serves as an Independent
+Director of Sino-Ocean Group Holding Limited (a company listed on Hong Kong Stock Exchange), Guotai Junan
+Securities Co., Ltd. (a company listed on Shanghai Stock Exchange), Gemdale Corporation (a company listed on
+Shanghai Stock Exchange), Invesco Great Wall Fund Management Company Limited, Times Property Holdings Limited
+(a company listed on Hong Kong Stock Exchange), as well as a director of Konka Group Co., Ltd. (a company listed
+on Shenzhen Stock Exchange). He was a legal counsel in Hong Kong and the UK and also worked at Jang Shinn
+Law Office (+) as a legal counsel from August 1987 to October 1993. He was an executive partner at
+Shu Jin Law Firm () from October 1993 to August 2002. He once served as an independent director
+of China International Marine Containers (Group) Co., Ltd. (a company listed on Hong Kong Stock Exchange), New
+China Asset Management Co., Ltd., Xi'an Dagang Road Machinery Co., Ltd. (a company listed on Shenzhen Stock
+Exchange) and Tianjin Changrong Print and Packing Equipment Co., Ltd. (a company listed on Shenzhen Stock
+Exchange). In 2012, he was titled one of the Top 10 PRC Lawyers of the Year and PRC Securities Lawyer of the Year.
+Mr. Ding Huiping is an External Supervisor of the Company. He obtained a doctorate degree in Enterprise
+Economics from Universitet | Linkoeping in Sweden. He is currently a professor and a tutor of doctorate candidates
+in the School of Economics and Management and the Head of PRC Enterprise Competitiveness Research Center
+of Beijing Jiaotong University, and Honorary Professor in the Business School of Duquesne University. He is
+concurrently an Independent Director of Huadian Power International Corporation Limited (a company listed on
+Hong Kong Stock Exchange and Shanghai Stock Exchange), Metro Land Corporation Ltd. (a company listed on
+Shanghai Stock Exchange), China Merchants Securities Co., Ltd. (a company listed on Hong Kong Stock Exchange
+and Shanghai Stock Exchange) and Shandong International Trust Co., Ltd.. He has been an Independent Director of
+Shandong Luneng Taishan Cable Company Limited (a company listed on Shenzhen Stock Exchange), Road & Bridge
+International Co., Ltd. (a company listed on Shanghai Stock Exchange), Huadian Power International Corporation
+Limited (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange) and China International
+Marine Containers (Group) Ltd. (a company listed on Hong Kong Stock Exchange and Shenzhen Stock Exchange). He
+once served as an Independent Director of the Company from May 2003 to May 2006.
+Mr. Han Zirong is an External Supervisor of the Company, an economist and certified public accountant. Mr.
+Han obtained a bachelor's degree from Jilin Finance and Trade College. He has been an External Supervisor of the
+Company since June 2016. He has been a Partner of Shu Lun Pan Hong Kong CPA Limited, and has concurrently
+been an Independent Director of Bank of Chengdu and Bank of Hainan. He served as a credit administrator of
+Industrial and Commercial Bank of China, Changchun Branch from August 1985 to October 1992. From October
+1992 to September 1997, he served as an assistant to director of Accounting Firm of Shenzhen Audit Bureau (
+圳市審計局審計師事務所). He served as a Managing Partner of Shenzhen Finance Accounting Firm (深圳市融信會
+) from October 1997 to October 2008. Later on, he served as a Senior Partner of Daxin Certified Public
+Accountants from October 2008 to October 2012.
+Mr. Xu Lizhong is an Employee Supervisor of the Company. Mr. Xu obtained a bachelor's degree in Economic
+Management from Northeast Normal University after completing on-the-job courses and is a senior economist. He
+has been an Employee Supervisor of the Company since June 2016. He is the General Manager of the Inspection
+and Security Department at the Head Office of the Company. He started his career in a branch of the People's
+Bank of China in Huadian City, Jilin Province in May 1983. He successively served as the office secretary, deputy
+director, deputy director of branch credit division, director of housing credit division of Jilin Branch of Industrial
+and Commercial Bank of China ("ICBC") from May 1989 to August 2002. He had been an assistant to the general
+manager of Jilin Branch and the general manager of Yanbian Branch of ICBC from August 2002 to December 2004.
+He served as the vice general manager of Jilin Branch of ICBC from December 2004 to July 2006 and the vice
+general manager of Heilongjiang Branch of ICBC from July 2006 to April 2008. He served as the general manager of
+Changchun Branch of the Company from April 2008 to November 2015.
+In June 2016, the changes of session for the Board of Directors and the Board of Supervisors were completed.
+According to the resolutions passed at the 2015 Annual General Meeting of the Company, Mr. Xu Lirong, Mr. Zhang
+Jian, Mr. Wang Daxiong and Mr. Zhang Feng were newly elected as Non-executive Directors of the Tenth Session of
+the Board of Directors of the Company, and Mr. Wong See Hong was newly elected as Independent Non-executive
+Director of the Tenth Session of the Board of Directors of the Company. The appointment qualifications of Mr.
+Zhang Jian and Mr. Wang Daxiong for serving as Directors were approved by the CBRC in November 2016. The
+appointment qualification of Mr. Wong See Hong for serving as a Director was approved by the CBRC at the end of
+February 2017. The appointment qualifications of Mr. Xu Lirong and Mr. Zhang Feng for serving as Directors are still
+subject to approval by the CBRC. Mr. Ma Zehua ceased to be the Vice Chairman and Non-executive Director of the
+Company. Mr. Li Yinquan ceased to be the Non-executive Director of the Company. Ms. Guo Xuemeng ceased to be
+the Independent Non-executive Director of the Company. Mr. Xu Lirong was elected as the Vice Chairman at the first
+meeting of the Tenth Session of the Board of Directors of the Company. His appointment qualification for serving as
+the Vice Chairman is still subject to approval by the CBRC.
+Mr. Liu Yuan is the Chairman of the Board of Supervisors of the Company. Mr. Liu obtained a bachelor's degree
+in Global Economy from Renmin University of China and is an economist. He has been the Chairman of the Board
+of Supervisors of the Company since August 2014. He was appointed as a member of the CPC Committee at the
+Head Office of the Company in July 2014. He is concurrently a member of the council of Shenzhen Finance Institute,
+The Chinese University of Hong Kong (Shenzhen), a visiting professor of Renmin University of China, the chairman
+of the professional committee under the supervisory committee of Chinese Association of Listed Companies and a
+member of Shenzhen Finance Development Decision-making Consultation Committee (¾ÆÆRXDEL
+). He served as the deputy section officer and section officer of the management office of foreign affairs bureau
+() of the People's Bank of China from August 1984 to October 1991. He was the secretary (division
+deputy level) and deputy chief of the monetary office of foreign exchange affairs division (¾¬±) of
+State Administration of Foreign Exchange from October 1991 to February 1994. He held the positions of secretary of
+the General Office (E), researcher of the regulatory office I of the banking division (
+Mr. Wang Daxiong is a Non-executive Director of the Company. Mr. Wang obtained a bachelor's degree in
+Shipping Finance and Accounting from the Department of Marine Transportation Management of Shanghai Maritime
+University and a master's degree in Business Administration for Senior Management from Shanghai University of
+Finance and Economics, and is a senior accountant. He is the Chairman of COSCO Shipping Financial Holdings Co.,
+Ltd and the Chief Executive Officer of COSCO SHIPPING Development Co., Ltd. (a company listed on Hong Kong
+Stock Exchange and Shanghai Stock Exchange). He has been a Director of the Company since November 2016. He
+is concurrently a Director of China Merchants Securities Co., Ltd (a company listed on Hong Kong Stock Exchange
+and Shanghai Stock Exchange) and CIB Fund Management Co., Ltd. He served as a director of China Merchants
+Bank from March 1998 to March 2014. He also served as the vice president and chief accountant of China Shipping
+(Group) Company, deputy general manager of China Shipping (Group) Company and the chairman of China
+Shipping (HK) Holdings Limited.
+Mr. Zhang Jian is a Non-executive Director of the Company. Mr. Zhang obtained a bachelor's degree in Economics
+and Management from the Department of Economics of Nanjing University and a master's degree in Econometrics
+from the Business School of Nanjing University, and is a senior economist. He is the General Manager of Finance
+Department of China Merchants Group Co., Ltd. and Deputy General Manager of China Merchants Finance
+Holdings Co., Ltd.. He has been a Director of the Company since November 2016, and a Director of Shenzhen CMB
+Qianhai Financial Asset Exchange Co., Ltd., Shi Jin Shi Credit Service Co., Ltd. (¯ERKORA) and China
+Merchants Insurance Holdings Co., Ltd. (BÌĦR2Ā). He had held various positions including general
+manager of the Suzhou Branch of China Merchants Bank, deputy general manager of the Corporate Banking
+Department at the Head Office of China Merchants Bank (in charge), corporate business director and general
+manager of the Corporate Banking Department at the Head Office of China Merchants Bank, corporate business
+director and general manager of the Credit Risk Management Department at the Head Office of China Merchants
+Bank and business director and general manager of the Comprehensive Risk Management Office at the Head Office
+of China Merchants Bank.
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+Wen Jianguo
+Wu Heng
+Hebei Port Group Co.,Ltd.
+SAIC Motor Corporation Limited
+Director & Chief Accountant
+From July 2009 up to now
+Deputy General Manager of
+From May 2015 up to now
+Finance Department
+124
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+8.5 Biography of Directors, Supervisors and Senior
+Management and Information of Their Concurrent
+Posts
+Mr. Li Jianhong is the Chairman and Non-executive Director of the Company. Mr. Li obtained a master's degree in
+Business Administration from East London University, England and a master's degree in Economy and Management
+from Jilin University. He is a senior economist and the Chairman of China Merchants Group Ltd.. He has been a
+Director of the Company since July 2014 and the Chairman of the Company since August 2014. He was the vice
+president of China Ocean Shipping (Group) Company, and the director and president of China Merchants Group
+Ltd.. He was also the chairman of the board of directors of China Merchants Holdings (International) Co., Ltd. (a
+company listed on Hong Kong Stock Exchange), the chairman of China International Marine Containers (Group)
+Limited (a company listed on Hong Kong Stock Exchange and Shenzhen Stock Exchange), the chairman of China
+Merchants Capital Investments Co., Ltd., the chairman of China Merchants Energy Shipping Company Limited (a
+company listed on Shanghai Stock Exchange) and the chairman of China Merchants Huajian Highway Investment
+Company Limited.
+Mr. Li Xiaopeng is the Vice Chairman and Non-executive Director of the Company. Mr. Li obtained his Ph.D. in
+Finance from Wuhan University. He is a senior economist and the Vice Chairman and General Manager of China
+Merchants Group Ltd.. He has been a Director of the Company since November 2014 and the Vice Chairman of
+the Company since November 2015. He is concurrently the Chairman of the Board of Directors of China Merchants
+Port Holdings Company Limited (formerly known as China Merchants Holdings (International) Co., Ltd.) (a company
+listed on Hong Kong Stock Exchange), the Chairman of China Merchants United Development Company Limited,
+the Chairman of China Merchants Investment and Development Co., Ltd. (À¯Ð¤¾EA), the Vice
+Chairman of China Tourism Association, the Vice Chairman of China Urban Financial Society and the Vice Chairman
+of China Rural Financial Society. He successively served as the vice president of China Huarong Asset Management
+Corporation, the assistant to the president of Industrial and Commercial Bank of China ("ICBC") and the general
+manager of ICBC Beijing Branch, the vice president of ICBC, the vice president and executive director of Industrial
+and Commercial Bank of China Limited (a company listed on Hong Kong Stock Exchange and Shanghai Stock
+Exchange), and the chairman of the board of supervisors of China Investment Corporation. He also served as the
+chairman of ICBC International Holdings Ltd., the chairman of ICBC Financial Leasing Co., Ltd., the chairman of ICBC
+Credit Suisse Asset Management Co., Ltd., the chairman of China Merchants Energy Shipping Company Limited (a
+company listed on Shanghai Stock Exchange) and the chairman of China Merchants Huajian Highway Investment
+Company Limited and the chairman of China Merchants Capital Investments Co., Ltd..
+Mr. Tian Huiyu is an Executive Director, President and Chief Executive Officer of the Company. He obtained his
+bachelor's degree in Infrastructure Finance and Credit from Shanghai University of Finance and Economics and his
+master's degree in Public Administration from Columbia University. He is a senior economist. He is concurrently the
+Chairman of Wing Lung Bank Limited, the Chairman of CMB International Capital Holdings Corporation Limited,
+the Chairman of CMB International Capital Corporation Limited, the Vice Chairman of Merchants Union Consumer
+Finance Company Limited and the Chairman of Board of Supervisors of National Association of Financial Market
+Institutional Investors. He was the vice president of Trust Investment Branch of China Cinda Asset Management Co.,
+Ltd. from July 1998 to July 2003, and the vice president of Bank of Shanghai from July 2003 to December 2006.
+He consecutively served as the deputy general manager of Shanghai Branch, the head of Shenzhen Branch, and the
+general manager of Shenzhen Branch of China Construction Bank ("CCB", a company listed on Hong Kong Stock
+Exchange and Shanghai Stock Exchange) from December 2006 to March 2011. He acted as the business executive of
+retail banking at the head office and the head and general manager of Beijing Branch of CCB from March 2011 to
+May 2013. He joined the Company in May 2013 and has served as the President of the Company since September
+2013.
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 125
+Ms. Sun Yueying is a Non-executive Director of the Company. Ms. Sun holds a bachelor's degree and is a senior
+accountant. She is the Chief Accountant of China COSCO Shipping Corporation Limited (+¥ŒILIĦRA
+]). She has been a Director of the Company since April 2001 and the Chairman of COSCO SHIPPING Development
+Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange, formerly known as China
+Shipping Container Lines Company Limited) and the Chairman of COSCO Finance Co., Ltd..
+Mr. Li Hao is an Executive Director, First Executive Vice President and Chief Financial Officer of the Company. Mr.
+Li obtained a master's degree in Business Administration from the University of Southern California and is a senior
+accountant. He is concurrently the Chairman of CMFM and the Vice Chairman of Shenzhen CMB Qianhai Financial
+Asset Exchange Co., Ltd. (¤£ÌŒ¦Â¤ÈÌ‚+Ò¤®), the Vice Chairman of Wing Lung Bank Ltd.,
+a Director of Merchants Union Consumer Finance Company Limited, the Vice President of Payment & Clearing
+Association of China, Director and Vice President of Asset Management Association of China, and a Director of
+National Internet Finance Association Of China. He joined the Company as the executive assistant president of the
+Head Office in May 1997. He was the general manager of the Shanghai Branch of the Company from April 2000 to
+March 2002. He was an executive vice president of the Company since December 2001, the Chief Financial Officer
+since March 2007, an Executive Director of the Company since June 2007, and the First Executive Vice President of
+the Company since May 2013.
+Mr. Fu Gangfeng is a Non-executive Director of the Company. Mr. Fu obtained a bachelor's degree in Finance and a
+master's degree in Management Engineering from Xi'an Highway College and is a senior accountant. He is the Chief
+Financial Officer of China Merchants Group Ltd.. He has been a Director of the Company since August 2010, and
+the Vice Chairman of China Merchants Shekou Industrial Zone Holdings Co., Ltd. (##❀❀ĦA
+) (a company listed on Shenzhen Stock Exchange). He was the deputy director of the Shekou ZhongHua Certified
+Public Accountants, the director of the Chief Accountant Office and deputy chief accountant of China Merchants
+Shekou Industrial Zone Co., Ltd., the chief financial officer of China Merchants Shekou Holdings Co., Ltd., the
+chief financial officer of China Merchants Shekou Industrial Zone Co., Ltd., and the general manager of the Finance
+Division of China Merchants Group Ltd..
+Mr. Hong Xiaoyuan is a Non-executive Director of the Company. Mr. Hong obtained a master's degree in Economics
+from Peking University and a master's degree in Science from Australian National University. He is a senior economist.
+He is concurrently the Assistant General Manager of China Merchants Group Ltd. and the Chairman and CEO of
+China Merchants Finance Holdings Company Limited. He has been a Director of the Company since June 2007 and
+the Chairman of China Merchants Finance Investment Holdings Co., Ltd., China Merchants China Direct Investments
+Limited (a company listed on Hong Kong Stock Exchange) and Shenzhen CMB Qianhai Financial Assets Exchange
+Centre Co., Ltd. ŒÂ¿ÂÈ`¯) and the Vice Chairman of China Merchants Capital
+Investments Co., Ltd..
+Ms. Su Min is a Non-executive Director of the Company. Ms. Su obtained a bachelor's degree in Finance from
+Shanghai University of Finance and Economics and a master's degree in Business Administration from China
+University of Technology. She is a senior accountant, certified public accountant and certified public valuer. Ms.
+Su is concurrently the General Manager of China Merchants Finance Holdings Company Limited. She has been a
+Director of the Company since September 2014, and a Director of China Merchants Securities Co., Ltd. (a company
+listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), a Director of China Merchants Innovation
+Investment Management Co., Ltd. (TERĦHA), the Chairman of Shenzhen China Merchants
+Qihang Internet Investment Management Co., Ltd. (HIKARAT) and a Supervisor of
+China Merchants Capital Investments Co., Ltd.. She successively served as the deputy director of Property Office
+of the State-owned Assets Supervision and Administration Commission of Anhui Province, the chief accountant
+of Anhui Energy Group Co., Ltd., a director of Huishang Bank, the chairman and general manager of Anhui Hefei
+Wanneng Microfinance Company, the deputy general manager and chief accountant of Anhui Energy Group Co.,
+Ltd., the chief accountant and a member of the Communist Party of China Committee of China Shipping (Group)
+Company, the chairman of CS Finance Company, the chairman of COSCO Financial Leasing Co., Ltd. (+
+A), a director of Bank of Kunlun, and a director of China Shipping Development Co., Ltd. (a company listed on
+Hong Kong Stock Exchange and Shanghai Stock Exchange) and China Shipping Container Lines Company Limited (a
+company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange).
+126
+China Merchants Bank
+Annual Report 2016
+China Communications
+Construction Co., Ltd.
+8.2 Appointment and Resignation of Directors,
+Supervisors and Senior Management
+332.22
+China Merchants Bank
+Annual Report 2016
+222.99
+period
+ten thousand)
+(share)
+2014.7-present
+1963.2
+Male
+Xiong Liangjun
+No
+Secretary of the Party Discipline
+Executive Vice President
+1965.8
+Male
+2008.12-2019.6
+Executive Vice President
+1960.7
+Male
+Zhu Qi
+2013.12-2019.6
+2008.5-2019.6
+332.22
+332.22
+Executive Vice President
+1964.11
+Male
+Zhao Ju
+2016.11-2019.6
+Secretary of Board of Directors
+332.22
+1965.12
+No
+Male
+2015.1-2019.6
+Executive Vice President
+Committee
+No
+332.22
+No
+No
+No
+Wang Liang
+Executive Vice President
+1957.5
+Male
+during the
+the Company
+received from
+remunerations
+the period
+at the end of
+Shareholding
+of the period
+reporting
+Date of
+Shareholding
+Whether
+pre-tax
+Aggregate
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+China Merchants Bank
+Annual Report 2016
+120
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 121
+at the beginning
+period (RMB
+having received
+remunerations
+Ding Wei
+2006.5-2019.6
+Executive Vice President
+1960.3
+Male
+Tang Zhihong
+2015.3-2019.6
+Employee Supervisor
+1966.6
+Female
+Huang Dan
+(share)
+Term of office
+Title
+Gender Birth(Y/M)
+Name
+Company during
+the reporting
+parties of the
+from the related
+2015.2-2019.6
+Lian Bolin
+Liu Jianjun
+1958.5
+Male
+Wang Qingbin
+No
+No
+물을
+Former Executive Vice President and
+180.95
+2014.8-2016.6
+Former Employee Supervisor
+1971.4
+Male
+Xiong Kai
+2014.6-2016.6
+Former External Supervisor
+1947.2
+Male
+Dong Xiande
+No
+7.50
+2011.5-2016.6
+Former External Supervisor
+1956.12
+2011.6-2016.6
+166.11
+No
+None of the directors, supervisors or senior management who holds office currently or resigned during the reporting period has been punished by the
+securities regulator(s) over the past three years.
+None of the directors, supervisors and senior management listed in the above table holds share options or has been granted restricted shares of the
+Company.
+The aggregate pre-tax remunerations of the full-time Executive Directors, Chairman of the Board of Supervisors and senior management of the Company are
+still being verified, and the information about the pre-tax remuneration of the other people will be disclosed separately upon confirmation of payment.
+The remuneration received from the Company by the directors, supervisors and senior management who were appointed or resigned during the reporting
+period is calculated on the length of their service in the Company during the reporting period.
+Mr. Zhu Qi received his remuneration from WLB, a subsidiary of the Company. Mr. Zhao Ju received his remuneration from China Merchants International
+Finance Company Limited, a subsidiary of the Company.
+Pursuant to the relevant requirements of the "Guiding Opinions on Establishing the Independent Director System in Listed Companies" ((A
+##), the term of office of independent directors shall not exceed six years. Therefore, the expiration of the term of office of the
+Independent Director was earlier than that of the Tenth Session of the Board of Directors.
+Male
+7.
+6.
+5.
+Male 1949.4
+4.
+2.
+1.
+Notes:
+No
+142.38
+Former Secretary of Board of Directors 2013.5-2016.6
+1961.3
+Male
+Xu Shiqing
+General Manager of Beijing Branch
+3.
+Pan Ji
+Mr. Li Hao has been the Chief Financial Officer of the Company since March 2007, an Executive Director of the Company since June 2007, and the First
+Executive Vice President of the Company since May 2013.
+2014.8-2016.6
+Former Non-Executive Director
+1955.4
+Male
+Li Yinquan
+2014.3-2016.6
+Former Non-Executive Director
+1
+2001.4-2016.6
+1953.1
+Ma Zehua
+Former Vice Chairman
+16
+284.76
+2012.6-present
+Executive Assistant President
+Yes
+Male
+Former Independent Non-Executive
+1
+1955.9
+2003.5-2016.6
+Former Shareholder Supervisor
+Male
+Male
+Zhu Genlin
+Director
+2 2 2 2 2
+2012.7-2017.2
+Female 1966.9
+Guo Xuemeng
+1963.7
+Former Shareholder Supervisor
+2012.5-2016.6
+Liu Zhengxi
+Yes
+510
+12
+28,587
+701
+16
+107,631
+59,641
+1,169
+China Merchants Bank
+Annual Report 2016
+Wuqiao Avenue, Lucheng District, Wenzhou
+Volume of
+30
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 135
+Nantong Branch
+111 Gongnong Road, Nantong
+226007
+13
+476
+476
+22,958
+31,245
+139,734
+Waigaoqiao Bonded Area,
+76
+Pudong New District, Shanghai
+Nanjing Branch
+Hangzhou Branch
+1 Hanzhong Road, Nanjing
+23 Hangda Road, Hangzhou
+210005
+310007
+Ningbo Branch
+342 Min'an East Road, Ningbo
+315042
+Suzhou Branch
+36 Wansheng Street, Industrial Park, Suzhou
+2,497
+215028
+Postal
+9 Xueqian Road, Wuxi
+214001
+Wenzhou Branch
+1-3/F, Block 2, 4, 5, Hongshengjin Garden,
+325000
+8062
+78
+2,734
+148,346
+Wuxi Branch
+No. of
+100031
+assets
+1,603
+48,459
+Yujia Building, 255 Guangdong Road and
+300204
+42
+1,653
+75,202
+9 Qianjin Road, Hexi District, Tianjin
+7 Gongqingtuan Road, Jinan
+250012
+15
+050000
+172 Zhonghua Street South, Shijiazhuang
+44 Beixin Road West, Lubei District, Tangshan
+Shijiazhuang Branch
+Tangshan Branch
+12,034
+491
+18
+264003
+133 Yingchun Street, Laishan District, Yantai
+69,936
+1,663
+56
+48
+No. of
+266103
+Yantai Branch
+Regions
+Name of branches
+Business address
+code
+branches
+Staff (RMB million)
+Bohai Rim
+Beijing Representative Office
+35 Jinrong Avenue, Xicheng District, Beijing
+100005
+1
+9
+0
+Beijing Branch
+156 Fuxingmen Nei Dajie, Beijing
+114
+4,879
+247,267
+Qingdao Branch
+Tianjin Branch
+Jinan Branch
+36
+Zone Branch
+China Merchants Bank
+Annual Report 2016
+42
+According to the "Policies on Evaluation of Performance of Directors by the Board of Supervisors (Provisional)", the
+Board of Supervisors of the Company evaluates the annual duty performance of the directors through monitoring
+their duty performance in the ordinary course, reviewing their annual duty performance record (including but not
+limited to, attendance of meetings, participation of researches, provision of recommendations and the term of
+office in the Company), the "Annual Duty Performance Self-Evaluation Questionnaire" completed by each director
+and work summaries, and then reports the same to the general meeting and regulatory authorities. The Board of
+Directors evaluates the performance of the senior management through the "Policies on Remunerations of Senior
+Management of China Merchants Bank Co., Ltd." (released in 2016) and the "Assessment Standards of the H-Share
+Appreciation Rights Incentive Scheme for the Senior Management".
+8.8 Progress on Employee Stock Ownership Scheme and
+H Share Appreciation Rights Scheme
+The Company considered and approved the "Resolution Regarding the 2015 First Phase Employee Stock Ownership
+Scheme (by way of subscribing A shares in the Private Placement)" and the "Resolution Regarding the Termination by
+China Merchants Bank Co., Ltd. of its H Share Appreciation Rights Scheme" at the 2014 Annual General Meeting of
+the Company. In accordance with those resolutions, as the purpose of the proposed 2015 First Phase Employee Stock
+Ownership Scheme was in line with that of the existing H Share Appreciation Rights Scheme of the Company, the H
+share appreciation rights not granted would be suspended following the approval of the 2015 First Phase Employee
+Stock Ownership Scheme at the general meeting of the Company. As the "Resolution Regarding the Private
+Placement of A Shares by China Merchants Bank Co., Ltd. to Designated Placees" and the "Resolution Regarding
+the General Meeting of China Merchants Bank Co., Ltd. to Confer Full Powers on the Board of Directors and the
+Persons Authorised by the Board of Directors to Handle the Matters Relating to the Private Placement of A Shares"
+expired in June 2016, the private placement plan regarding the implementation of the employee stock ownership
+scheme by way of private placement lapsed accordingly. In view of the above, the implementation of the "2015 First
+Phase Employee Stock Ownership Scheme (Draft) of China Merchants Bank Co., Ltd. (by way of subscribing A shares
+in the Private Placement)" has been suspended. On 4 November 2016, as considered and approved at the 2016 First
+Extraordinary General Meeting of the Company, the Company may resume the grant of the H Share Appreciation
+Rights, including the supplemental grant of the 2015 Eighth Phase H Share Appreciation Rights and the grant of
+the 2016 Ninth Phase H Share Appreciation Rights to the relevant persons, and the Board of Directors may also
+grant the 2017 H Share Appreciation Rights in accordance with the requirements of the H Share Appreciation Rights
+Scheme within the effective period of the scheme. The Company had implemented the supplemental grant of the
+Eighth Phase H Share Appreciation Rights and the grant of the Ninth Phase H Share Appreciation Rights during the
+reporting period. For details of the abovementioned matters, please refer to the relevant announcements dated 24
+August and 4 November 2016 published by the Company on the websites of Shanghai Stock Exchange, Hong Kong
+Stock Exchange and the Company and the Company's circular dated 19 September 2016 published on the websites
+of Hong Kong Stock Exchange and the Company.
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 133
+8.9 Information about Employees
+As at 31 December 2016, the Company had 70,461 employees (including dispatched employees)6. The composition
+of our employees in service is set out as follows:
+(1)
+Professional Structure
+Administrative and
+logistical support
+0.7%
+Information
+Risk
+management
+technology
+2.1%
+4.9%
+General
+management
+10.6%
+Operation and
+management
+21.0%
+Retail staff
+39.3%
+(2) Educational Structure
+Technical secondary school
+degrees or below
+Junior college degree
+The Company offers remuneration to independent directors and external supervisors according to the "Resolution
+in respect of Adjustment to Remuneration of Independent Directors" and the "Resolution in respect of Adjustment
+to Remuneration of External Supervisors" considered and passed at the 2016 First Extraordinary General Meeting;
+offers remuneration to executive directors and other senior executives according to the "Policies on Remunerations
+of Senior Management of China Merchants Bank Co., Ltd." (released in 2016); and offers remuneration to employee
+supervisors in accordance with the policies on remuneration of employees of the Company. Directors and supervisors
+nominated by shareholders of the Company do not receive any remuneration from the Company.
+8.7 Evaluation and incentive system for directors,
+supervisors and senior management
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+China Merchants Bank
+Annual Report 2016
+338
+Mr. Xiong Liangjun is the Secretary of the Party Discipline Committee of the Company. Mr. Xiong obtained a
+master's degree in Money and Banking from Zhongnan University of Finance and Economics and an EMBA degree
+from the Cheung Kong Graduate School of Business. He is a senior economist. He successively served as the deputy
+director-general of the CBRC Shenzhen Bureau, the director-general of CBRC Guangxi Bureau and CBRC Shenzhen
+Bureau from September 2003 to July 2014. He has been the Secretary of the Party Discipline Committee of the
+Company since July 2014.
+Mr. Liu Jianjun is an Executive Vice President of the Company. Mr. Liu obtained a master's degree in National
+Economics from Dongbei University of Finance and Economics and is a senior economist. He has successively
+served as the deputy general manager of Jinan Branch of the Company, the general manager of the Retail Banking
+Department under the Head Office, a senior vice president of the Retail Banking Department under the Head Office
+and the business executive since September 2000. He has been an Executive Vice President of the Company since
+December 2013. He is concurrently the Chairman of CIGNA & CMB Life Insurance and a Director of China UnionPay
+Co., Ltd..
+Mr. Ding Wei is an Executive Vice President of the Company. Mr. Ding obtained a master's degree in Financial
+Management from Hangzhou University and is an associate researcher. He joined the Company in December 1996.
+He successively served as the director of the General Office and the general manager of the Banking Department of
+Hangzhou Branch, the assistant general manager of Hangzhou Branch, the deputy general manager of Hangzhou
+Branch, the general manager of Nanchang Sub-branch, the general manager of Nanchang Branch, the general
+manager of the Human Resources Department of the Head Office, and an executive assistant president of the Head
+Office. He has been an Executive Vice President of the Company since May 2008. He is concurrently the Director of
+the Labor Union of the Head Office and a Director of CMB International Capital Holdings Corporation Limited.
+Mr. Zhu Qi is an Executive Vice President of the Company. Mr. Zhu obtained a master's degree in Statistics from
+Zhongnan University of Finance and Economics and is a senior economist. He joined the Company in August 2008,
+and has been an Executive Vice President of the Company since December 2008. He is concurrently an Executive
+Director and Chief Executive Officer of Wing Lung Bank, a Director of the Hongkong Japan Business Co-operation
+Committee, a Director of CMB International Capital Corporation Limited and a Director of The Hong Kong Chinese
+Enterprises Charitable Foundation Limited.
+Mr. Tang Zhihong is an Executive Vice President of the Company. Mr. Tang obtained a bachelor's degree in Chinese
+Language and Literature from Jilin University and is a senior economist. He joined the Company in May 1995.
+He successively served as the deputy general manager of Shenyang Branch, the deputy head of the Shenzhen
+Administration Unit, the general manager of Lanzhou Branch, the general manager of Shanghai Branch, the head of
+the Shenzhen Administration Unit, and an executive assistant president of the Head Office. He has been an Executive
+Vice President of the Company since May 2006.
+Mr. Li Hao, please refer to Mr. Li Hao's biography under the paragraph headed "Directors" above.
+Mr. Tian Huiyu, please refer to Mr. Tian Huiyu's biography under the paragraph headed "Directors" above.
+Senior Management
+Ms. Huang Dan is an Employee Supervisor of the Company. Ms. Huang obtained a bachelor's degree in Computer
+Software from Huazhong University of Science and Technology, and a master's degree in Finance from Southwestern
+University of Finance and Economics and is an engineer. She has been an Employee Supervisor of the Company since
+March 2015. She is the Deputy Director of the Labor Union of the Head Office of the Company. She started her
+career in Tongji Medical University in July 1988, and then served in China Chang Jiang Energy Corp. (Group) in April
+1993. She joined the Human Resources Department of the Head Office of China Merchants Bank in April 1994 and
+successively served as assistant manager, deputy manager, manager and senior manager. She successively served as
+the assistant general manager and deputy general manager in the Human Resources Department of the Head Office
+of China Merchants Bank from April 2005 to December 2014.
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+12.4%
+China Merchants Bank
+Annual Report 2016
+Mr. Wang Liang is an Executive Vice President and the Secretary of the Board of Directors of the Company.
+Mr. Wang obtained a master's degree in Money and Banking from Renmin University of China and is a senior
+economist. He successively served as the assistant general manager, the deputy general manager and the general
+manager of Beijing Branch of the Company. He served as the executive assistant president of the Company and the
+general manager of Beijing Branch since June 2012. He ceased to serve as the general manager of Beijing Branch
+in November 2013, and has served as an Executive Vice President of the Company since January 2015. He has
+concurrently served as the Secretary of the Board of Directors of the Company since November 2016.
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 131
+Mr. Zhao Ju is an Executive Vice President of the Company. Mr. Zhao obtained an EMBA from Guanghua School
+of Management of Peking University. He is an economist. He was appointed as the director and managing director
+of the Investment Banking Department of UBS Securities Company Limited (Beijing) in December 2009, and as a
+joint chairman of the China Division and vice chairman of the Asia Division of UBS Investment Bank in July 2012.
+He joined the Company in November 2014, and has been an Executive Vice President of the Company since
+February 2015. He is concurrently the Chief Executive Officer and a Director of CMB International Capital Holdings
+Corporation Limited and the Chief Executive Officer and a Director of CMB International Capital Corporation
+Limited.
+Mr. Lian Bolin is an Executive Assistant President of the Company. Mr. Lian obtained a bachelor's degree in Finance
+from Anhui Institute of Finance and Trade and is a senior economist. He joined the Company in January 2002 and
+successively served as the deputy general manager of Hefei Branch, the deputy general manager of Shanghai Branch,
+the general manager of Jinan Branch and the general manager of Shanghai Branch of the Company. He has been
+an Executive Assistant President of the Company and the general manager of Shanghai Branch since June 2012. He
+ceased to serve as the general manager of Shanghai Branch in September 2014. He is concurrently the Chairman of
+CMB Financial Leasing.
+Joint Company Secretaries
+Mr. Wang Liang, please refer to his biography in "Senior Management" above.
+Mrs. Seng Sze Ka Mee, Natalia has served as the Company's Joint Company Secretary since August 2006. Mrs.
+Seng is the Chief Executive Officer of Tricor Group/Tricor Services Limited (hereinafter referred to as "Tricor") in China
+(including Hong Kong), and also a practice leader of Tricor's Corporate Services and China Consultancy Services. Mrs.
+Seng has over 30 years of experience in professional secretarial, business advisory and fiduciary services. Mrs. Seng is
+a Chartered Secretary, a former President (2007-2009) and a retired Council Member (1996-2012) of The Hong Kong
+Institute of Chartered Secretaries ("HKICS"). Mrs. Seng has been appointed by the government as a member of the
+Standing Committee on Company Law Reform ("SCCLR") for a period of two years from February 2016 to January
+2018. Mrs. Seng is a Fellow of both The Taxation Institute of Hong Kong and The Hong Kong Institute of Directors,
+and an appointed member of the Inland Revenue Department Users Group since 2009. Mrs. Seng holds a master's
+degree in Business Administration (Executive) from City University of Hong Kong.
+8.6 Explanation on the office location of Chairman of
+the Company
+Mr. Li Jianhong is the Chairman of the Company and concurrently the Chairman of China Merchants Group Ltd..
+China Merchants Group Ltd. is one of the state-owned backbone enterprises under the direct control of State-owned
+Assets Supervision and Administration Commission of the State Council. It is a state-owned large-sized business
+group with business operations headquartered in Hong Kong. Therefore, Mr. Li Jianhong's daily office place is
+located in Hong Kong.
+132
+130
+20,592
+1.5%
+Corporate staff
+21.4%
+518040
+1
+4,048
+2,285,182
+686 Lai'an Road, Pudong New District, Shanghai
+201201
+1
+6,240
+400,258
+Yangtze River Delta
+Shanghai Branch
+1088 Lujiazui Ring Road, Pudong New District,
+200120
+110
+4,895
+209,920
+Shanghai
+Shanghai Pilot Free Trade
+Waigaoqiao Building, 6 Jilong Road,
+200131
+1
+7088 Shennan Boulevard, Shenzhen
+Head Office
+Credit Card Center
+assets
+Staff (RMB million)
+No. of
+Master's degree
+and above
+16.9%
+In 2016, in accordance with the requirements of the laws and regulations of the PRC, the Company reduced the percentage of dispatched
+employees by adjusting its labor employment, and with the relevant risk and service quality put under control, commissioned professional
+service suppliers to complete the non-core services which were previously engaged by part of its dispatched employees.
+134
+China Merchants Bank
+Annual Report 2016
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+Core technical team and key technical personnel
+During the reporting period, there was no change in the personnels including the Company's core technical team
+and key technical staff (other than the directors, supervisors or senior management personnels) who may have
+significant influence on the Company's core competitiveness.
+Staff Remuneration Policy
+Bachelor's degree
+69.2%
+The Company's remuneration policy is in line with its operation targets, cultural concepts and values. It aims to
+refine and improve its incentive and restrictive mechanisms, realise its corporate goals, enhance its organisational
+performance and minimise its operating risk. The remuneration policy adheres to the principles of remuneration
+management featuring "strategic orientation, performance enhancement, risk control, internal fairness and market
+adaptation" and reflects the remuneration concept of "fixing remuneration based on positions and workload".
+Staff Training Program
+8.10 Branches and Representative Offices
+In 2016, the Company continued to push forward expansion of its branch network. In China, Yantai Branch
+(second-level) got approval to upgrade to first-level branch, three second-level branches, namely: Nanyang Branch,
+Fujian Pilot Free Trade Zone Xiamen Branch and Jilin Branch got approval to start business; Guangzhou Nansha
+Sub-branch got approval to upgrade to Guangdong Pilot Free Trade Zone Nansha Branch, Langfang Branch
+(second-level) got approval to prepare for establishment. Outside Mainland China, London Branch got approval to
+start business; China Merchants Bank (Europe) Co., Ltd. (() #2) got approval from the CBRC to
+prepare for establishment.
+The following table sets forth the branches and representative offices as at 31 December 2016:
+Volume of
+Postal
+Regions
+Head Office
+Name of branches
+Business address
+code
+No. of
+branches
+The Company has formulated multi-level staff training programs covering all its staff. The contents of training
+focus mainly on knowledge of its business and products, professional ethics and security, management skills and
+leadership. During the reporting period, the Company fully completed all its training programs.
+9,781
+65 Hai'er Road, Laoshan District, Qingdao
+3
+12,609
+356
+13
+17,153
+422
+19
+19,475
+480
+21
+26,698
+638
+20
+810000
+2223
+550001
+284 Zhonghua Road North, Yunyan District,Guiyang
+217 Xinhua Street East, Xingqing District, Yinchuan
+4 Xinning Road, Chengxi District, Xining
+London Representative Office
+Taipei Representative Office
+Luxembourg Branch
+London Branch
+USA Representative Office
+New York Branch
+Singapore Branch
+Outside Mainland China Hong Kong Branch
+Yinchuan Branch
+Xining Branch
+Guiyang Branch
+530022
+010098
+9 Chilechuan Avenue, Saihan District, Huhhot
+92-1 Minzu Avenue, Nanning
+Hohhot Branch
+Nanning Branch
+57,564
+750000
+9
+253
+10,027
+27
+1
+18/F, 20 Fenchurch Street, London, UK
+14,037
+21
+L-2180
+5th floor, 4rue Jean Monnet, Luxembourg
+2
+2
+333, Section 1, Jilong Road, Xinyi District, Taipei
+61
+1
+8,882
+46
+048616
+1 Raffles Place, Tower 2, #32-61, Singapore
+39 Cornhill EC3V 3ND, London, UK
+41,442
+124
+10022
+1
+1
+10022
+509 Madison Avenue, Suite 306, New York, U.S.A
+535 Madison Avenue 18th Floor, New York, U.S.A
+105,077
+194
+1
+12 Harcourt Road, Central, Hong Kong
+1,253
+45
+650051
+CMB Building, 1 Chongren Street Wuhua District,
+Kunming
+code
+Business address
+Name of branches
+Regions
+Western China
+Volume of
+assets
+No. of
+No. of
+Postal
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
+China Merchants Bank
+Annual Report 2016
+136
+10,087
+267
+10
+30,640
+855
+30
+47,044
+1,182
+40
+4220
+570125
+Complex Building C, Haian Yihao, 1 Shimao Road
+North, Haikou
+Haikou Branch
+030001
+8 Xinjian Road South, Taiyuan
+Taiyuan Branch
+branches
+7,834
+Staff (RMB million)
+No. 1, the 3rd section of Renmin Road South,
+Wuhou District, Chengdu
+Kunming Branch
+23,896
+697
+18
+830000
+65,448
+1,465
+46
+59,166
+1,801
+62
+26,491
+821
+28
+22∞
+401121
+88 Xingguang Road, New North District, Chongqing
+China Merchants Bank Mansion, 2 Huanghe Road,
+Urumchi
+Chongqing Branch
+Urumchi Branch
+710001
+1 Gaoxin No.2 Road, Xi'an
+730030
+9 Qingyang Road, Chengguan District, Lanzhou
+Lanzhou Branch
+Xi'an Branch
+49,957
+1,537
+52
+610000
+Chengdu Branch
+450018
+Other assignments
+Note:
+Office of the Board of
+Supervisors
+Office of the Board of
+Directors
+Supervisory Committee
+Audit Committee
+Risk and Capital Management Committee
+Remuneration and Appraisal
+Committee
+Board of Supervisors
+Board of Directors
+Nomination Committee
+Nomination Committee
+Shareholders' General Meeting
+Strategy Committee
+Related Party Transaction Control Committee
+9.1 Corporate Governance Structure:
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+138
+Banking Department
+Representative Offices (Beijing, Shanghai,
+United States of America, London, Taipei)
+Administration Department
+Labor Union of the Head Office
+Anti-money Laundering Management Center
+Data Center
+Testing Center
+Research and Development Center
+Operation Center
+Corporate Governance
+Executive Office of
+President
+Shanghai Audit
+Division
+Shenzhen Audit
+Division
+063000
+139
+During the reporting period, the Company received recognitions from the capital markets and regulatory authorities
+in respect of corporate governance, information disclosure as well as investor relations management, and won a
+number of awards, mainly including the "Best Board of Directors Award" in the selection of the "Twelfth Gold Round
+Table Award for Board of Directors of Chinese Listed Companies", the first prize of the "Award for Best Practice of
+the Board of Supervisors among Listed Companies" initially organised by Chinese Association of Listed Companies
+jointly with Shenzhen Stock Exchange and Shanghai Stock Exchange, the "Award for the Best Activity Day" sponsored
+by Institutional Investor, the "Golden Bull Award" hosted by China Securities Journal, the "Gold Award for Annual
+Reports Worldwide" selected by League of American Communications Professionals LLC (LACP), etc..
+Having conducted thorough self-inspection, the Company was not aware of any non-compliance of its corporate
+governance practice during the reporting period with the requirements set out in CSRC's regulatory documents
+governing the corporate governance of listed companies.
+For details of information disclosure and management of investor relations of the Company, please refer to the
+section headed "Communication with Shareholders" of this report.
+Through their presence at meetings of the Board of Directors and the special committees under the Board of Directors
+and the Shareholders' General Meetings, the Board of Supervisors supervised the convening, reviewing and voting
+procedures of the meetings of the Board of Directors and its special committees and the Shareholders' General
+Meetings, as well as the performance of duties by the Directors, and made sure they were compliant with the rules.
+As decided at its meeting, the Board of Directors focused on promoting the following works and made great
+progress: smoothly completed the election of a new session of the Board of Directors; took full advantage of
+strategic management functions to formulate and implement the strategic five-year development plan; enhanced
+its risk management capability in adherence to its prudent risk management concept; improved remuneration
+management and promoted the continuous operation of medium-to-long incentive and constraint mechanism;
+promoted the improvement in the quality of external auditing and made remarkable achievements in the vertical
+management of internal auditing; and strictly implemented the name-list management of related party transactions
+and related parties, which have continuously enhanced the core competitiveness and innovative capability of
+the Company and ensured the sustainable and healthy development of the Company. The special committees
+under the Board of Directors considered the resolutions proposed to the Board of Directors in advance, reviewed
+topical-specific reports, studied and considered the resolutions professionally, expressed their opinions and advices
+for the decision-making of the Board of Directors, and further promoted the efficient operation of the Board of
+Directors and enabled the Board of Directors to make decisions in a scientific way.
+During the year, the Company convened a total of 61 important meetings at which 234 proposals were reviewed and
+60 reports were delivered. Among the 61 meetings there were 2 shareholders' general meetings (18 proposals were
+reviewed), 12 meetings of the Board of Directors (85 proposals were reviewed and 14 reports were delivered), 10
+meetings of the Board of Supervisors (35 proposals were reviewed and 9 reports were delivered), 29 meetings of the
+special committees of the Board of Directors (83 proposals were reviewed and 31 reports were delivered), 6 meetings
+of the special committees of the Board of Supervisors (9 proposals were reviewed), 1 meeting of non-executive
+directors (1 report was delivered) and 1 meeting of independent non-executive directors (4 proposals were reviewed
+and 5 reports were delivered). Two activities including research, field study and training were organised by the Board
+of Directors, and 4 by the Board of Supervisors.
+2016 was the starting year of the "Thirteenth Five-Year Plan". With increased uncertainties in global economic
+recovery, numerous compelling contradictions and problems in domestic economic development, emerging financial
+risks in certain sectors and inadequate impetus in endogenous economic growth, the supply-side structural reform
+has a long way to go. Facing complicated economic situations at home and abroad and various severe challenges
+in bank operation, the Board of Directors, the Board of Supervisors and the special committees, following the
+requirements of internal and external corporate governance, performed their duties diligently, standardised business
+operations efficiently, promoted business development through strategic planning, stuck to the bottom line of risks
+strictly, strengthened vertical management of internal auditing, enhanced the incentive and constraint mechanism,
+protected shareholders' interests, and push forward the Company's strategic transformation towards "One Body with
+Two Wings" and "Light-operation Bank" steadily. Particulars of their achievements are set out as follows:
+9.2 Overview of Corporate Governance
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+Internet Finance Committee
+Fuzhou Audit
+Division
+Division
+Chengdu Audit
+Wuhan Audit
+Division
+Xi'an Audit
+Division
+Business Continuity and Emergency Committee)
+Beijing Audit
+Division
+IT Management Committee
+Risk and Compliance Management Committee)
+Assets and Liabilities Management Committee
+Audit Department
+Division
+Shenyang Audit
+Nanjing Audit
+Division
+Special Assets Operating Center
+Pre-warning Center
+Loan Approval Center
+Market Risk Management Department
+Transaction Banking Department
+Small Enterprises Finance Department
+Financial Institutions Department
+Institutional Customers Department
+Strategic Customers Department
+Procurement Management Department
+Project Management Department
+Investment Management Department
+the Protection of Customer Interests
+Supervision and Management Center for
+Process and Information Management Office
+Financial Accounting Department
+Assets and Liabilities Management Department
+Strategic Development Department
+Human Resources Department
+General Office
+Office of Board of Supervisors
+Office of the Board of Directors
+China Merchants Bank
+8.11The Company's Organisational Structure:
+VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 137
+China Merchants Bank
+Annual Report 2016
+In 2016, in accordance with the requirements of the laws and regulations of the PRC, the Company reduced the percentage of dispatched
+employees by adjusting its labor employment, and with the relevant risk and service quality put under control, commissioned professional
+service suppliers to complete the non-core services which were previously engaged by part of its dispatched employees.
+5,612,579
+70,461 Note
+1,819
+31
+Offshore Finance Center
+Total
+Finance
+General Office of Corporate
+General Office of Retail Finance
+Operational Risk Management Department
+Training Center
+Legal Compliance Department
+Inspection and Security Department
+Audit Department
+Information Technology Department
+Operation Management Department
+Asset Security Department
+Credit Approval Department
+Risk Management Department
+Credit Card Center
+Basic Retail Customers Department
+(Pension Finance Department)
+Retail Credit Business Department
+Private Banking Department
+Wealth Management Department
+Direct Banking Center
+Retail Network Banking Department
+Bills Center
+Bills Business Department
+Asset Custody Department
+Asset Management Department
+Financial Market Department
+Investment Banking Department
+Sub-branches
+Branches
+Head Office
+Banking and Financial Markets
+_General Office of Investment
+96 Nongye Road East, Zhengzhou
+1,181
+Hefei
+18
+458
+22,578
+Dongguan Branch
+Foshan Branch
+200 Hongfu Road, Nancheng District, Dongguan
+12 Denghu Road East, Guicheng Street, Nanhai
+District, Foshan
+523129
+528200
+23
+32
+362000
+923
+33
+1,046
+45,063
+North-eastern China
+Shenyang Branch
+Dalian Branch
+Harbin Branch
+Changchun Branch
+12 Shiyiwei Road, Heping District, Shenyang
+110003
+56
+17 Renmin Road, Zhongshan District, Dalian
+35,288
+48,355
+929
+33
+107
+105,308
+2,598
+76
+776
+518001
+510620
+5 Huasui Road, Tianhe District, Guangzhou
+Xinwen Building, 1002 Shennan Road Central,
+Shenzhen
+Guangzhou Branch
+Shenzhen Branch
+Pearl River Delta and
+West Side of
+Taiwan Strait
+2,641
+Fuzhou Branch
+60 Guping Road, Fuzhou
+350003
+39
+1,137
+54,234
+Xiamen Branch
+Quanzhou Branch
+No. 6 Complex Building, Hongtai Industrial Park,
+309 Hudong Road, Siming District, Xiamen
+Huangxing Building, No. 301, the middle section of
+Fengze Street, Quanzhou
+361001
+116001
+38
+3 Zhongyang Avenue, Daoli District, Harbin
+150001
+199
+330003
+Changsha Branch
+Hefei Branch
+766 Wuyi Avenue, Changsha
+410005
+855
+81
+2,313
+107,888
+Zhengzhou Branch
+51
+69,632
+54
+1,361
+41,431
+China Merchants Bank Mansion, 169 Funan Road,
+230006
+42
+1,161
+47,048
+1,339
+4,806
+325,040
+40,771
+44,040
+1,261
+46,462
+1,036
+29
+631
+26,436
+1,660
+Central China
+518 Jianshe Avenue, Wuhan
+430022
+Nanchang Branch
+468 Dieshan Road, Donghu District, Nanchang
+130022
+9999 Renmin Avenue, Nanguan District, Changchun
+38
+Wuhan Branch
+15 80 80 8
+Zhao Jun
+5/5
+11/12
+8/8
+2/2
+5/5
+1.
+2/2
+The composition and duties of the six special committees as well as their work in 2016 are summarized as follows:
+9.5.1 Strategy Committee
+The Strategy Committee consists of directors nominated by the shareholders and directors from senior management.
+The current members of the Strategy Committee are Li Jianhong (Chairman), Li Xiaopeng and Tian Huiyu (an
+executive director). It is mainly responsible for studying the medium-to-long term development strategies and
+significant investment decisions of the Bank and making relevant proposals, and decide on the annual operation
+plan.
+Main authorities and duties:
+(1)
+formulate the operational goals and medium-to-long term development strategies of the Bank, and make an
+overall assessment on strategic risks;
+(2)
+consider material investment and financing plans and make proposals to the Board of Directors;
+(3)
+supervise and review the implementation of the annual operational and investment plans;
+(4)
+evaluate and monitor the implementation of Board resolutions; and
+(5)
+make recommendations and proposals on important issues for discussion and determination by the Board of
+Directors.
+In 2016, all special committees under the Board of Directors of the Company carried out their duties in an
+independent, compliant and effective manner. During the year, these committees held a total of 29 meetings to
+study and review 114 significant issues, including strategic planning and implementation, profit appropriation
+preliminary plan, annual financial budget and final account report, election and change of session of the board
+of directors, risk and capital management, remuneration and appraisal, financial supervision and internal control,
+external investments, related party transactions, and reported their audit opinions and advices to the Board of
+Directors by submitting meeting minutes and holding on-site meetings, hence effectively assisting the Board of
+Directors to make scientific decisions.
+145
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+In 2016, the Strategy Committee mainly studied and formulated the "Strategic Development Plan of China
+Merchants Bank (2016-2020)". Based on the review and conclusion of the implementation results over the past five
+years, the Strategy Committee made it clear that the development vision of the Company is "to build itself into
+the best commercial bank in China featuring innovation-driven development, the retail banking-prioritised business
+strategy and distinguished advantages. It also required the Company to adjust the development plan on an annual
+basis in the next five years and actively respond to crisis and risks by "adjusting itself in changing environment", so
+as to lay a solid foundation for the Company to maintain strategic competitiveness. The Strategy Committee also
+studied and considered the annual operation budget indicators and their implementation results to ensure that the
+short-term operation goal is in line with the long-term strategic goal.
+In order to promote the implementation of the strategic plan across the Bank and strengthen its overall business
+operation, the Strategy Committee listened to a special report on the internet strategy of the Company and
+expressed that it will fully support the development of CMB's financial technologies in the aspects of system
+building and resource input. It has also considered certain major issues such as the establishment of subsidiaries
+in Europe, the capital increase in CIGNA & CMB Life Insurance and the restructuring of CMB Financial Leasing,
+revised the Articles of Association of China Merchants Bank Co., Ltd. and the "Measures for Equity Investment
+and Management of China Merchants Bank Co., Ltd.", optimised the investment management decision-making
+mechanism, and approved the award-winning project of financial innovation for the first time to vigorously support
+the Company's innovation and development.
+9.5.2 Nomination Committee
+The majority of the Nomination Committee are independent non-executive directors, the chairman as well. The
+current members of the Nomination Committee include Pan Chengwei (Chairman), Pan Yingli, Zhao Jun (all being
+independent non-executive directors), Li Jianhong (a non-executive director) and Tian Huiyu (an executive director). It
+is mainly responsible for selecting candidates for directors and senior management of the Company, determining the
+standards and procedures for such selection and making relevant proposals.
+Main authorities and duties:
+(1)
+(2)
+(4)
+review the structure, size and composition of the Board of Directors (including their expertise, knowledge
+and experience) at least once a year and make recommendations on any change to the Board of Directors
+to implement the strategies of the Bank according to the Bank's business operations, asset scale and
+shareholding structure of the Bank;
+study the standards and procedures for selection of directors and senior management, and make
+recommendations to the Board of Directors;
+conduct extensive searches for qualified candidates for directors and senior management;
+146
+There are six special committees under the Board of Directors of the Company, namely the Strategy Committee, the
+Nomination Committee, the Remuneration and Appraisal Committee, the Risk and Capital Management Committee,
+the Audit Committee and the Related Party Transaction Control Committee.
+9.5 Special Committees of the Board of Directors
+The independent non-executive directors reviewed the continuing connected transactions of the Company
+and made confirmations as required by the Hong Kong Listing Rules.
+Notes:
+12/12
+2.
+During the reporting period, the Board of Directors held a total of 12 meetings, of which three were on-site and telephone meetings
+and nine were meetings convened and voted by correspondence.
+Actual number of attendance does not include attendance by proxy. The above directors who did not attend the meetings in person
+had appointed other directors to attend such meetings on their behalf.
+143
+144
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+9.4.6 Securities transactions of directors, supervisors and relevant employees
+The Company has adopted the Model Code set out in Appendix 10 to the Hong Kong Listing Rules as the code of
+conduct for directors and supervisors of the Company in respect of their dealings in the Company's securities. Having
+made enquiry of all the directors and supervisors, the Company confirmed that they had complied with the aforesaid
+Model Code throughout the year ended 31 December 2016.
+The Company has also established guidelines for relevant employees in respect of their dealings in securities of the
+Company, which are no less exacting than the Model Code. The Company is not aware of any violation against the
+mentioned guidelines by relevant employees.
+9.4.7 Performance of duties by independent non-executive directors
+The Board of Directors of the Company currently has six independent non-executive directors, which meets the
+requirement that at least one third of the total directors of the Company shall be independent directors. The
+qualification, number and proportion of independent non-executive directors are in compliance with relevant
+requirements of the CBRC, the CSRC, Shanghai Stock Exchange and the Hong Kong Listing Rules. All six independent
+non-executive directors of the Company are not involved in the circumstances set out in Rule 3.13 of Hong Kong
+Listing Rules which would cause doubt on their independence. The Company has received from the independent
+non-executive directors their respective annual confirmation of independence which was made in accordance with
+Rule 3.13 of Hong Kong Listing Rules. Therefore, the Company is of the opinion that all independent non-executive
+directors have complied with the requirement of independence set out in Hong Kong Listing Rules. The majority of
+the members of the Nomination Committee, the Remuneration and Appraisal Committee, the Audit Committee and
+the Related Party Transaction Control Committee under the Board of Directors of the Company are Independent
+Non-executive directors, and all of such committees are chaired by an independent non-executive director. During
+the reporting period, the six independent non-executive directors maintained communication with the Company
+through personal attendance at the meetings, on-site visits, research and investigations and conferences. They
+effectively performed their roles as independent non-executive directors by diligently attending meetings held by
+the Board of Directors and the special committees, actively expressing their opinions and suggestions and attending
+to the interests and requests of small and medium shareholders. For details of the attendance of independent
+non-executive directors at the meetings convened by the Board of Directors and the special committees, please refer
+to "9.4.5 Attendance of directors at relevant meetings" in this report.
+During the reporting period, the independent non-executive directors expressed their independent opinions on
+material issues including change of directors, remuneration of the senior management, engagement of accounting
+firm, profit appropriation, related party transactions and external guarantees of the Company. They made no
+objection to the resolutions of the Board of Directors and others.
+According to the "Rules Governing Independent Directors' Work on Annual Reports" of the Company, the
+independent non-executive directors of the Company performed the following duties in preparing and reviewing this
+report:
+1.
+The independent non-executive directors listened to reports on the performance of the Company in 2016
+made by the management and Chief Financial Officer. The independent non-executive directors believed that
+the reports made by the management of the Company had fully and objectively reflected the operations of
+the Company in 2016 as well as the progress of significant matters. They recognised and were satisfied with
+the work performed by the management team and the results achieved in 2016.
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+2.
+3.
+4.
+5.
+6.
+The independent non-executive directors reviewed the work plan for preparing the annual report and the
+unaudited financial statements of the Company.
+Prior to the annual audit conducted by the accounting firm in charge of the annual audit, the independent
+non-executive directors discussed with the certified public accountants in respect of the audit team, audit
+schedule, audit plan, key concerns, communication mechanism and quality control.
+After receiving the initial audit opinions from the auditors, the independent non-executive directors discussed
+with the auditors in respect of major matters and prepared their written opinions.
+The independent non-executive directors reviewed the procedures for convening Board meetings in the year,
+the decision-making procedures for matters on the agenda and the adequacy of information for making
+reasonable and accurate judgment.
+5/5
+Guo Xuemeng (resigned)
+2/2
+/
+Committee Committee
+Audit
+Shareholders'
+Transaction
+Capital
+Management
+Remuneration
+Nomination and Appraisal
+Committee Committee
+Strategy
+Related Party
+Risk and
+Special committees under the Board of Directors
+Directors
+The following table sets forth the records of attendance of each director at the meetings convened by the Board of
+Directors and by special committees under the Board of Directors and at the shareholders' general meetings held in
+2016.
+9.4.5 Attendance of directors at relevant meetings
+Board of
+Directors (1) Committee
+IX Corporate Governance
+Control
+Committee
+Meeting
+4/4
+11/12
+Li Xiaopeng
+0/1
+3/3
+6/6
+General
+Ma Zehua (resigned)
+2/2
+4/4
+12/12
+Li Jianhong
+Non-executive directors
+Actual times of attendance/Required times of attendance (2)
+2/2
+1/2
+China Merchants Bank
+Annual Report 2016
+9.4.4 Chairman of the Board and the President
+9.4.1 Composition of the Board of Directors
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+In institutional development and actual operation, the Board of Directors places great emphasis on the "Unity of
+Form and Spirit". With respect to the development of organisational structure, the Board of Directors facilitates
+scientific and reasonable decision-making through the establishment of a diversified directorship structure, and
+improves the decision-making ability and operational efficiency through promoting the effective operation of special
+committees. With respect to the operation, the Board of Directors focuses on key issues, directions, and strategies.
+The Board of Directors continues to strengthen the scientific concept of development to seek balance, health and
+sustainability; ensures the Company's healthy, sustainable and sound development through effective management of
+its strategy, risks, capital, remuneration, audit and connected transactions, etc., thus providing a solid basis for the
+Company to enhance its operation and management capabilities.
+The Board of Directors is the core of our corporate governance. The Company implements a system under which the
+President assumes full responsibility under the leadership of the Board of Directors, which in turn is an independent
+policy-making body of the Company, responsible for the execution of resolutions passed by the general meetings;
+formulation of the Company's major principles and policies, including development strategy, risk preference,
+internal control and internal auditing systems, remuneration regulations; deciding on the Company's operating
+plans, investment and financing proposals and the establishment of internal management organs; preparing annual
+financial budgets, final accounts and profit appropriation plans; and appointing and evaluating members of senior
+management. The Company's senior management team has discretionary powers in terms of operation and makes
+daily decisions on operation management within the scope of authorisation by the Board of Directors, and the Board
+of Directors would not intervene in any specific matters in the Company's daily operation and management.
+9.4 Board of Directors
+As at 31 December 2016, the Board of Directors of the Company had 16 members, including eight non-executive
+directors, two executive directors, and six independent non-executive directors. All eight non-executive directors
+come from large state-owned enterprises where they hold key positions such as the chairman of the board of
+directors, general manager or deputy general manager and chief financial officer. They have extensive experience
+in management, finance and accounting fields. Both executive directors have extensive experience in financial
+management. Among the six independent non-executive directors, two are renowned experts in finance and
+accounting, two are renowned experts in finance, management and capital market, and two are financial experts
+and investment bankers with international vision, and they all have extensive knowledge of the development of
+domestic and overseas banking industry, with two independent non-executive directors from Hong Kong who are
+proficient in international accounting standards and the requirements of Hong Kong capital market. As at the end
+of the reporting period, the Board of Directors of the Company has four female directors who, together with other
+directors of the Company, offer professional opinions to the Company in their respective fields. Such diversified
+composition of the Board of Directors of the Company has brought about a wide spectrum of vision and highly
+professional experience, and also has maintained strong independence which enables the Board of Directors to make
+independent judgments and scientific decisions effectively when studying and considering important issues.
+For details of the resolutions, please refer to the documents on shareholders' general meetings published on the
+websites of Shanghai Stock Exchange and the Company as well as the circulars regarding the shareholders' general
+meetings published on the websites of Hong Kong Stock Exchange and the Company. The notification, gathering,
+convening and voting procedures of the meetings complied with relevant requirements of the Company Law of the
+People's Republic of China, the Articles of Association of the Company and the Hong Kong Listing Rules. Relevant
+resolutions were published on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the
+Company and on China Securities Journal, Shanghai Securities News and Securities Times. For more information on
+the attendance of directors at shareholders' general meetings, please refer to the section headed "Attendance of
+Directors at Relevant Meetings" of this report.
+On 28 June 2016, the Company held the 2015 Annual General Meeting in Shenzhen to consider and approve 15
+resolutions, which mainly include the consideration of the report of the Board of Directors, the report of the Board
+of Supervisors, the profit distribution plan, the annual report for 2015, the engagement of an accounting firm for
+2016, the election of members of the 10th Session of the Board of Directors and the Board of Supervisors, and the
+amendments to the Articles of Association.
+During the reporting period, the Company convened 2 shareholders' general meetings.
+9.3 Information about General Meetings
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+140
+On 4 November 2016, the Company held the 2016 First Extraordinary General Meeting in Shenzhen at which three
+resolutions were considered and approved, including the resumption of grant of the H Share Appreciation Rights,
+adjustment to the remuneration of Independent Non-executive Directors and adjustment to the remuneration of
+external supervisors.
+The positions of the chairman of the Board of Directors and the president of the Company have been taken up by
+different persons and their duties have been clearly defined in accordance with the requirements of the Hong Kong
+Listing Rules. Mr. Li Jianhong serves as the Chairman of the Board of Directors and is responsible for leading the
+Board of Directors, chairing board meetings, ensuring that all directors are updated regarding issues arising at board
+meetings, managing the operations of the Board of Directors, and ensuring that all major and relevant issues are
+discussed by the Board of Directors in a constructive and timely manner. To enable the Board of Directors to discuss
+all important and relevant matters timely, the Chairman and senior management worked together to ensure that
+the directors duly receive appropriate, complete and reliable information for their consideration and review. Mr.
+Tian Huiyu serves as the President, responsible for the business operations and implementation of the strategic and
+business plans of the Company.
+The Company values the diversity of the members of the Board of Directors. The Company has had in place policies
+requiring that the Nomination Committee of the Company shall review the structure, number of directors and
+composition (including their skills, knowledge and experience) of the Board of Directors at least once a year and
+put forward proposals in respect of any intended changes to the Board of Directors in line with the strategies of the
+Company.
+9.4.2 Appointment, re-election and removal of directors
+During the reporting period, the Company initiated annual appraisal of the performance of directors performed by
+the Board of Supervisors, and annual report and cross-appraisal performed by independent non-executive directors.
+The appraisal results have been reported to the general meeting.
+The Company also pays high attention to the continuous training of directors, so as to ensure that they have a
+proper understanding of the operations and businesses of the Company, and that they are fully aware of their
+responsibilities under the laws and the regulatory requirements of the CBRC, the CSRC, Shanghai Stock Exchange,
+Hong Kong Stock Exchange and the Articles of Association of the Company. The Company has renewed the
+"insurance for liabilities of directors and senior management" for all its directors.
+The Board of Directors of the Company reviewed its work during the reporting period, for which it also consulted
+the senior management for their opinions and took consideration of those opinions of the Board of Supervisors. The
+Board of Directors believes that it has effectively performed its duties and safeguarded the interests of the Company
+and shareholders during the reporting period. The Company is of the opinion that all the directors have devoted
+sufficient time to perform their duties.
+The independent non-executive directors of the Company have presented their professional advice on the resolutions
+reviewed by the Board of Directors, including offering independent written opinions on significant matters regarding
+the profit appropriation preliminary plan, related party transactions, external guarantees, the appointment and
+removal of directors and the remuneration for senior management. In addition, for the six special committees under
+the Board of Directors, the independent non-executive directors of the Company made full advantage of their
+professional edge, provided professional and independent advice regarding corporate governance and operation
+management of the Company, and thereby ensured the scientific decision-making of the Board of Directors.
+During the reporting period, all directors of the Company cautiously, earnestly and diligently exercised their rights
+as a director granted by the Company and by domestic and overseas regulatory authorities, devoted sufficient
+time and attention to the business of the Company, ensured that the business practices of the Company were fully
+compliant with the requirements of the laws and administrative regulations and economic policies of the country,
+gave all shareholders fair treatment, readily reviewed the business operation and management of the Company, and
+fulfilled the responsibilities stipulated under the laws and administrative regulations, departmental regulations and
+the Articles of Association of the Company. All directors of the Company were aware of their joint and individual
+responsibilities towards shareholders. During the year, the average attendance rate of directors at meetings of the
+Board of Directors and the special committees under the Board of Directors was over 93%, of which the attendance
+rate at meetings of special committees was 100%.
+9.4.3 Responsibilities of directors
+The list of directors of the Company is set out in Chapter VIII of this report. To comply with the Hong Kong Listing
+Rules, the independent non-executive directors have been clearly identified in all corporate communications of the
+Company which disclose their names.
+IX Corporate Governance
+142
+141
+The procedures for appointment, re-election and removal of directors of the Company are set out in the Articles
+of Association of the Company. The Nomination Committee of the Company carefully considers the qualifications
+and experience of every candidate for director and recommends suitable candidates to the Board of Directors. Upon
+passing the candidate nomination proposal, the Board of Directors proposes election of related candidates at a
+general meeting and proposes the relevant resolution at a general meeting for consideration and approval.
+The term of office for independent non-executive directors of the Company shall be the same as that for other
+directors of the Company. The term of office for an independent non-executive director of the Company shall
+comply with the relevant laws and requirements of the governing authority.
+A director may be removed by an ordinary resolution at a general meeting before the expiry of his/her term of office
+in accordance with relevant laws and administrative regulations (however, any claim made in accordance with any
+contract will not be affected).
+In accordance with the Articles of Association of the Company, the directors of the Company shall be elected or
+replaced by shareholders at general meetings, and the term of office for a director shall be three years. The term
+of office for a director of the Company shall commence from the date on which the approval from the banking
+regulatory authority of the State Council is obtained. A director is eligible for re-election upon the expiry of his/her
+current term of office. The director's term of office shall not be terminated without any justification at a general
+meeting before expiry of his/her term.
+China Merchants Bank
+Annual Report 2016
+2/2
+Li Yinquan (resigned)
+0/1
+9/9
+1/1
+2/2
+10/12
+Leung Kam Chung, Antony
+non-executive directors
+2/2
+Independent
+2/2
+222
+5/5
+9/9
+/
+12/12
+1/2
+Li Hao
+Wong Kwai Lam
+/
+/
+1/1
+2/2
+12/12
+Pan Yingli
+2/2
+12/12
+5/5
+conduct preliminary examination on the candidates for directors and senior management and make
+recommendations to the Board of Directors; and
+12/12
+Pan Chengwei
+1/2
+8/8
+1/1
+8/8
+6/6
+2/2
+11/12
+12/12
+Hong Xiaoyuan
+2/2
+2/2
+8/8
+/
+1/1
+11/12
+2/2
+5/5
+9/9
+1/1
+12/12
+Sun Yueying
+Fu Gangfeng
+4/4
+9/9
+2/2
+Tian Huiyu
+Executive directors
+1/1
+2/2
+Wang Daxiong
+1/1
+/
+2/2
+2/2
+3/3
+9/9
+3/3
+12/12
+Su Min
+Zhang Jian
+(5) any other task delegated by the Board of Directors.
+submit proposals on perfecting the management of risks and capital of the Bank;
+China Merchants Bank
+Annual Report 2016
+The majority of members and the chairman of the Audit Committee are independent non-executive directors. The
+current members of the Audit Committee are Wong See Hong (Chairman), Wong Kwai Lam, Pan Chengwei (all
+being independent non-executive directors), Fu Gangfeng and Wang Daxiong (both being non-executive directors).
+It was verified that no member of the Audit Committee has ever served as a partner of the current auditors of the
+Company. The Audit Committee is mainly responsible for communication, supervision and verification of internal and
+external auditing issues of the Bank.
+Main authorities and duties:
+(1)
+(2)
+propose the appointment or replacement of external auditors;
+monitor the internal audit system of the Bank and its implementation, and evaluate the work procedures and
+work effectiveness of its internal audit department;
+(3)
+coordinate the communication between internal auditors and external auditors;
+(4)
+(5)
+(6)
+audit the financial information of the Bank and disclosure of such information, and is responsible for the
+annual audit work of the Bank, including issue of a conclusive report on whether the information contained
+in the audited financial statements is true, accurate, complete and updated, and submit the same to the
+Board of Directors for consideration;
+examine the internal control system of the Bank, and make recommendations for improvement in the internal
+control of the Bank;
+review and supervise the mechanism for the Bank's employees to whistle blow any misconduct in respect
+of financial reports, internal control or otherwise, so as to ensure that the Bank always handles the whistle
+blowing issues in a fair and independent manner and takes appropriate actions;
+The Risk and Capital Management Committee also reviewed the quarterly reports on comprehensive risk, capital
+management plan (2016-2018) and the report on risk appetite execution as well as subjects of capital increase or
+reform in subsidiaries, etc.. Furthermore, it put forward various proposals and suggestions, including perfecting risk
+appetite accountability mechanism, strengthening assets portfolio management, making full use of measurement
+model and rating system to conduct routine risk management, strictly controlling new non-performing loans,
+reviewing and approving credit in line with the local conditions, proactively making innovation in risk management
+concept and methods etc.. It also efficiently performed duties of risk management and capital management.
+9.5.5 Audit Committee
+(7)
+any other task delegated by the Board of Directors.
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+In 2016, the Audit Committee enhanced the vertical management of internal audit, further improved the
+comprehensiveness, independence as well as effectiveness of internal audit. It conducted the following works,
+including listening to the audit report on a quarterly basis, timely obtaining audit findings, focusing on rectification
+and accountability, promoting the management to study and formulate relevant measures and improving the
+enforcement of accountability and punishment, so as to demonstrate the value of internal audit; strengthening the
+promotion of performance appraisal methods, guiding the internal audit department to focus on core risk points, so
+as to promote the further improvement of audit ability.
+In 2016, as the Company changed its external auditors, the Audit Committee urged the new and the former
+accounting firms to duly perform the transitional work and ensure the continuity and stability of the external audit.
+In view of the great pressure in maintaining asset quality, the Audit Committee required the external auditors to
+closely trace the development trend of asset quality, concentrate efforts on investigating non-performing assets
+and analyse and disclose the causes. It also required the external auditors to put forward specific management
+suggestions in respect of credit risk management, so as to realise obvious improvement in the quality of external
+audit results. Moreover, the Audit Committee regularly reviewed the performance reports, audit reports from
+external audit institutions, appraisal reports on internal control, etc.. It also monitored and verified the truthfulness,
+accuracy, completeness and timeliness of the information contained in financial reports, as well as the effectiveness
+of internal control.
+According to "Work Procedures on Annual Reports for Audit Committee of the Board of Directors" adopted by
+the Company, the Audit Committee of the Board of Directors of the Company performed the following duties in
+preparing and reviewing the annual report for 2016:
+1.
+2.
+3.
+Before the auditors commenced their annual audit, the Audit Committee considered and discussed the
+audit plan of the accounting firm for 2016, including the composition of the auditing team, schedule and
+programme of audit, the priorities of audit work, communication mechanism and quality control. They also
+reviewed the plan for preparing the annual report and the unaudited financial statements of the Company.
+In the course of annual audit and after the issue of a preliminary audit opinion by the accounting firm in
+charge of annual audit, the Audit Committee reviewed the management's report on the operations of the
+Company for 2016. The Audit Committee exchanged opinions on significant matters and the audit progress
+with the accounting firm in charge of annual audit, and reviewed the financial statements of the Company.
+The Audit Committee then formed written opinions for the above issues.
+Before the convening of the annual meeting of the Board of Directors, the Audit Committee reviewed and
+prepared a resolution on the Company's Annual Report for 2016 which was submitted to the Board of
+Directors for consideration and approval. Moreover, the Audit Committee reviewed and issued a conclusion
+report on the audit work performed by the external auditors in respect of the Company's financial statements
+for the year 2016 to the Board of Directors.
+149
+In 2016, the Nomination Committee made comparison and analysis on the number and structure of the Ninth
+Session of the Board of Directors, and the changes in the shareholder structure of the Company and the members of
+the Board of Directors in recent two years, and worked out the plan for a change of the Tenth Session of the Board
+of Directors of the Company with reference to external supervision and the relevant requirements of the Articles
+of Association regarding the structure of the Board of Directors and the nomination and election of directors. We
+preliminarily reviewed the appointment qualifications of 18 candidates for directors and submitted the candidate
+list to the Board of Directors and the general meeting, which provided important guarantee for the successful
+completion of the election of a new session of the Board of Directors.
+(8)
+In 2016, the Risk and Capital Management Committee persisted in prudent risk concept, and stuck to the bottom
+line of risk control. It significantly promoted the Board of Directors to revise the quantitative authorisation standards
+for senior management, risk appetite statement as well as risk management and appraisal indicators; optimised the
+management and transmission mechanism of risk appetite, and effectively improved the risk control capability of the
+Board of Directors; specifically reviewed the work report on disposal of non-performing loans, and provided strategic
+guidance for it; and reviewed the report on audit findings, the work report on prevention of relevant cases and
+violation accountability report, which promoted the arrangement and improvement of the overall business process
+and system and to enhance the violation accountability.
+examine the accounting policies, financial reporting procedures and financial position of the Bank; and
+arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
+and
+IX Corporate Governance
+any other task delegated by the Board of Directors.
+9.5.3 Remuneration and Appraisal Committee
+The Remuneration and Appraisal Committee is composed of a majority of the independent non-executive directors
+with one serving as the chairman. The members of the Remuneration and Appraisal Committee currently include
+Wong Kwai Lam (Chairman), Leung Kam Chung, Antony, Pan Yingli (all being independent non-executive directors)
+and Sun Yueying and Hong Xiaoyuan (both being non-executive directors). It is responsible mainly for formulating
+the appraisal standards for directors and senior management of the Bank and conducting appraisals on them, as
+well as formulating and reviewing the remuneration policies and plans for directors and senior management of the
+Company. It is accountable to the Board of Directors.
+Main authorities and duties:
+(1)
+(2)
+(3)
+study the appraisal standards for directors and senior management, and conduct appraisals and make
+recommendations based on the actual conditions of the Bank;
+review the regulations and policies in respect of remuneration of the Bank; and
+(4) any other task delegated by the Board of Directors.
+In 2016, the Remuneration and Appraisal Committee studied and proposed to continuously promote the H
+Share Appreciation Rights Scheme which was suspended due to the Employee Stock Ownership Scheme, added
+suggestions of granting Phase VIII and Phase IX Share Appreciation Rights, and determined the grant date and grant
+price of Phase VIII Share Appreciation Rights. Approved by the Board of Directors and general meeting, the grant of
+Phase VIII and Phase IX Share Appreciation Rights had been completed successfully. During the reporting period, in
+line with the H Share Appreciation Rights Scheme, the Remuneration and Appraisal Committee conducted efficiency
+appraisal and price adjustment to the appreciation rights granted, which ensured the continuity of the Company's
+medium-to-long term incentive mechanism.
+In 2016, the Remuneration and Appraisal Committee revised the policies on remunerations of senior management,
+reviewed and determined the total staff costs and the performance bonus of senior management for 2015, studied
+and proposed to make adjustments in remunerations of independent directors, which further perfected the incentive
+and restraint mechanism of the Board of Directors.
+9.5.4 Risk and Capital Management Committee
+The members of the Risk and Capital Management Committee currently are Hong Xiaoyuan (Chairman), Sun
+Yueying, Su Min, Zhang Jian (all being non-executive directors), Li Hao (an executive director) and Leung Kam Chung,
+Antony (an independent non-executive director). It is mainly responsible for control, management, supervision and
+assessment of risks of the Bank.
+study and review the remuneration policies and proposals in respect of directors and senior management
+of the Bank, make recommendations to the Board of Directors and supervise the implementation of such
+proposals;
+Main authorities and duties:
+(6)
+(5)
+IX Corporate Governance
+China Merchants Bank
+Annual Report 2016
+148
+(4)
+147
+make regular assessment on the risk policies, management status, risk-withstanding ability and capital status
+of the Bank;
+supervise the status of risk control by the senior management of the Bank in relation to credit risk, market
+risk, operational risk, liquidity risk, strategic risk, compliance risk, reputation risk, country risk and other risks;
+(3)
+(2)
+(1)
+perform relevant duties under the advanced capital measurement method pursuant to the authorisation given
+by the Board of Directors;
+Mr. Wang Liang, Secretary of the Board of Directors of the Company, and Mrs. Seng Sze Ka Mee, Natalia of Tricor
+Services Limited, an external services provider, are both the joint company secretaries of the Company under Hong
+Kong Listing Rules. Mr. Wang Liang is the major contact person of the Company on internal issues.
+During the reporting period, Mr. Wang Liang and Mrs. Seng Sze Ka Mee, Natalia both attended relevant professional
+trainings of not less than 15 hours in compliance with the requirements of Rule 3.29 of Hong Kong Listing Rules.
+In 2016, the Company had no internal cases causing huge losses, external cases or incidents involving theft or
+robbery, or material safety issues.
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+9.10 Misconduct Reporting and Monitoring
+9.11 Communication with Shareholders
+155
+In 2016, adhering to the basic investor-oriented principle of improving investor experience and increasing
+efficiency, the Company focused on market trend, sticked to fundamental analysis, maintained continuous and
+positive communication with various investors and analysts in the capital markets with an innovative, professional,
+open and positive attitude We delivered the strategies, results of operation, business highlights and investment
+value of the Company to investors across the world in various forms in a timely, comprehensive and objective
+manner. Mr.Li Jianhong, Chairman of the Board, President Mr. Tian Huiyu paid high attention to the management
+of investor relations, personally attended the annual results, interim results conferences, and marketing conferences
+and answered concerns from investors and analysts one by one. After the issue of annual results, President Mr. Tian
+Huiyu leading a team conducted worldwide road show in Hong Kong, American and Europe, visited 114 important
+institutions every 5 conferences a day, further conducted recommendation and communication upon the problems
+of business development, advantages and characteristics, future strategy and valuation improvement.
+During the reporting period, the Company held two results announcements and analyst meetings, one press
+conference, one annual results, global roadshow and one specific investor activity. The Company made arrangement
+for reception of 100 visits made by 205 domestic and foreign institutional investors and investment banks,
+brokerage analysts; attended investor conferences held by 30 major domestic and foreign investment banks and
+brokerages, and conducted effective communication with a total of 716 institutional investors; answered 358 calls
+from investors, handled 1,684 online messages from investors. These measures have effectively satisfied the needs of
+domestic and foreign investors and analysts to communicate with the Company.
+Having perfectly completed all its tasks for the year, the Company forged ahead with implementing the
+transformation strategies of "Light-operation Bank" and "One Body with Two Wings". The Company organised a
+series of communications in respect of different themes on the capital market, and communicated the suggestions
+and opinions on the capital market to its management in a timely manner, thus better playing its role in facilitating
+interactions and communications between the management and the capital market. In 2016, in the context of
+continuous business transformation in the banking sector, the Company maintained its leading position in A+H
+market valuation among its peers, showing certain effect of its market value management.
+During the reporting period, thanks to good corporate governance, clear and advanced development strategies
+and outstanding operating results, as well as the effective guidance and communication associated with the capital
+market, the Company won the "Best Activity Day Award", the "Best CFO Award" presented by Institutional Investor,
+and the 12th Session "New Fortune Gold Secretary to the Chairman", the "Golden Bull Award" presented by China
+Securities Journal, the "Top 100 Listed Companies in Hong Kong 2015" by www.qq.com, and www.chw.net.cn, etc..
+These awards revealed high recognition and good ratings given to the Company by the capital market.
+China Merchants Bank
+156
+IX Corporate Governance
+9.9 Company Secretary under Hong Kong Listing Rules
+Investor relations
+√
+Pan Chengwei
+√
+Independent non-executive directors
+Annual Report 2016
+Leung Kam Chung, Antony
+Wong Kwai Lam
+Pan Yingli
+Guo Xuemeng (resigned)
+Zhao Jun
+Provision of Information and Scope of Trainings
+Corporate
+Governance
+Policies and
+Regulations
+Business/
+Management
+√
+√
+✓
+√
+✓
+Information Disclosure
+China Merchants Bank
+Annual Report 2016
+During the reporting period, the Company has disclosed material information in a true, accurate, complete, timely
+and fair manner in strict accordance with the requirements of relevant laws and regulations governing information
+disclosure. It has issued 268 disclosure documents in aggregate on Shanghai Stock Exchange and Hong Kong Stock
+Exchange, including periodic reports, announcements, corporate governance documents, circulars to shareholders,
+proxy forms and reply slips in a total size of more than 2.06 million words. Apart from fulfilling its statutory
+obligation of information disclosure, the Company continued to be more initiative in information disclosure in its
+periodic reports, placing special emphasis on hot issues that concern investors and information particularly related to
+the banking sector, further establishing a concept of information disclosure tailored to investor demand, improving
+initiative and transparency in information disclosure in periodic reports.
+157
+158
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+9.15 Compliance with the Corporate Governance Code
+During the reporting period, the Company has applied the principles of the Corporate Governance Code set out
+in Appendix 14 of the Hong Kong Listing Rules, and has complied with all the code provisions and recommended
+practices (if applicable).
+9.16 Internal Control
+The senior management of the Company provided the Board of Directors with adequate explanation and sufficient
+information to enable the Board of Directors to make informed assessment on the financial and other information
+submitted to it for approval. The directors of the Company acknowledged their responsibility for preparing the
+financial statements for the year ended 31 December 2016 to present a true view of the operating results of the
+Company. So far as the directors are aware, there are no material uncertainties related to events or conditions that
+I might have a significant adverse effect on the Company's ability of sustainable operation.
+During the reporting period, according to the development strategy of "One Body with Two Wings" strategy and
+"Light-operation Bank", the Company precisely rolled out four major areas of work including "asset quality",
+"structural adjustment", "system reform" and "strict management of the Bank", fully promoted branch system
+reform, formulated and issued the "Notice of Strengthening Risk and Internal Control Compliance Management in
+System Reform", and consistently enhanced the independence, specialisation and flattening of risk management and
+internal control compliance. Relying on the platform of Risk and Compliance Management Committee, the Company
+held risk situation briefings on a quarterly basis and risk and compliance regular meeting on a monthly basis, and
+timely reported major risks and problems arising in the course of business development, research, decision-making,
+risk management and significant events and management measures in internal control. The Company organized and
+held remedial activities to remedy staff's non-compliance behavior, reinforced the transmission and learning of the
+regulations and rules for staff and continuously improved staff's compliance concept across the Bank. In accordance
+with the unified arrangement of CBRC, the Company conducted review on the work of "two reinforcements
+and two restraints", and established long-term mechanism to restrain non-compliance behavior and cases.
+Combining with the actual needs in the process of system reform, the Company issued a number of fundamental
+management systems such as "Group Compliance Policies", "Compliance Management Rules (Second edition)",
+"Staff Conduct Management Regulations", "Administrative Measures for Staff's Lists of Violation Restriction",
+"Administrative Measures for Internal Control Information" and "System Management Regulation (Third edition)",
+thus further improved and perfected the Company's internal control compliance management system. The Company
+unswervingly strengthened the monitoring, inspection and non-compliance accountability, line inspection, internal
+control supervision, audit monitoring and inspection by dual cooperation between Party and Committee, seriously
+implemented the requirement of strict management of the Bank, and ensured the compliance operation and healthy
+development of each business.
+Li Hao
+IX Corporate Governance
+9.17 Internal Audit
+The Company has established a sound internal audit mechanism. Firstly, the Company has formulated an
+independent and vertical internal audit management system. The Head Office has an audit department which
+consists of 9 audit divisions. The audit department at the Head Office carries out the examination, supervision and
+appraisal functions independently, and reports to the Board of Directors and its audit committee. The person in
+charge of the audit department at the Head Office shall be appointed by the Board of Directors. The annual audit
+plan shall be approved by the Board of Directors and the audit results shall be reported to the Board of Directors.
+Secondly, the Company formulated a set of systems comprising of general rules, operational rules and practice based
+on the "Internal Audit Constitution of China Merchants Bank" and established an inspection model that gives equal
+emphasis on on-site and off-site checks.
+The Audit Department of the Company shall supervise, inspect and assess the effectiveness of the management
+activities, risk profile and internal control of the whole Bank (including domestic and overseas branches, business
+management departments, affiliates), follow up the rectification of audit findings, provide independent audit advices
+and the recommendations on operation management to the Board of Directors, promote the rectification of any
+audit findings, and strengthen the assessment and utilisation of any rectification results.
+In 2016, in accordance with the "Commercial Banks Internal Audit Guidelines" issued by CBRC, the Company
+revised its CMB Internal Audit Rules, further specified the job duties of internal audit, work process, reporting
+system, regulated outsourcing of internal audit work and internal audit work of oversea branches, thus promoted
+the standardisation and effectiveness of internal audit. Meanwhile, the Company also innovated subsequent audit
+methods, implemented follow-up measures of tracking, remedy and assessment, further reinforced off-site audit,
+fully performed the duties of monitoring of error correction and disclosure of risk responsibilities, and gave full play
+to the monitoring, assessment and value-added functions of internal audit in promoting the implementation of
+strategic decisions and operation strategy across the Bank.
+159
+During the reporting period, the Company organised evaluation campaigns regarding internal control during the
+year 2016 across all departments of the Head Office, its branches and sub-branches. As reviewed by the Board of
+Directors of the Company, no significant defects in terms of completeness, reasonableness and effectiveness were
+found in the Company's internal control system. For more details, please refer to the "2016 Report on Assessment
+of Internal Control of China Merchants Bank Co., Ltd.", and the "Auditors' Report on Internal Control" issued by
+Deloitte Touche Tohmatsu Certified Public Accountants LLP with standard unqualified opinions.
+The Board of Directors and Management put great emphasis on information disclosure, supporting it from the
+aspects of system and institutional structure through setting up a series of rules and regulations, thus ensuring
+investors to have access to information in a timely, accurate and fair manner through optimised corporate
+governance and internal control.
+9.14 Statement Made by the Directors about Their
+Responsibility on the Financial Statements
+9.13 Major Amendments to the Articles of Association of
+the Company
+During the reporting period, the Company constantly perfected and optimised the relevant work procedures for
+information disclosure to improve work efficiency in accordance with new regulatory requirements and daily work
+practice, continuously strengthened the compliance education for the insiders of the whole Bank who had access
+to its insider information, strictly implemented the insider information confidentiality system, standardised the
+information transmission process and proactively prevented the divulging of insider information and insider trading
+risk.
+Through plenty of carefully executed and effective work, the Company's information disclosure has won recognition
+from the capital market. The Company's Annual Report 2015 had the honor to win Gold Award for Banking Annual
+Report in the League of American Communications Professionals LLC (LACP), one of the world's leading annual
+report competitions. The Company's Annual Report 2015 was also elected "Top 50 Annual Reports in China" and
+"Top 80 Annual Reports in the Asia-Pacific Region".
+9.12 Shareholders' Rights
+Convening of extraordinary general meeting
+An extraordinary general meeting shall be convened by the Board of Directors within two months upon request in
+writing by shareholders individually or jointly holding more than 10% of the Company's voting shares.
+Two or more shareholders holding more than 10% of the voting shares at the proposed general meeting may sign
+one or several same written requests requisitioning the Board of Directors to convene an extraordinary general
+meeting or class meeting and stating the subjects to be considered at the meeting. The number of shares held
+referred to above shall be calculated on the date the shareholders submit their written request. The Board of
+Directors shall give written replies as to whether it agrees or disagrees to the convening of the extraordinary
+general meeting or class meeting within 10 days after receiving the request according to the provisions of laws,
+administrative regulations and the Articles of Association of the Company.
+If the Board of Directors agrees to convene an extraordinary general meeting or class meeting, it shall issue a notice
+on convening the shareholders' general meetings or class meeting within 5 days after passing the board resolution.
+Any change to the original proposal as stated in the notice shall be approved by the relevant shareholders.
+During the reporting period, the Company amended the Articles of Association, which further clarified the
+interpretation and management authority of external investment. For details, please refer to the announcement,
+shareholders' circular and the documents of shareholders' general meetings of the Company published on 30 March
+2016, 13 May 2016 and 13 June 2016 respectively. The amended Articles of Association is subject to the approval of
+the CBRC.
+China Merchants Bank
+Annual Report 2016
+Making proposals at the shareholders' general meeting
+If the Company convenes a shareholders' general meeting, shareholders individually or jointly holding more than
+3% of the total issued voting shares of the Company may submit interim proposals in writing to the Company 15
+working days before the convening of the shareholders' general meeting and submit the same to the convenor. The
+convenor shall issue a supplemental notice to the shareholders' general meeting and announce the contents of the
+interim proposal within two days after receiving the proposal.
+Shareholder individually or jointly holding more than 1% of the issued shares of the Company may nominate
+candidate(s) for independent director(s) for election at the shareholders' general meeting.
+Convening of extraordinary board meeting
+An extraordinary board meeting may be held if it is requisitioned by shareholders representing more than one-tenth
+(10%) of the voting rights. The Chairman shall convene and preside over the extraordinary board meeting within ten
+(10) days upon receiving such proposal.
+Making inquiries to the Board of Directors
+Shareholders are entitled to review the information about the Company (including the Articles of Association, the
+status of share capital, the minutes of shareholders' general meeting, resolutions of board meetings, resolutions
+of meetings of the Board of Supervisors, financial and accounting reports, etc. in accordance with the provisions
+of the Articles of Association after submitting written documents certifying the class and quantity of shares of the
+Company held by them and the Company verifies the identity of such shareholders.
+IX Corporate Governance
+Tian Huiyu
+Name of Directors
+Wang Daxiong
+(3)
+(4)
+(5)
+(6)
+inspecting and supervising the trainings and continuing professional development of directors and senior
+management;
+inspecting and supervising the policies and practices of the Company for compliance with laws and regulatory
+requirements;
+formulating, reviewing and supervising the Code of Conduct and the Compliance Handbook applicable to
+directors and employees;
+reviewing the compliance of the Company with the Code of Corporate Governance and the disclosures in the
+Report of Corporate Governance; and
+managing, controlling, monitoring and assessing the risks of the Company and evaluating the internal control
+effectiveness of the Company. The Board of Directors is of the opinion that the risk management and internal
+control systems of the Company is effective.
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+9.7 Board of Supervisors
+The Board of Supervisors is a supervisory body of the Bank and is accountable to the general meetings, and
+oversees the strategic management, financial activities, internal control, risk management of the Company and its
+compliance with relevant laws and regulations as well as corporate governance, the duty performance of the Board
+of Directors and the senior management with an aim to protect the legitimate rights and interests of the Company,
+its shareholders, employees, creditors and other stakeholders.
+9.7.1 Composition of the Board of Supervisors
+The Board of Supervisors of the Company consists of 9 members, including 3 shareholder supervisors, 3 employee
+supervisors and 3 external supervisors. The number of employee supervisors and external supervisors each meets
+the regulatory requirements. The 3 shareholder supervisors are from large state-owned enterprises where they serve
+as key responsible persons and have extensive experience in business management and professional knowledge in
+finance and accounting; the 3 employee supervisors have long participated in banking operation and administration,
+and thus accumulated rich professional experience in finance; and the 3 external supervisors have been engaged in
+legal affairs, economic management study in universities and accounting, thus accumulated extensive experience in
+those fields. The composition of the Board of Supervisors of the Company has adequate expertise and independence
+which ensures the effective supervision by the Board of Supervisors.
+(2)
+A Nomination Committee and a Supervisory Committee are established under the Board of Supervisors.
+(1)
+9.6 Corporate Governance Functions
+150
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+9.5.6 Related Party Transaction Control Committee
+The majority of members and the chairman of Related Party Transaction Control Committee are independent
+non-executive directors. The current members of the Related Party Transaction Control Committee are Pan Chengwei
+(Chairman), Zhao Jun, Wong See Hong (all being independent non-executive directors), Su Min (a non-executive
+director) and Li Hao (an executive director). It is mainly responsible for inspection, supervision and review of related
+party transactions of the Company.
+Main authorities and duties:
+(1)
+(2)
+(3)
+(4)
+identify related parties of the Company according to relevant laws and regulations;
+inspect, supervise and review major related party transactions and continuing related party transactions, and
+to control the risks associated with related party transactions;
+review the administrative measures on related party transactions of the Bank, and to monitor the
+establishment and improvement of the related party transactions management system of the Bank; and
+review the announcements on related party transactions of the Bank.
+In 2016, the Related Party Transaction Control Committee considered and approved five related party transactions
+between the Company and China Merchants Group Ltd., China Communications Construction Company Limited,
+Merchants Union Consumer Finance Company Limited, CMB Financial Leasing Co., Ltd. as well as Anbang Life
+Insurance Co., Ltd. (1527), respectively. Besides, the Related Party Transaction Control
+Committee reviewed and approved the establishment of an industrial investment fund project by the Company and
+China Merchants Capital Holdings Co., Ltd. (¤Â£}¶¸¤¶), set the annual caps of continuing related
+party transactions with each of Anbang Insurance Group and CMFM Group, and assisted the Board of Directors
+to review the fairness of such related party transactions. The Related Party Transaction Control Committee also
+recognized the changes in the list of related parties on a quarterly basis and then reported to the Board of Directors
+and the Board of Supervisors. It put more efforts in the enquiry on the list of related parties in accordance with the
+new requirements of CBRC on the definition of related parties, so as to ensure the accuracy and completeness of
+the list of related parties.
+Executive directors
+9.7.2 How the Board of Supervisors performs its supervisory duties
+During the reporting period, the Board of Directors has performed the following duties on corporate governance:
+formulating and inspecting the policies and practices on corporate governance of the Company and making
+certain amendments as it deems necessary, to ensure the validity of those policies and practices;
+9.7.3 Duty performance of the Board of Supervisors during the reporting period
+153
+154
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+According to the training records for 2016 kept by the Company for Directors, the status of relevant trainings is as
+follows:
+Non-executive directors
+Ma Zehua (resigned)
+Li Xiaopeng
+Li Yinquan (resigned)
+Sun Yueying
+Fu Gangfeng
+Hong Xiaoyuan
+Su Min
+Zhang Jian
+The Board of Supervisors discharges its supervisory duties primarily by: holding regular meetings of Board of
+Supervisor and special committees, attending shareholders' general meetings, board meetings and special
+committee meetings, attending various meetings on operation and management held by the senior management;
+reviewing various documents submitted by the Company, reviewing work reports and specific reports of the senior
+management, conducting exchanges and discussions, carrying out special investigations and surveys at domestic
+and overseas branches (on a collective or separate basis) of the Company or performing off-site investigation and
+having talks with directors and the senior management over their performance of duties, communicating with
+external auditors regularly, etc. By doing so, the Board of Supervisors comprehensively monitors the operation and
+management, risk management and internal control of the Company as well as duty performance of the directors
+and the senior management, and provides constructive and specific advice and recommendation on operating
+management and supervisory opinions.
+During the reporting period, the Board of Supervisors constantly innovated and enriched methods of investigation/
+survey, and continuously improve investigation quality and performance of duties, by focusing on major issues
+such as assets quality, structural adjustment, system reform and risk prevention across the Bank in combination
+with major issues concerned by the Board of Supervisors. The Board of Supervisors organised four investigations/
+surveys on a collectively basis during the year, with a total of 11 branches and affiliated entities involved. The Board
+of Supervisors, based on those investigations/surveys, put forward a number of targeted and practical proposals
+regarding internal control and compliance, risk prevention, performance appraisal and incentive and restrain,
+operation and management of second-level branches, synergy and coordination between departments, employee
+care and education and training. Based on the actual situation, the Board of Supervisors classified the investigation/
+survey results so as to effectively pass them in the form of investigation/survey reports and work briefs to the Board
+of Directors, senior management, each department and branch, and reported the same to the regulatory authorities,
+thus fully exerting its supervisory duty.
+During the reporting period, the Company organised Directors and Supervisors who were newly appointed to
+participate in job-focused training sessions provided by relevant regulatory authorities and authorised institutions
+as well as arranged banking management training. The purpose of which is to enable them to obtain proper
+understanding of the operation and businesses of the Company and its duties under relevant laws, regulations and
+rules. The Company regularly and from time to time delivered reading materials such as CMB Operation Information
+Monthly Magazine, monthly operating indicators, Monthly Magazine of Capital Market Information and relevant
+regulatory polices to directors and ensured them to obtain necessary information to perform their duties in a timely
+manner. The Company also provided its directors with the latest information and relevant trainings on the Listing
+Rules and other applicable regulatory requirements to ensure that they follow and better understand good corporate
+governance. Two investigations/surveys/visits by Directors were organised which involved visiting subsidiaries such as
+branches to get familiar with overall business operations of the branches and subsidiaries, the implementation of the
+transformation strategies of "Light-operation Bank" and "One Body with Two Wings", risk management, as well as
+problems and challenges encountered.
+Li Jianhong
+9.8 Trainings and Investigations/Surveys Conducted by
+Directors and Supervisors During the Reporting
+Period
+During the reporting period, the Board of Supervisors convened 10 meetings, of which 3 were on-site meetings
+and 7 were meetings convened and voted by correspondence. 35 proposals regarding strategic planning, business
+operations, financial activities, internal control, risk management, consolidated statement management, related
+party transaction, corporate governance, change of session of the Board of Supervisors, evaluation of the duty
+performance of the directors and supervisors and resignation audit on senior management members were
+considered, 9 of special reports involving strategic management, internal capital adequacy assessment, internal
+audit, disposal of non-performing assets, the prevention and control of crimes, handling cases of non-compliance
+and consumer rights protection were reviewed at these meetings.
+During the reporting period, the Company's Board of Directors and Board of Supervisors organised 6 investigations/
+surveys and 1 training activity. The Chairman of the Board of Supervisors conducted investigations/surveys on
+14 operating entities of the Company. The performance and effectiveness of decision-making and supervision of
+Directors and Supervisors continued to improve.
+In 2016, the Company convened 2 shareholders' general meetings and 3 on-site board meetings. Supervisors
+attended the general meetings and were present at all the on-site board meetings, and supervised compliance with
+the relevant laws and regulations, voting procedures of the general meetings and board meetings, the directors'
+attendance, statements made and voting at the general meetings and board meetings, respectively.
+151
+152
+China Merchants Bank
+Annual Report 2016
+During the reporting period, all 3 external supervisors were able to perform their supervisory duties independently.
+The external supervisors discharged their supervisory duties by attending meetings of the Board of Supervisors,
+convening special committee meetings of the Board of Supervisors, participating in meetings of the Board of
+Directors or any of its special committee, participating in the Board of Supervisors' investigations and surveys
+conducted (on a collective or separate basis) at branch level, proactively familiarizing themselves with the operations
+and management of the Company, and giving opinions and suggestions on significant matters. During the
+adjournment of the Board of Directors and Board of Supervisors, the external supervisors were able to review various
+documents and reports of the Company and exchange opinions with the Board of Directors and senior management
+in a timely manner, thereby playing an active role in performing their supervisory duties.
+During the reporting period, the Board of Supervisors of the Company had no objection to the matters supervised.
+9.7.4 Operation of the special committees under the Board of Supervisors
+IX Corporate Governance
+The Nomination Committee under the Board of Supervisors
+The members of the Nomination Committee of the Tenth Session of the Board of Supervisors were Ding Huiping
+(chairman), Fu Junyuan, Wen Jianguo and Huang Dan. The major duties of the Nomination Committee are as
+follows: to make proposals to the Board of Supervisors on the size and composition of the Board of Supervisors; to
+study the standards and procedures for the election of supervisors and propose the same to the Board of Supervisors;
+to conduct extensive searches for qualified candidates for supervisors; to undertake preliminary examination on the
+qualifications of the candidates for supervisors nominated by shareholders and provide relevant recommendations; to
+supervise the procedures for election of directors; to evaluate the duty performance of the members of the Board of
+Directors, Board of Supervisors and senior management, and submit reports to the Board of Supervisors; to supervise
+whether the remuneration management system and policies of the whole Bank and the remuneration package for its
+senior management members are scientific and reasonable.
+In 2016, the Nomination Committee under the Board of Supervisors convened 4 meetings where proposals regarding
+the change of session of the Tenth Session of the Board of Supervisor, the evaluation report on duty performance of
+the directors in 2015, the evaluation report on duty performance of the supervisors in 2015, lists of candidates for
+shareholder supervisors and external supervisors of the Tenth Session of the Board of Supervisor, annual performance
+interview system for directors and senior management members by the Board of Supervisors (Trial) and performance
+evaluation system for senior management members by the Board of Supervisors (Trial) were reviewed and considered.
+The Supervisory Committee under the Board of Supervisors
+The members of the Supervisory Committee of the Tenth Session of the Board of Supervisors were Jin Qingjun
+(chairman), Wu Heng, Han Zirong and Xu Lizhong. The major duties of the Supervisory Committee are to formulate
+the supervisory plans for performance of supervisory duties by the Board of Supervisors; to formulate the supervisory
+plans for financial activities of the Bank and conduct relevant examinations; to supervise the adoption by the
+Board of Directors of prudent business philosophy and value standards and formulate suitable development
+strategies in line with the actual situations of the Bank; to conduct supervision and assessment on the important
+financial decisions of the Board of Directors and the senior management members and their implementations, the
+establishment and improvement of the internal control governance structure and the overall risk management
+governance structure and the division of duties of relevant parties and the performance of their duties; to formulate
+the specific plans for reviewing the operation decisions, internal control and risk management of the Company under
+the authorization of the Board of Supervisors when necessary; to formulate the plans for conducting resignation
+audit on directors, president and other senior management members when necessary.
+China Merchants Bank
+Annual Report 2016
+IX Corporate Governance
+In 2016, the Supervisory Committee under the Board of Supervisors convened 2 meetings where the work plan
+of the Board of Supervisors in 2016 and the audit opinions on resignation of senior management members were
+reviewed and considered. In addition, members of the Supervisory Committee under the Board of Supervisors were
+also present at various on-site meetings convened by the Risk and Capital Management Committee and Audit
+Committee of the Board of Directors. They also reviewed the consideration and discussion on the financial decisions,
+risk management, internal management and capital management of the Company, supervised the duty performance
+of the directors and offered comments and suggestions on some issues, and monitoring records were kept.
+The Nomination Committee and the Supervisory Committee are established under the Board of Supervisors, each
+consisting of four supervisors. The chairman of each committee is served by an external supervisor.
+26
+24
+31,835
+43,857
+25
+54
+82
+2,732
+Interest in associates
+23
+716,064
+528,748
+21(d)
+Investment properties
+Property and equipment
+Interest in joint ventures
+1,701
+3,630
+1,708
+5,474,978
+27
+169
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+5,942,311
+Total assets
+12,848
+28,180
+30
+Other assets
+Intangible assets
+16,020
+29
+Deferred tax assets
+9,954
+9,954
+28
+Goodwill
+3,595
+3,914
+Debt securities classified as receivables
+353,137
+31,010
+21(c)
+144,801
+134,209
+Impairment losses
+11
+(66,159)
+(59,266)
+Share of profits of associates
+29
+2
+Share of profits of joint ventures
+292
+134
+Profit before taxation
+78,963
+75,079
+Income tax
+12
+Basic and diluted (RMB)
+Earnings per share
+322
+299
+57,696
+62,081
+Operating profit before impairment losses
+Non-controlling interests
+Attributable to:
+58,018
+62,380
+Profit for the year
+(17,061)
+(16,583)
+Equity shareholders of the Bank
+14
+(287)
+Charge for insurance claims
+Net interest income
+Fee and commission income
+3
+215,481
+235,976
+4
+(80,886)
+(98,390)
+134,595
+137,586
+5
+UT
+66,003
+57,100
+Fee and commission expense
+Net fee and commission income
+(5,138)
+(67,670)
+(64,900)
+7
+Operating expenses
+202,166
+209,949
+(248)
+Operating income
+14,489
+6
+Other net income
+53,009
+60,865
+(4,091)
+11,571
+2.46
+2.29
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+477,064
+13
+(3,131)
+5,605
+Attributable to:
+Equity shareholders of the Bank
+Non-controlling interests
+Total comprehensive income for the year
+(3,135)
+5,603
+4
+2
+59,249
+63,623
+Attributable to:
+Equity shareholders of the Bank
+58,946
+2015
+(Restated)
+2016
+Note
+(Expressed in millions of Renminbi unless otherwise stated)
+At 31 December 2016
+Consolidated Statement of Financial Position
+(53)
+Annual Report 2016
+China Merchants Bank
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+324
+303
+Non-controlling interests
+63,299
+XI Financial Statements
+31
+Remeasurement of defined benefit liability
+Items that will not be reclassified to profit or loss
+net movement in fair value reserve
+Available-for-sale financial assets:
+statements of overseas subsidiaries
+Items that may be reclassified subsequently to profit or loss
+Exchange difference on translation of financial
+after tax and reclassification adjustments
+Other comprehensive income for the year
+Cash flow hedge: net movement in hedging reserve
+Profit for the year
+For the year ended 31 December 2016
+Consolidated Statement of Profit or Loss and Other Comprehensive Income
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+168
+167
+(Expressed in millions of Renminbi unless otherwise stated)
+Interest expense
+Equity-accounted investees share of
+Note
+5,658
+(3,162)
+64
+(141)
+404
+(260)
+other comprehensive (expense) income
+4,224
+966
+1,859
+58,018
+62,380
+2015
+2016
+(4,620)
+Interest income
+(Restated)
+2015
+315
+(See Annex)
+162
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+Independent Auditor's Report
+Deloitte.
+To the shareholders of China Merchants Bank Co., Ltd.
+(A joint stock company Incorporated in the People's Republic of China with limited liability)
+DTTHK(A)(17)100018
+德勤
+Opinion
+We have audited the consolidated financial statements of China Merchants Bank Co., Ltd. (the "Bank") and its
+subsidiaries (collectively referred to as "the Group") set out on pages 167 to 314, which comprise the consolidated
+statement of financial position as at 31 December 2016, and the consolidated statement of profit or loss,
+consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in
+equity and consolidated cash flows statement for the year then ended, and notes to the consolidated financial
+statements, including a summary of significant accounting policies.
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position
+of the Group as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows
+for the year then ended in accordance with International Financial Reporting Standards ("IFRSS") and have been
+properly prepared in compliance with the disclosure requirements of Hong Kong Companies Ordinance.
+Basis for Opinion
+We conducted our audit in accordance with International Standards on Auditing ("ISAS"). Our responsibilities under
+those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial
+Statements section of our report. We are independent of the Group in accordance with the International Ethics
+Standards Board for Accountants' Code of Ethics for Professional Accountants (the "Code"), and we have fulfilled
+our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained
+is sufficient and appropriate to provide a basis for our opinion.
+Key Audit Matters
+For a sample of loans and advances to customers and
+debt securities classified as receivables, we conducted
+credit reviews to form our own assessment as to whether
+impairment events had occurred and to assess whether
+impairment has been properly identified in a timely
+Our procedures in relation to impairment of loans and
+advances to customers and debt securities classified
+as receivables included evaluating the design and
+testing automated and manual controls over the timely
+recognition of impaired loans and advances to customers
+and debt securities classified as receivables, and controls
+over the impairment calculation models including data
+inputs and the calculation of the impairment provisions.
+How our audit addressed the key audit matter
+Principal accounting policies, accounting estimates and
+judgements applied in determining the impairment
+allowance of loans and advances to customers and
+debt securities classified as receivables are set out in
+note 2(n) to the consolidated financial statements. The
+provision of portfolio impairment allowances are based
+on the portfolio structure of loans and advances to
+customers and debt securities classified as receivables,
+the historical loss experience of similar credit risk
+characteristics and current economic conditions.
+Significant judgement is required to determine the
+recoverability of the loans and advances and debt
+securities classified as receivables, which takes into
+account several factors including the financial strength
+of the borrowers and the guarantors, collateral pledged
+and the risk of specific transactions.
+As at 31 December 2016, as set out in note 19 to the
+consolidated financial statements, loans and advances
+to customers, comprising mainly corporate and retail
+loans and advances, amounted to RMB3,151,649
+million, against which related impairment allowance of
+RMB110,032 million has been made. While, as set out
+in note 21(d) to the consolidated financial statements,
+debt securities classified as receivables amounted to
+RMB528,748 million, against which related impairment
+allowance of RMB6, 176 million has been made.
+Supplemental information about the unaudited financial statements
+We identified impairment of loans and advances to
+customers and debt securities classified as receivables
+as a key audit matter due to the materiality of the
+balances and the subjective judgement applied by
+management in determining whether objective
+evidence of impairment exists and the related
+estimation uncertainty in the measurement of
+impairment allowance.
+Key audit matter
+Key Audit Matters (continued)
+DTTHK(A)(17)100018
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit
+of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a
+separate opinion on these matters.
+Impairment of loans and advances to customers
+and Debt securities classified as receivables
+11.3
+167
+162
+Related party transactions
+During the reporting period, the Company is unaware of any insider trading in its acquisition and sale of assets
+which would damage shareholders' interests or cause loss in the assets of the Company.
+Purchase and sale of assets
+Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu have audited the financial
+reports for 2016 in accordance with the PRC Generally Accepted Accounting Principles and the International
+Financial Reporting Standards respectively and have each produced a standard unqualified audit report, stating that
+the financial reports have given a true, objective and accurate view of the financial position and operating results of
+the Company.
+Authenticity of financial statements
+During the reporting period, the business activities of the Company complied with the Company Law, the
+Commercial Banking Law and the Articles of Association, the internal control system was improved, and the decision
+making procedures were lawful and valid. None of the directors and senior management of the Company were
+found to have violated the relevant laws, regulations or the Articles of Association or had done anything detrimental
+to the interests of the Company and shareholders.
+During the reporting period, the Board of Supervisors was not aware of any related party transactions which were
+not conducted on an arm's length basis or were detrimental to the interests of the Company and its shareholders.
+Lawful operation
+During the reporting period, the Board of Supervisors has proactively and effectively carried out supervision on the
+financial activities, internal control, risk management, lawful operation as well as the duty performance of the Board
+of Directors and the senior management of the Company pursuant to the Company Law, the Articles of Association
+of the Company and the supervisory duties delegated by relevant supervisory authorities.
+Report of the Board of
+Supervisors
+Annual Report 2016
+X Report of the Board of Supervisors
+China Merchants Bank
+160
+Independent opinions on relevant matters from the Board of Supervisors:
+manner.
+Implementation of resolutions passed at the general meeting(s)
+Internal control
+Financial statements and notes thereto
+11.2
+Audit Report
+11.1
+Financial Reports
+Annual Report 2016
+The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to
+the general meeting in 2016, and concluded that the Board of Directors had duly implemented relevant resolutions
+passed at the general meeting(s).
+161
+China Merchants Bank
+24 March 2017
+Chairman of the Board of Supervisors
+Liu Yuan
+By Order of the Board of Supervisors
+The Board of Supervisors had reviewed the "Report on Assessment of Internal Control of China Merchants Bank
+Co., Ltd. for 2016", and concurred with the Board of Directors' representations regarding the completeness,
+reasonableness, effectiveness and implementation of the internal control system of the Company.
+XI Financial Reports
+Assets
+We also tested the management's estimation of the
+expected future cash flows from customers, including
+expected recoverable amount of collateral held,
+recalculated the impairment allowance and compared
+the results in order to assess whether there was any
+material misstatement.
+163
+XI Financial Statements
+Annual Report 2016
+DTTHK(A)(17)100018
+Auditor's Responsibilities for the Audit of the
+Consolidated Financial Statements (continued)
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism
+throughout the audit. We also:
+○
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
+to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
+that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
+misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
+forgery, intentional omissions, misrepresentations, or the override of internal control.
+○ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
+appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
+the Group's internal control.
+о
+O
+O
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
+related disclosures made by the directors.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based
+on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
+may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a
+material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures
+in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
+conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future
+events or conditions may cause the Group to cease to continue as a going concern.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including
+the disclosures, and whether the consolidated financial statements represent the underlying transactions and
+events in a manner that achieves fair presentation.
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
+activities within the Group to express an opinion on the consolidated financial statements. We are responsible
+for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
+opinion.
+We communicate with those charged with governance regarding, among other matters, the planned scope and
+timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
+identify during our audit.
+We also provide those charged with governance with a statement that we have complied with relevant ethical
+requirements regarding independence, and to communicate with them all relationships and other matters that may
+reasonably be thought to bear on our independence, and where applicable, related safeguards.
+2016
+Note
+(Expressed in millions of Renminbi unless otherwise stated)
+For the year ended 31 December 2016
+Consolidated Statement of Profit or Loss
+Annual Report 2016
+China Merchants Bank
+XI Financial Statements
+24 March 2017
+Hong Kong
+Certified Public Accountants
+Deloitte Touche Tohmatsu
+The engagement partner on the audit resulting in the independent auditor's report is Eric Tong.
+From the matters communicated with those charged with governance, we determine those matters that were of
+most significance in the audit of the consolidated financial statements of the current period and are therefore
+the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public
+disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
+be communicated in our report because the adverse consequences of doing so would reasonably be expected to
+outweigh the public interest benefits of such communication.
+China Merchants Bank
+166
+165
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
+are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
+opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose.
+We do not assume responsibility towards or accept liability to any other person for the contents of this report.
+Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
+ISAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
+considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
+decisions of users taken on the basis of these consolidated financial statements.
+The structured entities include the wealth management
+products, asset management schemes, mutual funds,
+etc. disclosed in note 59 in the consolidated financial
+statements.
+We identified consolidation of structured entities as
+an area of key audit matter since significant judgment
+is applied by management to determine whether
+the Group has control of structured entities and the
+classification of structured entities significantly affects
+most of the accounts in the consolidated financial
+statements.
+Consolidation of Structured Entities
+The impairment assessment relied on the calculation
+of a value-in-use for each of the subsidiaries. These
+calculations used cash flow projections based on
+financial forecasts approved by management covering
+a 5-year period. Cash flows beyond the 5-year period
+were extrapolated using a steady growth rate. In
+assessing impairment of goodwill, the Group assumed
+the terminal growth in line with long-term forecast
+gross domestic product for the main operating areas of
+WLB and CMFM.
+An assessment is required annually to determine if any
+impairment is required. Goodwill is allocated to the
+Group's subsidiaries, Wing Lung Bank Limited (WLB)
+which was acquired on 30 September 2008 and China
+Merchants Fund Management Co., Ltd. (CMFM) which
+was acquired on 28 November 2013. The net amount
+of goodwill at 31 December 2016 amounted RMB9,954
+million, after impairment of RMB579 million (note 28
+in the consolidated financial statements).
+We identified goodwill as a key audit matter due to the
+size of the balance, the subjective judgement applied
+by management in determining whether it is impaired
+and the inherent uncertainty in the estimation of the
+discounted future cash flows.
+When performing the assessment of whether the
+Group has control of structured entities, the Group
+considers several factors including, among other things,
+the scope of its decision-making authority over the
+structured entities, the rights held by other parties, the
+remuneration to which it is entitled in accordance with
+the related agreements for the assets management
+services and the Group's exposure to variability of
+returns from other interests that it holds in the
+structured entities.
+Impairment of Goodwill
+Key Audit Matters (continued)
+DTTHK(A)(17)100018
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+164
+Key audit matter
+In addition, for the collectively assessed loans and
+advances to customers and debt securities classified as
+receivables, we evaluated the appropriateness of the
+model used by the Group for determining the loss ratios
+with reference to market practice and sample checked
+the historical data and the relevant calculations.
+How our audit addressed the key audit matter
+We also tested the calculations used in the discounted
+cash flow models and agreed key inputs in the model to
+externally derived data used and historical information.
+Auditor's Responsibilities for the Audit of the
+Consolidated Financial Statements
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability
+to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
+concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have
+no realistic alternative but to do so.
+The directors of the Bank are responsible for the preparation of the consolidated financial statements that give a true
+and fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and
+for such internal control as the directors determine is necessary to enable the preparation of consolidated financial
+statements that are free from material misstatement, whether due to fraud or error.
+Responsibilities of Directors and Those Charged
+with Governance for the Consolidated Financial
+Statements
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other
+information and, in doing so, consider whether the other information is materially inconsistent with the consolidated
+financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
+based on the work we have performed, we conclude that there is a material misstatement of this other information,
+we are required to report that fact. We have nothing to report in this regard.
+Our procedures in relation to impairment of goodwill
+included critically assessing the assumptions, primarily
+the discount rate and terminal growth rates, used in the
+discounted cash flow models and the methodology used
+for determining the value-in-use model.
+Our opinion on the consolidated financial statements does not cover the other information and we do not express
+any form of assurance conclusion thereon.
+Other Information
+DTTHK(A)(17)100018
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+We also evaluated management judgement in applying
+consolidation concept to each of the significant
+structured entities and the conclusion about whether or
+not the consolidation criteria is met, with assessment,
+on a sample basis, of the terms of the relevant
+contracts, including the rights to variable returns of
+the underlying assets and the ability of the Group to
+use its power to affect its return. We formed our own
+judgment and compared with that of the Group.
+Our procedures in relation to consolidation of
+structured entities included assessing and evaluating
+the management process in determining the
+consolidation scope for interests in structured entities
+as well as the purpose for setting up the structured
+entities.
+The directors of the Bank are responsible for the other information. The other information comprises the information
+included in the annual report, but does not include the consolidated financial statements and our auditor's report
+thereon.
+Cash
+Other comprehensive income for the year, net of tax
+569,961
+Interest receivable
+20
+26,251
+24,934
+Financial assets at fair value through profit or loss
+21(a)
+55,972
+2,739,444
+59,081
+55(f)
+8,688
+10,176
+Precious metals
+Available-for-sale financial assets
+21(b)
+389,138
+Derivative financial assets
+3,151,649
+19
+Loans and advances to customers
+Placements with banks and other financial institutions
+63,779
+103,013
+16
+Balances with banks and other financial institutions
+185,693
+581,156
+15
+Balances with central bank
+16,099
+2,981
+14,381
+16,373
+Amounts held under resale agreements
+18
+278,699
+343,924
+299,559
+17
+Held-to-maturity investments
+200,251
+1,454
+25,220 67,523
+At 31 December 2016
+(5,699)
+3,159 (3,159)
+46
+5,699
+45
+(19) 39,708
+445
+(i) Appropriations to statutory surplus reserve
+(166) (166)
+(d) Profit appropriations
+(ii) Decrease in non-controlling interests
+to non-wholly owned subsidiaries
+(i) Non-controlling shareholders' contribution
+(c) Changes by the shareholder's equity
+(ii) Appropriations to regulatory general reserve
+(ii) Dividends declared and paid for the year 2015
+(iv) Proposed dividends for the year 2016
+67,838 180,447
+Changes in equity for the year
+(17,402)
+656 315,060
+reserve Subtotal interests Total
+Non-
+controlling
+Proposed
+Regulatory
+general Retained profit Exchange
+reserve profits appropriations
+53,979 121,665 16,897 (1,309) 314,404
+(163) 28,690
+reserve reserve reserve
+1,902
+capital reserve
+25,220 67,523
+At 1 January 2015
+Note
+Investment
+revaluation Hedging Surplus
+Share Capital
+Total equity attributable to equity shareholders of the Bank
+2015
+1,012 403,362
+1,516 402,350
+(17,479)
+(a) Net profit for the year
+(17,402)
+(18,663) 18,663
+18,663
+(108,559)
+179
+Step 1: Identify the contract(s) with a customer
+The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods
+or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
+exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:
+IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue
+arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS
+18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.
+IFRS 15 Revenue from Contracts with Customers
+Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
+ii
+(b) Changes in accounting policies (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Group performs a
+detailed review.
+The change in fair value of the Group's financial liabilities designated at fair value through profit or loss that is
+attributable to changes in credit risk could be presented in other comprehensive income.
+The Group anticipate that the application of new hedging requirements may not have a material impact on the
+Group's current hedge designation and hedge accounting.
+Application of IFRS 9 in the future may have impact on the classification and measurement of the Group's financial
+assets. The Group's debt investments of available-for-sale investments will either be measured at 1) fair value
+through profit or loss; 2) FVTOCI; 3) amortised cost. In addition, the expected credit loss model may result in early
+provision of credit losses which are not yet incurred in relation to the Group's financial assets measured at amortised
+cost.
+Based on an analysis of the Group's financial assets and financial liabilities as at 31 December 2016 and the facts
+and circumstances that exist at the date, the Group have performed a preliminary assessment of the impact of IFRS
+9 to the Group's consolidated financial statements as follows:
+The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently
+available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for
+hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the
+types of risk components of non-financial items that are eligible for hedge accounting. In addition, the retrospective
+quantitative effectiveness test has been removed. Enhanced disclosure requirements about an entity's risk
+management activities have also been introduced.
+In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to
+an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for
+expected credit losses and changes in those expected credit losses at each reporting date to reflect changes
+in credit risk since initial recognition.
+With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS
+9 requires that the amount of change in the fair value of the financial liability that is attributable to changes
+in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the
+effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an
+accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are
+not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value
+of the financial liability designated as fair value through profit or loss is presented in profit or loss.
+Key requirements for IFRS 9 (continued)
+Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
+IFRS 9 Financial Instruments (continued)
+ii
+(b) Changes in accounting policies (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+176
+175
+All recognised financial assets that are within the scope of IFRS 9 are required to determine initial
+classification and measurement based on the contractual cash flows characteristics and their business
+model. Specifically, debt investments that are held within a business model whose objective is to collect
+the contractual cash flows, and that have contractual cash flows that are solely payments of principal and
+interest on the principal outstanding are generally measured at amortised cost at the end of subsequent
+accounting periods. Debt instruments that are held within a business model whose objective is achieved both
+by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise
+on specified dates to cash flows that are solely payments of principal and interest on the principal amount
+outstanding, are generally measured at fair value through other comprehensive income (FVTOCI). All other
+debt investments and equity investments are measured at their fair value at the end of subsequent accounting
+periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes
+in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with
+only dividend income generally recognised in profit or loss.
+Key requirements for IFRS 9
+Step 2: Identify the performance obligations in the contract
+Step 3: Determine the transaction price
+Step 4: Allocate the transaction price to the performance obligations in the contract
+Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
+Judgements made by management in the application of IFRSS that have significant effect on the consolidated
+financial statements and estimates with a significant risk of material adjustment in the future period are discussed in
+Note 2(z).
+The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
+recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
+the revision and future periods if the revision affects both current and future periods.
+The preparation of the financial statements in conformity with IFRSS requires management to make judgements,
+estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
+income and expenses. The estimates and associated assumptions are based on historical experience and various
+other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
+making the judgements about carrying values of assets and liabilities that are not readily apparent from other
+sources. Actual results may differ from these estimates.
+Level 3 inputs are unobservable inputs for the asset or liability.
+Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
+liability, either directly or indirectly; and
+Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
+access at the measurement date;
+Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
+between market participants at the measurement date, regardless of whether that price is directly observable or
+estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes
+into account the characteristics of the asset or liability if market participants would take those characteristics into
+account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure
+purposes in these consolidated financial statements is determined on such a basis, except for share-based payment
+transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and
+measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2
+or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into
+Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the
+significance of the inputs to the fair value measurement in its entirety, which are described as follows:
+The consolidated financial statements have been prepared on the historical cost basis except for financial instruments
+that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the
+accounting policies below.
+Unless otherwise stated, the consolidated financial statements are presented in Renminbi ("RMB"), which is the
+Bank's functional and presentation currency, rounded to the nearest million, unless otherwise stated.
+(c) Basis of measurement
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+As at 31 December 2016, the Group has non-cancellable operating lease commitments of RMB14,559 millions as
+disclosed in note 53. A preliminary assessment indicates that these arrangements will meet the definition of a lease
+under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all
+these leases unless they qualify for low value or short-term leases upon the application of IFRS 16. In addition, the
+application of new requirements may result changes in measurement, presentation and disclosure as indicated above.
+However, it is not practicable to provide a reasonable estimate of the financial effect until the Group complete a
+detailed review.
+303 59,249
+In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17,
+and continues to require a lessor to classify a lease either as an operating lease or a finance lease.
+Furthermore, extensive disclosures are required by IFRS 16.
+IFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a
+customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a
+model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except
+for short-term leases and leases of low value assets.
+IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments
+for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related interpretations when it becomes
+effective.
+IFRS 16 Leases
+Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
+ii
+(b) Changes in accounting policies (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+178
+177
+The Group anticipate that the application of IFRS 15 in the future may result in more disclosures, however, the
+Group do not anticipate that the application of IFRS 15 will have a material impact on the timing and amounts of
+revenue recognized in the respective reporting periods.
+In 2016, Clarifications to IFRS 15 are issued in relation to the identification of performance obligations, principal
+versus agent considerations, as well as licensing application guidance.
+Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control'
+of the goods or services underlying the particular performance obligation is transferred to the customer. Far more
+prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures
+are required by IFRS 15.
+The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions)
+less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease
+liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently,
+the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst
+others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing
+cash flows in relation to leasehold lands for owned use and those classified as investment properties while other
+operating lease payments are presented as operating cash flows. Under the IFRS 16, lease payments in relation to
+lease liability will be allocated into a principal and an interest portion which will be presented as financing cash
+flows.
+IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities,
+general hedge accounting and impairment requirements for financial assets.
+58,946
+62,081
+867
+897
+12,820
+6,524
+7,048
+19,523
+འཱུཧིམ¥
+65,843
+Other liabilities
+Tax payable
+38(a)
+Salaries and welfare payable
+251,507
+275,082
+37
+Deferred tax liabilities
+5,538,949
+64,345
+Total liabilities
+Hedging reserve
+6,188
+1,454
+43
+Investment revaluation reserve
+67,523
+67,523
+42
+Capital reserve
+25,220
+25,220
+41
+Share capital
+Equity
+5,113,220
+Debt securities issued
+44
+7,575
+55(f)
+Placements from banks and other financial institutions
+711,561
+555,607
+31
+Deposits from banks and other financial institutions
+86,639
+32
+330,108
+Liabilities
+2015
+(Restated)
+2016
+Note
+Annual Report 2016
+XI Financial Statements
+Borrowing from central bank
+248,876
+178,771
+Amounts sold under repurchase agreements
+Deposits from customers
+Derivative financial liabilities
+20,227
+23,576
+36
+Financial liabilities at fair value through profit or loss
+39,073
+36,246
+35
+Interest payable
+3,571,698
+3,802,049
+34
+161,613
+162,942
+33
+11,152
+(19)
+241
+Surplus reserve
+952 361,758
+interests Total
+controlling
+general Retained
+profit Exchange
+reserve profits appropriations reserve Subtotal
+64,679 145,887 17,402 (343) 360,806
+Share Capital revaluation Hedging Surplus
+Note capital reserve reserve reserve reserve
+25,220 67,523 6,188 241 34,009
+(4,734) (260) 5,699
+Changes in equity for the year
+3,159
+At 1 January 2016
+Proposed
+Regulatory
+Total equity attributable to equity shareholders of the Bank
+Investment
+2016
+(Expressed in millions of Renminbi unless otherwise stated)
+For the year ended 31 December 2016
+Non-
+34,560
+1,261
+1,859 41,544
+-
+(260)
+(4,734)
+Total comprehensive income for the year
+4 (3,131)
+(3,135)
+1,859
+(4,734) (260)
+13
+(b) Other comprehensive income for the year
+299 62,380
+62,081
+62,081
+(a) Net profit for the year
+60 41,604
+Consolidated Statement of Changes in Equity
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+Exchange reserve
+17,402
+18,663
+47(b)
+Proposed profit appropriations
+145,887
+180,447
+Retained profits
+64,679
+67,838
+46
+Regulatory general reserve
+34,009
+39,708
+45
+48
+1,859
+1,516
+Total equity attributable to equity shareholders of the Bank
+Company Chop
+Tian Huiyu
+Director
+Director
+Li Jianhong
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+Approved and authorised for issue by the Board of Directors on 24 March 2017.
+5,474,978
+5,942,311
+Total equity and liabilities
+361,758
+403,362
+Total equity
+360,806
+952
+1,012
+Non-controlling interests
+402,350
+(343)
+IFRS 9 Financial Instruments
+1 January 2018
+Foreign Currency Transactions and Advance Consideration
+to non-wholly owned subsidiaries
+(i) Non-controlling shareholders' contribution
+(c) Changes by the shareholder's equity
+324 63,623
+63,299
+2 5,605
+.
+5,603
+96
+966
+57,643
+1
+966
+(53)
+96
+(ii) Decrease in non-controlling interests
+83
+83
+(17,402)
+(iv) Proposed dividends for the year 2015
+(28) (16,925)
+(16,897)
+(16,897)
+(iii) Dividends paid for the year 2014
+(5,319)
+10,700 (10,700)
+46
+(ii) Appropriations to regulatory general reserve
+5,319
+45
+(i) Appropriations to statutory surplus reserve
+(d) Profit appropriations
+(83)
+(83)
+322 58,018
+17,402
+57,696
+296 46,698
+Other liabilities
+(6,732)
+18,923
+Cash (used in) generated from operating activities
+(96,299)
+423,231
+66,639
+Income tax paid
+(22,811)
+Net cash (used in) generated from operating activities
+(120,615)
+400,420
+Investing activities
+Payment for the purchase of investments
+(24,316)
+267,508
+Borrowing from central bank
+125,226
+966 46,402
+505
+404 5,319 10,700 24,222
+4,286
+404
+4,286
+Total comprehensive income for the year
+404
+4,286
+13
+(b) Other comprehensive income for the year
+Balances and placements with banks and
+other financial institutions with original
+maturity over 3 months
+(51,432)
+57,696
+(794,146)
+25,220 67,523
+241 34,009
+(292)
+- Share of profits of joint ventures
+(2)
+(29)
+- Share of profits of associates
+436
+(134)
+7,150
+576
+9,925
+- Interest expense on issued debt securities
+(45,721)
+- Interest income on investments
+(11,632)
+(9,008)
+(48,173)
+- Net gains on disposal of properties and equipment
+(329)
+(4)
+other financial institutions
+Deposits and placements from banks and
+267,260
+230,351
+Deposits from customers
+(26,685)
+(17,264)
+Other assets
+(347,286)
+(470,444)
+Loans and advances to customers
+38,689
+(40,633)
+Balances with central bank
+Changes in:
+- Net gain on debt securities and equity investments
+6,188
+- Amortisation of other assets
+4,287
+(Expressed in millions of Renminbi unless otherwise stated)
+For the year ended 31 December 2016
+Consolidated Cash Flow Statement
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+2015
+172
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+At 31 December 2015
+952 361,758
+(343) 360,806
+17,402
+64,679 145,887
+171
+2016
+(Restated)
+Cash flows from operating activities
+investment properties
+- Depreciation of properties and equipment and
+(1,137)
+(1,001)
+- Unwind of discount
+1,759
+1,599
+- Impairment losses on investments and other assets
+57,507
+64,560
+- Impairment losses on loans and advances
+75,079
+78,963
+Adjustments for:
+Profit before tax
+4,086
+(865,591)
+Proceeds from the disposal of investments
+765,069
+Amendments to IAS 1
+Amendments to IFRS 10, IFRS 12 and IAS 28
+Amendments to IFRS 11
+Amendments to IFRSS
+Disclosure Initiative
+Investment Entities: Applying the Consolidation Exception
+New and revised IFRSS effective in the current period applied by the Group
+Accounting for Acquisitions of Interests in Joint Operations
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(b) Changes in accounting policies (continued)
+ii
+Standards and amendments that are not yet effective and have not been adopted by the Group
+The adoption of these amendments to IFRSS has had no significant impact on the operating results, comprehensive
+income, or financial position of the Group for the current and prior years and/or on the disclosures set out in these
+consolidated financial statements.
+i.
+These consolidated financial statements have been prepared in accordance with International Financial Reporting
+Standards ("IFRSS") and its interpretations promulgated by the International Accounting Standards Board ("IASB"),
+and the disclosure requirements of the Hong Kong Companies Ordinance. These consolidated financial statements
+also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the HKEX.
+(b) Changes in accounting policies
+(a) Statement of compliance and basis of preparation
+174
+China Merchants Bank
+XI Financial Statements
+Annual Report 2016
+Notes to the Financial Consolidated Statements
+For the year ended December 31, 2016
+(Expressed in millions of Renminbi unless otherwise stated)
+1. Organisation and principal activities
+(a) Organisation
+China Merchants Bank Co., Ltd. ("the Bank") is a commercial bank incorporated in Shenzhen, the People's Republic
+of China (the "PRC"). With the approval of the China Securities Regulatory Commission (the "CSRC") of the PRC,
+the A-Shares of the Bank were listed on Shanghai Stock Exchange on 9 April 2002.
+On 22 September 2006, the Bank's H-Shares were listed on the Main Board of The Stock Exchange of Hong Kong
+Limited (the "HKEX").
+As at 31 December 2016, apart from the Head Office, the Bank had 50 branches in the Mainland China, Hong
+Kong, New York, Singapore, London and Luxembourg. In addition, the Bank has four representative offices in
+Beijing, London, New York and Taipei.
+(b) Principal activities
+The principal activities of the Bank and its subsidiaries ("the Group") are the provision of corporate and personal
+banking services, conducting treasury business, the provision of asset management and other financial services.
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements
+Recognition of Deferred Tax Assets for Unrealised Losses
+173
+Amendments to IAS 12
+Effective for annual
+period beginning
+on or after
+Leases
+1 January 2019
+Amendments to IFRS10
+and IAS 28
+Sale or Contribution of Assets between an Investor and its
+Associate or Joint Venture
+Amendments to IFRSS
+Annual Improvements to IFRSS 2014-2016 Cycle
+IFRS 16
+a date to be
+determined
+1 January 2018,
+as appropriate
+IFRS 15
+Revenue from Contracts with Customers
+1 January 2018
+IFRIC 22
+1 January 2017 or
+1 January 2018
+Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
+Contracts
+Amendments to IFRS 4
+1 January 2017
+Amendments to IAS 7
+1 January 2017
+Amendments to IAS 40
+Transfers of Investment Property
+1 January 2018
+Amendments to IFRS 15
+Clarifications to IFRS 15 Revenue from Contracts with
+Customers
+1 January 2018
+IFRS 9
+Financial Instruments
+1 January 2018
+Amendments to IFRS 2
+Classification and Measurement of Share-based Payment
+Transactions
+1 January 2018
+Disclosure Initiative
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+99,409
+73,803
+Note
+2016
+2015
+Proceeds from the issue of debt securities
+12,432
+200
+Financing activities
+Proceeds from the issue of medium term notes
+Proceeds from the issue of negotiable interbank
+certificates of deposits
+190,800
+290,867
+Proceeds from the issue of certificates of deposits
+14,740
+3,046
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+451,491
+Investments and net gains received from investments
+Payment for the subsidiaries, associates, joint venture
+Payment for the purchase of properties and equipment
+and other assets
+60,509
+51,407
+(774)
+(17,504)
+(9,079)
+Proceeds from the disposal of properties and equipment
+and other assets
+Loans repaid by joint ventures
+561
+5
+Net cash generated from(used in) investing activities
+13,720
+The notes on pages 174 to 314 form part of these consolidated financial statements.
+167
+2
+(371,603)
+23,105
+Proceeds from non-controlling shareholders
+83
+Repayment of issued debt securities
+Net (decrease) increase in cash and cash equivalents
+Cash and cash equivalents as at 1 January
+Effect of foreign exchange rate changes
+(110,891)
+153,702
+635,843
+471,471
+7,160
+10,670
+Cash and cash equivalents as at 31 December
+50(a)
+532,112
+635,843
+Cash flows from operating activities include:
+Interest received
+169,991
+189,783
+Interest paid
+124,885
+192,906
+(3,996)
+(3,096)
+(5,227)
+Repayment of negotiable interbank certificates of deposits
+(178,580)
+(143,500)
+Repayment of certificates of deposit
+(8,019)
+(28,812)
+Payment for acquiring additional non-controlling equity
+(166)
+(83)
+Dividends paid
+(17,402)
+(16,925)
+Interest paid on issued debt securities
+(12,574)
+Net cash (used in) generated from financing activities
+Annual Improvements to IFRSS 2012-2014 Cycle
+57
+170
+China Merchants Bank
+China Merchants Bank
+Annual Report 2016
+184
+183
+Core deposit
+28years
+Both the periods and method of amortisation are reviewed annually.
+Software and Others
+2~20years
+50years
+Land use right
+The amortization period of intangible assets is as follow:
+Intangible assets are not amortised while their useful lives are assessed to be indefinite. The Group does not have
+intangible assets with useful lives assessed to be indefinite as at 31 December 2016.
+Land use rights are stated at cost, amortised on a straight-line basis over the respective lease periods.
+Intangible assets are stated at cost less accumulated amortisation (only intangible assets with finite useful lives) and
+impairment losses (see Note 2(n)(ii)). Amortisation of intangible assets with finite useful lives is charged to profit or
+loss on a straight-line basis over the assets' estimated useful lives.
+(h) Intangible assets
+On disposal of a CGU during the year, any attributable amount of purchased goodwill is included in the calculation
+of the profit or loss on disposal.
+Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated
+to each CGU, or groups of CGUs, that is expected to benefit from the synergies of the combination and is tested
+annually for impairment (see Note 2(n)(ii)).
+the net fair value of the acquiree's identifiable assets and liabilities measured as at the acquisition date.
+When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain
+purchase.
+(ii)
+(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in
+the acquiree and the fair value of the Group's previously held equity interest in the acquiree; over
+Goodwill represents the excess of
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(i) Financial instruments
+(i)
+Held-to-maturity investments
+Initial recognition and classification (continued)
+(i)
+(i) Financial instruments (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+the separation of the embedded derivative from the financial instrument is not prohibited;
+the asset or liability contains an embedded derivative that significantly modifies the cash flows that would
+otherwise be required under the contract; or
+(g) Goodwill
+the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise;
+Financial instruments are designated as financial assets and financial liabilities at fair value through profit or loss
+upon initial recognition when:
+All derivatives not qualified for hedging purposes are included in this category and are carried as assets when their
+fair value is positive and as liabilities when their fair value is negative;
+Financial assets and financial liabilities at fair value through profit or loss, include those financial assets and
+financial liabilities held principally for the purpose of short term profit taking and those financial assets and
+liabilities that are designated by the Group upon recognition as at fair value through profit or loss.
+The Group classifies its financial instruments into different categories at inception, depending on the purpose for
+which the assets were acquired or the liabilities were incurred. The categories are:
+At initial recognition, all financial assets and liabilities are measured at fair value. In the case of financial assets
+or financial liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the
+acquisition or issue of the financial asset or financial liability unless the fair value of that instrument is evidenced by
+comparison with other observable current market transactions in the same instrument (i.e. without modification or
+repackaging) or based on a valuation technique whose variables include observable market data. Transaction costs of
+financial assets and liabilities at fair value through profit or loss are expensed immediately.
+All financial assets and financial liabilities are recognised in the consolidated statement of financial position when
+and only when, the Group becomes a party to the contractual provisions of the instruments. Financial assets are
+derecognised on the date when the contractual rights to substantially all the risks and rewards of ownership or the
+cash flows expire are transferred.
+All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular
+way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame
+established by regulation or convention in the market place.
+A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or
+equity instrument of another enterprise.
+Initial recognition and classification
+the assets or liabilities are managed, evaluated and reported internally on a fair value basis;
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+When judge whether there is a joint control, the Group usually considers the following cases:
+Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
+about the relevant activities require the unanimous consent of the parties sharing control.
+A joint venture is an arrangement in which the Group has joint control, where by the Group has rights to the net
+assets of the arrangement, rather than rights to its assets and obligation for its liabilities.
+(e) Joint ventures
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+Non-controlling interests that represent ownership interests in the acquiree, and entitle their holders to a
+proportionate share of the entity's net assets in the event of liquidation are accounted for at either fair value or the
+non-controlling interests' proportionate share in the recognized amounts of the acquire's identifiable net assets. The
+choice of measurement basis is made on a transaction-by-transaction basis.
+Goodwill is measured as the excess of the difference between (i) the consideration transferred, the fair value of
+any non-controlling interests in the acquiree, and the fair value of the Group's previously held equity interest in
+the acquiree (if any) and (ii) the net fair value of the identifiable assets acquired and the liabilities and contingent
+liabilities incurred or assumed.
+whether any party within the joint arrangement cannot control the relevant activities of the joint ventures;
+At the acquisition date, irrespective of non-controlling interests, the identifiable assets acquired and liabilities and
+contingent liabilities assumed are recognized at their fair values; except that deferred tax assets or liabilities, and
+assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS
+12- Income Taxes and IAS 19 -Employee Benefits, respectively.
+Business combination
+When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary,
+with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at
+the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial
+recognition of a financial asset (see Note 2(i)) or, when appropriate, the cost on initial recognition of an investment
+in a joint venture (see Note 2(e)) or, an associate (see Note 2(f)).
+An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control
+commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised
+profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements.
+Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Bank, and
+in respect of which the Group has not agreed any additional terms with the holders of those interests which would
+result in the group as a whole having a contractual obligation in respect of those interests that meets the definition
+of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests
+either at fair value or at their proportionate share of the subsidiary's identifiable net assets. Non-controlling interests
+are presented in the consolidated statement of financial position and consolidated statement of changes in equity
+within equity, separately from equity attributable to the shareholders of the Bank. Non-controlling interests in the
+results of the Group are presented on the face of the consolidated statement of profit or loss and the consolidated
+statement of profit or loss and other comprehensive income as an allocation of the net profit or loss and total
+comprehensive income for the year between non-controlling interests and the equity shareholders of the Bank.
+Changes in the Group's interests in a subsidiary that do not result in a loss of control are accounted for as equity
+transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within
+consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain
+or loss is recognised.
+Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to
+variable returns from its involvement with the entity and has the ability to affect those returns through its power
+over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other
+parties) are considered.
+(d) Subsidiaries and non-controlling interests and business combination
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+180
+Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
+business combination is measured at fair value, which is calculated as the sum of the acquisition date fair value of
+the assets transferred by the Group, liabilities incurred or assumed by the Group, and any equity interests issued by
+the Group. Acquisition related costs are recognized in the consolidated income statement as incurred.
+Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable
+payments that the Group has the positive intent and ability to hold to maturity;
+whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
+parties sharing control.
+ventures.
+When the Group ceases to have significant influence over an associate entity, it is accounted for as a disposal of the
+entire interest in that investee, with a resulting gain or loss being recognised in the consolidated statement of profit
+or loss, previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that
+former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded
+as the fair value on initial recognition of a financial asset (see Note 2(i)).
+Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the
+extent of the Group's interest in the associates, except where unrealised losses provide evidence of an impairment of
+the asset transferred, in which case they are recognised immediately in profit or loss.
+When the Group's share of losses exceeds its interest in the associates, the Group's interest is reduced to nil and
+recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive
+obligations or made payments on behalf of the associates. For these purposes, the Group's interest in the associates
+is the carrying amount of the investment under equity method together with the Group's interests that in substance
+form part of the Group's net investment in the associates.
+Investment in associates is accounted for in the consolidated financial statements under the equity method. Under
+the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of
+the acquisition-date fair value of the investee's identifiable net assets over the cost of the investment (if any).
+Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the associates' net
+assets. Any excess of the group's share of the net fair value of the identifiable assets and liabilities over the cost
+of the investments, is recognized immediately in profit or loss in the period in which investment is acquired. The
+consolidated statement of profit or loss includes the Group's post-tax results of the associates for the year, including
+any impairment loss on goodwill relating to the investment in the associates recognised for the year (see Notes 2(g)
+and 2(n)(ii)).
+material transactions between the entity and its investee.
+participation in policy-making processes;
+representation on the Board of Directors or equivalent governing body of the investee;
+When judge whether there is a significant influence, the Group usually considers the following cases:
+Significant influence is the power to participate in the financial and operating policy decisions of the investee but is
+not control or joint control of those policies.
+The consolidated statement of profit or loss includes the Group's share of the results of joint ventures for the
+year and the consolidated statement of financial position includes the Group's share of the net assets of the joint
+Associate is an entity in which the Group has significant influence, but not control, or joint control, over its
+management, including participation in the financial and operating policy decisions.
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+182
+181
+When the Group ceases to have joint control over a joint venture, it is accounted for as a disposal of the entire
+interest in that investee, with a resulting gain or loss being recognised in the consolidated statement of profit or
+loss, previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that
+former investee at the date when joint control is lost is recognised at fair value and this amount is regarded as the
+fair value on initial recognition of a financial asset (see Note 2(i)).
+Unrealised profits and losses resulting from transactions between the Group and its joint ventures are eliminated
+to the extent of the Group's interest in the joint ventures, except where unrealised losses provide evidence of an
+impairment of the asset transferred, in which case they are recognised immediately in profit or loss.
+When the Group's share of losses exceeds its interest in the joint ventures, the Group's interest is reduced to nil and
+recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive
+obligations or made payments on behalf of the joint ventures. For these purposes, the Group's interest in the joint
+ventures is the carrying amount of the investment under equity method together with the Group's interests that in
+substance form part of the Group's net investment in the joint ventures.
+Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share
+of the acquisition-date fair value of the investee's identifiable net assets over the cost of the investment (if any).
+Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the joint ventures' net
+assets. Any excess of the group's share of the net fair value of the identifiable assets and liabilities over the cost
+of the investments, is recognized immediately in profit or loss in the period in which investment is acquired. The
+consolidated statement of profit or loss includes post-tax results of the joint ventures for the year, including any
+impairment loss on goodwill relating to the investment in the joint ventures recognised for the year (see Notes 2(g)
+and 2(n)(ii)).
+Interests in the joint ventures are accounted for using the equity method. They are initially recognised at cost,
+which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the
+Group's share of the profit or loss and other comprehensive income of the joint ventures, until the date on which
+significant influence or joint control ceases.
+(f) Associates
+Loans and receivables
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+Available-for-sale financial assets
+assets.
+when the Group neither transfers nor retains substantially all the risks and rewards of ownership of the
+financial assets, the Group would determine whether it has retained control of the financial assets. If the
+Group has not retained control, it shall derecognise the financial assets and recognise separately as assets
+or liabilities any rights and obligations created or retained in the transfer. If the Group has retained control,
+it shall continue to recognise the financial assets to the extent of its continuing involvement in the financial
+when the Group retains substantially all the risks and rewards of ownership of the financial assets, the Group
+shall continue to recognise the financial assets; and
+when the Group transfers substantially all the risks and rewards of ownership of the financial assets, the
+Group shall derecognise the financial assets;
+When applying the policies on securitised financial assets, the Group has considered both the degree of transfer
+of risks and rewards on the transferred financial assets and the degree of control exercised by the Group over the
+transferred financial assets:
+The Group securitises various credit assets, which generally results in the sale of these assets to special purpose
+entities, which, in turn issue securities to investors. Interests in the securitised financial assets may be retained in the
+form of senior or junior tranches, or other residual interests (retained interests). Retained interests are stated at fair
+value on the consolidated statement of financial position of the Group. Gains or losses on securitisation depend on
+the carrying amount of the transferred financial assets, allocated between the financial assets derecognised and the
+retained interests based on their relative fair value at the date of the transfer. Gains or losses on securitisation are
+recorded in "other net income".
+Securitisations
+Separated embedded derivatives are measured at fair value, with all changes in fair value recognised in profit or
+loss unless they form part of a qualifying cash flow or net investment hedging relationship. Separated embedded
+derivatives are presented in the statement of financial position together with the host contract.
+the economic characteristics and risks of the embedded derivative are not closely related to the economic
+characteristics and risks of the host contract.
+(vii) Equity instrument
+the terms of the embedded derivative would meet the definition of a derivative if they were contained in a
+separate contract; and
+Derivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an
+embedded derivative separately from the host contract when:
+(vi)
+Embedded derivatives
+(v)
+(i) Financial instruments (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+188
+the host contract is not itself carried at fair value through profit or loss;
+187
+The consideration received from the issuance of equity instruments net of transaction costs is recognised in
+shareholders' equity. Consideration and transaction costs paid by the Group for repurchasing self-issued equity
+instruments are deducted from shareholders' equity.
+XI Financial Statements
+189
+Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
+quoted in an active market;
+Where the Group has transferred its rights to receive cash flows from an asset or has retained its rights
+to receive cash flows from the asset but has entered into a pass-through arrangement, and has neither
+transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the
+asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing
+involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
+original carrying amount of the asset and the maximum amount of consideration that the Group could be
+required to repay.
+The Group has transferred its rights to receive cash flows from the asset; or has retained its rights to
+receive cash flows from the asset but has assumed an obligation to pay them in full without material
+delay to a third party under a "pass-through" arrangement; and either the Group has transferred
+substantially all the risks and rewards of ownership of the financial asset; or the Group has neither
+transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but
+has transferred control of the asset.
+The rights to receive cash flows from the asset have expired; or
+•
+A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
+is derecognised when:
+Financial Assets
+(a)
+China Merchants Bank
+Annual Report 2016
+Derecognition of financial assets and liabilities
+If the financial instrument will or may be settled in the Group's own equity instruments, it is a non-derivative
+instrument that includes no contractual obligations for the Group to deliver a variable number of its own
+equity instruments; or a derivative that will be settled only by the Group exchanging a fixed amount of cash
+or another financial asset for a fixed number of its own equity instruments.
+The financial instrument includes no contractual obligation to deliver cash or another financial asset to
+another entity, or to exchange financial assets or financial liabilities with another entity under conditions that
+are potentially unfavorable to the Group; and
+(ii)
+(i)
+A financial instrument is an equity instrument if, and only if, both conditions (i) and (ii) below are met:
+At initial recognition, the Group classifies the perpetual bonds issued or their components as financial liabilities or
+equity instruments based on their contractual terms and their economic substance after considering the definition of
+financial liabilities and equity instruments.
+(ix)
+(i) Financial instruments (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+Perpetual bonds issued that should be classified as equity instruments are recognised in equity based on the actual
+amount received. Any distribution of dividends or interests during the instruments' duration is treated as profit
+appropriation. When the perpetual bonds are redeemed, the redemption price is charged to equity.
+Derivative financial instruments are stated at fair value, with gains and losses arising recognised in the consolidated
+statement of profit or loss other than cash flow hedge, for cash flow hedge, the gains and losses arising from the
+effective hedging part recognised in other comprehensive income.
+(viii) Perpetual bonds
+Derivative financial instruments
+For cash flow hedge of a recognised asset or liability, the associated cumulative gain or loss is reclassified from equity
+to the consolidated statement of profit or loss in the same periods during which the hedged cash flow affect profit
+and loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
+accounting, any cumulative gain or loss at that time remains in equity until the forecast transaction is ultimately
+recognised in the consolidated statements of profit or loss. When a forecast transaction is no longer expected to
+occur, the cumulative gain or loss that was recognised in other comprehensive income is immediately reclassified to
+the consolidated statement of profit or loss.
+The effective portions of changes in the fair value of derivatives that are designated and qualified as cash flow
+hedge are recognised in other comprehensive income and accumulated separately in equity. Any gain or loss relating
+to an ineffective portion is recognised immediately in the consolidated statement of profit or loss within "trading
+profits" of "other net income".
+Cash flow hedge
+It is the Group's policy to document, at the inception of a hedging relationship, the relationship between the
+hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the
+hedge. Such policies also require documentation of the assessment, both at hedge inception and on an ongoing
+basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in
+cash flows of hedged items attributable to the hedged risks.
+The Group designates certain derivatives as hedging instruments of highly probable future cash flows attributable
+to a recognised asset or liability, or a forecast transaction ("cash flow hedge"). Hedge accounting is applied to
+derivatives designated as hedging instruments in cash flow hedge provided certain criteria are met.
+Hedge accounting
+(ii)
+(i) Financial instruments (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+Hedge effectiveness testing
+China Merchants Bank
+Annual Report 2016
+185
+For financial assets and liabilities measured at amortised cost, a gain or loss is recognised in the consolidated
+statement of profit or loss when the financial asset or liability is derecognised, impaired or amortised.
+Subsequent to initial recognition, available-for-sale financial assets are measured at fair value and changes
+therein, other than impairment losses and foreign currency differences on debt instruments, are recognised in
+other comprehensive income and accumulated in the fair value reserve. When these assets are derecognised,
+the gain or loss accumulated in equity is reclassified to profit or loss.
+Financial assets at fair value through profit or loss are measured at fair value and changes therein, including
+any interest or dividend income, are recognised in profit or loss.
+Subsequent to initial recognition, financial assets and financial liabilities are measured at fair value, without
+any deduction for transaction costs that may occur on sale or other disposal except for loans and receivables,
+held-to-maturity investments and financial liabilities not at fair value through profit or loss, which are
+measured at amortised cost using the effective interest method.
+Financial liabilities other than those at fair value through profit or loss, are measured at amortised cost using
+the effective interest method.
+The Group's derivative financial instruments mainly include forward, foreign currency swaps, interest rate swaps and
+option contracts undertaken in response to customers' needs or for the Group's own asset and liability management
+purposes. To hedge against risks arising from derivative transactions undertaken for customers, the Group enters
+into similar derivative contracts with other banks.
+Other financial liabilities
+Available-for-sale financial assets are financial assets that are designated as available-for-sale or are not
+classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity
+investments;
+186
+In order to qualify for hedge accounting, the Group carries out prospective effectiveness testing to demonstrate that
+it expects the hedge to be highly effective at the inception of the hedge and throughout its life. Actual effectiveness
+(retrospective effectiveness) is also demonstrated on an ongoing basis.
+XI Financial Statements
+For prospective effectiveness, the hedging instrument is expected to be highly effective in achieving offsetting
+changes in cash flows attributable to the hedged risk during the period for which the hedge is designated. For
+actual effectiveness, the change in cash flows must offset each other in the range of 80 percent to 125 percent for
+the hedge to be deemed highly effective.
+(iv)
+Loans and advances to customers
+The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The
+method the Group adopts for assessing hedge effectiveness will depend on its risk management strategy.
+Equity investments are accounted for as financial assets at fair value through profit or loss or available-for-sale
+financial assets. Debt investments are classified as financial assets at fair value through profit or loss, held-to-
+maturity investments, debt securities classified as receivables, or available-for-sale financial assets in accordance with
+the Group's holding intention at acquisition.
+Investments
+The difference between the purchase and resale consideration or sale and repurchase consideration is amortised over
+the period of the transaction using the effective interest method and is included in interest income or expense, as
+appropriate
+Amounts for purchase of financial assets under resale agreements are accounted for under "amounts held under
+resale agreements". Amounts from sale of financial assets under repurchase agreements are accounted for under
+"amounts sold under repurchase agreements".
+Loans and advances directly granted by the Group to customers, participation in syndicated loans and finance leases
+receivables are accounted for as loans and advances to customers.
+Banks represent other banks approved by the People's Bank of China ("PBOC") and other authorities. Other
+financial institutions represent finance companies, investment trust companies and leasing companies which
+are registered with and under the supervision of the China Banking Regulatory Commission (the "CBRC") and
+insurance companies, securities firms, and investment fund companies, etc. which are registered with and under the
+supervision of other regulatory authorities. Placements with banks and other financial institutions are accounted for
+as loans and receivables.
+Placements with banks and other financial institutions
+Resale and repurchase agreements
+Cash equivalents
+Specific items
+(iii)
+(i) Financial instruments (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+Derivatives that do not qualify for hedge accounting
+Cash equivalents comprise balances with banks and the central bank, and short-term, highly liquid investments
+that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in
+value, having been within three months of maturity at acquisition.
+All gains and losses from changes in the fair value of derivatives that are managed in conjunction with financial
+instruments designated at fair value and do not qualify for hedge accounting are recognised immediately in the
+consolidated statement of profit or loss. These gains and losses are recognised in "trading profits" of "other net
+income".
+China Merchants Bank
+Annual Report 2016
+11.51
+5,538,949
+5,113,220
+8.33
+Total equity attributable to the Bank's shareholders
+3,571,698
+6.45
+402,350
+Note:
+360,806
+3,802,049
+15.49
+2016
+3,261,681
+8.54
+5,474,978
+5,942,311
++/(-)%
+Changes
+31 December
+2015
+of which: total deposits from customers
+Total liabilities
+of which: total loans and advances to customers
+(in millions of RMB)
+Net operating income is the sum of net interest income, net fee and commission income, other net income as well as share of profits of
+associates and joint ventures.
+Total assets
+2,824,286
+China Merchants Bank
+Annual Report 2016
+percentage point
+Decreased by 0.24
+13
+Net interest income
+31 December
+As percentage of net operating income
+percentage point
+Decreased by 0.27
+2.77
+2.50
+Net interest margin
+percentage point
+2.61
+2.37
+Net interest spread
+the Bank's shareholders
+percentage point
+Decreased by 0.82
+17.09
+16.27
+Return on average equity (after tax) attributable to
+Decreased by 0.04
+1.13
+1.09
+Return on average assets (after tax) attributable to
+the Bank's shareholders
+Profitability indicators
+Changes
+2015
+(restated)
+2016
+(%)
+2.2 Financial Ratios
+Il Summary of Accounting Data and Financial Indicators
+11.46
+In June 2016, the Company was awarded the "Best Asset Custodian Bank in
+China" by The Asset.
+15.95
+2.1 Key Accounting Data and Financial Indicators
+Summary of Accounting Data
+and Financial Indicators
+Annual Report 2016
+Il Summary of Accounting Data and Financial Indicators
+China Merchants Bank
+12
+11
+On 2 December 2016, the Company was awarded the "2016 Outstanding
+Enterprise in Corporate Social Responsibility in China" at the award ceremony
+of the "2016 China Social Responsibility" organised by xinhuanet.com.
+On 26 October 2016, the Company won the "Best Private Bank of China"
+for the 6th consecutive time at the award ceremony of the "2016 Global
+Private Banking" organised by Financial Times.
+In July 2016, the Company was awarded the "Best Cash Management Bank
+in China" for the eleventh time by Asia Money.
+On 6 July 2016, the Company received three awards in the category of the
+"2016 All-Asia Strategy Management Team" from Institutional Investor.
+In particular, the Company ranked first in the "Best Analyst Day" among
+Asian Banks for 2016, while Li Hao, first executive vice president, executive
+director, and chief financial officer, ranked second in both lists of "Best
+CFO" and "Buyers' Choice" for Asian Banks in 2016. The Company was the
+only Bank in the Greater China Region that received the above awards in
+2016.
+On 24 June 2016, the Company was once again the recipient of the "Best
+Charitable Contribution Award for the Year" and "Outstanding Charitable
+Project for the Year" by China Banking Association.
+I Company Information
+China Merchants Bank
+Annual Report 2016
+On 31 May 2016, the Company was awarded the "Best Financial Innovation
+Award" at the award ceremony of the "China Financial Innovation Award in
+2016" organised by The Chinese Banker (a PRC magazine).
+On 27 April 2016, the Company was awarded the "Best Universal Bank for
+Investment Banking in China" and the "Best Bank for Bond Underwriting
+in China" at the award ceremony of "Excellent Investment Bank Award in
+China in 2016" by Securities Times.
+On 16 March 2016, the Company was consecutively awarded the "Best
+Retail Bank in China" and "Best Joint Stock Retail Bank in China" for the
+seventh and twelfth time respectively at the award ceremony of "Excellence
+in Retail Financial Services Award in the Asia Pacific Region for 2016"
+organised by The Asian Banker. On 11 May, the Company was awarded the
+"Best Transaction Bank in China" at the award ceremony of "International
+Transaction Bank Achievement Award in 2016" organised by The Asian
+Banker. On 23 June, the Company was once again the recipient of the "Best
+Wealth Management Business in China" awarded by The Asian Banker.
+In the Top 500 Banking Brands released by The Banker in February 2016, the
+Company ranked 13th worldwide with a brand value of USD13.239 billion,
+up by 12 places from 2015. In the list of global top 1000 banks published by
+The Banker on 30 June, the Company ranked 27th worldwide with its Tier
+1 capital of USD53.535 billion. On 7 December, the Company was awarded
+the "Best Chinese Bank in 2016" by The Banker for the first time.
+In February 2016, the Company was named the "Best Private Bank in
+China", the "Best Ultra-high Net Worth Customer Service" and the "Best
+International Customer Service" by Euromoney.
+On 11 January 2016, the Company's Concept Branch of Future Banking
+was awarded the "Best Space Design Award in Finance" at the award
+ceremony of the "21st Century Golden Stone" jointly organised by 21st
+Century Business Review and Continuum (a financial design consultant firm).
+The Customer Service of the Direct Banking Center of the Company was
+awarded the "Best Customer Service System Award in Finance".
+In 2016, the Company won a number of honors in the awarding activities organised
+by organisations both at home and abroad, including:
+1.4 Awards and Honors Received in 2016
+I Company Information
+China Merchants Bank
+Annual Report 2016
+10
+Results for the year
+64.01
+Operating Results
+Changes
+(in millions of RMB)
+2016
+7.42
+2.29
+2.46
+7.42
+2.29
+2.46
++/(-)%
+2015
+2016
+Changes
+Volume Indicators
+Basic earnings attributable to the Bank's shareholders
+Diluted earnings attributable to the Bank's shareholders
+Year-end net assets attributable to the Bank's shareholders
+(RMB)
+14.31
+Per Share
+57,696
+62,081
+Net profit attributable to the Bank's shareholders
+5.17
+75,079
+78,963
+Profit before tax
+3.94
+202,302
+210,270
+Net operating income (Note)
++/(-)%
+2015
+7.60
+68.01
+2012
+133,118
+2015
+Changes
+Tier 1 capital adequacy ratio
+10.09
+9.93
+Increased by 0.16
+percentage point
+Capital adequacy ratio
+12.00
+11.91
+Increased by 0.09
+percentage point
+In 2017, the Bank will celebrate its 30th anniversary. At this critical time of the upcoming 30th
+anniversary, the Bank has achieved satisfactory results, laid foundation, strengthened pillars and well-
+prepared itself for future development.
+Firstly, we built our success on retail finance. In 2016, the comprehensive capability of the Bank in
+terms of retail finance further improved, and a number of measures were taken to reinforce the retail
+customer base, and as a result, the number of retail customers and total assets under management
+(AUM) from our retail customers increased by 19.32% and 16.44% respectively as compared with
+the previous year. The Bank continuously optimised its credit structure, the proportion of retail loans
+with low capital consumption to total loans increased to 47.23% (calculated on the Group's statistical
+calibre); the profit contribution from retail finance continued to increase, and the percentage of profit
+before tax from retail business increased to 52.97% (calculated on the Group's statistical calibre) of
+the total profit before tax of business lines. Various indicators in relation to retail business of the Bank
+constantly ranked top among its peers, and our relevant results also received wide recognition from
+the industry, as the Bank has been consecutively awarded the "Best Retail Bank in China" and "Best
+Private Bank in China" by media for many years.
+Secondly, we developed our business based upon sound risk and capital management. In 2016,
+the Group continued to adhere to its risk aversion culture of prudent operation, the "ratio of non-
+performing loans to loans overdue for more than 90 days" was 1.28, and the classification of non-
+performing loans has become more prudent and strict. The Bank constantly enhanced its asset
+portfolio management, and the balance of non-performing loans and the growth rate of non-
+performing loans both declined. The non-performing loan ratio increased by 0.19 percentage point
+as compared with the beginning of the year, representing a year-on-year decrease of 0.38 percentage
+point in terms of growth; and the non-performing loan allowance coverage ratio increased by 1.07
+percentage points against the unfavourable market trend and was kept at a relatively high level of
+180.02%. The capital adequacy ratios remained stable, the capital adequacy ratio and Tier 1 capital
+adequacy ratio at the end of the year both increased as compared with those at the beginning of the
+year, and organic growth of capital has been achieved for three consecutive years.
+Thirdly, the Bank committed sustainable returns to shareholders. Since its listing in 2002, the Bank has
+accumulated cash dividend distribution of approximately RMB100 billion, with cash dividend payment
+ratio consistently higher than 20%, and the payment ratio has been maintained at a level above 30%
+since 2012, thus securing remarkable returns for shareholders. Accordingly, the Bank has received
+extensive recognition from investors in the capital market. In 2016, the market valuation of A Shares
+and H Shares of CMB maintained a leading position among large- and medium-sized listed banks.
+The farsighted strategies of the Bank have played a fundamental role in enabling it to rank always in
+the forefront of the domestic banking sector and continue to create value for its shareholders. The
+Bank has continuously put forward far reaching strategies such as "accelerating the development
+of retail business, intermediary business and SME business" in the "Strategic Transformation",
+and "improving capital efficiency, loan risk pricing, cost efficiency, high-value customers and risk
+control level" in the "Second Transformation", as well as "One Body with Two Wings" and "Light-
+operation Bank", all of which were forward-looking and consistent. In 2016, the Bank adhered to
+its strategic positioning and continued to optimise its business and customer structure. The Bank
+realised relatively rapid profit growth while keeping the expansion of risk assets under control, thus
+remarkably accomplishing the task of "outperforming the market and peers" as required by the Board
+of Directors.
+15
+Li Jianhong
+Chairman
+China Merchants Bank
+Annual Report 2016
+III Chairman's Statement
+Our employees are the core center for value creation. Thanks to the continuous efforts for nearly 30
+years, the Bank has developed a set of "market-oriented and specialised" talent cultivation systems
+and formed an energetic, cohesive and innovative talent team. In 2016, the Bank has seen steady
+improvement in its per-capita performance, and outperformed the operating goal set by the Board of
+Directors despite the tough external business environment.
+2016
+31 December
+31 December
+Capital adequacy indicators under the weighted
+approach (1)
+59,266
+66,159
+Impairment losses on assets
+48,356
+54,144
+61,081
+67,670
+64,900
+210,270
+Net operating income
+Decreased by 4.00
+Sound corporate governance provided strong security for value creation. Starting from its inception,
+the Bank has established a modern corporate governance structure, and has constantly improved and
+enhanced its corporate governance since its listing. In 2016, the Bank held a total of 61 important
+meetings, including shareholders' general meetings, and meetings of the Board of Directors and
+the Board of Supervisors; considered 234 resolutions; listened to or reviewed 60 reports, reinforcing
+management and setting direction for the development of the Bank. The shareholders' general
+meeting, the Board of Directors, the Board of Supervisors and the senior management have fully
+performed their respective roles in supporting and monitoring the work of each other with mutual
+trust, giving full play to the advantages of the modern corporate governance mechanism of the Bank.
+In 2017, the banking sector will continue to confront with tough business environment. With
+deepening of the supply-side structural reform, the initiatives of "Three Cuts, One Reduction and
+One Reinforcement" (i.e. cutting overcapacity, inventory level and leverage ratio, reducing costs
+and reinforcing weak growth areas) will be gradually rolled out, financial regulation will become
+more cautious and comprehensive, and competition from the banking sector and other sectors
+will further intensify. How can the Bank maintain its leading position and continue to create value
+for its shareholders in such volatile and complicated external business environment? The answer is
+"innovation-driven development" which has been proven by the Bank in the course of development
+over the past 29 years.
+percentage points
+35.99
+166,525
+31.99
+Increased by 4.00
+percentage points
+Cost-to-income ratio (excluding taxes and surcharges)
+27.84
+27.55
+Increased by 0.29
+percentage point
+(%)
+- Net non-interest income
+The Bank will continuously increase investments in innovation to embrace the opportunities brought
+about by Fintech, thus taking the lead in the Fintech-dominated reform of the banking sector. The
+Bank will be able to offer more convenient services to its customers, provide more effective tools for
+risk management and save more costs for the Bank with the latest technology.
+The Bank will enhance product and business innovation. It will, on the premise of compliance, fully
+utilise Fintech to make major breakthroughs in the development of new key products and featured
+business by always focusing on meeting customers' needs, improving customers' experience and
+increasing customers' value.
+The Bank will promote the innovation of business models. By taking into consideration a series of
+crucial factors, including Fintech application, customer segmentation, customer positioning, business
+process, product service, income source, cost structure, cooperating partners and resources capability,
+it will take an overall approach to design and forge a value chain and ecological circle, so as to
+achieve win-win cooperation.
+14
+The Group has re-classified the income and expense from leasing of precious metal from net non-interest income to net interest income
+since 2016. The relevant financial indicators have been restated.
+(4)
+(3) Allowance ratio of loans = allowances for impairment losses/total loans and advances to customers.
+(2) Allowance coverage ratio of non-performing loans = allowances for impairment losses/balance of non-performing loans.
+Notes: (1) As at 31 December 2016, calculated in accordance with the advanced measurement approach set out in the "Capital Rules for
+Commercial Banks (Provisional)" issued by the CBRC in June 2012, the Group's capital adequacy ratio and Tier 1 capital adequacy ratio
+were 13.33% and 11.54%, respectively, up by 1.33 percentage points and 1.45 percentage points respectively as compared with those
+calculated in accordance with the weighted approach.
+percentage point
+Increased by 0.37
+3.00
+3.37
+Allowance ratio of loans (3)
+China Merchants Bank
+Annual Report 2016
+percentage points
+178.95
+180.02
+Allowance coverage ratio of non-performing loans (2)
+Increased by 0.19
+1.68
+1.87
+Non-performing loan ratio
+Asset quality indicators
+percentage point
+Increased by 0.18
+6.61
+percentage point
+Increased by 1.07
+In 1987, China Merchants Bank, the first domestic joint stock commercial bank entirely held by
+enterprise legal persons in China, was established in Shekou. After nearly 30 years of development,
+the Bank has become a nationwide joint stock commercial bank with sizeable domestic market
+influence and is listed on both the Shanghai Stock Exchange and the Hong Kong Stock Exchange.
+In the list of Global Top 1000 Banks published by The Banker (a British magazine) in 2016, the Bank
+ranked 27th worldwide; and in the list of Fortune Global Top 500 Companies released by Fortune in
+2016, the Company ranked 189th. As at the end of 2016, the Group realised a net profit attributable
+to shareholders of the Bank of RMB62.081 billion, representing a year-on-year increase of 7.60%.
+Return on average equity (ROAE) and return on average asset (ROAA) attributable to shareholders
+of the Bank were 16.27% and 1.09%, respectively. The Bank has provided a wide range of banking
+and non-banking financial services for nearly 60,000 large- and medium-sized enterprises, more than
+1,180,000 small-sized enterprises, 91,060,000 retail customers and approximately 60,000 private
+banking customers in nearly 140 cities and regions across the world.
+Il Summary of Accounting Data and Financial Indicators
+(in millions of RMB)
+The Bank will constantly explore the innovation of its mechanisms and systems. It will continue to
+uphold the market-oriented approach, continue the experiment on promoting the employee long-
+term incentives mechanism, transform the innovation of mechanisms and systems into market
+competitiveness, and foster a good working environment with the people-centric concept.
+In 2017, the business environment will remain tough and challenging. However, I believe that,
+with strong support from all shareholders, the Bank will increase its effort in innovation to realise
+innovation-driven development, maintain the excellent operating results of "outperforming the market
+and peers", create more value for its employees, customers, shareholders, the society and various
+stakeholders, and present an admirable gift for celebrating the 30th anniversary of the Bank and the
+145th anniversary of China Merchants Group.
+China Merchants Bank Co., Ltd.
+Chairman
+李电化
+17
+18
+China Merchants Bank
+IV President's Statement
+Annual Report 2016
+President's Statement
+2.3 Five-year Financial Summary
+The Bank will be celebrating its 30th anniversary in 2017. Over the years, the Bank
+has stayed in top gear on its way towards business transformation, starting from
+the "first transformation" 12 years ago when we took a bold step to go for retail
+banking, followed by the "second transformation" 7 years ago where we kicked
+off organic growth, to the confirmation of a "Light-operation Bank" 3 years ago
+as the goal of the deepened "second transformation". Our inborn "Shekou gene"
+is a tribute to the exciting era in which China launched its reform and opening-
+up policy, and in the course of our business development, we have adhered to the
+service concept of "We are here just for you", and we are very grateful to this great
+and ever-changing era.
+As at the end of 2016, the Bank had RMB5.94 trillion in total assets (calculated on
+the Group's statistical calibre) with a growth rate of 8.54%. Despite the slowdown
+in asset expansion, we managed to maintain strong profitability. In 2016, our net
+operating income amounted to RMB210.270 billion (calculated on the Group's
+statistical calibre), representing a year-on-year growth of 3.94%. After making
+full provisions, our net profit amounted to RMB62.380 billion (calculated on the
+Group's statistical calibre), representing a year-on-year growth of 7.52%, leading
+the banking industry in terms of growth rate. Our return on average asset (ROAA)
+and return on average equity (ROAE) attributable to shareholders of the Bank were
+1.09% and 16.27%, respectively, ranking in the forefront of listed banks.
+We proactively decelerated asset expansion by shifting our focus away from sheer
+"asset scale" and "growth rate", and placed more attention on operation efficiency
+and quality development. While the ranking of banks in terms of business scale
+remains a hot topic, we have changed our mindset, and resolved to stride towards
+a "Light-operation Bank" with determination. We hope that we will become less
+vulnerable to the "cyclical impact" of this industry. This demonstrates our courage,
+attitude and pursuit.
+The "Light-operation Bank" model has not only relieved us from the "scale-driven"
+pattern, but also improved our organic growth of capital. As at the end of 2016,
+the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group
+under the weighted approach were 12.00% and 10.09%, respectively, representing
+an increase of 0.09 percentage point and 0.16 percentage point respectively
+as compared with those at the end of the previous year. Even without the
+replenishment of external capital, the Bank managed to replenish its capital through
+its own profitability, and the capital adequacy ratio has kept improving over the
+past few years.
+Tian Huiyu
+President
+Operating expenses
+113,818
+2013
+2014
+2015
+2016
+With the Chinese economy entering into the "New Normal", coupled with the
+combined adverse impact of the four distinctive factors of the Chinese economy,
+namely "slowdown in macroeconomic growth rate, financial disintermediation,
+interest rate liberalisation and impact from internet finance, the banking industry
+is currently trudging through the "Historic Three-Gorges". Based on our trials
+over the past years, we are confident that the transformation towards the "Light-
+operation Bank" and the strategic positioning of "One Body with Two Wings" are
+the most suitable comprehensive countermeasures we need to confront challenges
+and survive hard times.
+31,681
+10,218
+5,583
+30.42
+27.55
+27.84
+surcharges)
+24.78
+22.22
+19.28
+17.09
+16.27
+attributable to the Bank's shareholders
+Cost-to-income ratio (excluding taxes and
+Return on average equity (after tax)
+34.23
+1.46
+1.28
+1.13
+1.09
+attributable to the Bank's shareholders
+Return on average assets (after tax)
+Key financial ratios
+(%)
+1,863,325
+3,408,099
+4,016,399
+2,148,330
+3,802,049 3,571,698 3,304,438 2,775,276 2,532,444
+5,942,311 5,474,978 4,731,829
+3,151,649 2,739,444 2,448,754
+1.39
+Net loans and advances to customers (note)
+35.85
+1.87
+202,302
+Chairman's Statement
+Annual Report 2016
+III Chairman's Statement
+China Merchants Bank
+Note: Net loans and advances to customers represent gross loans and advances to customers less allowances for loan impairment losses.
+11.41
+11.14
+11.74
+11.91
+12.00
+Non-performing loan ratio
+the weighted approach
+8.34
+9.27
+9.60
+9.93
+10.09
+the weighted approach
+Tier 1 capital adequacy ratio under
+0.61
+0.83
+1.11
+1.68
+Capital adequacy ratio under
+6.79
+Total assets
+21,577
+200,401
+3,207,698
+2.46
+the Bank's shareholders
+Basic earnings attributable to
+0.63
+0.62
+0.67
+0.69
+0.74
+Dividend
+Per share
+(RMB)
+2.29
+45,268
+55,911
+57,696
+62,081
+the Bank's shareholders
+Net profit attributable to
+59,558
+68,425
+73,431
+75,079
+78,963
+Profit before tax
+51,743
+Deposits from customers
+2.22
+2.10
+25,220
+265,956
+3,750,443
+25,220
+315,060
+4,416,769
+25,220
+361,758
+5,113,220
+5,538,949
+Total liabilities
+25,220
+403,362
+Total shareholders' equity
+Share capital
+Year end
+(in millions of RMB)
+9.28
+2.30
+10.53
+14.31
+15.95
+the Bank's shareholders
+Year-end net assets attributable to
+2.10
+2.30
+2.22
+2.29
+2.46
+the Bank's shareholders
+Diluted earnings attributable to
+12.47
+Equity to total assets
+XI Financial Statements
+Construction in progress represents property under construction and is stated at cost less impairment losses. Cost
+comprises the direct and indirect cost of construction. Construction in progress is transferred to an appropriate class
+of property or other asset when the asset is ready for its intended use. No depreciation is provided for construction
+in progress.
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+190
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(i) Financial instruments (continued)
+(ix)
+(b)
+(c)
+Securitisation
+As part of its operational activities, the Group securitises financial assets, generally through the sale of
+these assets to structured entities which issue securities to investors. Further details on prerequisites for
+derecognition of financial assets are set out above. When a securitisation of financial assets does not qualify
+for derecognition, the relevant financial assets are not derecognised, and the consideration paid by third
+parties are recorded as a financial liability.
+Sales of assets on condition of repurchase
+The derecognition of financial assets sold on condition of repurchase is determined by the economic
+substance of the transaction. If a financial asset is sold under an agreement to repurchase the same or
+substantially the same asset at a fixed price or at the sale price plus a reasonable return, the Group will not
+derecognise the asset. If a financial asset is sold together with an option to repurchase the financial asset
+at its fair value at the time of repurchase (in case of transferor sells such financial asset), the Group will
+derecognise the financial asset.
+(i)
+China Merchants Bank
+Annual Report 2016
+(d)
+Property, equipment and investment property, are stated at cost or deemed cost less accumulated depreciations and
+impairment losses. These also include land held under operating leases and buildings thereon, where the fair value
+of the leasehold interest in the land and buildings cannot be measured separately at the inception of the lease and
+the building is not clearly held under an operating lease.
+Depreciation is calculated to write off the cost of property, equipment and investment property over their following
+estimated useful lives, after taking into account an estimated residual value on a straight-line basis:
+Buildings
+Investment properties
+Computer equipment
+Motor vehicles and others
+Leasehold improvements (leasing property)
+Leasehold improvements (self-owned property)
+20 years
+20 years
+3 years
+3 - 5 years
+3 years
+the estimated useful lives
+Financial liabilities
+Derecognition of financial assets and liabilities (continued)
+A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
+Property, equipment, investment property and depreciation
+For the purposes of these consolidated financial statements, parties are considered to be related to the Group if
+the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in
+making financial and operating decisions, or vice versa, or where the Group and the party are subject to common
+control or common significant influence. Related parties may be individuals (being members of key management
+personnel, significant shareholders and/or their close family members) or other entities and include entities which
+are under the significant influence of related parties of the Group where those parties are individuals, and post-
+employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related
+party of the Group.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(n) Impairment (continued)
+(ii)
+Other assets (continued)
+Recognition of impairment losses
+An impairment loss is recognised in the consolidated statement of profit or loss whenever the carrying
+amount of an asset, or the cash-generating unit to which it belongs exceeds its recoverable amount.
+Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
+amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the
+carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the
+carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use,
+if determinable.
+Reversal of impairment losses
+Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised
+estimate of its recoverable amount, but the increased carrying amount should not exceed the carrying
+amount that would have been determined had no impairment loss been recognized for the asset in prior
+years. A reversal of an impairment loss is recognized in profit or loss immediately.
+(o) Precious metals
+Precious metals that are not related to the Group's trading activities are initially measured at acquisition cost and
+subsequently measured at the lower of cost and net realizable value. Precious metals that are related to the Group's
+trading activities are initially recognized at fair value, with changes in fair value arising from re-measurement
+recognized directly in the consolidated statement of profit or loss in the period in which they arise.
+(p) Financial guarantee issued, provisions and contingent liabilities
+(i)
+Financial guarantees issued
+(ii)
+Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to
+reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails
+to make payment when due in accordance with the terms of a debt instrument.
+Where the Group issues a financial guarantee to customers, the fair value of the guarantee (being the guarantee
+fees received) is initially recognised as deferred income within "other liabilities".
+The deferred income is amortised in the consolidated statement of profit or loss over the term of the guarantee as
+income from financial guarantees issued. In addition, provisions are recognised in accordance with Note 2(n)(ii) and
+when (a) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and
+(b) the amount of that claim on the Group is expected to exceed the amount currently carried in other liabilities in
+respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.
+196
+195
+The recoverable amount of an asset or a cash-generating unit is the greater of its fair value net disposal
+expense and the present value of future cash flow. In assessing value in use, the estimated future cash flows
+are discounted to their present value using a pre-tax discount rate that reflects current market assessments
+of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows
+largely independent of those from other assets, the recoverable amount is determined for the smallest group
+of assets that generates cash inflows independently (i.e. a cash-generating unit).
+If any such indication exists, the asset's recoverable amount is estimated. In addition, for goodwill, intangible assets
+that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is
+estimated by the Group at the end of the reporting period whether or not there is any indication of impairment.
+Calculation of recoverable amount
+Portfolios of homogeneous loans and receivables, held-to-maturity investments are collectively assessed using
+roll rate or historical loss rate methodologies. Overdue period represents the major observable objective
+evidence for impairment.
+Impairment losses are recognised in the consolidated statement of profit or loss.
+If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
+to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.
+The reversal shall not result in a carrying amount of the loans and receivables, held-to-maturity investments that
+exceeds the amortised cost at the date the impairment is reversed had the impairment not been recognised. The
+amount of the reversal is recognised in the consolidated statement of profit or loss.
+When the Group determines that loans and receivables, held-to-maturity investments has no reasonable prospect of
+recovery after the Group has completed all the necessary legal or other proceedings, the loans and receivables, held-
+to-maturity investments is written off against its allowance for impairment losses. Amount recovered from loans and
+receivables, held-to-maturity investments that has been written off will be reversed through the impairment losses
+account in the consolidated statement of profit or loss.
+Loans and advances with renegotiated terms are loans that have been restructured due to deterioration in the
+borrower's financial position and where the Group has made concessions that it would not otherwise consider.
+Renegotiated loans and advances are subject to ongoing monitoring to determine whether they remained as
+impaired or overdue.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(n) Impairment (continued)
+Other provisions and contingent liabilities
+(i)
+(ii)
+Impairment losses on available-for-sale financial assets
+When a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive
+income and there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss
+that had been recognised directly in other comprehensive income is removed from other comprehensive income
+and is recognised in the consolidated statement of profit or loss even though the financial asset has not been
+derecognised.
+The amount of the cumulative loss that is recognised in the consolidated statement of profit or loss is the difference
+between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any
+impairment loss on that asset previously recognised in consolidated statement of profit or loss. For an available-for-
+sale asset that is not carried at fair value as its fair value cannot be reliably measured, such as an unquoted equity
+instrument, the amount of any impairment loss is measured as the difference between the carrying amount of the
+financial asset and the present value of estimated future cash flows discounted at the current market rate of return
+for a similar financial asset.
+If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the
+increases can be objectively related to an event occurring after the impairment loss was recognised in the
+consolidated statement of profit or loss, the impairment loss is reversed, with the amount of the reversal being
+recognised in the consolidated statement of profit or loss.
+Impairment losses recognised in the consolidated statement of profit or loss for an investment in an equity
+instrument classified as available-for-sale are not reversed through the consolidated statement of profit or loss. Any
+subsequent increase in the fair value of these assets is recognised directly in equity.
+Other assets
+The carrying amount of property, equipment and investment property is reviewed periodically in order to assess
+whether the recoverable amount has declined below the carrying amount. When such a decline has occurred,
+the carrying amount is reduced to the recoverable amount. The amount of impairment loss is recognised in the
+consolidated statement of profit or loss. The recoverable amount of an asset is the greater of its fair value less
+disposal expense and present value of future expected cash flow. In assessing value in use, the estimated future cash
+flows are discounted to their present values.
+Internal and external sources of information are reviewed at the end of the reporting period to identify indications
+that other assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no
+longer exists or may have decreased.
+Financial assets (continued)
+Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive
+obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to
+settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are
+stated at the present value of the expenditures expected to settle the obligation.
+Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated
+reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is
+remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or
+more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits
+is remote.
+China Merchants Bank
+Annual Report 2016
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(r)
+Taxation (continued)
+Current tax balances and deferred tax balances, and movements therein, are presented separately from each other
+and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against
+deferred tax liabilities if the Group has the legally enforceable right to set off current tax assets against current tax
+liabilities and the following additional conditions are met:
+in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise
+the asset and settle the liability simultaneously; or
+in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation
+authority on either:
+the same taxable entity; or
+198
+different taxable entities, which, in each future period in which significant amounts of deferred tax
+liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and
+settle the current tax liabilities on a net basis or realise and settle simultaneously.
+In preparing the financial statements of each individual group entity, transactions in currencies other than the
+entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the
+transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated
+at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign
+currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary
+items that are measured in terms of historical cost in a foreign currency are not retranslated.
+199
+Exchange differences on transactions entered into in order to hedge certain foreign currency risks;
+Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is
+neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are
+recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the
+monetary items.
+For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group's
+foreign operations are translated into currency units using exchange rates prevailing at the end of each reporting
+period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates
+fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used.
+Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (and
+attributed to non-controlling interests as appropriate).
+On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that
+operation attributable to the owners of the Bank are reclassified to profit or loss.
+(t) Offsetting
+Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
+position when the Group has a legally enforceable right to set off the recognised amounts and the transactions are
+intended to be settled on a net basis.
+China Merchants Bank
+Annual Report 2016
+(s) Foreign currencies translations
+Homogeneous groups of loans and receivables, held-to-maturity investments
+197
+Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
+the consolidated financial statements and the corresponding tax base used in the computation of taxable profit.
+Deferred tax assets also arise from unused tax losses and unused tax credits. The amount of deferred tax provided is
+based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax
+rates enacted or substantially enacted at the end of the reporting period. Deferred tax assets and liabilities are not
+discounted.
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(q) Income recognition
+(i)
+Interest income
+Interest income is recognised in the consolidated statement of profit or loss on an accruals basis, taking into account
+the effective interest rate of the instrument or an applicable floating rate. Interest income includes the amortisation
+of any discount or premium or other differences between the initial carrying amount of any interest bearing
+instrument and its amount at maturity calculated on an effective interest rate basis.
+When a financial asset or a group of financial assets are impaired, interest income is recognised on the impaired
+financial assets using the rate of interest used to discount future cash flows for the purpose of measuring the related
+impairment loss.
+Interest income and expenses from all financial assets and liabilities that are classified as financial assets at fair value
+through profit or loss are considered to be incidental and are therefore presented together with other net income
+arising from the portfolio. Net income from financial instruments designated at fair value through profit or loss
+and net trading income comprises all gains and losses from changes in fair value (net of accrued coupon) of such
+financial assets and financial liabilities, together with interest income and expense, foreign exchange differences and
+dividend income attributable to those financial instruments.
+(ii)
+A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
+against which the asset can be utilised. Deferred tax assets are reduced by the extent that it is no longer probable
+that the related tax benefit will be realised.
+Fee and commission income
+Fee and commission income is recognised or accrued (for those services that are provided over a specified period of
+time) in the consolidated statement of profit or loss when the corresponding service is provided.
+Dividend income
+Dividend income from listed investments is recognised when the underlying investment is declared ex-
+dividend.
+Where the investments are unlisted, interim dividend income is recognised when declared by the Board of
+Directors of the investees. Final dividend income is recognised only when the amount proposed by the Board
+of Directors of the investees is approved by shareholders at general meetings.
+(iv) Premium income
+Premium income represents gross insurance premium written less reinsurance ceded, as adjusted for unearned
+premium. Gross premiums written are recognised at date of risk inception.
+(r) Taxation
+Current income tax and movements in deferred tax balances are recognised in the consolidated statement of profit
+or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in
+equity.
+Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
+enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
+(iii)
+management's judgement as to whether the current economic and credit conditions are such that
+the actual level of inherent losses is likely to be greater or less than that suggested by historical
+experience.
+Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
+Exchange differences on foreign currency borrowings relating to assets under construction for future productive
+use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on
+those foreign currency borrowings;
+the structure and risk characteristics of the Group's loan portfolio (indicating the borrower's ability to
+repay all loans) and the expected loss of the individual components of the loans and receivables, held-
+to-maturity investments portfolio based primarily on the historical loss experience;
+Impairment losses on initial classification and on subsequent remeasurement are recognised in the consolidated
+statement of profit or loss.
+(I)
+Finance and operating lease
+(i)
+Classification
+Lease is classified into finance and operating lease. A finance lease is a lease that transfers substantially all the risks
+and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease
+is a lease other than a finance lease.
+(ii)
+Finance leases
+(iii)
+Where the Group is a lessor under finance leases, an amount representing the net investment in the lease is included
+in the consolidated statement of financial position as "loans and advances to customers". Unrecognised finance
+income under finance leases are amortised using an effective interest rate method over the lease term. Impairment
+losses are accounted for in accordance with the accounting policy as set out in Note 2(n)(i).
+Operating leases
+Operating lease
+Rental payments under operating leases are recognised as costs or expenses on a straight-line basis over
+the lease term. Contingent rentals are charged to profit or loss in the accounting period in which they are
+incurred.
+Assets leased out under operating leases
+Property, equipment and investment property leased out under operating leases are depreciated in accordance
+with the depreciation policies described in Note 2(j) and if impaired, impairment losses are provided for in
+accordance with the accounting policy described in Note 2(n)(ii). Income derived from operating leases is
+recognised in the consolidated statement of profit or loss using the straight-line method over the lease term.
+If initial direct costs incurred in respect of the assets leased out are material, the costs are initially capitalised
+and subsequently amortised in profit or loss over the lease term on the same basis as the lease income.
+Otherwise, the costs are charged to profit or loss immediately. Contingent lease income is charged to profit
+or loss in the accounting period in which they are incurred.
+191
+192
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+Repossessed assets are measured at fair value at the date of exchange. They are not depreciated or amortised.
+In the recovery of impaired loans and receivables, the Group may take possession of assets held as collateral through
+court proceedings or voluntary delivery of possession by the borrowers. When it is intended to achieve an orderly
+realisation of the impaired assets and the Group is no longer seeking repayment from the borrowers, repossessed
+assets are reported in "other assets".
+(k) Repossessed assets
+Profits or losses on disposal of property, equipment and investment property are determined as the difference
+between the net disposal proceeds and the carrying amount of the property, equipment, investment property and
+are accounted for in the consolidated statement of profit or loss as they arise.
+Related parties
+the emergence period between a loss occurring and that loss being identified and evidenced by the
+establishment of an allowance against the loss on an individual loans and receivables, held-to-maturity
+investments; and
+(v)
+The Group offers equity incentives to its employee, namely H share Appreciation Rights Scheme for the Senior
+Management ("the Scheme"). Cash-settled share-based payments are measured at the fair value of the liabilities
+incurred by the Group, which are determined based on the price of the share. The Group recognises the services
+for the period as related costs or expenses, with a corresponding increase in liability, at an amount equal to the fair
+value of the liability based on the best estimate of the outcome of vesting at the end of each reporting period within
+the vesting period. Until the liability is settled, the Group remeasures the fair value of the liability at each balance
+sheet date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.
+The fair value of the equity incentives is using Black-Scholes model, taking into account the terms and condition
+upon which the equity incentives were granted.
+When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to
+past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains
+and losses on the settlement of a defined benefit plan when the settlement occurs.
+Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan
+assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately
+in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit
+liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the
+beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes
+in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net
+interest expense and other expenses related to defined benefit plans are recognised in personnel expenses in the
+consolidated statement of profit or loss.
+The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit
+credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the
+present value of economic benefits available in the form of any future refunds form the plan or reductions in future
+contributions to the plan. To calculate the present value of economic benefits, considerations in future contributions
+to the plan. To calculate the present value of economic benefits consideration is given to any applicable minimum
+funding requirements.
+The Group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating
+the amount of future benefit that employees have earned in the current and prior periods, discounting that amount
+and deducting the fair value of any plan assets.
+The Group participates in a number of defined contribution retirement benefit schemes managed by different
+provincial governments or independent insurance companies. Obligation for contributions to these schemes are
+jointly borne by the Group and the staff, and contributions paid by the Group are recognised as an expense in the
+consolidated statement of profit or loss as incurred.
+(m) Insurance contracts
+(iii)
+(ii)
+Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
+employees.
+Salaries and staff welfare
+(i)
+(u) Employee benefits
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(j) Property, equipment, investment property and depreciation (continued)
+Subsequent expenditure relating to a property, equipment and investment property is capitalised only when it is
+probable that future economic benefits associated with the property and equipment will flow to the Group. All other
+expenditure is recognised in the consolidated statement of profit or loss as an expense as incurred.
+Post employment benefits
+Insurance contracts classification
+Share-based payment
+Insurance income recognition
+Individually assessed
+Loans and receivables, held-to-maturity investments which are considered individually significant are assessed
+individually for impairment.
+Impairment allowances are made on individually impaired significant loans and receivables, held-to-maturity
+investments when there is objective evidence of impairment that will impact the estimated future cash flows
+of the loans and receivables, held-to-maturity investments. Individually impaired loans and advances are
+graded as substandard or below.
+Impairment allowance of an individually impaired significant loans and receivables, held-to-maturity
+investments is measured as the difference between the loans and receivables, held-to-maturity investments'
+carrying amount and the present value of estimated future cash flows discounted at the loans and
+receivables, held-to-maturity investments' applicable effective interest rate. The carrying amount of the loans
+and receivables, held-to-maturity investments is reduced through the allowance for impairment losses.
+The calculation of the present value of the estimated future cash flows of a collateralised loans and
+receivables, held-to-maturity investments reflects the cash flows that may result from foreclosure less costs
+for obtaining and selling the collateral, whether or not foreclosure is probable.
+193
+194
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+The Group uses two methods of assessing impairment losses on loans and receivables, held-to-maturity investments:
+those assessed individually and those assessed on a collective basis.
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(i)
+Financial assets (continued)
+Impairment losses on loans and receivables, held-to-maturity investments (continued)
+Collectively assessed
+Impairment allowances are calculated on a collective basis for the following:
+Incurred but not yet identified impairment
+for homogeneous groups of loans and receivables, held-to-maturity investments that are not
+individually significant with similar credit risk characteristics.
+Insurance contracts are those contracts under which the Group has accepted significant insurance risk, relative to an
+insured event or occurrence. When necessary, the Group enters into reinsurance contracts to transfer insurance risks
+to reinsurer. A significant insurance risk test is performed at inception of the insurance contracts.
+If no objective evidence of impairment exists for an individually assessed loans and receivables, held-to-
+maturity investments on an individual basis, whether significant or not, the loans and receivables, held-to-
+maturity investments are grouped in a pool of loans with similar credit risk characteristics for the purpose of
+calculating a collective impairment allowance. This allowance covers loans and receivables, held-to-maturity
+investments that are impaired at the end of the reporting period but will not be individually identified as
+such until some time in the future. As soon as information is available that specifically identifies objective
+evidence of impairment on individual loans and receivables, held-to-maturity investments in the pool of loans
+and receivables, held-to-maturity investments, those loans and receivables, held-to-maturity investments are
+removed from the pool. Loans and receivables, held-to-maturity investments that are individually assessed for
+impairment and for which an impairment loss is or continues to be recognised are not included in a collective
+assessment for impairment. The collective assessment allowance is determined after taking into account:
+(n) Impairment (continued)
+Impairment losses on loans and receivables, held-to-maturity investments
+no objective evidence of impairment exists for an individually assessed loans and receivables, held-to-
+maturity investments; and
+a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost;
+other objective evidence indicating there is an impairment of a financial asset.
+Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised
+in respect of loans and receivables and held-to-maturity investments, which are measured at amortised cost, whose
+recovery is considered doubtful but not remote. In this case, the impairment losses are recorded using an allowance
+account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off
+against loans and receivables or held-to-maturity investments directly and any amounts held in the allowance
+account relating to that borrower/investment are reversed. Subsequent recoveries of amounts previously charged
+to the allowance account are reversed against the allowance account. Other changes in the allowance account and
+subsequent recoveries of amounts previously written off directly are recognised in consolidated statement of profit
+or loss.
+Premiums from long-term life insurance contracts are recognized as revenue when due from policyholders. Premiums
+related to short-term non-life insurance contracts are recognized when received at the inception of the policy, as
+unearned insurance premiums in the consolidated statement of financial position, and are amortized on a straight-
+line basis into the consolidated income statement over the term of the policy. When the Group has transferred
+insurance risk through reinsurance contracts, the Group calculates the amount of premium ceded and the reinsurers'
+share of expenses and recognizes them through the consolidated income statement in accordance with the terms of
+the reinsurance contracts.
+Insurance contract liabilities are measured based on a reasonable estimate of the amount of payments that the
+Group will be required to make to fulfil its obligations under the insurance contracts, which represents the difference
+between expected future cash outflows and inflows related to such contracts. A reasonable estimate of expected
+future net cash flows is determined based on information currently available as at the end of the reporting period.
+The Group has considered the impact of time value in the liability calculation for long-term life insurance. The
+Group performs liability adequacy tests based on information currently available, as at the reporting date. Additional
+insurance contract liabilities should be recorded if any deficiency exists.
+(n) Impairment
+(i)
+Financial assets
+Financial assets are assessed at the end of each reporting period to determine whether there is any objective
+evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial
+assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a
+result of one or more events that occurred after the initial recognition of the asset and that event (or events) has
+an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably
+estimated. Objective evidences include:
+significant financial difficulty of the issuer or obligor;
+a breach of contract by the borrower, such as a default or delinquency in interest or principal payments;
+the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting a concession
+to the borrower;
+Insurance contract liabilities
+the disappearance of an active market for that financial asset because of financial difficulties of the issuer;
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+(n) Impairment (continued)
+(i)
+Financial assets (continued)
+significant changes with an adverse effect that have taken place in the technological, market, economic
+or legal environment in which the Group operates, indicating that the cost of the investment in the equity
+instrument may not be recovered by the investor;
+it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
+upon an overall assessment of a group of financial assets, observable data indicates that there is a
+measurable decrease in the estimated future cash flows from the group of financial assets since the initial
+recognition of those assets, although the decrease cannot yet be identified with the individual financial
+assets in the group. Such observable data includes adverse changes in the payment status of borrowers in
+the group, an increase in the unemployment rate in the country or region of the borrowers, a decrease in
+property prices for mortgages in the relevant area, or adverse changes in industry conditions that affect the
+borrowers in the group;
+RMB'000
+RMB'000
+1,771
+4,200
+546
+(i)
+RMB'000
+in kind
+Total
+scheme
+contributions
+bonuses
+fees
+RMB'000
+Service
+Discretionary
+6,517
+Directors'
+RMB'000
+and benefits
+Non-executive directors
+1,417
+The non-executive directors' emoluments shown above were for their services as directors of the Bank.
+Independent non-executive
+Subtotal
+Hong Xiaoyuan
+Fu Gangfeng
+Su Min
+| | | |
+Sun Yueying
+Li Yinquan
+Li Xiaopeng
+Ma Zehua
+Li Jianhong
+The executive directors' emoluments shown above were for their services in connection with the management of the
+affairs of the Bank and the Group.
+11,731
+983
+3,188
+7,560
+5,214
+437
+3,360
+Retirement
+(iii)
+2015
+2,162
+16,631
+3,375
+Total
+The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
+directors or supervisors of the Bank.
+1,885
+208
+1,810
+22,168
+208
+1,602
+1,602
+75
+75
+(i)
+Total
+RMB'000
+directors and supervisors
+RMB'000
+75
+Salaries,
+allowances
+Notes:
+(ii)
+Subtotal
+Li Hao
+Tian Huiyu
+Executive directors
+The emoluments of the Directors and Supervisors during the year are as follows: (continued)
+8. Directors' and supervisors' emoluments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+(i)
+During the reporting period, Zhu Genlin, Liu Zhengxi, Xiong Kai resigned as the Bank's supervisors due to the changes of job assignments.
+In 2015, Guo Xuemeng resigned as the Bank's independent non-executive director due to the change of job assignment, her resignation was
+effective.
+During the reporting period, Ma Zehua resigned as the Bank's vice chairman and non-executive director due to the change of job assignment.
+During the reporting period, Li Yinquan resigned as the Bank's non-executive director due to the change of job assignment.
+During the reporting period, according to the resolutions passed at Worker's Congress of the Bank held at 20 May 2016, Mr. Xu Lizhong was
+newly elected as employee supervisors of the Tenth Session of the board of Supervisors of the Bank.
+During the reporting period, according to the resolutions passed at the 2015 Annual General Meeting of the Bank, Mr. Wen Jianguo and Mr.
+Wu Heng were newly elected as shareholder supervisors of the Tenth Session of the board of Supervisors of the Bank, Mr. Ding Huiping and
+Mr. Han Zirong were newly elected as external supervisors of the Tenth Session of the board of Supervisors of the Bank.
+During the reporting period, the Bank completed the election of board of directors and supervisors. According to the resolutions passed at the
+Bank's the 2015 Annual General Meeting of shareholders, Mr. Xu Lirong, Mr. Zhang Jian, Mr. Wang Daxiong and Mr. Zhang Feng were newly
+elected as non-executive directors of the tenth session of the board of directors of the Bank, and Mr. Wong See Hong was newly elected as
+independent non-executive director of the tenth session of the board of directors of the Bank. The appointment qualifications of Mr. Zhang
+Jian and Mr. Wang Daxiong were approved by the China Banking Regulatory Commission in November 2016. The appointment qualification of
+Mr. Wong See Hong was approved by the China Banking Regulatory Commission in February 2017. The appointment qualifications of Mr. Xu
+Lirong, Mr. Zhang Feng are still subject to approval by the China Banking Regulatory Commission. Mr. Xu Lirong was elected as vice chairman
+at the first meeting of the tenth session of the board of directors of the Bank, but his qualification for serving as vice chairman is still subject
+to approval by the China Banking Regulatory Commission.
+As at 31 December 2016, the Group has offered 9 phases of H share appreciation rights scheme to its senior management ("the Scheme"). In
+2016, none of the granted share appreciation rights was exercised. Details of the Scheme are set out in Note 38(a)(iii).
+The total remuneration before tax for the full-time directors, supervisors and executive officers of the Group is not yet finalised. Details of their
+remaining compensation will be disclosed separately when their total remuneration is confirmed.
+(iv)
+In 2015, Pan Ji, Dong Xiande resigned as the Bank's external supervisor due to the changes of job assignments, their resignations were
+effective.
+Wong Kwai Lam
+2,247
+Liang Jinsong
+Subtotal
+An Luming (iv)
+Yu Yong (iv)
+Xiao Yuhuai (iv)
+Xu Shanda (iv)
+Zhang Guanghua (iv)
+directors and supervisors
+Former Executive, non-executive
+The emoluments of the Directors and Supervisors during the year are as follows: (continued)
+8. Directors' and supervisors' emoluments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+208
+207
+The independent non-executive directors' and supervisors' emoluments shown above were for their services as
+directors or supervisors of the Bank.
+12,190
+914
+Directors'
+fees
+RMB'000
+||||
+2015
+and benefits Discretionary
+scheme
+bonuses contributions
+RMB'000
+358
+2,606
+218
+708
+1,680
+(i)
+Total
+RMB'000
+1,904
+RMB'000
+RMB'000
+scheme
+contributions
+bonuses
+in kind
+Discretionary
+and benefits
+Retirement
+Salaries,
+allowances
+RMB'000
+219
+258
+300
+3,360
+Liu Yuan
+275
+275
+Zhao Jun
+300
+300
+Guo Xuemeng (iv)
+1,417
+300
+275
+300
+||||
+300
+Pan Yingli
+300
+Pan Chengwei
+275
+300
+300
+437
+Zhu Genlin
+400
+375
+1,417
+7,034
+1,685
+1,989
+300
+400
+5,214
+375
+Subtotal
+Huang Dan
+Xiong Kai
+Jin Qingjun
+Dong Xiande (iv)
+Pan Ji (iv)
+Liu Zhengxi
+Fu Junyuan (iii & iv)
+2,825
+RMB'000
+Rental expenses
+in kind
+17,195
+26,946
+Amounts sold under repurchase agreements
+2,973
+2,150
+Debt securities issued
+9,925
+7,150
+Deposits and placements from banks and other financial institutions
+Interest expense on financial liabilities that are not
+80,886
+98,390
+5. Fee and commission income
+2016
+2015
+(Restated)
+Bank cards fees
+11,083
+at fair value through profit or loss
+1,696
+4,793
+Borrowing from central bank
+4,736
+11,709
+Investments
+45,721
+48,173
+Interest income on financial assets that are not at fair value
+through profit or loss
+215,481
+235,976
+Note:
+For the year ended 31 December 2016, included in the above is interest income of RMB1,001 million accrued on impaired loans (2015:
+RMB1,137 million) and nil for impaired debt securities investments (2015: Nil).
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+4. Interest expense
+2016
+2015
+(Restated)
+Deposits from customers
+46,000
+60,448
+9,562
+Amounts held under resale agreements
+Remittance and settlement fees
+3,832
+(Loss)/profit from fair value change
+(2,511)
+1,316
+- financial instruments held for trading
+(882)
+686
+- financial instruments designated at fair value through profit or loss
+(103)
+(Restated)
+22
+(873)
+412
+- precious metals
+(653)
+196
+Investment income/(loss)
+11,632
+6,544
+- derivatives instruments
+2015
+2016
+6. Other net income
+Agency services fees
+13,121
+13,549
+Commissions from credit commitment and lending business
+4,038
+4,215
+Commissions on trust and fiduciary activities
+23,358
+17,545
+Others
+7,877
+8,397
+Total
+66,003
+57,100
+203
+204
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+6,526
+6,521
+5,618
+Balances and placements with banks and other financial institutions
+In determining the carrying amounts of some assets and liabilities, the Group makes assumptions for the effects
+of uncertain future events on the assets and liabilities at the end of the reporting period. These estimates involve
+assumptions about cash flows and the discount rates used. The Group's estimates and assumptions are based on
+historical experience and expectations of future events and are reviewed periodically. In addition to the assumptions
+and estimations of future events, judgements are also made during the process of applying the Group's accounting
+policies.
+(ii)
+(i)
+Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
+(z) Significant accounting estimates and judgements
+(y) Dividends or profit distributions
+The Group acts in a fiduciary capacity in entrusted loan and entrusted investment business. Assets held by the Group
+and the related undertakings to return such assets to customers are excluded from the consolidated statement of
+financial position as the risks and rewards of the assets reside with the customers.
+(x) Fiduciary activities
+Individually material operating segments are not aggregated for financial reporting purposes unless the segments
+have similar economic characteristics and are similar in respect of the nature of products and services, the nature
+of production processes, the type or class of customers, the methods used to distribute the products or provide the
+services, and the nature of the regulatory environment. Operating segments which are not individually material may
+be aggregated if they meet most of these criteria.
+Impairment losses on loans and advances to customers, debt securities classified as receivables and held-to-
+maturity investments
+Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are
+identified from the financial information provided regularly to the Group's most senior executive management for
+the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and
+geographical locations.
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+200
+47
+405
+265
+3,011
+(w) Segmental reporting
+The Group reviews losses on loans and advances to customers, debt securities classified as receivables and
+held-to-maturity investments on a regular basis to assess whether they are impaired and to assess the specific
+amount of impairment losses in the event of impairment. Impairment of objective evidence includes observable data
+showing a significant decline in estimated future cash flows from loans and advances to customers, debt securities
+classified as receivables and held-to-maturity investments, showing that borrowers repayment of the negative
+changes in the observable information, or national or regional economic conditions change caused by portfolio
+losses on loans and advances to customers, debt securities classified as receivables and held-to-maturity investments
+and loans and advances to customers, debt securities classified as receivables and held-to-maturity investments
+defaults and other matters. Loans and advances to customers, debt securities classified as receivables and held-to-
+maturity investments impairment losses assessed individually are the net decrease in the present value of estimated
+future cash flows. When loans and advances to customers, debt securities classified as receivables and held-to-
+maturity investments are collectively evaluated for impairment, the estimate is based on historical loss experience
+for assets with credit risk characteristics similar to the loans and advances to customers, debt securities classified
+as receivables and held-to-maturity investments. Historical loss experience is adjusted on the basis of the relevant
+observable data that reflect current economic conditions. Management review the methodology and assumptions
+used in estimating future cash flows regularly to reduce the difference between expected and actual losses.
+Impairment of available-for-sale financial assets
+For available-for-sale financial assets, a significant or prolonged decline in fair value below cost is considered to
+be objective evidence of impairment. Judgement is required when determining whether a decline in fair value has
+been significant or prolonged. In making this judgement, the Group considers historical data on market volatility
+and historical price of the specific financial assets as well as other factors, such as sector performance and financial
+information regarding the investee.
+China Merchants Bank
+Annual Report 2016
+202
+201
+The Group determines whether goodwill is impaired at least on an annual basis and when circumstances indicate
+that the carrying value may be impaired. This requires an estimation of the recoverable amount of the groups to
+which the goodwill is allocated. Estimating the recoverable amount requires the Group to make an estimate of the
+expected future cash flows from groups and also to choose a suitable discount rate in order to calculate the present
+value of those cash flows.
+(vii) Impairment of goodwill
+Where the Group acts as asset manager of structured entities, the Group makes judgment on whether it is the
+principal or an agent to assess whether the Group controls the structured entities and should consolidate them.
+When performing this assessment, the Group considers several factors including, among other things, the scope of
+its decision-making authority over the structured entities, the rights held by other parties, the remuneration to which
+it is entitled in accordance with the related agreements for the assets management services, the Group's exposure to
+variability of returns from other interests that it holds in the structured entities. The Group performs re-assessment
+periodically.
+Control over structured entity
+Determining income tax provisions involves judgement on the future tax treatment of certain transactions. The
+Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment
+of such transactions is reconsidered periodically to take into account all changes in tax legislations. Deferred tax
+assets are recognised for tax losses not yet used and temporary deductible differences. As those deferred tax assets
+can only be recognised to the extent that it is probable that future taxable profit will be available against which the
+unused tax credits can be utilised, management's judgement is required to assess the probability of future taxable
+profits. Management's assessment is constantly reviewed and additional deferred tax assets are recognised if it
+becomes probable that future taxable profits will allow the deferred tax asset to be recovered.
+Income taxes
+Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-
+maturity investments if the Group has the intention and ability to hold them until maturity. In evaluating whether
+the requirements to classify a financial asset as held-to-maturity investments are met, management makes significant
+judgements. Failure in correctly assessing the Group's intention and ability to hold specific investments until maturity
+may result in reclassification of the whole portfolio as available-for-sale financial assets.
+Held-to-maturity investments
+For a number of financial instruments, no quoted prices in an active market exist. The fair value for these financial
+instruments are established by using valuation techniques. These techniques include using recent arm's length
+market transactions, reference to the current fair value of similar instruments and discounted cash flow analysis and
+option pricing models. The Group has established a process to ensure that valuation techniques are constructed
+by qualified personnel and are validated and reviewed by personnel independent of the area that constructed the
+valuation techniques. Valuation techniques are certified before being implemented for valuation and are calibrated to
+ensure that outputs reflect actual market conditions. Valuation models established by the Group make the maximum
+use of market inputs and rely as little as possible on the Group's specific data. However, it should be noted that
+some inputs, such as credit and counterparty risk and risk correlations, require management estimates. Management
+estimates and assumptions are reviewed periodically and are adjusted if necessary. If the fair value is measured using
+third party information such as brokerage quotes or pricing services, the valuation team will evaluate the evidence
+obtained from third parties to support the conclusion.
+Fair value of financial instruments
+(vi)
+(v)
+(iv)
+(iii)
+(z) Significant accounting estimates and judgements (continued)
+2. Basis of preparation, principal accounting policies,
+accounting estimates and judgements (continued)
+XI Financial Statements
+The former executive, non-executive directors' and supervisors' emoluments shown above were for their services
+as directors or supervisors of the Bank, except for Zhang Guanghua's emoluments, which were for his service in
+connection with the management of the affairs of the Bank.
+Total
+2,825
+16,632
+In 2014, Xiao Yuhuai resigned as the Bank's independent non-executive director due to the change of job assignment, his resignation was
+effective in 2015.
+209
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+3. Interest income
+2016
+2015
+(Restated)
+Loans and advances to customers
+- Corporate loans
+- Retail loans
+78,033
+82,573
+78,076
+- Discounted bills
+3,834
+4,866
+Balances with central bank
+8,170
+8,598
+In 2014, Xu Shanda resigned as the Bank's independent non-executive director due to the change of job assignment, his resignation was
+effective in 2015.
+-
+During the reporting period, Don Xiande resigned as the Bank's external supervisor due to the change of job assignment. To satisfy the
+requirement that external supervisors should constitute over one third (inclusive) of the board of supervisors, his resignation will be effective
+after the election of a new external supervisor by the shareholders' meeting to fill the vacancy. In the meantime, Dong Xiande continues his
+duty as external director.
+During the reporting period, Guo Xuemeng resigned as the Bank's independent non-executive director due to the change of job assignment.
+To satisfy the requirement that independent non-executive directors should constitute one third (inclusive) of the board of directors, a new
+independent non-executive director will be elected in the shareholders' meeting to fill the vacancy caused by the resignation of Guo Xuemeng,
+the election becomes effective after the Banking supervision institution of China approves the qualification of the new independent non-
+executive director. In the meantime, Guo Xuemeng continues her duty as independent non-executive director in compliance with the relative
+rules, regulations and corporate constitutions.
+5,313
+2,162
+26,932
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+8. Directors' and supervisors' emoluments (continued)
+The emoluments of the Directors and Supervisors during the year are as follows: (continued)
+Notes:
+(i)
+(ii)
+(iii)
+On 29 September 2016, the Board of Directors approved the discretionary bonuses of the Bank's directors, supervisors and executive officers
+for 2015. Disclosures in 2015 (Note 8, 9 & 56(h)) had been adjusted correspondingly.
+As at 31 December 2015, the Group has offered 7 phases of H share appreciation rights scheme to its senior management ("the Scheme"). In
+2015, none of the granted share appreciation rights was exercised. Details of the Scheme are set out in Note 38(a)(iii).
+On 25 September 2015, the Bank's 1st 2015 extraordinary general meeting of shareholders considered and approved the Resolution on
+election of Fu Junyuan as a shareholders supervisor.
+(iv)
+During the reporting period, An Luming resigned as the Bank's shareholders supervisor due to the change of job assignment.
+During the reporting period, Fu Junyuan resigned as the Bank's non-executive director due to the change of job assignment.
+During the reporting period, Zhang Guanghua resigned as the Bank's vice chairman and executive director due to the change of job
+assignment.
+During the reporting period, Yu Yong resigned as the Bank's supervisor due to the change of job assignment.
+During the reporting period, Pan Ji resigned as the Bank's external supervisor due to the change of job assignment. To satisfy the requirement
+that external supervisors should constitute over one third (inclusive) of the board of supervisors, his resignation will be effective after the
+election of a new external supervisor by the shareholders' meeting to fill the vacancy. In the meantime, Pan Ji continues his duty as external
+director.
+- financial instruments at fair value through profit or loss
+1,815
+1,948
+500
+500
+500
+500
+500
+3,360
+Liu Yuan
+Fu Junyuan
+Zhao Jun
+Wen Jianguo(iii)
+Jin Qingjun
+400
+Ding Huiping (iii)
+200
+Han Zirong(iii)
+200
+Xu Lizhong(iii)
+Huang Dan
+Wu Heng(iii)
+Pan Yingli
+Pan Chengwei
+Wong Kwai Lam
+491
+4,271
+1,037
+9,017
+The executive directors' emoluments shown above were for their services in connection with the management of the
+affairs of the Bank and the Group.
+Non-executive directors
+Li Jianhong
+Li Xiaopeng
+Sun Yueying
+Fu Gangfeng
+Hong Xiaoyuan
+Su Min
+Zhang Jian(iii)
+Wang Daxiong (iii)
+Subtotal
+The non-executive directors' emoluments shown above were for their services as directors of the Bank.
+Independent non-executive
+directors and supervisors
+Liang Jinsong
+1,716
+1,973
+Wong See Hong(iii)
+Subtotal
+3,300
+Annual Report 2016
+8. Directors' and supervisors' emoluments (continued)
+The emoluments of the Directors and Supervisors during the year are as follows: (continued)
+Former Executive, non-executive
+directors and supervisors
+Ma Zehua(iv)
+Li Yinquan(iv)
+Zhu Genlin(iv)
+Liu Zhengxi(iv)
+Pan Ji (iv)
+Dong Xiande (iv)
+Xiong Kai(iv)
+Guo Xuemeng (iv)
+Subtotal
+2016
+Salaries,
+allowances
+Retirement
+Directors'
+fees
+XI Financial Statements
+4,746
+China Merchants Bank
+directors or supervisors of the Bank.
+7,049
+| | |
+500
+500
+500
+500
+500
+437
+3,797
+400
+200
+200
+223
+1,939
+257
+2,230
+917
+11,266
+The independent non-executive directors' and supervisors' emoluments shown above were for their services as
+206
+RMB'000
+546
+3,780
+534
+526
+498
+843
+281
+14,489
+11,571
+7. Operating expenses
+1,142
+Staff costs
+2015
+-
+- Salaries and bonuses (note (i))
+22,061
+21,548
+- Social insurance and corporate supplemental insurance
+5,038
+4,779
+2016
+1,032
+1,668
+2,398
+- available-for-sale financial assets
+- gain on disposal of bills
+- physical precious metals
+- others
+Exchange gain
+Other income
+- rental income
+- insurance income
+Others
+Total
+2,061
+611
+5,525
+4,519
+2,098
+(564)
+133
+30
+2,857
+- Others
+5,712
+5,067
+Subtotal
+8. Directors' and supervisors' emoluments
+The emoluments of the Directors and Supervisors during the year are as follows:
+Executive directors
+Tian Huiyu
+Li Hao
+Subtotal
+Directors'
+fees
+RMB'000
+2016
+Salaries,
+allowances
+205
+and benefits Discretionary
+Retirement
+scheme
+in kind
+RMB'000
+bonuses contributions
+RMB'000
+RMB'000
+Total
+RMB'000
+(i)
+4,200
+XI Financial Statements
+7,980
+China Merchants Bank
+Annual Report 2016
+(ii)
+32,811
+31,394
+Business tax and surcharges
+6,362
+11,929
+Property, equipment and investment properties depreciation
+4,287
+4,086
+4,113
+3,842
+Other general and administrative expenses (note (ii))
+17,327
+16,419
+Total
+64,900
+67,670
+Notes:
+(i)
+Performance bonus is included in the salaries and bonuses, the details of which are disclosed in Note 38(c).
+Auditors' remuneration amounted to RMB16 million for the year ended 31 December 2016 (2015: RMB22 million), included in other general
+and administrative expenses.
+64,829
+708
+2,038
+55,806
+1,859
+1,859
+966
+966
+Equity-accounted investees-share of
+other comprehensive income
+(141)
+(141)
+64
+64
+Remeasurement of defined benefit
+scheme redesigned through reserve
+37
+(6)
+31
+(64)
+11
+(53)
+Other comprehensive income
+(4,701)
+1,570
+(3,131)
+7,142
+(1,537)
+404
+5,605
+(135)
+(260)
+(iii)
+Taxation for overseas operations is charged at the applicable rates of tax prevailing in relevant jurisdictions.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+13. Other comprehensive income
+(a) Tax effects relating to each component of other comprehensive income
+2016
+2015
+Before-tax Tax benefit/ Net-of-tax
+amount
+(expense)
+amount
+Before-tax Tax benefit/
+amount (expense)
+Net-of-tax
+amount
+Available-for-sale financial assets:
+- Net movement in fair value reserve
+Cash flow hedge:
+(6,109)
+1,489
+(4,620)
+5,637
+(1,413)
+4,224
+- Net movement in hedging reserve
+Exchange differences
+(347)
+87
+539
+The applicable income tax rate in Hong Kong is 16.5% during 2016 (2015: 16.5%).
+(b) Movement relating to components of other comprehensive income
+2015
+Total
+Notes:
+(i)
+2016
+2015
+62,081
+57,696
+25,220
+25,220
+2.46
+2.29
+2016
+2015
+504,959
+74,365
+464,686
+103,803
+1,832
+1,472
+581,156
+569,961
+(ii)
+Statutory deposit reserve funds are deposited with the PBOC and other central banks outside the Mainland China as required and are not
+available for the Group's daily operations. The statutory deposit reserve funds of the Bank are calculated at 15% and 5% for eligible RMB
+deposits and foreign currency deposits respectively as at 31 December 2016 (2015: 15% and 5% for eligible RMB deposits and foreign
+currency deposits respectively). Eligible deposits include deposits from government authorities and other organizations, fiscal deposits (other
+than budgets), retail deposits, corporate deposits, and net credit balances of entrusted business and RMB deposits placed by the financial
+institutions outside mainland China.
+Surplus deposit reserve maintained with the PBOC and central banks outside the Mainland China are mainly for clearing purposes.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+Fiscal deposits
+2016
+Statutory deposit reserve (note (i))
+Surplus deposit reserve (note (ii))
+Net profit attributable to equity shareholders of the Bank
+Weighted average number of shares in issue (in million)
+Basic and diluted earnings per share attributable to equity
+shareholders of the Bank (in RMB)
+Available-for-sale financial assets:
+Changes in fair value recognised during the year
+(2,978)
+4,645
+Reclassification adjustments for amounts transferred to profit or loss:
+- On disposal
+(1,642)
+(421)
+Net movement in the fair value reserve during the year recognised
+in other comprehensive income
+(4,620)
+4,224
+Cash flow hedge:
+Effective portion of changes in fair value of hedging instruments
+Reclassification adjustment for amounts transferred to profit or loss
+- Realised losses
+Net movement in the hedging reserve during the period recognised
+in other comprehensive income
+(48)
+395
+(212)
+9
+(260)
+404
+213
+214
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+14. Earnings per share
+The calculation of basic earnings per share for the year 2016 and 2015 is based on the net profit attributable to
+equity shareholders of the Bank and the weighted average number of shares in issue. There is no difference between
+basic and diluted earnings per share as there are no potentially dilutive shares outstanding during the year 2016 and
+2015.
+15. Balances with central bank
+(ii)
+The applicable income tax rate for the Group's operations in Mainland China is 25% during 2016 (2015: 25%).
+(i)
+by the Group outstanding during the year
+11. Impairment losses
+2016
+2015
+64
+64
+83
+79
+2016
+2015
+Loans and advances to customers (Note 19(c))
+Maximum aggregate amount of relevant loans made
+64,560
+Amounts due from banks and other financial institutions
+(Note 16(b), Note 17(c), Note 18(d))
+507
+257
+Investments
+- Available-for-sale financial assets (Note 21(b))
+Held-to-maturity investments (Note 21(c))
+(56)
+35
+(10)
+20
+_
+Debt securities classified as receivables (Note 21(d))
+57,507
+Aggregate amount of relevant loans made by the Group
+outstanding at year end
+Loans to directors, supervisors and executive officers of the Group are as follows:
+10. Loans to directors, supervisors and executive officers
+7,085
+Contributions to defined contribution retirement schemes
+1,866
+2,184
+Total
+21,012
+26,069
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+9. Individuals with highest emoluments (continued)
+The number of the five highest paid individuals whose emoluments fell within the following bands is set out below:
+RMB
+3,000,001 -3,500,000
+3,500,001 -4,000,000
+4,000,001 - 4,500,000
+4,500,001 - 5,000,000
+5,000,001 -5,500,000
+5,500,001 -6,000,000
+6,500,001 -7,000,000
+2016
+2015
+(Note 8)
+211
+|||221
+1131|||
+1
+(541)
+947
+Others
+1,699
+16,583
+17,061
+(b) A reconciliation of income tax expense in the consolidated statement of profit
+or loss and that calculated at the applicable tax rate is as follows:
+Profit before taxation
+Tax at the PRC statutory income tax rate of 25% (2015: 25%)
+Tax effects of the following items:
+- Effects of non-deductible expenses
+- Effects of non-taxable income
+- Effects of different applicable rates of tax prevailing
+in other jurisdictions
+Income tax expense
+2016
+2015
+78,963
+75,079
+19,741
+18,770
+822
+(3,712)
+833
+(2,365)
+(268)
+(177)
+16,583
+17,061
+Note:
+(7,207)
+16. Balances with banks and other financial institutions
+(13,441)
+30,024
+500
+Total
+66,159
+59,266
+212
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+12. Income tax
+(a) Income tax in the consolidated statement of profit or loss represents:
+2016
+2015
+Current income tax expense
+-
+- Mainland China
+– Hong Kong
+- Overseas
+Subtotal
+Deferred taxation
+Total
+29,114
+23,415
+740
+720
+170
+133
+24,268
+(a) Analysed by nature of counterparties
+Balances in Mainland
+Banks
+276,965
+296,789
+- Between one month and one year (inclusive)
+1,734
+43,575
+-
+Over one year
+3,560
+Total
+278,699
+343,924
+(c) Analysed by assets types
+Bonds
+Bills
+Trust beneficiary rights
+Asset management schemes
+Right of debt securities
+Total
+2016
+277,335
+2015
+210,481
+262
+106,729
+52
+10,693
+1,050
+- Within one month (inclusive)
+11,381
+-
+2016
+XI Financial Statements
+18. Amounts held under resale agreements
+(a) Analysed by nature of counterparties
+2016
+2015
+Amounts held under resale agreements in Mainland China
+Banks
+4,666
+128,803
+- Other financial institutions
+274,705
+215,321
+Subtotal
+Less: Impairment allowances
+279,371
+344,124
+-
+- Banks
+(672)
+(200)
+278,699
+343,924
+Total
+(b) Analysed by residual maturity
+Maturing
+2015
+China Merchants Bank
+Annual Report 2016
+4,640
+343,924
+3,261,681
+2,824,286
+Less: Impairment allowances
+- Individually assessed
+(29,230)
+(14,624)
+- Collectively assessed
+Subtotal
+Net loans and advances to customers
+(80,802)
+(70,218)
+(110,032)
+(84,842)
+3,151,649
+2,739,444
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(b) Analysis of loans and advances to customers
+(i)
+Analysed by industry sector and category:
+Operation in Mainland China
+2016
+2015
+Manufacturing
+Gross loans and advances to customers
+278,699
+1,226,701
+Retail loans and advances
+217
+218
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+18. Amounts held under resale agreements (continued)
+(d) Movements of allowances for impairment losses
+At 1 January
+Charge for the year (note 11)
+At 31 December
+19. Loans and advances to customers
+(a) Loans and advances to customers
+2016
+2015
+200
+472
+200
+672
+200
+2016
+2015
+Corporate loans and advances
+1,566,570
+Discounted bills
+154,517
+1,507,770
+89,815
+1,540,594
+Discretionary bonuses (Note 8)
+51
+5
+32,583
+103,209
+63,905
+(193)
+(123)
+(3)
+(3)
+(196)
+(126)
+103,013
+63,779
+2016
+2015
+126
+74
+70
+52
+196
+126
+215
+216
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+17. Placements with banks and other financial
+institutions
+46,244
+(a) Analysed by nature of counterparties
+13
+32,570
+- Other financial institutions
+Subtotal
+Balances outside Mainland
+- Banks
+- Other financial institutions
+Subtotal
+Total
+Less: Impairment allowances
+Banks
+Other financial institutions
+Subtotal
+Total
+(b) Movements of allowances for impairment losses
+As at 1 January
+Charge for the year (note 11)
+As at 31 December
+2016
+2015
+55,135
+30,387
+1,830
+935
+56,965
+31,322
+46,221
+23
+16
+Placements in Mainland
+Other financial institutions
+39,730
+72,219
+200,267
+185,744
+(9)
+(51)
+(7)
+(16)
+(51)
+200,251
+185,693
+2016
+2015
+86,934
+107,540
+133,415
+48,449
+5,777
+3,829
+200,251
+185,693
+2016
+2015
+51
+46
+(35)
+113,525
+- Banks
+160,537
+134,268
+Subtotal
+Placements outside Mainland
+- Banks
+Total
+Less: Impairment allowances
+- Banks
+-
+- Other financial institutions
+Subtotal
+Total
+(b) Analysed by residual maturity
+(c)
+Maturing
+- Within one month (inclusive)
+- Between one month and one year (inclusive)
+- Over one year
+Total
+Movements of allowances for impairment losses
+As at 1 January
+(Release)/charge for the year (note 11)
+As at 31 December
+2016
+2015
+26,269
+66,458
+47,067
+16,800
+19,146
+Salaries and other emoluments
+35,096
+52,178
+46,397
+Credit cards
+Residential mortgage
+Discounted bills
+Corporate loans and advances subtotal
+Others
+Water, environment and public utilities management
+33,431
+Mining
+Telecommunications, software and IT services
+96,387
+83,871
+Construction
+80,788
+97,464
+109,942
+104,393
+Production and supply of electric power, heating power, gas and water
+Leasing and commercial services
+28,076
+98,754
+76,477
+1,362,540
+275,710
+219
+2,653,747
+3,037,908
+Gross loans and advances to customers
+1,210,076
+1,520,851
+Retail loans and advances subtotal
+96,828
+109,924
+Others
+308,973
+281,653
+Micro-finance loans
+312,985
+408,951
+491,290
+720,323
+89,815
+154,517
+1,353,856
+175,912
+174,642
+318,679
+145,473
+20
+1
+1
+1
+1
+---
+1
+1
+1
+25
+IN-5
+2
+1
+25
+During the year ended 31 December 2016, no emoluments were paid by the Group to any of the persons who are
+directors or supervisors as an inducement to join or upon joining the Group or as compensation for loss of office.
+During the year ended 31 December 2016, there was no arrangement under which a director or a supervisor waived
+or agreed to waive any remuneration.
+9. Individuals with highest emoluments
+Of the five individuals with the highest emoluments for the year ended 31 December 2016, 3 (2015: 3) are directors
+or supervisors of the Bank whose emoluments are included in Note 8 above. The aggregate of the emoluments in
+respect of the five individuals during the year is as follows:
+2016
+RMB'000
+2015
+RMB'000
+(Note 8)
+20
+6,500,000 – 7,000,000
+Total
+Property development
+4,500,001 - 5,000,000
+5,000,001 -5,500,000
+Transportation, storage and postal services
+236,513
+214,859
+Wholesale and retail
+210
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+8. Directors' and supervisors' emoluments (continued)
+The number of the Directors and Supervisors whose emoluments are within the following bands is set out below:
+175,548
+2015
+RMB
+0 - 500,000
+500,001 1,000,000
+1,000,001 - 1,500,000
+1,500,001 – 2,000,000
+2,000,001 -2,500,000
+3,000,000 3,500,000
+3,500,001 - 4,000,000
+4,000,001 -4,500,000
+2016
+assessed
+Which are
+individually
+for loans and
+Which are
+collectively
+advances
+which are
+Total
+assessed
+At 1 January
+65,165
+4,733
+9,577
+assessed
+Charge for the year (Note 11)
+12,194
+11,603
+35,689
+59,486
+50,855
+collectively
+110,032
+Impairment allowances
+for impaired loans
+(5,700)
+Unwinding of discount
+(1,001)
+(1,001)
+Recoveries of loans and advances
+previously written off
+1,460
+1,433
+2,893
+Exchange difference
+248
+Release for the year (Note 11)
+380
+At 31 December
+70,694
+10,108
+29,230
+Impairment
+allowances
+2015
+and advances
+132
+(1,137)
+(1)
+222
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(d) Loans and advances to customers and allowances for impairment losses
+Impaired loans and
+2016
+advances
+Gross
+impaired
+Fair
+value of
+collaterals
+Loans and
+advances
+for which
+for which
+for which
+loans and held against
+advances individually
+losses are
+impairment impairment impairment
+losses are
+as a %
+221
+(813)
+84,842
+14,624
+(1,165)
+(1,979)
+Write-offs
+(9,154)
+(29,229)
+(38,383)
+Unwinding of discount
+(1,137)
+Recoveries of loans and advances
+previously written off
+625
+839
+Exchange difference
+176
+50
+1,464
+226
+At 31 December
+62,412
+7,806
+(5,700)
+Transfer out
+assessed
+(24,766)
+2016
+2015
+52,922
+37,168
+44,489
+46,585
+21,732
+13,468
+21,686
+2,025
+18,281
+13,876
+13,892
+14,860
+2,363
+3,627
+28,665
+22,305
+204,030
+Gross loans and advances to customers
+153,914
+Retail loans and advances subtotal
+Micro-finance loans
+220
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(b) Analysis of loans and advances to customers (continued)
+(i)
+Analysed by industry sector and category: (continued)
+Operation outside Mainland China
+Property development
+Financial concerns
+Manufacturing
+Information technology
+Transport and transport equipment
+Wholesale and retail
+Recreational activities
+Others
+Corporate loans and advances subtotal
+Residential mortgage
+Credit cards
+Others
+8,005
+8,165
+247
+assessed
+Total
+At 1 January
+Charge for the year (Note 11)
+62,412
+7,806
+14,624
+84,842
+9,202
+12,019
+45,967
+67,188
+Release for the year (Note 11)
+(1,168)
+(1)
+(1,459)
+(2,628)
+Write-offs
+(11,176)
+assessed
+assessed
+collectively
+Which are
+259
+1,849
+1,804
+9,642
+6,397
+19,743
+16,625
+223,773
+170,539
+(35,942)
+Notes: As at 31 December 2016, over 90% of the Group's loans and advances to customers were conducted in People's Republic of China (unchanged
+pan the positions as at 31 December 2015).
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(c) Movements of allowances for impairment losses
+Impairment
+allowances
+for loans and
+advances
+which are
+collectively
+2016
+Impairment allowances
+for impaired loans
+and advances
+Which are
+individually
+China Merchants Bank
+Annual Report 2016
+losses are
+3,200,571
+impaired
+Subtotal
+(62,412)
+(7,806)
+(14,624)
+(84,842)
+Net loans and advances to
+- Financial institutions
+85,431
+(84,528)
+7
+- Non-financial institution
+customers
+Total
+2,629,047
+2,714,478
+5,264
+5,264
+19,695
+19,702
+2,654,006
+2,739,444
+85,438
+(14,620)
+(7,806)
+(62,102)
+- Non-financial institution
+customers
+2,691,149
+Subtotal
+2,776,890
+13,070
+13,070
+34,315 2,738,534
+34,326 2,824,286
+1.73
+8,479
+1.68
+8,486
+Less:
+Impairment allowances for
+loans and advances to
+- Financial institutions
+(310)
+(4)
+(314)
+- Non-financial institution
+customers
+Notes:
+(i)
+(ii)
+(iii)
+lease
+income
+receivables
+Within 1 year (inclusive)
+36,268
+(4,649)
+31,619
+38,512
+(4,126)
+34,386
+Over 1 year but within
+5 years (inclusive)
+69,845
+(8,545)
+61,300
+65,430
+(6,177)
+59,253
+Unlisted
+Present
+value of
+minimum
+7
+Unearned
+finance
+Total
+These loans and advances include those for which no objective evidence of impairment has been identified on individual basis.
+Impaired loans and advances include loans and advances for which objective evidence of impairment has been identified and impairment losses
+are assessed in following ways:
+collectively: that is portfolios of homogeneous loans and advances; or
+individually.
+The fair values of collaterals were estimated by management based on the latest available external valuations adjusted by taking into account
+the current realisation experience as well as market situation.
+223
+224
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(e) Finance leases receivables
+The table below provides an analysis of finance lease receivables for leases of certain property and equipment in
+which the Group is the lessor:
+2016
+2015
+Total
+minimum
+lease
+Unearned
+receivables
+finance
+income
+Present
+value of
+minimum
+lease
+receivables
+minimum
+lease
+receivables
+0.01
+85,752
+11
+1.97
+8,379
+1.87
+8,379
+Less:
+Impairment allowances for
+loans and advances to
+- Financial institutions
+(276)
+(1)
+(277)
+- Non-financial institution
+customers
+(70,418)
+(10,108)
+Subtotal
+(70,694)
+(10,108)
+(29,229)
+(29,230)
+45,717 3,099,704
+45,718 3,261,681
+(109,755)
+(110,032)
+15,392
+15,392
+3,038,595
+collectively
+collectively individually
+loans and
+loans and
+assessed
+assessed
+assessed
+Total
+advances
+advances
+(note (i))
+(note (ii))
+(note (ii))
+(note (iii))
+Gross loans and advances to
+- Financial institutions
+- Non-financial institution
+customers
+161,976
+1
+161,977
+Subtotal
+of gross
+Net loans and advances to
+161,700
+Impaired loans
+and advances
+for which
+impairment
+losses are
+collectively
+for which
+impairment
+losses are
+Gross
+impaired
+loans and
+advances
+as a %
+Fair
+value of
+collaterals
+held against
+individually
+assessed
+impaired
+loans and
+advances
+(note (iii))
+of gross
+loans and
+Total
+advances
+Gross loans and advances to
+- Financial institutions
+85,741
+2015
+161,700
+losses are
+collectively
+Loans and
+- Non-financial institution
+customers
+2,968,177
+Total
+3,129,877
+5,284
+5,284
+16,488
+16,488
+2,989,949
+3,151,649
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+19. Loans and advances to customers (continued)
+(d) Loans and advances to customers and allowances for impairment losses (continued)
+individually
+assessed
+assessed
+assessed
+(note (i))
+(note (ii))
+(note (ii))
+advances
+for which
+impairment
+- Financial institutions
+7,200
+372,158
+Unlisted
+Total
+Less: impairment allowances
+Subtotal
+- Investments in funds
+1,273
+1,198
+- Equity investments
+In Mainland China
+8,246
+- Other debt securities
+5,912
+14,119
+- Bonds issued by commercial banks and other financial institutions
+15
+Bonds issued by policy banks
+-
+48
+12,900
+-
+Bonds issued by PBOC
+- Bonds issued by commercial banks and other financial institutions
+Bonds issued by policy banks
+Outside Mainland China
+723
+41,378
+- Investments in funds
+1,091
+1,690
+- Equity investments
+1,214
+20
+- Other debt securities
+94
+12,602
+(239)
+263,720
+300,941
+(569)
+263,959
+301,510
+62
+55
+49
+PRC government bonds
+-
+Outside Mainland China
+(b) Available-for-sale financial assets
+21. Investments (continued)
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+59,081
+229
+Total
+19,446
+8,875
+- Corporates
+21,788
+17,895
+- Banks and other financial institutions
+17,847
+29,202
+- Sovereigns
+Issued by:
+2015
+Listed
+15,724
+In Mainland China
+2015
+20
+1,028
+- Investments in funds
+311
+230
+– Equity investments
+49,238
+18,771
+Other debt securities
+37,742
+67,171
+Bonds issued by commercial banks and other financial institutions
+-
+66,726
+53,391
+- Bonds issued by policy banks
+94,381
+132,583
+- PRC government bonds
+2016
+2016
+2,096
+19,886
+China Merchants Bank
+Annual Report 2016
+667
+645
+23
+37
+(2)
+(3)
+At 31 December
+XI Financial Statements
+Exchange difference
+(129)
+Releases for the year (note 11)
+35
+73
+611
+667
+Charge for the year (note 11)
+At 1 January
+Write-offs
+21. Investments (continued)
+(c) Held-to-maturity investments
+Listed
+989
+PRC government bonds
+-
+Outside Mainland China
+865
+1,202
+12,656
+17,749
+Bonds issued by commercial banks and other financial institutions
+Other debt securities
+-
+165,890
+189,165
+- Bonds issued by policy banks
+170,540
+265,325
+2015
+2016
+- PRC government bonds
+In Mainland China
+2015
+2016
+Movements of allowances for impairment losses
+299,559
+88,197
+(428)
+(76)
+36,267
+88,273
+Total
+Subtotal
+Less: impairment allowances
+Subtotal
+207
+775
+- Investments in funds
+231
+260
+- Equity investments
+8,030
+8,540
+- Other debt securities
+9,979
+35,839
+- Bonds issued by commercial banks and other financial institutions
+389,138
+227
+389,138
+Total
+66,061
+39,586
+- Corporates
+139,069
+216,920
+94,429
+132,632
+- Banks and other financial institutions
+- Sovereigns
+Issued by:
+2015
+2016
+(b) Available-for-sale financial assets (continued)
+21. Investments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+228
+299,559
+Analysed by issuing authority
+(iii)
+Total
+4
+- Investments in funds
+1
+Outside Mainland China
+Bonds issued by commercial banks and other financial institutions
+2,479
+-
+Other debt securities
+2
+1,917
+- Equity investments
+643
+740
+Subtotal
+41,859
+49,777
+Unlisted
+Outside Mainland China
+1,347
+2,535
+- Equity investments
+13,472
+2,679
+8,272
+55,972
+59,081
+(i)
+Financial assets held for trading
+Listed
+In Mainland China
+2016
+2015
+PRC government bonds
+28,901
+17,543
+- Bonds issued by policy banks
+3,074
+9,622
+- Bonds issued by commercial banks and other financial institutions
+2,164
+4,513
+· Other debt securities
+Bonds issued by commercial banks and other financial institutions
+- Equity investments
+69
+- Investments in funds
+- Bonds issued by policy banks
+301
+2,948
+304
+3,874
+Bonds issued by commercial banks and other financial institutions
+35
+- Other debt securities
+71
+66
+Outside Mainland China
+- Bonds issued by commercial banks and other financial institutions
+575
+420
+=
+- Other debt securities
+4,076
+2,536
+Subtotal
+8,006
+- PRC government bonds
+12,639
+In Mainland China
+2015
+109
+Subtotal
+178
+15 5
+Long position in precious metal contracts
+1,296
+1,027
+Total
+43,333
+50,809
+225
+226
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+21. Investments (continued)
+(a) Financial assets at fair value through profit or loss (continued)
+(ii)
+Financial assets designated at fair value through profit or loss
+2016
+Listed
+(ii)
+Financial assets designated at fair value through profit or loss
+Total
+50,809
+116,986
+(11,351)
+105,635
+Less: Impairment allowances
+- Individually assessed
+- Collectively assessed
+(449)
+(2,220)
+(169)
+(1,692)
+Net investment in finance
+lease receivables
+20. Interest receivable
+111,153
+103,774
+2016
+2015
+Debt securities
+14,275
+113,822
+13,075
+(14,664)
+Subtotal
+8,272
+12,639
+1,072
+4,633
+Subtotal
+837
+132
+235
+4,501
+- Bands issued by commercial banks and other financial institutions
+- Other debt securities
+-
+Outside Mainland China
+Over 5 years
+22,373
+(1,470)
+20,903
+13,044
+(1,048)
+11,996
+128,486
+488
+Loans and advances to customers
+8,765
+299,559
+Held-to-maturity investments
+21(c)
+477,064
+353,137
+Debt securities classified as receivables
+21(d)
+528,748
+716,064
+Total
+1,459,610
+1,438,017
+(a) Financial assets at fair value through profit or loss
+Note
+2016
+2015
+Financial assets held for trading
+(i)
+43,333
+389,138
+8,657
+21(b)
+10,176
+Others
+3,319
+3,094
+Total
+26,251
+24,934
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+21. Investments
+Note
+2016
+2015
+Financial assets at fair value through profit or loss
+21(a)
+55,972
+59,081
+Derivative financial assets
+55(f)
+8,688
+Available-for-sale financial assets
+-
+55,972
+- Sovereigns
+262
+522
+Less: impairment allowances
+Subtotal
+Total
+262
+522
+477,064
+353,137
+2016
+Subtotal
+2015
+266,314
+171,028
+- Banks and other financial institutions
+209,255
+- Corporates
+1,495
+2,100
+Total
+477,064
+353,137
+Issued by:
+Fair value of listed debt securities
+130
+- Other debt securities
+- Bonds issued by commercial banks and other financial institutions
+Other debt securities
+2,238
+1,542
+224
+729
+Subtotal
+Less: impairment allowances
+Total
+Unlisted
+476,892
+69
+352,710
+(95)
+476,802
+352,615
+In Mainland China
+- Other debt securities
+376
+Outside Mainland China
+Bonds issued by commercial banks and other financial institutions
+193
+16
+(90)
+484,029
+180,009
+Depreciation
+(108)
+(452)
+(857)
+Exchange difference
+137
+4
+11
+As at 31 December 2016, the Group considered that there is no impairment loss on property and equipment
+(2015: nil).
+(b)
+(a)
+27,445
+1,886
+1,645
+2,598
+2,291
+6,806
+12,219
+At 1 January 2015
+31,835
+1,788
+5,255
+2,652
+2,360
+(259)
+4,134
+(38)
+(114)
+Cost:
+At 1 January 2015
+17,166
+6,806
+7,238
+4,914
+1,872
+5,985
+43,981
+Additions
+68
+1,772
+1,270
+761
+3,765
+733
+8,369
+Reclassification and transfers
+4,291
+(4,444)
+1
+30
+8
+Disposals/write-offs
+1,102
+15,646
+Net book value:
+3,959
+836
+220
+720
+1,081
+5
+272
+At 31 December 2015
+21,624
+4,134
+8,254
+5,608
+5,752
+6,279
+51,651
+Accumulated depreciation:
+At 1 January 2015
+4,947
+4,947
+2,316
+227
+4,099
+16,536
+Reclassification and transfers
+At 31 December 2015
+(40)
+Total
+19,816
+4,491
+497
+2,956
+5,894
+5,978
+At 31 December 2015
+36
+3
+50
+4
+(16)
+Exchange difference
+(676)
+(448)
+(83)
+(130)
+(15)
+115
+Disposals/write-offs
+(39)
+1
+(1)
+1
+others
+3,797
+equipment improvements
+(1)
+(2,870)
+Release for the year (note 11)
+948
+2,329
+Charge for the year (note 11)
+68
+1,017
+At 1 January
+2015
+2016
+716,064
+528,748
+20,389
+17,690
+694,928
+510,274
+747
+784
+2015
+2016
+Movements of allowances for impairment losses
+Total
+Transfer in from loans and advances from customer
+- Corporates
+5,700
+2
+Hong Kong
+CMB International Capital Holdings
+Corporation Limited (note (i))
+(in millions)
+Legal
+representative
+Economic
+nature
+the Bank activities
+up capital
+and operation
+Name of company
+held by Principal
+and paid
+% of
+ownership
+Particulars
+of the issued
+Place of
+incorporation
+The following list contains only particulars of subsidiaries which principally affected the results, assets or liabilities of
+the Group. Unless otherwise stated, the class of all shares held is ordinary. All of these companies are subsidiaries as
+defined under Note 2(d) and have been included in the scope of the consolidated financial statements of the Group.
+22. Particulars of principal subsidiaries of the bank
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+232
+231
+1,017
+6,176
+At 31 December
+Exchange difference
+Banks and other financial institutions
+Reclassification and transfers
+(14)
+2,357
+2,585
+18,145
+1,423
+43,857
+At 1 January 2016
+15,646
+4,134
+2,360
+2,652
+5,255
+1,788
+31,835
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+25. Property and equipment (continued)
+Motor
+Land and
+buildings
+Construction
+in progress
+Computer
+Leasehold
+Aircrafts
+vehicles and
+As at 31 December 2016, the process of obtaining the registration license for the Group's properties with an
+aggregate net carrying value of RMB1,108 million (2015: RMB270 million) was still in progress.
+15,550
+At 31 December 2016
+Net book value:
+(2)
+5
+2
+(9)
+Disposals/write-offs
+(23)
+(312)
+(3)
+(287)
+(625)
+Exchange difference
+and vessels
+86
+7
+47
+3
+162
+At 31 December 2016
+7,104
+6,810
+3,684
+909
+4,987
+23,494
+19
+(c)
+Disposals/write-offs
+237
+3,914
+At 1 January 2016
+1,274
+1,502
+819
+3,595
+239
+778
+- Sovereigns
+Issued by:
+(d) Debt securities classified as receivables (continued)
+21. Investments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+716,064
+528,748
+Total
+(1,017)
+(6,176)
+Less: impairment allowances
+717,081
+534,924
+Subtotal
+834
+65
+1,778
+At 31 December 2016
+Additions
+243
+1,633
+283
+2,159
+47
+473
+40
+560
+Transfers
+(1)
+(1)
+Exchange difference
+2
+2
+21
+25
+At 31 December 2016
+291
+2,108
+344
+2,743
+Net book value:
+1,302
+41
+- Bonds issued by commercial banks and other financial institutions
+Outside Mainland China
+In Mainland China
+(d) Debt securities classified as receivables
+95
+90
+4
+5
+20
+(10)
+71
+95
+At 31 December
+Exchange difference
+(Release) charge for the year (note 11)
+At 1 January
+2015
+2016
+Movements of allowances for impairment losses
+Held-to-maturity investments (continued)
+21. Investments (continued)
+(c)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+230
+Investment in bonds
+2016
+2015
+- Loans and advances to customers
+12,519
+16
+300
+55,216
+53,498
+5,896
+238,384
+205,907
+380,090
+240,897
+- Bills
+At 1 January 2016
+Non-standard assets
+17,690
+11,089
+8,477
+- Bonds issued by commercial banks and other financial institutions
+- Other debt securities
+747
+784
+- PRC government bonds
+-
+- Right of debt securities of banks
+- Wealth management products
+- Deposit from banks
+20,389
+Amortisation:
+6,657
+1,178
+986
+793
+137
+127
+14
+41
+(2)
+48
+25
+1,183
+986
+1,701
+1,708
+1,708
+1,684
+Investment properties of the Group mainly represent the leasing properties of WLB and the portion of the Bank's
+headquarters in Shenzhen that has been leased out under operating leases or is available for lease. The fair value
+of the Group's investment property is assessed by the independent appraiser A.G.Wilkinson & Associates, and the
+assessment price is assessed by the method of capitalization of net rental income. There has been no change to the
+valuation technique during the year. As at 31 December 2016, fair value of these properties was RMB5, 167 million
+(2015: RMB4,784 million). The Group's total future minimum lease payments under non-cancellable operating leases
+are receivables as follows:
+Within 1 year (inclusive)
+1 year to 5 years (inclusive)
+Over 5 years
+Total
+2016
+2015
+310
+192
+At 1 January
+Net book value:
+At 31 December
+At 31 December
+Exchange difference
+238
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+26. Investment properties
+Cost:
+At 1 January
+Transfers in
+Exchange difference
+Disposals/write-offs
+At 31 December
+At 1 January
+Depreciation
+264
+Accumulated depreciation:
+2015
+2,694
+2,477
+83
+140
+(3)
+110
+2,884
+77
+2,694
+Transfers in
+HKD4,129
+2016
+As at 31 December 2016, the Group has no significant unused property and equipment (2015: nil).
+206
+14
+Core deposit
+Total
+Cost/valuation:
+At 1 January 2016
+Additions
+1,517
+3,135
+1,102
+5,754
+74
+747
+821
+Transfers
+(10)
+(10)
+Exchange difference
+12
+4
+76
+92
+At 31 December 2016
+1,593
+3,886
+Software
+and Others
+Land use
+right
+5,167
+5,167
+586
+412
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+26. Investment properties (continued)
+The fair value hierarchy of Investment properties of the Group are listed as below:
+Held in Mainland China
+- land
+- building
+Held overseas
+- land
+12
+- building
+27. Intangible assets
+Level 1
+Level 2
+Level 3
+Fair Value
+as at 31
+December
+2016
+2,307
+2,307
+2,860
+2,860
+Total
+100% Financial advisory
+services
+365
+Tian Huiyu
+11
+165
+7
+158
+comprehensive
+income
+comprehensive
+income
+Profit or loss
+Total
+Other
+2015
+Group's effective interest
+Others
+1
+2016
+1
+40
+(42)
+(42)
+66
+958
+95
+1,053
+interest
+Group's effective
+2
+50
+Summarised financial information of the joint ventures that are not individually material to the Group:
+12
+Others
+199
+Place of
+incorporation
+Form of
+business
+The following list contains the information as of 31 December 2016 of associates, which are unlisted corporate
+entities:
+2
+29
+54
+82
+2
+2
+52
+80
+2015
+2016
+Share of profits for the year
+Total
+Goodwill
+Share of net assets
+235
+24. Interest in associates
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+65
+37
+28
+Group's effective interest
+408
+209
+80
+Name of associate
+(84)
+131
+Income tax
+amortisation
+equivalents
+income
+or loss
+Equity Revenue
+Liabilities
+Assets
+and
+and cash
+Profit comprehensive
+Cash Depreciation
+2016
+Total
+(ii)
+42
+11
+85
+185
+176
+16
+27
+49
+149
+4,031
+1,378
+MUCFC:
+MUCFC
+18,703
+16,241
+1,915
+190
+2,105
+MUCFC
+2015
+41
+2
+215
+662
+15
+162
+62
+162
+767
+1,231
+8,121
+9,352
+interest
+Group's effective
+83
+4
+429
+324
+24
+324
+1,533
+2,462
+(84)
+structure
+and operation
+Professional Liability
+(43)
+Disposals/write-offs
+(121)
+7
+166
+(2)
+(1,135)
+843
+Reclassification and transfers
+15,088
+450
+12,151
+(321)
+490
+798
+13
+Additions
+51,651
+6,279
+5,752
+5,608
+8,254
+4,134
+21,624
+At 1 January 2016
+Cost:
+1,186
+(8)
+(332)
+(704)
+719
+1,211
+1,077
+Depreciation
+19,816
+4,491
+497
+2,956
+5,894
+5,978
+At 1 January 2016
+Accumulated depreciation:
+67,351
+6,410
+19,054
+6,269
+9,167
+3,797
+22,654
+At 31 December 2016
+1,437
+6
+1,151
+13
+50
+217
+Exchange difference
+Total
+others
+vehicles and
+Aircrafts
+and vessels
+Summarised financial information of the associates that are not individually material to the Group:
+partnership
+Jiawu Investment Center
+Investment
+46.00%
+HKD86,500
+Shanghai
+Limited
+Shanghai Rosefinch
+Management Limited
+Management
+company
+Gazelle Investment Fund
+25.00% Fund
+RMB30,000
+Beijing
+Limited
+Beijing Zhongguancun
+underwriting
+company
+Insurance
+27.00%
+Group's
+effective Principal
+interest activity
+Particulars
+of issued and
+paid up capital
+(in thousands)
+HKD3,000
+Hong Kong
+Limited
+Underwriting Services Limited
+2016
+7,704
+Others
+2015
+equipment improvements
+in progress
+Leasehold
+Computer
+Construction
+Land and
+buildings
+Motor
+25. Property and equipment
+XI Financial Statements
+Limited company
+China Merchants Bank
+Annual Report 2016
+236
+5 2
+29
+63
+5 2
+29
+63
+income
+income
+Profit or loss
+comprehensive
+comprehensive
+Total
+Other
+Group's effective interest
+Others
+Group's effective interest
+9,082
+23
+Group's effective
+Hong Kong
+Limited
+Bank Consortium Holding Limited
+(note (iii))
+company
+Company Limited. (note(ii))
+50.00% Consumer finance
+50.00%
+RMB2,000,000
+Shenzhen
+Limited
+Merchants Union Consumer Finance
+company
+HKD150,000
+Company Limited (note(i))
+50.00%
+50.00%
+RMB2,800,000
+Shenzhen
+Limited
+(in thousands)
+Subsidiaries Principal activity
+interest of the Bank
+paid up capital
+and operation
+structure
+CIGNA &CMB Life Insurance
+Life insurance business
+13.33%
+company
+14.29% Provision of trustee,
+administration and
+custodian services
+for retirement schemes
+50.00%
+HKD6,000
+Hong Kong
+Limited
+i-Tech Solutions Limited
+company
+21.00% Reinsurance business
+21.00%
+HKD200,000
+Hong Kong
+Limited
+BC Reinsurance Limited (note (iii))
+company
+16.67% Life insurance business
+16.67%
+HKD420,000
+Hong Kong
+Limited
+Hong Kong Life Insurance Limited
+(note (iii))
+network services
+company
+20.00% Provision of ATM
+2.73%
+HKD10,025
+Hong Kong
+Limited
+Joint Electronic Teller Services Limited
+(note (iii))
+Name of joint ventures
+of the
+ownership
+interest
+Wing Lung Bank Limited ("WLB") is a wholly owned subsidiary of the Bank acquired in 2008. The acquisition was completed on 15 January
+2009. WLB had withdrawn from listing on the HKEX as of 16 January 2009.
+CMB Financial Leasing Company Limited ("CMBFLC") is a wholly-owned subsidiary of the Bank approved by the CBRC through its Yin Jian Fu
+[2008] No. 110 and commenced its operation in April 2008. In 2014, the Bank made an additional capital contribution of RMB2,000 million in
+CMBFLC. The capital of CMBFLC increased to RMB6,000 million and the Bank's shareholding percentage remains unchanged.
+The Board of Directors have considered and passed "The Resolution regarding the Capital Increase and Restructuring of CMBICHC" which
+agreed that the Bank made capital contribution of USD400 million (or its equivalent) to CMBICHC on 28 July 2015. The capital contribution
+completed on 20 January 2016.
+CMB International Capital Holdings Corporation Limited ("CMBICHC"), formerly known as Jiangnan Finance Company Limited and CMB
+International Capital Corporation Limited, is the Bank's wholly-owned subsidiary approved by the PBOC through its Yin Fu [1998] No. 405.
+In 2014, the Bank made an additional capital contribution of HKD750 million in CMBICHC. The capital of CMBICHC increased to HKD1,000
+million, and the Bank's shareholding percentage remains unchanged.
+(iv)
+(iii)
+(ii)
+(i)
+Notes:
+Li Hao
+Limited company
+55% Asset management
+RMB210
+Shenzhen
+China Merchants Fund Management
+Co., Ltd. (note (iv))
+Tian Huiyu
+Limited company
+100% Banking
+HKD1,161
+Hong Kong
+Wing Lung Bank Limited (note (iii))
+Lian Bolin
+Limited company
+100% Finance lease
+RMB6,000
+Shanghai
+CMB Financial Leasing Company
+Limited (note (ii))
+In 2012, the Bank acquired 21.6% equity interests in China Merchants Fund Management Co., Ltd. ("CMFM"), its former associate, from ING
+Asset Management B.V. at a consideration of EUR 63,567,567.57. Following the settlement of the above consideration in cash, the Bank's
+shareholdings in CMFM increased from 33.4% to 55.0% in 2013. As a result, the Bank obtained the control over CMFM, which became the
+Bank's subsidiary on 28 November 2013.
+50.00% Electronic document processing
+23. Interest in joint ventures
+2015
+of
+Group's
+effective
+Particulars of
+issued and
+Place of
+incorporation
+business
+Form of
+of
+Percentage
+Percentage
+Details of the Group's interest in major joint ventures are as follows:
+23. Interest in joint ventures (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+64
+(141)
+Share of other comprehensive income for the year
+134
+292
+Share of profits for the year
+2,732
+3,630
+Total
+5
+Loans to joint ventures
+2,727
+3,630
+Share of net assets
+2016
+company
+ownership
+Limited
+2,043
+11,524
+13,567
+interest
+Group's effective
+(25)
+6,471
+16
+(15)
+(254)
+239
+12,941
+4,086
+23,048
+603
+27,134
+119
+(23)
+4,150
+370
+351
+54
+297
+8,062
+(142)
+2,756
+18,164
+CIGNA & CMB Life
+2015
+(12)
+8
+301
+15,408
+2016
+Income tax
+equivalents amortisation
+The Bank's subsidiary, WLB, and China United Network Communications Limited ("CUNC"), which is a subsidiary of China Unicom Limited,
+jointly set up Merchants Union Consumer Finance Company Limited ("MUCFC"). CBRC has approved the operation of MUCFC on 3 March
+2015. WLB and CUNC hold 50.00% equity interests of MUCFC respectively and share the risks, profits and losses based on the above
+proportion of their shareholdings.
+The Group holds 50.00% equity interests of CIGNA & CMB Life Insurance Company Limited ("CIGNA & CMB Life"), and Life Insurance
+Company of North America ("INA") holds 50.00% equity interests of CIGNA & CMB Life. CIGNA & CMB Life is the only joint venture directly
+held by the Bank. The Bank and INA share the joint venture's profits, risks and losses based on the above proportion of their shareholdings.
+The Bank's investment in CIGNA & CMB Life shall be accounted as an investment in a joint venture.
+(iv)
+(iii)
+(ii)
+(i)
+These entities are jointly controlled by the Bank's subsidiary, WLB with other shareholders, and are strategic partners for WLB to widen the
+service type to be provided to the customers.
+Notes:
+50.00% Computer network service
+RMB40,000 50.00%
+Shenzhen
+Shenzhen Lianzhao Information Technology Limited
+Co., Ltd. (note (v)).
+49.00% Entrusted management
+equity investment
+49.00% Entrusted management
+equity investment
+49.00%
+company
+According to the agreement, the Group jointly controls the entity with other shareholders and none of the shareholders could control the
+entity by its own.
+(v)
+Shenzhen Lianzhao Information Technology Co., Ltd. has become subsidiary of CMBI at 2016 due to capital reduction.
+income
+income
+or loss
+Revenue
+Equity
+Assets Liabilities
+Cash Depreciation
+and cash
+and
+Total
+Other
+Profit comprehensive comprehensive
+Summarised financial information of the joint ventures which are individually material to the Group is as below:
+(i) CIGNA & CMB Life Insurance Company Limited
+23. Interest in joint ventures (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+234
+233
+85
+Shenzhen Zhaoyin Synergetic Fund
+CIGNA & CMB Life
+Investment Fund Management Co., Ltd.
+CMB Qianhai Financial Assets Exchange
+Co., Ltd.
+Limited
+Shenzhen
+RMB100,000 49.00%
+company
+Xinjiang High-Tech Zhaoyin Fund Co., Ltd.
+Limited
+Urumqi
+RMB5,000
+40.00%
+company
+49.00% Financial assets exchange
+platform and
+advisory services
+enterprise
+40.00% Entrusted management
+Shenzhen Shen'an Real Estate Development Limited
+Co., Ltd.
+Shenzhen
+RMB10,000
+50.00%
+RMB100,000
+Shenzhen
+Limited
+company
+(Shenzhen) Co., Ltd.
+The Great Wall bank asset management
+company
+50.00% Real estate
+RMB50,000 49.00%
+Tianjin
+Limited
+equity investment
+China Merchants Bank (Tianjin) Equity
+Merge& Acquisition Fund
+5.16%
+Shenzhen
+5.16% Investment
+RMB10,000
+51.00%
+51.00% Fund management
+company
+company
+Shenzhen Synergetic Hesheng
+Partnership
+RMB484,160
+Shenzhen
+Management Co.,Ltd. (note (iv)).
+3,348
+(ii) Financial liabilities designated at fair value through profit or loss
+In Mainland China
+- Precious metal contracts with other banks
+- Others
+Outside Mainland China
+- Certificates of deposit issued
+Debt securities issued
+2016
+2015
+15
+4,439
+3,595
+3,985
+Note
+8,455
+16,046
+16,879
+Total
+As at the end of reporting period, the difference between the fair value of the Group's financial liabilities designated
+at fair value through profit or loss and the contractual payables at maturity is not material. The amounts of changes
+in the fair value of these financial liabilities that are attributable to changes in credit risk are considered not
+significant during the year ended 31 December 2016 and 2015 and as at 31 December 2016 and 2015.
+37. Debt securities issued
+3,498
+8,938
+Guarantee for issuing letters of credit
+7,530
+Annual interest rate
+Nominal value
+(%)
+Fixed rate bond (notes(i))
+180 months 4 Sep 2008
+5.90 (for the first
+(in million)
+RMB7,000
+balance
+(RMB
+in million)
+6,995
+the year amortisation for the year
+(RMB (RMB
+in million) in million) in million)
+balance
+(RMB
+(RMB
+in million)
+2
+6,997
+ten years);
+8.90 (from 11 year
+onwards, if the
+notes are not
+called by
+the Bank)
+Fixed rate bond (notes(ii)) 180 months 28 Dec, 2012
+Fixed rate bond (notes(iii)) 120 months 18 Apr, 2014
+Total
+5.20
+6.40
+RMB11,700
+RMB11,300
+Date of issuance
+Ending
+during premium Repayment
+Beginning
+2015
+Subordinated notes issued
+(a)
+31,356
+32,519
+Long-term debt securities issued
+(b)
+40,959
+27,995
+Negotiable interbank certificates of deposit
+188,248
+176,245
+2016
+Certificates of deposit issued
+14,748
+Total
+275,082
+251,507
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+37. Debt securities issued (continued)
+(a) Subordinated notes issued
+As at the end of the reporting period, subordinated notes issued by the Bank were as follows:
+Issue Discount or
+Debt type
+Term to
+maturity
+14,519
+Total
+36. Financial liabilities at fair value through profit or
+7,530
+1,413
+1,398
+Customer deposit and others
+34,833
+37,675
+Total
+36,246
+39,073
+245
+246
+Guarantee for acceptance bills
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+Customer deposits include deposits for guarantees as follows:
+3,571,698
+3,802,049
+Total
+Issued debt securities
+1,210,167
+2015
+415,714
+Deposit for letters of guarantee
+Others
+Total
+35. Interest payable
+2016
+2015
+93,670
+191,988
+47,426
+49,188
+26,235
+56,499
+47,405
+60,172
+26,531
+57,867
+241,267
+2016
+3,330
+1,284,558
+375,105
+Financial liabilities held for trading
+7,530
+3,348
+Financial liabilities designated at fair value through profit or loss
+Total
+(ii)
+16,046
+16,879
+23,576
+20,227
+(i) Financial liabilities held for trading
+Listed
+2016
+2015
+-
+Equity securities at fair value
+18
+Precious metal relevant financial liabilities
+2015
+Subtotal
+2016
+loss
+332,943
+- Time deposits
+835,062
+951,615
+-Demand deposits
+2,361,531
+2,517,491
+1,194,064
+1,167,467
+1,441,225
+1,076,266
+Retail customers
+Subtotal
+- Time deposits
+Demand deposits
+11,688
+11,287
+Corporate customers
+Guarantee for loans
+Note
+11,689
+Term to
+maturity
+29,970
+(%)
+(in million)
+in million)
+in million)
+in million)
+in million)
+in million)
+Fixed rate bond (note (iii))
+Fixed rate bond (note (iii))
+Fixed rate bond (note (iii))
+Fixed rate bond (note (iii))
+Fixed rate bond (note (iv))
+Fixed rate bond (note (v))
+Fixed rate bond (note (vi))
+Leased asset backed
+securities (note (vii))
+Fixed rate bond (note (viii))
+Fixed rate bond (note (viii))
+Total
+36 months
+26 Jun 2013
+4.99
+RMB1,000
+1,000
+(1,000)
+60 months
+26 Jun 2013
+5.08
+RMB1,000
+1,000
+1,000
+36 months
+24 Jul 2013
+4.87
+RMB1,000
+1,000
+(RMB
+(RMB
+(RMB
+(RMB
+The CBRC and PBOC approved the Bank's issuance of RMB20,000 million long-term debt securities on 12 December 2011 (Yin Jian Fu [2011]
+No. 557 entitled "The Approval of the Issuance of Long-term Debt Securities by China Merchants Bank") and on 16 January 2012 (Yin
+Shi Chang Xu Zhun Yu Zi [2012] No. 2 entitled "Decision on Administrative Approval from the People's Bank of China"). The Bank issued
+RMB6,500 million fixed rate debt and RMB13,500 million floating rate debt on 14 March 2012 on the National Interbank Bond Market.
+The PBOC and National Development and Reform Commission approved the Bank's issuance of RMB1,000 million financial bonds on 13
+February 2014 (Yin Han [2014] No. 35 entitled "The Approval of the issuance of Renminbi debt securities in Hong Kong by China Merchants
+Bank") and on 11 March 2014 (Fa Gai Wei Zi [2014] No. 412 entitled "The Approval of issuance of Renminbi debt securities in Hong Kong by
+China Merchants Bank"). The Bank issued RMB1,000 million financial bonds on 10 April 2014 in Hong Kong.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+37. Debt securities issued (continued)
+(b) Long-term debt securities (continued)
+As at the end of the reporting period, long-term debt securities issued by CMBFLC were as follows:
+Debt type
+Term to
+maturity
+Annual
+interest
+Issue
+Discount or
+(1,000)
+Repayment
+during
+Date of issuance
+rate
+Nominal value
+balance
+the year
+premium
+amortisation
+for the
+Ending
+period
+balance
+(RMB
+Beginning
+60 months
+24 Jul 2013
+4.98
+USD300
+USD900
+2,078
+2,078
+6,244
+6,244
+11,245
+12,432
+226
+(3,883)
+20,020
+**
+Note:
+3.25
+(iii)
+(v)
+(vi)
+(vii)
+(viii)
+RMB900 million of these securities bears a fixed interest rate of 2.98% per annum. RMB600 million of these securities bears a fixed interest
+rate of 3.09% per annum and the remaining RMB2,610 million of these securities bears an interest rate based on the benchmark lending rate
+(R) for one to five years published by PBOC plus a spread of 1.35%. The benchmark interest rate published by PBOC is 4.75% during both the
+year ended 31 December 2016&2015.
+As approved by CBRC under its official reply on the issuance of financial bonds by CMBFLC under ref. Yin Jian Fu [2012] No. 758 and PBOC
+under its decision on the grant of administrative permission under ref. Yin Shi Chang Xu Zhun Yu Zi [2013] No. 33, CMBFLC issued the first
+tranche in 2013 of RMB2,000 million financial bonds on 26 June 2013 and the second tranche in 2013 of RMB2,000 million financial bonds
+on 24 July 2013. The Bank holds financial bonds issued by CMBFLC amounted to RMB10 million as of 31 December 2016. CMBFLC redeemed
+long-term bonds amounting to RMB1,000 million on 27 June 2016, and amounting to RMB 1,000 million on 25 July 2016.
+On 11 Aug 2014, CMB International Leasing Management Limited ("CMBIL"), CMBICHC's subsidiary issued USD500 million with annual
+interest rate of 3.25% guaranteed notes due 2019 on the HKEX.
+As approved by CBRC Shanghai office under its reply on the Issuance of Financial Bonds by CMBFLC under ref. Hu Yin Jian Fu [2015] No. 551
+and PBOC under its Decision on the Grant of Administrative Permission under ref. Yin Shi Chang Xu Zhun Yu Zi [2015] No. 276, CMBFLC
+issued the first tranche of 2015 of RMB200 million financial bonds on 7 Dec 2015.
+As approved by CBRC Shanghai office under its reply on the Issuance of financial bonds by CMBFLC under ref. Hu Yin Jian Fu [2015] No. 551
+and PBOC under its decision on the grant of administrative permission under ref. Yin Shi Chang Xu Zhun Yu Zi [2015] No. 276, CMBFLC issued
+the first tranche of 2016 of RMB3,800 million financial bonds. This 3-year fixed rate bond pays principal on maturity date.
+According to decision on the grant of administrative permission under ref. Yin Shi Chang Xu Zhun Yu Zi [2016] No. 65 and notification on
+record reply on the issuance of leased asset backed securities by CMBFLC approved by The China Banking Regulatory Commission Innovation
+Supervision Department, CMBFLC issued the first tranche of 2016 of RMB4,855 million finance leases receivable backed securities on 5 May
+2016 in the National Interbank Bond Market. The sponsor CMBIL held the amount of RMB745 million. CMBFLC redeemed RMB1,364 million
+finance leases receivable backed securities upon maturity at 29 July 2016, and redeemed RMB519 million finance leases receivable backed
+securities upon maturity at 28 October 2016.
+On 29 Nov 2016, CMBIL subsidiary issued USD300 million guaranteed notes due 2019 with annual interest rate of 2.63% and USD900 million
+guaranteed notes due 2021 with annual interest rate of 3.25% on the HKEX. The Bank holds Financial Bonds issued by CMBIL amounted to
+USD7 million as of 31 December 2016.
+249
+(iv)
+(ii)
+2.63
+R+1.35**
+RMB1,000
+1,000
+1,000
+60 months
+11 Aug 2014
+3.25
+USD500
+3,245
+226
+3,471
+36 months
+7 Dec 2015
+36 months 29 Nov 2016
+60 months 29 Nov 2016
+3.75
+200
+200
+36 months 11 Mar 2016
+74.5 months 5 May 2016
+3.27
+RMB3,800
+3,800
+3,800
+2.98/3.09/
+RMB4,110
+4,110
+(1,883)
+2,227
+RMB200
+11,288
+(i)
+R represents the 1-year fixed deposit rate ("Rate") promulgated by the PBOC. The Rate on 14 March 2012 was 3.50%, the Rate on 31
+December 2016 and 31 December 2015 was 1.50%.
+balance
+(RMB
+(RMB
+(RMB
+(%)
+(in million)
+in million)
+in million)
+in million)
+in million)
+in million)
+Fixed rate bonds
+Fixed to floating
+rate notes
+144 months 28 Dec, 2009
+120 months 6 Nov, 2012
+5.70
+3.50 (for the first
+HKD1,500
+USD200
+1,258
+86
+(1,344)
+1,291
+91
+1,382
+5 years);
+T*+2.80 (from 6
+year onwards,
+the year amortisation for the year
+(RMB
+balance
+(RMB
+Nominal value
+Annual interest rate
+4
+29,974
+Notes:
+(i)
+(ii)
+(iii)
+The China Banking Regulatory Commission (the "CBRC") and the People's Bank Of China (the "PBOC") approved the Bank's issuance of
+RMB30,000 million subordinated notes on 12 August 2008 (Yin Jian Fu [2008] No. 304 entitled "The Approval of the Issuance of Subordinated
+Bonds by China Merchants Bank" and Yin Shi Chang Xu Zhun Yu Zi [2008] No. 25 entitled "Decision on Administrative Approval from the
+People's Bank of China"). The Bank issued RMB26,000 million fixed rate notes and RMB4,000 million floating rate notes on 4 September 2008
+to institutional investors on National Interbank Bond Market.
+The Bank exercised its redemption right on 4 September 2013 and redeemed a total of RMB23,000 million subordinated bonds, including two
+types of bonds valued at RMB19,000 million and RMB4,000 million respectively.
+The CBRC and the PBOC approved the Bank's issuance of RMB11,700 million subordinated notes on 29 November 2012 (Yin Jian Fu [2012]
+No. 703 entitled "The Approval of the Issuance of Subordinated Bonds by China Merchants Bank") and on 20 December 2012 (Yin Shi Chang
+Xu Zhun Yu Zi [2012] No. 91 entitled "Decision on Administrative Approval from the People's Bank of China"). The Bank issued RMB11,700
+million fixed rate notes on 28 December 2012 to institutional investors on National Interbank Bond Market.
+The CBRC and PBOC approved the Bank's issuance of RMB11,300 million tier-2 capital bonds on 29 October 2013 (Yin Jian Fu [2013] No. 557
+entitled "The Approval of the Issuance of Subordinated Bonds by China Merchants Bank") and on 15 April 2014 (Yin Shi Chang Xu Zhun Yu
+Zi [2014] No. 22 entitled "Decision on Administrative Approval from the People's Bank of China"). The Bank issued RMB11,300 million tier-2
+capital bonds on 18 April 2014 on National Interbank Bond Market.
+247
+248
+if the notes are
+China Merchants Bank
+Annual Report 2016
+37. Debt securities issued (continued)
+(a) Subordinated notes issued (continued)
+As at the end of the reporting period, subordinated note issued by WLB was as follows:
+Issue
+Discount or
+Debt type
+2015
+Beginning
+during
+premium Repayment
+Ending
+Date of issuance
+XI Financial Statements
+not called by
+the Bank)
+Total
+*
+(RMB
+(RMB
+(RMB
+in million)
+in million)
+in million)
+(RMB
+in million)
+12 CMB 01 (note (i))
+12 CMB 02 (note (i))
+60 months 14 Mar, 2012
+60 months 14 Mar, 2012
+14 CMB 03 (note (ii))
+36 months 10 Apr, 2014
+4.15
+R*+0.95
+4.10
+(RMB
+in million)
+RMB6,500
+RMB13,500
+RMB1,000
+2
+6,499
+13,495
+4
+13,499
+998
+2
+1,000
+Total
+20,990
+8
+20,998
+6,497
+Note:
+(in million)
+balance
+T represents the 5 years US Treasury rate.
+Note:
+(iv)
+2,549
+177
+(1,344)
+1,382
+WLB obtained HKMA's prior written consent to redeem HKD1,500 million of fixed rate bonds in advance on 28 December 2016.
+(b) Long-term debt securities
+As at the end of the reporting period, long-term debt securities issued by the Bank were as follows:
+Issue
+Discount or
+(%)
+Debt type
+Date of issuance
+Annual
+interest rate
+Beginning
+during
+premium
+Repayment
+Ending
+Nominal value
+balance
+the year
+amortisation
+for the year
+Term to
+maturity
+2016
+- Banks
+XI Financial Statements
+30,113
+(161)
+2,625
+(51)
+(53)
+(2)
+(485)
+28,134
+4
+1,570
+87
+1,483
+13,441
+929
+15,153
+Total
+Others
+(1,124)
+2,418
+207
+(1,966)
+At 31 December 2016
+Exchange difference
+comprehensive Income
+Impairment
+Recognised in other
+allowances
+on loans and
+advances to
+customers and
+Salary and
+(124)
+(1,413)
+7,207
+(527)
+1,096
+6,638
+9,520
+(433)
+1,322
+(553)
+9,184
+comprehensive Income
+Recognised in other
+Recognised in profit or loss
+At 1 January 2015
+Total
+Others
+payable
+reserve
+other assets
+welfare
+Investment
+revaluation
+Recognised in profit or loss
+At 1 January 2016
+welfare
+payable
+229
+advances to customers and other assets
+Impairment allowances on loans and
+Deferred tax liabilities
+16,020
+64,185
+31,010
+123,990
+Total
+(276)
+(1,087)
+719
+2,891
+Others
+2,418
+9,669
+2,625
+10,501
+Salary and welfare payable
+(1,905)
+(7,614)
+38
+249
+42
+Investment revaluation reserve
+reserve
+Salary and
+Investment
+revaluation
+on loans and
+advances to
+customers and
+other assets
+allowances
+Impairment
+Movements of deferred tax
+(b)
+(867)
+(5,307)
+(1,537)
+(897)
+Total
+(848)
+(5,304)
+(880)
+(5,332)
+Others
+(61)
+(252)
+(55)
+(238)
+(5,341)
+(430)
+Exchange difference
+(40)
+-
+Banks
+In Mainland China
+31. Deposits from banks and other financial institutions
+The Group plans to dispose the repossessed assets by auction, bid and transfer.
+(ii)
+In 2016, the Group has disposed repossessed assets with total cost of RMB481 million (2016: RMB73 million).
+(i)
+Note:
+691
+864
+(981)
+(708)
+1,672
+1,572
+628
+474
+1,044
+1,098
+2015
+2016
+Other financial institutions
+Net repossessed assets
+Subtotal
+- Banks
+- Other financial institutions
+- Banks
+In Mainland China
+institutions
+32. Placements from banks and other financial
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+244
+243
+711,561
+7,526
+4,933
+555,607
+704,035
+550,674
+527,101
+470,062
+176,934
+80,612
+2015
+2016
+Total
+Outside Mainland China
+Less: impairment allowances
+Total
+Others
+Repossessed assets (note (a))
+1,091
+1,000
+Prepaid lease payments
+4,919
+14,260
+Amounts pending for settlement
+2015
+2016
+30. Other assets
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+The Group can control the timing of distribution and it expects no distribution will be made in foreseeable future.
+Note:
+15,153
+(1,124)
+2,418
+(1,966)
+15,825
+At 31 December 2015
+(37)
+864
+691
+Guarantee deposits
+437
+Residential properties
+(a) Repossessed assets
+12,848
+28,180
+5,141
+10,792
+27
+53
+Total
+Others
+3
+- Defined benefit plan (Note 38(b))
+129
+102
+Premium receivables
+158
+453
+Prepayment for lease improvement and other miscellaneous items
+229
+219
+Recoverable from reinsurers
+463
+Post-employment benefits
+(1,718)
+Investment revaluation reserve
+15,783
+Additions
+At 1 January 2015
+Amortisation:
+At 31 December 2015
+Exchange difference
+Transfers
+Additions
+At 1 January 2015
+Cost/valuation:
+27. Intangible assets (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+240
+Subtotal
+Outside Mainland China
+Total
+2016
+2015
+173,218
+165,471
+40,809
+Land
+use right
+1,100
+Software
+Core deposit
+35
+245
+1,271
+207
+5,754
+1,102
+3,135
+1,517
+48
+43
+2
+3
+(24)
+(24)
+715
+709
+5,015
+1,059
+2,424
+1,532
+6
+Total
+and Others
+214,027
+166,571
+34,849
+10,581
+12,833
+- Bonds issued by policy banks
+53,123
+67,336
+- Bonds issued by commercial banks and other financial institutions
+12,930
+1,994
+- Other debt securities
+295
+1,159
+Subtotal
+76,929
+83,322
+Discounted bills
+86,013
+78,291
+Total
+162,942
+161,613
+China Merchants Bank
+Annual Report 2016
+- PRC government bonds
+Debt securities
+2015
+(Restated)
+2016
+12,200
+248,876
+178,771
+33. Amounts sold under repurchase agreements
+(a) Analysed by nature of counterparties
+In Mainland China
+- Banks
+- Other financial institutions
+Subtotal
+- Outside Mainland
+360
+-Banks
+(b) Analysed by assets type
+2016
+2015
+(Restated)
+151,323
+10,817
+162,140
+149,400
+9,060
+158,460
+802
+162,942
+3,153
+161,613
+Total
+32
+1,723
+427
+16,020
+31,010
+2015
+Net amount
+Deferred tax assets
+Deferred tax liabilities
+29. Deferred tax assets, deferred tax liabilities
+In assessing impairment of goodwill, the Group assumed the terminal growth in line with long-term forecast gross
+domestic product for the main operating areas of WLB and CMFM. A pre-tax discount rate of 11% and 14% (2015:
+12% and 15%) was used. The Group believes any reasonably possible further change in the key assumptions on
+which recoverable amount are based would not cause the carrying amounts to exceed their recoverable amounts.
+The recoverable amounts of the CGUS are determined based on value-in-use calculations. These calculations use
+cash flow projections based on financial forecasts approved by management covering a 5-year period. Cash flows
+beyond the 5-year period are extrapolated using a steady growth rate. The growth rate does not exceed the long-
+term average growth rate for the business in which the CGU operates.
+Goodwill is allocated to the Group's CGU, WLB which was acquired on 30 September 2008 and CMFM which was
+acquired on 28 November 2013 and Zhaoyin Internet which was acquired on 1 April 2015 by CMBICHC.
+Impairment test for CGU containing goodwill
+28. Goodwill (continued)
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+On 1 April 2015, CMBICHC acquired a 100% equity interests in Zhaoyin Internet Technology(shenzhen) Corporation Limited ("Zhaoyin
+Internet"). On the acquisition date, the fair value of Zhaoyin Internet's identifiable net assets was RMB2.60 million. A sum of RMB1 million
+being the excess of acquisition cost over the fair value of the identifiable net assets was recognised as goodwill. Zhaoyin Internet's principal
+activities include development and sale of computer software and hardware, sale of communication equipment and office automation
+equipment, advisory service of computer technology and information.
+On 28 November 2013, the Bank acquired a 55.00% equity interests in CMFM. On the acquisition date, the fair value of CMFM's identifiable
+net assets was RMB752 million of which the Bank accounted for RMB414 million. A sum of RMB355 million being the excess of acquisition
+cost 769 million over the fair value of the identifiable net assets was recognised as goodwill. Please find the details about CMFM in Note 22.
+On 30 September 2008, the Bank acquired a 53.12% equity interests in WLB. On the acquisition date, the fair value of WLB's identifiable
+net assets was RMB12,898 million, of which the Bank accounted for RMB6,851 million. A sum of RMB10,177 million being the excess of
+acquisition cost over the fair value of the identifiable net assets was recognised as goodwill. Please find the details about WLB in Note 22.
+(iii)
+(ii)
+(i)
+Notes:
+(897)
+30,113
+(867)
+15,153
+241
+63,217
+28,096
+112,316
+advances to customers and other assets
+Impairment allowances on loans and
+Deferred tax
+difference
+Deferred tax
+difference
+(taxable)
+temporary
+9,954
+(taxable)
+temporary
+Deductible/
+2015
+2016
+Deferred tax assets
+The components of deferred tax assets/liabilities are as follows:
+(a) Analysed by nature of deferred tax assets and liabilities
+29. Deferred tax assets, deferred tax liabilities (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+242
+Deductible/
+34. Deposits from customers
+(579)
+10,533
+1,325
+At 1 January 2015
+3,595
+819
+1,502
+1,274
+At 31 December 2015
+Net book value:
+2,159
+283
+1,633
+243
+At 31 December 2015
+8
+6
+2
+Exchange difference
+1
+Transfers
+-
+1
+1,153
+814
+3,292
+28. Goodwill
+Total
+1
+1
+355
+355
+355
+1
+CMBICHC (note (iii))
+CMFM (note (ii))
+9,598
+(579)
+10,533
+2016
+Impairment
+loss
+Release 31 December
+in the year
+2016
+10,177
+10,177
+WLB (note (i))
+Addition
+in the year
+2016
+1 January
+As at
+As at
+Net value
+at 31
+December
+2016
+15,825
+12,305
+(83)
+28.32%
+28.32%
+28.32%
+Option life (year)
+0.83
+1.83
+2.83
+4.17
+5.33
+6.42
+7.50
+8.58
+9.67
+Expected dividends rate
+4%
+28.32%
+4%
+28.32%
+28.32%
+Payment/
+2016
+(a) Salaries and welfare payable
+38. Staff welfare scheme
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+250
+12.55
+13.12
+13.18
+20.33
+18.90
+Expected volatility
+28.32%
+28.32%
+28.32%
+Risk-free interest rate
+1.43%
+1.43%
+1.82
+10.26
+4.25
+4.61
+5.09
+4.81
+4.63
+Share price (in HKD)
+18.30
+18.30
+18.30
+18.30
+18.30
+18.30
+18.30
+date (in RMB)
+measurement
+Fair value at
+Phase VII
+4%
+1.43%
+4%
+1.43%
+4%
+1.43%
+4%
+1.43%
+4%
+1.43%
+4%
+1.43%
+Beginning
+4%
+2015
+Phase I
+Phase II
+Phase III
+Phase IV
+Phase V
+Phase VI
+1.43%
+Exercise price (in HKD)
+Charge
+Ending
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+6,524
+(26,638)
+27,094
+6,068
+Total
+38
+232
+(3,023)
+3,080
+10
+28
+Other long-term employee benefits (iii)
+175
+- defined contribution plans (ii)
+38. Staff welfare scheme (continued)
+Post-employment benefits
+(a) Salaries and welfare payable (continued)
+2016
+4,554
+(21,073)
+21,051
+4,576
+Medical insurance
+Social insurance
+Welfare expense
+Salary and bonus
+Ending
+balance
+in the year
+transfers
+Charge
+for the year
+balance
+Beginning
+Payment/
+(i) Short-term employee benefits
+6,254
+(23,615)
+24,004
+3,093
+7
+38
+232
+Other long-term employee benefits (iii)
+- defined contribution plans (ii)
+Post-employment benefits
+6,319
+(28,643)
+28,708
+6,254
+Short-term employee benefits (i)
+balance
+in the year
+for the year
+balance
+(2,641)
+684
+45
+Total
+5,865
+Short-term employee benefits (i)
+balance
+in the year
+for the year
+balance
+Ending
+Transfers
+Transfers
+Beginning
+Payment/
+2015
+7,048
+(31,284)
+31,808
+6,524
+Charge
+24.00
+5.46
+16.69
+318
+318
+326
+307
+307
+307
+1,883
+Li Hao
+159
+159
+163
+200
+200
+200
+240
+Ma Wei Hua
+240
+thousand) thousand) thousand) thousand) thousand) thousand) thousand) thousand) thousand) thousand) thousand)
+shares
+shares
+no. of
+granted
+granted
+(in
+(in
+granted
+(in
+granted
+(in
+granted
+(in
+granted
+granted
+(in
+granted
+(in
+granted
+(in
+exercised
+(in
+(in
+270
+1,831
+Tang Zhi Hong
+1,631
+Wang Qing Bin
+131
+153
+184
+184
+210
+210
+1,072
+Tian Hui Yu
+300
+300
+300
+900
+Liu Jian Jun
+210
+210
+210
+184
+159
+159
+163
+184
+184
+184
+210
+shares
+210
+1,663
+Ding Wei
+127
+159
+163
+184
+184
+210
+shares
+shares
+shares
+Expected dividends rate
+6.25%
+6.25%
+6.25%
+6.25%
+6.25%
+6.25%
+6.25%
+Risk-free interest rate
+1.41%
+1.41%
+1.41%
+1.41%
+1.41%
+1.41%
+8.52
+7.39
+6.35
+5.14
+15.56
+13.36
+13.93
+13.99
+Expected volatility
+43%
+43%
+1.41%
+43%
+43%
+43%
+43%
+Option life (year)
+1.83
+2.85
+3.85
+43%
+39
+The expected volatility is based on the historical volatility (calculated based on the weighted average remaining
+life of the share options) and adjusted for any expected changes to future volatility based on publicly available
+information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could
+materially affect the fair value estimate.
+255
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+Total
+shares
+shares
+shares
+shares
+shares
+No. of
+Phase IX
+Phase VIII
+Phase VII
+256
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+38. Staff welfare scheme (continued)
+(a) Salaries and welfare payable (continued)
+(iii)
+Other long-term employee benefits (continued)
+Share options were granted under service conditions. The conditions have not been taken into account in the grant
+date fair value measurement of the services received. There were no market conditions associated with the share
+option granted.
+(4)
+2016
+Phase I
+Phase II
+Phase III
+Phase IV
+Phase V
+Phase VI
+The number of share appreciation rights granted to members of senior management:
+2,812
+(2,789)
+62
+Options granted on 22 July 2015 (Note)
+10 years
+10 years
+3 years after the grant date
+years after the grant date
+1.830
+Options granted on 7 July 2014
+3
+1.059
+Options granted on 22 May 2013
+10 years
+3 years after the grant date
+1.059
+10 years
+3 years after the grant date
+2.160
+1.028
+3 years after the grant date
+Options granted on 24 August 2016
+The number and weighted average exercise prices of share options are as follows:
+(2)
+Other long-term employee benefits (continued)
+(iii)
+(a) Salaries and welfare payable (continued)
+38. Staff welfare scheme (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+254
+253
+The eighth phase of Appreciation Rights Scheme was approved in 2016.
+Note:
+10 years
+3 years after the grant date
+1.800
+10 years
+10 years
+2 years after the grant date
+0.946
+Payment/
+Transfers
+Charge
+for the year
+Beginning
+balance
+2015
+45
+7
+38
+Ending
+balance
+in the year
+Transfers
+Charge
+for the year
+Beginning
+balance
+Payment/
+2016
+Cash settled share-based transactions
+Ending
+in the year
+balance
+28
+10 years
+10 years
+2 years after the grant date
+2 years after the grant date
+0.795
+0.763
+Options granted on 4 May 2012
+Options granted on 30 October 2007
+Options granted on 7 November 2008
+Options granted on 16 November 2009
+Options granted on 18 February 2011
+2016
+(in millions)
+Exercise conditions
+options at
+the end of
+2016
+Number of
+unexercised
+As at 31 December 2016, the Group has offered 9 phases of H share Appreciation Rights Scheme to its senior
+management ("the Scheme"). The options of the Scheme vest after 2 years or 3 years from the grant date and are
+then exercisable within a period of 8 years or 7 years. Each of the share appreciation right is lined to one H-share.
+All share appreciation rights shall be settled in cash. The terms and conditions of the scheme are listed below:
+(1)
+38
+10
+Contract
+period of
+options
+Outstanding as at the beginning of the year
+Granted during the year
+Forfeited during the year
+0.34
+VIII Phase IX
+Phase V Phase VI Phase VII
+Phase IV
+Phase I Phase II Phase III
+Phase
+2016
+measurement
+date (in RMB)
+Fair value at
+The fair value of services received in return for share options granted are measured by reference to the fair value of
+share options granted. The estimate of the fair value of the share option granted is measured based on the Black-
+Scholes model. The contractual lives of the options are used as an input of the model.
+Fair value of share options and assumptions
+(3)
+Other long-term employee benefits (continued)
+(iii)
+(a) Salaries and welfare payable (continued)
+10.93
+3.03
+3.61
+4.48
+23.19
+Exercise price (in HKD)
+18.00
+18.00
+18.00
+18.00
+18.00
+38. Staff welfare scheme (continued)
+18.00
+18.00
+18.00
+Share price (in HKD)
+2.71
+2.45
+4.11
+4.20
+18.00
+Cash settled share-based transactions
+XI Financial Statements
+Pursuant to the requirements set out in the Scheme, if there are any dividends distributed, capital reserve converted
+into shares, share split or dilution, adjustments to the exercise price will be applied.
+(HKD)
+(in million)
+(in million)
+Number
+of options
+exercise price
+average
+Number
+of options
+2015
+Weighted
+(HKD)
+exercise price
+average
+Weighted
+Exercisable at the end of the year
+Outstanding at the end of the year
+ཙྪཱ ཝཱ ཝཱ ཝཱ
+14.58
+19.68
+13.82
+The options outstanding at 31 December 2016 had a weighted average exercise price of HKD15.81 (2015:
+HKD14.58) and a weighted average remaining contractual life of 6.21 years (2015: 5.67 years).
+3.91
+15.23
+4.07
+8.80
+14.58
+11.44
+China Merchants Bank
+Annual Report 2016
+(0.90)
+9.70
+15.43
+(1.32)
+3.96
+8.80
+14.23
+15.81
+14.61
+210
+Other long-term employee benefits
+(a) Salaries and welfare payable (continued)
+1,611
+14
+- Medical insurance
+Social insurance
+39
+(2,398)
+2,400
+37
+Welfare expense
+4,576
+(16,887)
+17,248
+4,215
+Salary and bonus
+balance
+(1,545)
+in the year
+80
+- Injury insurance
+Labour union and employee
+148
+(1,640)
+1,546
+242
+Housing reserve
+4
+(52)
+53
+3
+- Maternity insurance
+3
+(33)
+35
+1
+80
+for the year
+balance
+Ending
+Housing reserve
+5
+(56)
+57
+4
+- Maternity insurance
+2
+(26)
+25
+3
+- Injury insurance
+3
+(1,940)
+1,863
+80
+148
+1,814
+(1,815)
+147
+transfers
+Charge
+Beginning
+Payment/
+2015
+6,319
+(28,643)
+education expenses
+28,708
+Total
+1,546
+(944)
+1,086
+1,404
+education expenses
+Labour union and employee
+6,254
+1,353
+1,111
+(1,060)
+Supplementary pension
+79
+(1,353)
+1,385
+47
+Basic retirement security
+balance
+in the year
+Ending
+Payment/
+transfers
+Charge
+for the year
+balance
+Beginning
+2015
+684
+122
+1,601
+(1,582)
+141
+38. Staff welfare scheme (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+For its employees outside Mainland China, the Group participates in defined contribution retirement schemes at
+funding rates determined in accordance with the local practise and regulations.
+In addition to the above statutory pension schemes, the Group has established a supplementary defined contribution
+plan for its employees (annuity insurance) in accordance with relevant annuity policies for corporate entities in the
+PRC. During the year ended 31 December 2016, the Group's annual contributions to this plan are determined based
+on 0% to 8.33% of the staff salaries and bonuses (2015: 8.33%).
+In accordance with the regulations in the PRC, the Group participates in statutory pension schemes organised by
+the municipal and provincial governments for its employees (endowment insurance). During the year ended 31
+December 2016, the Group's contributions to the schemes are determined by local governments and vary at a range
+of 12% to 20% (2015: 12% to 35%) of the staff salaries.
+Defined contribution pension schemes
+(2,641)
+232
+3,080
+12
+(88)
+94
+6
+175
+Total
+Unemployment insurance
+(3,023)
+(iii)
+3,093
+Total
+Payment/
+2016
+(ii) Post-employment benefits-defined contribution plan
+(a) Salaries and welfare payable (continued)
+38. Staff welfare scheme (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+252
+251
+6,254
+(23,615)
+24,004
+5,865
+Total
+1,404
+Beginning
+balance
+Charge
+for the year
+Transfers
+in the year
+12
+14.75
+83
+12
+Unemployment insurance
+610
+(882)
+232
+1,351
+Supplementary pension
+62
+(1,676)
+1,659
+79
+Basic retirement security
+Ending
+balance
+141
+4.65
+210
+630
+Actuarial profit or losses due to liability experience
+(29)
+(29)
+5
+5
+12
+13
+316
+340
+Actual benefits paid
+Interest cost
+Current service cost
+Present value of obligation at 1 January
+2015
+2016
+(1)
+12
+Actuarial profit or losses due to financial assumption changes
+(21)
+5
+Interest income
+386
+367
+Fair value of the Plan assets at 1 January
+2015
+2016
+The movements in the defined benefit obligation during the year are as follows:
+The movements in the fair value of the Plan assets during the year are as follows:
+320
+Actual obligation at 31 December
+17
+21
+(8)
+Actuarial gain or losses due to demographic assumption changes
+Exchange difference
+7
+340
+6
+(b) Post-employment benefits – defined benefit plan (continued)
+XI Financial Statements
+53
+(320)
+373
+2016
+Present value of the funded defined benefit obligation
+Net asset recognised in the statement of financial position
+Fair value of the Plan assets
+The amounts recognised in the statement of financial position as at 31 December 2016 are analysed as follows:
+The latest actuarial valuation of the Plan was performed in accordance with IAS 19 issued by the IASB as at 31
+December 2016 by Willis Towers Watson Limited, a professional actuarial firm. The present values of the defined
+benefit obligation and current service cost of the Plan are calculated based on the projected unit credit method. At
+the valuation date, the Plan had a funding level of 117% (2015: 108%).
+The Group's subsidiary WLB operates a defined benefit plan ("the Plan") for the staff, which includes a defined
+benefit scheme and a defined benefit pension section. The contributions of the Plan are determined based on
+periodic valuations by qualified actuaries of the assets and liabilities of the Plan. The Plan provides benefits based on
+members' final salary. The costs are solely funded by WLB.
+Post-employment benefits - defined benefit plan
+(b)
+38. Staff welfare scheme (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+In 2016, no member of senior management had exercised any share appreciation rights (2015: Nil).
+2015
+367
+(340)
+27
+China Merchants Bank
+Annual Report 2016
+258
+257
+The actual gains on the Plan assets for the year ended 31 December 2016 was RMB10 million (2015: actual losses
+was RMB4 million).
+(11)
+(13)
+Net expense for the year included in retirement benefit costs
+38. Staff welfare scheme (continued)
+1
+(12)
+(13)
+Current service cost
+2015
+2016
+There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2016 and 2015.
+The amounts recognised in the consolidated statement of profit or loss are as follows:
+A portion of the above asset is expected to be recovered after more than one year. However, it is not practicable
+to segregate this amount from the amounts receivable in the next twelve months, as future contributions will
+also relate to future services rendered and future changes in actuarial assumptions and market conditions. No
+contribution to the Plan is expected to be paid in 2016.
+Net interest income
+Note:
+Expected return on the Plan assets other than interest profit or losses
+Actual benefits paid
+(9)
+5.0
+4.5
+0.6
+1.1
+1.4
+1.8
+Pension increase rate for the defined benefit pension plan
+Long-term average rate of salary increase for the Plan
+- Defined benefit pension scheme
+- Defined benefit scheme
+Discount rate
+2015
+2016
+The principal actuarial assumptions adopted in the valuation are as follows:
+(b) Post-employment benefits – defined benefit plan (continued)
+2.0
+3.0
+As at 31 December 2015 and 2016, there is no significant change of the amount in the liabilities of the retirement
+benefit plan due to the above mentioned actuarial assumptions.
+(c) Staff salary and incentive scheme
+210
+12,820
+19,523
+Total
+347
+2,633
+3,448
+527
+38. Staff welfare scheme (continued)
+Others
+9,840
+15,548
+Corporate income tax
+2015
+2016
+39. Tax payable
+The performance bonus was accrued at a fixed percentage based on the net profit for the year as approved by the
+Board of Directors and accounted as operating expenses.
+Tax and surcharges payable
+5
+XI Financial Statements
+No deposit with the Bank was included in the amount of the Plan assets (2015: Nil).
+%
+Amount
+%
+Amount
+2015
+2016
+The major categories of the the Plan assets are as follows:
+Fair value of the Plan assets at 31 December
+367
+373
+13
+25
+Exchange difference
+(29)
+(29)
+Equities
+228
+61.3
+236
+100
+367
+100
+373
+Total
+18.5
+68
+China Merchants Bank
+Annual Report 2016
+20.9
+Cash
+17.2
+63
+17.8
+67
+Bonds
+64.3
+78
+8,801
+259
+1,259
+shares
+shares
+shares
+shares
+shares
+shares
+shares
+Total
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+No. of
+shares
+no. of
+granted
+granted
+thousand)
+thousand)
+(in
+(in
+(in
+(in
+(in
+No. of
+(in
+shares
+exercised
+granted
+granted
+granted
+granted
+granted
+(in
+thousand)
+Phase VII
+Phase V
+330
+180
+150
+Xu Shi Qing
+510
+180
+180
+150
+Lian Bo Lin
+570
+210
+210
+150
+Wang Liang
+2,070
+Xiong Liang Jun
+210
+210
+420
+Phase IV
+Phase III
+Phase II
+Phase I
+2015
+11,440
+1,800
+Phase VI
+2,160
+1,059
+1,059
+1,028
+946
+795
+763
+Total
+1,830
+thousand)
+15.88
+thousand)
+Tian Hui Yu
+862
+210
+184
+184
+153
+131
+Wang Qing Bin
+1,211
+210
+184
+184
+184
+163
+159
+300
+Liu Jian Jun
+210
+210
+thousand)
+1,259
+1,228
+1,109
+954
+922
+150
+127
+150
+150
+Total
+Xu Shi Qing
+Lian Bo Lin
+150
+150
+Wang Liang
+150
+Ding Wei
+300
+210
+200
+163
+159
+159
+Zhang Guang Hua
+1,883
+307
+200
+307
+326
+318
+318
+Ma Wei Hua
+thousand)
+1,243
+thousand)
+307
+200
+thousand)
+1,321
+240
+184
+163
+159
+159
+Tang Zhi Hong
+1,321
+240
+184
+200
+200
+163
+159
+159
+Li Hao
+200
+184
+23,638
+15,626
+30,399
+2,596
+2,897
+535
+2,043
+1,391
+24,091
+23,186
+40,664
+43,296
+715,864
+528,553
+9,388
+534
+5,612,579
+Borrowing from central bank
+China Merchants Bank
+Annual Report 2016
+Total assets
+162,275
+Amounts sold under repurchase agreements
+112,659
+155,378
+702,862
+536,868
+5,208,037
+Deposits from banks and other financial institutions
+Placements from banks and other financial institutions
+330,108
+Liabilities
+(Restated)
+2016
+2015
+49. The bank's statement of financial position (continued)
+XI Financial Statements
+86,639
+Other assets
+16,099
+Intangible assets
+Interest receivable
+2,506,618
+2,907,561
+Loans and advances to customers
+342,928
+277,997
+Amounts held under resale agreements
+202,534
+204,197
+Placements with banks and other financial institutions
+55,927
+82,361
+Balances with banks and other financial institutions
+543,228
+562,305
+24,695
+Deferred tax assets
+23,648
+50,305
+Investment properties
+Property and equipment
+Interest in joint ventures
+Investments in subsidiaries
+Debt securities classified as receivables
+351,704
+475,924
+Held-to-maturity investments
+276,846
+346,090
+Available-for-sale financial assets
+9,607
+8,029
+Derivative financial assets
+54,960
+Financial assets at fair value through profit or loss
+161,246
+5,769
+3,642,640
+Total equity and liabilities
+352,041
+386,806
+Total equity
+17,402
+18,663
+Proposed profit appropriations
+128,791
+158,317
+Retained profits
+63,928
+67,030
+Regulatory general reserve
+34,009
+39,708
+5,612,579
+5,208,037
+265
+266
+reserve
+reserve
+reserve
+capital
+Exchange
+profit
+Retained
+Surplus reserve
+Hedging Surplus general
+Regulatory
+Investment
+Capital revaluation
+Share
+The reconciliation between the opening and closing balances of each component of the Group's consolidated
+equity is set out in the consolidated statement of changes in equity. Details of the changes in the Bank's individual
+components are as follows.
+49. The bank's statement of financial position (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+Proposed
+Deposits from customers
+241
+Hedging reserve
+5,694
+Salaries and welfare payable
+235,854
+250,523
+Debt securities issued
+7,084
+10,344
+Derivative financial liabilities
+19,786
+23,561
+Financial liabilities at fair value through profit or loss
+37,559
+34,873
+Interest payable
+3,421,403
+5,363
+Tax payable
+Other liabilities
+18,851
+2,937
+1,206
+Investment revaluation reserve
+76,681
+76,681
+Capital reserve
+25,220
+(19)
+25,220
+Equity
+Total liabilities
+4,855,996
+5,225,773
+53,441
+54,658
+12,100
+Share capital
+13,783
+Dividends in 2014, approved and to be declared
+Balances with central bank
+At 1 January and 31 December
+The capital reserve primarily represents share premium of the Bank. The capital reserve can be used to issue shares
+with the shareholders' approval.
+42. Capital reserve
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+25,220
+25,220
+(in million)
+Amount
+No. of shares
+Capital
+At 1 January 2016 and at 31 December 2016
+All H-Shares are ordinary shares and rank pari passu with the A-Shares. There is no restriction condition on these
+shares.
+25,220
+4,591
+2016 & 2015
+67,523
+20,629
+43. Investment revaluation reserve
+The movements of investment revaluation reserve:
+(2,982)
+net of deferred tax
+Changes in fair value of available-for-sale financial assets,
+(421)
+(1,642)
+available-for-sale financial assets, net of deferred tax
+Realised (gain)/loss on disposal or impairment of
+64
+(141)
+Share of investment revaluation reserve of joint ventures
+1,902
+6,188
+Beginning Balance
+2015
+2016
+Investment revaluation reserve has been accounted for in accordance with the accounting policies adopted for the
+measurement of the available-for-sale financial assets at fair value, net of deferred tax.
+Total
+- H-Shares
+- A-Shares
+21,124
+2015
+2016
+Note:
+Total
+Others
+Cheques and remittances returned
+Payment and collection account
+Insurance liabilities
+Salary risk allowances (note)
+Clearing and settlement accounts
+40. Other liabilities
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+260
+25,665
+9,000
+8,000
+1,888
+Listed shares
+2016 & 2015
+(in million)
+Capital
+No. of shares
+By type of share:
+41. Share capital
+Salary risk allowances are specific funds withheld from the employees' (excluding senior management of the Bank) annual remunerations of
+which the payments are delayed for the purpose of risk management. The allocation of the funds is based on performance assessment and
+risk management results, taking into account the short term and long term benefit. In the event of a decline in the asset quality, a sharp
+deterioration of risk profiles and profitability, the occurrence legal case, or a significant regulatory violation identified by any regulatory
+authorities, the relevant employees will be restricted from the allocation of these allowances.
+4,643
+64,345
+27,504
+32,606
+15
+17
+1,295
+1,208
+1,866
+65,843
+Defined benefit plan, net of deferred tax
+31
+Ending Balance
+5,699
+2015
+2016
+16,897
+17,402
+2015
+2016
+Total
+(2015: RMB0.69 per shares)
+cash dividend: RMBO.74 per shares
+-
+Dividends
+Regulatory general reserve
+Statutory surplus reserve
+(b) Proposed profit appropriations
+5,319
+3,159
+10,700
+18,663
+Precious metals
+Assets
+Cash
+(Restated)
+2016
+2015
+49. The bank's statement of financial position
+XI Financial Statements
+RMB0.67 per shares
+China Merchants Bank
+Annual Report 2016
+263
+The exchange reserve comprises all foreign exchange differences arising from the translation of the consolidated
+financial statements of operations outside Mainland China.
+48. Exchange reserve
+2016 profit appropriation is proposed in accordance with the resolution passed at the meeting of the Board of
+Directors held on 24 March 2017 and will be submitted to the 2016 annual general meeting for approval.
+33,421
+17,402
+27,521
+264
+15,632
+RMB0.69 per shares
+(a) Dividends approved/declared by shareholders
+34,009
+2015
+2016
+At 31 December
+Statutory surplus reserve
+At 1 January
+Statutory surplus reserve is calculated according to the requirements of the Accounting Standards for Business
+Enterprises and other relevant regulations issued by the Ministry of Finance ("MOF") and is provided at 10% of the
+audited profit after tax. Surplus reserve can be used to offset accumulated losses or capitalised as paid-up capital
+with the approval of shareholders.
+45. Surplus reserve
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+262
+261
+The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging
+instruments used in cash flow hedges pending subsequent recognition of the hedged cash flow in accordance with
+the accounting policy adopted for cash flow hedge in Note 2(i)(ii).
+44. Hedging reserve
+6,188
+28,690
+5,699
+39,708
+5,319
+34,009
+47. Profit appropriations
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+64,679
+67,838
+10,700
+3,159
+Dividends in 2015, approved and to be declared
+53,979
+2015
+2016
+At 31 December
+Statutory surplus reserve
+At 1 January
+Pursuant to relevant MOF notices, the Bank and the Group's financial services subsidiaries in Mainland China are
+required to set aside a general reserve according to a certain percentage of the ending balance of gross risk-bearing
+assets through profit after tax to cover potential losses against their assets. Effective from 1 July 2012, the minimum
+general reserve balance should increase to 1.5% of the ending balance of gross risk-bearing assets with a transition
+period of five years. The Bank and the Group's financial services subsidiaries in Mainland China have complied with
+the above requirements as of 31 December 2016.
+46. Regulatory general reserve
+64,679
+1,454
+Total
+reserve
+(1,490)
+(1,497)
+- Depreciation
+Operating expenses
+202,166
+209,949
+5,269
+7,669
+92,479
+100,190
+104,418
+102,090
+Operating income
+11,571
+14,489
+1,154
+3,953
+665
+900
+(2,394)
+(2,374)
+(396)
+(222)
+(39,503)
+(38,057)
+(26,364)
+(24,599)
+Subtotal
+(287)
+(248)
+(287)
+(248)
+9,752
+Charge for insurance claims
+(60,613)
+(1,581)
+(1,848)
+(37,129)
+(24,874) (35,663)
+(23,102)
+- Others
+(4,086)
+(4,287)
+(63,584)
+(2,492)
+9,636
+53,009
+137,586
+134,595
+15,182
+19,533
+70,325
+75,356
+52,079
+39,706
+External net interest income
+(Restated)
+(Restated)
+(Restated)
+(Restated)
+2015
+2016
+2015
+2016
+2015
+2016
+Internal net interest income/(expense)
+19,638
+(7,863)
+(5,149)
+60,865
+3,422
+profits appropriations
+3,157
+26,638
+31,797
+22,949
+25,911
+Net fee and commission income
+Other net income
+137,586
+693
+559
+65,176
+67,493
+71,717
+66,543
+Net interest income/(expense)
+(14,489)
+(18,974)
+134,595
+(2,090)
+(65,148)
+(67,957)
+financial business
+Retail
+Wholesale
+9,084
+15,915
+4,230
+12,395
+2,911
+2,166
+1,943
+1,354
+Capital expenditure (note)
+75,079
+78,963
+370
+(6,176)
+36,654
+45,099
+38,055
+financial business
+Other business
+Total
+Reportable segment assets
+reserve
+269
+75,079
+78,963
+202,166
+209,949
+2015
+2016
+Total profit before income tax for reportable segments
+40,040
+Total operating income for reportable segments
+Profit
+(b) Reconciliations of reportable segments revenue, profit or loss, assets, liabilities
+and other material items
+Note: Capital expenditure represents total amount incurred for acquiring long-term segment assets.
+2,786
+31/12/2016 31/12/2015
+31/12/2016 31/12/2015
+1,506,820 1,527,731 5,891,139 5,438,740
+968,103 678,269 5,474,593 5,060,114
+3,712
+3,712
+2,786
+Interest in associates and joint ventures
+31/12/2016 31/12/2015 31/12/2016 31/12/2015
+2,812,631 2,645,274 1,571,688 1,265,735
+3,204,988 3,234,821 1,301,502 1,147,024
+Reportable segment liabilities
+Operating Income
+Reportable segment profit/(loss) before tax
+136
+321
+(Restated)
+(Restated)
+(Restated)
+2015
+2016
+2015
+2016
+2015
+2016
+(Restated)
+2015
+Total
+Other business
+financial business
+Retail
+Wholesale
+financial business
+(a) Segment results, assets and liabilities (continued)
+51. Operating Segments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+2016
+2015
+Reportable segment profit/(loss) before
+77,491
+136
+321
+ventures
+Share of profit of associates and joint
+(59,266)
+(66,159)
+(2,945)
+(11,674)
+(16,322)
+impairment losses
+(17,034)
+(37,451)
+Impairment losses
+134,209
+144,801
+3,179
+5,177
+52,976
+62,133
+78,054
+(39,999)
+2016
+26,837
+Other business
+Exchange
+profit
+Retained
+Surplus general
+Hedging
+Share Capital revaluation
+Proposed
+Regulatory
+Investment
+386,806
+18,663
+158,317
+67,030
+39,708
+(19)
+1,206
+76,681
+25,220
+Balance at 31 December 2016
+capital
+reserve
+reserve
+reserve
+5,319
+404
+4,096
+Changes in equity for 2015:
+311,251
+2
+16,897
+109,043
+53,208
+18,663
+28,690
+1,673
+76,681
+25,220
+Balance at 1 January 2015
+Total
+reserve
+profits appropriations
+reserve
+Total
+(163)
+(18,663)
+2016
+Proposed dividends for the year
+56,990
+Net profit for the year
+34,765
+1,261
+29,526
+3,102
+5,699
+(260)
+(4,563)
+56,990
+Changes in equity for 2016:
+17,402
+128,791
+63,928
+34,009
+241
+5,769
+76,681
+25,220
+Balance at 1 January 2016
+352,041
+10,720
+Other comprehensive income
+(4,563)
+(17,402)
+(17,402)
+(3,102)
+3,102
+(5,699)
+Dividends paid for the year 2015
+general reserve
+Appropriations to regulatory
+5,699
+for the year
+surplus reserve
+Profit appropriations
+52,167
+56,990
+(260)
+(4,563)
+for the year
+Total comprehensive income
+(4,823)
+(260)
+Appropriations to statutory
+19,748
+reserve
+(2)
+(b) Significant non-cash transactions
+635,843
+532,112
+17,473
+3,546
+Total
+Debt securities investments
+296,458
+265,868
+147,714
+98,497
+Placements with banks and other financial institutions
+Amounts held under resale agreements
+56,014
+73,463
+Balance with banks and other financial institutions
+118,184
+90,738
+Cash and balances with central bank
+2015
+There are no significant non-cash transactions during the year.
+505
+The Group's principal activities are commercial lending and deposits taking. The funding of existing retail and
+corporate loans are mainly from customer deposits.
+The Group manages its businesses by divisions, which are organised by a mixture of both business lines and
+geography.
+Retail
+financial business
+Wholesale
+financial business
+Segment results, assets and liabilities
+No customer contributed 10% or more to the group's revenue for 2016 and 2015.
+Segment revenue reported above represents revenue generated from external customers, inter-segment
+transactions are offset. Internal transactions are negotiated at fair value.
+The accounting policies of the operating segments are the same as the Group's accounting policies.
+For the purpose of operating segment analysis, external net interest income/expense represents the net
+interest income earned or expense incurred on banking services provided to external parties. Internal
+net interest income/expense represents the assumed profit or loss by the internal funds transfer pricing
+mechanism which has taken into account the structure and market returns of the assets and liabilities
+portfolio. Cost allocation is based on direct costs attributable to each reporting segment and apportion
+according to the relevant factors.
+Other business covers property leasing, some businesses operated by subsidiaries other than WLB, associates
+and joint ventures, and other relevant businesses. None of these segments meets any of the quantitative
+thresholds so far for segments division.
+Other Business
+2016
+(a)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+268
+267
+The provision of financial services to retail customers includes lending and deposit taking activities, bank card
+business, wealth management services, private banking and other services.
+Retail finance business
+The financial services for the corporate clients, sovereigns and financial institutions include: loan and deposit
+service, settlement and cash management service, trade finance and offshore business, investment banking
+business, inter-bank business comprised of lending and buy-back, asset custody business, financial market
+business, and other services.
+Wholesale finance business
+Since 2016, in order to adapt to the client and product line coordination mechanism, the Group was converted into
+wholesale finance business and retail finance business and other business segment for business decisions, report and
+performance evaluation. The profits and losses of the treasury were allocated to two business lines proportionally.
+After adjustment for the main business segments of the Group, the reporting for the segments was as follows:
+51. Operating Segments (continued)
+(a) Analysis of the balances of cash and cash equivalents (with original maturity
+within 3 months):
+51. Operating Segments
+XI Financial Statements
+Appropriations to statutory
+Profit appropriations
+57,687
+(2)
+53,189
+404
+4,096
+for the year
+Total comprehensive income
+4,498
+(2)
+404
+4,096
+for the year
+Other comprehensive income
+53,189
+53,189
+Net profit for the year
+50. Notes to consolidated cash flow statements
+surplus reserve
+Appropriations to regulatory
+40,790
+general reserve
+(5,319)
+China Merchants Bank
+Annual Report 2016
+5,319
+352,041
+17,402
+63,928 128,791
+34,009
+241
+5,769
+76,681
+25,220
+reserve
+17,402
+(17,402)
+2015
+(16,897)
+(16,897)
+(10,720)
+10,720
+Proposed dividends for the year
+Dividends paid for the year 2014
+Balance at 31 December 2015
+44,833
+Other unallocated liabilities
+12,820
+Total liabilities for reportable segments
+Tax payable
+5,060,114
+5,474,593
+40,286
+19,523
+Consolidated total liabilities
+XI Financial Statements
+5,113,220
+China Merchants Bank
+Annual Report 2016
+Liabilities
+51. Operating Segments (continued)
+(c) Geographical segments
+The Group operates principally in the PRC with branches located in major provinces, autonomous regions and
+municipalities directly under the central government. The Group also has branches operation in Hong Kong, New
+York, Singapore, London and Luxembourg, subsidiaries operating in Hong Kong and Shanghai and representative
+offices in Beijing, London, New York and Taipei.
+In presenting information on the basis of geographical segments, operating income is allocated based on the
+location of the branches, subsidiaries that generate the revenue. Segment assets and non-current assets are allocated
+based on the geographical location of the underlying assets.
+To support the Bank's operations and management's assessments, the geographical segments are defined as follows:
+"Headquarter" refers to the Group headquarter, special purpose vehicles at the branch level which are
+directly under the headquarter, associates and joint ventures, including the headquarter and credit card
+centres, etc;
+5,538,949
+5,474,978
+31,010
+9,445
+270
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+51. Operating Segments (continued)
+(b) Reconciliations of reportable segments revenue, profit or loss, assets, liabilities
+and other material items (continued)
+Assets
+Total assets for reportable segments
+Goodwill
+Intangible assets
+Deferred tax assets
+Other unallocated assets
+"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
+province;
+31/12/2016
+31/12/2015
+5,891,139
+9,954
+833
+5,438,740
+9,954
+819
+16,020
+9,375
+5,942,311
+Consolidated total assets
+279
+"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
+Jiangxi province, Shanxi province and Hainan province;
+55. Risk management
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+2015
+1,820,694
+2016
+2,375,766
+Funds received from customers under wealth management services
+At the end of the reporting period, funds received from customers under wealth management services were as
+follows:
+The Group's wealth management services to customers mainly represent sales of wealth management products to
+corporate and personal banking customers. The funds obtained from wealth management services are invested in
+investment products, including government bonds, notes issued by policy banks, short-dated corporate notes and
+entrusted loans. The Group initiated the launch of wealth management products. The investment risk associated
+with these products is borne by the customers who invest in these products. The Group does not consolidate these
+wealth management products. The Group earns commission which represents the charges on customers in relation
+to the provision of custody, sales and management services. The wealth management products and funds obtained
+are not assets and liabilities of the Group and are not recognised in the consolidated statement of financial position.
+The funds obtained from wealth management services that have not yet been invested are recorded under other
+liabilities.
+(320,110)
+(388,340)
+(a) Credit risk
+2015
+320,110
+(b) Wealth management services
+Entrusted funds
+Entrusted loans
+At the end of the reporting period, the entrusted assets and liabilities were as follows:
+Entrusted lending are not assets of the Group and are not recognised in the consolidated statement of financial
+position. Income received and receivable for providing these services are recognised in the consolidated statement of
+profit or loss as fee and commission income.
+The Group's entrusted lending business refers to activities where principals such as government departments,
+business entities and individuals provide capital for loan advances by the Group to their specified targets on their
+behalf in accordance with specific terms and conditions, with the help of the Group in monitoring loan usage and
+seeking loan recovery. The entrusted lending business does not expose the Group to any credit risk. As instructed by
+these principals, the Group holds and manages underlying assets and liabilities only in the capacity of an agent, and
+charges handling fees for related services.
+(a) Entrusted lending business
+54. Transactions on behalf of customers
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+2016
+388,340
+276
+Credit risk represents the potential loss that may arise from the failure of a counterparty or a debtor to meet its
+obligation or commitment to the Group. Credit risk increases when all counterparties are concentrated in a single
+industry or a geographical region, as different counterparties in the same region or industry may be affected by the
+same economic development, which may eventually affect their repayment abilities.
+With respect to daily operations, the Risk Management Department, as directed by the Risk and Capital Management
+Committee, participates in, coordinates and monitors the work of other risk management functions, including each
+business unit and the Legal and Compliance Department. The Group manages credit risk throughout the entire credit
+process including pre-lending evaluations, credit approval and post-lending monitoring.
+2016
+The credit quality of loans and advances to customers can be analysed as follows:
+(ii)
+The Group's maximum exposure to credit risk without taking account of any collateral held or other credit
+enhancements is the total amount of the carrying amount of the relevant financial assets (including derivatives) as
+disclosed in the consolidated statement of financial position and the carrying amount of the off balance sheet items
+disclosed in Note 53(a). At 31 December 2016, the maximum exposure to credit risk of those items is RMB8,680,175
+million (2015: RMB8,043,986 million).
+Maximum exposure
+(i)
+Credit risk (continued)
+(a)
+55. Risk management (continued)
+Annual Report 2016
+The Group has designed its organisation framework, credit policies and processes with an objective to identify,
+evaluate and manage its credit risk effectively. The Risk and Capital Management Committee, set up and appointed
+by the Board of Directors is responsible for supervising and evaluating the set-up, organisational structure, work
+process and effectiveness of various risk management functions.
+XI Financial Statements
+278
+277
+The Group's credit risk management policy for derivative financial assets is the same as that for other transactions.
+In order to mitigate the credit risk arising from financial derivatives, the Group has signed hedging agreements with
+certain counterparties.
+Analyses of loans and advances by industry and loan portfolio are stated in Note 19.
+Concentration of credit risk: when certain number of customers are in the same business, located in the same
+geographical region or their industries share similar economic characteristics, their ability to meet their obligations
+may be affected by the same economic changes. The level of concentration of credit risk reflects the sensitivity of
+the Group's operating result to a specific industry or geographical region. To prevent concentration of credit risk, the
+Group has formulated the quota limit management policy to monitor and analyse the loan portfolio.
+The risks involved in contingent liabilities and commitments are essentially the same as the credit risk involved in
+loans and advances to customers. These transactions are, therefore, subject to the same credit application, post-
+lending monitoring and collateral requirements as for customers applying for loans.
+In respect of loan classification, the Group adopts a risk based loan classification methodology. Currently, the Group
+categorises its loans on a ten-grade loan classification basis in order to refine internal risk classification management
+(normal (grades 1-5), special mention (grades 1-2), substandard, doubtful and loss). The loans and advances for
+which objective evidence of impairment exists based on a loss event or several events and which bear significant
+impairment losses are classified as impaired loans and advances. The allowances for impairment losses for the
+impaired loans and advances are assessed collectively or individually as appropriate.
+To mitigate risks, the Group requests customers to provide collateral and guarantees when necessary. Certain
+guidelines have been set for the acceptability of specific types of collateral or credit risk offset. Collateral structures
+and legal covenants are reviewed regularly to ensure that they can still cover the given risks and be consistent with
+market practices.
+With respect to the credit risk management of retail finance business, the Group relies on credit assessment of
+applicants as the basis for loan approval. Customer relationship managers are required to assess the income level,
+credit history, and repayment ability of the applicant. The Group monitors post-lending conditions by focusing on
+borrowers' repayment ability, the status of collateral and any changes to collateral value. Once a loan becomes
+overdue, the Group starts the collection process according to standard retail loans collection procedures.
+With respect to the credit risk management of corporate finance business, the Group formulated credit policy
+guideline, and enhanced credit acceptance and exit policies for corporate and institutional clients, and implements
+limit control measures to improve the quality of credit exposure.
+China Merchants Bank
+275
+The Group expects that the amount of redemption before the maturity date of these government bonds through the
+Group will not be material.
+2015
+26,729
+7,026
+251
+4,380
+6,898
+128
+2015
+2016
+Total
+- Authorised but not contracted for
+- Contracted for
+For purchase of property and equipment:
+4,631
+Authorised capital commitments were as follows:
+The Group calculated the credit risk weighted amount of its contingent liabilities and commitment in accordance
+with the requirements of the Administrative Measures on Capital of Commercial Banks (Trial) issued by the CBRC.
+The amount within the scope approved by the CBRC in April 2014 is calculated using the internal rating-based
+approach, and the risk-weighted approach is used to calculate those not eligible to the internal rating-based
+approach.
+2015
+349,816
+2016
+361,045
+Credit risk weighted amounts of contingent liabilities and commitments
+These contingent liabilities and commitments have off-balance sheet credit risk. Before the commitments are fulfilled
+or expired, management assesses and makes allowances for any probable losses accordingly. As the facilities may
+expire without being drawn upon, the total of the contractual amounts is not representative of expected future cash
+outflows.
+Apart from the irrevocable loan commitments, the Group had loan commitments of RMB1,685,058 million at 31
+December 2016 (2015: RMB1,496,021 million) which are unconditionally cancellable by the Group or automatically
+cancellable due to deterioration in the creditworthiness of the borrower as stipulated in respective lending
+agreements. The Group will not assume any risks on the unused credit limits for these loan customers. As a result,
+such balances are not included in the above contingent liabilities and commitments.
+Irrevocable loan commitments only include credit limits granted to offshore customers by overseas branches,
+subsidiaries and onshore and offshore syndicated loans.
+(a) Credit commitments (continued)
+53. Contingent liabilities and commitments (continued)
+XI Financial Statements
+(b) Capital commitments
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+53. Contingent liabilities and commitments (continued)
+2016
+25,465
+Redemption obligations
+The redemption obligations below represent the nominal value of government bonds underwritten and sold by the
+Group, but not yet matured at the end of the reporting period:
+As an underwriting agent of PRC government bonds, the Group has the responsibility to buy back its bonds if the
+holders decide to early redeem the bonds held. The redemption price for the bonds at any time before their maturity
+date is based on the coupon value plus any interest unpaid and accrued up to the redemption date. Accrued interest
+payables to the bond holders are calculated in accordance with relevant rules of the MOF and the PBOC. The
+redemption price may be different from the fair value of similar instruments traded at the redemption date.
+(e) Redemption obligations
+At 31 December 2016, the Group was a defendant in certain outstanding litigations with gross claims of RMB1,444
+million (2015: RMB1,100 million) arising from its banking activities. The Board of Directors considers that no material
+losses would be incurred by the Group as a result of these outstanding litigations and therefore no provision has
+been made in the consolidated financial statements.
+(d) Outstanding litigations
+The Group leases certain properties under operating leases. The leases typically run for an initial period of 1 to 5
+years, and may include an option to renew the lease when all terms are renegotiated. None of the leases includes
+contingent rental.
+Total
+1 year to 5 years (inclusive)
+Over 5 years
+13,023
+14,559
+2,293
+2,396
+8,117
+8,829
+2,613
+3,334
+2015
+2016
+Total future minimum lease payments under non-cancellable operating leases of properties are payable as follows:
+Within 1 year (inclusive)
+(c) Operating lease commitments
+2015
+China Merchants Bank
+Annual Report 2016
+Impaired loans and advances to customers
+Gross amount
+Subtotal
+Lower than A-
+A- to A+
+AA- to AA+
+67
+562
+(601)
+668
+1,726
+(1,164)
+2015
+Unrated
+Total
+2016
+Neither overdue nor impaired
+Subtotal
+Individually assessed and impaired gross amount of debt investments
+Impairment allowances
+At the end of the reporting period, the analysis of the credit quality of debt investments by designated external
+credit assessment institution, Standard & Poors, is as follows:
+Credit quality of debt investments
+(iii)
+(a) Credit risk (continued)
+55. Risk management (continued)
+Annual Report 2016
+XI Financial Statements
+AAA
+China Merchants Bank
+170,279
+489,297
+540,986
+Market risk is the risk that the fair value or future cash flows of the Group's financial instruments will fluctuate and
+which may result in loss to the Group, because of changes in foreign exchange rate, interest rate, commodity price,
+stock price and other observable market factors. Interest rate and foreign exchange rate are the two major market
+risk factors relevant to the Group. The Group is exposed to market risk through the financial instruments under the
+trading book and banking book. The financial instruments under the trading book are held for trading purposes
+or for the purposes of hedging the risks arising from the trading book position, and these financial instruments
+are traded in active market. The financial instruments under the banking book are assets and liabilities held by the
+Group for stable and determinable return, or for the purposes of hedging the risks arising from the banking book
+position. The financial instruments under the banking book include both the Group's on-balance sheet and off-
+balance sheet exposure, and have relative stable market value.
+(b) Market risk
+115,400
+19,835
+2015
+2016
+other credit enhancements held against
+- Loans and advances to customers
+Estimate of the fair value of collateral and
+An estimate of the fair value of collateral and other credit enhancements held against financial assets that are
+overdue but not impaired is as follows:
+Collateral
+7,095
+(iv)
+738,397
+854,418
+159,815
+160,597
+578,515
+693,259
+15,763
+14,274
+14,671
+19,409
+Note: Bonds issued by the PRC Government, PBOC and PRC Policy Banks held by the Group amounted to RMB693,249 million (2015: RMB532,353
+million) are included.
+The carrying amount of loans and advances that were overdue or impaired had the terms been renegotiated was
+RMB16,671 million as at 31 December 2016 (2015: RMB4,531 million).
+2,739,444
+3,151,649
+6
+- 3 months to 6 months (inclusive)
+31,689
+16,873
+- within 3 months (inclusive)
+Overdue but not impaired
+5,264
+5,284
+Carrying amount
+(7,806)
+2,217
+13,070
+Less: impairment allowances
+Gross amount
+For which impairment allowances are collectively assessed
+19,702
+16,488
+Carrying amount
+34,326
+(14,624)
+(29,230)
+Less: impairment allowances
+45,718
+15,392
+(10,108)
+- 6 months to 1 year (inclusive)
+11
+254
+2,683,636
+3,115,729
+(58,812)
+(67,782)
+2,742,448
+3,183,511
+Total carrying amount
+Carrying amount
+Less: impairment allowances - collectively assessed
+Gross amount
+Neither overdue nor impaired
+30,842
+14,148
+Carrying amount
+(3,600)
+(2,912)
+Less: impairment allowances - collectively assessed
+34,442
+17,060
+Gross amount
+282
+170
+- Over 1 year
+For which impairment allowances are individually assessed
+274
+273
+Other payment commitments refers to the Group as the acceptor of letters of credit payment commitments.
+1,278
+199,294
+156,670
+201,537
+157,710
+Northeast region
+30,122
+27,501
+13,218
+11,856
+1,420
+1,819
+597,665
+626,656
+607,634
+634,092
+Coast region
+Pearl River Delta and West
+25,823
+22,860
+11,163
+5,965
+1,726
+2,529
+1,436
+6,447
+Overseas
+19,487
+16,049
+431
+(3,559)
+2,832
+2,665
+422,455
+421,469 373,028
+368,485
+2,990
+Western region
+13,935
+3,683
+634
+2,736
+2,566
+382,889
+385,401 354,073
+353,771
+Central region
+7,910
+16,788
+2,331
+503,469
+461,735
+2016
+31/12/2015
+31/12/2016
+31/12/2015
+31/12/2016
+31/12/2015
+31/12/2016
+Geographical information
+operating income
+Profit before tax
+2015
+Non-current assets
+Total assets
+(c) Geographical segments (continued)
+51. Operating Segments (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+272
+271
+"Subsidiaries" refers to subsidiaries wholly owned or controlled by the Group, including WLB, CMBICHC,
+CMBFLC and CMFM.
+"Overseas" refers to overseas branches in Hong Kong, New York, Singapore, Luxembourg, London and
+representative offices in London, New York and Taipei; and
+"Western region" refers to branches in Sichuan province, Chongqing municipality, Guizhou province, Yunnan
+province, Shaanxi province, Gansu province, Ningxia Hui Autonomous region, Xinjiang Uyghur autonomous
+region, Guangxi Zhuang autonomous region, Inner Mongolia autonomous region, Qinghai province and Tibet
+autonomous region;
+Total liabilities
+2016
+2015
+Headquarter
+511,402
+465,320
+Bohai Rim region
+31,057
+30,428
+3,572
+10,312
+2,914
+2,911
+761,795
+760,973
+762,902
+768,653
+Yangtze River Delta region
+58,343
+77,480
+31,968
+43,532
+24,225
+25,029
+2,313,672 1,808,257
+2,105,486
+2,634,760
+177,271
+142,219
+173,987
+140,900
+103,982
+98,027
+82,177
+137,665
+158,423
+235,692
+240,600
+Open usance letters of credit
+Of which: Open sight letters of credit
+Irrevocable letters of credit
+188,469
+Non finance guarantees
+Irrevocable guarantees
+Contractual amount
+2015
+2016
+The contractual amounts of commitments and contingent liabilities are set out in the following table by category.
+The amounts reflected in the table for commitments assume that amounts are fully advanced. The amount reflected
+in the table for guarantees and letters of credit represents the maximum potential loss that would be recognised at
+the end of the reporting period if counterparties defaulted.
+The Group provides financial guarantees and letters of credit to guarantee the performance of customers to third
+parties. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group
+expects most acceptances to be settled simultaneously with the reimbursement from the customers.
+At any given time the Group has outstanding commitments to extend credit. These commitments take the form of
+approved loans and credit card limits.
+(a) Credit commitments
+53. Contingent liabilities and commitments
+XI Financial Statements
+Of which: Finance guarantees
+18,978
+49,907
+11,261
+Note:
+1,170,100
+1,167,224
+5,884
+18,740
+Total
+Others
+338,012
+481,401
+33,029
+55,911
+- with an original maturity over 1 year
+Credit card commitments
+5,979
+9,935
+- with an original maturity within 1 year (inclusive)
+Irrevocable loan commitments
+363,035
+256,655
+Bills of acceptances
+129,132
+73,743
+Other payment commitments (note)
+9,430
+China Merchants Bank
+Annual Report 2016
+"Pearl River Delta and West Coast region" refers to branches in Guangdong province and Fujian province;
+"Northeast region" refers to branches in Liaoning province, Heilongjiang province and Jilin province;
+The transactions under repurchase agreements are conducted under terms that are usual and customary to standard
+lending and securities borrowing and lending activities.
+494,418
+75,079
+78,963
+49,878
+63,138
+5,474,978 5,538,949 5,113,220
+5,942,311
+Total
+10,406
+12,546
+6,263
+209,949
+7,287
+24,525
+336,928 318,155 296,496
+382,249
+Subsidiaries
+2,230
+2,703
+1,791
+1,500
+91
+107
+11,312
+202,166
+Note:
+Non-current assets include interest in joint ventures, interest in associates, property and equipment, investment properties, intangible assets,
+and goodwill.
+102,330
+107,701
+2,752
+4,640
+130,673
+289,715
+13,367
+92,362
+248,252
+493,050
+2015
+(Restated)
+2016
+Total
+- Other assets
+_
+- Trading assets
+- Held-to-maturity investments
+- Available-for-sale financial assets
+Assets pledged
+from central bank
+Amounts sold under repurchase agreements and borrowing
+The following assets have been pledged as collateral for liabilities under repurchase arrangements:
+52. Assets pledged as security
+249,122
+"Bohai Rim region" refers to branches and representative offices in Beijing municipality, Tianjin municipality,
+Shandong province and Hebei province;
+280
+other financial institutions
+Under the existing managed floating exchange rate regime, the Group uses sensitivity analysis to measure the
+potential effect of changes in foreign currency exchange rates on the Group's net foreign exchange gains and losses
+and equity. The following table sets forth the results of the Group's foreign exchange risk sensitivity analysis on the
+assets and liabilities as at 31 December 2016 and 31 December 2015.
+Foreign exchange risk (continued)
+(i)
+(b) Market risk (continued)
+55. Risk management (continued)
+Annual Report 2016
+XI Financial Statements
+China Merchants Bank
+Credit commitments generally expire before they are drawn, therefore the above net position does not represent the future cash outflows.
+Note:
+11,138
+(196)
+(25,192)
+2016
+36,492
+(1,274)
+(69,751)
+10
+(2,319)
+(15,260)
+(194)
+8
+(15,074)
+(62,286)
+(74,159)
+(1,007,819)
+(56,359)
+(52,239)
+9,341
+73,414
+2015
+Change in foreign currency
+exchange rate (in basis points)
+(b) Market risk (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+284
+283
+For 2016, due to the easing of monetary policy, the Group deployed corresponding trading strategies,
+increased business monitoring frequency and optimization of the risk measurement and monitoring tools. All
+risk indicators under the trading book performed well.
+For management purpose, the Group adopts quantitative indicators such as exposure indicator, market value
+at risk indicator (VaR, including all interest rate risk factors related to trading book), interest rate scenario
+stress test loss index, interest rate sensitivity index, and cumulative loss index (covering all risk factors related
+to trading book). Management measures include setting the limit and authorization of transaction, daily
+monitoring and constant reporting. Market value at risk indicator (VaR) includes normal market risk value and
+stress market value, both of which are calculated using historical simulation method.
+The Group has established market risk limits management framework, covering the interest rate risk, foreign
+exchange rate risk and commodity price risk under the trading book. Within this framework, the highest
+level indicators (or limits), which are also the trading book market risk preference quantitative indicators (or
+limits) of the Group, adopt VaR and portfolio stress testing methodologies and directly link to the Group's net
+capital. In addition, according to the product type, trading strategy and characteristics of risk of sub-portfolio,
+the highest level indicators are allocated to lower level indicators, and to each front office departments.
+These indicators are monitored and reported on a daily basis.
+The Group has set up its market risk governance framework for trading book, covering interest rate risk,
+foreign exchange risk and commodity price risk. The Group's market risk governance framework for trading
+book specifies the roles, responsibilities and reporting line of the Board of Directors, senior management,
+designated committees and relevant departments to ensure the effectiveness of the trading book market risk
+management. The market risk management department under the Bank's entire risk management office is
+responsible for execution of the management of interest rate risk under the trading book.
+(1) Trading book
+Interest rate risk arises from adverse change in interest rates and maturity profiles which may result in loss to the
+income and market value of financial instruments and positions held by the Group.
+Interest rate risk
+Change in foreign currency
+exchange rate (in basis points)
+(ii)
+(94)
+94
+243
+(243)
+Increase/decrease) in annualised equity
+(94)
+94
+100
+(100)
+100
+243
+(243)
+Increase/decrease) in annualised net profit
+(100)
+Actual changes in the Group's net profit and equity resulting from increases or decreases in foreign exchange rates
+may be different from the results of this sensitivity analysis.
+76,282
+997,887
+93,045
+Foreign exchange risk arises from the holding of foreign currency assets, liabilities and equity items, and the foreign
+currency and foreign currency derivative positions which may expose the Group to potential losses in the event of
+unfavourable foreign exchange rate movement. The financial assets and liabilities of the Group are denominated
+in RMB, and the other currencies are mainly USD and HKD. The Group has established its foreign exchange
+risk management and governance framework based on segregation of duty principle, which segregates the
+responsibilities of the establishment, execution and supervision of foreign exchange risk. This framework specified
+the roles, responsibilities and reporting lines of the board of directors, senior management, designated committees
+and relevant departments of the Bank in the management of foreign exchange risk. The Group takes a prudent
+strategy in the management of foreign exchange risk, and would not voluntarily take foreign exchange risk, which
+suits the current development of the Group. The current foreign exchange risk management policies and procedures
+of the Group fulfil the regulatory requirements and the requirements of the Group in the management of foreign
+exchange risk.
+(1)
+Trading book
+(2)
+The Group has established a market risk structure and system of the trading book, which including exchange
+rate risk, to quantify the exchange rate risk of the trading book for unified management. The structure,
+process and method of exchange rate risk of trading book are consistent with the interest rate risk of trading
+book.
+For management and risk measurement purpose, the Group adopts quantitative indicators such as exposure
+indicator, market value at risk indicator (VaR, including interest rate, foreign exchange rate, and commodity
+risk factors), exchange rate scenario stress test loss index, exchange rate sensitivity index, cumulative
+loss index, the management method includes conducting business entitlement, setting quota limits, daily
+monitoring and continuous reporting, etc.
+For 2016, with increasing volatility of RMB exchange rate, the Group strengthened the tracking of foreign
+exchange market trend, enhanced risk monitoring, thus making the foreign exchange risk exposure effectively
+controlled in order to control foreign exchange risk. Due to the prudent trading strategies and strict risk
+management, foreign exchange business under the trading book maintained stable, and all risk indicators
+performed well.
+Banking book
+The Group's foreign exchange risk under the banking book is overall managed by the Head Office. The
+Asset and Liability Management Department, as the treasurer of the Bank is in charge of the banking book
+foreign exchange risk management. The treasurer is responsible to manage the foreign exchange risk under
+the banking book with a prudent approach and compliance with the regulatory requirements, and manage
+the foreign exchange risk through approaches such as management of transaction limits and adjustment of
+plans.
+The banking book foreign exchange risk of the Group arises from the mismatch of the non-RMB assets and
+liabilities. The Group stringently monitors its foreign exchange risk exposures to manage its foreign exchange
+risk within acceptable limits.
+The Group has adopted foreign exchange exposure analysis, scenario simulation analysis and stress testing
+for the measurement and analysis of foreign exchange risk. The Group regularly measures and analyses
+the foreign exchange risk exposure fluctuations, monitors and reports foreign exchange risk on a monthly
+basis under the limit framework, and adjusts the foreign exchange exposures based on the trend of foreign
+exchange rate movements to avoid the banking book foreign exchange risk.
+For 2016, the Group has further optimized the foreign exchange risk measuring method of the banking
+book, which offers objective reference for the management decision making. The Group has continuously
+strengthened monitoring foreign exchange risk under the banking book and authorization of limits
+management, to ensure the risk exposure is in a reasonable range.
+China Merchants Bank
+Annual Report 2016
+Foreign exchange risk
+XI Financial Statements
+55. Risk management (continued)
+(b) Market risk (continued)
+(i)
+Foreign exchange risk (continued)
+Assets and liabilities by original currency are shown as follows:
+2016
+Equivalent in RMB million
+Original currency in million
+RMB
+USD
+HKD
+Others
+Total
+281
+(i)
+(b) Market risk (continued)
+55. Risk management (continued)
+61,572
+495,820
+347,450
+(417,201) (482,020)
+Total
+- net currency option position
+- forward sold
+-forward purchased
+Derivatives:
+29,708
+15,149
+1,170,100
+24,088
+24,916
+98,466
+1,022,630
+Credit commitments (note)
+Net off-balance sheet position:
+36,945
+3,427
+(3,969) 361,758
+30,986
+22,276
+312,465
+Net position
+135,789
+58,982
+5,113,220
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+(ii)
+USD
+Interest rate risk (continued)
+Banking book
+Interest rate risk (continued)
+(ii)
+(b) Market risk (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+29,311
+486,178
+447,783
+157,983
+33,218
+253,508
+971,281
+151,860
+2015
+(711,770)
+128,093
+1
+315
+22,195
+415
+31,356
+7,340
+21,807
+4,643
+107,979
+676
+135
+113,940
+472
+34,728
+275,082
+129,557
+5,538,949
+403,362
+Asset-liability gap
+Total liabilities
+Other liabilities
+Debt securities issued
+4,122,959
+profit or loss (including derivatives)
+3 months
+or less
+(include
+overdue)
+176,721
+905,992
+1,647,629
+2,739,444
+Loans and advances to customers (note)
+2,009
+702
+10,168
+45,374
+535,143
+593,396
+other financial institutions
+Amounts due from banks and
+Total
+39,522
+584,342
+Cash and balances with central bank
+Assets
+bearing
+5 years
+to 5 years
+to 1 year
+Non-
+interest
+Over
+1 year
+3 months
+Over
+Over
+544,820
+Financial liabilities at fair value through
+7,622
+115
+3,302
+6,768
+57,104
+514,789
+581,963
+other financial institutions
+Amounts due from banks and
+16,373
+581,156
+597,529
+Cash and balances with central bank
+Assets
+bearing
+Loans and advances to customers (note)
+Non-
+interest
+1 year
+to 5 years
+to 1 year
+3 months
+Over
+Over
+3 months
+or less
+(include
+overdue)
+Total
+2016
+The following table indicates the expected next repricing dates (or maturity dates whichever are earlier) for
+assets and liabilities at the end of the reporting period.
+For 2016, the Group paid close attention to changes in the external interest rate environment; predicted
+interest rate movement in rolling basis; strengthened Net Interest Income ("NII") fluctuation monitoring
+analysis; deepened NII schedule and budget exposure analysis. On the foundation of both macro prediction
+and refinement of internal management mentioned above, the Group took the initiative to put forward a
+prospective program to optimize assets and liabilities, to ensure that the overall interest rate risk levels remain
+within management objectives, and to safeguard the stable operation of NII.
+measures.
+The Group has mainly adopted scenario simulation analysis, re-pricing exposure analysis, duration analysis
+and stress testing for the measurement and analysis of interest rate risk under the banking book. Through
+assets and liabilities analysis regular meetings and reporting framework, the Group analyses the cause of
+interest rate risk under the banking book, proposes management advices and implements management
+The Group has established the governance and management framework according to the interest rate risk
+management policy for the banking book, which specified the roles, responsibilities and reporting lines of
+the Board of Directors, senior management, designated committees and relevant departments to ensure the
+effectiveness of interest rate risk management. Interest risk of the banking book of the Group is centrally
+managed by the Asset and Liability Management Department.
+Over
+5 years
+3,151,649
+1,977,375
+723,743
+73
+1,331
+3,301
+220,745
+569,475
+3,004,092
+288,508
+1,297,533 1,004,320
+3,802,049
+Deposits from customers
+other financial institutions
+Amounts due to banks and
+Liabilities
+187,294
+519,396
+701,291
+1,123,141
+5,942,311 3,411,189
+Total assets
+151,560
+151,560
+Other assets
+16,059
+367,643
+395,745
+342,294
+337,869
+1,459,610
+Investments (including derivatives)
+151,753
+298,778
+(2)
+9,102
+HKD
+Cash and balances with central bank
+Assets
+Cash and balances with central bank
+509,746
+44,537
+28,346
+1,713
+584,342
+6,852
+33,798
+Amounts due from banks and
+other financial institutions
+465,757
+109,509
+HKD
+7,011
+593,396
+16,848
+8,359
+Loans and advances to customers
+2,473,948
+158,776
+87,923
+18,797
+2,739,444
+24,428
+104,832
+Investments (including derivatives)
+1,351,229
+11,119
+51,335
+USD
+Total
+(13,155)
+(13)
+(722)
+(2,772)
+(1,893)
+(15)
+Total
+(93,291)
+117,218
+1,700
+(10,934)
+14,693
+16,867
+Original currency in million
+1,897
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(b) Market risk (continued)
+(i)
+Foreign exchange risk (continued)
+57,124
+2015
+Equivalent in RMB million
+RMB
+USD
+HKD
+Others
+282
+14,382
+21,071
+1,438,017
+39,131
+135,962
+Financial liabilities at fair value through
+profit or loss (including derivatives)
+1,741
+6,361
+3,586
+16,114
+27,802
+979
+4,276
+Debt securities issued
+235,039
+3,571,698
+10,425
+251,507
+1,604
+7,205
+Other liabilities
+135,353
+33,853
+(14,414)
+(31,163)
+123,629
+5,208
+(17,186)
+Total
+4,558,840
+6,043
+67,698
+114,031
+254,346
+7,898
+17,148
+Other assets
+70,625
+41,489
+7,210
+455
+119,779
+6,383
+8,597
+Total
+4,871,305
+405,646
+144,872
+53,155 5,474,978
+62,409
+172,734
+Liabilities
+Amounts due to central bank,
+banks and other financial institutions
+1,051,084
+78,385
+4,640
+4,475
+1,138,584
+12,060
+5,532
+Deposits from customers
+3,135,623
+11,118
+Assets
+- net currency option position
+(60,737)
+60,323
+100,136
+5,827
+(14,726)
+151,560
+14,409
+6,503
+Total
+5,152,706
+548,536
+194,270
+46,799
+5,942,311
+Other assets
+78,933
+Liabilities
+Amounts due to central bank, banks
+and other financial institutions
+1,187,122
+91,341
+13,707
+5,363
+1,297,533
+13,143
+15,294
+Deposits from customers
+3,246,238
+379,030
+216,772
+133,217
+26,869
+8,975 1,459,610
+548,051
+26,607
+19,977
+2,894
+597,529
+3,829
+22,290
+Amounts due from banks and
+383,370
+429,784
+126,556
+6,105
+19,518
+10,290
+581,963
+6,813
+Loans and advances to customers
+2,759,505
+223,726
+138,280
+30,138
+3,151,649
+32,194
+154,297
+Investments (including derivatives)
+1,355,043
+71,511
+24,081
+18,211
+43,564
+3,802,049
+54,541
+343,370
+35,060
+31,695
+(6,763)
+403,362
+5,046
+35,369
+Net off-balance sheet position:
+Credit commitments (note)
+988,161
+147,576
+15,340
+16,147 1,167,224
+Net position
+21,236
+Derivatives:
+-forward purchased
+350,305
+552,468
+58,648
+40,549 1,001,970
+79,497
+65,441
+- forward sold
+(454,714)
+(422,095)
+(56,935)
+(50,761) (984,505)
+17,117
+181,403
+73,887
+5,538,949
+148,647
+Financial liabilities at fair value through
+profit or loss (including derivatives)
+18,263
+13,520
+2,945
+34,728
+1,945
+3,287
+Debt securities issued
+248,203
+19,806
+7,073
+275,082
+2,851
+7,892
+Other liabilities
+109,510
+9,779
+5,633
+4,635
+129,557
+1,407
+6,283
+Total
+4,809,336
+513,476
+162,575
+53,562
+(63,529)
+Investments (including derivatives)
+113,886
+493,957
+1,138,584
+288
+357,544
+3,735
+22,805
+146,406 247,988
+294,047 603,543
+339,324
+306,603
+2,009,673
+Deposits from customers (note (iv))
+378,326
+other financial Institutions
+Amounts due to banks and
+5,474,978
+3,571,698
+601,803
+1,041,837
+119,779
+83,618
+1,065
+2,052
+10,980
+5,435
+997,156 557,946 1,250,784
+162,299
+Total assets
+4,641
+11,988
+716,064
+3
+863,153
+16,286
+Financial liabilities at fair value
+(including derivatives)
+Notes:
+2,115 123,629
+9,789 5,113,220
+592,014 361,758
+823,705
+612,947
+286,809
+39,448
+428,890
+963,975
+2,518
+11,503
+13,531
+27,802
+251,507
+32,519
+through profit or loss
+27,257
+65,659
+7,674
+388
+9,781
+3,857
+1,637
+31,016
+22,662 7,666
+701,242 514,913
+295,914 43,033
+(2,292,664)
+63,634
+2,454,963
+3,330
+(Short)/long position
+Total liabilities
+Other liabilities
+Debt securities issued
+95,056
+121,629
+145,463
+49,024
+609,807
+972,196
+421,499
+124,077
+19,954
+Loans and advances to customers
+(note (ii))
+593,396
+711
+10,480
+45,004
+61,785
+463,243
+12,173
+553,893
+other financial institutions
+466,158 584,342
+118,184
+(note (i))
+Cash and balances with central bank
+Total
+Indefinite
+5 years
+5 years
+1 year
+After
+but within
+but within
+but within
+3 months
+Amounts due from banks and
+38,018 2,739,444
+Investments (note (iii))
+- Financial assets at fair value
+383,659
+Other assets
+as receivables
+- Debt securities classified
+353,137
+12
+228,206
+106,212
+15,016
+2,364
+1,327
+- Held-to-maturity investments
+299,559
+2,546
+59,912
+163,821
+49,199
+11,847
+12,234
+- Available-for-sale financial assets
+69,257
+10,737
+3,791
+27,836
+12,926
+5,992
+7,975
+(including derivatives)
+through profit or loss
+(i)
+1 month
+(ii)
+(iv)
+401
+5,654
+9,780
+39,332
+1,996
+2,050
+9,579
+19,694
+101,158
+172,590
+115,467
+3,761
+724
+55,972 59,213
+389,138 422,249
+477,064 596,611
+9,382
+254,256
+298,282
+1
+Total
+528,748 547,099
+58,201 58,893
+5,840,264 6,673,827 188,053
+24,081
+188,340 39,854 222,446
+11,880 2,695 2,345
+713,529 658,815 1,495,556
+68,661
+26,043
+1,755
+939
+494
+16,459
+33,966
+1,469,751
+Other assets
+- Debt securities classified
+but within
+3 months
+1,438,017
+but within
+1 year
+but within
+After
+5 years
+5 years
+Indefinite
+Non-derivative financial assets
+Cash and balances with central bank
+597,529
+597,529
+90,738
+as receivables
+506,791
+other financial institutions
+Loans and advances to customers
+Investments
+581,963 586,396
+3,151,649 3,805,837
+61,285 378,904
+11,949 123,701
+77,928
+503,608
+58,662
+7,378
+2,239
+1,067,199
+926,595
+1,149,939
+22,846
+- Financial assets at fair value
+through profit or loss
+- Available-for-sale financial assets
+- Held-to-maturity investments
+Amounts due from banks and
+1,592,221
+555,902
+Non-derivative financial liabilities
+691,149
+1,020,599
+291,189
+44,410
+2,523
+Gross loan commitments
+547,247 547,247
+289
+1 month
+Within
+Repayable
+Total on demand
+Carrying
+amount
+1 year
+687,471
+3 months
+After
+After
+After
+2016
+The following table provides an analysis of the contractual undiscounted cash flow of the non-derivative financial
+assets, liabilities and gross loan commitments of the Group as at the end of the reporting period. The Group's
+expected cash flow on these instruments may vary significantly from this analysis.
+(c) Liquidity risk (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+The deposits from customers that are repayable on demand included matured time deposits which are pending for customers' instructions.
+The residual maturities of financial assets at fair value through profit or loss included in investments do not represent the Group's intention to
+hold them to maturity.
+For loans and advances to customers, the amount with an indefinite maturity represents loans of which the whole or part of the principals or
+interest was overdue for more than one month, and is stated net of appropriate allowances for impairment losses.
+For balances with central bank, the amount with an indefinite maturity represents statutory deposit reserve and fiscal balances maintained with
+the PBOC.
+1 month
+5,500,329 5,547,670 2,810,329
+Total
+2,509
+Amounts due to banks and other
+financial institutions
+Deposits from customers
+1,297,533 1,305,147 417,794
+3,802,049 3,805,351 2,342,133
+364,598
+260,757
+203,763 298,347 15,266
+394,194 582,171 225,981
+5,379
+115
+Financial liabilities at fair value
+through profit or loss
+Debt securities issued
+Other liabilities
+23,576 23,592
+275,082 310,396
+102,089 103,184 43,488
+6,914
+1,851
+1,681
+5,381
+7,336
+415
+14
+34,752
+84,501
+120,026
+33,643
+37,474
+25,513
+7,010
+14,674
+8,963
+1,027
+(iii)
+Within
+1,135
+1 year
+In line with its liquidity risk management policies, the Group sets out and implements the principle of supervisory
+duty segregation. It also puts in place a governing framework under which the roles, responsibilities and reporting
+lines of the Board of Directors, senior management, designated committees and relevant departments to ensure
+the effectiveness of the liquidity risk management. The Group is prudent in managing the risk, which better suits
+its current development stage. Basically, the Group's existing liquidity risk management polices and systems meet
+regulatory requirements and its own management needs.
+Liquidity risk is the risk that the Group will not be able to obtain sufficient funds at a reasonable cost in a timely
+manner to meet the maturity obligations, perform other payment obligations and meet the capital requirements of
+normal business operations.
+(c) Liquidity risk
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+286
+285
+may differ from the results of this sensitivity analysis.
+Actual changes in the Group's net interest income and equity resulting from increase or decrease in interest rates
+2,560
+(2,571)
+2,582
+The Group's liquidity risk management is coordinated by Head Office with branches, subsidiaries acting in concert.
+The Asset and Liability Management Department acts as the treasurer of the Group is in charge of routine
+liquidity risk management. The treasurer is responsible for managing liquidity on a prudent basis under regulatory
+requirement, and conducting centralised liquidity management through quota management, budget control,
+initiative debt management as well as internal fund transfer pricing.
+(2,782)
+(1,042)
+1,614
+(1,614)
+(25)
+25
+(25)
+25
+Change in interest rates
+(in basis points)
+Change in interest rates
+(in basis points)
+2015
+2016
+(Decrease)/increase in equity
+net interest income
+1,042
+The Group measures, monitors and identifies liquidity risk by short-term reserves as well as duration structures
+and contingencies. It closely monitors various limit indicators at regular intervals, performs regular stress testing to
+judge whether it can address liquidity needs under extreme circumstances. In addition, the Group draws up liquidity
+contingency plans and conducts liquidity contingency drills to prepare for liquidity crises.
+For 2016, the overall market liquidity was tight, the liquidity situation of the Group is in line with the market. The
+Group's liquidity risk is low.
+China Merchants Bank
+Annual Report 2016
+6,768
+57,015
+77,081
+377,831
+61,283
+other financial institutions
+Loans and advances to customers
+(note (ii))
+Amounts due from banks and
+597,529
+506,791
+90,738
+bank (note (i))
+Cash and balances with central
+Total
+5 years Indefinite
+After
+1 year
+3 months
+but within but within
+1 year
+5 years
+After
+After
+After
+1 month
+but within
+3 months
+1 month
+on demand
+Within
+Repayable
+2016
+Analysis of the Group's assets and liabilities by residual maturity is as follows:
+(c) Liquidity risk (continued)
+55. Risk management (continued)
+XI Financial Statements
+(Decrease)/increase in annualised
+1,985
+The Group uses sensitivity analysis to measure the potential effect of changes in interest rates on the Group's net
+interest income and equity. The following table sets forth the results of the Group's interest rate sensitivity analysis
+on the assets and liabilities as at 31 December 2016 and 31 December 2015.
+Note:
+6,088
+357,570
+603,585
+2,596,345
+3,571,698
+Deposits from customers
+4,304
+Repayable
+on demand
+254,003
+871,075
+1,138,584
+banks and other financial institutions
+Amounts due to central bank,
+8,110
+Liabilities
+306,716
+566,911
+1,203,489
+3,221,549
+5,474,978
+Total assets
+119,779
+119,779
+Other assets
+15,003
+296,912
+380,022
+252,123
+176,313
+Financial liabilities at fair value through
+profit or loss (including derivatives)
+27,802
+32,473
+275,982
+172,095
+143,840
+30,734
+394,816
+972,249
+231,240
+(350,032)
+361,758
+Asset-liability gap
+3,571,581
+123,411
+26
+68
+24,232
+21,425
+108,411
+22
+102
+123,629
+5,113,220
+Total liabilities
+Other liabilities
+97,439
+251,507
+Debt securities issued
+8,015
+388
+6,551
+6,228
+6,620
+For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2016 and 31 December 2015, net
+of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the principals or interests were overdue.
+581,963
+9,202
+116,211
+25,743
+69,107
+Other liabilities
+275,082
+31,356
+21,807
+107,979
+79,331
+34,609
+Debt securities issued
+34,728
+11,166
+415
+6,825
+7,340
+1,681
+1,836
+6,914
+(including derivatives)
+through profit or loss
+Financial liabilities at fair value
+3,802,049
+1,297,533
+115
+6,292
+12,721
+225,406
+201,536 295,647
+393,166 581,402
+363,649
+260,082
+5,376
+14,599
+8,913
+1,030
+3 months
+11,949
+1 month
+After
+After
+After
+2015
+(c) Liquidity risk (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+287
+1,135,752 642,297 403,362
+910,888
+(41,857) 386,280
+17,545
+(2,647,543)
+(Short)/long position
+5,538,949
+14,506
+39,208
+276,187
+1,005,003
+682,539
+685,919
+2,835,587
+Total liabilities
+129,557
+3,340
+2,341,878
+Deposits from customers (note (iv))
+288
+financial Institutions
+16,850
+9,331
+631
+- Held-to-maturity investments
+389,138
+4,740
+109,207
+155,020
+91,468
+19,435
+9,268
+- Available-for-sale financial assets
+64,660
+199,251
+10,736
+37,660
+8,466
+5,565
+398
+(including derivatives)
+through profit or loss
+Investments (note (iii))
+22,846 3,151,649
+789,992
+723,022
+417,688
+999,446
+488,183
+1,835
+251,000
+- Financial assets at fair value
+477,064
+1,174,960
+1
+5,942,311
+Amounts due to banks and other
+1,187,075
+656,803
+640,682
+703,464
+188,044
+Total assets
+151,560
+107,949
+795
+2,324
+1,391,283
+2,456
+2,316
+187,479
+38,631
+- Debt securities classified as
+63,030
+22,131
+215,722
+528,748
+Other assets
+24,074
+11,646
+1,755
+receivables
+balance
+yield (%)
+2015 (restated)
+Interest
+income
+Income
+64,829
+Average
+yield (%)
+4.25
+1,483,592
+78,033
+5.26
+78,076
+1,362,929
+82,573
+6.06
+1,087,562
+7.18
+Discounted bills
+Loans and advances
+186,367
+3,075,611
+3,834
+120,304
+2.06
+Retail loans
+1,526,315
+In 2016, the Group recorded an interest income of RMB215.481 billion, representing a decrease of 8.69% as
+compared with that of the previous year, mainly due to the re-pricing of interest-earning assets after the interest
+rate cuts in 2015 and the impact of change from business tax to value-added tax with price and tax separated and
+other factors, leading to a decrease in the average yield of interest-earning assets. Interest income from loans and
+advances continued to be the biggest component of the interest income of the Group.
+balance
+Share of profits of associates
+and joint ventures
+4,866
+0.15
+0.07
+0.09
+0.07
+0.05
+Total
+100.00
+100.00
+Corporate loans
+100.00
+100.00
+5.2.3 Interest income
+Interest income from loans and advances
+In 2016, the interest income from loans and advances of the Group was RMB151.236 billion, representing a
+year-on-year decrease of 6.05%.
+The following table sets forth, for the periods indicated, the average balances, interest income and average yields of
+different types of loans and advances of the Group.
+2016
+Average
+Interest
+Average
+Average
+(in millions of RMB, excluding percentages)
+100.00
+4.04
+Interest
+expense
+4.92
+Deposits from corporate customers
+Demand
+1,324,457
+8,805
+Time
+1,080,128
+26,233
+Subtotal
+2,404,585
+35,038
+0.66 1,027,006
+2.43 1,211,447
+1.46
+6,965
+0.68
+39,038
+3.22
+2,238,453
+46,003
+2.06
+Deposits from retail customers
+Demand
+875,029
+4.96
+3,275
+(%)
+Average
+cost ratio
+balance
+Average
+2,691,458
+160,975
+5.98
+In 2016, from the perspective of the tenor structure of loans and advances of the Company, the average balance
+of short-term loans was RMB1,371.835 billion, with the interest income amounting to RMB73.063 billion, and the
+average yield reached 5.33%; the average balance of medium- to long-term loans was RMB1,462.894 billion, with
+the interest income amounting to RMB69.864 billion, and the average yield reached 4.78%. The average yield of
+short-term loans was higher than that of medium- to long-term loans; the difference was mainly attributable to the
+relatively higher yield of credit card overdrafts and small and micro loans among short-term loans.
+25
+26
+46
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Interest income from investments
+In 2016, the interest income from investments of the Group was RMB45.721 billion, down by 5.09% as compared
+with the previous year, and the average yield of investments was 3.52%, down by 0.58 percentage point as
+compared with the previous year.
+151,236
+Interest income from placements with banks and other financial institutions
+5.2.4 Interest expense
+In 2016, the interest expense of the Group was RMB80.886 billion, down by 17.79% as compared with the previous
+year, which was primarily attributable to the decrease in the cost ratio of interest-bearing liabilities and the constant
+increase in the proportion of demand deposits.
+Interest expense on deposits from customers
+In 2016, the Group's interest expense on deposits from customers was RMB46.000 billion, down by 23.90% as
+compared with the previous year, which was primarily attributable to the impact of re-pricing upon the interest
+rate cuts in 2015 and the optimisation of the structure of deposits from customers, resulting in a decrease of 0.53
+percentage point in the average cost ratio as compared with the previous year.
+The following table sets forth, for the periods indicated, the average balances, interest expenses and average cost
+ratios for deposits from corporate and retail customers of the Group.
+2016
+2015
+(in millions of RMB, excluding percentages)
+Average
+balance
+Interest
+expense
+Average
+cost ratio
+(%)
+In 2016, the interest income from placements with banks and other financial institutions of the Group was
+RMB10.354 billion, down by 43.20% as compared with the previous year, and the average yield for placements with
+banks and other financial institutions was 2.29%, down by 1.37 percentage points as compared with the previous
+year, which was primarily attributable to the decrease in the volume of financial assets held under resale agreements
+and the yield of inter-bank lending.
+3.71
+53,009
+5.72
+The balance sheet expanded steadily. As at the end of 2016, the Group's total assets amounted to RMB5,942.311
+billion, representing an increase of 8.54% as compared with that at the end of the previous year. The total loans
+and advances to customers amounted to RMB3,261.681 billion, representing an increase of 15.49% as compared
+with that at the end of the previous year. Total liabilities amounted to RMB5,538.949 billion, representing an
+increase of 8.33% as compared with that at the end of the previous year. Total deposits from customers amounted
+to RMB3,802.049 billion, representing an increase of 6.45% as compared with that at the end of the previous year.
+The non-performing loans increased while the allowance coverage ratio remained solid. As at the end of 2016, the
+Group had a balance of non-performing loans of RMB61.121 billion, representing an increase of RMB13.711 billion
+as compared with the end of the previous year. The non-performing loan ratio was 1.87%, up by 0.19 percentage
+point as compared with the end of the previous year. The non-performing loan allowance coverage ratio was
+180.02%, representing an increase of 1.07 percentage points as compared with the end of the previous year.
+23
+14
+24
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+5.2 Analysis of Income Statement
+5.2.1 Financial highlights
+In 2016, the Group realised a profit before tax of RMB78.963 billion, representing a year-on-year increase of 5.17%.
+The effective income tax rate was 21.00%, representing a year-on-year decrease of 1.72 percentage points. The
+following table sets out the changes in major income/loss items of the Group for 2016.
+(in millions of RMB)
+2016
+2015
+(restated)
+Fluctuation
+Net interest income
+134,595
+137,586
+(2,991)
+Net fee and commission income
+60,865
+7,856
+Other net income
+Operating expenses
+Provision for insurance claims
+Earnings increased steadily. In 2016, the Group realised a net profit attributable to the shareholders of the Bank
+of RMB62.081 billion, representing a year-on-year increase of 7.60%, and realised a net interest income of
+RMB134.595 billion, representing a year-on-year decrease of 2.17%; the net non-interest income was RMB75.675
+billion, representing a year-on-year increase of 16.93%. The return on average asset (ROAA) and return on average
+equity (ROAE) attributable to the shareholders of the Bank were 1.09% and 16.27%, respectively, down by 0.04
+percentage point and 0.82 percentage point from the previous year, respectively.
+Share of profits of associates
+In 2016, under the background of interest rate liberalisation and faster opening up of the financial industry, the
+Group continued to implement its transformation strategies of "Light-operation Bank" and "One Body with Two
+Wings", forged forward with structural adjustments and generally maintained a sound development momentum,
+which are reflected in the following aspects:
+Report of the Board of Directors
+0.37
+20
+China Merchants Bank
+Annual Report 2016
+IV President's Statement
+We strived to explore an integrated and organic path of development with low
+capital consumption and "light-operation" features, freed ourselves from the
+traditional businesses of commercial banks such as "deposits, loans and payments"
+and built a service model based on "investment banking + commercial banking",
+and upgraded from financing to wisdom pooling.
+Therefore, it can be seen that cross-border merger and acquisition business has
+become the new strength of the Bank, and our privatisation projects of China
+concept stocks had become the largest delisting projects of the Hong Kong stock
+market and US stock market in terms of scale. The Bank private banking business,
+which commenced business just ten years ago, ranked among the world's top 20
+in 2016 and now competes with the most prestigious international banks with
+over a hundred years of history in Europe and US. Moreover, our featured "light-
+operation"-oriented businesses such as wealth management, asset management,
+credit cards, transaction banking, investment banking, custody service, bills and
+notes and financial market services, are bursting with new impetus under the
+incentives of differentiated development. This was the tip for the Bank's net
+non-interest income which accounted for 35.99% of the income book in 2016
+(calculated on the Group's statistical calibre) and ranked top among listed banks.
+Leveraging on the systematic advantage of our retail business, we positioned "One
+Body with Two Wings" as the core strategy of our "Second Transformation". The
+role of retail finance as the strategic pivot of "One Body" became increasingly
+significant. In 2016, the respective proportion of three indicators, namely the loan
+balance, net operating income and profit before tax of retail finance, all accounted
+for over 50%, making retail business our cornerstone to withstand fluctuations in
+economic cycles, as well as our capital and courage to confront future challenges.
+We are very pleased to share with our shareholders that, after the transformation
+in recent years, the wholesale business of the "Two Wings" covering corporate
+finance and financial institutions finance had achieved initial success. We managed
+customers at different levels such as corporate customers, financial institutions
+customers, strategic customers and small-sized enterprise customers, and provided
+support with professional "light-operation" products in investment banking and
+financial market. Hopefully, through the next 3 to 5 years of self-improvement,
+our wholesale finance could establish its systematic service capabilities and
+featured brands similar to our retail finance, so as to reinforce our comprehensive
+foundation. This is our vision and future target, and without hesitation, we are
+determined to achieve it with hard work and unbreakable faith.
+This ideal and belief is derived from our "customer-centric" service philosophy.
+We believe that customer is the foundation of all operations, and also believe that
+demand creates value. We are determined to reject business opportunism, and
+will not go after short-term commercial interests at the expense of our customers'
+interests. We also strongly believe that, to stay persistently in the right path is
+the only way that we can provide sustained and stable returns to shareholders
+and investors, and safeguard the stability of the financial environment. This is
+deemed our top-most principle, our fundamental business logic, and also our social
+responsibility.
+China Merchants Bank
+Annual Report 2016
+IV President's Statement
+So, what can be seen is that the financial institutions business of the Bank had
+evolved away from "regulatory arbitrage" and returned to the fundamentals
+of customer service and value creation. Focusing on integrated management
+of strategic customers, we gradually roll out our business top-down from head
+office to branch offices, which spread like a single spark igniting a prairie fire.
+With the systemic reform of "customer-centric" and "delayering, professionalism
+and intensification" starting to bear fruits, the process modification focusing on
+the channel "from the needs of the customers all the way back to the needs of
+customers "is also in smooth progress. This is the key to open the gate of wholesale
+finance transformation.
+Riding on the opportunities arising from our continuous reform over the past 30
+years, we have every reason to be proud of our achievements while at the same
+time remaining alert against potential crisis. To the best of our knowledge, the
+biggest enemy is always ourselves and the biggest rival is the time we are in. We
+often ponder whether the achievements we have made today will be brushed off in
+the future.
+There is no doubt that mobile internet will become the most significant factor
+profoundly changing the way of our life in the next decade and financial technology
+will redefine the ways that commercial banks operate. Though we prefer to observe
+quietly, we will never be a by-stander and take no action. In fact, we have gradually
+found our path amid anxiety.
+Focusing on the strategy of "mobile priority", we have embraced Fintech. Despite
+the fact that CMB Mobile Banking and CMB Life () App have become the
+biggest success in the banking industry, we believe what we have done is far from
+enough. All the members across the Bank must put their utmost effort to push
+forward the Fintech strategy targeting "networking", "informationisation" and
+"intelligence". Not only should we take full advantage of our own retail customer
+base, and innovate traditional products and service process with "mobile priority",
+initiating a round of channel revolution and service upgrades, but also fully exploit
+data resources from within and outside the Bank. Guided by the precise big data
+that has been put into customer marketing and internal management, we have
+to bring about a mindset revolution and equipment upgrades. We should, with
+no upper limit, relentlessly seek data and IT talents, accelerate the innovative
+application of agile development and cloud technology, set up specialised
+investment funds and nurture projects relating to Fintech. Ensuring our success in
+the future and seizing opportunities whenever they may arise have consistently
+been our motto and solution to greater success.
+At thirty years old, a symbol of being mature and sophisticated, the Bank is
+embarking on a journey to future success.
+China Merchants Bank Co., Ltd.
+President
+序
+21
+Liu Yuan
+Chairman of the Board of Supervisors
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+5.1 Analysis of the Overall Operation
+and joint ventures
+Impairment losses on assets
+14,489
+5.2.2 Net operating income
+In 2016, the net operating income of the Group was RMB210.270 billion, representing a year-on-year increase of
+3.94%. The net interest income accounted for 64.01% of the total net operating income; the net non-interest
+income accounted for 35.99% of the total net operating income, representing a year-on-year increase of 4.00
+percentage points.
+The following table sets out the percentages of the components of the net operating income of the Group in the
+recent five years.
+(%)
+2016
+2015
+(restated)
+2014
+2013
+2012
+Net interest income
+64.01
+68.01
+70.38
+74.30
+77.65
+Net fee and commission income
+28.95
+26.20
+23.72
+21.92
+17.34
+Other net income
+6.89
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+4,385
+57,696
+11,571
+2,918
+(64,900)
+(67,670)
+2,770
+(287)
+39
+321
+(66,159)
+136
+(59,266)
+185
+Profit before tax
+5.81
+78,963
+(6,893)
+3,884
+Income tax
+(16,583)
+(17,061)
+478
+Net profit
+62,380
+58,018
+4,362
+Net profit attributable to the Bank's shareholders
+62,081
+75,079
+711,460
+July to September 2016
+0.42
+average
+yield (%)
+income
+balance
+yield (%)
+income
+balance
+(in millions of RMB, except for percentages)
+Interest-earning assets
+Interest
+average
+Interest
+Average
+Annualised
+Annualised
+October to December 2016
+The following table sets out the average balances of assets and liabilities, interest income/interest expenses and
+annualised average yield/cost ratios of the Group for the periods indicated. The average balances of interest-earning
+assets and interest-bearing liabilities are the average of daily balances.
+Average
+V Report of the Board of Directors
+Loans and advances
+37,717
+558,304
+1.52
+2,034
+530,818
+Balances with the central bank
+3.54
+11,487
+3,055,179
+1,291,162
+10,657
+1,221,058
+Investments
+4.51
+37,243
+3,284,034
+4.91
+3.47
+2,077
+China Merchants Bank
+Annual Report 2016
+(17,080)
+3,424
+Deposits from customers
+Liabilities
+(20,495)
+(42,068)
+21,573
+Changes in interest income
+(17,872)
+(7,876)
+(1,072)
+Placements with banks and other financial institutions
+(428)
+262
+(690)
+Balances with the Central Bank
+(9,739)
+(2,452)
+(6,804)
+(2,991)
+(14,448)
+(3,393)
+14,089
+Changes in net interest income
+(17,504)
+(24,988)
+7,484
+Changes in interest expense
+3,097
+Placements from banks and other financial institutions
+(72)
+Borrowings from the Central Bank
+2,775
+(1,509)
+4,284
+Debt securities issued
+(8,928)
+(5,535)
+3,169
+1.48
+Placements with banks and other financial
+institutions
+229,086
+2.62
+1,074
+163,305
+Borrowings from the Central Bank
+3.43
+2,473
+1,610
+286,992
+2,411
+310,518
+Debt securities issued
+1.94
+4,394
+901,650
+2.36
+3.09
+5,105
+2.80
+4,861,167
+29
+In the fourth quarter of 2016, the net interest margin of the Group was 2.39%, down by 13 basis points as
+compared with the third quarter of 2016.
+In the fourth quarter of 2016, due to the impact of change from business tax to value-added tax with price and
+tax separated, a decrease in the market demand for corporate loans, a decline in the pricing of new loans, a
+relatively slow increase in deposits and other factors on interest income, the net interest spread of the Group was
+2.27%, down by 12 basis points as compared with the third quarter of 2016. The annualised average yield of the
+interest-earning assets was 3.77%, down by 24 basis points as compared with the third quarter of 2016 while the
+annualised average cost ratio of interest-bearing liabilities was 1.50%, down by 12 basis points as compared with
+the third quarter of 2016.
+2.39
+2.52
+Net interest margin
+2.27
+Total
+2.39
+33,873
+33,245
+Net interest income
+1.50
+19,678
+1.62 5,206,853
+19,828
+Net interest spread
+862,190
+institutions
+Placements from banks and other financial
+Annualised
+October to December 2016
+July to September 2016
+3.77
+53,551
+5,644,506
+4.01
+Annualised
+53,073
+Total
+2.14
+2,744
+511,006
+2.35
+2,665
+451,443
+5,258,498
+Average
+Interest
+average
+1.18
+11,201
+3,789,125
+1.27
+11,238
+3,525,154
+Deposits from customers
+Interest-bearing liabilities
+cost (%)
+expense
+average
+Interest
+Average
+balance
+cost (%)
+expense
+balance
+(in millions of RMB, except for percentages)
+Net increase
+(decrease)
+(6,897)
+4,445
+(28,629)
+1,174,151
+3.52
+45,721
+1,300,604
+Investments
+5.98
+160,975
+48,173
+2,691,458
+151,236
+3,075,611
+Loans and advances
+Interest-earning assets
+(in millions of RMB, except for percentages)
+yield (%)
+Average
+4.92
+Interest
+income
+4.10
+557,347
+215,481
+5,385,382
+Total
+3.66
+18,230
+498,585
+2.29
+Balances with the Central Bank
+10,354
+other financial institutions
+Placements with banks and
+1.42
+8,598
+604,403
+1.47
+8,170
+451,820
+balance
+yield (%)
+income
+3,619,703
+Total deposits from customers
+1.30
+14,445
+1,111,845
+0.90
+10,962
+46,000
+1,215,118
+2.87
+11,474
+400,385
+2.26
+7,687
+340,089
+Time
+Subtotal
+1.27
+3,350,298
+60,448
+balance
+Average
+Average
+Interest
+Average
+2015 (restated)
+2016
+The following table sets out the average balances of assets and liabilities, interest income/interest expenses, and
+average yield/cost ratios of the Group for the periods indicated. The average balances of interest-earning assets and
+interest-bearing liabilities are the average of the daily balances.
+In 2016, the Group's net interest income amounted to RMB134.595 billion, representing a year-on-year decrease of
+2.17%.
+5.2.5 Net interest income
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+In 2016, the interest expense on debt securities issued of the Group amounted to RMB9.925 billion, representing
+an increase of 38.81% as compared with the previous year, which was primarily attributable to the increase in the
+volume of debt securities issued.
+Interest expense on debt securities issued
+In 2016, the interest expense on placements from banks and other financial institutions of the Group amounted to
+RMB20.168 billion, representing a decrease of 30.68% as compared with the previous year, which was primarily
+attributable to the decrease in the interest rate of inter-bank borrowing.
+Interest expense on placements from banks and other financial institutions
+1.80
+4.00
+2,971
+4,968,597
+4.75
+2.37
+Net interest spread
+/
+137,586
+134,595
+Net interest income
+2.14
+2.61
+98,390
+1.63
+80,886
+4,972,277
+Total
+2.82
+1,696
+60,110
+4,602,442
+2.70
+Net interest margin
+2.77
+18,890
+Investments
+Loans and advances
+Interest rate
+Volume
+2016 compared with 2015
+Increase (decrease) due to
+Assets
+2.50
+(in millions of RMB)
+In 2016, the average yield of the interest-earning assets was 4.00%, while the average cost ratio of interest-bearing
+liabilities was 1.63%, down by 75 basis points and 51 basis points respectively as compared with the previous year.
+Although the liabilities structure was constantly optimised, the average yield of the interest-earning assets declined
+remarkably due to re-pricing upon the interest rate cuts and the impact of change from business tax to value-added
+tax with price and tax separated. In 2016, the net interest spread and net interest margin of the Group were 2.37%
+and 2.50% respectively, down by 24 basis points and 27 basis points respectively as compared with the previous
+year.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+28
+27
+In 2016, the Group started to reclassify its liabilities on the repurchases of rediscounted bills and the bond repurchases made by the Central
+Bank in the open market from the "Amounts sold under repurchase agreements" to "Borrowings from the Central Bank", and the breakdown
+of "Interest expenses" was also reclassified accordingly. As such, the relevant financial indicators were restated.
+Note:
+The following table sets forth, for the periods indicated, the breakdown of changes in interest income and interest
+expenses due to changes in volumes and interest rates of the Group. Changes in volumes are measured by changes
+in average balances (daily average balances), while changes in interest rates are measured by changes in average
+interest rates; changes in interest income and expenses caused by changes in volumes and interest rates together are
+accounted for as the amount of changes in interest income and expenses caused by changes in volumes.
+4,793
+177,449
+Borrowings from the Central Bank
+Deposits from customers
+Interest-bearing liabilities
+(%)
+expense
+balance
+(%)
+expense
+3,619,703
+balance
+cost ratio
+Interest
+Average
+Average
+Average
+cost ratio
+Interest
+Average
+(in millions of RMB, except for percentages)
+46,000
+1.27
+3,350,298
+4.17
+7,150
+171,336
+3.29
+9,925
+301,430
+Debt securities issued
+2.85
+29,096
+1,020,698
+2.31
+20,168
+873,695
+other financial institutions
+Placements from banks and
+1.80
+60,448
+235,976
+(248)
+299
+290
+109
+43,333
+Financial assets designated at fair value
+through profit or loss
+- Debt securities
+4,690
+7,949
+Derivative financial assets
+11
+8,677
+12,639
+8,688
+Available-for-sale financial assets
+- Debt securities
+78,321
+264,312
+342,633
+- Equity investments
+1,496
+34,546
+85
+8,787
+714
+Assets
+2016
+Level 1
+Level 2
+Level 3
+Total
+Financial assets held for trading
+- Debt securities
+8,073
+33,141
+- Long position in precious metal contracts
+1,296
+- Equity investments
+714
+- Investments in funds
+109
+| | | |
+41,214
+1,296
+Subtotal
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+The table below analyses financial instruments, measured at fair value at the end of the reporting period, by the
+level in the fair value hierarchy:
+1,715
+- Investments in funds
+banks
+- Certificates of deposit issued
+- Debt securities issued
+7,530
+7,530
+7,530
+-
+7,530
+3,498
+3,595
+8,938
+- Others
+Subtotal
+15
+8,938
+7,108
+Derivative financial liabilities
+621
+10,531
+- Precious metal contracts with other
+3,296
+through profit or loss
+Subtotal
+1,090
+41,961
+158
+43,209
+Subtotal
+80,907
+306,358
+1,873
+389,138
+Total
+94,395
+357,530
+1,873
+453,798
+Liabilities
+Financial liabilities held for trading
+- Precious metal relevant financial liabilities
+-
+Short position in equity securities
+Financial liabilities designated at fair value
+Total
+(ii)
+55. Risk management (continued)
+Interest rate derivatives
+Interest rate swaps
+1,037
+867
+13,226
+395
+15,525
+38
+(32)
+Currency derivatives
+Foreign exchange swaps
+1,325
+1,409
+2,863
+5,597
+9
+(60)
+Subtotal
+2,362
+profit or loss
+2,276
+at fair value through
+conjunction with financial
+120
+97
+97
+64
+56
+217
+5
+(2)
+151
+Cash flow hedge derivatives
+Interest rate derivatives
+Interest rate swaps
+1,700
+9,800
+18,010
+29,510
+336
+(14)
+Derivatives managed in
+instruments designated
+(g) Fair value information (continued)
+16,089
+21,122
+The credit risk weighted amounts in respect of derivatives are calculated in accordance with the Administrative Measures on Capital of
+Commercial Banks (Trial) issued by CBRC, covering default risk weighted assets of counterparties and credit valuation adjustment risk weighted
+assets. The amount within the scope approved by CBRC in April 2014 was calculated using the internal rating-based approach, and the risk-
+weighted approach is adopted to calculate those not eligible to the internal rating-based approach.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(g) Fair value information
+(i) Financial instruments at fair value
+A number of the Group's accounting policies and disclosures require the measurement of fair values, for both
+financial and non-financial assets and liabilities.
+The Group has established a control framework to govern the measurement of fair values. This includes a valuation
+team that has responsibility for overseeing all significant fair value measurements including three levels of fair values,
+and reports directly to the person in charge of accounting affairs.
+The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party
+information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team
+assesses the evidence obtained from the third parties to support the conclusion that such valuation meets the
+requirements of IFRSS, including the level in the fair value hierarchy in which such valuation should be classified.
+Significant valuation issues are reported to the Audit Committee of the Board.
+When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible.
+Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation
+techniques as follows.
+The following table presents the fair value information and the fair value hierarchy, at the end of the current
+reporting period, of the Group's assets and liabilities which are measured at fair value at each balance sheet date
+on a recurring basis. The level in which fair value measurement is categorised is determined by the level of the fair
+value hierarchy of the lowest input that is significant to the entire fair value measurement. The levels are defined as
+follows:
+Level 1 inputs: unadjusted quoted prices in active markets that are observable at the measurement date for
+identical assets or liabilities;
+Level 2 inputs: other than quoted prices included in level 1 inputs that are either directly or indirectly
+observable for underlying assets or liabilities inputs;
+Level 3 inputs: inputs that are unobservable for assets or liabilities.
+The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period in
+which they occur. The Group's assets and liabilities measured at fair value are measured on a recurring basis. The
+Group does not have assets nor liabilities measured at fair value on a non-recurring basis.
+295
+296
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+15,168
+395
+18,373
+12,293
+47
+(92)
+Total
+10,176
+(7,575)
+(i)
+Credit risk weighted amount
+The credit risk weighted amounts in respect of these derivatives are as follows. These amounts have taken the
+effects of bilateral netting arrangements into account.
+Credit risk weighted assets of counterparties
+Interest rate derivatives
+Currency derivatives
+Other derivatives
+Credit valuation adjustment risk weighted assets
+Total
+Note:
+2016
+2015
+281
+5,799
+442
+4,205
+3
+10,518
+9,559
+25,169
+| | | |
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+During the year there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair
+value hierarchy.
+(1) Basis of determining the market price for recurring fair value measurements categorised within
+Level 1
+(2)
+Bloomberg's quoted prices are used for financial instruments with quoted prices in an active market.
+Valuation techniques used and the qualitative and quantitative information of key parameters for
+recurring fair value measurement categorised within Level 2
+Fair value of RMB denominated bonds whose value is available on China bond pricing system on the
+valuation date is measured using the latest valuation results published by China bond pricing system.
+Fair value of foreign currency bonds without quoted prices in an active market, is measured by using the
+comprehensive valuations issued by Bloomberg, etc.
+Fair value of foreign exchange forwards contracts in derivative financial assets is measured by discounting
+the differences between the contract prices and market prices of the foreign exchange forwards contracts.
+The discount rates used are the applicable RMB denominated swap yield curve as at the end of the reporting
+period.
+Fair value of foreign exchange options is measured using the Black-Scholes model, applying applicable foreign
+exchange spot rates, foreign exchange yield curves and exchange rate volatilities. The above market data
+used are quoted price in an active market, provided by Bloomberg, Reuters and other market information
+providers.
+Fair value of interest rate swaps in derivative financial assets is measured by discounting the expected
+receivable or payable amounts under the assumption that these swaps had been terminated at the end of
+reporting date. The discount rates used are the related RMB denominated swap yield curve as at the end of
+reporting period.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(g) Fair value information (continued)
+(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+(3) Valuation techniques used and the qualitative and quantitative information of key parameters for
+recurring fair value measurements categorised within Level 3 Quantitative information of Level 3
+fair value measurement is as blow:
+Unlisted available-for-sale
+equity investments
+(ii)
+Unlisted available-for-sale
+(g) Fair value information (continued)
+XI Financial Statements
+1,683
+2,302
+3,985
+8,455
+8,455
+2,352
+2,352
+14,577
+2,302
+16,879
+7,575
+7,575
+18
+25,482
+2,302
+27,802
+297
+298
+China Merchants Bank
+Annual Report 2016
+55. Risk management (continued)
+2,087
+equity investments
+fund investments
+Market comparison
+approach
+758 Discounted cash flow
+Unobservable input
+Liquidity discount
+Risk-adjusted discount rate,
+cash flow
+Risk-adjusted discount rate,
+138
+Discounted cash flow
+4
+cash flow
+Volatility
+instruments
+Financial liabilities designated
+at fair value through profit
+or loss
+- Certificates of deposit
+issued
+Binomial lattice Model
+2,302 Discounted cash flow
+Risk-adjusted discount rate,
+cash flow
+346
+Unlisted available-for-sale
+Valuation techniques
+31 December
+Unlisted available-for-sale
+equity investments
+Unlisted available-for-sale
+equity investments
+Unlisted available-for-sale
+fund investments
+Unlisted derivative financial
+Fair value
+as at
+31 December
+2016
+346
+Valuation techniques
+Market comparison
+Unobservable input
+Liquidity discount
+1,369
+approach
+Discounted cash flow
+158
+Discounted cash flow
+Risk-adjusted discount rate,
+cash flow
+Risk-adjusted discount rate,
+cash flow
+Fair value
+as at
+2015
+2,087
+Total
+Derivative financial liabilities
+- Long position in precious metal contracts
+1,027
+- Equity investments
+744
+- Investments in funds
+1
+5
+| | | |
+49,032
+1,027
+--744
+6
+Subtotal
+6,773
+44,036
+50,809
+Financial assets designated at fair value
+through profit or loss
+- Debt securities
+3,469
+43,004
+4,803
+6,028
+Total
+3,498
+3,595
+8,938
+15
+16,046
+11,152
+34,728
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(g) Fair value information (continued)
+(ii)
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+Assets
+Financial assets held for trading
+2015
+Level 1
+Level 2
+Level 3
+- Debt securities
+Derivative financial assets
+10,172
+4
+Liabilities
+Financial liabilities held for trading
+Precious metal relevant financial liabilities
+- Short position in equity securities
+Subtotal
+18
+18
+10000
+3,330 3,3
+3,330
+18
+3,330
+3,348
+Financial liabilities designated at fair value
+through profit or loss
+Precious metal contracts with other
+banks
+- Certificates of deposit issued
+- Debt securities issued
+- Others
+Subtotal
+368,816
+1,246
+322,086
+45,484
+8,272
+10,176
+Available-for-sale financial assets
+- Debt securities
+33,538
+262,205
+295,743
+- Equity investments
+1,638
+80
+Others
+1,104
+66
+790
+138
+2,822
+994
+Subtotal
+35,242
+263,075
+1,242
+Total
+- Investments in funds
+56
+299,559
+64
+Financial liabilities at fair value
+through profit or loss
+20,227
+Debt securities issued
+251,507
+20,227
+271,745
+3,330
+1,657
+1,188
+3,865
+9,781
+388
+18
+31,286
+66,230
+97,416
+43,477
+33,336
+Other liabilities
+582
+85,202
+415,583
+24,491
+1,163
+797
+1,715
+371
+33
+3,016
+161,061
+1,006,180
+575,095
+1,313,288 1,288,761
+1,309,981
+513,189
+Non-derivative financial liabilities
+Amounts due to banks and other
+financial institutions
+Deposits from customers
+1,138,584 1,152,224 379,034
+3,571,698 3,690,568 2,018,276
+341,555
+312,800
+148,542 254,747
+305,339 637,988
+3,855
+9,390
+86,797
+19,267
+The objectives of the Group's capital management are to:
+Keep capital adequacy ratios at reasonable levels, satisfy capital-specific regulatory provisions and policy
+requirements on an ongoing basis, and maintain a solid capital base in support of its business expansion and
+strategic planning implementation for comprehensive and coordinated and sustainable growth;
+Comply with capital regulatory requirements, perform procedures to assess internal capital adequacy, openly
+disclose information related to capital management, fully cover all risks and ensure safe operation of the
+entire group;
+Put in place an economic capital-centred banking value management system by fully applying various risk-
+specific quantitative deliverables, enhance decision-making processes and management application regimes,
+strengthen capital restraint and capital incentive mechanisms, reinforce capabilities to facilitate client pricing
+and decision-making, and increase capital deployment efficiency; and
+Reasonably use all kinds of capital instruments, continue to upgrade capital strengths, improve capital
+structures, raise capital quality, lower capital costs, and create the best returns to shareholders.
+The Group manages its capital structure and adjust it based on the economic condition and the risk characteristics
+of its operations. To maintain or adjust its capital structure, the Group may modify its profit distribution policy, issue
+or repurchase shares, other tier-1 capital instruments, eligible tier-2 capital instruments, and convertible debentures.
+The Group's management regularly monitors capital adequacy ratio under an approach regulated by CBRC. The
+Group and the Bank file required information to CBRC half-yearly and quarterly.
+The Group's capital adequacy ratio calculation covers the Bank and its subsidiaries. The Bank's capital adequacy ratio
+calculation covers the Bank's all branches. As at 31 December 2016, the Group's subsidiaries that were within the
+scope of consolidated statements in respect of the capital adequacy ratio included: WLB, CMBICHC, CMBFLC and
+CMFM.
+291
+292
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(e) Capital management (continued)
+(f)
+Since 1 January 2013, the Group has calculated its capital adequacy ratio in accordance with the CBRC's
+Administrative Measures on the Capital of Commercial Banks (Trial) and other relevant regulations. On 18 April
+2014, the CBRC approved the Bank to adopt the advanced capital management approach. Within the scope of
+approval of the CBRC, the Bank could calculate corporation and financial institutions risk exposure using the primary
+internal rating-based approach, retail risk exposure using the internal rating-based approach, market risk using
+the internal model approach, and operational risk using the standardised approach. At the same time, the CBRC
+implemented a transition period for commercial banks approved to use the advanced approach to calculate capital.
+During the transition period, the commercial banks should use both the advanced approach and other approaches to
+calculate capital adequacy ratios, and comply with minimum capital requirements. During the period, the Group has
+complied with the capital requirement set by the regulators.
+The Group's capital management focuses on the capital adequacy ratio management. The capital adequacy
+ratio reflects the Group's capability of sound operations and risk resisting. The Group's capital adequacy ratio
+management's objective is to carefully determine capital adequacy ratio, as legally required by regulators, according
+to actual risk profiles and with reference to capital adequacy ratio levels of globally leading market peers and the
+Group's operating conditions. The Group adopts the scenario simulation and stress testing methods to forecast,
+plans and manages its capital adequacy ratio with considerations of factors such as strategic development planning,
+business expansion status, and risk movement trends.
+Use of derivatives
+Derivatives include forward, swap and option transactions undertaken by the Group in the foreign exchange and
+interest rate markets. All of the Group's derivative financial instruments are traded over the counter market.
+The Group enters into interest rate, currency and other financial derivative transactions for treasury business and its
+assets and liabilities management purpose. The Group's derivative financial instruments can be divided into trading
+derivative financial instruments, cash flow hedge financial instruments and derivative financial instruments managed
+in conjunction with financial instruments designated at fair value through profit or loss.
+(e) Capital management
+54,350
+In face of challenges from internal and external operations and management, the Group will, based on its risk
+preference, continue to upgrade its risk management skills, strengthen operational risk monitoring and controls, as
+well as endeavour to prevent and reduce operational risk losses.
+Operational risk arises from the direct and indirect loss due to technique, procedure, infrastructure and staff
+deficiency, as well as other risks which have effect on operation, which includes legal risk. But the strategic risk and
+reputation risk are not included.
+1,537
+3,919
+4,648
+1,010
+2,066
+Total
+5,067,218
+5,221,561 2,454,990
+706,565
+522,836
+997,935 497,980
+39,171
+2,084
+Gross loan commitments
+377,020 377,020
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(d) Operational risk
+During the reporting period, the Group continued to enhance its operational risk management by further improving
+operational risk management framework and methodologies, strengthening operational risk appraisal and
+assessment mechanisms, stepping up the identification, evaluation and monitoring of operational risk in key areas,
+and subjecting operational risk to its economic capital management. Various key risk indicators were compliant with
+the Group's risk preference requirements.
+16,485
+6,167,555
+16,914
+5,361,937
+Total
+3 months
+1 year
+5 years
+5 years
+Indefinite
+Non-derivative financial assets
+Cash and balances with central bank
+Amounts due from banks and
+584,342
+584,342
+118,184
+466,158
+other financial institutions
+593,396 597,368
+11,544
+465,863
+62,507
+45,870
+10,856
+728
+1 month
+Loans and advances to customers
+on demand
+amount
+Equity options written
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(c) Liquidity risk (continued)
+2015
+After
+After
+After
+1 month
+3 months
+1 year
+Carrying
+Repayable
+Within
+but within
+but within
+but within
+After
+Total
+2,739,444 3,311,031
+21,943
+131,985
+-Held-to-maturity investments
+353,137
+502,642
+2,255
+3,869
+18,881
+131,033
+346,591
+13
+- Debt securities classified
+as receivables
+716,064 727,709
+383,829
+49,586
+146,600
+126,064
+21,586
+44
+Other assets
+2,549
+81,673
+199,827
+52,637
+439,169
+1,034,042
+788,968
+855,004
+39,920
+Investments
+- Financial assets at fair value
+through profit or loss
+59,081
+The Group will choose appropriate hedging strategies and tools in light of the risk profile of interest/exchange rates
+of its assets and liabilities, as well as its analyses and judgement regarding future interest/exchange rate movements.
+The Group is exposed to foreign exchange risk when assets or liabilities denominated in foreign currencies. Such risk
+can be offset through the use of forward foreign exchange contracts or foreign exchange option contracts.
+65,591
+6,289
+13,543
+5,094
+761
+- Available-for-sale financial assets
+299,559
+362,387
+12,823
+12,878
+8,262
+In cash flow hedge, the Group uses interest rate swaps as hedging instruments to hedge the interest cash flows
+arising from the RMB loans and interbank assets portfolios.
+31,642
+China Merchants Bank
+Annual Report 2016
+8,688
+(11,152)
+The impact of invalid cash flow hedge on profit or loss this year is zero. (2015:Nil)
+293
+294
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+55. Risk management (continued)
+(f)
+Use of derivatives (continued)
+Derivatives held for trading
+2015
+Notional amounts with remaining life of
+Fair value
+Within
+Between
+3 months
+Between
+3 months
+and 1 year
+Total
+1 year and
+5 years
+(171)
+23,309
+6,581
+7,956
+721
+16,168
+67
+(77)
+Currency derivatives
+Foreign exchange swaps
+2,224
+1,462
+3,455
+7,141
+19
+(94)
+Subtotal
+3,134
+8,043
+11,411
+721
+86
+More than
+5 years
+Total
+Assets
+Options
+61,393
+38,423
+1,304
+101,120
+634
+(876)
+Subtotal
+480,034
+632,339
+23,876
+1,136,249
+9,323
+(6,975)
+Other derivatives
+Credit default swaps
+97
+The following tables provide an analysis of the notional amounts and the corresponding fair value of derivatives of
+the Group by residual maturity at the end of the reporting period. The notional amounts of the derivatives indicate
+the outstanding transaction volume at the end of the reporting period, not representing amounts at risk.
+Equity options purchased
+(5,827)
+7,581
+844,285
+21,111
+Liabilities
+Interest rate derivatives
+Interest rate swaps
+256,954
+817,880
+75,345
+409
+1,150,588
+465
+910
+(492)
+Forwards
+108,528
+1,461
+190,844
+1,108
+(272)
+Foreign exchange swaps
+337,786
+485,388
+Currency derivatives
+Interest rate swaps
+80,855
+profit or loss
+(370)
+Currency derivatives
+Forwards
+71,563
+53,900
+8,374
+133,837
+2,304
+(2,264)
+Foreign exchange swaps
+398,401
+449,680
+13,174
+861,255
+4,191
+(5,460)
+Options
+137,775
+113,106
+460
+1,373,348
+1,806
+81,283
+XI Financial Statements
+55. Risk management (continued)
+Interest rate derivatives
+(f) Use of derivatives (continued)
+Derivatives held for trading
+2016
+Notional amounts with remaining life of
+Fair value
+Within
+4,049
+3 months
+Between
+1 year and
+5 years
+More than
+5 years
+Total
+Assets
+Liabilities
+Interest rate derivatives
+378,226
+912,033
+Between
+3 months
+and 1 year
+254,930
+Interest rate swaps
+(2,816)
+332
+67
+(67)
+335
+67
+(68)
+གླབ། |
+Cash flow hedge derivatives
+Interest rate derivatives
+(1)
+810
+8,500
+20,760
+72
+(3)
+Derivatives managed in
+at fair value through
+1,508
+conjunction with financial
+instruments designated
+11,450
+2
+Interest rate swaps
+Other derivatives
+25,597
+1,250,022
+8,003
+(10,540)
+Equity options purchased
+1
+Equity options written
+Subtotal
+1
+616,686
+1
+Commodity trading
+332
+Subtotal
+334
+1
+607,739
+1
+Proportion
+of the
+Proportion
+of the
+Bank held
+the Bank
+Best Winner Investment
+Company
+relationship
+Issued
+Company name
+Registered
+location
+and fully
+the
+No. of
+Shares of
+1.53%
+56. Material related-party transactions (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+company
+Joint stock limited -
+Shareholder
+386,924,063
+USD0.05 million
+British Virgin
+Islands
+held by
+Limited company Hong Xiaoyuan
+domestic commerce, materials
+supply and marketing
+business, etc.
+Co., Ltd.
+(a) Material connected person information (continued)
+by the
+Shenzhen
+with the
+Limited
+consulting and investment
+consulting, etc.
+Shareholder
+enterprise management
+Development (Shenzhen)
+Limited company Wang Xiaoding
+Shareholder
+Invest and set up industries,
+0.22%
+55,196,540
+USD10 million
+China Merchants Industry
+held by
+Islands
+Limited company
+Shareholder
+1.89%
+477,903,500
+USD0.06 million
+China Merchants Union (BVI) British Virgin
+Legal
+representative
+Legal form
+Bank
+the Bank Business
+Company
+the Company
+paid capital
+Limited
+Invest and set up industries,
+Anbang Property & Casualty Beijing
+Insurance Co., Ltd.
+1,147,377,415
+China Ocean Shipping (Group) Beijing
+Co., Ltd.
+accident insurance, etc.
+term health insurance and
+Joint stock limited Wang Yuesheng
+company
+insurance, credit insurance and
+(note(iv))
+property damage insurance, liability Shareholder
+2,704,596,216 10.72%
+RMB37,000 million
+shipping agency services, etc.
+management and distribution,
+Joint stock limited Li Jianhong
+company
+shareholder
+RMB16,190 million
+procurement, supply chain
+3,289,470,337 13.04% (note
+RMB5,900 million
+Beijing
+China Merchants Steam
+Navigation Co., Ltd.
+(CMSNCL)
+management service, etc.
+contracting, sales operating
+company
+building and facility, repair and
+parent
+leasing, manufacturing
+100% Financial advisory services
+shareholder's
+warehousing and storage,
+Transportation, building and repair, The largest
+4.55%
+1,574,729,111
+Transportation business, shipping Shareholder
+RMB600 million
+Shenzhen
+China Merchants Finance
+Investment Holdings
+Co., Ltd.
+business, etc.
+supply and marketing
+domestic commerce, materials
+and Development Co., Ltd.
+Limited company Liu Jie
+Shareholder
+Invest and set up industries,
+3.74%
+944,013,171
+RMB600 million
+6.24%
+Shenzhen Chu Yuan Investment Shenzhen
+supply and marketing
+domestic commerce, materials
+Limited company Liu Jie
+Shareholder
+Invest and set up industries,
+4.99%
+RMB600 million 1,258,542,349
+Shenzhen Yan Qing Investment Shenzhen
+Development Co., Ltd.
+ships, etc.
+constructing and trading
+voyage charter, leasing,
+space booking, time charter,
+Limited company Ma Zehua
+business, etc.
+Subsidiary
+CMBICHC
+HKD
+CMB International Capital
+CMFM
+WLB
+CMBFLC
+%
+RMB
+The subsidiaries held by the Bank
+shareholder
+CMSNCL
+The Bank held by the largest
+The change of proportion of the Bank held by the largest shareholder and the portion of the subsidiaries
+held by the Bank
+CMFM
+RMB210,000,000
+HKD1,160,950,575
+HKD1,160,950,575
+RMB210,000,000
+RMB6,000,000,000
+RMB6,000,000,000
+HKD1,000,000,000
+USD10,000,000
+USD10,000,000
+HKD4,129,000,000
+WLB
+CMBFLC
+CMBICHC
+Co., Ltd.
+USD60,000
+USD50,000
+USD50,000
+USD60,000
+China Merchants Industry Development (Shenzhen)
+China Merchants Union (BVI) Ltd.
+%
+RMB
+At 1 January 2016
+Change
+3,289,470,337
+Demand deposits
+(i), (iii)&(v))
+Medium to long-term loans
+Short-term loans
+In each year, the Group entered into transactions with related parties in the ordinary course of its banking business
+including lending, investment, deposit, securities trading, agency services, trust services, and off-balance sheet
+transactions. The opinion of the directors is that the Group's material related-party transactions were all entered into
+normal commercial terms. The banking transactions were priced at the market rates at each time of transaction.
+Interest rates on loans and deposits are required to be set in accordance with the following benchmark rates set by
+the PBOC:
+(b) Transaction terms and conditions
+56. Material related-party transactions (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+55.00
+115,500,000
+1,160,950,575 100.00
+100.00
+RMB600,000,000
+6,000,000,000
+115,500,000
+100.00
+1,160,950,575
+%
+RMB
+%
+HKD
+%
+100.00
+6,000,000,000
+1,000,000,000 100.00
+3,129,000,000
+4,129,000,000 100.00
+3,289,470,337 13.04
+At 31 December 2016
+13.04
+55.00
+RMB600,000,000
+China Merchants Finance Investment Holdings Co., Ltd.
+Best Winner Investment Ltd.
+RMB600,000,000
+(iii)
+(ii)
+CMG holds 29.97% of the Bank (2015: 29.97%) through its subsidiaries.
+(i)
+Note:
+Limited company Li Hao
+Subsidiary
+55% Asset Management
+RMB210 million
+Shenzhen
+China Merchants Fund
+Management Co., Ltd.
+(CMFM)
+Limited company Tian Huiyu
+Subsidiary
+(iv)
+100% Banking
+Wing Lung Bank Limited
+(WLB)
+(CMBFLC)
+Company Limited
+Limited company Lian Bolin
+Subsidiary
+100% Finance lease
+RMB6,000 million
+Shanghai
+CMB Financial Leasing
+Limited (CMBICHC)
+Holdings Corporation
+HKD4,129 million
+Hong Kong
+Hong Kong HKD1,161 million
+Limited company Tian Huiyu
+(v)
+On 28 December 2015, the State-owned Assets Supervision and Administration Commission (hereinafter referred to as "SASAC") issued an
+approval letter, approving that Sinotrans & CSC Holdings Co., Ltd. (hereinafter referred to as "Sinotrans & CSC"), in its entirety, be transferred
+into China Merchants Group at nil consideration (hereinafter referred to as "Transfer of Sinotrans & CSC") as approved by the State Council.
+As Sinotrans & CSC and its subsidiary Wuhan Changjiang Shipping Company (I) hold in aggregate 0.09% of the total share
+capital of the Bank, China Merchants Group will, upon completion of the Transfer of Sinotrans & CSC, hold more than 30% of the share
+capital of the Bank by way of equity interest, right of control or relationship of parties acting in concert, triggering the obligation to make a
+general offer. China Merchants Steam Navigation and parties acting in concert with it made an application to the China Securities Regulatory
+Commission (hereinafter referred to as "CSRC") for a waiver from the obligation to make a general offer in respect of the Transfer of Sinotrans
+& CSC.
+RMB600,000,000
+RMB600,000,000
+RMB600,000,000
+Shenzhen Yan Qing Investment Development Co., Ltd.
+RMB16,191,351,300
+RMB37,000,000,000
+RMB5,900,000,000
+RMB5,900,000,000
+RMB37,000,000,000
+RMB16,191,351,300
+RMB13,750,000,000
+RMB13,750,000,000
+Shenzhen Chu Yuan Investment and Development
+Company Ltd.
+China Ocean Shipping (Group) Co., Ltd.
+Anbang Property & Casualty Insurance Co., Ltd.
+As the largest shareholder, CMSNCL who is the subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2016 (2015: 13.04%).
+CMSNCL
+2015
+2016
+Name of related party
+The information of registered capital of the related parties as at 31 December 2016 and 2015 is as below:
+(a) Material connected person information (continued)
+56. Material related-party transactions (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+306
+305
+The discrepancy between the shareholding ratio of CMG and the sum of the amounts of the related shareholders listed are due to rounding.
+As at 31 December 2016, Anbang Property & Casualty Insurance Company Ltd. holds 10.72% of the share capital of the Bank through
+traditional product account (2015: 10.72%).
+Thereafter, in order to implement the overall deployment of the Central Party Committee and the State Council for further deepening the
+reform of state-owned enterprises, Sinotrans & CSC and Wuhan Changjiang Shipping Company transferred the above-mentioned 0.09% shares
+in the Bank held by them (hereinafter referred to as "Transferred Shares") to Guoxin Investment Co., Ltd. (), a subsidiary of
+China Reform Holdings Corporation Ltd., at nil consideration (hereinafter referred to as "Transfer at Nil Consideration") in accordance with
+the relevant working arrangements of the SASAC. As a result of the Transfer at Nil Consideration, Sinotrans & CSC and Wuhan Changjiang
+Shipping Company cease to hold the Transferred Shares. Therefore, the implementation of the Transfer of Sinotrans & CSC would not increase
+the proportion of the Bank's shares controlled by China Merchants Group and would no longer trigger the obligation to make a general
+offer. In view of this, China Merchants Steam Navigation has submitted an application to the CSRC to terminate the examination review of its
+application for a waiver from the obligation to make a general offer, and has received the "Notice on CSRC's Administrative Permission to the
+Application for Terminating the Examination Review" ([2016] No. 482), in which the CSRC has decided to terminate the examination review of
+such application for administrative approval. After the Transfer at Nil Consideration, China Merchants Group still holds in aggregate 29.97%
+of the total share capital of the Bank by way of equity interest, right of control or companies controlled by the parties acting in concert. China
+Merchants Steam Navigation is still the largest shareholder of the Bank and there was no significant change in the shareholding structure of
+the Bank.
+CMG
+Limited company Li Jianhong
+31 1
+Transportation, shipping agency,
+(ii)
+(g) Fair value information (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+17
+20
+20
+-(3)
+1,246
+1,242
+4
+(255)
+(122)
+(8)
+(125)
+570
+570
+21
+21
+17
+20
+893
+753
+15
+125
+(5)
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+(3) Valuation techniques used and the qualitative and quantitative information of key parameters for
+recurring fair value measurements categorised within Level 3 Quantitative information of Level 3
+fair value measurement is as blow: (continued)
+1)
+Valuation of financial instruments with significant unobservable inputs (continued)
+China Merchants Bank
+Annual Report 2016
+302
+301
+121
+2,302
+(430)
+122
+2,610
+(2,423)
+profit or loss for liabilities held at the end of the reporting period
+Total unrealised gains and losses included in the consolidated statement of
+At 31 December 2015
+Disposals and settlement on maturity
+(5)
+Issues
+At 1 January 2015
+Total unrealised gains and losses included in the consolidated statement of
+profit or loss for liabilities held at the end of the reporting period
+At 31 December 2016
+Disposals and settlement on maturity
+121
+2,302
+or loss -
+certificates of
+deposit issued
+at fair value
+through profit
+Financial
+liabilities
+designated
+Issues
+In profit or loss
+At 1 January 2016
+Liabilities
+In profit or loss
+XI Financial Statements
+--
+1,873
+loss-debt
+included in the consolidated
+Total unrealised gains and losses
+At 31 December 2016
+Exchange gains (losses)
+maturity
+Disposals and settlement on
+Purchases
+- In other comprehensive income
+- In profit or loss
+Profit or loss
+At 1 January 2016
+Assets
+Available-
+Financial
+assets
+designated
+at fair value
+through
+profit or
+The following table shows a reconciliation from the beginning balances to the ending balances for fair
+value measurements in Level 3 of the fair value hierarchy:
+Valuation of financial instruments with significant unobservable inputs
+1)
+(3) Valuation techniques used and the qualitative and quantitative information of key parameters for
+recurring fair value measurements categorised within Level 3 Quantitative information of Level 3
+fair value measurement is as blow: (continued)
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+(ii)
+(g) Fair value information (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+300
+Time deposits
+securities
+statement of profit or loss for
+assets held at the end of the
+reporting period
+At 1 January 2015
+8 6
+6
+(8)
+(4)
+(4)
+435
+435
+199
+199
+(5)
+(5)
+1,246
+1,242
+1,873
+4
+assets
+assets
+for-sale
+financial
+Derivative
+financial
+included in the consolidated
+statement of profit or loss for
+assets held at the end of the
+reporting period
+Total unrealised gains and losses
+At 31 December 2015
+maturity
+Disposals and settlement on
+Purchases
+- In other comprehensive income
+- In profit or loss
+Profit or loss
+Total
+55. Risk management (continued)
+(g) Fair value information (continued)
+(ii)
+73,324
+73,324
+72,315
+Total
+28,146
+27,995
+40,925
+40,925
+40,959
+securities issued
+Long-term debt
+34,680
+32,519
+32,399
+32,399
+31,356
+issued
+Subordinated notes
+amount Fair value
+Level 3
+Level 2
+Level 1
+Fair value
+amount
+Carrying
+Carrying
+2015
+60,514
+62,826
+303
+304
+7,559,427,375 29.97% (note
+representative
+Legal form
+Bank
+the Bank Business
+Company
+Legal
+with the
+held by
+by the
+held by
+the Company
+paid capital
+RMB13,750 million
+China Merchants Group (CMG) Beijing
+2016
+relationship
+the
+Proportion
+of the
+Proportion
+of the
+Bank held
+the Bank
+Issued
+and fully
+Registered
+location
+Company name
+No. of
+Shares of
+The Bank's main shareholders and its parent company and the Bank's subsidiaries.
+(a) Material connected person information
+56. Material related-party transactions
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+Company
+Financial liabilities mainly include deposits from customers, amounts due to banks and other financial
+institutions, and debts securities issued by the Group. The carrying value of financial liabilities approximate
+their fair value at the end of the reporting period of the year presented, except the financial liabilities set out
+below:
+353,137 372,697
+(2) Financial Liabilities
+(111)
+(Unfavourable)
+230
+111
+13
+Favourable
+comprehensive income
+Effect on profit or loss or other
+2015
+(172)
+(16)
+(Unfavourable)
+172
+16
+Favourable
+comprehensive income
+(13)
+Effect on profit or loss or other
+(3)
+- Certificates of deposit issued
+- Investments in funds
+- Equity investments
+Available-for-sale financial assets
+- Investments in funds
+- Equity investments
+Available-for-sale financial assets
+The fair value of financial instruments are, in certain circumstances, measured using valuation models
+which incorporate assumptions that are not supported by prices from observable current market
+transactions in the same instrument and are not based on observable market data. The following table
+shows the sensitivity of fair value due to parallel movement of plus or minus 10 per cent of change in
+fair value to reasonably possible alternative assumptions.
+The sensitivity of the fair value measurement on changes in unobservable inputs for Level 3 financial
+instruments measured at fair value on an ongoing basis
+2)
+(3) Valuation techniques used and the qualitative and quantitative information of key parameters for
+recurring fair value measurements categorised within Level 3 Quantitative information of Level 3
+fair value measurement is as blow: (continued)
+Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
+(continued)
+2016
+The largest
+(230)
+During the year ended 31 December 2016, there were no transfers between levels for financial
+instruments which are measured at fair value on an on-going basis. The group recognises the transfers
+between levels at the end of the reporting period during which the changes have occurred.
+481,491
+2,786
+477,064 484,277
+Held-to-maturity
+investments
+Fair value
+Carrying
+amount
+Level 3
+Level 2
+Level 1
+Fair value
+Carrying
+amount
+2015
+2016
+Transfers between levels for financial instruments which are measured at fair value on an on-going
+basis, the reasons for these transfers and the policy for determining when transfers between levels are
+deemed
+The fair value measurements for Level 1 are based on quoted price in active market, for example, released
+by Bloomberg. For Level 2, the latest valuation results released by China bond pricing system are used to
+measure fair value of bonds denominated in RMB. The Level 2 category also includes foreign currency bonds
+without active quoted price, which are measured by Bloomberg comprehensive valuation. The Level 3 adopts
+expected cash flow valuation technique to measure fair value.
+(1)
+Held-to-maturity investments are stated at amortised costs less impairment, and the fair value of listed debt
+securities classified as held-to-maturity investments are disclosed in Note 21(c). The carrying value, fair value and fair
+value hierarchy of held-to-maturity investments not measured or disclosed at fair value are listed as below:
+Loans and advances are stated at amortised costs less allowances for impairment loss (Note 19). Loans and advances
+are mostly priced at floating rates close to the PBOC rates and repriced at market rates annually at least, and
+impairment allowance is made to reduce the carrying amount of impaired loans to estimate the recoverable amount.
+Accordingly, the carrying value of loans and advances are close to the fair value.
+Except for loans and advances and held-to-maturity investments, most of the financial assets will mature within 1
+year or have been already stated at fair value, and their carrying value approximate their fair value.
+The Group's financial assets and financial liabilities that are not measured at fair value mainly include cash, balances
+with central banks, balances and placements with banks and other financial institutions, amounts held under resale
+agreements, loans and advances to customers and investments.
+(iii) Financial assets and financial liabilities that are not measured at fair value
+(g) Fair value information (continued)
+55. Risk management (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+During the year ended 31 December 2016, the Group has not changed the valuation technique of the
+above financial assets which are measured at fair value on an on-going basis.
+Changes in valuation technique and the reasons for making the changes
+(4)
+Financial Assets
+2016
+4.35% p.a.
+4.75% to 4.90% p.a.
+0.35% p.a.
+1.10% to 2.75% p.a.
+guarantee insurance, short-
+4.35% p.a.
+4.75% to 4.90% p.a.
+0.35% p.a.
+1.10% to 2.75% p.a.
+- Irrevocable guarantees
+Interest income
+Interest expense
+Net fee and commission income
+(g) Subsidiaries
+On-balance sheet
+2016
+2015
+Off-balance sheet:
+5,572
+1,700
+16,328
+10,287
+5,627
+6,000
+16
+9
+12
+200
+20
+- Deposits from customers
+- Loans and advances to customers
+2016
+2015
+3,047
+5
+921
+442
+3,700
+8,701
+- Investments
+37
+1,063
+36
+454
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+56. Material related-party transactions (continued)
+(f) Other shareholders holding more than 5% shares
+On-balance sheet:
+4
+Net fee and commission income
+1,282
+2016
+- Bills of acceptances
+Interest income
+Interest expense
+Net fee and commission
+Other net income
+3,494
+3,269
+120
+- Irrevocable guarantees
+230
+284
+426
+1,578
+1,494
+(5)
+(4)
+Any significant balances and transactions between the Bank and its subsidiaries have been offset in the consolidated
+financial statements.
+309
+31
+915
+Off-balance sheet
+3,866
+2015
+- Balances with banks and other financial institutions
+5,758
+- Placements with banks and other financial institutions
+9,338
+5,588
+28,102
+- Loans and advances to customers
+348
+1,657
+325
+93
+440
+- Deposits from banks and other financial institutions
+29,715
+13,497
+- Placements from banks and other financial institutions
+93
+- Deposits from customers
+- Investments
+Interest expense
+2015
+- Irrevocable guarantees
+3,662
+12,346
+100,553
+119,679
+4,000
+2,135
+1,849
+213
+5,124
+93
+58
+5
+688
+496
+767
+1,151
+611
+580
+222
+(115)
+8,482
+2016
+Interest income
+There were no individually assessed allowances for impairment losses made against loans and advances granted to
+related parties during the year.
+Shareholders and their related companies
+(c)
+The Bank's largest shareholder CMSNCL and its related companies hold 29.97% (2015: 29.97%) shares of the Bank
+as at 31 December 2016 (among them 13.04% shares is held by CMSNCL (2015: 13.04%)). The Group's transactions
+and balances with CMSNCL and its related companies are disclosed as follows:
+On-balance sheet:
+- Loans and advances to customers
+- Investments
+2015
+- Deposits from customers
+Off-balance sheet:
+- Irrevocable guarantees
+- Irrevocable letters of credit
+- Factoring
+Interest income
+Interest expense
+Net fee and commission income
+Other net income
+Placements
+37
+- Bills of acceptances
+308
+152
+310
+220
+Interest expense
+299
+737
+Net fee and commission income
+130
+1,076
+204
+1
+(e) Associates and joint ventures other than those under Note 56(c) above
+On-balance sheet:
+- Loans and advances to customers
+- Deposits from customers
+- Placements
+307
+Off-balance sheet:
+Other net income
+2,671
+(12)
+21,448
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+30,929
+56. Material related-party transactions (continued)
+(d) Companies controlled by directors and supervisors other than those under Note
+56(c) above
+2016
+On-balance sheet:
+- Loans and advances to customers
+- Investments
+2015
+Off-balance sheet:
+- Irrevocable guarantees
+- Acceptance bills
+1,425
+Interest income
+3,659
+- Deposits from customers
+955
+6,110
+1,959
+1,037
+Qualifying portion of non-controlling interests
+24,006
+Surplus provision for loans impairment
+30,000
+30,000
+Tier-2 capital:
+Total tier-2 capital
+Qualifying portion of tier-2 capital instruments and their premium
+29,299
+60,336
+449,116
+Regulatory deductions from core tier-2 capital
+Net tier-2 capital
+Net capital
+Total risk-weighted assets
+Notes:
+60,336
+55,965
+403,409
+3,368,990
+3,208,152
+(i) :
+347,444
+: (!!)
+55,965
+388,780
+162,405
+10
+Others represent exchange reserve of foreign currency consolidated financial statements under CBRC's Administrative Measures on the Capital
+of Commercial Banks (Trial).
+73,889
+Surplus reserves
+39,678
+33,981
+Regulatory general reserve
+67,839
+64,680
+Retained profits
+197,947
+Qualifying portion of non-controlling interests
+303
+329
+Others (note (i))
+1,625
+(304)
+Total core tier-1 capital
+401,212
+360,200
+Regulatory deductions from core tier-1 capital
+12,450
+12,766
+Net core tier-1 capital
+388,762
+347,434
+Other tier-1 capital (note (ii))
+18
+Net tier-1 capital
+The Group's other tier-1 capital is qualifying portion of non-controlling interests.
+On-balance sheet items (excluding derivatives and
+316
+6,758,093
+6,275,592
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+(B) Leverage ratio (continued)
+Leverage ratio, net tier-1 capital, on-balance sheet and off-balance sheet exposures and other information:
+2016
+2015
+68,600
+securities financing transactions (SFT))
+Less: Asset amounts deducted in determining Basel III Tier 1 capital
+5,651,310
+Balance of adjusted on-balance sheet and off-balance sheet assets
+5,251,604
+(12,766)
+Balance of adjusted on-balance sheet assets
+(excluding derivatives and SFTs)
+5,638,860
+5,238,838
+Replacement cost associated with all derivatives transactions
+(net of eligible cash variation margin)
+with all derivatives transactions
+14,851
+9,780
+Add-on amounts for potential future exposure associated
+12,140
+(12,450)
+(12,766)
+(12,450)
+Other adjustments
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+(A) Capital adequacy ratio (continued)
+In 2016, in accordance with the advanced capital management approach approved by CBRC in April 2014, the Bank
+calculated core tier-1 capital adequacy ratio is 11.11%, tier-1 capital adequacy ratio is 11.11%, capital adequacy
+ratio is 12.99%, net capital is RMB397,649 million and total risk-weighted assets is RMB3,061,019 million.
+In 2016, by the method of calculating credit risk using the risk-weighted approach, market risk using the
+standardised approach and operational risk using the basic indicator approach, the Group's core tier-1 capital
+adequacy ratio is 10.09%, tier-1 capital adequacy ratio is 10.09%, capital adequacy ratio is 12.00%, net capital is
+RMB462,493 million and total risk-weighted assets is RMB3,852,894 million.
+In 2016, by the method of calculating credit risk using the risk-weighted approach, market risk using the
+standardised approach and operational risk using the basic indicator approach, the Bank's core tier-1 capital
+adequacy ratio is 9.63%, tier-1 capital adequacy ratio is 9.63%, capital adequacy ratio is 11.59%, net capital is
+RMB408,962 million and total risk-weighted assets is RMB3,529,142 million.
+(B) Leverage ratio
+In accordance with the CBRC's Administrative Measures on Leverage Ratio of Commercial Banks (Revision) issued in
+2015 and effective on 1 April 2015, the Group's leverage ratio and relevant components as at 31 December 2015
+were as follows. The basis used herein may differ from those adopted in Hong Kong or other countries.
+Summary comparison of accounting assets and leverage ratio exposure measure:
+Total consolidated assets as per published financial statements
+Adjustments for investments in banking, financial, insurance or
+commercial entities that are consolidated for accounting purposes
+2016
+5,942,311
+2015
+5,474,978
+but outside the scope of regulatory consolidation
+Adjustments for fiduciary assets
+Adjustments for derivative financial instruments
+(3,615)
+(2,717)
+19,680
+10,813
+Adjustment for securities financing transactions
+15,066
+13,508
+Adjustment for off-balance sheet items
+797,101
+791,776
+315
+Qualifying portion of capital reserve
+China Merchants Bank
+Annual Report 2016
+25,220
+Carrying amount
+Amounts
+held under
+resale
+agreements
+Available-
+Financial
+assets held
+for trading
+for-sale
+financial
+assets
+Held-to-
+maturity
+investments
+Debt
+securities
+classified as
+receivables
+Total
+31 December 2015
+Maximum
+exposure
+Asset management schemes
+Trust beneficiary rights
+11,381
+10,693
+Asset backed securities
+Investment in funds
+Debtor beneficiary rights
+||||6
+4,640
+Total
+26,714
+6
+3,767
+300
+Wealth management
+products
+558,728
+558,728
+508,050
+55,216
+Asset management schemes
+1,050
+369,168
+370,218
+370,218
+Trust beneficiary rights
+52
+83,548
+83,600
+83,600
+Asset backed securities
+224
+3,847
+2,187
+118
+6,376
+6,376
+Investment in funds
+109
+43,318
+43,318
+Total
+1,102
+333
+47,056
+2,187
+300
+25,220
+606,424
+300
+617,805
+XI Financial Statements
+60. Non-adjusting events after the reporting period
+Save as otherwise disclosed in Note 47(b), the Group has no significant post reporting date event subsequent to the
+end of the reporting period as at the date of approval to the consolidated financial statements.
+61. Comparative figures.
+During the year end 31 December 2016, the Group has reclassified income from precious metals borrowing and
+lending activities, from other net income to net interest income and reclassified the liabilities and interest expense
+of transactions with central bank from amounts sold under repurchase agreements to borrowing from central bank;
+and has restated the corresponding comparative figures.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+Unaudited Supplementary Financial Information
+(Expressed in millions of Renminbi unless otherwise stated)
+(A) Capital adequacy ratio
+The Group's capital adequacy ratio was prepared solely in accordance with the CBRC's Administrative Measures on
+the Capital of Commercial Banks (Trial) issued in 2012 and effective on 1 January 2013. The bases used herein may
+differ from those adopted in Hong Kong or other countries.
+In accordance with the advanced capital management approach approved by CBRC in April 2014, the Group
+calculated core tier-1 capital adequacy ratio, tier-1 capital adequacy ratio and capital adequacy ratio as follows:
+China Merchants Bank
+Annual Report 2016
+Core tier-1 capital adequacy ratio
+Capital adequacy ratio
+Components of capital base
+Core tier-1 capital:
+2016
+2015
+11.54%
+10.83%
+11.54%
+10.83%
+13.33%
+12.57%
+Qualifying portion of share capital
+Tie-1 capital adequacy ratio
+314
+313
+The total amount of non-principal-guaranteed wealth management products issued by the Group after 1 January
+2016 with a maturity date before 31 December 2016 was RMB3,081,595 million (2015: RMB2,622,189 million).
+2,773
+994
+2,672
+78,067
+118
+88,760
+88,760
+5,563
+5,563
+1,000
+1,000
+4,640
+4,640
+2,672
+684,909
+718,068
+718,068
+The maximum exposures held by the Group in the subordinated tranches of assets backed securities and investments
+in funds are the fair value of the assets at the reporting date. The maximum exposures in the wealth management
+products, asset management schemes, trust beneficiary rights, senior tranches of assets backed securities are the
+amortised cost of the assets held by the Group at the reporting date in accordance with the line items of these
+assets recognised in the statement of financial positions.
+11,163
+XI Financial Statements
+59. Interests in unconsolidated structured entities (continued)
+(b) Interest in the unconsolidated structured entities sponsored by the Group
+The unconsolidated structured entities sponsored by the Group include non-principal- guaranteed wealth
+management products, funds and asset management schemes. The nature and purpose of these structured entities
+are to generate fees from managing assets on behalf of investors. These structured entities are financed through the
+issue of investment products to investors. Interest held by the Group includes fees charged on management services
+provided.
+As at 31 December 2016, the amount of the unconsolidated non-principal-guaranteed wealth management
+products, which are sponsored by the Group, is RMB2,375,766 million (31 December 2015: RMB1,820,694 million).
+As at 31 December 2016, the amount of the unconsolidated mutual funds, which are sponsored by the Group, is
+RMB345,450 million (31 December 2015: RMB250,207 million).
+As at 31 December 2016, the amount of the unconsolidated asset management schemes, which are sponsored by
+the Group, is RMB352,446 million (31 December 2015: RMB431,591 million).
+As at 31 December 2016, the balance of amounts held under resale agreements and placement with banks and
+other financial institutions between the Group and its non-principal-guaranteed wealth management products, which
+are sponsored by the Group, is RMB274,393 million (31 December 2015: RMB208,150 million) and RMB50,283
+million (31 December 2015: RMB5,723 million) respectively. The above transactions were made in accordance with
+normal business terms and conditions.
+During year ended 31 December 2016, the amount of fee and commission income received from such category
+of non-principal-guaranteed wealth management products by the Group is RMB15,470 million (2015: RMB7,984
+million).
+During the year ended 31 December 2016, the amount of management fee income received from the unconsolidated
+mutual funds by the Group is RMB1,292 million (2015: RMB1,114 million).
+During the year ended 31 December 2016, the amount of management fee income received from the unconsolidated
+asset management schemes by the Group is RMB939 million (2015: RMB872 million).
+617,805
+Gross-up for derivatives collateral provided where deducted
+China Merchants Bank
+Annual Report 2016
+Less: Deductions of receivables assets for cash variation margin
+provided in derivatives transactions
+(i) LCR is calculated based on the arithmetic mean of the item as at the end of each month for the latest quarter during the reporting period.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+(D) Currency concentrations other than RMB
+Non-structural position
+2016
+USD
+HKD
+Others
+Total
+(in millions of RMB)
+Spot assets
+Note:
+622,831
+Spot liabilities
+(666,434)
+(207,309)
+76,138
+(75,224)
+Forward purchased
+741,635
+63,786
+79,067
+940,032
+(948,967)
+884,488
+Forward written
+(630,853)
+(59,094)
+241,063
+113.61%
+114.59%
+578,360
+reverse repurchase agreements and
+securities borrowed)
+179,520
+179,520
+274,089
+274,089
+Cash inflows from fully honoured
+payments
+945,283
+618,785
+1,151,766
+530,114
+Other cash inflows
+38,545
+Total cash inflows
+37,774
+836,079
+112,525
+68,016
+872,219
+Adjusted value
+Adjusted value
+TOTAL HQLA
+TOTAL NET CASH OUTFLOWS
+LCR (%) (i)
+637,522
+655,927
+564,076
+(75,022)
+(764,969)
+Net option position
+(48,662)
+61,572
+93,045
+650,437
+Forward written
+(482,020)
+(52,239)
+(56,359)
+(590,618)
+Net option position
+(15,074)
+8
+(194)
+(15,260)
+Net long position
+Net structural position
+210,139
+52,370
+(1,477)
+261,032
+537
+19,295
+19,832
+The net option position is calculated using the delta equivalent approach required by the Hong Kong Monetary
+Authority (the "HKMA"). The net structural position of the Group includes the structural positions of the Bank's
+branches substantially involved in foreign exchange. Structural assets and liabilities include:
+Investment properties, property and equipment, net of depreciation charges;
+Capital and statutory reserves of overseas branches; and
+Investments in subsidiaries.
+319
+495,820
+Secured lending transactions (including
+Forward purchased
+(74,897)
+(4,180)
+(1,706)
+(54,548)
+Net long position
+18,517
+34,266
+3,253
+56,036
+Net structural position
+(10,483)
+(30,218)
+(509)
+(41,210)
+2015
+USD
+HKD
+Others
+Total
+(in millions of RMB)
+Non-structural position
+Spot assets
+376,968
+175,507
+36,928
+Spot liabilities
+(165,555)
+(132,478)
+589,403
+(372,930)
+from the balance sheet assets
+Cash inflows
+1,400,155
+347,444
+Balance of adjusted on-balance sheet and off-balance sheet assets
+6,758,093
+6,275,592
+Leverage ratio
+5.75%
+5.54%
+317
+318
+55,216
+XI Financial Statements
+(C) Liquidity coverage ratio
+388,780
+In accordance with CBRC's Administrative Measures on Liquidity Coverage Ratio of Commercial Banks effective on
+31 December 2016, the Group's liquidity coverage ratio and relevant components as at 31 December 2016 were
+as follows. The basis used herein may differ from those adopted in Hong Kong or other countries. For the quarter
+ended 31 December 2016, the Group's liquidity coverage ratio was as follows:
+High quality liquid assets
+Total high quality liquid assets (HQLA)
+Cash outflows
+31 December 2016
+Unweighted
+Weighted
+Quarter ended
+31 December 2015
+Unweighted
+amount
+amount
+amount
+Weighted
+amount
+(Average value) (Average value) (Average value) (Average value)
+637,522
+Quarter ended
+Net tier 1 capital
+791,776
+797,100
+Less: Exempted central counterparty leg of client-cleared trade exposures
+Effective notional amount of written credit derivatives
+1,377
+46
+Less: Adjusted effective notional deductions for written credit derivatives
+Total derivative exposures
+28,368
+20,989
+Gross SFT assets (with no recognition of netting),
+after adjusting for sale accounting transactions
+278,699
+210,481
+Less: Netted amounts of cash payables and cash receivables of gross SFT assets
+Counterparty credit risk exposure for SFT assets
+15,066
+13,508
+Agent transaction exposures
+Total securities financing transaction exposures
+293,765
+223,989
+Off-balance sheet exposure at gross notional amount
+7,971,005
+1,302,755
+Less: Adjustments for conversion to credit equivalent amounts
+(7,173,905)
+(510,979)
+Balance of adjusted off-balance sheet assets
+655,927
+Retail deposits and small business
+funding, of which:
+- Stable deposits
+arising from related collateral
+requirements
+36,889
+36,697
+23,219
+22,975
+Cash outflows arising from
+secured debt instruments funding
+108
+108
+- Committed credit facilities and
+committed liquidity facilities
+564,728
+32,395
+430,248
+24,691
+Other contractual lending obligations
+38,540
+38,540
+42,267
+42,267
+Other contingent funding obligations
+2,227,769
+26,091
+912,536
+18,453
+Total cash outflows
+contracts and other transactions
+1,450,579
+- Cash outflows arising from derivative
+25,408
+212,072
+10,604
+- Less stable deposits
+1,293,974
+129,397
+1,616
+1,370,543
+81
+137,054
+Unsecured wholesale funding, of which:
+Business relations deposits (excluding
+correspondent banks operations)
+1,232,010
+306,159
+1,037,960
+257,764
+- Non-business relations deposits
+(including all the counterparties)
+1,333,629
+769,220
+1,448,892
+920,230
+- Liabilities and obligations arising
+from unsecured funding
+1,092
+Secured funding
+1,092
+49,960
+1,548
+1,548
+Additional requirements, of which:
+55,216
+43,209
+Total exposure
+Apart from the obligation for defined contributions to the annuity scheme and normal banking transactions, no
+other transactions were conducted between the Group and the annuity scheme for the years ended 31 December
+2016 and 31 December 2015.
+Annuity scheme
+(i)
+The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note
+38(a)(iii)) to senior management under the Bank's H share Appreciation Rights Scheme. The fair value is measured by
+using the Black-Scholes model and according to the accounting policy set out in Note 2(u)(iii); and the amounts have
+been charged to the consolidated statement of profit or loss and other comprehensive income. As the share options
+may expire without being exercised, the directors consider the amounts disclosed are not representative of actual
+cash flows received or to be received by senior management.
+76,142
+56,431
+5,475
+5,148
+9,556
+6,896
+14,875
+46,236
+44,387
+57. Non-controlling interests
+(Note 8)
+2016
+RMB'000
+Total
+Contributions to defined contribution retirement schemes
+Share-based payment
+Discretionary bonuses (Note 8(i))
+Salaries and other emoluments
+Key management personnel are those persons having authority and responsibility for planning, directing and
+controlling the activities of the Group, directly or indirectly, including directors, supervisors and executive officers.
+(h) Key management personnel
+56. Material related-party transactions (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+310
+Wealth management
+products
+2015
+RMB'000
+Non-controlling interests represent the interests that the Group does not hold in the non-wholly owned subsidiaries.
+As CMFM's net assets and net profit are not material to the Group, there is no subsidiary of the Group which has
+material non-controlling interests during the reporting period.
+312
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+Maximum
+receivables
+maturity classified as
+assets investments
+financial
+Debt
+securities
+Held-to-
+Financial
+resale assets held
+agreements for trading
+Available-
+Amounts
+held under
+Carrying amount
+31 December 2016
+The following table sets out an analysis of the carrying amounts of interests held by the Group as at 31 December
+2016 and 31 December 2015 in the structured entities sponsored by third party institutions and an analysis of the
+line items in the statement of financial position as at 31 December 2016 and 31 December 2015 in which assets are
+recognised relating to the Group's interests in structured entities sponsored by third parties:
+for-sale
+(a) Interest in the structured entities sponsored by third party institutions
+The Group enters into transactions in the normal course of business by which it transfers recognised financial assets
+to third parties or to special purpose vehicles. In some cases where these transfers may give rise to full or partial
+derecognition of the financial assets concerned. In other cases where the transferred assets do not qualify for
+derecognition as the Group has retained substantially all the risks and rewards of these assets, the Group continued
+to recognize the transferred assets.
+The Group holds an interest in some structured entities sponsored by third party institutions through investments in
+the notes issued by these structured entities. Such structured entities include wealth management products, asset
+management schemes, trust beneficiary rights, assets backed securities and investments in funds, and the Group
+does not consolidate these structured entities. The nature and purpose of these structured entities are to generate
+fees from managing assets on behalf of investors and are financed through the issue of notes to investors.
+58. Transfers of financial assets
+Securitisation of credit assets
+The Group enters into securitisation transactions in the normal course of business by which it transfers credit assets
+to special purpose trusts which in turn issue asset-backed securities to investors. Except for those finance leases
+receivable mentioned below, as at 31 December 2016, as the Group has transferred the ownership of the securitised
+loans amounted to RMB19,976 million (31 December 2015: 23,020 million), as well as substantially all the risks and
+rewards of the loans have been transferred, the full amount of such securitised loans were derecognised.
+As the underlying assets, certain finance leases receivable did not meet the criteria of derecognition, the Group did
+not derecognize such finance leases receivable, the consideration received was treated as financial liabilities. As at
+31 December 2016, the carrying amount of such transferred but not recognised finance leases receivable amounted
+to RMB2,646 million (31 December 2015: Nil) and correspondently the carrying amount of recognised financial
+liabilities is RMB2,227 million (31 December 2015: Nil).
+Repurchase transactions and securities lending transactions
+311
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+59. Interests in unconsolidated structured entities
+Transferred financial assets that do not qualify for derecognition mainly include debt securities, discounted bills
+held by counterparties as collateral under repurchase agreements and debt securities lent to counterparties under
+securities lending agreements. The counterparties are allowed to sell or repledge those securities sold under
+agreements to repurchase in the absence of default by the Group, but has an obligation to return the securities at
+the maturity of the contract. If the securities increase or decrease in value, the Group may in certain circumstances
+require or be required to pay additional cash collateral. The Group has determined that it retains substantially all the
+risks and rewards of these securities and therefore has not derecognised them. In addition, it recognises a financial
+liability for cash received as collateral.
+to consider material investment and financing plans and make proposals to the Board of Directors;
+Main authorities and duties of the Strategy Committee are:
+Strategy Committee
+to formulate the operational goals and medium-to-long term development strategies of the Bank, and
+make an overall assessment on strategic risks;
+to supervise and review the implementation of the annual operational and investment plans;
+to propose the appointment or replacement of external auditors;
+to make recommendations and proposals on important issues for discussion and determination by the
+Board of Directors.
+Audit Committee
+Main authorities and duties of the Audit Committee are:
+to monitor the internal audit system of the Bank and its implementation, and evaluate the work
+procedures and work effectiveness of its internal audit department;
+(ii)
+to coordinate the communication between internal auditors and external auditors;
+to evaluate and monitor the implementation of Board resolutions; and
+(i)
+less than 90 days
+Board committees
+2,506
+0.09%
+Rescheduled loans and advances overdue
+to audit the financial information of the Bank and disclosure of such information, and is responsible
+for the annual audit work of the Bank, including issue of a conclusive report on whether the
+information contained in the audited financial statements is true, accurate, complete and updated,
+and submit the same to the Board of Directors for consideration;
+8,066
+0.25%
+The Board of Directors has established six committees including the Strategy Committee, Audit committee, Related
+Party Transactions Control Committee, Risk and Capital Management Committee, Remuneration and Appraisal
+Committee and Nomination Committee.
+2,025
+The amount of the Group's rescheduled loans and advances to financial institutions as at 31 December 2016 was 1
+million (2015: 1 million).
+(1) Non-bank mainland china exposures
+The Bank is a commercial bank incorporated in the Mainland China with its banking business primarily conducted
+in the Mainland China. As of 31 December 2016 and 31 December 2015, most of the Bank's exposures arose from
+businesses with Mainland China non-bank institutions or individuals. Analyses of various types of exposure by
+counterparty have been disclosed in the notes to the financial report.
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+(J) Corporate governance
+0.07%
+to examine the internal control system of the Bank, and make recommendations for improvement in
+the internal control of the Bank;
+(J) Corporate governance (continued)
+any other task delegated by the Board of Directors.
+Main authorities and duties of the Nomination Committee are:
+Nomination Committee
+any other task delegated by the Board of Directors.
+to review the regulations and policies in respect of remuneration of the Bank; and
+to study and review the remuneration policies and proposals in respect of directors and senior
+management of the Bank, make recommendations to the Board of Directors and supervise the
+implementation of such proposals;
+to study the appraisal standards for directors and senior management, and conduct appraisals and
+make recommendations based on the actual conditions of the Bank;
+Main authorities and duties of the Remuneration and Appraisal Committee are:
+Remuneration and Appraisal Committee
+any other task delegated by the Board of Directors.
+to arrange and instruct risk prevention works in accordance with the authorisation of the Board of
+Directors; and
+to submit proposals on perfecting the management of risks and capital of the Bank;
+to perform relevant duties under the advanced capital measurement method pursuant to the
+authorisation given by the Board of Directors;
+to make regular assessment on the risk policies, management status, risk-withstanding ability and
+capital status of the Bank;
+to supervise the status of risk control by the senior management of the Bank in relation to credit risk,
+market risk, operational risk, liquidity risk, strategic risk, compliance risk, reputation risk, country risk
+and other risks;
+Main authorities and duties of the Risk and Capital Management Committee are:
+(vi)
+(v)
+(iii) Related Party Transactions Control Committee
+Main authorities and duties of the Related Party Transactions Control Committee are:
+to identify connected persons of the Company according to relevant laws and regulations;
+to inspect, supervise and review major related party transactions and continuing related party
+transactions, and to control the risks associated with related party transactions;
+to review the administrative measures on related party transactions of the Bank, and to monitor the
+establishment and improvement of the related party transactions management system of the Bank;
+and
+to review and supervise the mechanism for the Bank's employees to whistle blow any misconduct
+in respect of financial reports, internal control or otherwise, so as to ensure that the Bank always
+handles the whistle blowing issues in a fair and independent manner and takes appropriate actions;
+to examine the accounting policies, financial reporting procedures and financial position of the Bank;
+and
+to review the announcements on related party transactions of the Bank.
+328
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+0.26%
+Board committees (continued)
+(iv) Risk and Capital Management Committee
+327
+8,605
+(H) Rescheduled loans and advances to customers
+Less:
+Value of collaterals held against overdue loans and advances
+Unsecured portion of overdue loans and advances
+Secured portion of overdue loans and advances
+(iii) Collateral information
+(G) Overdue loans and advances to customers (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+1.59%
+1.46%
+0.45%
+0.72%
+0.65%
+0.47%
+0.49%
+0.27%
+44,972
+47,873
+- over 12 months
+Total
+As a percentage of total gross loans and advances:
+-
+- between 3 and 6 months (inclusive)
+- between 6 and 12 months (inclusive)
+Provision of overdue loans and advances for which impairment losses
+are individually assessed
+- over 12 months
+8,892
+13,798
+15,388
+18,449
+23,593
+12,725
+Total
+- rescheduled loans and advances overdue
+more than 90 days
+2016
+13,961
+0.16%
+4,531
+0.51%
+16,671
+to customers
+total loans
+and advances
+% of
+2015
+and advances
+% of
+total loans
+2016
+Rescheduled loans and advances
+to review the structure, size and composition of the Board of Directors (including their expertise,
+knowledge and experience) at least once a year and make recommendations on any change to
+the Board of Directors to implement the strategies of the Bank according to the Bank's business
+operations, asset scale and shareholding structure of the Bank;
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+326
+325
+16,817
+33,912
+28,155
+19,168
+18,790
+23,332
+2015
+13,217
+Note:
+The above analysis represents loans and advances overdue for more than 90 days as required and defined by the HKMA.
+Loans and advances with a specific repayment date are classified as overdue when the principal or interest is overdue.
+For loans and advances repayable by regular installments, if part of the installments is overdue, the whole amount of these loans would be classified as
+overdue.
+Loans and advances repayable on demand are classified as overdue when a demand for repayment has been served on the borrower but repayment has
+not been made in accordance with the instructions. If the loans and advances repayable on demand are outside the approved limit that was advised to
+the borrower, they were also considered as overdue.
+The collaterals of the Group included cash deposit, shares, land use right, property, motor vehicles and other equipment, etc. The fair value of collaterals
+was estimated by management based on the latest available external valuations adjusted by taking into account the current realisation experience as
+well as market situation. Where collateral values are greater than gross advances, only the amount of collateral up to the gross advance had been
+included in the "secured portion of overdue loans and advances" as set out in the above tables.
+The amount of the Group's overdue loans and advances to financial institutions as at 31 December 2016 was RMB1
+million (2015: RMB11 million).
+to study the standards and procedures for selection of directors and senior management, and make
+recommendations to the Board of Directors;
+Leasing and commercial services
+to conduct preliminary examination on the candidates for directors and senior management and make
+recommendations to the Board of Directors; and
+North and South America
+12,571
+850
+46,553
+59,974
+147,589
+26,580
+304,578
+478,747
+2015
+Banks
+and other
+Public
+financial
+sector
+institutions
+entities
+of which attributed to Hong Kong
+252,299
+129,176
+33,014
+90,109
+Asia Pacific excluding Mainland China
+23,633
+153,731
+3,163
+39,779
+Mainland China
+Foreign currencies transactions in
+Total
+Others
+110,789
+5,320
+1,929
+16,384
+Others
+entities
+institutions
+sector
+financial
+Public
+Total
+Banks
+and other
+International claims have been disclosed by different countries or geographical areas. A country or geographical
+area is reported where it constitutes 10% or more of the aggregate amount of international claims, after taking
+into account any risk transfers. Risk is transferred only when the claims are guaranteed by a party in country which
+is different from that of the counterparty or if the claims are on an overseas branch of a bank whose head office is
+located in another country.
+International claims include loans and advances, balances and placements with banks and other financial institutions,
+holdings of trade bills, certificates of deposit and securities investment.
+The Group is principally engaged in business operations within Mainland China, and regards all claims on third
+parties outside Mainland China and claims in foreign currencies on third parties within the Mainland China as
+international claims.
+(E) International claims
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+2016
+46,499
+Foreign currencies transactions in
+80,537
+Europe
+185,072
+144,295
+20,857
+19,920
+- of which attributed to Hong Kong
+Mainland China
+214,241
+20,897
+38,097
+Asia Pacific excluding Mainland China
+180,899
+97,458
+2,904
+155,247
+to conduct extensive searches for qualified candidates for directors and senior management;
+32,795
+198,950
+43
+Wholesale and retail
+214,859
+47
+236,513
+59
+Transportation, storage and postal services
+175,548
+38
+145,473
+38
+Property development
+174,642
+66
+175,912
+76
+Production and supply of electric power,
+any other task delegated by the Board of Directors.
+http
+Add
+Tel
+Fax
+://www.cmbchina.com
+: China Merchants Bank Tower, No 7088,
+318,679
+Shennan Boulevard, Shenzhen, China
+83,871
+Construction
+97,464
+- between 6 and 12 months (inclusive)
+104,393
+heating power, gas and water
+: (0755) 8319 8888
+38
+275,710
+Manufacturing
+China Merchants Bank
+Annual Report 2016
+470,568
+269,218
+37,444
+163,906
+49,203
+XI Financial Statements
+26,743
+21,193
+North and South America
+15,335
+2,510
+12,825
+Europe
+1,267
+119,656
+(F) Further analysis on loans and advances to customers
+analysed by industry sector
+2015
+other security
+Amount
+other security
+Amount
+collateral or
+collateral or
+Operation in Mainland China
+covered by
+loans and
+% of gross
+advances
+loans and
+% of gross
+2016
+advances
+covered by
+- between 3 and 6 months (inclusive)
+Western region
+2015
+35
+44,489
+Financial concerns
+53
+37,168
+59
+52,922
+Property development
+other security
+Amount
+other security
+Amount
+collateral or
+collateral or
+covered by
+advances
+covered by
+loans and
+2,653,747
+61
+321
+322
+China Merchants Bank
+Annual Report 2016
+XI Financial Statements
+46,585
+(F) Further analysis on loans and advances to customers
+analysed by industry sector (continued)
+2016
+2015
+% of gross
+loans and
+advances
+% of gross
+Operation outside Mainland China
+60
+54
+21,732
+53
+204,030
+Corporate loans and advances subtotal
+70
+22,305
+47
+28,665
+Others
+41
+3,627
+68
+2,363
+Recreational activities
+95
+14,860
+85
+13,892
+32
+13,468
+46
+Information technology
+21,686
+66
+Manufacturing
+2,025
+Transport and transport equipment
+18,281
+70
+13,876
+66
+Wholesale and retail
+28
+153,914
+3,037,908
+71
+98,754
+Others
+32
+33,431
+35
+35,096
+public utilities management
+Water, environment and
+43
+52,178
+37
+46,397
+Mining
+38
+28,076
+48
+55,806
+320
+www
+39
+109,942
+46
+37
+46
+80,788
+30
+96,387
+38
+Telecommunications, software and
+9
+IT services
+41
+Gross loans and advances to customers
+76,477
+Corporate loans and advances subtotal
+1,210,076
+70
+1,520,851
+Retail loans and advances subtotal
+89
+96,828
+79
+109,924
+Others
+92
+308,973
+93
+281,653
+Micro-finance loans
+312,985
+408,951
+Credit cards
+1,362,540
+43
+1,353,856
+49
+Discounted bills
+154,517
+46
+100
+100
+Residential mortgage
+720,323
+100
+491,290
+100
+89,815
+60
+Residential mortgage
+8,005
+324
+323
+1,563
+5,166
+6,886
+4,292
+10,490
+Credit card
+7,406
+7,079
+8,502
+4,744
+9,974
+Micro-finance loans
+129
+2,599
+5,769
+to consolidated
+allowance
+statement of
+profit or loss
+during the year
+Impaired loans
+and advances
+written off
+during the year
+Manufacturing
+24,338
+China Merchants Bank
+Annual Report 2016
+15,237
+15,541
+20,689
+15,862
+Residential mortgage
+4,423
+2,258
+4,551
+Collectively
+assessed
+impairment
+XI Financial Statements
+(i)
+2016
+By overdue period
+(ii)
+44,972
+47,873
+Total
+1,505
+1,316
+Subsidiaries
+8,196
+12,677
+9,041
+6,492
+Central region
+2,963
+2,730
+Northeast region
+By geographical segments
+2016
+2015
+Headquarters
+5,338
+Yangtze River Delta region
+(G) Overdue loans and advances to customers
+8,731
+Bohai Rim region
+4,463
+3,471
+Pearl River Delta and West Coast region
+6,126
+5,841
+9,430
+Individually
+assessed
+impairment
+allowance
+and advances
+and advances
+2016
+The overdue amounts, impaired amounts, individual and collective assessment allowances, impairment losses charged
+to profit and loss and impaired loans and advances written off amounts during the year made on the following
+industry sectors which constitute not less than 10% of total loans and advances to customers are:
+(F) Further analysis on loans and advances to customers
+analysed by industry sector (continued)
+XI Financial Statements
+China Merchants Bank
+Annual Report 2016
+62
+170,539
+56
+223,773
+Gross loans and advances to customers
+|
+80
+16,625
+89
+19,743
+Retail loans and advances subtotal
+52
+100
+8,165
+100
+Credit cards
+247
+259
+Individually
+Micro-finance loans
+1,804
+97
+Others
+9,642
+99
+6,397
+1,849
+Overdue loans
+and advances
+Impaired loans
+and advances
+assessed
+impairment
+allowance
+7,539
+4,677
+6,732
+Credit card
+10,561
+5,715
+4,626
+11,884
+2,336
+2015
+Impairment
+losses charged
+Overdue loans
+Impaired loans
+7,570
+Gross loans and advances to customers which have been overdue
+with respect to either principal or interest for periods of:
+6,904
+142
+Collectively
+assessed
+impairment
+allowance
+Impairment
+losses charged
+to consolidated
+statement of
+profit or loss
+during the year
+Impaired loans
+and advances
+written off
+during the year
+Manufacturing
+Residential mortgage
+19,727
+18,969
+Micro-finance loans
+12,733
+24,446
+17,089
+4,313
+3,022
+7,219
+1,513
+12,189
+4,525
+Postcode 518040
+: (0755) 8319 5555
+100.00
+4,038
+- Commissions from credit commitment and loan business
+13,549
+13,121
+- Agency service fees
+3,832
+6,526
+- Remittance and settlement fees
+9,562
+11,083
+57,100
+66,003
+2015 (restated)
+2016
+4,215
+- Commissions on trust and fiduciary activities
+23,358
+17,545
+11.00
+310,777
+1.63
+4,629
+8.69
+283,502
+Micro enterprise loans
+- Bank card fees
+1.07
+43.43
+1,226,701
+1.00
+15,402
+47.23
+1,540,594
+Retail loans
+13,077
+-
+Fees and commission income
+(in millions of RMB)
+6.61
+215,390
+Others(2)
+1.55
+3,406
+7.78
+219,706
+1.78
+3,433
+5.91
+192,801
+Trade finance
+1.03
+3,810
+13.12
+7,918
+4,744
+3.68
+5.26
+The following table sets forth, for the periods indicated, the principal components of net non-interest income of the
+Group.
+Among the business segments, the net non-interest income from wholesale finance amounted to RMB35.547
+billion, representing an increase of 8.70% over the previous year and accounting for 46.97% of the Group's net
+non-interest income; the net non-interest income from retail finance amounted to RMB32.697 billion, representing
+an increase of 19.76% over the previous year and accounting for 43.21% of the Group's net non-interest income;
+the net non-interest income from other businesses amounted to RMB7.431 billion, representing an increase of
+57.70% over the previous year and accounting for 9.82% of the Group's net non-interest income.
+Net fees and commission income amounted to RMB60.865 billion, representing an increase of 14.82% as compared
+with the previous year. Among which, bank card fees increased by RMB1.521 billion or 15.91% as compared
+with the previous year, which was primarily attributable to the increase in UnionPay POS agency service income;
+remittance and settlement fees rose by RMB2.694 billion or 70.30% as compared with the previous year, which
+was primarily attributable to the increase in the income of e-payment; commissions on trust and fiduciary activities
+increased by RMB5.813 billion or 33.13% as compared with the previous year. Among which, income from entrusted
+wealth management amounted to RMB14.333 billion for 2016, up by 60.81% as compared with the previous year;
+income from custody business amounted to RMB4.307 billion, up by 20.51% as compared with the previous year.
+Other net income amounted to RMB14.489 billion, representing an increase of 25.22% as compared with the
+previous year. Among which, investment (loss)/income was RMB11.632 billion, increased by RMB5.088 billion or
+77.75% as compared with the previous year, which was primarily attributable to the increase in the spread of spot
+precious metal transaction, the investment gains from available-for-sale financial assets and bills spread income;
+other net income amounted to RMB2.511 billion, increased by RMB1.198 billion or 91.24% as compared with the
+previous year, which was primarily attributable to the increase in the income from leasing and insurance businesses;
+the net gains/(losses) from fair value changes was RMB-2.511 billion, representing a decrease of RMB3.827 billion
+as compared with the previous year, which was primarily attributable to the decrease in valuation gains/(losses) of
+bonds, spot precious metal positions and relevant derivatives.
+In 2016, the Group recorded a net non-interest income of RMB75.675 billion, representing an increase of 16.93%
+as compared with the previous year. The components are as follows:
+5.2.6 Net non-interest income
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+30
+3.18
+89,815
+4.74
+154,517
+Discounted bills (3)
+5.32
+7,897
+148,523
+1.53
+Residential mortgage loans
+728,328
+(5,138)
+Less: fees and commission expense
+8,397
+7,877
+- Others
+39
+The Group further optimised its corporate loan portfolio and promoted the development of strategic businesses such
+as M&A loans, cross-border loans and supply chain loans. As at the end of the reporting period, the non-performing
+corporate loan ratio of the Group was 2.92%.
+In 2016, the Group steadily developed its retail loan business, adjusted the loan structure, increased the granting
+of residential mortgage loans and credit card loans and moderately slowed down the granting of micro loans. As a
+result, the percentage of retail loans increased by 3.80 percentage points to 47.23%. As at the end of the reporting
+period, the non-performing retail loan ratio was 1.00%, down by 0.07 percentage point as compared with the end
+of the previous year.
+The "Others" category under new calibre consists primarily of general consumption loans, commercial housing loans, automobile
+loans, house decoration loans, education loans and other personal loans secured by monetary assets.
+100.00
+(4)
+The Company will transfer discounted bills to corporate loans for accounting purposes once overdue.
+(3)
+Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
+(2)
+(4,091)
+Represents the percentage of the non-performing loan to the total loans of a certain category.
+Net fee and commission income
+53,009
+2,857
+- Exchange gain
+6,544
+11,632
+- Investment (loss)/income
+1,316
+(2,511)
+- Net gains/(losses) from fair value changes
+11,571
+14,489
+- Other net income
+-
+11,707
+14,810
+Other net non-interest income
+60,865
+370,599
+(1)
+1.68
+4,296
+11.09
+313,244
+1.40
+5,717
+12.55
+409,198
+Credit card loans
+0.45
+2,258
+17.69
+499,455
+0.42
+3,023
+22.32
+1.37
+Notes:
+Others(4)
+3.67
+47,410
+100.00
+2,824,286
+1.87
+61,121
+100.00
+3,261,681
+to customers
+Total loans and advances
+1.72
+1,779
+3.65
+103,225
+1.70
+2,033
+119,566
+1.46
+5,304
+11.15
+As at 31 December 2016, the percentage of demand deposits to total deposits from customers of the Group was
+62.94%, representing an increase of 6.87 percentage points as compared with the end of the previous year. Among
+the figures, the corporate demand deposits accounted for 57.25% of the corporate deposits, representing an
+increase of 7.81 percentage points as compared with that at the end of the previous year, and the retail demand
+deposits accounted for 74.08% of the retail deposits, representing an increase of 5.08 percentage points as
+compared with that at the end of the previous year.
+100.00
+3,571,698
+100.00
+3,802,049
+33.88
+1,210,167
+33.79
+1,284,558
+10.50
+375,105
+8.76
+332,943
+23.38
+835,062
+5.3.3 Shareholders' equity
+25.03
+As at 31 December 2016, the shareholders' equity of the Group was RMB403.362 billion, representing an increase
+of 11.50% as compared with the end of the previous year. Equity attributable to shareholders of the Bank was
+RMB402.350 billion, representing an increase of 11.51% as compared with the end of the previous year. Among
+which, retained profits amounted to RMB199.110 billion, representing an increase of 21.94% as compared with
+the end of the previous year due to realised net profits for the year and the profit appropriation factors. Investment
+revaluation reserve amounted to RMB1.454 billion, representing a decrease of 76.50% as compared with the end of
+the previous year due to a decrease of valuation in the bond market.
+38
+Percentage
+of the
+total (%)
+Amount
+2,703,082
+96.04
+3,132,460
+Normal
+31 December 2015
+31 December 2016
+Percentage
+of the
+total (%)
+Amount
+(in millions of RMB, except for percentages)
+The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.
+5.4.1 Distribution of loans by 5-tier loan classification
+During the reporting period, the Group saw a steady growth in the volume of credit assets and an increase in
+non-performing loan ratio. The allowance coverage ratio remained solid, and our risk loss endurance capability
+improved further. As at 31 December 2016, total loans and advances to customers of the Group were RMB3,261.681
+billion, representing an increase of 15.49% as compared with the end of the previous year; the non-performing
+loan ratio was 1.87%, up by 0.19 percentage point from the end of the previous year; the non-performing loan
+allowance coverage ratio was 180.02%, representing an increase of 1.07 percentage points as compared with the
+end of the previous year; the loan allowance ratio was 3.37%, representing an increase of 0.37 percentage point as
+compared with the end of the previous year.
+5.4 Analysis of Loan Quality
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+37
+951,615
+Total deposits from customers
+Subtotal
+Amount
+of the
+total (%)
+Amount
+(in millions of RMB, excluding percentages)
+Percentage
+31 December 2015
+31 December 2016
+The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type
+and customer type.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+As at 31 December 2016, total deposits from customers of the Group amounted to RMB3,802.049 billion,
+representing an increase of 6.45% as compared with the end of the previous year. Deposits from customers
+accounted for 68.64% of the total liabilities of the Group, being the major funding source of the Group.
+Deposits from customers
+(2) In 2016, the Group started to reclassify its liabilities on the repurchases of rediscounted bills and the bond repurchases made by the
+Central Bank in the open market from the "Amounts sold under repurchase agreements" to "Borrowings from the Central Bank", and the
+breakdown of "Interest expenses" was also reclassified accordingly. As such, the relevant financial indicators were restated.
+Note: (1) Including salaries and welfare payable, taxes payable, interest payable, deferred income tax liabilities and other liabilities.
+5,113,220
+Percentage
+of the
+total (%)
+Deposits from corporate customers
+Demand
+1,441,225
+Time
+Demand
+Deposits from retail customers
+Subtotal
+66.12
+2,361,531
+66.21
+95.71
+2,517,491
+1,194,064
+28.30
+1,076,266
+Time
+32.69
+1,167,467
+37.91
+33.43
+2,398
+Special mention
+2.09
+Corporate loans
+loan ratio(1)
+loan
+total (%)
+balance
+loan loan ratio(1)
+total (%)
+balance
+(in millions of RMB, except for percentages)
+Non-
+performing
+performing
+of the
+Loan
+performing
+performing
+1,566,570
+of the
+48.03
+2.92
+363,802
+Fixed asset loans
+2.50
+19,220
+27.23
+768,942
+3.66
+29,064
+24.36
+794,577
+Working capital loans
+2.28
+34,333
+53.39
+1,507,770
+45,719
+Loan
+Non-
+Percentage
+0.45
+14,516
+Loss
+0.39
+11,050
+0.68
+22,296
+Doubtful
+1.11
+31,233
+0.74
+24,309
+Substandard
+2.61
+73,794
+5,127
+0.18
+Total loans and advances to customers
+3,261,681
+Non-
+Percentage
+31 December 2015
+31 December 2016
+5.4.2 Distribution of loans and non-performing loans by product type
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+68,100
+Under the 5-tier loan classification system, non-performing loans of the Group are divided into substandard loans,
+doubtful loans and loss loans. As at the end of the reporting period, the total non-performing loans of the Group
+amounted to RMB61.121 billion, representing an increase of 28.92% as compared with the end of the previous year.
+In particular, the increase of non-performing loans was mainly due to the increase of doubtful loans and loss loans.
+As at the end of the period, the proportion of doubtful loans increased by 0.29 percentage point to 0.68%; and
+the proportion of loss loans increased by 0.27 percentage point to 0.45%. As at the end of the period, the special
+mention loans amounted to RMB68.100 billion, representing a decrease of 7.72% as compared with that at the end
+of the previous year, and accounting for 2.09% of the total loans, representing a decrease of 0.52 percentage point
+as compared with that at the end of the previous year.
+47,410
+1.87
+61,121
+Total non-performing loans
+100.00
+2,824,286
+100.00
+1.68
+- Other net operating income
+Non-
+1,313
+As at 31 December 2016, the Group had a balance of investments in foreign currency bonds of USD13.806 billion,
+among which, USD7.569 billion was held by the Company and USD6.237 billion was held by Wing Lung Group.
+Interest in joint ventures and associates
+Analysis on investments in foreign currency bonds
+Note: "Official authorities" include the Ministry of Finance of the PRC, local governments and the Central Bank; "Others" mainly refer to enterprises.
+739,134
+901,168
+108,663
+68,291
+98,118
+139,628
+248,208
+264,317
+284,145
+428,932
+Total bond investment
+Commercial banks and other financial institutions
+As at 31 December 2016, the Group had interest of RMB3.630 billion in joint ventures, representing an increase of
+RMB898 million or 32.87% as compared with that at the end of the previous year, which was mainly attributable to
+the additional capital investment of RMB675 million in a joint venture, CIGNA & CMB Life Insurance, made by the
+Group in 2016. The Group had interest in associates of RMB82 million. As at the end of the reporting period, the
+Group's balance of provision for impairment losses on interest in joint ventures and associates was zero. For details,
+please refer to Note 23 to the financial report "Interest in joint ventures" and Note 24 "Interest in associates".
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Derivative financial instruments
+Other derivatives
+1,257,163
+Currency derivatives
+1,410,276
+Interest rate derivatives
+Liabilities
+Assets
+Official authorities (note)
+(in millions of RMB)
+Fair value
+amount
+Nominal
+Nominal
+31 December 2015
+31 December 2016
+The major categories and amounts of derivative financial instruments held by the Group as at 31 December 2016 are
+shown in the following table. For details, please refer to Note 55(f) to the financial report "Risk Management - Use
+of derivatives".
+amount
+Others (note)
+Policy banks
+31 December 2016 31 December 2015
+1,463,322
+0.71
+10,176
+0.59
+8,688
+0.19
+2,786
+100.00
+0.27
+Interest in joint ventures and associates
+49.70
+716,064
+36.13
+528,748
+Debt securities classified as receivables
+24.51
+3,712
+335
+1,440,803
+Derivative financial assets
+(in millions of RMB)
+The composition of the Group's total bond investments classified by the issuing entities
+Debt securities classified as receivables are bond investments without active market prices and investments in
+non-standard debt securities held by the Group. As at 31 December 2016, the Group's net debt securities classified
+as receivables amounted to RMB528.748 billion, representing a decrease of 26.16% as compared with the end of
+the previous year, which was mainly attributable to a decrease in the investment in non-standard debt securities. For
+details, please refer to Note 21(d) to the financial report "Debt securities classified as receivables". Please refer to
+Section 5.9.1 of this report for details of the investment in non-standard debt securities of the Company.
+Debt securities classified as receivables
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+4
+100.00
+34
+As at 31 December 2016, the net value of held-to-maturity investments of the Group was RMB477.064 billion,
+representing an increase of 35.09% as compared with that at the end of the previous year. This category of
+investments was held on a long-term basis for the strategic allocation of assets and liabilities of the Group, based
+on the requirements of interest rate risk management of bank accounts and liquidity management, while taking into
+account the benefits and risks. The bond investments were made mainly in the bonds issued by the government,
+policy banks, etc. For details, please refer to Note 21(c) to the financial report "Held-to-maturity investments".
+Held-to-maturity investments
+As at 31 December 2016, the net value of available-for-sale financial assets of the Group was RMB389.138 billion,
+representing an increase of 29.90% as compared with that at the end of the previous year. This category of
+investments was made mainly for the purpose of improving operation performance. In 2016, in response to the
+market trend, the Group proactively took opportunities to increase its investments primarily in PRC government
+bonds and local government bonds, and moderately extended the bond duration, thus optimising the structure
+of assets and liabilities allocation. For details, please refer to Note 21(b) to the financial report "Available-for-sale
+financial assets".
+Available-for-sale financial assets
+The Group's financial assets at fair value through profit or loss was RMB55.972 billion for the year ended 31
+December 2016, decreased by 5.26% as compared with the end of last year. Such investments were made mainly
+to seize the opportunities for transactions in the bond market. As a result of favourable macro-economic situations,
+expected rebound of inflation and the moderately prudent monetary policy implemented by the Central Bank at
+the end of 2016, the market value of bonds held for trading was affected to a certain extent. The Group, through
+strengthening market research, adopted a robust trading strategy that was aligned with market situations. Scaling
+down the duration and size for trading accounts in a proactive manner, the Group adopted interest rates derivatives
+for hedging purpose. The Group proactively conducted spread transactions of bonds and interest rate swaps while
+moderately reducing trading exposure. Therefore, the overall impact was controllable. For details, please refer to
+Note 21(a) to the financial report "Financial assets at fair value through profit or loss".
+Financial assets at fair value through profit or loss
+Total investment securities and other financial assets
+33
+Total
+2,667,774
+599
+8,022
+67
+8,688
+0.20
+11,152
+Derivative financial liabilities
+0.39
+20,227
+0.43
+23,576
+7,575
+at fair value through profit or loss
+3.50
+178,771
+4.49
+248,876
+institutions
+Placements from banks and other financial
+1.69
+Financial liabilities
+86,639
+0.15
+162,942
+2,511
+5,538,949
+Total liabilities
+2.42
+123,629
+2.34
+129,557
+Amounts sold under repurchase agreements
+Other liabilities(1)
+251,507
+4.97
+275,082
+Debt securities issued
+3.16
+161,613
+2.94
+4.92
+353,137
+5.96
+13.92
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+36
+In compliance with the PRC enterprise accounting principles, at the end of 2016, the Group conducted an
+impairment test on the goodwill arising from the acquisition of WLB, China Merchants Fund and other companies
+and determined that provision for impairment was not necessary for the current period. As at 31 December 2016,
+the Group had a balance of provision for impairment losses on goodwill of RMB579 million and the carrying value of
+goodwill was RMB9.954 billion.
+5.3.1.3 Goodwill
+In 2016, with the accelerated marketisation of RMB exchange rates, the exchange rate regime was basically
+determined based on the adjustments with reference to a basket of currencies, and due to increased volatility
+between RMB central parity rate and transaction price, customers have an increasing demand in using derivatives to
+hedge exchange rate risks, leading to the increasingly active transactions in the interbank foreign exchange market.
+The Group continued to capitalise on the professional advantages of exchange rates and derivative transactions,
+and grasped the appropriate trading timing for exchange rate fluctuations so that the profits from foreign exchange
+trading, the trading volume of RMB-denominated options and profitability achieved a substantial growth.
+(7,575)
+5.3.2 Liabilities
+10,176
+(538)
+(7,035)
+9,332
+5
+1,141,846
+217
+Liabilities
+Fair value
+Assets
+839
+1,195,623
+(450)
+(10,634)
+(68)
+(11,152) 2,337,686
+(2)
+330,108
+As at 31 December 2016, the total liabilities of the Group amounted to RMB5,538.949 billion, representing an
+increase of 8.33% as compared with the end of the previous year, which was primarily due to the steady growth in
+deposits from customers, borrowings from the Central Bank, amounts sold under repurchase agreements and debt
+securities issued.
+31 December 2015
+(restated)
+711,561
+10.03
+555,607
+69.85
+3,571,698
+68.64
+3,802,049
+The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
+total (%)
+31 December 2016
+Percentage
+of the
+total (%)
+Amount
+Borrowings from the Central Bank
+Deposits from banks and other financial institutions
+Deposits from customers
+(in millions of RMB, excluding percentages)
+Percentage
+of the
+Amount
+32.60
+35
+Held-to-maturity investments
+257
+507
+1,002
+(607)
+57,507
+64,560
+500
+2015
+Total impairment losses
+- Other assets
+- Amounts due from banks and other financial institutions
+- Investments
+- Loans and advances
+(in millions of RMB)
+2016
+66,159
+59,266
+Impairment losses on loans and advances were the largest component of impairment losses on assets. In 2016,
+impairment losses on loans and advances of the Group were RMB64.560 billion, representing an increase of
+12.26% as compared with the previous year, which was mainly due to increased provision for deteriorated assets
+and additional provision for the heightened credit risks associated with overcapacity industries. For details of the
+provision for impairment losses on loans, please refer to the section headed "Analysis of Loan Quality" in this
+chapter.
+Percentage of
+the total (%)
+Amount
+Percentage of
+the total (%)
+Amount
+(in millions of RMB, except for percentages)
+Total loans and advances to customers
+31 December 2015
+31 December 2016
+The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
+As at 31 December 2016, the total assets of the Group amounted to RMB5,942.311 billion, representing an increase
+of 8.54% as compared with the end of the previous year, which was mainly attributable to the increase in loans and
+advances to customers, bond investments and other businesses of the Group.
+5.3.1 Assets
+5.3 Analysis of Balance Sheet
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+32
+31
+In 2016, impairment losses on assets of the Group were RMB66.159 billion, representing an increase of 11.63% as
+compared with the previous year. The following table sets forth, for the periods indicated, the principal components
+of impairment losses on the assets of the Group.
+3,261,681
+5.2.8 Impairment losses
+67,670
+The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
+Group.
+Due to the impact of change from business tax to value-added tax where business tax was abolished, the taxes and
+surcharges of the Group decreased by RMB5.567 billion or 46.67% as compared with the previous year.
+By taking various measures such as improvement of budgeting method for expenses, optimisation of resources
+allocation and enhancement of daily expense management, the Group further enhanced expense management,
+effectively improved cost efficiency and better utilised operating expenses for business development. As such, the
+expense maintained a steady growth. During the reporting period, staff costs of the Group increased by 4.51%
+as compared with the previous year. Other general and administrative expenses increased by 5.53% as compared
+with the previous year. Depreciation charges and rental expenses increased by 4.92% and 7.05% respectively as
+compared with the previous year. The Company has always attached great importance to investments in research
+and development. In 2016, our research and development expenses amounted to RMB4.360 billion, representing an
+increase of 5.49% as compared with the previous year.
+In 2016, the Group's operating expense amounted to RMB64.900 billion, representing a year-on-year decrease
+of 4.09%. The cost-to-income ratio (excluding taxes and surcharges) was 27.84%, representing an increase of
+0.29 percentage point as compared with the previous year, which is mainly attributable to the impact of change
+from business tax to value-added tax with price and tax separated. Excluding the impact of change from business
+tax to value-added tax, the cost-to-income ratio (excluding taxes and surcharges) of the Company was 26.45%,
+representing a year-on-year decrease of 0.83 percentage point.
+5.2.7 Operating expense
+V Report of the Board of Directors
+(in millions of RMB)
+China Merchants Bank
+Annual Report 2016
+75,675
+Total net non-interest income
+136
+321
+477,064
+Share of profits of associates and joint ventures
+64,716
+Staff costs
+Taxes and surcharges
+Rental expenses
+64,900
+16,419
+17,327
+3,842
+4,113
+4,086
+4,287
+11,929
+6,362
+31,394
+32,811
+2015
+2016
+Other general and administrative expenses
+Depreciation of fixed assets and investment properties
+Total operating expenses
+54.89
+1,699
+51.59
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+As at 31 December 2016, total loans and advances of the Group amounted to RMB3,261.681 billion, representing
+an increase of 15.49% as compared with the end of the previous year; total loans and advances accounted for
+54.89% of the total assets, representing an increase of 3.30 percentage points as compared with the end of the
+previous year. For details of the loans and advances of the Group, please refer to "Analysis of Loan Quality" in this
+chapter.
+5.3.1.1 Loans and advances
+Note: Including interest receivable, fixed assets, intangible assets, investment properties, deferred tax assets and other assets.
+100.00
+2,824,286
+100.00
+5,942,311
+Total assets
+1.66
+90,940
+2.26
+134,913
+Other assets (note)
+5.3.1.2 Investment Securities and Other Financial Assets
+0.18
+The Group's investment securities and other financial assets consist of listed and unlisted financial instruments
+denominated in RMB and foreign currencies.
+31 December 2016
+20.79
+299,559
+26.59
+389,138
+Available-for-sale financial assets
+4.10
+Percentage of
+the total (%)
+Amount
+59,081
+3.82
+55,972
+Financial assets at fair value through profit or loss
+Percentage of
+the total (%)
+Amount
+(in millions of RMB, except for percentages)
+31 December 2015
+The following table sets forth the components of the investment portfolio of the Group according to accounting
+classifications.
+9,954
+5,474,978
+9,954
+600,441
+10.11
+600,510
+Central Bank
+Cash, precious metals and balances with
+26.32
+1,440,803
+24.63
+1,463,322
+10.97
+Investment securities and other financial assets
+2,739,444
+53.04
+0.17
+Net loans and advances to customers
+(1.55)
+(84,842)
+(1.85)
+(110,032)
+Provision for impairment losses on loans
+50.04
+Balances with banks and other financial institutions
+Placements with banks and other financial institutions
+3,151,649
+1.73
+103,013
+529,617
+9.67
+8.06
+478,950
+and amounts held under resale agreement
+63,779
+1.16
+Goodwill
+1,444,056
+During the reporting period, the credit risk of the Company under the foundation internal rating-based approach
+(IRB approach) was classified into six types of risk exposures: sovereign, financial institution, corporate, retail,
+shareholding and others. The balances of various risk exposures are as follows:
+Unit: RMB million
+733,331
+Type of risk exposure
+721,314
+Legal person
+Group
+Portion covered by the
+IRB approach
+721,314
+Of which: Residential mortgage exposures
+Qualified revolving retail
+Financial institution
+1,823,298
+Balance of credit risk exposures
+1,823,298
+898,059
+898,059
+Corporate
+1,444,056
+Retail
+up by 0.19 percentage point
+up by 0.19 percentage point
+up by 0.13 percentage point
+9.63%
+11.59%
+733,331
+373,886
+the weighted approach
+408,962
+3. Net capital
+10.42
+307,888
+339,976
+10.42
+307,888
+339,976
+2. Net Tier 1 capital
+1. Net core Tier 1 capital
+Capital adequacy ratios under
+9.38
+4. Risk-weighted assets
+3,529,142
+3,261,357
+8.21
+5. Core Tier 1 capital adequacy ratio
+9.63%
+6. Tier 1 capital adequacy ratio
+7. Capital adequacy ratio
+9.44%
+9.44%
+11.46%
+Other retail
+Profit before
+tax by segment
+40,040
+368,653
+period
+328
+309
+661
+562
+183
+119
+311
+274
+5.6 Results of Operating Segments
+period
+Business segments
+Item
+(in millions of RMB)
+Wholesale finance
+Retail finance
+Other businesses
+Total
+2016
+2015 (restated)
+(in millions of RMB, except for percentages)
+The Company
+Profit before
+tax by segment
+38,055
+The principal businesses of the Group include wholesale finance and retail finance. The following table summarises
+the operating results of the business segments of the Group for the periods indicated.
+368,653
+the reporting
+General risk
+value during
+Portion not covered by the
+IRB approach
+On-balance sheet
+2,403,937
+2,764,136
+Off-balance sheet
+Counterparty
+174,025
+184,448
+6,281
+8,080
+China Merchants Bank
+Annual Report 2016
+the reporting
+V Report of the Board of Directors
+The Group uses mixed approaches to calculate its market risk capital requirements. Specifically, it uses the internal
+model approach to calculate the general market risk capital of the Head Office in Mainland China, and uses the
+standardised approach to calculate the specific market risk capital of the Head Office in Mainland China as well as
+the general market risk capital and specific market risk capital of overseas institutions and affiliated companies. As
+at the end of 2016, the market risk capital of the Group was RMB3.046 billion, and its risk-weighted assets were
+RMB38.073 billion. Of which, the general market risk capital calculated under the internal model approach was
+RMB2.226 billion, and the market risk capital calculated under the standardised approach was RMB820 million.
+The Group's market risk capital under the internal model approach was calculated using the market risk value
+based on 250 days of historical market data, a confidence coefficient of 99% and a holding period of 10 days. The
+following table sets forth the market risk value indicators of the Group as at the end of 2016:
+Unit: RMB million
+No.
+Item
+123 4
+Average value
+Maximum value
+Minimum value
+Value at the end of the period
+Distressed risk
+value during
+Market risk capital measurement
+year (%)
+4.40
+2015
+consideration the minimum requirements during
+the transition period)
+2,887,494
+2,765,712
+Of which: Credit risk weighted assets
+Market risk weighted assets
+2,516,838
+2,436,307
+3.31
+32,258
+31,699
+1.76
+Operational risk weighted assets
+338,398
+297,706
+13.67
+5. Risk-weighted assets (having taken into
+consideration the minimum requirements during
+the transition period)
+6. Core Tier 1 capital adequacy ratio
+7. Tier 1 capital adequacy ratio
+8. Capital adequacy ratio
+4. Risk-weighted assets (without taking into
+10.32
+360,460
+397,649
+approach
+45,099
+Capital adequacy ratios under the advanced
+The Company
+(in millions of RMB, except for percentages)
+Increase/decrease at
+the end of the reporting
+period as compared with
+the end of the previous
+year (%)
+31 December
+2015
+31 December
+2016
+As at the end of the reporting period, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the
+Company under the advanced approach were 12.99% and 11.11%, respectively, representing an increase of 1.40
+percentage points and 1.48 percentage points respectively as compared with those under the weighted approach.
+V Report of the Board of Directors
+3,061,019
+China Merchants Bank
+Annual Report 2016
+The "advanced approach" refers to the advanced measurement approach set out in the "Capital Rules for Commercial Banks (Provisional)"
+issued by the CBRC on 7 June 2012. Same as below. Under the advanced approach, the core Tier 1 capital adequacy ratio and the Tier 1
+capital adequacy ratio of the Group and the Company remain consistent at present. In accordance with the requirements of the advanced
+approach, the scope of entities for calculating the capital adequacy ratio of the Group shall include China Merchants Bank and its subsidiaries.
+The scope of entities for calculating the capital adequacy ratio of the Company shall include all the domestic and overseas branches and
+sub-branches of China Merchants Bank. As at 31 December 2016, the Group's subsidiaries for calculating its capital adequacy ratio include
+Wing Lung Bank, CMB International Capital, CMB Financial Leasing and China Merchants Fund. During the transition period that the advanced
+capital measurement approaches were implemented, a commercial bank shall use the capital floor adjustment co-efficients to adjust the result
+of its risk weighted assets multiplying the sum of its minimum capital amount and reserve capital amount, total amount of capital deductions
+and the provision for excessive loan loss which can be included into capital. The capital floor adjustment co-efficients shall be 95%, 90% and
+80% respectively in the first year, the second year, and the third and subsequent years during the transition period. 2016 is the second year of
+implementation of the capital rules during the transition period.
+1. Net core Tier 1 capital
+339,976
+307,888
+10.42
+2. Net Tier 1 capital
+339,976
+307,888
+10.42
+3. Net capital
+Since 2015, the leverage ratio has been calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks
+(Revised)" issued by the CBRC on 12 February 2015.
+11.11%
+11.11%
+12.99%
+462,493
+416,834
+10.95
+3,852,894
+3,499,231
+10.11
+10.09%
+10.09%
+9.93%
+9.93%
+12.00%
+11.90
+11.91%
+The "weighted approach" refers to the standardised approach for credit risk, the standardised approach for market risk and the basic indicator
+approach for operational risk in accordance with the relevant provisions of the "Capital Rules for Commercial Banks (Provisional)" issued by the
+CBRC on 7 June 2012. Same as below.
+45
+55
+46
+46
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+As at the end of the reporting period, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the
+Company under the weighted approach were 11.59% and 9.63%, respectively, representing an increase of 0.13
+percentage point and 0.19 percentage point respectively as compared with the end of the previous year.
+31 December
+2016
+31 December
+up by 0.16 percentage point
+up by 0.16 percentage point
+up by 0.09 percentage point
+Increase/decrease at
+the end of the reporting
+period as compared with
+the end of the previous
+347,444
+11.90
+2,966,543
+10.38%
+10.38%
+12.15%
+3.18
+up by 0.73 percentage point
+up by 0.73 percentage point
+up by 0.84 percentage point
+As at 31 December 2016, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
+weighted approach were 12.00% and 10.09% respectively, representing an increase of 0.09 percentage point and
+0.16 percentage point, respectively as compared with those at the end of the previous year.
+(in millions of RMB, except for percentages)
+31 December
+2016
+31 December
+2015
+Increase/decrease at
+the end of the reporting
+period as compared with
+the end of the previous
+year (%)
+The Group
+388,780
+Capital adequacy ratios under the weighted
+1. Net core Tier 1 capital
+2. Net Tier 1 capital
+3. Net capital
+4. Risk-weighted assets
+5. Core Tier 1 capital adequacy ratio
+6. Tier 1 capital adequacy ratio
+7. Capital adequacy ratio
+Note:
+388,762
+347,434
+approach (note)
+36,654
+3,683
+370
+Pearl River Delta and West Side of
+Taiwan Strait
+607,634
+11
+597,665
+12
+13,218
+18
+North-eastern China
+201,537
+4
+199,294
+4
+2,990
+4
+Central China
+385,401
+7
+382,889
+7
+5
+15
+11,163
+10
+503,469
+Percentage
+Amount
+(%)
+Amount
+Percentage
+(%)
+Head Office
+2,105,486
+38
+1,808,257
+35
+Western China
+31,968
+Yangtze River Delta
+762,902
+14
+761,795
+15
+3,572
+5
+Bohai Rim
+511,402
+9
+42
+421,469
+8
+422,455
+49
+49
+5.7.1 Balance of off-balance sheet items that may have a material effect on the
+financial positions and operating results and the related important information
+The Group's off-balance sheet items include derivative financial instruments, commitments and contingent
+liabilities. Commitments and contingent liabilities include credit commitments, operating leasing commitments,
+capital expenditure commitments, securities underwriting commitments, bonds redemption commitments, pending
+litigations and disputes and other contingent liabilities. The credit commitment is the primary component. As at the
+end of 2016, the balance of credit commitments was RMB1,167.224 billion. For details of the contingent liabilities
+and commitments, please refer to "Contingent liabilities and commitments" in "Notes to the Financial Report".
+5.7.2 Outstanding overdue debts
+As at the end of 2016, the Group did not have any outstanding overdue debts.
+The contents and data in section 5.8 and below are analysed from the Company's
+perspective.
+5.8 Business Development Strategies
+5.8.1 Strategic direction and positioning - "Light-operation Bank", "One Body with
+Two Wings"
+Building a "Light-operation Bank" is a necessary choice for the Company to stay competitive under the current
+economic situation, which is objectively required by the changes in China's economic structure and the trend of
+developing a "Light-operation Bank" in the financial industry, and is also a feasible approach to the accomplishment
+of the Company's transformation and transcendence. In the next five years, the Company will promote its
+transformation into the "Light-operation Bank" in the following aspects: 1. "Light" capital: the Company will
+realise organic growth of capital, vigorously develop the "light" capital businesses and significantly improve capital
+efficiency, so as to raise the profit growth rate with lesser capital consumption; 2. "Light" assets: the Company will
+optimise the industrial distribution and customer structure of credit assets to improve the capital utilisation ratio
+and avoid the integrated and systematic risks, vigorously develop investment banking, asset management, custody,
+wealth management and other businesses and raise the asset turnover ratio; 3. "Light" liabilities: the Company
+will vigorously develop such services as payments and settlements, custody and transaction banking to attract more
+demand deposits and provide low-cost funding; 4. "Light" operation: the Company will build digital channels
+and leverage on cutting-edge technologies such as artificial intelligence and smart devices to improve operation
+efficiency, and will optimise business operations and prevent wastes in manpower, processes and systems to lower
+the cost-income ratio.
+V Report of the Board of Directors
+2.
+Loan
+Non-
+Percentage
+31 December 2015
+31 December 2016
+5.4.3 Distribution of loans and non-performing loans by industry
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+40
+40
+of the
+Percentage
+(%)
+5.7 Others
+100
+8
+431
+1
+Overseas
+142,219
+3
+140,900
+3
+1,791
+2
+China Merchants Bank
+Annual Report 2016
+Subsidiaries
+6
+296,496
+6
+6,263
+8
+Total
+5,474,978
+100 5,113,220
+100
+75,079
+336,928
+(6,176)
+Amount
+2015
+2,313,672
+42
+43,532
+55
+Yangtze River Delta
+768,653
+13
+760,973
+14
+10,312
+13
+Bohai Rim
+465,320
+8
+461,735
+8
+5,965
+8
+Pearl River Delta and West Side of
+Taiwan Strait
+634,092
+44
+2,634,760
+Head Office
+Percentage
+(%)
+78,963
+75,079
+During the reporting period, the percentage of profit from retail finance of the Group continued to grow. Profit
+before tax amounted to RMB45.099 billion, up by 23.04% from the previous year, accounting for 52.97% of the
+total profit before tax of business lines, and representing a year-on-year increase of 3.91 percentage points. At
+the same time, the cost-to-income ratio of retail finance business (excluding tax and surcharges) was 34.56%,
+representing a decrease of 1.39 percentage points as compared with the previous year.
+47
+48
+China Merchants Bank
+V Report of the Board of Directors
+Annual Report 2016
+Geographical segments
+The major outlets of the Group are located in the more economically developed regions of China and some large
+cities in other regions. The following table sets forth the segment results of the Group by geographical location in
+the periods indicated.
+11
+Total assets
+31 December 2016
+31 December 2016
+Total profit before tax
+2016
+(in millions of RMB, except for percentages)
+Amount
+Percentage
+(%)
+Percentage
+Amount
+(%)
+Amount
+Total liabilities
+626,656
+11
+11,856
+3
+173,987
+3
+1,500
+2
+382,249
+6
+318,155
+6
+7,287
+177,271
+9
+100
+5,538,949
+100
+78,963
+100
+Total assets
+Total liabilities
+Total profit before tax
+31 December 2015
+31 December 2015
+5,942,311
+(in millions of RMB, except for percentages)
+Total
+Overseas
+15
+North-eastern China
+157,710
+3
+156,670
+3
+1,436
+2
+Central China
+353,771
+Subsidiaries
+6
+6
+634
+1
+Western China
+368,485
+6
+373,028
+7
+(3,559)
+(5)
+354,073
+1.
+Of which: Credit risk weighted assets
+Market risk weighted assets
+up by 0.21 percentage point
+4,790
+13.50
+381,327
+1.20
+5,993
+15.30
+1.26
+499,102
+(%) (Note)
+loan
+total (%)
+balance
+(%) (Note)
+loan
+Head Office
+loan ratio
+Yangtze River Delta
+20.67
+4,274
+13.03
+368,137
+1.61
+6,427
+12.23
+674,209
+398,961
+1.99
+10,733
+19.12
+539,925
+1.65
+11,134
+Bohai Rim
+1.16
+performing
+Loan
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+During the reporting period, 70% of the formation in non-performing corporate loans was related primarily to
+two industries, i.e. manufacturing and mining. Thanks to continued structural optimization of assets, total loans
+granted to the abovementioned industries were reduced by 11.15%. Among which, loans related to manufacturing
+decreased by 10.45% from RMB332.147 billion to RMB297.442 billion; and loans related to mining decreased by
+15.14% from RMB58.308 billion to RMB49.479 billion.
+In 2016, the Group continued to support the development of the real economy, constantly optimised its risk
+asset portfolio, and gave priority to non-cyclical industries related with consumer consumption, national strategic
+emerging industries, information technology and other hi-tech industries. The differential risk prevention and control
+strategy was formulated for key areas such as industries with overcapacity, real estate, local government financing
+platforms and trade financing. The Group also optimised the allocation of credit resources so as to maintain an
+overall balance among risks, revenues and costs.
+(2) Consists primarily of finance, agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.
+Notes: (1) Represents the percentage of the non-performing loan in a certain category to the total loans of that category.
+5.4.4 Distribution of loans and non-performing loans by region
+1.68
+100.00
+2,824,286
+1.87
+61,121
+100.00
+3,261,681
+47,410
+of the
+31 December 2016
+111
+loan ratio
+performing
+of the
+total (%)
+balance
+(in millions of RMB, except for percentages)
+Loan
+41
+performing
+Non-
+Percentage
+Non-
+performing
+Non-
+Percentage
+31 December 2015
+Non-
+Pearl River Delta and West Side of
+Taiwan Strait
+561,539
+3,261,681
+to customers
+Total loans and advances
+0.30
+712
+8.33
+100.00
+235,297
+1,371
+7.59
+247,495
+Subsidiaries
+2.05
+57,773
+0.55
+3.04
+61,121
+2,824,286
+Percentage
+of the
+total (%)
+balance
+(in millions of RMB, except for percentages)
+Loan
+31 December 2015
+31 December 2016
+1.87
+5.4.5 Distribution of loans and non-performing loans by type of guarantees
+Given differences in economic patterns and customer bases of various regions, in 2016, the Group implemented
+differentiated supervisory management by category for branches and sub-branches in different regions. For the risk
+concentrated regions, the Group selectively raised the credit access standard and dynamically adjusted the credit
+authorisation so as to prevent the occurrence of regional systematic risks. As at the end of the reporting period, the
+percentages of the balances of loans extended to Yangtze River Delta, the Pearl River Delta and West Side of Taiwan
+Strait recorded a relatively large increase mainly due to rapid growth of mortgage loans and discounted bills of the
+Bank.
+Represents the percentage of the non-performing loan in a certain category to the total loans of that category.
+Note:
+1.68
+47,410
+100.00
+As at 31 December 2016, the regions where the Company incurred a large volume of non-performing loans are
+Western China, Yangtze River Delta and Central China, where the non-performing loan ratios of the Company
+increased by 2.24 percentage points, decreased by 0.34 percentage point and decreased by 0.16 percentage point,
+respectively as compared with the end of the previous year. During the reporting period, 52% of the formation
+in non-performing loans of the Group was related primarily to Western China. The non-performing loans of the
+Company were mainly related to coal mine, iron and steel, nonferrous metal and other industries in Western China
+where companies struggled in the quagmire of serious overcapacity, leading to an increase in the non-performing
+loan ratio. Due to active adjustment to credit structure by the Group, total loans granted to the abovementioned
+regions were reduced by 3.70% during the reporting period.
+99,149
+Overseas
+2.57
+4.99
+140,913
+2.18
+2,987
+4.21
+137,171
+3,012
+North-east China
+5,071
+16.41
+463,440
+1.26
+7,082
+17.21
+1.09
+2.14
+Central China
+311,713
+8,862
+12.22
+345,113
+4.81
+15,999
+10.19
+332,342
+Western China
+3.41
+9,956
+10.35
+292,361
+3.25
+10,128
+9.56
+to customers
+Non-
+Total loans and advances
+13,077
+213,080
+1.01
+2,292
+6.98
+227,564
+Property development
+7.54
+4.09
+8.90
+251,373
+4.63
+10,589
+7.01
+228,751
+10,279
+Wholesale and retail
+1,174
+Transportation, storage
+1.97
+1,671
+2.60
+84,673
+Construction
+0.87
+0.55
+1,387
+159,349
+0.82
+1,587
+5.94
+193,829
+and postal services
+5.64
+101,270
+4.59
+11.77
+loan ratio (1)
+loan
+total (%)
+balance
+(In millions of RMB, except for percentages)
+performing
+balance
+performing
+Loan
+Non-
+Non-
+Percentage
+Non-
+performing
+performing
+of the
+15,238
+total (%)
+Corporate loans
+332,147
+6.38
+18,970
+9.12
+297,442
+Manufacturing
+loan loan ratio(1)
+2.28
+53.39
+1,507,770
+2.92
+45,719
+48.03
+1,566,570
+34,333
+3.59
+772
+0.76
+4.93
+160,959
+Others(2)
+0.45
+134
+1.07
+789
+30,101
+225
+2.38
+77,492
+software and IT service
+Information transmission,
+0.37
+0.29
+125
+0.49
+4.67
+43.43
+1,226,701
+1.00
+15,402
+47.23
+1,540,594
+132,034
+Retail loans
+89,815
+4.74
+154,517
+Discounted bills
+0.79
+1,037
+3.18
+1.19
+33,531
+0.61
+8,163
+1.52
+49,479
+Mining
+0.07
+78
+16.50
+3.98
+1.00
+1,088
+3.33
+108,669
+power, heat, gas and water
+Production and supply of electric
+112,337
+58,308
+2.06
+3,923
+216
+1.08
+35,243
+and public utilities
+Water conservancy, environment
+0.22
+Notes:
+2.98
+84,240
+0.13
+129
+3.14
+102,469
+Leasing and commercial services
+6.73
+1.07
+Non-
+performing
+186
+loan ratio
+5.4.9 Repossessed assets and allowances for impairment losses
+The Group imposed strict and prudent control over loan restructuring. As at the end of the reporting period, the
+percentage of the Group's restructured loans to total loans was 0.51%, representing an increase of 0.35 percentage
+point as compared with the end of the previous year. The Group supported the development of real economy and
+promoted loan restructuring proactively, thus resulting in an increase in the volume of restructured non-performing
+loans.
+0.09
+2,506
+0.26
+8,605
+5.4.10 Changes in the allowances for impairment losses on loans
+0.16
+Loan
+amount
+4,531
+Percentage
+of the
+total (%)
+0.51
+Loan
+amount
+16,671
+31 December 2015
+31 December 2016
+Represents the restructured non-performing loans.
+Percentage
+of the
+total (%)
+Note:
+The Group adopted two methods to assess impairment losses on loans at the balance sheet date: individual
+assessment and portfolio assessment. Loans which were considered individually significant were assessed individually
+for impairment. If there were any objective evidence indicating that a loan was impaired, the impairment losses
+would be recognised through profit or loss for the current period, as measured by the difference between the
+carrying amount of the loan and its discounted value of estimated future cash flows recoverable. Loans that were
+not considered individually significant and loans that were individually assessed but not indicated impaired based
+on objective evidence were grouped into the loan portfolio with similar credit risk characteristics for the purpose of
+impairment testing. Based on the testing results, the Group would determine the allowances for impairment losses
+on a portfolio basis.
+(in millions of RMB)
+Unwinding of discount on impaired loans (Note)
+(5,700)
+Transfer into/out for the period
+(1,979)
+(2,628)
+Release for the period
+The following table sets forth the changes in the allowances for impairment losses on loans and advances to
+customers of the Group.
+59,486
+Charge for the period
+65,165
+84,842
+Balance at the beginning of the period
+2015
+2016
+67,188
+(1,001)
+more than 90 days
+Restructured loans (Note)
+2,013
+Overdue more than 3 years
+0.42
+11,847
+0.66
+21,580
+0.06
+Overdue from 1 year up to 3 years
+32,247
+0.74
+24,280
+Overdue from 3 months up to 1 year
+1.25
+35,396
+1.14
+Of which: restructured loans overdue
+878
+Total overdue loans
+(in millions of RMB, except for percentages)
+V Report of the Board of Directors
+5.4.8 Restructured loans
+China Merchants Bank
+Annual Report 2016
+As at the end of the reporting period, overdue loans of the Group amounted to RMB69.879 billion, down by
+RMB10.489 billion from the end of the previous year and accounting for 2.14% of its total loans, representing
+a decrease of 0.70 percentage point as compared with the end of the previous year. Among the overdue loans,
+collateralised and pledged loans accounted for 44.04%, guaranteed loans accounted for 33.87%, while credit loans
+accounted for 22.09% (the majority of which were overdue loans of credit cards). The Group adopted prudent
+classification criteria for overdue loans, and the ratio of its non-performing loans to the loans overdue for more than
+90 days increased to 1.28 from 1.05 at the end of the previous year.
+100.00
+0.03
+2,824,286
+3,261,681
+Total loans and advances to customers
+2.84
+80,368
+2.14
+69,879
+100.00
+(1,137)
+Recovery of loans and advances to customers previously written off
+Write-offs
+2,893
+5. Risk-weighted assets (having taken into
+13.78
+2.98
+5.88
+6.67
+314,910
+consideration the minimum requirements during
+358,296
+36,972
+38,073
+2,657,383
+2,813,611
+3,009,265
+3,209,980
+Operational risk weighted assets
+the transition period)
+the transition period)
+7. Tier 1 capital adequacy ratio
+performing
+7.69
+6,275,592
+5.54%
+6,758,093
+5.75%
+10. Leverage ratio
+assets
+6. Core Tier 1 capital adequacy ratio
+9. Adjusted balance of on- and off-balance sheet
+5.01
+up by 0.71 percentage point
+up by 0.71 percentage point
+up by 0.76 percentage point
+3,208,152
+10.83%
+10.83%
+12.57%
+13.33%
+11.54%
+11.54%
+3,368,990
+8. Capital adequacy ratio
+Information on leverage ratio (2)
+consideration the minimum requirements during
+4. Risk-weighted assets (without taking into
+11.33
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+44
+43
+Represents the interest income accrued on impaired loans as a result of subsequent increases in their present value due to the passage of time.
+The Group continued to adopt a stable and prudent policy in respect of making provisions. As at the end of the
+reporting period, the balance of allowances for impairment losses on loans amounted to RMB110.032 billion,
+representing an increase of RMB25.190 billion as compared with that at the end of the previous year. The
+non-performing loan allowance coverage ratio was 180.02%, representing an increase of 1.07 percentage points as
+compared with the end of the previous year; the loan allowance ratio was 3.37%, representing an increase of 0.37
+percentage point as compared with the end of the previous year.
+84,842
+5.5 Analysis of Capital Adequacy Ratio
+Note:
+226
+380
+110,032
+Foreign exchange rate movements
+(38,383)
+(35,942)
+1,464
+Balance at the end of the period
+As at 31 December 2016, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
+advanced approach were 13.33% and 11.54% respectively, representing an increase of 1.33 percentage points and
+1.45 percentage points respectively as compared with those under the weighted approach.
+31 December
+2016
+31 December
+2015
+403,409
+449,116
+11.90
+347,444
+388,780
+11.90
+347,434
+388,762
+3. Net capital
+2. Net Tier 1 capital
+1. Net core Tier 1 capital
+the advanced approach (1)
+Capital adequacy ratios under
+(in millions of RMB, except for percentages)
+The Group
+Increase/decrease at
+the end of the reporting
+period as compared with
+the end of the previous
+year (%)
+0.68
+22,006
+As at the end of the reporting period, the balance of repossessed assets of the Group amounted to RMB1.572
+billion. After deduction of allowances for impairment losses of RMB708 million, the net repossessed assets amounted
+to RMB864 million.
+Percentage
+of the
+total (%)
+89,815
+4.74
+154,517
+Discounted bills
+0.95
+3,574
+3.18
+13.34
+1.73
+6,865
+12.20
+397,959
+Pledged loans
+1.31
+376,819
+16,250
+Total loans and advances
+3,261,681
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+42
+42
+As at the end of the reporting period, collateralised and pledged loans increased by 12.84% as compared with the
+end of the previous year. Guaranteed loans decreased by 3.21% as compared with the end of the previous year
+while the credit loans increased by 26.69% as compared with the end of the previous year, which was mainly due to
+the increase of credit card loans.
+Represents the percentage of the non-performing loan in a certain category to the total loans of that category.
+to customers
+Note:
+47,410
+100.00
+2,824,286
+1.87
+61,121
+100.00
+1.68
+43.96
+1,241,633
+1.54
+26.07
+850,482
+Credit loans
+(%) (Note)
+loan
+total (%)
+9,223
+balance
+loan
+loan ratio
+Non-
+performing
+Non-
+performing
+Percentage
+of the
+Loan
+(%) (Note)
+1.08
+671,321
+23.77
+22,024
+43.79
+1,428,313
+Collateralised loans
+4.40
+19,587
+15.75
+444,698
+5.35
+23,009
+13.20
+430,410
+Guaranteed loans
+Overdue within 3 months
+7,999
+5.4.6 Loans to the top ten single borrowers
+Top ten
+borrowers
+1.19
+Percentage
+of net capital
+1.01
+4,541
+Transportation, storage and postal services
+0.14
+1.03
+4,629
+0.14
+Transportation, storage and postal services
+Н
+0.16
+1.21
+5,433
+Transportation, storage and postal services
+0.19
+|
+Public administration, social security and social
+organisations
+4,474
+1.00
+Loan
+amount
+Industry
+of the
+total (%)
+amount
+(in millions of RMB, except for percentages)
+Loan
+Percentage
+31 December 2015
+31 December 2016
+5.4.7 Distribution of loans by overdue term
+2.02
+14.70
+66,016
+Total
+0.14
+1.35
+6,050
+As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to
+RMB9.800 billion, representing 2.18% of the Group's net capital under the advanced approach. The loan balance of
+the top ten single borrowers totalled RMB66.016 billion, representing 14.70% of the Group's net capital under the
+advanced approach, 14.27% of the Group's net capital under the weighted approach, and 2.02% of the Group's
+total loan balance, respectively.
+0.19
+9,800
+Transportation, storage and postal services
+ABCDEFGH -
+loans (%)
+(%)
+2016
+2.18
+(in millions of RMB)
+approach)
+31 December
+advanced
+Loan amount
+as at
+Wholesale and retail
+(under the
+Percentage
+0.30
+of total
+Information transmission, software and IT services
+В
+Property development
+1.39
+0.21
+1.49
+6,248
+Information transmission, software and IT services
+0.25
+6,710
+8,402
+Wholesale and retail
+0.30
+2.17
+9,729
+1.87
+China Merchants Bank
+Annual Report 2016
+As for financial institutions finance, the Company took the lead to launch e-transaction for placements
+from banks and other financial institutions and managed to maintain the leading position of our interbank
+cross-border RMB business. As at the end of the reporting period, the number of interbank cross-border RMB
+accounts opened by banks and other financial institutions at home and abroad with the Company ranked
+first among national small- and medium-sized banks. The number of customers accessing the RMB Cross-
+border Interbank Payment System (CIPS) as an indirect participant through the Bank ranked second among
+national small- and medium-sized banks and third in the industry. The discounted bills transferred to other
+banks or financial institutions and rediscounted bills have maintained its leading position in the industry in
+terms of their trading amounts.
+V Report of the Board of Directors
+3.
+As for corporate finance, the Company has gradually enhanced its connections with core customers
+and significantly improved the efficiency in expanding the basic client base. In 2016, the Company newly
+developed 330,300 corporate customers, 278,300 customers using its cash management service, 780
+effective core customers in supply chain and 3,535 effective customers from upstream and downstream
+industries. The compound growth rate of the customers using cash management service of transaction
+banking and the customers using online corporate banking service exceeded 50% for the past three years.
+The number of customers obtained under the "Qian Ying Zhan Yi (F)" program increased by 17.14%
+as compared with the beginning of the year. During the reporting period, 42 companies in the "Qian Ying
+Zhan Yi ()" customer base had successfully launched their IPO in Chinese Mainland and they each
+opened a special account with the Company for their IPO proceeds. Total amounts of proceeds under
+our custody reached RMB8.196 billion. The number of small enterprise customers increased by 25.52%
+as compared with the beginning of the year. The cross-bank domestic letter of credit business achieved a
+growth. In 2016, the trading volume of cross-bank negotiated domestic letters of credit increased by 26.20%
+year-on-year. Our transaction banking won high market recognition and received a number of awards such as
+the "Best Transaction Bank in China" selected by The Asset.
+Investment banking and macro asset management business have become two growth drivers of the
+"Two Wings" thanks to our efforts in product offerings. Among which, investment banking realised
+a year-on-year increase of 35.82% in non-interest income. The balance of wealth management funds and
+income from entrusted wealth management were RMB2.38 trillion and RMB14.333 billion, respectively, and
+assets under custody exceeded RMB10 trillion. The Company has obtained the custodian qualification for the
+National Basic Pension Insurance Fund of China (H◇ŹŹRKHŵ), set up an overseas custody center,
+the first of its kind in the industry, and received the "Best Custodian Bank in China" award selected by The
+Asset. As for financial market business, the Company focused on developing the CMB risk-hedging service
+system. Risk-hedging transactions on behalf of customers amounted to RMB513.5 billion, representing a
+year-on-year increase of 59.53%, income from intermediary risk-hedging transactions on behalf of customers
+amounted to RMB827 million, representing a year-on-year increase of 62.00%, and income from settlement
+and sales of foreign exchange business amounted to RMB558 million, representing a year-on-year increase of
+250.94%. The Company has made major breakthroughs in the market-making transactions of RMB derivative
+products, and the volume of interbank RMB option transactions ranked first in the market.
+"One Body with Two Wings" has developed steadily with internal coordination.
+The Company has enhanced the referral of corporate customers for retail finance. During the reporting
+period, the relationship managers of our Diamond-class customers made a referral of 2,893 corporate
+customers, and the housing loans retained an amount of RMB148.4 billion for the corporate accounts.
+The Company further tapped on its strategic customers for further cooperation and provided exclusive
+comprehensive retail finance services to strategic customers and their employees so as to improve customer
+loyalty. The Company fully capitalised on the advantages of its retail channel in the sales of insurance, funds
+and trusts to provide complementary services to other financial institutions, thereby effectively promoting
+the development of its custody business and the growth in institutional deposits. In the meantime, corporate
+finance of the Company grew rapidly, laying a solid foundation for the development of our retail finance.
+The number of individual customers of our payroll service increased by 9.2 million for the whole year, of
+which active accounts for payroll service increased by 5.62 million, up by 11.80% as compared with the
+corresponding period of the previous year. The Company handled an amount of RMB1.28 trillion under its
+payroll service for the year, an increase of 23.08% from the corresponding period of the previous year. Funds
+inflow into the pool of wealth management business continued to grow. In 2016, the Company pooled
+RMB1,038.1 billion of quality assets into our wealth management business, increased by RMB199.1 billion
+as compared with the corresponding period of the previous year, providing a guarantee of products for the
+development of retail business. In addition, a series of mega projects collaborated by our investment bank
+and commercial bank segments established the leading position of the Company in the privatization market
+and led to the rapid development of the liabilities and cross-border businesses. Financial institution customers
+helped the Company won the bid of RMB70 billion of green financial bonds of the Bank of Communications,
+absorbed RMB650 million for the custody business and generated more than RMB2 billion of corporate
+deposits.
+53
+54
+2.
+V Report of the Board of Directors
+5.9 Changes in the External Environment and
+Corresponding Measures.
+5.9.1 Impact of Changes in Operating Environment and Key Business Concerns
+1. Overview of the macroeconomic and financial outlook in 2016
+In 2016, the domestic economy gradually became more stable with decelerating economic growth, and turned
+better with steady development, achieving an annual economic growth rate of 6.7%. Fixed-asset investment
+stabilised with a slowdown, among which, infrastructure investment and real estate investment became major pillars
+for overall investments throughout the year. Curbed by prolonged overcapacity, investment in the manufacturing
+sector trailed off, however, with the improved profitability in industrial enterprises, investment in the manufacturing
+sector gradually showed sign of recovery at the end of the third quarter. The growth in consumption remained
+stable, while the growth in urban residents' per capita disposable income slowed down and played a weakening
+role in driving overall consumption. Leashed by slow recovery in global economy, both imports and exports generally
+maintained a negative growth, but the decline narrowed in the second half of the year. The CPI growth rebounded
+to an aggregate of 2% during the year, showing an improvement as compared with the previous year amidst an
+environment with moderate inflation. Driven by the rebound in commodity price and global oil price as well as the
+recovery of demand in certain domestic industries, the PPI decline in aggregate continued to narrow as compared
+with the previous year. The number of new employees in urban area and the unemployment rate remained stable.
+In order to alleviate the pressure of economic downturn, the Central Bank continued to implement its prudent
+monetary policy and took care of the effective financing requirement of real economy at the same time, and flexibly
+utilised various monetary policy tools such as deposit reserve ratio cuts, open market operation, medium-term
+lending facilities (MLF) and pledged supplementary lending (PSL) to reasonably maintain adequate liquidity in the
+market. In the meantime, fiscal policies were proactively utilised, which have increased public fiscal expenditures and
+the issuance volume of local debts, thus allowing financial resources to play a greater role in stabilising economic
+growth.
+Net interest margin
+In 2016, the net interest margin of the Company was 2.55%, representing a year-on-year decrease of 28 basis
+points, which was primarily due to the following reasons: firstly, the change from business tax to value-added
+tax with price and tax separated resulted in a decrease in the carrying value of net interest income; secondly, the
+concentrated re-pricing at the beginning of this year following the 5 consecutive interest cuts in the previous year
+led to a decline in loan yields; thirdly, the diminishing bonus in the capital market and the system reform in relation
+to cancellation of the prepayment system for application of new shares led to a substantial decrease in low-cost
+demand deposits from other financial institutions; fourthly, the continuous decline in market interest rates brought
+about a decrease in the return on assets placed with other financial institutions.
+In 2017, in the context of continuous promotion of interest rate liberalisation and financial disintermediation, return-
+on-asset ratio will still face high pressure of declining, while the debt cost will become relatively rigid. Meanwhile,
+coupled with the impact of change from business tax to value-added tax, it is predicted that net interest margin of
+the Company will continue to decline. In order to overcome the negative effect of the decline in net interest margin,
+the Company will further enhance asset management and operation. The Company will adhere to the principle of
+risk pricing and the balance of volume and price, and vigorously increase the granting of loan assets, in particular
+loan assets with high return, so as to diligently improve the overall return. In the meantime, the Company will
+constantly expand customer base, proactively promote the steady growth of low cost deposits, further enhance the
+refined management of liabilities, and reinforce the cost advantages at the liability side, so as to ensure that the net
+interest margin will maintain a leading position in the industry.
+"Two Wings" both delivered good results.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+Profit before tax from retail finance rose by 23.80% year-on-year, accounting for 53.62% of the total
+profit before tax of business lines, and representing a year-on-year increase of 4.07 percentage points; the
+cost-to-income ratio of retail finance was 34.15%, representing a year-on-year decrease of 1.48 percentage
+points; net non-interest income from retail finance rose by 19.95% year-on-year, accounting for 32.90%
+of net operating income from retail finance. We continued to consolidate the retail customer base and
+achieved further increase in the number of private banking, Diamond, Sunflower, gold card, effective mass
+customers and active credit cards users, in particular, the addition of 838,000 "customers at gold card and
+Sunflower level and above (F)" became our biggest value contributor. The private banking business
+grew steadily and received the "Best Private Bank in China Region" award selected by various organisations
+including Euromoney. The balance of total assets under management (AUM) from retail customers increased
+by RMB780.9 billion as compared with the end of the previous year, a record high in terms of incremental
+amounts; demand deposits from retail banking increased by RMB107.462 billion which accounted for
+76.39% of the Company's total retail deposits. Total amounts of retail loans accounted for 50.45% of the
+Company's total loans; and the annual accumulated transaction amounts of credit cards exceeded RMB2.2
+trillion, setting a new historical high.
+3.
+"One Body" remained robust.
+V Report of the Board of Directors
+3.
+The Company has established the "One Body with Two Wings" business structure under which retail finance is
+the mainstay business supported by corporate finance and financial institutions finance, which has led to mutual
+integration, mutual coordination and mutual promotion between "One Body" and "Two Wings". On one hand,
+the Company will promote retail finance as "One Body" to play a more important role in driving the development
+of corporate finance and financial institutions finance, fully capitalise on the marketing advantages of its strong
+retail channels to promote the development of custody, investment banking and asset management services,
+vigorously explore the potential corporate resources of Diamond-class customers such as business owners and
+senior management to proactively solicit referrals of corporate customers, and fully tap on the advantages of retail
+finance and private banking services to further improve the one-stop comprehensive financial services for strategic
+customers of the Company. On the other hand, the Company will make use of its "Two Wings" of corporate finance
+and financial institutions finance to play a more important role in supporting the development of retail finance. The
+Company will enhance the offering of wealth management products and quality underlying assets by proactively
+developing asset management and investment banking businesses, and fully support the expansion of the customer
+base of retail finance by vigorously developing payroll, corporate card and pension services. The Company will
+vigorously promote construction of new channels for retail finance by realising close coordination of supply chain
+finance and retail finance, and develop corporate liabilities business to offer adequate funding support for the
+development of retail assets business. By establishing the sound business structure of "One Body with Two Wings",
+the Company will be in a better position to overcome the challenges of interest rate liberalisation and periodic
+economic fluctuations.
+5.8.2 Analysis of Achievements in Promoting Strategic Transformation
+In 2016, the Company expedited its strategic transformation and sought development opportunities in proactively
+supporting the supply-side structural reforms. The Company made remarkable achievements even in the challenging
+environment of "Three Cuts, One Reduction and One Reinforcement" (i.e. cutting overcapacity, inventory level
+and leverage ratio, reducing costs and reinforcing weak growth areas). The volume of on-balance sheet assets
+stabilised in a rising trend, the number of customers increased rapidly, the operation efficiency improved steadily,
+the income structure kept optimising, the asset quality improved steadily, and the organic generation of capital was
+enhanced continuously. By stepping up structural adjustments and leveraging on featured advantages and innovative
+technology-backed finance, the profit growth of the Company has gradually shaken off its chronic reliance upon
+size, capital and resources, and opened up broader room for continuous transformation and upgrading.
+The Company has adhered to the "Light-operation Bank" strategy and made great progress in strategic
+transformation.
+1.
+"Lighter" capital: as at the end of the reporting period, the capital adequacy ratio and the Tier 1 capital
+adequacy ratio of the Company under the weighted approach were 11.59% and 9.63%, respectively,
+representing an increase of 0.13 percentage point and 0.19 percentage point respectively as compared with
+the end of the previous year. Such increase reflected an improved level of capital adequacy. The risk adjusted
+return on capital (RAROC) before tax under the weighted approach was 20.27%, which was significantly
+higher than the capital cost.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+2.
+2.
+4.
+"Lighter" assets: thanks to the structural adjustments, the assets structure of the Company was further
+optimised and as at the end of the reporting period, the retail loans accounted for 50.45% of our total loans,
+with its role as the "ballast" and "stabilizer" intensified. The balance of residential mortgages and credit card
+overdrafts increased by RMB229.039 billion and RMB95.966 billion respectively, as compared with the end
+of the previous year, accounting for 47.37% and 26.89% of the total retail loans respectively. At the same
+time, the Company significantly reduced or withdrew corporate risk assets to make room for high-quality
+assets. In 2016, a total of RMB78.1 billion in risk assets were reduced or withdrawn: the balance of loans
+to customers in the traditional manufacturing industry, wholesale and retail industry went down by 9.68%
+and 8.24% respectively, as compared with the end of the previous year; the balance of loans for information
+transmission, software and IT service and other emerging industries increased by 167.42%, as compared with
+the end of the previous year; and the balance of loans for the culture, sports and entertainment industries
+rose by 61.88% as compared with the end of the previous year. There are 135 strategic customers under the
+Head Office, and as at the end of 2016, the balance of loans granted to strategic customers under the Head
+Office and its branches amounted to RMB319.163 billion, representing an increase of RMB76.134 billion as
+compared with that at the beginning of the year. As regard to the exposure of corporate loans, the exposure
+of corporate loans to customers with a high credit rating accounted for 59.97% of the total, representing an
+increase of 7.10 percentage points, as compared with the beginning of the year.
+"Lighter" liabilities: the Company optimised the mechanism for pricing of deposits and differentiated
+authorisation, and compressed high-cost negotiated deposits by RMB26.280 billion. As at the end of the
+period, the balance of negotiated deposits and demand deposits were RMB48.400 billion and RMB2, 331.333
+billion, respectively. As a result, the proportion of demand deposits increased by 6.97 percentage points to
+64.00%.
+"Lighter" income structure: the net operating income increased by 3.16% year-on-year. Among which,
+net non-interest income grew by 15.54% year-on-year, accounting for 34.24% of the total income, and
+representing a year-on-year increase of 3.67 percentage points.
+"Lighter" operation: focusing on the strategy of "prioritising the development of mobile phone
+applications", we have launched Mobile Bank 5.0, first put Machine Gene Investment () into
+operation, integrated the W+ platform, the smart marketing system and the personalised recommendation
+system for mobile phones, and preliminarily designed the branch "020" service processes focusing on mobile
+phone applications. As at the end of the reporting period, the total number of corporate online banking
+customers increased by 32.75% as compared with the end of the previous year. During the reporting period,
+the accumulated number and amounts of corporate online banking transactions increased by 72.87% and
+22.39% year-on-year, respectively. The number of corporate mobile phone banking users reached 290,500,
+and the number of various business operations such as account enquiries, payments and settlements which
+were completed through the corporate mobile phone banking app reached 24,690,000 for the year. The
+floor area of leased branches of the whole Bank was cut down by 39,356.34 square meters, resulting in
+a reduction of RMB57,264,200 in annual rental expenses. The cost-to-income ratio (excluding taxes and
+surcharges) stayed low at 27.53%. For the details of distribution channels, please refer to "Distribution
+channels" in this chapter.
+51
+52
+2
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+The Company continued to enhance its competitive edges and fuel its growth momentum, and made
+outstanding achievements in "One Body with Two Wings".
+1.
+5.
+Net non-interest income
+V Report of the Board of Directors
+As the Company proactively grasped the opportunities brought by the eruptive growth in the insurance industry
+and the increase in hedging demands from residents in the first half of 2016, there was a rapid growth in fees
+and commission income from wealth management services such as income from agency distribution of insurance
+policies and entrusted wealth management services, which amounted to RMB28.503 billion for the whole year,
+representing a year-on-year increase of 22.63%. Among which, income from entrusted wealth management services
+amounted to RMB14.333 billion, representing a year-on-year increase of 60.81%; income from agency distribution
+of insurance policies amounted to RMB5.109 billion, representing a year-on-year increase of 81.69%; income from
+agency distribution of funds amounted to RMB5.539 billion, representing a year-on-year decrease of 26.33%;
+income from agency distribution of trust schemes amounted to RMB3.338 billion, representing a year-on-year
+decrease of 13.66%; income from agency distribution of precious metal amounted to RMB184 million, representing
+a year-on-year increase of 37.31%. Benefiting from the increase in commission income and annual fees of credit
+cards, bank card fees increased by 14.20% as compared with the previous year, amounting to RMB 10.804 billion.
+Driven by the surges in the volume of custodian services, custodian fee income increased by 20.04% year-on-year,
+amounting to RMB4.282 billion. Spread income from disposal of bills amounted to RMB5.600 billion, representing
+a year-on-year increase of 22.32%, which was achieved mainly by grasping the opportunities emerged from the
+phased cuts of interest rates.
+58
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+During the reporting period, the Company fully promoted the centralised clearance and settlement method in
+branches, built legal backup and supporting platform, vigorously increased litigation and cleared non-performing
+loans in cash amounting to RMB9.277 billion, achieving significant results. In the mean time, the Company also
+increased its efforts to write off non-performing assets in accordance with the "Administrative Measures for the
+Write-off of Distressed Debts of Financial Enterprises (2015 revised edition)" promulgated by the Ministry of Finance
+and other relevant requirements, and wrote off non-performing loans amounting to RMB28.613 billion for the year.
+Meanwhile, the Company carried out bulk transfer of non-performing assets that could be transferred at reasonable
+market prices to dispose of assets promptly, and transferred non-performing loans amounting to RMB4.363 billion
+for the year.
+During the reporting period, the Company realised net non-interest income of RMB67.838 billion, representing
+a year-on-year increase of 15.54%. The proportion of net non-interest income to our net operating income was
+34.24%, up by 3.67 percentage points as compared with the previous year. Among which:
+6.
+Asset quality in key areas
+In response to changes in external macroeconomic environment, the Company proactively strengthened the control
+of its credit risk associated with real estate enterprises, local government financing platforms, overcapacity industries
+and other key areas.
+In respect of real estate credit business, the Company dynamically adjusted its credit policy according to national
+policies on industrial adjustments, formulated and implemented stringent entry standards with respect to cities,
+customers and projects, continued to enhance the on- and off-balance sheet quota control on full statistical calibres
+and strengthened the region and customer list management, proactively adapted to national policies on industrial
+adjustment and strictly implemented the requirement of national policies in key cities with excessive growth in the
+prices of real estate properties so as to deepen strategic cooperation with the prestigious real estate developers,
+thereby further raising the proportion of its strategic customers and prestigious cities in the real estate industry and
+constantly optimising its assets structure. As at the end of the reporting period, the risk exposure of our businesses
+with domestic real estate enterprises (calculated on the broad statistical calibre) amounted to RMB358.694 billion
+(including businesses such as actual and contingent credit, bond investments, proprietary trading and investment of
+wealth management products in non-standard assets), representing an increase of RMB27.073 billion as compared
+with the end of the previous year. Among which, the balance of loans to domestic corporate real estate amounted
+to RMB170.223 billion, representing a decrease of RMB3.003 billion as compared with the end of the previous
+year, which accounted for 5.65% of the Company's total loans and advances, down by 1.04 percentage points as
+compared with the end of the previous year. Due to various factors such as slow destocking cycle as a result of
+significant property inventories of certain cities, the increasing vacancy rate and decreasing rental rates of offices and
+commercial properties, the non-performing loan ratio was 1.35%, up by 0.68 percentage point as compared with
+the end of the previous year. In addition, there was no non-performing asset in our businesses such as contingent
+credit involving real estate, bond investments and investment of wealth management products in non-standard
+assets.
+China Merchants Bank
+Annual Report 2016
+7.
+In respect of local government financing platform business, the Company implemented quota management on full
+statistical calibres. The Company further specified the requirements of total amount control and centralised regional
+management, adhered to the entry standard of "stable cash flow and compliant business model", and prioritised
+the allocation of its credit resources to local government financing platforms being operated under commercial
+principles such as government purchasing and PPP, and having relatively adequate cash flow to optimise its loan
+structure. In addition, the Company continued with its research on the change of debt policy of the central and local
+governments, acting actively in concert with the replacement of local government debts and quota management,
+so as to safeguard the creditor's rights of the Company. As at the end of the reporting period, the risk exposure
+of our businesses with local government financing platforms (calculated on the broad statistical calibre) amounted
+to RMB210.025 billion (including businesses such as actual and contingent credit, bond investments, proprietary
+investment and investment of wealth management products in non-standard assets), representing a decrease of
+RMB47.580 billion as compared with the end of the previous year. Among which, the balance of loans on balance
+sheet amounted to RMB104.683 billion, representing a decrease of RMB26.616 billion as compared with the end of
+the previous year, which accounted for 3.47% of the total loans and advances granted by the Company, down by
+1.60 percentage points as compared with the end of the previous year. There was no non-performing asset in our
+businesses with local government financing platforms.
+For overcapacity industries such as iron and steel, cement, plate glass, electrolytic aluminium, shipbuilding,
+polysilicon and coal chemicals, the Company raised its entry standards of customers, focused on supporting leading
+enterprises in industries and regional quality enterprises closely relating to people's living, devoted to reducing and
+exiting customers associated with significant risks and lower class overcapacity and implemented stringent quota
+management. In addition, the Company enhanced the monitoring of withdrawal of risk-bearing loans and optimised
+risk mitigation measures. Due to declining market demand, decrease of profitability of enterprises and insufficient
+operating cash flow, the Company has been increasingly exposed to the risks associated with overcapacity industries
+and its non-performing loan ratio rose accordingly, which was mainly due to the increase in non-performing loans
+associated with the shipbuilding and coal chemical industry. As of the end of the reporting period, the balance of
+our loans extended to overcapacity industries amounted to RMB44.651 billion, representing a decrease of RMB4.393
+billion as compared with the end of the previous year, and accounting for 1.48% of total loans and advances
+of the Company, down by 0.41 percentage point as compared with that at the end of the previous year. The
+non-performing loan ratio of the Company in overcapacity industries was 11.78%, up by 6.32 percentage points as
+compared with that at the end of the previous year.
+Analysis of the impact of new policies on wealth management business
+In recent years, the wealth growth of domestic residents and institutions has contributed to the vigorous
+development of asset management business. At present, China's financial regulators are promoting the
+long-term sound development of such business by promoting moderate growth in its volume and unifying the
+regulatory standards and other measures. On one hand, the Central Bank will formally include the utilisation of
+off-balance-sheet wealth management funds into the broad credit statistical calibre starting from 2017, which will
+have an important impact on the macro-prudential assessment (MPA). The purpose is to promote banks to optimise
+the wealth management asset allocation structure and the business management model, and realise the reduction in
+leveraging, so as to prevent systemic financial risk. On the other hand, according to media reports, the Central Bank
+is working with China Securities Regulatory Commission, China Banking Regulatory Commission, China Insurance
+Regulatory Commission and other relevant departments to prepare the guiding opinions for the asset management
+business carried out by various financial institutions. At present. industry-wide discussions are being conducted and
+opinions being solicited. There will be a unified regulatory standards in the industry. Problems such as hidden rigid
+payments affecting the healthy development of this industry are expected. The asset management business of banks
+will gradually gear back onto its original track of "being entrusted to conduct wealth management on behalf of
+customers".
+59
+China Merchants Bank
+Annual Report 2016
+57
+In 2016, the pilot project of securitisation of non-performing assets was reactivated, which provided a new channel
+for the marketised disposal of the banks' non-performing assets. We relied on our efficient and sophisticated
+operating mechanism of asset securitisation to accelerate the process of securitisation of the non-performing assets.
+The Company launched the securitisation of non-performing assets of corporate loans, and became the first bank
+to launch securitisation projects for credit card and small and micro enterprise non-performing assets. Four phases
+of securities were issued during the reporting period, pursuant to which, non-performing assets in an aggregate
+principle of RMB5.915 billion were disposed of. The nominal value of securities issued amounted to RMB1.8
+billion. The Company holds 5% of each tranche of such securities in accordance with regulatory requirements. The
+remaining securities were subscribed for by market investors. The securitisation of the non-performing assets of
+the Company concluded with a number of achievements, i.e. establishment of a market-based issuing and pricing
+mechanism, realisation of real sale and bankruptcy ringfencing of the assets, transmission from asset holding to
+asset services, optimisation of the structure of the Company's assets and liabilities, improvement on liquidity, the
+revenue structure and capital adequacy ratios.
+In addition, the pilot project of debt-to-equity conversion was reactivated in 2016, which was of positive significance
+in lowering the operating leverage of the enterprises, stimulating their potential and propelling the healthy
+development of the economy. In accordance with the "Guidelines for Marketisation of Debt-to-equity Conversion of
+Banks", the Company has proactively responded to the supply-side reform while steadily pushing forward the related
+business, screening customers properly, carrying out feasibility analysis and preparing workable service plans with the
+aim of providing customers with comprehensive financial services, reducing their operating leverage and controlling
+financial risk.
+During the reporting period, the Company further strengthened the disposal of non-performing loans and used a
+number of methods to manage risk assets. In 2016, the Company disposed of non-performing loans amounting
+to RMB50.173 billion, of which, RMB9.277 billion was cleared and settled, RMB28.613 billion was written off in
+a regular way, RMB4.363 billion was transferred at discount, RMB5.915 billion was securitised as non-performing
+assets, and RMB2.005 billion was disposed of by restructuring, upward migration, repossession, remission and other
+Looking forward to 2017, in respect of wealth management, the Company will face negative factors such as more
+stringent regulatory requirements imposed by the insurance regulatory authorities, decelerated growth in the
+amounts of wealth management services and uncertainties in the capital market. In respect of bank cards, due to
+the impact of new policies for bank card fees, the charge rate of bank cards tends to decline. In respect of custodian
+fee income, as a result of the increasingly intensive competition, the charge rate of custodian service will continue
+to decline. In respect of spread income from disposal of bills, as affected by the tax policies, there will be increased
+uncertainties. To cope with the above pressure, maintain its advantages in non-interest income businesses and
+realise the operating goal of "Outperforming Peers and Market", the Company will take the following measures:
+firstly, the Company will continuously push forward service innovation and management innovation, adhere to the
+customer-centric operation philosophy, strengthen the expansion of customer base, and improve service quality
+and the added value of products by proactively exploring new customer acquisition models, so as to enhance our
+overall competitiveness; secondly, the Company will accelerate its market penetration at the strategic level, improve
+the development of intermediary businesses in a proactive and pertinent manner, and increase its resources for
+investment in key businesses such as wealth management, credit cards, custodian service, investment banking and
+financial market, so as to simulate the growth of overall non-interest income.
+55
+means.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+4.
+Capital Management
+The Company continued to optimise its business structure and enhance capital management. During the reporting
+period, the Company satisfied the minimum capital requirements, the reserve capital requirements and the
+counter-cyclical capital requirements under the transitional arrangements of the CBRC.
+56
+The Company continued to promote to the development strategies of marketisation, branding and
+internationalisation for its assets securitisation business to provide extra room for capital saving. As at the end of
+the reporting period, the Company totally issued 14 phases of credit asset-backed securities, with the aggregate
+issuance volume of RMB66.700 billion, among which, 6 phases of credit asset-backed securities were issued during
+the reporting period, with the aggregate issuance volume of RMB15.043 billion, fully covering all types of assets
+including corporate and retail, and normal and non-performing, leading in the industry in terms of market shares,
+and taking the dominant position in securitisation of retail assets.
+In 2016, the Company's non-performing loans increased at a slower pace. In general, the balance of non-performing
+loan formation during the year amounted to RMB62.930 billion, representing a decrease of RMB16.704 billion or
+20.98% as compared with the previous year, and the non-performing loan formation ratio was 2.24%, representing
+a decrease of 1.02 percentage points as compared with the previous year, and the non-performing loan formation
+ratio of each quarter declined as compared with the corresponding period of the previous year; from the perspective
+of industry, the growth of non-performing loan formation slowed down in the manufacturing, wholesale and retail
+industry; from the perspective of geographic area, the growth of non-performing loan formation slowed down in
+the Yangtze River Delta, Western China and the Central China where non-performing loan formation growth was
+higher previously. From the perspective of customer base, the non-performing loan formation ratio of the medium-
+and small-sized enterprises also declined. Of the total non-performing loans, those extended to the state-owned
+enterprises accounted for approximately 10%. Although under a favourable trend, there still exists a certain level
+of uncertainty regarding the improvement of non-performing loan formation ratio as there is uncertainty with
+non-performing loan formation of large enterprises.
+In 2016, by adhering to the concept of a "Light-operation Bank", the Company increased the granting of light-
+operation businesses such as retail credit and promoted structural adjustments through optimising resources
+allocation so as to improve profitability. The Company's risk-weighted assets under the weighted approach
+increased by 8.21% as compared with the end of the previous year, and the percentage of risk assets to total assets
+was 62.88%, which was on a par with that at the end of the previous year. With less capital consumption, the
+Company maintained a steady growth in profitability and continuous improvement in the capital adequacy ratios.
+The risk-weighted assets (taking into consideration the minimum requirements during the grace period) under the
+advanced approach increased by 3.18% as compared with the end of the previous year, and the percentage of risk
+assets to total assets was 54.54%, lowered by 8.34 percentage points as compared to that under the weighted
+approach, indicating an effective saving in capital.
+As at 31 December 2016, the non-performing loan ratio of the Company was 1.98%, representing an increase of
+0.18 percentage point as compared with the end of the previous year, while the proportion of special mention loans
+to the total was 2.15%, down by 0.50 percentage point from the end of the previous year. The loan allowance ratio
+was 3.55%, up by 0.36 percentage point from the end of the previous year. The allowance coverage ratio of our
+non-performing loans was 179.03%, representing an increase of 1.94 percentage points as compared with the end
+of the previous year. The credit cost ratio was 2.27%, a decrease of 0.08 percentage point as compared with the
+end of the previous year. The risk exposure was generally controllable.
+The formation and disposal of non-performing loans
+50
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+In 2017, the Company will continue to enhance the capital management refinement concept, promote the adoption
+of the risk adjusted return on capital (RAROC), the economic value added (EVA) and other value assessment
+indicators, trace the progress of international capital regulatory reform, continue to implement the internal capital
+adequacy assessment procedures (ICAAP), keep a dynamic balance of supply and demand of capital, and plan the
+utilisation of capital tools such as ordinary shares, preferential shares and Tier 2 capital bonds in a comprehensive
+way.
+5.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+8.
+During the reporting period, the Company tightened risk control in the proprietary funds invested in non-standard
+creditor's assets and emphasized compliance with the rules in respect of the investment, carefully evaluated the
+risks and made adequate provision based on the nature of the invested basic assets in strict compliance with the
+regulatory requirements. As at the end of the reporting period, the balance of the Company's proprietary funds
+invested in non-standard creditor's assets amounted to RMB507.932 billion, representing a decrease of 25.83%
+as compared with the end of the previous year, mainly due to the adjustments to the Company's internal treasury
+strategy and falling interest rates of non-standard creditor's assets investment. During the reporting period, the
+Company classified the proprietary funds invested in non-standard creditor's assets for the beneficiary rights to the
+discounted bank acceptance bills and commercial acceptance bills into the credit category, and accordingly, certain
+adjustments have been made to the relevant data calibres and the assets structure as at the end of the reporting
+period is as follows:
+The proprietary funds invested in non-standard creditor's assets
+In accordance with macroeconomic situation, market demand, its own operation advantages and customer features,
+the Company continued to improve the allocation strategy for major types of assets to increase the ratio of return
+on assets to risk and enhance the development and issuance of net-worth products. As at the end of the reporting
+period, the proportion of the Company's net-value wealth management products ranked in the forefront of the
+domestic banking sector and made positive progress in breaking hidden rigid payments. Next, the Company will
+continue to promote the healthy development of asset management business towards its original track by closely
+monitoring regulatory changes and strictly implementing the rules and regulations on wealth management.
+At present, the volume of off-balance-sheet wealth management assets of the Company has exceeded RMB2 trillion.
+After the Central Bank included the off-balance-sheet wealth management into the broad credit statistical calibre,
+the macro-prudent capital adequacy ratio under MPA was elevated to some degree. Taking into consideration the
+2017 operation budget plan of the Company and its asset structure optimisation strategy, it is expected that the
+MPA assessment level of the Company will be maintained, but the "buffer distance" between our capital adequacy
+ratios and the assessment standards will become narrowed.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+60
+60
+The balance of proprietary funds invested in non-standard creditor's assets under the credit category amounted to
+RMB446.804 billion, representing a decrease of 27.76% from the beginning of the year, in which RMB144.012
+billion was for corporate creditor's beneficiary rights, down by 19.25% as compared with the end of the previous
+year; RMB61.895 billion was for individual creditor's beneficiary rights, up by 3.07% as compared with the end
+of the previous year; and RMB240.897 billion was for beneficiary rights to discounted bank acceptance bills and
+commercial acceptance bills, down by 36.62% as compared with the end of the previous year. The non-performing
+ratio of the proprietary funds invested in non-standard creditor's assets under the credit category was 0.84%, up by
+0.53 percentage point as compared with the beginning of the year.
+In response to the challenges and opportunities under the new circumstances, the Company will closely follow the
+keynote of the Central Economic Working Conference and remain determined in putting the strategy of "Light-
+operation Bank" and "One Body with Two Wings" in practice, so as to ensure the transformation measures
+efficiently implemented by deepening the reform, expand our differentiated competitive advantages by strengthening
+our featured services, optimise our asset structure by reorganizing quality assets, and prevent risks in all aspects to
+ensure prudent operation. We will strive to secure a fast growth in customer base, liability and intermediate business
+as well as a steady increase in our asset scale while maintaining and improving our asset quality. Under the current
+operating environment, the Company plans to achieve a growth rate of approximately 12% and 10% in proprietary
+loans and proprietary deposits in 2017, respectively, and plans to achieve a growth rate of approximately 12% in
+active liabilities. In 2017, the key operational measures of the Company are described as follows:
+68
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+Facing the challenging and complicated economic and financial situations in 2016, the Company adhered to the
+transformation strategies of "Light-operation Bank" and "One Body with Two Wings" in its transformation and
+demonstrated its operational distinctiveness by leveraging on its own advantages, delivering impressive performance
+in risk management, showing remarkable courage towards the challenges of structural adjustment, driving the
+system reform ahead, making good progress in corporate governance while securing steady development of our
+businesses. In 2016, the percentage of the profit before tax for retail finance business continued to grow. The "One
+Body" has been constantly strengthened retail businesses including private banking, wealth management and
+credit cards became more competitive while the retail customer base was further consolidated. The differentiated
+competitive strength generated by our corporate finance and financial institutions finance business was further
+improved - new progress was seen in customer structural adjustment; construction of the basic customer base was
+progressing in both quantity and quality; transaction banking and investment banking businesses were growing
+rapidly; the offshore finance business grew steadily; the scale of asset management, financial market business,
+asset custody and bills businesses remained in the lead in the industry as we have taken a good hold of market
+opportunities. In the meantime, the Company's model as a "Light-operation Bank" continued to deliver good
+results, which was reflected by further optimised assets and liabilities structure, rapidly growing non-interest income
+and continuously improving operational efficiency.
+5.10 Business Operations
+The third is to catch the momentum and demonstrate our specialties. While continuing to increase resource
+investment in retail business and maintaining reasonable outlet and staff allocation, we will also vigorously explore
+and promote financial technologies so as to overcome the limits of linear growth pattern and create a new business
+model for retail business of the commercial banks in a speedy manner. We will continue to build, consolidate and
+improve the proficiency of our investment bank and asset management business, accelerate the deployment of
+"Industrial Internet" for our transaction banking business, and further improve our "Zhao Yin Safe Haven" service
+system for our financial market business. The Company will focus on building an operation and management system
+in which the retail business, companies and interbank business are organically connected, mutually supported and
+positively circulated, and connect wealth management, investment banks and asset management along the entire
+financial value chain and give free rein to the advantage of the diversity of customers, assets, capital and channels.
+The fourth is to consolidate our risk management system by addressing both symptoms and root causes. While
+strengthening our structural adjustment and improving our risk management expertise, we will prioritize prevention
+of erosion and expansion of external risks, emphasize the prevention of liquidity risks and market risks and attach
+greater importance to the prevention of crossed-over financial risks.
+The second is to deepen reform and advance strategic transformation both in width and depth. We will focus on
+building up our capability, sorting out links and processes, improving the supporting mechanism, advancing reform
+in depth and breadth and striving for the goal of "professionalism, delayering and intensification". Meanwhile, we
+will advance our strategic transformation by the roots through increasing investment in technological innovation
+and ensuring all the reform and transformation measures are efficiently implemented through upgrading our
+fundamental management expertise.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+64
+63
+The first is to integrate quality assets in the supply-side structural reform and take good hold of the opportunities
+for investment in infrastructure generated by the "Maintaining Stable Growth" policy, the structural opportunities
+arising from the adjustment and regulation and "destocking" in the real estate industry, the opportunities for
+investment in the industrial chain arising from the consumption upgrade, business opportunities arising from the
+reform of state-owned enterprises, opportunities for emerging finance business in the background of "reducing
+overcapacity" and "deleverage", business opportunities with the "small and micro enterprises" in the context of
+revitalizing the real economy as well as the business opportunities for offshore finance generated by the "One Belt
+One Road" initiative and the "Going Global" strategy.
+The transformation of the banking industry will become an increasingly urgent task amid a complicated economy.
+Particularly, with the deepening industrial structural adjustment, greater challenges will arise while the banks
+optimised their credit structure with more importance attached to the asset quality control. In respect of income,
+commercial banks will face certain challenges in increasing their net interest income and raising their net interest
+margin due to escalating competition among financial institutions, accelerated financial disintermediation and
+numerous new financial operating patterns emerging in the process of interest rate liberalisation. Meanwhile, with
+the tightening tax policies and regulation on wealth management, it is difficult for commercial banks to grow their
+non-interest net income, therefore their profitability will face severe challenges. With the prevailing tide of Fintech,
+new technologies such as big data, cloud computing and artificial intelligence will play an increasingly important role
+in client management, risk management, payment and settlement, and wealth management, thusly advancing the
+transformation of of commercial banks.
+The global economy has been struggling for a sluggish growth for several consecutive years as a result of the
+international financial crisis, and the trend is expected to continue in 2017. Meanwhile, with the trends of populism,
+protectionism and isolationism emerging, the thoughts of de-globalisation started to gain ground. We will be facing
+the European refugee issue and the presidential election in Germany and France, as well as the steering in political
+and economic policies of the new US Government, all of which could trigger a new Black Swan event. In China,
+with the built-up effect of the government policy of "Maintaining Stable Growth" and the rebound of commodity
+prices in 2016, the pressure of the economic downturn was mitigated and the economy managed to secure a
+stable growth. However, we are still faced with prominent structural conflicts, severe asset bubbles in some regions
+and increased risk exposure in the economic and financial area. The pressure of economic downturn in 2017 is
+expected to remain huge. However, benefiting from the deepening of supply-side structural reform, the policy on
+streamlining administration and delegating power to the lower levels as well as the innovation-driven development
+strategy, investment in the manufacturing industry is expected to recover, with constantly expanding investment
+in infrastructure and relatively fast growth in the service industry and other emerging industries. Considering the
+limited possibility for continuous economic downturn, it is estimated that the economy will assume a slow and
+steady growth for the whole year, exhibiting a trend of feeble stability and slight fluctuation.
+5.9.2 Outlook and Measures for 2017
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+In response to the possible impact of the new policy, the Company will constantly enhance its capability in asset
+pricing and differentiated pricing in 2017. In the implementation process, the Company has steadily promoted the
+marketisation of credit card interest rates in adherence to the principle of strategic research and system building
+ahead of prudent implementation. Upon the release of the policy, the Company immediately organised an expert
+team to study it, took an initiative to develop differentiated customer base, formulated differentiated pricing
+strategy, revamped and upgraded the core credit card system in order to better support the differentiation of
+interest rates. As at the end of the reporting period, the Company has fully completed the formation of strategies
+and the development of systems required for the implementation of interest rate liberalisation. In the subsequent
+implementation process, the Company will maintain its prudent attitude to gradually expand the customer base
+involved in interest rate liberalisation in batches and keep track of customer feedbacks.
+In accordance with the requirements of the "Notice on Relevant Matters Concerning Credit Card Business" issued
+by the People's Bank of China on 15 April 2016, the interest rates of credit card overdrafts are subject to the "cap-
+and-floor" management starting from 1 January 2017. The conditions and standards for interest-free repayment
+periods and minimum repayment amounts may be determined by card issuers. The implementation of the new policy
+is a crucial initiative to guide banks to conduct differentiated operation and offer diversified credit card services.
+Meanwhile, the new policy may also lower the credit card yield, or have certain impact on net interest yield and net
+interest income. The degree of such impact depends on the response of credit card market to the new policy.
+Analysis on impact of the new policy on credit card business
+In addition, the Company accelerated its collaboration with partners from other industries and promoted the
+integrated innovation of finance and technology, aiming to build an internet-based financial eco-system highlighted
+with our own characteristics. Merchants Union Consumer Finance Company Limited jointly established by the Bank
+and China Unicom operates a service system based on the "cloud platform" to offer consumer finance services via
+internet. As at the end of the reporting period, it granted RMB57.077 billion of loans to 7,044,800 customers, with
+a loan balance of RMB18.189 billion and a non-performing ratio of 0.82%. CMB Qianhai Financial Asset Exchange
+Co., Ltd., which was jointly set up by the Bank and China Merchants Group, is mainly engaged in financial assets
+transaction and wealth management, aiming to build up mobile client application and cloud service platform. As at
+the end of the reporting period, the aggregate transaction volume amounted to RMB103.075 billion, with 66,400
+users registered for its "Zhaozhao Licai" service. The strategic cooperation with Didi Chuxing expanded rapidly, with
+1.25 million joint-brand credit cards and 1.3 million joint-brand debit cards issued as at the end of the reporting
+period.
+In the field of wholesale finance, we continued to innovate customer service models with mobile internet
+technologies. Relying on the online banking platform of the Company, the mobile cheque service extends and
+expands its application scenarios in corporate business and creates a new business ecosystem for payment and
+settlement through mobile payment. Such business developed rapidly in 2016 with 5.88 million effective transactions
+and accumulated transaction volume exceeding RMB306.2 billion. The product mix of our B2B online transaction
+platform "Zhao Ying Tong" has been continuously enriched, with systematic management enabled for the whole
+transaction process and the quick transaction mode and mobile user terminal launched in an effort to urge our
+interbank over-the-counter business to go online and become internet-based. In 2016, we secured more than 900
+financial institutions for our "Zhao Ying Tong" transaction platform, generating more than RMB3.77 trillion in the
+sales amounts of interbank wealth management products through our "Zhao Ying Tong" transaction platform.
+In respect of credit risk management, we have strengthened our R&D efforts for the risk pre-warning model and
+pioneered in creating a new pattern of risk pre-warning through models. In such new pattern, the client-end pre-
+warning model can issue early warnings for more than 60% of corporate overdue and non-performing assets 8
+months prior to actual overdue dates on average.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+10.
+62
+61
+In respect of retail finance, the Company adhered to the strategy of "prioritising the development of mobile
+phone applications" while constantly migrating its customer service interfaces to mobile phones and encouraging
+innovation in its mobile-based products and business models. During the reporting period, with the launch
+of "Mobile Banking 5.0" and "Machine Gene Investment ()", our mobile application CMB Life was
+continuously improved, aiming to provide personalized and intelligent customer service which enables more
+agreeable and friendly customer interaction with the biological identification technology. As at the end of the
+reporting period, the total number of customers who have downloaded our mobile banking application added up to
+41.5192 million, with 25.7792 million active users each year. The total number of registered users of our mobile user
+application "CMB life" topped 31.49 million, with 30.21 million active users each year. A total of 735 million mobile
+banking transactions were concluded in 2016, with a transaction amount of RMB12.10 trillion. The sales amounts
+of wealth management products through the mobile banking channel reached RMB2.22 trillion (excluding funds and
+insurances); the average purchase amount of the users of Machine Gene Investment () was RMB36,900,
+and the total number of applications of facial recognition technology in the four channels of mobile banking, visual
+counter, physical counters and ATMs amounted to 40.74 million times. We have established our customer-oriented
+service system by combining online intelligent services and offline services provided by branches and relationship
+managers. We have also launched the "All-in-one Net" Pay, an open, safe and convenient mobile application for
+both individuals and businesses. In 2016, 910 online merchants have signed up for the "All-in-one Net" Pay, which
+covers a full range of daily-life needs from clothing, food, housing, transportation to entertainment, health care and
+education. We have achieved data-driven client management by integrating multidimensional data to construct a
+360° image of the customers and building a retail customers label platform to carry out precise marketing and make
+personalised recommendations. For customer transactions, we also adopted a risk identification model based on big
+data, e.g. equipment, location, relationship, behaviours and preferences, aiming to issue early warning of abnormal
+trading behaviours and fraudulent conducts.
+Financial Technology (Fintech)
+9.
+5.10.1 Retail finance
+Business overview
+In 2016, the profit of the retail finance business of the Company maintained its rapid growth with steady
+improvement in value contribution. The profit before tax amounted to RMB44.094 billion, representing an increase
+of 23.80% as compared with the corresponding period of the previous year. The percentage of the profit before
+tax of the retail finance business in the total profit before tax of the whole business lines of the Company increased
+to 53.62%, representing an increase of 4.07 percentage points as compared with the corresponding period of the
+previous year. The net operating income from the retail finance amounted to RMB97.923 billion, representing an
+increase of 8.43% as compared with the corresponding period of the previous year, and accounting for 49.43% of
+the net operating income of the Company, up by 2.40 percentage points as compared with the corresponding period
+of the previous year, among which, the net interest income from retail finance amounted to RMB65.708 billion,
+representing an increase of 3.56% as compared with the corresponding period of the previous year and accounting
+for 67.10% of the net operating income from retail finance, while the net non-interest income from retail finance
+amounted to RMB32.215 billion, representing an increase of 19.95% as compared with the corresponding period
+of the previous year and accounting for 32.90% of the net operating income from retail finance, and 47.49% of
+the net non-interest income of the Company. In 2016, the retail finance of the Company recorded a fee income
+of RMB10.702 billion from bank cards, representing an increase of 14.42% as compared with the corresponding
+period of the previous year; the fee and commission income from retail wealth management was RMB18.549 billion,
+representing an increase of 8.61% as compared with the corresponding period of the previous year and accounting
+for 58.98% of the net fee and commission income from retail finance.
+Unlike its domestic peers, the Company has always prioritised the development of its retail finance business and
+the construction of its retail finance business system, and has ultimately formed a solid, high-quality and extensive
+retail customer base through continuously optimisation of its business management system, product system, service
+system and risk prevention system. The Company enjoys outstanding competitive edges in such core retail businesses
+as wealth management, private banking, retail credit and consumer finance.
+69
+69
+In 2016, in response to the demand of the market and customers, the Company adopted an active stance on the
+housing mortgage loans while steadily increasing loans offered to the small and micro enterprises. As at the end
+of the reporting period, the Company recorded a balance of residential housing loans of RMB720.305 billion,
+representing an increase of 46.62% as compared with the end of the previous year and accounting for 47.37%
+of the retail loans of the Company. During the reporting period, loans granted to small and micro enterprises
+amounted to RMB400 billion and the balance of such loans totalled RMB281.653 billion, representing a decrease of
+8.84% (calculated on the Bank's statistical calibre) as compared with the end of the previous year, and accounting
+for 18.52% of retail loans, down by 7.03 percentage points as compared with the end of the previous year. The
+non-performing loan ratio of micro loans was 1.64%. The floating percentage of the weighted average interest
+rate of micro loans newly granted (weighted at actual amounts, same as below) during the reporting period was
+41.53%, representing an increase of 4.50 percentage points as compared with the previous year.
+In 2016, the Company further enhanced the efficiency of its relationship managers and the customers' experience
+through further consolidating its mobile internet platform and setting up a PAD-based platform for retail loans,
+resulting in a rapid growth of its retail loan business. As at the end of the reporting period, the total retail loans of
+the Company amounted to RMB1,520.711 billion, representing an increase of 25.73% as compared with the end of
+the previous year and accounting for 50.45% of the total loans and advances to customers, up by 3.74 percentage
+points as compared with the end of the previous year.
+Retail loans
+During the reporting period, the Company 1) leveraged on technological advancements to enhance its operating
+efficiency while continuously optimising the CMB Life operating platform to improve its core finance and service
+functions and setting up the "Zhang Jing Hao" () membership management system which has been gradually
+opened to the corporate customers for data connection, with the number of subscribers for CMB Life topping 30
+million; 2) further upgraded its Intelligent Customer Service with artificial intelligence technology introduced to
+create the new generation of the intelligent service platform, enhanced operating efficiency and improved customers'
+experience with the cutting-edge technologies such as human face and voice verification, intelligent voice processing
+and human-machine collaboration; 3) made remarkable efforts to expand its customer base through the "light"
+channels while improving the efficiency of its data-driven mechanism and continuously optimising its customer
+structure; 4) completed its credit card portfolio by launching Didi Joint-brand Credit Card (+), the
+Booking Joint-brand Card, the LOL Collector's Edition Credit Card (+) and the NBA Joint-brand
+Credit Card; 5) launched innovative products such as E-CMB-Loan (E) and Consumption Reserve ()
+to beef up the functions of "Loan Instalment on Palm" () and "Loan Instalment on QR Code Scan" (
+), which has significantly boosted the growth of high-yield business; 6) expanded its payment product line
+by pioneering the launch of Apple Pay, a critical move into NFC mobile payment sector aiming to enhanced its
+customers' experience in all aspects; 7) worked diligently to boost data flow and customers' loyalty, focusing on
+restaurant vouchers and movie tickets, the two major shopping scenarios largely completed via the mobile internet,
+opened the "Local Special Deals" channel and embedded it in CMB Life to penetrate commercial circle consumption;
+8) streamlined its credit point management and rolled out a variety of credit point-related products to refresh its
+brand image of "do a little good with a few credit points" by means of crowdfunding and auction; 9) made good
+use of risk control with big data to expand its customer base and boost loan growth and achieved stability in its
+asset quality and a balance between business growth and risk management.
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+As at the end of the reporting period, the Company had issued an aggregate of 80.31 million credit cards, with
+45.50 million active cards and 7.68 million new cards issued during the reporting period. As at the end of the
+reporting period, there were 37.30 million active credit cards users, representing an increase of 20.21% as compared
+with the end of the previous year. The Company continued to improve the efficiency of customer acquisition
+and management. The total credit card transaction of the Company for 2016 amounted to RMB2,274.8 billion,
+representing an increase of 25.02% as compared with the corresponding period of the previous year, and the
+average transaction of each active card per month amounted to RMB4,582. The percentage of the revolving balances
+of credit cards was 23.72%. The balance of credit card overdrafts was RMB409.015 billion, representing an increase
+of 30.65% as compared with the end of the previous year. Interest income from credit cards for 2016 amounted to
+RMB32.293 billion, representing an increase of 20.82% as compared with the corresponding period of the previous
+year. Non-interest income from credit cards amounted to RMB11.319 billion, representing an increase of 17.93% as
+compared with the corresponding period of the previous year. The non-performing loan ratio of credit cards business
+was 1.40%, and the business risk exposure was controllable.
+Credit cards
+In 2016, in response to the market fluctuations, the Company continued to deepen comprehensive customer
+management, constantly built up its diversified customer acquisition capability, promoted the development of
+market-research-driven products, implemented asset allocation and pushed forward the comprehensive upgrade
+of private banking business by providing various services including discretionary entrustment, tax planning, family
+trust, M&A financing and investment banking matchmaking, with a view to building an integrated financial service
+platform.
+Our private banking business is conducted under the operating philosophy of "It's our job to build your everlasting
+family fortune", which provides high-net-worth clients with professional, comprehensive and private services
+covering their individual, family and corporate needs tailored to their diversified demands in respect of investment,
+taxation, legal affairs, M&A, financing and clearing. Our private banking business experienced a rapid growth
+during the reporting period. As at 31 December 2016, the Company had 59,560 private banking customers (retail
+customers of the Company with minimum total daily average assets of RMB10 million per month), representing an
+increase of 21.47% as compared with the end of the previous year; total assets under management from private
+banking customers amounted to RMB1,659.5 billion, representing an increase of 32.54% as compared with the
+end of the previous year. As at the end of the reporting period, the Company has established a high-end customer
+service network consisting of 51 private banking centers and 63 wealth management centers in 54 domestic cities
+and 2 overseas cities.
+Private banking
+V Report of the Board of Directors
+As at the end of the reporting period, the balance of provisions for full-calibre credit assets (including proprietary
+loans and non-standard creditor's assets) amounted to RMB112.441 billion, including the balance of loan provisions
+of RMB106.971 billion and the balance of provisions for proprietary funds invested in non-standard creditor's assets
+under the credit category of RMB5.470 billion. The full-calibre credit assets allowance ratio was 3.25%, representing
+an increase of 0.64 percentage point as compared with the beginning of the year, whereas the non-performing
+loan allowance coverage ratio of credit assets was 177.07%, representing an increase of 4.98 percentage points as
+compared with the beginning of the year.
+China Merchants Bank
+Annual Report 2016
+In 2016, the wealth management business of our Company enjoyed strong support from our professional market
+research team, which conducted independent research on the macro market as well as the trends and developments
+of the financial market, regularly provided opinions on the market, medium to long term investment strategies and
+the allocation strategies for large asset categories, as well as fully supported the investment decision of the wealth
+management business. Meanwhile, through research and judgment on the developments of the macro economy, the
+competitive environment of the market, the development laws of the wealth management business and investment
+preferences of the customers, and leveraging on the advantage of artificial intelligence in wealth management, the
+Company launched its first smart investment advisory service in the banking industry - "Machine Gene Investment
+()", which provides customers with intellectual fund portfolio allocation service with publicly offered funds
+as the basic products for global allocation of major asset categories. It also provides customers with better pre-sale,
+in-sale and after-sale service through regular interactions with the customers.
+During the reporting period, the Company recorded RMB7,654.1 billion in accumulated sales of personal wealth
+management products, RMB495.2 billion in the distribution of open-ended funds, RMB152.5 billion in premiums
+from agency distribution of insurance policies and RMB132.2 billion in agency distribution of trust schemes. Fees
+and commission income from retail wealth management business was RMB18.549 billion, representing an increase
+of 8.61% as compared with the corresponding period of the previous year, accounting for 58.98% of the net retail
+fees and commission income, among which, income from agency distribution of funds amounted to RMB5.536
+billion, representing a decrease of 26.29% from the corresponding period of the previous year. Income from agency
+distribution of insurance policies amounted to RMB5.104 billion, representing an increase of 81.96% from the
+corresponding period of the previous year. Income from entrusted wealth management amounted to RMB4.814
+billion, representing an increase of 50.02% from the corresponding period of the previous year. Income from agency
+distribution of trust schemes amounted to RMB2.911 billion, representing a decrease of 15.11% as compared with
+the corresponding period of the previous year;
+Wealth management
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+In 2016, the Company further consolidated its retail customer base through a number of initiatives, and achieved a
+balanced development of its retail customer base and assets under management (AUM). During the reporting period,
+by drawing upon the development opportunities of the internet finance, the Company updated and launched
+its "CMB APP5.0" with a core concept of intelligentisation, integrated services and financial self-scenario, and
+vigorously promoted the customer acquisition model through the "light" channels. The Company also upgraded
+its services in all aspects by launching the "Machine Gene Investment ()" which is based on artificial
+intelligence and designed to provide the customers with professional asset portfolio services according to their own
+funding requirements as well as differentiated risk preferences. In addition, the Company secured the funds of its
+customers in daily life settlement and boosted saving deposits by providing them with various convenient services
+including "CMB APP5.0", "CMB Life", All-in-one Net and payment of utility fees.
+As at the end of the reporting period, the Company had 91.06 million retail customers (including the users of its
+debit cards and credit cards), representing an increase of 19.32% as compared with the end of the previous year
+(calculated on the same statistical calibre), among which, the number of Sunflower-level and above customers
+(those with minimum daily average total assets of RMB500,000 for each month) reached 1,907,200, representing an
+increase of 15.76% as compared with the end of the previous year. The balance of total assets under management
+(AUM) from our retail customers amounted to RMB5,530.5 billion, representing an increase of RMB780.9 billion
+or 16.44% as compared with the end of the previous year, among which, the balance of total assets under
+management from the Sunflower-level and above customers amounted to RMB4,540.8 billion, representing an
+increase of 21.75% as compared with the end of the previous year, and accounting for 82.10% of the balance of
+total assets under management from retail customers of the Bank. The balance of deposits from retail customers
+amounted to RMB1,191.634 billion, representing an increase of 5.54% as compared with the end of the previous
+year, of which the percentage of demand deposits grew to 76.39%, up by 5.29 percentage points as compared
+with the end of the previous year. According to the data released by the PBOC, the Company continued to rank
+first among the national small- and medium-sized banks in terms of the balance of retail deposits. A total of
+104,930,000 All-in-one Cards have been issued by the Company, up by 15.11% as compared with the end of
+the previous year. The average deposit balance per All-in-one Card amounted to RMB10, 100, similar to that as at
+the end of the previous year; the cumulative transaction of "All-in-one Card" amounted to RMB2, 176.8 billion,
+representing an increase of 6.33% as compared with the corresponding period of the previous year. The transaction
+volume of "All-in-one Card" via POS reached RMB1,013.3 billion, representing an increase of 11.68% as compared
+with the corresponding period of the previous year.
+Retail customers and total assets under management from retail customers
+V Report of the Board of Directors
+China Merchants Bank
+Annual Report 2016
+99
+66
+65
+67
+The balance of proprietary funds invested in non-standard debt assets under the non-credit category amounted
+to RMB61.128 billion, representing a decrease of 7.82% as compared with the beginning of the year. The objects
+of such investments include investment in wealth management products of banks and other financial institutions,
+negotiated deposits or term deposits placed with other commercial banks and creditor's beneficiary rights to other
+commercial banks.
+In response to the external challenges posed by the internet financing and Fintech, the Company has accelerated the
+implementation of its Fintech strategy and improved service quality by taking full advantage of such technologies as
+mobile internet, cloud computing, big data, artificial intelligence and biological identification, so as to expedite its
+transformation into a bank of the future which is network-based, digitised and intelligence-oriented.
+71
+Secondly, the management of entrusted investment was improved steadily. The Company carried out entrusted
+bond investment by adhering to the principle of "focusing on proprietary investment while supplemented with
+entrusted investment", and solidified the foundation of risk management of entrusted investment by focusing
+on financial institutions in cooperation with the Company and underlying assets as the core of risk control. On
+one hand, through imposing stringent entry standards to financial institutions in cooperation with the Company,
+selectively conducting entrusted investment business and strengthening the management throughout the entire
+investment duration, the Company regularly made two-dimensional assessment on returns and risks of the financial
+institutions and implemented "survival of the fittest" strategy and other measures to strengthen the management
+of financial institutions. On the other hand, the risk control of underlying assets was reinforced. In consideration of
+investment objectives and asset attributes, the Company set up investment restraints to the financial institutions,
+mainly including requirements in the scope, proportion and concentration of investment, and pre-warning for
+loss prevention, so as to effectively control the risk preferences to ensure the steady development of entrusted
+investment business. At the same time, the Company continued to strengthen the system building, and gradually
+enabling the comprehensive, accurate and timely monitoring of underlying assets invested by external managers. As
+at the end of reporting period, the leverage ratio of entrusted bond investment of the Company was 124.87%. The
+risk exposure was generally controllable.
+Thirdly, transformation to net-worth products was constantly promoted. According to regulatory orientation, the
+Company increased the development and issuance of net-worth products so as to guide customers to choose the
+wealth management products with risk and return matching their investment preferences, authentically transfer
+the return and risk of the products to the customers and promote the wealth management business to return to
+its essence of "entrusted by customers and provide wealth management service for them". As at the end of the
+reporting period, the balance of net-worth products amounted to RMB1,576.244 billion, representing an increase
+of 63.90% as compared with the end of the previous year, and accounting for 66.35% of the balance of wealth
+management business, up by 13.53 percentage points as compared with the end of the previous year.
+77
+78
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Fourthly, innovation of business and product was deeply pushed forward. During the reporting period, thanks to
+its business innovation, the Company continued to expand the scope of investment. In light of the first investment
+in the entrusted loan business with the insurance asset management company as the investment consultant
+and the first insurance debts investment plan of the China Insurance Exchange, the Company achieved a new
+breakthrough in cooperation with the insurance asset management company. The Company led the initial issuance
+of "Ju Yuan" serial paper bill-asset securitisation products with the largest volume of DFI on the stock exchange
+market. In addition, leveraging on product innovation, the Company delved into the customers' demand for product
+segmentation. For example, the Company issued "Jin Yi Yang Lao ()"serial products to meet the elderly
+customers' demands for sound long-term investment and monthly bonus and deploy financial products for elderly
+care industry in advance; issued "Jin Yi Qiu Jing ()" product to meet the corporate customers' demands for
+liquidity and profitability; and issued "Zhuo Yuan ()"open-ended equity plus debt product portfolios to meet the
+customers' increasingly demands for equity asset allocation based on bond investment.
+Asset custody business
+Firstly, the portfolio of quality assets allocation was put forward steadily. Aiming to improve the return-on-risk ratio
+of asset allocation, the Company reinforced the allocation of quality asset portfolio so as to properly respond to
+"asset shortage". With respect to bond assets, the investment strategy was upgraded to effectively cope with the
+substantial decrease in bond market during the fourth quarter. As at the end of the reporting period, the balance of
+bonds invested with wealth management funds of the Company amounted to RMB1,035.221 billion, representing an
+increase of 20.81% as compared with the end of the previous year. With respect to creditor's assets, the investments
+in government-guided funds and securitised assets were steadily promoted. Particularly, with respect to non-standard
+creditor's assets, the Company made investments within the quota limit in strict compliance with the regulatory
+guidance. As at the end of the reporting period, the balance of the non-standard creditor's assets invested with
+wealth management funds amounted to RMB203.283 billion. The non-standard creditor's assets were mainly from
+companies and other financial institutions to which credit line were granted. During the reporting period, through
+implementation of strict risk management measures, our asset quality did not change obviously. With respect to
+equity assets, strategically focusing on structure adjustment and risk control with an emphasis on the demands
+from the quality listing companies and their related parties for financing, margin financing and investments, certain
+products and services including equity-pledged financing, margin financing in the secondary stock trading market,
+private placement and employee stock ownership scheme were consolidated; the "Tou Rong Tong" () business
+tailored for listing companies was launched, and a good result was achieved.
+In 2016, the Company achieved major breakthroughs in the asset custody business. The Company was qualified as
+a basic retirement security custodian bank by National Social Security Council, and made great progress in business
+development, system building, risk management and market influence and others. As at the end of the reporting
+period, the volume of assets under custody of the Company exceeded RMB10 trillion, and the balance of assets
+under custody amounted to RMB10.17 trillion, representing an increase of 42.12% as compared with the end of
+the previous year; the custody fee income amounted to RMB4.282 billion, representing an increase of 20.04%
+as compared to the previous year; and the number of asset custody projects reached 15,167, representing an
+increase of 31.82% as compared with the end of the previous year. The Company maintained its leading position
+in the industry in terms of custody system, and took the lead to apply the custody system based on the distributed
+technology so that the business efficiency and market response improved significantly. The Company released the
+2.0 smart version of full-featured online custody bank, strengthened the middle-office control and implemented the
+whole process management of asset custody to effectively prevent risks exposed to custody business and earnestly
+perform the duty as a custodian bank. Leveraging on its advantages of internationalisation, the Company proactively
+established the custodian bank service network worldwide and set up the first custodian center overseas.
+In 2016, against the backdrop of complex global economy, the uncertainties in the capital market and the impact of
+domestic economic restructuring on the financial market continued to emerge; the fluctuations in the bond market
+increased; the absolute yield in the market declined substantially; the "black swan" events occurred frequently in
+the foreign exchange market, which leads to intensified market turmoil. By adjusting the position structure, reducing
+bonds exposed to high risks, vigorously carrying out innovative business and implementing other strategies to
+actively hedge and smooth the market volatility, the Company has achieved good returns.
+RMB investment: the Company, after conducting an intensive study on the domestic financial market, grasped the
+trend of local-currency bond market and formulated its investment plan in a scientific way. Firstly, the Company
+proactively adjusted its strategy of duration based on market trend and position structure by leveraging on market
+fluctuations. Secondly, the Company moderately reduced the position in credit bonds exposed to high risks and
+increased bonds issued by local governments as well as adjusted credit risk exposure of portfolio by capitalising on
+fluctuations in interest rates and credit spreads. As at the end of the reporting period, the balance of RMB bond
+portfolio of the Company was RMB829.281 billion, with the portfolio duration of 4.00 years and the portfolio yield
+of 3.33%.
+Foreign currency investments: the Company seized opportunities to increase investments based on its judgment on
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+1.
+79
+the international market situation. Firstly, the Company implemented a prudent investment strategy by controlling
+its investment pace and the duration of its new investments. Meanwhile, the Company actively participated in
+the spread transactions of credit bonds and range trading operation to realise interest spread gains. Secondly, the
+Company proactively developed secondary market operations and derivative products to realise interest spread gains.
+As at the end of the reporting period, the balance of the foreign exchange investment portfolio of the Company
+amounted to USD7.569 billion, with the portfolio duration of 1.49 years and the portfolio yield of 2.12%.
+Financial markets business
+In 2016, the trading volume of RMB-denominated options of the Company (including proprietary trading and single
+customer derivatives trading on behalf of customers) reached RMB1,638.750 billion, representing an increase of
+139.50% as compared with the previous year (calculated on the same statistical calibre); the trading volume of
+RMB exchange rate swaps reached RMB3,751.502 billion, representing an increase of 31.01% as compared with
+the previous year; the trading volume of single customer derivatives reached RMB421.421 billion, representing an
+increase of 88.05% as compared with the previous year; and the income from single customer derivatives trading
+amounted to RMB524 million, representing a year-on-year increase of 60.88%. According to the data from the
+China Foreign Exchange Trade System, the trading volume of RMB options of the Company ranked first in the whole
+interbank market.
+V Report of the Board of Directors
+During the reporting period, in addition to the steady increase in volume, the wealth management business of the
+Company also made a number of achievements in other fields as follows.
+In 2016, the investment banking business of the Company reported brilliant results with its core competitiveness and
+market influence significantly enhanced through a number of initiatives including carefully listening to the customers'
+needs, diligently optimising our product mix and business process and strengthening the training of personnel and
+internal and external network construction with the successful launch of a number of major projects. Over the year,
+M&A finance amounted to RMB80.995 billion, structured financing amounted to RMB32.695 billion and equity
+investment and financing amounted to RMB12.805 billion; the non-interest income realised a year-on-year increase
+of 35.82%.
+72
+With respect to our bond underwriting business, in the face of many unfavourable factors, the Company took the
+initiative to adjust its business strategy with great importance attached to the innovative products and successfully
+underwrote the first perpetual bonds which used the proceeds as the project fund, the first Tier-2 capital bonds
+issued by an asset management company, the first public offering venture capital investment bond and the first
+public offering proceeds note in the market, and successfully led the underwriting of the largest asset-backed notes
+(ABN) project in the industry. During the year, the total amount of lead-underwritten bonds topped RMB388.887
+billion, accounting for 6.54% of the bond financing instrument market, representing an increase of 0.17 percentage
+point as compared with the previous year, and ranking third in the industry in terms of market share growth. The
+Company's panda bonds business ranked first in terms of market share and its financial bonds business ranked
+second in the industry in terms of lead-underwritten amounts.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+With respect to the M&A finance business, the Company, who has taken a firm hold of the opportunities arising
+from the rapid development of the M&A market, recorded an M&A financing amount of RMB80.995 billion,
+representing a year-on-year increase of 72.92%. M&A intermediary business income doubled on a year-on-year
+basis. The above achievements were results of the successful implementation of a number of initiatives, i.e. taking
+the "project-oriented system" as the spearhead, major projects that have significant influence in the market as the
+engine, and "combination of equity and debt", "lead syndicate" "privatisation", "bridge financing" and "merger
+matching and financial consultancy" as the five major directions for business development. Due to its increasing
+market influence, the Company ranked fifth among the 2016 Reuters Asia-Pacific Bookbuilders for Syndicated Loans,
+achieving a historical breakthrough.
+With respect to other investment banking business, our structural financing business, on one hand, centered upon
+the development of four major customer bases including large state-owned enterprises, industry leaders, high-rated
+enterprises and quality listed companies in optimising and improving its product offerings and offering integrated
+financial services, and on the other hand, actively explored the capital channels to build up a "buddy circle of
+investment banks” () while digging for quality assets, as a result of which, the Company's structural
+financing matching business (¤Â¤¾) started to yield good results, with a substantial increase in asset
+investment and a year-on-year increase of 110.29% in the intermediary business income. Our equity capital market
+business, which has evolved into a product series consisting of three business segments, namely equity investment,
+equity finance and financial consultancy and entered into good cooperation relationship with the investment
+agencies and strategic corporate customers, has preliminarily set up an integrated financial service model with
+integration of investment banking and commercial banking.
+Financial institutions business
+China Merchants Bank
+Annual Report 2016
+The Company intensified the construction of channels and enhanced value contribution from its financial institutions
+customers through deepening comprehensive cooperation with its customer base of financial institutions;
+proactively responded to changes in the market conditions and regulatory policies and adjusted the structure of
+the business; the Company maintained its leading position among its peers in terms of the cross-border interbank
+RMB business. As at 31 December 2016, the balance of placements from banks and other financial institutions
+reached RMB536.868 billion, representing a decrease of 23.62% as compared with the end of the previous year
+due to low investment sentiment of the capital market, abolition of payment upon application for new shares and
+sluggish asset growth. The deposit structure was further optimised, however, as the proportion of demand deposits
+increased by 17.82 percentage points as compared with the end of the previous year to 76.33%, outperforming
+other national small- and medium-sized banks in terms of the volume and proportion of demand deposits. During
+the reporting period, the average cost ratio of the Company's placements from banks and other financial institutions
+was 2.25%, representing a year-on-year decrease of 0.54 percentage point. Due to a dramatic decrease in the
+demand for the bills held under resale agreements and the settlement of suspended transactions upon maturity, the
+closing balance of over-the-counter interbank asset businesses such as term deposits placed with banks and other
+financial institutions and the bills and beneficiary rights held under resale agreements amounted to RMB84.7 billion,
+representing a decrease of 55.04% as compared with the end of the previous year (calculated on the same statistical
+calibre). During the reporting period, the Company sold RMB3.77 trillion wealth management products issued by
+banks and other financial institutions through the "Zhao Ying Tong ()" platform, representing an increase
+of 15.88% as compared with the previous year. Due to thin trading of the stock market, the closing balance of
+funds under third-party custody amounted to RMB118.346 billion, representing a decrease of 31.80% as compared
+with the end of the previous year. During the reporting period, the Company maintained business cooperation
+with 99 securities companies in total to carry out third-party custody business with the total number of registered
+customers reaching 7.7611 million, representing an increase of 20.41% as compared with the end of the previous
+year; maintained business cooperation with 78 securities companies in total to carry out margin trading and short
+selling business with the total number of registered customers reaching 325,700, representing an increase of 8.45%
+76
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+as compared with the end of the previous year; and maintained business cooperation with 40 securities companies
+in total to carry out share options business with the total number of registered customers reaching 10,500,
+representing an increase of 166.01% as compared with the end of the previous year. During the reporting period,
+the Company sped up turnover of bills and shortened the transaction duration. The trading amount of discounted
+bills transferred to other banks or financial institutions was RMB27.24 trillion, representing an increase of 64.62%
+as compared with the previous year. Our rediscount business with the Central Bank amounted to RMB68.757 billion,
+representing a decrease of 1.71% as compared with the previous year, still ahead of our peers in terms of trading
+amount. Affected by the market and regulatory policies, during the reporting period, the volume of cross-border
+interbank RMB clearing service amounted to RMB849.172 billion, representing a decrease of 62.43% as compared
+with the previous year, and the total number of the cross-border interbank RMB accounts of the Company reached
+173, ranking first among the national small- and medium-sized banks. The number of customers with indirect
+connection to the RMB Cross-border Interbank Payment System (CIPS) amounted to 81, ranked second among the
+national small- and medium-sized banks and third among the industry.
+The Company has been qualified as a futures margin depository bank on China Financial Futures Exchange (CFFEX),
+Zhengzhou Commodity Exchange (ZCE), Dalian Commodity Exchange (DCE), and Shanghai Futures Exchange, and
+also as a clearing bank on Shanghai Gold Exchange, a member of Shanghai Clearing House for comprehensive
+foreign exchange settlements and a member of Shanghai Insurance Exchange, and maintained business cooperation
+with 97 securities companies in total to carry out bank-futures transfer business. As at 31 December 2016, the
+balance of all types of deposits of the Company from futures exchanges and futures companies was RMB6.506
+billion.
+Asset management business
+With respect to the offshore business, the Company strove to promote its offshore business and continued to solidify
+its business foundation, resulting in a steady and healthy growth in its offshore business. As at 31 December 2016,
+the balance of offshore loans of the Company amounted to US$11.307 billion, representing an increase of 67.14%
+as compared with the end of the previous year. The quality of the Company's credit assets remained satisfactory with
+a non-performing loan ratio of 0.27%. The balance of deposits from offshore customers amounted to US$16.112
+billion, representing a decrease of 1.37% as compared with the end of the previous year. In 2016, our offshore
+international settlements amounted to US$287.488 billion, representing a year-on-year increase of 1.52%. Affected
+by the international economic downturn, the cumulative net non-interest income amounted to US$115 million,
+representing a year-on-year decrease of 12.88%.
+During the reporting period, the wealth management business of the Company maintained a good development
+momentum. The Company issued an aggregate of 4,401 wealth management products during the year and
+recorded an aggregate of RMB16.13 trillion in the bank-wide sales of wealth management products, representing
+an increase of 20.37% as compared with the previous year. As at the end of the reporting period, the balance of
+wealth management business of the Company amounted to RMB2.38 trillion, representing an increase of 30.49%
+as compared with the end of the previous year. According to the statistics of CBRC, as at the end of the reporting
+period, the Company ranked the second among commercial banks in terms of the balance of funds obtained from
+wealth management products and the balance of funds obtained from off-balance-sheet wealth management
+products.
+75
+5.10.3 Distribution channels
+Investment banking business
+Physical distribution channels
+70
+0
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+In 2016, with significant importance attached to risk management relating to retail loans, the Company established
+a complete risk management system covering its front, middle and back offices while continuing to optimise the
+risk model to keep fraud and credit risks under control. Affected by the deterioration in some individual customers'
+creditability and solvency, the balance of our special mention retail loans increased while the non-performing
+loan ratio declined, with the overall quality of retail loans remaining stable. As at the end of the reporting period,
+the balance of the special mention retail loans of the Company amounted to RMB20.580 billion, representing an
+increase of 26.65% as compared with the end of the previous year, and the proportion of special mention retail
+loans remained almost unchanged as compared with the end of the previous year; balance of non-performing
+retail loans amounted to RMB15.388 billion with a non-performing loan ratio of 1.01%, down by 0.07 percentage
+point as compared with the end of the previous year. Excluding credit cards, the mortgage and pledged loans
+accounted for 88.37% of the balance of new non-performing retail loans of the Company for the year, representing
+a mortgage and pledge rate of 60.83%. Given that a vast majority of such new non-performing retail loans were
+fully secured by collaterals, the final loss was not substantial and the risk associated with retail loans was generally
+controllable.
+5.10.2 Wholesale finance
+Business overview
+During the reporting period, the Company achieved profit before tax from wholesale finance of RMB38.135 billion,
+accounting for 46.38% of profit before tax for the business lines of the Company. The net operating income from
+wholesale finance of the Company was RMB99.279 billion, representing a decrease of 2.53% as compared with the
+corresponding period of the previous year, and accounting for 50.12% of the net operating income of the Company.
+Among which, the net interest income from wholesale finance amounted to RMB65.911 billion, representing a
+decrease of 6.78% as compared with the corresponding period of the previous year, and accounting for 66.39%
+of the net operating income of wholesale finance; net non-interest income of wholesale finance amounted to
+RMB33.368 billion, representing an increase of 7.10% as compared with the corresponding period of the previous
+year and accounting for 33.61% of the net operating income of wholesale finance, and 49.19% of the non-interest
+income of the Company.
+China Merchants Bank
+Annual Report 2016
+Corporate customers
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Corporate loans
+As at 31 December 2016, total corporate loans of the Company amounted to RMB1,342.356 billion, representing
+an increase of 3.50% as compared with the end of the previous year and accounting for 44.53% of total loans
+and advances to customers. Among them, the balance of the medium-to long-term loans to domestic enterprises
+amounted to RMB530.570 billion, accounting for 42.68% of the total loans to domestic enterprises, and
+representing an increase of 2.79 percentage points as compared with that at the end of the previous year. The non-
+performing loan ratio of our corporate loans was 3.30%, an increase of 0.70 percentage point as compared with
+that at the end of the previous year. In 2016, the floating range of weighted average interest rates of newly granted
+corporate loans in RMB increased to 3.76%, representing a year-on-year decrease of 5.56 percentage points.
+The underlying data of our large- and medium-sized enterprise businesses at the beginning of the year was updated
+as compared with the end of the previous year due to adjustment of relevant data as a result of change in the
+classification of certain enterprises based on the calibre of the Company at the beginning of the year since certain
+enterprises have become larger. As at the end of the reporting period, the balance of the Company's loans granted
+to domestic large-sized enterprises amounted to RMB885.438 billion, representing an increase of 1.03% (calculated
+on the Bank's calibre) as compared with the beginning of the year, accounting for 71.22% of our total loans granted
+to domestic enterprises, up by 0.50% as compared with the beginning of the year with a non-performing loan ratio
+of 3.27%, up by 1.04 percentage points as compared with the beginning of the year; as the Company adjusted
+the loan structure, the balance of the Company's loans granted to domestic medium-sized enterprises amounted
+to RMB173.089 billion, representing a decrease of 9.20% (calculated on the Bank's calibre) as compared with the
+beginning of the year, accounting for 13.92% of our total loans granted to domestic enterprises, down by 1.46
+percentage points as compared with the beginning of the year with a non-performing loan ratio of 5.83%, up by
+2.00 percentage points as compared with the beginning of the year.
+In 2016, the Company further optimised the industry distribution structure of corporate loans, giving priority to
+industries undergoing structural upgrading, traditionally competitive industries, strategic emerging industries,
+modern service industries and green industries, and flexibly adjusted loans to real estate, local government financing
+vehicles and other industries in response to the changes in external operating environment. As at 31 December
+2016, the balance of credit loans to strategic emerging industries was RMB58.683 billion, representing an increase
+of RMB2.770 billion as compared with the end of the previous year, and accounting for 4.37% of the total corporate
+loans of the Company; and the balance of green credit loans was RMB143.664 billion, and accounting for 10.70%
+of the total corporate loans of the Company. For further details of loans extended to the sectors which are subject
+to the strict regulation of the State, such as the real estate industry and the local government's financing vehicles,
+please refer to Section 5.9.1 of this report.
+The Company provides products and services via multiple distribution channels. Our distribution channels are mainly
+divided into physical distribution channels and e-banking channels.
+The underlying data of our small enterprise businesses at the beginning of the year was updated as compared with
+the end of the previous year due to elimination of relevant data as a result of change in the customer segment
+identification of certain enterprises at the beginning of the year as they grew larger. As at the end of the reporting
+period, the balance of loans granted to domestic small enterprises amounted to RMB184.680 billion (calculated on
+the Bank's calibre), which, for the first time in three years, witnessed a positive growth, representing an increase
+of 7.28% over the beginning of the year and accounting for 14.86% of domestic corporate loans, up by 0.96
+percentage point as compared with the beginning of the year. 74.35% of small enterprise loans had collaterals or
+pledges. The percentage is 10.79 percentage points higher than the beginning of the year. The non-performing loan
+ratio was 2.88%, representing a decrease of 1.09 percentage points as compared with the beginning of the year.
+The number of small enterprise customers of the Company (calculated by the number of valid accounts opened in
+the Company) increased by 25.52% to 1,185,800 as compared with the beginning of the year. In 2016, the floating
+range of the weighted average interest rate of the Company's new loans granted to small enterprises was 23.42%,
+representing a year-on-year increase of 0.46 percentage point.
+In 2016, the Company proactively adjusted its customer mix based on the current economic situation for the
+purpose of prudential management, and replaced the granting of general loans with diversified financing services so
+as to actively implement the development strategy of operating as a "Light-operation Bank" and keep abreast of the
+changes in customers' financing needs. The Company had 21,000 corporate borrowers, representing a decrease of
+20.75% as compared with the end of the previous year.
+V Report of the Board of Directors
+During the reporting period, the Company continuously consolidated its customer base. The number of corporate
+depositors kept growing after exceeding the one-million benchmark, with a total number reaching 1,295,100,
+among which, more than 330,300 new customers opened accounts in the Company during the reporting period,
+representing an increase of 4.65% as compared with the corresponding period of the previous year.
+In 2016, the Company continued to promote syndicated loan business to enhance inter-bank cooperation and
+information sharing and diversify the risks associated with large amount loans. As at 31 December 2016, the balance
+of syndicated loans amounted to RMB138.120 billion, up by 59.15% as compared with the end of the previous year.
+E-banking Channels
+The efficiently operated physical outlets of the Company are primarily located in the more economically developed
+regions of China such as Yangtze River Delta, Pearl River Delta and Bohai Rim, and some large- and medium-sized
+cities in other regions. As at 31 December 2016, the Company had 136 branches, 1,672 sub-branches, one
+dedicated branch-level operation center (credit card center), one representative office, 3,495 self-service centers,
+11,861 self-service machines (including 1,723 automatic teller machines and 10,138 deposit-taking and cash
+withdrawal machines) and 11,067 visual counters, 2 subsidiaries, namely CMB Financial Leasing and China
+Merchants Fund, and 1 joint venture, namely CIGNA & CMB Life Insurance in more than 130 cities of Mainland
+China. The Company also has a number of subsidiaries including Wing Lung Bank and CMB International Capital,
+and a branch in Hong Kong; a branch and a representative office in New York, the United States; a branch and a
+representative office in London, the UK; a branch in Singapore; a branch in Luxembourg; a representative office in
+Taipei.
+The "Qian Ying Zhan Yi (F)" is a strategic brand of the Company to serve the emerging small- and
+medium-sized innovative technology enterprises. During the reporting period, the Company stepped up its effort
+to expand the customer base for "Qian Ying Zhan Yi (FR)" while aggressively exploring the investment and
+loan linking business with commercial banks by launching the innovative "Tou Dai Tong ()", a special credit
+financing product to promote the business models such as options and direct investment in small equity interest
+as a test-drive and provide innovative SMEs with customised investment and loan linking services. As relevant
+data were updated as per the registration standards of "Qian Ying Zhan Yi (F)" as well as the changes
+in certain enterprises at the beginning of the year, the customer base of the "Qian Ying Zhan Yi (F)" at
+the beginning of the year was different from that at the end of the previous year. As at 31 December 2016, the
+Company had a total of 24,185 registered customers, representing an increase of 17.14% as compared with the
+beginning of the year. We have taken the initiative to adjust and optimise the internal structure of our customer
+base while continuing to consolidate the number of customer base. The customers that have credit lines granted by
+the Company accounted for 37.87% of the customer base and the total amount of the credit lines granted to such
+customers as at the end of the reporting period amounted to RMB265.824 billion with balance of loans granted
+to such customers amounting to RMB98.402 billion. As a customer base of the growing small- and medium-sized
+innovative technology enterprises which the Company has been striving to expand, "Qian Ying Zhan Yi (FEFX)"
+insisted on a marketing model of selecting its target customers from a carefully-compiled list, and as its industrial
+structure was in line with the direction of economic transformation, its non-performing loan ratio of 1.58% was
+lower than the overall non-performing loan ratio of the Company.
+The Company attaches great importance to developing, improving and integrating e-banking channels such as
+mobile banking, online banking and direct banking, which has received high social recognition and effectively
+relieved the pressure on physical outlets of the Company.
+With respect to cross-border finance business, to cope with the adverse impact of the continuous weak demand
+in foreign trade, the Company stepped up its efforts to innovate its light-operation products by capitalising on
+the opportunities arising from the structural development, with a special emphasis on advancing the business
+development of "Cross-border Zi Ben Tong" (). The Company successfully launched online its global cash
+management (GCM) platform while actively adjusting its customer and business structure and vigorously driving
+the growth of the core customers for cross-border finance. As at the end of the reporting period, the Company
+had 13,839 core customers for cross-border finance, representing an increase of 7.09% as compared with the end
+of the previous year. During the reporting period, onshore international settlements of the Company amounted to
+US$253.234 billion, representing a year-on-year decrease of 17.68%. Our cross-border payment business snatched a
+market share of 3.34%, ranking second among the national small- and medium-sized banks (based on the statistics
+issued by the State Administration of Foreign Exchange). The foreign exchange settlements for customers amounted
+to US$145.973 billion, representing a year-on-year decrease of 16.70%, with a market share of 4.54%, up by 0.06
+percentage point as compared with the same period from last year, ranking first among the national small- and
+medium-sized banks (based on the statistics issued the State Administration of Foreign Exchange).
+V Report of the Board of Directors
+74
+73
+With respect to corporate cards and other products, thanks to coordinated marketing of retail and corporate lines,
+the Company had issued a total of 121,300 corporate cards and other products during the reporting period.
+China Merchants Bank
+Annual Report 2016
+With respect to its supply chain finance, the Company has been striving to be a "core bank for core customers".
+During the year, we launched the smart supply chain finance version 3.0, aiming to streamline the transaction
+procedures for core customers, establish a product series covering "settlement + financing", continuously upgrade its
+innovative products such as C+ smart bill pool and payment agency and push forward the scenario-based innovation
+of the application of "internet + supply chain" finance in the industrial finance. During the reporting period, the
+Company raised its standards for core enterprises and upstream/downstream customers, and secured a total of 1,249
+effective core customers in the supply chain and 12,880 effective upstream/downstream customers as at the end of
+the reporting period, representing an increase of 166.31% and 37.83% as compared with the beginning of the year,
+respectively. The balance of our supply chain finance amounted to RMB96.861 billion, representing an increase of
+42.45% as compared with the end of the previous year.
+Discounted bills
+In 2016, after taking into consideration its total credit, liquidity, gains and risk profile, the Company effectively
+allocated and promoted its discounted bills business. The volume of the directly discounted bills amounted to
+RMB1.96 trillion during the reporting period, representing a year-on-year increase of 26.45% and maintaining its
+leading position in the industry in terms of business volume. As at 31 December 2016, the balance of discounted
+bill loans amounted to RMB151.465 billion, representing an increase of 82.89% as compared with the end of the
+previous year and accounting for 5.02% of the Company's total loans and advances to customers.
+Corporate customer deposits
+With respect to the trade finance, the Company took the initiative to adjust the investment structure of its
+international and domestic trade financing assets while consolidating the combination and extended application of
+its integrated financing products for domestic and foreign trade and aggressively developing its domestic cross-bank
+letter of credit business, with a view of effectively saving capital. During the reporting period, the trading volume of
+domestic cross-bank negotiated letter of credit business amounted to RMB77.940 billion, representing an increase of
+26.20% and the total value of the issued domestic letter of credit added up to RMB142.239 billion. The Company
+also actively expanded its business cooperation with strategic customers in domestic factoring and recorded an
+amount of domestic factoring of RMB49.732 billion, representing a year-on-year increase of 71.80%. With priority
+placed on the innovation of its products such as "Te Xian Yi Financing ()", the Company's onshore
+financing for international trade remained stable with an average balance of US$7.086 billion at the end of the year,
+representing an increase of 16.20% as compared with the end of the previous year.
+China Merchants Bank
+Annual Report 2016
+In 2016, the corporate customer deposits of the Company maintained steady growth with further improvement
+in structure. As at 31 December 2016, the balance of corporate customer deposits amounted to RMB2,451.006
+billion, representing an increase of 6.92% as compared with the end of the previous year; the daily average balance
+amounted to RMB2, 336.436 billion, representing an increase of 8.00% as compared with the previous year; the
+demand deposits accounted for 57.98% of total deposits from our corporate customers, up by 7.87 percentage
+points as compared with the end of the previous year. In 2016, the average cost of deposits from corporate
+customers was 1.48%, down by 0.58 percentage point as compared with the previous year, indicating that the cost
+of deposits from corporate customers was under effective control in the context of interest rate liberalisation.
+Transaction banking business and offshore banking business
+With respect to cash management business, the Company proactively responded to challenges arising from
+interest rate liberalisation by providing various types of customers with all-inclusive, multi-model and integrated
+cash management services, thereby making substantial contribution to the acquisition and retention of base
+customers, acquisition of low cost corporate settlement related deposits, and the cross-sales of other corporate
+and retail products. As at 31 December 2016, the Company had a total of 1.1102 million customers using its cash
+management service, representing an increase of 33.45% as compared with the end of the previous year. Thanks to
+its continuous efforts to consolidate the "C+ Cash Management Solution" brand, the Company recorded 237,900
+newly opened accounts and 690,200 newly issued "All-in-one Cards for Company ()". The Company
+saw its basic cash management business maintain its healthy growth, continued to advance the innovation and
+promotion of its products such as "C+ Account - portfolio deposits", Cross-border Cash Pool, Virtual Cash Pool and
+Multi-level Cash Pool, and launched the mobile terminal for Cross-bank Solution for Cash Management ("CBS"). The
+Company also continued to repeatedly optimise its cross-bank cash management products, constantly upgrade its
+"CBS5 Cash Management Cloud Service" (CBS5 ), and launch the CBS mobile treasury management
+service to complete its mobile treasury programme version 2.0, which provided strong support to the marketing of
+its key projects serving the customs, taxation, social security and housing provident funds, resulting in a significant
+growth in CBS. The number of our group customers and companies under management grew up to 1,019 and
+33,400 respectively, with an annual transaction amounting to RMB6.42 trillion and the number of transactions
+topping 4,234,400.
+V Report of the Board of Directors
+In 2016, although facing the unfavourable macro-economic conditions and increased credit risk, on one hand, the
+Hong Kong Branch grasped the market opportunities brought about by Chinese enterprises "going global" and
+the "One Belt, One Road" strategy to constantly promote cross-border business coordination, proactively develop
+the local market and expand its share in the retail banking market, and proactively promoted the Overseas Global
+Asset Custody Center of CMB (±Ù) to be settled in the Hong Kong Branch in December
+2016. On the other hand, the Hong Kong Branch further strengthened its risk compliance and internal fundamental
+management, constantly improved and innovated its product and service systems and strove to explore the asset
+operation model. As a result, various businesses of the branch achieved healthy development.
+During the reporting period, the Hong Kong Branch realised a net operating income of HK$2.001 billion and a profit
+before tax of HK$1.585 billion.
+China Merchants Bank
+Annual Report 2016
+During the reporting period, the New York Branch realised a net operating income of USD99,982,200 and a profit
+before tax of USD28,385,100.
+V Report of the Board of Directors
+New York Branch
+Established in 2008, the Company's New York Branch represents the first Chinese-funded bank approved in the
+U.S. since the US Foreign Bank Supervision Enhancement Act of 1991. Located in the center of the global financial
+market, the New York Branch, as an integral part of internationalisation of the Company, is committed to providing
+a featured cross-border financial platform characterised by mutual coordination between China and U.S., while
+serving as a platform in providing diversified and all-round banking services for the companies and high-net-worth
+private customers in the U.S. and China.
+In 2016, the New York Branch launched the business transformation strategy of focusing on "light-operation,
+professional-operation and investment banking-oriented operation", aiming to grow the asset businesses and
+emerging businesses; all achieved good operational results. In 2016, the New York Branch continued to obtain
+"Satisfaction" rating in regulatory inspection carried out by the New York Financial Services Office (
+). Its emerging businesses expanded rapidly and became the main profit-earning point to replace the traditional
+businesses; and its featured cross-border business successfully built up its brand image. Its local business achieved
+large-scale operation, and a private banking center successfully commenced operation.
+Established in 2002, the company's Hong Kong Branch is engaged in wholesale banking and retail banking. With
+regard to wholesale banking, the Hong Kong Branch provides enterprises located in Hong Kong with diversified
+corporate banking products and services, such as deposits, loans (including bilateral loans, syndicated loans,
+trade facilities and cross-border M&A portfolio projects), settlement and asset custody, and engages in interbank
+transaction of funds, bonds and foreign exchange trading, and conducts funds clearing and asset transfer with
+customers in the banking industry. With respect to retail banking, the Hong Kong Branch proactively develops
+featured retail banking services and provides cross-border personal banking services for individual customers in
+Hong Kong and Mainland China. These featured products are "Hong Kong All-in-one Card" and "Hong Kong
+Bank-Securities Express".
+Singapore Branch
+Established in 2015, the Luxembourg Branch of the Company is positioned as an important cross-border financial
+platform in European continent. It provides diversified services including corporate deposits, corporate loans, project
+financing, trade financing, M&A financing, M&A advisory, bond underwriting and asset management for the Chinese
+enterprises going overseas and the enterprises brought in from Europe. It is committed to establishing a private
+banking platform of the Company in Europe on the basis of the superior businesses of the parent bank combined
+with the special advantages of Luxembourg.
+In 2016, while facing the overall downturn in the cross-border finance market and the adverse external environment
+of increasingly intensive competition, the Singapore Branch adhered to its strategy of developing cross-border
+finance and local businesses simultaneously, and successfully completed the first real estate trust financing project,
+expanded its integrated business in of investment banking and commercial banking in club loans and M&A financing
+vigorously. By fully capitalising on the regional advantages, the Singapore Branch cooperated with the Wenzhou
+Branch to innovate a new financing model for bulk commodity supply chain, thusly realising steady growth in various
+businesses.
+During the reporting period, the Singapore Branch realised a net operating income of USD13,816,800 and a profit
+before tax of USD602,400.
+83
+83
+84
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Luxembourg Branch
+In 2016, the Luxembourg Branch achieved rapid business growth by actively responding to policy changes,
+firmly captured various market opportunities such as M&A financing, and capitalised on improved efficiency and
+strengthened cooperation with domestic and overseas banks and financial institutions. During the reporting period,
+the Luxembourg Branch realised a net operating income of €7,173,700 and a profit before tax of €239,500.
+London Branch
+Officially established on 19 January 2016, the London Branch of the Company is the first branch of Chinese joint
+stock commercial banks approved in the UK, also the first branch directly established by mainland China banks in the
+UK since the foundation of the People's Republic of China. It is committed to supporting enterprises "going global"
+from China, with a focus on the development of large amount wholesale business. The London Branch provides
+diversified financial products and services including syndicated loans, trade financing, fund clearing, professional
+financing and cash management. The establishment of the London Branch has further expanded and improved the
+global presence of the Company, and improved the existing four-in-one cross-border financial platform of "domestic
+currency and foreign currencies financing, domestic and overseas financing, off- and on-shore financing as well as
+investment banking and commercial banking" of the Company; thus enriched the products system of cross-border
+"Shang Mao Tong (), Zi Ben Tong (), Cai Fu Tong ()", and provided all-round financial support for
+domestic and overseas customers of the Company.
+During the reporting period, the London Branch realised a net operating income of USD6,130,700.
+Hong Kong Branch
+Established in November 2013, the Singapore Branch of the Company is mainly positioned as a significant
+cross-border financial platform in Southeast Asia, which is committed to providing high quality and comprehensive
+cross-border finance services to Chinese companies "going global", Singaporean companies "being brought in"
+and high net-worth individual customers. In addition to the general deposit and loan services, it also offers featured
+products including delisting financing, M&A financing, Cross-border Trade Express, global financing and cross-border
+settlement and sales of foreign exchange.
+5.10.5 Overseas businesses
+The online banking business of the Company maintained a healthy growth in 2016, and the scale of customer base
+and trading activity largely remained stable.
+With respect to product R&D, the Company had software development centers in Shenzhen and Hangzhou,
+mainly focusing on self-development; the Company completed more than 4,000 projects during the year, including
+launching APP5.0 mobile banking, and the Company utilised the biometrics and big data technologies to bring new
+experiences of natural interaction and intelligent service between the Company and customers; the Company also
+launched an intelligent investment and advisory services "Machine Gene Investment ()", whose technology
+had a leading position in the industry. While in the credit card field, the Company launched products such as Apple
+Pay and others, and commenced to layout the NFC mobile payment.
+60
+80
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Mobile banking
+The personal mobile banking business of the Company continued to maintain rapid growth in 2016 as mobile
+banking customers were increasingly active with an aggregate of 2.185 billion logins in the Bank's mobile banking
+application, making it the most dynamic e-channel for customers of the Company. As at 31 December 2016, the
+aggregate number of downloads of the Bank's mobile banking application reached 96,633,400 and the aggregate
+number of customers who downloaded the application reached 41,519,200, of which 25,779,200 users were active
+customers during the year. Meanwhile, the number of mobile banking transactions and volume of mobile payments
+increased rapidly. In 2016, the total cumulative number of mobile banking transactions amounted to 4.569 billion,
+up by 80.95% as compared with the previous year; and the cumulative transaction amount reached RMB14.17
+trillion, up by 54.02% as compared with the previous year. Of which, the number of mobile banking transactions
+was 735 million, up by 37.38% as compared with the previous year; and the amount of mobile banking transactions
+was RMB12.10 trillion, up by 51.25% as compared with the previous year; the number of mobile payment
+transactions was 3.834 billion, up by 92.66% as compared with the previous year; and the amount of mobile
+payment transactions was RMB2.07 trillion, up by 72.50% as compared with the previous year.
+During the reporting period, the Company proactively focused on mobile internet, vigorously built the light-
+operation platform designed to develop its mobile phone-based retail business, and successively launched the CMB
+APP5.0, with core concepts such as intellectualisation, integrated services and financial real-time interconnection,
+and launched new versions for four major channels of "Mine", "Reference", "Wealth Management", "Homepage",
+and also launched four new features of Machine Gene Investment (), Revenue and Expenses Records (
+), Income Report and Biometrics, and completed optimisation for 121 major items, thus started a new era of
+intelligent finance management. In addition, the Company continued to improve the diversified multi-facet light-
+operation intelligent service model, optimise and upgrade its "WeChat Banking", and the number of users has
+currently reached 11.2166 million.
+As at 31 December 2016, the number of users of corporate mobile banking services of the Company amounted
+to 290,500. The total number of transactions including account enquiries, payments and settlements completed
+through the corporate mobile banking application reached 24,690,000 in the year, which effectively met our
+corporate customers' demand for mobile financial services, and became yet another online marketing and service
+channel targeting corporate customers.
+Online banking
+5.10.6 Wing Lung Group
+As for the retail online banking business, as at 31 December 2016, the number of active users of the retail online
+banking professional edition of the Company reached 19,710,400. In 2016, the total cumulative number of online
+retail finance transactions was 1.541 billion, representing an increase of 33.77% as compared with the previous
+year; the accumulated transaction amount reached RMB31.14 trillion, representing an increase of 2.00% as
+compared with the previous year. Specifically, the cumulative number of online banking transactions was 484 million,
+up by 21.61% as compared with the previous year; and the accumulated amount of online banking transactions
+was RMB30.47 trillion, up by 2.56% as compared with that of the previous year; the cumulative number of online
+payment transactions was 1.057 billion, up by 40.19% as compared with the previous year; and the accumulated
+amount of online payment transactions was RMB0.67 trillion, down by 18.29% as compared with the previous year.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+As for its corporate online banking business, thanks to the growth of basic customers mainly driven by the "C+
+cash management solution". As at 31 December 2016, the total number of corporate online banking customers of
+the Company reached 1,095,700, representing an increase of 32.75% as compared with the end of the previous
+year. The accumulated number of corporate online banking transactions of the whole Bank was 224.13 million,
+representing an increase of 72.87% as compared with the previous year. The accumulated transaction amount of
+corporate online banking transactions of the whole Bank amounted to RMB102.18 trillion, representing an increase
+of 22.39% as compared with the previous year.
+Direct banking
+The direct banking service provided by the Company integrates the convenience of direct banking channels and
+the face-to-face service at counters. Under direct banking, direct banking relationship managers provide customers
+with real-time, comprehensive, fast and professional service, including a variety of banking transactions, investment
+and financial advisory services, one-stop loan services and product selling services. The direct banking mainly offers
+business advisory and transaction, visual counters, online loan service, direct services, direct transactions, distant
+assistant service and online interactive service.
+In 2016, the Company constantly improved the service capability and customer experience for its direct banking. As
+a result, the online interactive services accounted for 63.36%, up by 20.15 percentage points as compared with the
+previous year; the manual telephone access ratio reached 97.59%; the percentage of manual telephone responses
+within 20 seconds reached 94.06%; and the customer service satisfaction ratio reached 99.63%. Businesses via
+visual counters developed rapidly, the number of visual machines installed increased to 11,067 (including 9,021
+PAD, 2,025 VTM), which effectively served as a replacement for non-cash transactions in counters, and the counter
+replacement ratio amounted to 58.08%.
+In 2016, the direct banking effectively facilitated the maintenance of customer base of quality small- and
+micro-sized enterprises; the accumulated number of small- and micro-sized enterprise loan retained was 7,100 with
+a retention rate of 85.01% and total amounts of RMB48.320 billion; and the accumulated number of online loan
+granted was 35,000 in the year, up by 49.60% as compared with the previous year.
+5.10.4 IT and R&D
+The company has a powerful IT team and a leading IT platform, which have enabled us to keep abreast with internet
+development trend, to constantly make innovation in products, services, channels and business model, so as to
+further improve the efficiency and quality of customer services and reduce operating costs. Meanwhile, the Company
+also devoted to making innovation in Fintech, and developed cloud computing, big data, artificial intelligence and
+mobile technologies by focusing on future banking, aiming at exploring strategic opportunities in the technical
+aspects in a proactively manner.
+With respect to system building, during the reporting period, the Company completed the expansion and upgrade of
+various IT systems. Shenzhen and Shanghai data centers have successfully supported nearly 100 million transactions
+each day. The Company also strengthened the IT support for its credit card center and domestic and overseas
+branches, and pushed forward the construction of Shenzhen Pinghu Data Center (). During the
+reporting period, the Company's IT system maintained steady operation.
+81
+82
+2
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+In addition, the Company proactively explored, optimised and improved the integrated mechanism of IT and
+businesses, thereby building a dual-mode R&D management framework to support rapid response and continuous
+transaction and payment. During the reporting period, the article entitled "Information Technology Service
+Maturity Model of Data Center Service Capability", which was compiled by the Company, was approved as the
+national standard.
+Founded in 1933, Wing Lung Bank has a registered capital of HK$1.161 billion as at 31 December 2016, and is
+a wholly-owned subsidiary of the Company in Hong Kong. The principal operations of Wing Lung Bank and its
+subsidiaries comprise deposit-taking, lending, investment and wealth management, credit cards, online banking,
+documentary bills, leasing and hire purchase loans, foreign exchange, securities brokerage, asset management,
+insurance business, mandatory provident fund, property management, trustee, nominee and investment banking
+services. At present, Wing Lung Bank has 35 branches in Hong Kong, 4 branches and sub-branches in Mainland
+China, one branch in Macau, and three overseas branches, located respectively in Los Angeles, San Francisco, the
+United States and the Cayman Islands. As at 31 December 2016, the total number of employees of Wing Lung
+Group is 1,887.
+5.10.9 China Merchants Fund
+China Merchants Bank
+Annual Report 2016
+Credit risks refer to risks arising from failure of the borrowers or the counterparties to fulfill their obligations under
+the agreed terms. Credit risks of the Company mainly stem from credit business, investment business, financing
+business and other businesses on and off balance sheet. The Company endeavors to formulate a credit risk
+management framework with independent functions, balanced and checked risks and three dedicated defense lines
+and implements the bank-wide policies and processes regarding credit risk identification, measurement, monitoring
+and management to maintain a balance among risk, capital and profit of the Company.
+Based on different risk profile and authorisation system, the Company conducts risk reviews for credit, investment
+and financing business at different authorisation levels. The decision-making entities include: the Risk and
+Compliance Management Committee, the Loan Approval Committee of the Head Office, the Investment Committee
+of the Head Office, the Special Loan Approval Committee of the Head Office and the Restructuring-Loan Approval
+Committee of the Head Office, as well as the Risk Control and Compliance Committee and the Special Loan
+Approval Committee of our branches. The Company developed and introduced advanced risk quantifiable modeling
+tools and a risk management system for business origination, due diligence, review and approval of credit,
+loan disbursement and post-loan management to ensure that the risk management procedures were effectively
+implemented. In accordance with regulatory requirements, based on factors like borrowers' ability and willingness
+to repay, guarantors' credit profile, collaterals' conditions and overdue period, and with the employment of the
+5-category classification, the Company divided risk assets into different categories under an internal 10-category
+classification system. The classification of a risk asset may be initiated by a relationship manager or a risk control
+officer and then reviewed by risk management departments of the Head Office and our branches according to their
+respective authorisation.
+In 2016, the Company kept a close eye on the macroeconomic and financial situations. In adhering to its
+management ideas of "Quality Goes First Based on Compliance and Risk Control (AHAR · ª§*‡ • HIR
+)", and in order to build itself into a "leading risk management bank", the Company accelerated transformation
+of risk management by adjusting asset structure, supporting strategic businesses and strengthening management
+fundamentals, thereby effectively preventing relevant risks.
+Firstly, the Company continued to improve the comprehensive risk management system and the centralised
+risk management mechanism. The Company improved the organisational structure of risk management to make
+risk management more independent, professional and flat; established a mechanism for communication about and
+management of risk appetites; strengthened the centralised management of authorisation and risks for investment
+banking, asset management and agency services; fully streamlined a variety of emerging financing businesses and
+included them into the unified risk management system according to the "penetration principle".
+87
+88
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+Thirdly, the Company strengthened the monitoring of asset quality, took proactive measures for risk
+prevention and control, actively reduced or withdrew risk assets in key areas; enhanced accountability
+review and examination so as to minimise the formation of non-performing loans. The Company enhanced
+proactive and refined management of overdue loans, clearly defined functions and responsibilities of operating
+entities and risk management departments of branches and sub-branches, as well as operating departments at
+the Head Office, and figured out the source of repayments as early as possible and prevented and control risks
+in advance; the Company constantly optimised the risk pre-warning network at three levels of the Head Office,
+branches and sub-branches, formulated the risk management measure of "Targeted Measure for Every Account (-
+F-)" for large customers with risk alert, and improved the comprehensiveness, sensitivity, perspectiveness and
+accuracy of risk alert; the Company firmly reduced and withdrew risk assets in eight areas, namely overcapacity
+industries, customers with small enterprise risk, private guarantee companies, customers with high group
+risks, customers with general risk pre-warning, customers involving private financing, risk guarantee circle and
+micro-finance loans; strengthened accountability for the non-performing loans granted to the customers who were
+granted loans for the first time to avoid occurrence of non-performing loans.
+Fourthly, the Company optimised disposal of non-performing loans and enhanced its capacity for operating
+non-performing assets. The Company developed innovative approaches for disposal of non-performing assets
+by proactively carrying out asset securitisation, focusing on recovery of non-performing assets in cash, enhancing
+write-off of non-performing assets, accelerating benign restructuring of customers with risks and diffusing risk
+assets through multiple means and tapping into the value of non-performing assets. The Company enhanced team
+building for management and professional operations of non-performing assets, established an asset security system,
+achieved integrated operation of the front, middle and back office of collecting non-performing assets, thereby
+further improving our capability for operating non-performing assets.
+Fifthly, the Company vigorously strengthened risk management and steadily improved its risk management
+processes. The Company issued "Method Concerning Management of Key People in Charge of CMB's Credit,
+Investment and Financing Business (ÈLBA¤¤A«%±±{\¥£)" during the reporting
+period, urging relevant departments under the Head Office and its branches to put such method into practice,
+established a mechanism to seek accountability that combines responsibilities, powers and interests, and enhanced
+awareness of the importance of the first defense line risk prevention and control; the Company carried out
+coordinated work among the "Iron Triangle", moving risk management to the front line to enhance its capacity for
+risk identification, streamlining process, and improving efficiency in market competition and effectiveness of risk
+management; a post-approval monitoring mechanism was established, and the collateral management system was
+optimised.
+Sixthly, the Company steadily increased application of quantitative risk management tools. The Company
+completed the development and optimisation of risk rating model, big-data risk alert model and other models,
+and applied them in routine risk management, thus improving the effectiveness of risk monitoring and risk alert.
+During the reporting period, the Company, in the face of challenging economic environment at home and abroad,
+accelerated transformation of risk management and further adjusted asset structure, slowing down occurrence of
+non-performing loans. In addition, thanks to the comprehensive countermeasures including accelerated collection,
+writing off and transfer of non-performing loans, and asset securitisation, the risk of further decline in asset quality
+had been effectively controlled.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+5.11.2 Country risk management
+Country risks represent the risks of economic, political and social changes and developments in a country or region
+that may cause borrowers or debtors in that country or region to be unable or unwilling to fulfil their obligations
+to banks, or incur loss to commercial presences of banks in that country or region, or other loss to banks in that
+country or region. Country risk may arise from deteriorating economic conditions, political and social upheavals,
+nationalisation or expropriation of assets, and government repudiation of external indebtedness, foreign exchange
+controls and currency depreciation in a country or region.
+The Company incorporates country risk management into its overall risk management system, dynamically monitors
+the change in its country risk profile in accordance with relevant regulatory requirements, sets limit on its country
+risk based on the rating results from international rating agencies, and evaluates its country risk and makes
+provisions on a quarterly basis. As at 31 December 2016, the assets of the Company exposed to the country risk
+remained insignificant, and this indicated low country risk ratings. Moreover, we have made adequate provision for
+country risk according to the regulatory requirements. As a result, country risk will not have material effect on our
+operations.
+5.11.3 Market risk management
+1.
+Market risk is the risk that the Company may suffer from loss as the fair value or future cash flows of the Company's
+financial instruments may fluctuate due to changes in foreign exchange rate, interest rate, commodity price, stock
+price and other observable market factors. Interest rate and foreign exchange rate are the two major market risk
+factors relevant to the Company. The Company is exposed to market risk through the financial instruments on the
+trading book and banking book. The financial instruments on the trading book are held for trading purpose or for
+the purpose of hedging the risks arising from the trading book position, and these financial instruments are traded
+in active market. The financial instruments on the banking book are assets and liabilities held by the Company for
+stable and determinable return, or for the purposes of hedging the risks arising from the banking book position. The
+financial instruments under the banking book include both the Company's on-balance sheet and off-balance sheet
+exposures, and have relative stable market value.
+Interest rate risk
+Interest rate risk arises from adverse changes in the interest rates and maturity profiles which may result in loss to
+the overall income and market value of financial instruments and positions held by the Company.
+(1)
+Trading book
+The Company has set up its market risk governance framework for trading book, covering interest rate risk,
+foreign exchange risk and commodity price risk related to trading book business. The Company's market
+risk governance framework for trading book specifies the duties, division of responsibilities and reporting
+lines of the Board of Directors, senior management, special committees and bank-related departments in
+the market risk management of the trading book, ensuring the effectiveness of market risk management of
+trading book. The Market Risk Management Department under the Bank's Risk Management Department is
+responsible for execution of the management of interest rate risk under the trading book.
+The Company has established the market risk limit management framework, covering the interest rate risk,
+foreign exchange rate risk and commodity price risk under the trading book. Within this framework, the
+highest level indicators, which are also the trading book market risk preference quantitative indicators of
+the Company, adopt market VaR and the portfolio stress testing loss indicator and are directly linked to the
+Company's net capital. In addition, according to the product type, trading strategy and characteristics of risk
+of each sub-portfolio, the highest level indicators are allocated to lower level indicators, and also to each
+front office department each year. These indicators are monitored and reported on a daily basis.
+89
+5.11.1 Credit risk management
+In 2016, profit attributable to the shareholders of Wing Lung Group was HK$3.497 billion, representing an increase
+of 7.57% as compared with the previous year. In 2016, it recorded a net interest income of HK$3.449 billion,
+representing a decrease of 10.89% as compared with the previous year. The net interest margin was 1.50%,
+down by 11 basis points as compared with the previous year. The net non-interest income was HK$2.523 billion,
+representing an increase of 20.86% as compared with the previous year. The cost-to-income ratio for 2016 was
+33.11%, representing a decrease of 0.17 percentage point as compared with the previous year. The non-performing
+loan ratio (including trade bills) was 0.11%.
+In 2016, against the background of complicated and volatile economic environment at home and abroad and the
+increasing risks in bank operations, the Company continued to improve its overall risk management system and
+proactively overcome and prevent various risks. For further details of risk management, please also refer to note 55
+to the financial statements.
+5.11 Risk Management
+V Report of the Board of Directors
+As at 31 December 2016, the total assets of Wing Lung Group amounted to HK$267.658 billion, representing
+an increase of 4.16% as compared with the end of 2015. Total equity attributable to shareholders amounted to
+HK$29.292 billion, representing an increase of 10.82% as compared with the end of 2015. Total loans and advances
+to customers (including trade bills) amounted to HK$144.252 billion, representing a decrease of 1.27% as compared
+with the end of 2015. Deposits from customers amounted to HK$184.251 billion, representing an increase of
+2.24% as compared with the end of 2015. Loan-to-deposit ratio was 73.01%, up by 8.59 percentage points as
+compared with the end of 2015. As at 31 December 2016, the common equity Tier-1 capital ratio of Wing Lung
+Group was 11.80%, its Tier-1 capital ratio was 13.49% and its total capital ratio was 16.06%. The average liquidity
+maintenance ratio for the reporting period was 39.75%, all above regulatory requirements.
+For detailed financial information on Wing Lung Group, please refer to the 2016 annual report of Wing Lung Bank,
+which is published at the website of Wing Lung Bank (www.winglungbank.com).
+5.10.7 CMB Financial Leasing
+CMB Financial Leasing is one of the five pilot bank-affiliated financial leasing firms approved by the State Council.
+Registered in Shanghai, it is wholly owned by the Company and commenced operation on 23 April 2008. CMBFL is
+guided by national industrial policies, and is mainly engaged in the provision of financial leasing services in respect
+of large and medium-sized equipments to domestic large enterprises and SMEs and overseas customers in electricity,
+manufacturing, transportation, construction and mining sectors. It satisfies different needs in respect of procurement
+of equipment, promotion of sales, revitalisation of assets, balancing of tax liabilities and improvement of financial
+structure. CMBFL also provides new financial leasing services such as capital and commodity finance (),
+asset management and financial advisory.
+As at 31 December 2016, CMBFL had a registered capital of RMB6.0 billion and 221 employees; total assets of
+RMB136.990 billion, up by 19.24%¹ as compared with the beginning of the year; net assets of RMB13.772 billion,
+up by 13.91% as compared with the beginning of the year. In 2016, CMBFL realised a net profit of RMB1.703
+billion, up by 9.80% as compared with the previous year.
+During the reporting period, as approved by the Board of Directors, CMBFL proposed to introduce strategic investors
+by way of capital injection. The above plan is still pending for approval from the PRC banking regulator(s).
+1
+During the reporting period, CMBFL acquired CMB International Leasing Management Limited, a subsidiary of CMBIC. Accordingly, the opening amounts
+of total assets and net assets for 2016 and the net profit for the previous year were adjusted to RMB114.888 billion, RMB12.090 billion and RMB1.551
+billion, respectively.
+85
+55
+98
+86
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+5.10.8 CMB International Capital
+Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong.
+Currently, the business scope of CMBIC and its subsidiaries mainly covers investment banking, asset management,
+wealth management and stock trading.
+As at 31 December 2016, CMBIC had a registered capital of HK$4.129 billion, including the additional capital of
+USD400 million (equivalent to HK$3.129 billion) injected during the reporting period, 263 employees, total assets of
+HK$8.516 billion, representing an increase of 91.24%² as compared with the end of the previous year and net assets
+of HK$6.367 billion, representing an increase of 131.78% as compared with the end of the previous year. In 2016,
+CMBIC realised a net profit of HK$511 million, representing a year-on-year decrease of 1.16%.
+Established on 27 December 2002, CMFM had a registered capital of RMB210 million. As at the end of the
+reporting period, the Company had 55% of equity interests in CMFM. The scope of business of CMFM covers fund
+establishment, fund management and other operations approved by the CSRC.
+As at 31 December 2016, CMFM reported total assets of RMB3.884 billion, up by 20.96% as compared with the end
+of the previous year, net assets of RMB1.904 billion, up by 32.31% as compared with the end of the previous year.
+It had 312 employees (excluding those of its subsidiaries). The total size of the asset management business of CMFM
+(including that of China Merchants Fund and its subsidiaries, being China Merchants Wealth Asset Management
+Co., Ltd. (ÌÂÌÏŒ¦®Â]) and China Merchants Asset Management (Hong Kong) Co., Ltd. (HÌÂÌÎ
+E (1) ĦRA)) amounted to RMB1,129.3 billion, up by 30.36% as compared with the previous year. In 2016,
+CMFM realised a net operating income of RMB2.326 billion, representing an increase of 9.81% as compared with
+the previous year; and achieved a net profit of RMB628 million, representing an increase of 14.60% as compared
+with the previous year.
+5.10.10 CIGNA & CMB Life Insurance
+CIGNA & CMB Life Insurance was established in Shenzhen in August 2003, and is the first Sino-foreign joint venture
+life insurance company established after China's entry into the World Trade Organisation (WTO). As at the end of
+the reporting period, the Company had 50% of equity interests in CIGNA & CMB Life Insurance. CIGNA & CMB
+Life Insurance is mainly engaged in insurance businesses such as life insurance, health insurance and accident injury
+insurance, as well as the reinsurance of the above insurances.
+As at 31 December 2016, CIGNA & CMB Life Insurance had a registered capital of RMB2.8 billion, including the
+additional amount of RMB1.35 billion injected during the reporting period, a workforce of 2,596 employees, total
+assets of RMB27.134 billion, representing an increase of 49.38% as compared with the end of the previous year,
+and net assets of RMB4.086 billion, representing an increase of 48.26% as compared with the end of the previous
+year. In 2016, CIGNA & CMB Life Insurance realised an insurance income of RMB11.986 billion, representing an
+increase of 52.75% as compared with the previous year, and a net profit of RMB239 million, representing a decrease
+of 18.15% as compared with the previous year.
+2
+During the reporting period, CMBIC integrated Wing Lung Securities and Wing Lung Futures, the subsidiaries of Wing Lung Bank. Accordingly, the
+opening amounts of total assets and net assets for 2016 and the net profit for the previous year were adjusted to HK$4.453 billion, HK$2.747 billion
+and HK$517 million, respectively.
+China Merchants Bank
+Annual Report 2016
+V Report of the Board of Directors
+The Company, through transforming itself into a "Light-operation Bank", stepped up the construction of a risk
+management system focusing on risk-adjusted value creation under the principles of "Comprehensive, Professional,
+Independent and Balanced Management". The Risk and Compliance Management Committee of the Head Office
+is responsible for reviewing and deciding the most significant bank-wide risk management policies on risk appetite,
+strategies, policies and authorisations approved by the Board.
+Secondly, the Company optimised asset portfolio allocation and actively adjusted asset structure. The
+Company proactively developed low-capital-consumption asset business; continued to adjust structure of corporate
+assets, strictly implemented the "customer list management" at the Head Office and its branches that identified
+customers as strategic customers and customers that should be reduced and withdrawn from, and optimised the
+name list generation mechanism; the Company continued to promote the development of the industry policy system,
+dynamically adjusted industry credit policies, gave priority to loan business to emerging industries and fields related
+to people's living standard and consumption, energy conservancy and environmental protection. The Company
+enhanced efforts to untie customers in overcapacity industries, with high risks, but low value, as well as "zombie
+enterprises"; as for customers that we have reduced or withdrawn from, we implemented a classified management
+strategy, i.e. enhancing support in certain fields, while reducing support in others, and supporting the development
+of some customers while restricting the growth of others, to further optimise the customer portfolio and asset
+structure of its customers in the overcapacity industries.