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.
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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.
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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".
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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:
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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
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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.
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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.
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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
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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.
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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.
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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%
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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.
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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.
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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.
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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.
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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".
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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.
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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.
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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.
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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.