SFO:
1.3 Development Strategies, Investment
Value and Core Competitiveness
Development vision:
Strategic objective:
Strategic positioning:
Development Strategies:
Creating a blue-chip for the stock market, building a
bank that thrives for centuries
Striving to become the best commercial bank in China
with international competitive edge
An innovative bank distinguished by leading
profitability, sound business structure, first-class
service, steady operation management and excellent
brand image
Position its retail finance as "one body" and its corporate finance and
financial institutions finance as "two wings". The Company will promote
the "one body" to play a bigger role in driving the development of the
"two wings", while procuring its corporate finance and financial institutions
finance to render more support to the growth of its retail finance. Therefore,
the Bank will promote the concerted development of "one body" and "two
wings" and create its distinguished competitive edge.
Focus on promoting services and forging an asset-light bank, make
breakthroughs through product innovation and service upgrading, and put
an emphasis on developing financial businesses such as wealth management
and asset management. In addition, the Company endeavours to promote
the rapid growth of its non-interest income, further pushes forward
structural adjustments and business transformation, improves the capital
utilisation rate and reduces capital consumption, while making reasonable
efforts to develop its traditional businesses such as deposit taking and
lending.
Annual Report 2015
Adhere to the "customer-centric" business philosophy, focus on exploring
high-value customer groups while continuously expanding basic customer
base in retail finance, corporate finance and financial institutions finance.
Increasingly optimise customer structure and establish a highly professional
customer service system.
Establish and Improve professional, independent, vertical and comprehensive
risk management system and continuously enhance our overall risk
management level while focusing on improving our overall risk management
capability.
Rationally expand physical network, innovate and develop e-banking,
accelerate the establishment of a powerful multi-channel distribution system
with operating synergies.
Expand and strengthen our presence in domestic market, boost investments
in economically developed regions, rationally expand our network into
highly potential regions and steadily explore overseas markets by following
customers' strategies.
7
8
China Merchants Bank
Annual Report 2015
I Company Information
Investment Value and Core Competitiveness:
The Company persistently follows the operation concept of "keeping
balance between efficiency, quality and scale", and has built up a
professional team, which boasts good execution and strong capabilities in
business innovation and steady operation. 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".
Strive to enhance our professional customer-centric management capability
and our fast-response market-oriented management capability through
system reform and process optimisation and with the support of IT
technologies.
I Company Information
China Merchants Bank
Haikou
Xining
Qingdao
and regions
Lanzhou
Zhengzhou
Xi'an
Chengdu
Chongqing
Guiyang
Kunming
Nanning
Nanjing
Wuxi
Hefei
Shanghai
Wuhan
Suzhou
Hangzhou
Ningbo
Changsha Nanchang Wenzhou
Fuzhou
Quanzhou
Xiamen
Guangzhou Dongguan
Foshan Shenzhen
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 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 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 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.
China Merchants Bank
Annual Report 2015
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 identify 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 translate 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 more attention to
investment risks. You are cautioned that such forward-looking statements are related to
future events or future financial position, business or other performance of the Group,
and are subject to a number of uncertainties which may cause substantial differences in
the actual results.
Proposal of profit appropriation: As stated in the audited PRC financial statements of
the Company for 2015, 10% of the profit after tax of RMB53.189 billion, equivalent
to RMB5.319 billion, was transferred to the statutory surplus reserve, while 1.5% of
the total amount of the increased risk assets in this reporting period, equivalent to
RMB10.720 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 RMB6.90 (tax
included) for every 10 shares to all shareholders of the Company, 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 2015, 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 2015 Annual General Meeting of the Company.
Li Jianhong, Chairman of the Company, Tian Huiyu, President, Li Hao, First Executive
Vice President and Chief Financial Officer, and Wang Tao, 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.
KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants
(both being auditors of the Company) have separately reviewed the 2015 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 45th meeting of the Ninth Session of the Board of Directors of the Company was
held at the China Merchants Bank University, Shenzhen from 29 to 30 March 2016.
The meeting was presided by Li Jianhong, Chairman of the Board. 13 out of 16 eligible
directors attended the meeting in person. Tian Huiyu (Executive Director), Fu Gangfeng
(Non-Executive Director) and Zhao Jun (Independent Non-Executive Director) failed to
attend the meeting because of business appointments, and entrusted Li Hao (Executive
Director), Hong Xiaoyuan (Non-Executive Director) and Leung Kam Chung, Antony
(Independent Non-Executive Director) to exercise the voting right, respectively. A total
of 16 valid votes were cast. 5 supervisors of the Company were present at the meeting.
The convening of the meeting complied with the relevant provisions of the Company
Law and the Articles of Association of the Company.
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.
2.
1.
Important Notice
Annual Report 2015
Important Notice
China Merchants Bank
XII Financial Report
159
XI Documents Available for Inspection
158
Definitions/Significant Risk Warning
domestic and overseas correspondent banks in 111 countries
3
Company, Bank, CMB or
China Merchants Bank:
China Merchants Bank Co., Ltd.
The "three-in-one" cross-border finance platform, comprising overseas
institutions (Wing Lung Bank and overseas branches) undergoing relatively
rapid global penetration and business expansion, offshore banking units and
domestic branches, is producing new growth drivers and competitive edges.
The comprehensive operation system has been basically 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.
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 healthy
development of and strong competitiveness in business operation in the
long run.
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 system
reform of branches, effectively improving the seamless structural integration
between our headquarters and branches.
The powerful IT team and IT capability as well as the leading IT platform
have enabled us to keep abreast with Internet development, innovate
products, services, channels and business model, constantly improve the
efficiency and quality of customer services and reduce operating costs.
High quality services that have set the industry benchmark.
Sound customer base and rapidly increasing high-value customers.
Continuously growing brand influence.
China Merchants Bank
Annual Report 2015
I Company Information
1.4 Awards and Honors Received in 2015
In 2015, the Company won a number of honors in the awarding activities organised
by prestigious organisations both at home and abroad, including:
On 12 February 2015, the Company received five awards, namely the "Best
China Credit Fixed Income," the "Best China Credit Derivatives", the "Best
China Credit Fixed Income Research", the "Best China Credit Sales "and
the "Best China Credit Services" from Asia Money magazine (a prestigious
international financial magazine), and became the only winning Chinese
bank in the fixed income category.
On 19 March 2015, in the awarding activity named "Excellence in Retail
Financial Services in Asia Pacific for 2015" organised by The Asian Banker
magazine (a prestigious international financial magazine), the Company
was awarded the "Best Retail Bank in China" and the "Best Joint Stock
Retail Bank in China" once again. The bank had won the "Best Retail Bank
in China" award for the sixth time and "the Best Joint Stock Retail Bank
in China" award for the eleventh time since its first participation in the
awarding activity.
In April and May 2015, the Company received five awards from The Asian
Banker magazine (a prestigious international financial magazine), namely
the "Best Cash Management Bank in China", the "Best Mobile Banking
Technology Achievement Award", the "Best Supply Chain Finance in Asia
Pacific Region", the "Best Wealth Management Business in China" and the
"Best Intelligent Service Outlet Project in China".
On 28 May 2015, in the awarding activity named "Golden Wealth
Management" organised by Shanghai Securities News, the Company
received the "Best Credit Card" award for its credit card products, and the
"Most Innovative Mobile Internet Financial Products" award for its CMB
Life App; and the "Best Trade Finance Bank" award for its trade finance
business.
In May 2015, in the awarding activity organised by The Asset magazine
(a prestigious international financial magazine), the Company received
the "Best Emerging Transaction Banking" award; and also won the "Best
Treasury and Working Capital Management (SMEs) in China "award and the
"Best Solution (Cross-border Cash Pool Project) in China" award.
On 26 June 2015, at the press conference for the release of the "Social
Responsibility Report for China Banking Industry in 2014" and the awarding
ceremony for excellence in social responsibility works organised by China
Banking Association, the Company was honoured the "Best Financial
Institution in Social Responsibilities of the Year" and received the "Best
Green Finance Award for Excellence in Social Responsibilities of the Year"
for the fourth consecutive time; and won the "Award for Outstanding Public
Charity Programme of the Year" with the campaign titled CMB Caring (
) participated by volunteers across the Bank.
On 28 June 2015, as valued by the Review Committee for China's 500 Most
Valuable Brands, the Company's brand was valued at RMB68.813 billion, and
was included in the ninth selection of China's 500 Most Valuable Brands.
9
Commission or CBRC:
China Banking Regulatory
China Merchants Bank Co., Ltd. and
its subsidiaries
Group:
Definitions
X Report of the Board of Supervisors
Jinan
Yinchuan
I Company Information
Annual Report 2015
Company Information
1.1 Company Profile
1.1.1 Registered Company Name in Chinese: RESORA (Abbreviated
Name in Chinese: 招商銀行)
Registered Company Name in English: China Merchants Bank Co., Ltd.
1.1.2 Legal Representative: Li Jianhong
Authorised Representatives: Tian Huiyu, Li Hao
Secretary of the Board of Directors: Xu Shiqing
Joint Company Secretaries: Xu Shiqing, Seng Sze Ka Mee Natalia
China Merchants Bank
(FCIS FCS(PE), FHKIOD, FTIHK)
1.1.3 Registered and Office Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
1.1.4 Mailing Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Postcode: 518040
Tel: 86755-83198888
Fax: 86755-83195109
E-mail: cmb@cmbchina.com
Website: www.cmbchina.com
Customer service hotline: 95555
1.1.5 Principal Place of Business in Hong Kong:
Securities Representative: Wu Jianbing
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
China Insurance Regulatory
Commission or CIRC:
China Insurance Regulatory
Commission
Hong Kong Stock Exchange or
SEHK:
The Stock Exchange of Hong Kong
Limited
Hong Kong Listing Rules:
The Rules Governing the Listing of
Securities on the SEHK
Wing Lung Bank or WLB:
Wing Lung Bank Limited
Wing Lung Group:
Wing Lung Bank and its subsidiaries
CMB Financial Leasing or CMBFL:
CMB Financial Leasing Co., Ltd.
CMB International Capital or CMBIC:
CMB International Capital Holdings
Corporation Limited
China Merchants Fund or CMFM:
China Merchants Fund Management
Co., Ltd.
CIGNA & CMB Life Insurance:
CIGNA & CMB Life Insurance Co., Ltd.
CM Securities:
China Merchants Securities Co., Ltd.
KPMG Huazhen Certified Public
Accountants:
KPMG Huazhen Certified Public
Accountants (Special General Partnership)
China Banking Regulatory
Commission
Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong)
Model Code:
Model Code for Securities Transactions by
Directors of Listed Issuers of Hong Kong
Stock Exchange
21st Floor, Bank of America Tower, 12 Harcourt Road, Hong Kong
1.1.6 Share Listing:
A Shares:
Shanghai Stock Exchange
Place of maintenance of annual reports: Office of the Board of Directors of the
Company
1.1.12 Other Information about the Company:
Initial registration date: 31 March 1987
Initial registration place: Shenzhen Administration for Industry and Commerce,
Shekou Branch
Unified Social Credit Code: 9144030010001686XA
LO
5
6
China Merchants Bank
Annual Report 2015
I Company Information
1.2 Corporate Overview
Founded in 1987 with its head office in Shenzhen, China, the Company is a national
commercial bank with significant 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". The Company currently has 1,963 domestic and overseas
correspondent banks in 111 countries (including China) and regions. The Company was
listed on the Shanghai Stock Exchange in April 2002 and on the SEHK in September 2006.
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, the dual-currency credit card, the "Sunflower Wealth Management"
services and private banking services, mobile Internet finance services such as 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
and investment banking services, have been widely recognised by consumers in China.
In 2015, confronting the decline in economic growth, 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".
Urumuchi
Harbin
Changchun
1,963
Shenyang
Tangshan
Hohhot
Beijing
Dalian
Tianjin
Shijiazhuang
website of the Company (www.cmbchina.com)
Taiyuan
website of SEHK (www.hkex.com.hk),
"China Securities Journal", "Securities Times", "Shanghai
Securities News"
Abbreviated Name of A Shares: CMB;
Stock Code: 600036
H Shares:
SEHK
Abbreviated Name of H Shares: CM BANK;
Stock Code: 03968
1.1.7 Domestic Auditor:
International Auditor:
KPMG Huazhen Certified Public Accountants
Office Address: 8th Floor, Tower 2, Oriental Plaza,
1 East Chang An Avenue, Beijing,
China
Certified Public Accountants for Signature:
Wang Lipeng, Wu Zhongming
KPMG Certified Public Accountants
Office Address: 8th Floor, Prince's Building,
10 Charter Road, Central,
Hong Kong
1.1.8 Legal Advisor as to PRC Law: Jun He Law Offices
Legal Advisor as to Hong Kong Law: Herbert Smith Freehills
China Merchants Bank
I Company Information
Annual Report 2015
1.1.9 Depository for A Shares:
China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
1.1.10 Share Register and Transfer Office as to H Shares:
Computershare Hong Kong Investor Services Ltd.
Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai,
Hong Kong
1.1.11 Websites and Newspapers designated by the Company for Information
Disclosure:
Mainland China:
Hong Kong:
website of Shanghai Stock Exchange (www.sse.com.cn),
website of the Company (www.cmbchina.com)
Commission or CSRC:
China Securities Regulatory
Commission
157
135
23
5.1 Analysis of Overall Operation
22
V Report of the Board of Directors
22
IV President's Statement
18
III Chairman's Statement
14
Il Summary of Accounting Data and Financial Indicators
I Company Information
11
4
Significant Risk Warning
3
Definitions
3
IX Corporate Governance
M 招商銀行
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
2015 Annual Report
5.2 Analysis of Income Statement
We are here
China Merchants Bank
Annual Report 2015
Contents
1
Contents
2
Important Notice
Just for you
32
China Securities Regulatory
42
5.13 Social Responsibility
95
5.14 Key Relationship with Stakeholders and Environmental Policies and
Performance
5.15 Management Contracts
95
5.16 Permitted Indemnity Provision
95
96 5.17 Compliance with the Relevant Laws and Regulations
VI Important Events
108
VII Changes in Shares and Information on Shareholders
116
VIII Directors, Supervisors, Senior Management, Employees and Organisational
Structure
5.3 Analysis of Balance Sheet
97
5.12 Profit Appropriation
95
5.11 Risk Management
5.4 Loan Quality Analysis
93
5.5 Analysis of Capital Adequacy Ratio
51
5.6 Results of Operating Segments
53
5.7 Others
48
5.8 Business Development Strategies
85
57
5.9 Changes of the External Environment and the Corresponding Measures
67
5.10 Business Operation
53
Number of
shares issued
on capitalisation
of surplus
reserve for
every ten
shares
held (No. of
shares)
of tax)
Cash dividend
for every ten
shares held
(RMB, inclusive
Number of
bonus shares
for every ten
shares held
(No. of shares)
Year
5.12.2 Profit appropriation for the last three years:
5.12 Profit Appropriation
5.12.1 The profit appropriation plan for 2015
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
94
=4
2013
2014
2015 Note
As stated in the audited financial statements of the Company for 2015, 10% of the profit after tax of RMB53.189
billion, equivalent to RMB5.319 billion, was allocated to the statutory surplus reserve, while 1.5% of the total
balance of the incremental risk assets, equivalent to RMB10.720 billion, was appropriated to the general reserve.
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 RMB6.90 (tax included) for every ten Shares to
all shareholders of the Company, 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 2015, 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 2015 Annual General Meeting of the Company.
6.20
30.22
6.90
16,897
93
51,743
15,636
financial
statements (%)
of RMB)
6.70
of RMB)
shareholders in
net profit
attributable to
Proportion of
cash bonus to
financial
statements for
the year
(in millions
Net profit
attributable to
shareholders in
the consolidated
Total cash
dividends
(inclusive of
tax, in millions
the consolidated
In 2015, the Company further enhanced its anti-money laundering rules in response to the changes in regulatory
policies and the operational and management systems of the Company, initiated a comprehensive overhaul of its
anti-money laundering management measures, and formulated the anti-money laundering policy of the Group and
assessment guidelines in respect of money laundering risk. According to the changes of the monitoring procedures
of anti-money laundering measures of the Company and the risk of money laundering, the Company further
improved its anti-money laundering monitor system, adjusted suspicious transaction monitoring standard in a timely
manner, and continued to promote the centralised monitoring and analysis work for suspicious transactions, so as to
improve the effectiveness of anti-money laundering management.
92
5.11.8 Anti-money laundering management
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
centralised liquidity management through limit management, budget control, active liability as well as internal funds
transfer pricing, etc.
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 Board of Supervisors, the senior management,
special committees and related departments in liquidity risk management, so as to enhance the effectiveness of
liquidity risk management. 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.
Liquidity risk is the risk that the Company cannot satisfy its customers by repaying deposits that fall due, granting
new loans or providing financing, or that the Company cannot satisfy these requirements at a normal cost.
5.11.5 Liquidity risk management
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
During the reporting period, in order to prevent loss arising from systematic operational risk and material operational
risk, the Company further implemented the risk assessment, monitoring and alert policy, improved risk management
model and strengthened prevention and control of risks in respect of key operational risks, namely the "operational
risks associated with emerging finance business, credit business, manual intervention, Internet finance business, IT
support, outsourcing and staff". Firstly, focusing on the strategic businesses and major businesses of the Bank, we
carried out a comprehensive risk assessment, conducted a thorough and in-depth analysis of the current business
conditions from various perspectives including organisational structure, personnel, risk management, rule-making,
system building and peer comparison, and put forward corresponding management suggestions. Secondly, we made
in-depth analysis of typical cases, carried out special risk assessment and event-triggering assessment, and cultivated
bank-wide actions to enhance early warning and prevention by measures such as issuing risk alert and arranging risk
examination. Thirdly, we participated in evaluation of various new products and new businesses, and expressed our
view with respect to operational risk management and full-process management and control, thus further improved
the effectiveness of operational risk management. Fourthly, we strengthened control over manual intervention
business, specified the management requirements for manual intervention business, organised a comprehensive
review on manual intervention business so as to analyse existing problems and management difficulties, and put
forward corresponding managerial suggestions.
Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, people, IT systems,
or external events.
5.11.4 Operational risk management
The Company mainly uses foreign exchange exposure analysis, scenario simulation analysis, stress test, and
other methods to measure and analyse the exchange rate risk of banking book. The Company regularly
measures and analyses changes in its foreign exchange exposure of banking book and monitors and
reports exchange rate risk on a monthly basis under its limit framework. Based on the trend of exchange
rate movements, the Company adjusts its foreign exchange exposure accordingly to mitigate the relevant
exchange rate risk of its banking book. In 2015, the Company further optimised the measurement of its
exchange rate risk under banking book which provides scientific reference standards for appropriately making
management decisions. In addition, the Company further enhanced the monitoring of its exchange rate risk
under banking book and the approval and management of risk limits, so as to keep its risk exposure at a
reasonable level.
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.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
90
90
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. Stress tests are regularly used to find
out whether the Company is able to meet liquidity requirements under extreme circumstances. In addition, the
Company has put in place liquidity contingency plans and organised regular liquidity contingency drillings to guard
against any liquidity crisis.
The Company takes anti-money laundering as its social responsibility and legal obligation and attaches great
importance to anti-money laundering. The Company has established a professional anti-money laundering team
to carry out anti-money laundering compliance management, anti-money laundering name-list verification and
the monitoring of large-amount transactions and suspicious transactions, and put in place a relatively complete
anti-money laundering monitoring system.
In the first half of 2015, market liquidity was comparably easing from an overall perspective, and only appeared
to be tight periodically due to seasonal factors such as the Chinese New Year. Despite the continuing decrease
of funds outstanding for foreign exchange, institutional participants in the market maintained a relatively
optimistic anticipation for stable money supply in the near future owing to the reduction in deposit reserve ratio
and interest rate cuts by the central bank as well as the lowered interest rate for reverse repurchase in the open
market, therefore there was abundant liquidity in the interbank market, and the Company was only exposed to
moderate-to-low level of liquidity risk. In the second half of the year, the central bank increased the use of monetary
policies. While maintaining its strategy of deposit reserve ratio reduction and interest rate cuts implemented in the
first half of the year, the central bank reformed the appraisal system of deposit reserve and established interest rate
corridor to induce the market interest rate to lower levels in the medium and long term. The overall market liquidity
was neutral and tended to be easing. As at the end of the year, affected by the maturity of MLF, deposit deviation
assessment and seasonal factors, market liquidity experienced slight fluctuation. The Company has made appropriate
liquidity arrangement in advance in order to safeguard the overall steady operation of the Bank. As at the end of
December 2015, the Company's liquidity coverage ratio was 119.71%1, representing 49.71 percentage points higher
than the minimum requirement of CBRC.
Liquidity coverage ratio is an external regulatory indicator - the legal person calibre
During the reporting period, the Company proactively adapted to the adjustments in regulatory polices and addressed
the significant changes in financial situation and risk control. Focusing its efforts on strategic transformation, forging
"Asset-light Banking" and responding to changes in business process and management system, the Company
formulated and implemented the guiding opinion regarding risk management-oriented internal control and
compliance work, assigned the compliance management targets and requirements to the whole bank, strengthened
the understanding of polices and the circulation and delivery of new regulations, complied with regulatory policies
and identified business opportunities; provided professional legal compliance service, supported value innovation and
promoted the concerted development of "One Body with Two Wings". The Company consolidated its fundamentals
of inherent internal control and compliance management, optimised system building and improved policies and
systems in relation to internal control and compliance management so as to strictly prevent and effectively relieve the
risks associated with internal control and compliance. The Company also proactively conducted compliance training
activities with diversified contents using flexible methods including "learning regulations to keep bottom line" and
cultural promotion activities for honest duty performance, steadily coordinated the chief executives and compliance
officer of each branch and sub-branch to attend compliance courses, so as to continue to create good compliance
environment. The Company promoted the overall management of supervision, examination and troubleshooting,
and strengthened the management of conduct of employees and the misconduct points program, thus striving to
formulate an integrated internal control and compliance management system.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
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 organisational 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 defense 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.
5.11.7 Compliance risk management
During the reporting period, relying on its systematic reputational risk management, the Company strengthened
its efforts in building a sound reputational risk management team, and established a more effective multi-media
information disclosure mechanism to offer proper guidance to public opinion. The Company also improved
reputational risk front-line management and early-warning mechanisms and accelerated its response to public
sentiments so as to effectively prevent reputational loss. In addition, the Company conducted periodic analysis of
data in relation to public sentiments to improve both services and products.
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.
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.
5.11.6 Reputational risk management
The Company has adopted various measures to tackle liquidity risk during the year, thereby ensuring a sound
liquidity position across the Bank. Firstly, the Company implemented the FTP mechanism in a flexible manner as
guidelines to the branches as regard to the term and amount of liabilities and maintain the balance between the
source and use of funds. Secondly, the Company increased efforts to improve the maturity mismatch management
of assets and liabilities of standalone business lines, such as our bills business. Thirdly, the Company flexibly
conducted short-, medium- and long-term active liability-taking by adopting various measures including issuance of
negotiable interbank certificates of deposits and certificates of large-amount deposits, carried out financing activities
by following monetary policies and employing instruments introduced by the central bank, and took into account
liquidity and cost of fund as well, with a view to secure the source of funds of the Company. Fourthly, the Company
steadily promoted the securitisation of assets, and launched asset securitised products of RMB23.02 billion in 2015.
Fifthly, the Company laid down investment and financing strategies based on its dynamic future cash flow gap
forecast through adoption of forward-looking active risk management, in an attempt to reduce costs and improve
profitability.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
22
55,911
91
1
30.22
(7)
57,696
The Company is engaged in banking and related financial services.
6.1 Principal business activities
Important Events
Annual Report 2015
VI Important Events
China Merchants Bank
6.2 Financial highlights
98
Li Jianhong
By order of the Board of Directors
During 2015, 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.
5.17 Compliance with the Relevant Laws and Regulations
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.
5.16 Permitted Indemnity Provision
Chairman of the Board of Directors
30 March 2016
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.
Details are set out in Chapter II Summary of Accounting Data and Financial Indicators of this annual report.
For details of changes in the Company's reserves, please refer to its Statement of Changes in Equity.
As at the end of the reporting period, the operating income of the top 5 customers of the Company did not exceed
30% of the total operating income of the Company. As far as the Company is aware, none of the directors, their
close associates or any shareholders (who to the best knowledge of the directors own more than 5% of the issued
shares of the Company) has any interests in the aforesaid top 5 customers.
6.8 Principal customers
Details about retirement and welfare provided by the Company to its employees are set out in Note 37 to the
financial statements in this annual report.
6.7 Retirement and welfare
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.
6.6 Pre-emptive rights
6.3 Reserve
Neither the Company nor its subsidiaries had purchased, sold or repurchased any of the Company's listed securities
during the reporting period.
99
99
VI Important Events
China Merchants Bank
Annual Report 2015
Changes in fixed assets of the Company as at 31 December 2015 are set out in Note 25 to the financial statements
in this annual report.
6.4 Fixed assets
6.5 Purchase, sale or repurchase of listed securities of
the Company
5.15 Management Contracts
97
97
(6)
(5)
(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;
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 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 authorised by the shareholder at a general meeting to approve the interim profit appropriation
plan;
(1)
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 2015
Note: The proposal of profit appropriation for 2015 is subject to consideration and approval at the 2015 Annual General Meeting of the Company.
30.16
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:
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;
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;
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;
Annual Report 2015
V Report of the Board of Directors
China Merchants Bank
5.14 Key Relationship with Stakeholders and
Environmental Policies and Performance
Adhering to the principle of "Gain from society and contribute to society", the Company is always active in fulfilling
its social responsibilities on poverty alleviation, green loans, charity activities and support to SMEs. The total amount
of the charitable donations and other donations contributed by the Company and its employees for the reporting
period was RMB36.4658 million, representing a social contribution value of RMB8.57 per share at the end of the
period. For details of the Company's fulfilment of its social responsibilities, please refer to the "Corporate Social
Responsibility Report of China Merchants Bank Co., Ltd. for 2015".
5.13 Social Responsibility
During the reporting period, the profit appropriation plan of the Company for 2014 was implemented in
strict accordance with the relevant provisions of the Articles of Association. It was considered and approved
by the 30th meeting of the Ninth Session of the Board of Directors of the Company, and submitted for
consideration and approval at the 2014 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 2015 will also be implemented in strict accordance
with the relevant provisions of the Articles of Association. It will be 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 independent directors of the Company have expressed
their independent opinions on the profit appropriation plans for 2014 and 2015 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.
2.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
96
96
95
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
17,402
The account of the Company's key relationships with its key stakeholders and discussion on the Group's
environmental policies and performance are included in the Social Responsibility Report of China Merchants Bank
Co., Ltd. for 2015, and the discussion forms part of this Report. Names of directors and supervisors (including
resigned directors and supervisors) are more particularly set out in Chapter VIII which also forms part of this Report.
Percentage
CM Securities Group
The Company's major transactions with related parties are set out in Note 56 to the financial statements. These
transactions entered into with related parties 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.
Furthermore, the Company has engaged KPMG Certified Public Accountants 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 KPMG Certified Public Accountants 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.
6.16.4 Major transactions with related parties
(4) the transactions were conducted in accordance with the terms of relevant agreements.
the transactions were entered into on normal commercial terms which were no more favourable than those
available to independent third parties; and
the terms of the transactions are fair and reasonable, and are in the interest of the Company and its
shareholders as a whole;
(3)
(2)
the transactions were conducted in the ordinary and usual course of business of the Company;
(1)
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:
6.16.3 Confirmation from the Independent Non-executive Directors and Auditors
As at 31 December 2015, the amount of the continuing connected transactions between the Company and Anbang
Insurance Group was RMB906.84 million.
6.17Material litigations and arbitrations
The annual cap for the continuing connected transactions between the Company and Anbang Insurance Group
for 2015 was RMB1.2 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 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.
China Merchants Bank
Annual Report 2015
where there are no State prescribed prices or State guided prices, to follow the market fee rates for ordinary
business transactions agreed between the parties on arm's length negotiations.
where there are no State prescribed prices but there are applicable State guided prices, to follow the State
guided prices; or
(3)
(2)
where there are State prescribed prices, to follow these prices; or
(1)
On 16 June 2015, the Company entered into a Service Cooperation Agreement with Anbang Insurance 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 following pricing policies:
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 10.72% equity interest in the Company. According
to the Hong Kong Listing Rules, transactions between the Company and its subsidiaries and Anbang Insurance
Group constitute connected transactions of the Company.
The insurance agency sales services between the Company and Anbang Insurance Group constitute continuing
connected transactions of the Company under the Hong Kong Listing Rules.
Anbang Insurance Group
As at 31 December 2015, the amount of the continuing connected transactions between the Company and CM
Securities Group was RMB462.99 million.
VI Important Events
So far as the Company is aware, as at 31 December 2015, the Company was involved in the following litigation
cases in the ordinary course of business: the number of pending litigation and arbitration cases in which the
Company was involved totalled 19,314 with a total amount of principal and interest of approximately RMB52.497
billion. Of which, there were a total of 176 pending litigation and arbitration cases against the Company as at 31
December 2015, with a total amount of approximately RMB1,001.76 million. There were 24 pending cases with
a principal amount exceeding RMB100,000,000, involving a total amount of approximately RMB5, 175 million.
Although there was a rise in the number and amount of cases where the Company took legal actions to recourse
against the debtors due to economic downturn, none of the above litigation and arbitration cases would have a
significant adverse impact on the financial position or operating results of the Company.
105
106
The financial statements of the Group for the year 2015 prepared under the PRC Generally Accepted Accounting
Principles and the internal control of the Group as at the year end of 2015 were audited by KPMG Huazhen Certified
Public Accountants, and the financial statements for the year 2015 prepared under International Financial Reporting
Standards were audited by KPMG Certified Public Accountants. The total audit fees amounted to approximately
RMB22.35 million (including fees for the audit on the financial statements of our overseas branches and subsidiaries),
among which the audit fees for internal control was approximately RMB1.60 million. The auditor's responsibility
statements made by KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants about
their responsibilities on the financial statements are set out in the Auditors' Reports in the Annual Reports of the
Company's A Shares and H Shares, respectively. Apart from the audit services, the non-audit service fee for the year
paid by the Group to KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants was
approximately RMB6.45 million.
According to the resolutions passed at the 2014 Annual General Meeting, the Company appointed KPMG Huazhen
Certified Public Accountants as the auditor for domestic business for the year 2015 and KPMG Certified Public
Accountants as the auditor for overseas business for the year 2015. Those two Certified Public Accountants have
been engaged as auditors of the Company since 2002.
6.22 Appointment of accounting firms and financial
advisors
VI Important Events
China Merchants Bank
Annual Report 2015
108
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 connected transactions not entered into on an arm's length basis. KPMG Huazhen
Certified Public Accountants, being the auditor of the Company, has issued a special audit opinion in this regard.
6.21 Use of funds by related parties
For details about the implementation of the Company's H-Share Appreciation Rights Incentive Scheme, please refer
to Chapter VIII.
6.20Implementation of the H-Share appreciation rights.
incentive scheme during the reporting period
During the reporting period, there was no event in respect of fund entrusting beyond our normal business.
6.19 Significant event in respect of fund entrusting
VI Important Events
China Merchants Bank
Annual Report 2015
The Company 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 Company's guarantee business was in normal operation and there were no
non-compliant guarantees.
After review, it was ascertained that the guarantee business of China Merchants Bank Co., Ltd. was approved by
the PBOC and the CBRC, and it was carried out in the ordinary course of business of the Banks as a conventional
business. As at 31 December 2015, the balance of the Company's guarantee business was RMB236.077 billion,
accounting for 67.06% of the Company's net assets.
In accordance with CSRC Approval [2003] No.56 of China Securities Regulatory Commission and the relevant
provisions of Shanghai Stock Exchange, the independent non-executive directors of China Merchants Bank Co., Ltd.
carried out a due diligence review of the Company's guarantees for 2015 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 Company's guarantees
China Merchants Bank Co., Ltd.
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 PBOC and the CBRC, there was no
other significant discloseable guarantee.
During the reporting period, there was no significant entrustment in respect of fund and asset management.
Significant guarantees
Significant entrustments in respect of fund and asset management
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.
Significant events in respect of holding in custody, contracting, hiring or
leasing of assets
6.18 Material contracts and their performance
VI Important Events
China Merchants Bank
Annual Report 2015
The annual cap for the continuing connected transactions between the Company and CM Securities Group for
2015 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.
where there are no State prescribed prices or State guided prices, to follow the market fee rates for ordinary
business transactions agreed between the parties on arm's length negotiations.
where there are no State prescribed prices, but there are applicable State guided prices, to follow the State
guided prices; or
(3)
VI Important Events
China Merchants Bank
Annual Report 2015
102
101
As at the end of the reporting period, given that the Change in Shareholding (as defined in section 7.4 of this
report) has not been completed, the Company did not have any controlling shareholder or de facto controller.
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 discipline 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.
6.13 Disciplinary actions imposed on the Company,
directors, supervisors, senior management,
controlling shareholders, de facto controllers or
offerors
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
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.
6.11 Financial, business and kinship relations among
directors, supervisors and senior management
VI Important Events
China Merchants Bank
Annual Report 2015
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.
6.10 Directors' interests in the businesses competing with
those of the Company
0.00032
65,800
Long position Beneficial owner
issue (%)
shares
Capacity
No. of
Long/short
position
Class of
Position shares
Supervisor A Share
Name
Jin Qingjun
0.00026
Percentage
of all the
issued
shares (%)
6.14 Explanation about the integrity profile of the
Company, its controlling shareholder and de facto
controllers
During the reporting period, the Company engaged Altus Capital Limited (office address at 21 Wing Wo Street,
Central, Hong Kong) as our independent financial adviser to the independent board committee and independent
shareholders of the Company in respect of the Employee Stock Ownership Scheme of the Company (details of which
are set out in Section 8.8 of this report), for which the Company paid a total consultancy fee of HK$210,000.
So far as the Company is aware, the Company had not failed in performing any valid court verdict and fulfilling any
significant payment obligations that fell due during the reporting period.
6.15 Undertakings made by the Company, directors,
supervisors, senior management and other
connected persons
(2)
where there are State prescribed prices, to follow these prices; or
(1)
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 following pricing policies:
As at the end of the reporting period, China Merchants Steam Navigation Company Ltd. was a substantial
shareholder of the Company. As China Merchants Group held 100% equity interest in China Merchants Steam
Navigation Company Ltd., it indirectly held 29.97% of equity interest in the Company (including those deemed to
be held by it through affiliated companies). As China Merchants Group also holds 50.86% equity interest in CM
Securities, pursuant to the Hong Kong Listing Rules, transactions between the Company and its subsidiaries with CM
Securities Group constitute connected transactions of the Company.
The third-party custody business, the wealth management 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.
Annual Report 2015
VI Important Events
China Merchants Bank
104
103
As at 31 December 2015, the amount of the continuing connected transactions between the Company and CMFM
Group was RMB1,508.50 million.
The annual cap for the continuing connected transactions between the Company and CMFM Group for 2015
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.
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 Company and CM Securities held 55% and 45% of the equity interest in CMFM respectively. CMFM is a
connected subsidiary of the Company under the Hong Kong Listing Rules.
The fund distribution agency services between the Company and CMFM Group constituted continuing connected
transactions of the Company under the Hong Kong Listing Rules.
CMFM Group
On 26 August 2014, with the approval from 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. Further details were
disclosed in the Announcements on Continuing Connected Transactions issued by the Company on 26 August 2014,
28 April 2015 and 16 June 2015, respectively.
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 and its associates (hereinafter referred to as "Anbang Insurance Group"), respectively.
6.16.2 Non-exempt continuing connected transactions
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 Ltd. and its member companies, Anbang Insurance Group 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.
6.16.1 Overview of connected transactions
6.16Significant connected transactions
VI Important Events
China Merchants Bank
Annual Report 2015
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.
As at the end of the reporting period, given that the Change in Shareholding (as defined in section 7.4 of this
report) has not been completed, the Company did not have any controlling shareholder or de facto controller.
6.23 Changes in accounting policies
107
China Merchants Bank
Annual Report 2015
For details of changes in the accounting policies, please refer to note 2 to the financial statements for the year.
of the
relevant
class of
shares in
100
VI Important Events
6.9 Interests and short positions of directors, supervisors
and chief executives under Hong Kong laws and
regulations
As at 31 December 2015, 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), 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:
109
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.
China Merchants Bank
Annual Report 2015
6.26 Publication of annual report
For the convening of its 2015 Annual General Meeting, the Company will make further announcement.
6.25 Annual general meeting
KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants, 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 2015.
6.24 Review of annual results
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.
VI Important Events
30.00
Male
Liu Yuan
Zhu Genlin
Guo Xuemeng
Zhao Jun
30.00
2011.11-2016.5
Pan Yingli
Female 1955.6
30.00
2012.7-2016.5
Female 1966.9
Male 1962.9
1962.1
Independent Non-Executive Director
Independent Non-Executive Director
379.68
30.00
Independent Non-Executive Director
2015.1-2016.5
27.50
Chairman of Board of Supervisors,
2014.8-2016.5
2011.7-2016.5
2 2 2 2 2 2 2
No
No
No
No
2012.7-Note 1
Independent Non-Executive Director
Independent Non-Executive Director
Yes
Pan Chengwei
Male
Tang Zhihong
No
190.38
2015.3-2016.5
Employee Supervisor
Female 1966.6
Huang Dan
No
224.71
2014.8-2016.5
Employee Supervisor
No
Male
1949.5
Male 1946.2
30.00
Non-Executive Director
Yes
Su Min
Female
1968.2
Non-Executive Director
2014.9-2016.5
No
Leung Kam Chung,
Antony
Wong Kwai Lam
Male 1952.1
Independent Non-Executive Director
2015.1-2016.5
27.50
65,800
Employee Supervisor
65,800
Shareholder Supervisor
Aggregate
pre-tax
remunerations
received from
the Company
during the
reporting
period (RMB
Whether
having received
remunerations
from the related
parties of the
Company during
the reporting
Name
Gender Birth(Y/M)
Title
Term of office
(share)
(share)
ten thousand)
period
Jin Qingjun
Xiong Kai
Male
Male 1957.8
1971.4
External Supervisor
2014.10-2016.5
1960.3
the period
Male 1955.9
at the end of
Shareholding
at the beginning
of the period
2003.5-2016.5
Yes
Fu Junyuan
Male 1961.5
Shareholder Supervisor
2015.9-2016.5
Yes
Liu Zhengxi
Male
Pan Ji
Dong Xiande
1963.7
Male 1949.4
Shareholder Supervisor
2012.5-2016.5
Yes
External Supervisor
2011.5-Note 1
37.50 (Note 2)
No
Male
1947.2
External Supervisor
2014.6-Note 1
40.00 (Note 2)
No
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 119
Date of
Shareholding
Executive Vice President
No
332.22
Executive Vice President
2015.2-2016.5
(Note 3)
Lian Bolin
Male
1958.5
Executive Assistant President
2012.6-2016.5
284.76
2013.5-2016.5
Xu Shiqing
Male
1961.3
Secretary of Board of Directors
284.76
(Note 4)
Zhang Guanghua
Male
1957.3
Former Vice Chairman
2013.8-2015.7
189.84
2 2 2 2 2 2 2
No
No
No
No
1964.11
No
Male
332.22
Executive Vice President and
Wang Qingbin
Male
1956.12
2011.6-2016.5
332.22
General Manager of Beijing Branch
DO
No
Liu Jianjun
Male
1965.8
Executive Vice President
2013.12-2016.5
332.22
Xiong Liangjun
Male
1963.2
Secretary of the Party Discipline
2014.7-present
332.22
Committee
Wang Liang
Male
1965.12
Executive Vice President
2015.1-2016.5
Zhao Ju
2006.5-2016.5
No
Former Executive Director
6.
7.
8.
For details about the terms of office of Ms. Guo Xuemeng, Mr. Pan Ji and Mr. Dong Xiande, please refer to "Appointment and Resignation of
Directors, Supervisors and Senior Management" in this Chapter.
The total pre-tax remuneration received by Mr. Pan Ji from the Company during the reporting period includes delayed payment of the
allowances for external supervisors for the periods from October to December 2014 and from January to December 2015; The total pre-tax
remuneration received by Mr. Dong Xiande from the Company during the reporting period includes delayed payment of the allowances for
external supervisors for the periods from July to December 2014 and from January to October 2015.
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.
Mr. Xu Shiqing was appointed as the Secretary of Board of Directors of the Company (whose qualification was approved by the PRC banking
regulator(s) in February 2015) at the first meeting of the Ninth Session of the Board of Directors of the Company held in May 2013.
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.
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.
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.
None of the Directors, Supervisors or Senior Management who hold office currently or have resigned during the reporting period has been
punished by the securities regulator(s) over the past three years.
1963.3
No
2 200
(Note 3)
2008.12-2016.5
Executive Vice President
1960.7
Male
Zhu Qi
332.22
2008.5-2016.5
Executive Vice President
1957.5
Male
Ding Wei
No
5.
No
4.
2.
2007.6-2015.7
Xu Shanda
Male
1947.9
Former Independent Non-Executive
2013.11-2015.1
No
Director
Xiao Yuhuai
Male
1954.6
Former Independent Non-Executive
2014.3-2015.1
Director
Yu Yong
An Luming
Male
Male 1962.7
1960.4
Former Employee Supervisor
2013.5-2015.3
Former Shareholder Supervisor
2012.5-2015.8
No
40.50
No
Yes
Notes:
1.
3.
Male
2007.6-2016.5
Yes
13.27
H
Long
Interest of controlled corporation
806,680,423
17.57
3.20
China Merchants Finance Investment
A
Long
Beneficial owner
923,853,653
Holdings Co., Ltd.
Long
16.23
Interest of controlled corporation
1
3,349,932,935
16.24
13.28
Best Winner Investment Limited
A H
А
Long
Beneficial owner
58,147,140 1
0.28
0.23
Η
Long
2,426,079,282
3,347,617,477
58,147,140 1
Interest of controlled corporation
Percentage of
the relevant
Hong Xiaoyuan
class of shares
Percentage
of all issued
Name of Substantial Shareholder
shares
position
Capacity
No. of shares
Notes
in issue (%)
shares (%)
China Merchants Group Ltd.
A
Long
Interest of controlled corporation
6,752,746,952
Long
3,289,470,337
Beneficial owner
Long
China Merchants Steam Navigation Company Ltd. A
3.20
Beneficial owner
17.57
Interest of controlled corporation
Long
H
26.78
32.73
1
806,680,423 1
As at 31 December 2015, 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:
328,776,923
1.30
Long
Investment manager
242,006,195
Long
Custodian
139,743,375
503,854,268
Short
Beneficial owner
44,962,101
22
10.98
2.00
0.97
122,104,698
0.18
Annual Report 2015
VII Changes in Shares and Information on Shareholders
Class of
Name of Substantial Shareholder
shares
Long/short
position
class of shares
Capacity
No. of shares
Notes
in issue (%)
Percentage of
the relevant
Percentage
of all issued
shares (%)
China Merchants Bank
Beneficial owner
Long
H
2233
Shenzhen Yan Qing Investment and
Development Company Ltd.
A
Long
Beneficial owner
1,258,542,349
1
Long
Interest of controlled corporation
944,013,171
1
2,202,555,520
10.68
8.73
2,704,596,216
13.11
10.72
JPMorgan Chase & Co.
34
6.24
7.63
1,574,729,111
Beneficial owner
7.16
Long
China Ocean Shipping (Group) Company
Company Ltd. -traditional products
Beneficial owner
Long
A
Anbang Property & Casualty Insurance
A
Pagoda Tree Investment Company Limited
underlying shares under Hong Kong laws and
regulations
VII Changes in Shares and Information on Shareholders
Total shares
25,219,845,601
100.00
25,219,845,601
100.00
As at the end of the reporting period, the Company had a total of 266,723 shareholders, including 37,967 holders
of H Shares and 228,756 holders of A Shares. None of their shareholdings is subject to trading moratorium.
As at the close of the previous month (namely 29 February 2016) preceding the date for disclosure of the annual
report, the Company had a total of 280,614 shareholders, including 37,910 holders of H Shares and 242,704
holders of A Shares. None of their shareholdings is subject to trading moratorium.
Based on the publicly available information and so far as the directors were aware, as at 31 December 2015, the
Company had met the public float requirement of the Hong Kong Listing Rules.
China Merchants Bank
Annual Report 2015
VII Changes in Shares and Information on Shareholders
111
7.2 Top ten shareholders and top ten shareholders
whose shareholdings are not subject to trading
moratorium
Shares held
Number of
shares subject
III.
Shares
Percentage
Changes in
Serial
No.
Name of shareholder
Type of
shareholder
of the period
of total share
the reporting
to trading
moratorium
pledged or
frozen
(share)
capital (%) Type of shares
at the end
18.20
4,590,901,172
18.20
110
China Merchants Bank
VII Changes in Shares and Information on Shareholders
Annual Report 2015
Changes in Shares and
Information on Shareholders
7.1 Changes in shares of the Company during the
reporting period
31 December 2014
Quantity
(share)
Percentage
(%)
Changes in the
reporting period
31 December 2015
Quantity(share)
Quantity
(share)
Percentage
(%)
I.
Shares subject to trading moratorium
4,590,901,172
3. Foreign shares listed overseas (H Shares)
4. Others
2. Foreign shares listed domestically
81.80
20,628,944,429
81.80
period (share)
20,628,944,429
100.00
25,219,845,601
100.00
25,219,845,601
Shares not subject to trading moratorium
II.
1. Ordinary shares in RMB (A Shares)
7.3 Substantial shareholders' and other persons'
interests and short positions in shares and
(share)
1
7
China Merchants Finance Investment
Holdings Co. Ltd.
State-owned legal person
923,853,653
3.66 A Shares not subject to
trading moratorium
657,356,174
8
Guangzhou Maritime Transport (Group) State-owned legal person
Company Ltd.
696,450,214
2.76 A Shares not subject to
trading moratorium
27,801,047
9
China Securities Finance Corporation
Limited
Domestic legal person
290,877,512
598,434,742
454,267,958
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., Shenzhen Chu Yuan Investment and Development Company Ltd. and China Merchants Finance
Investment Holdings Co. Ltd. are subsidiaries of China Merchants Group Ltd. As at 31 December 2015, China Merchants Group Ltd.
held an aggregate of 29.97% of the total issued shares of the Company through its subsidiaries and parties acting in concert with
it. Guangzhou Maritime Transport (Group) Company Ltd. is a wholly-owned subsidiary of China Shipping (Group) Company through
its subsidiaries and parties acting in concert with it. The former China Ocean Shipping (Group) Company and China Shipping (Group)
Company were reorganised and merged into China COSCO Shipping Corporation Limited under the direction of the State Council.
China COSCO Shipping Corporation Limited was established on 18 February 2016. Up to now, the relevant reorganisation is still in
progress and the asset consolidation of the two companies has not been completed. Further announcement(s) will be made by the
Company in accordance with the relevant requirements upon completion of such matters. The Company is not aware of any affiliated
relationships among other shareholders.
(3)
The above shareholders do not hold the shares of the Company through credit securities accounts.
112
China Merchants Bank
Annual Report 2015
2.37 A Shares not subject to
trading moratorium
3.74 A Shares not subject to
trading moratorium
Development Company Ltd.
944,013,171
HKSCC Nominees Ltd.(¹)
4,538,723,917
18.00 H shares
5,615,660
2
China Merchants Steam Navigation
State-owned legal person
3,289,470,337
Company Ltd.
13.04 A Shares not subject to
trading moratorium
127,046,014
3
Anbang Property & Casualty Insurance
Domestic legal person
2,704,596,216
Company Ltd. - traditional products
10.72 A Shares not subject to
trading moratorium
State-owned legal person
Shenzhen Chu Yuan Investment and
6
510,952,663
4.99 A Shares not subject to
trading moratorium
Development Company Ltd.
(share)
1,258,542,349
Shenzhen Yan Qing Investment and
5
6.24 A Shares not subject to
trading moratorium
1,574,729,111
China Ocean Shipping (Group) Company State-owned legal person
4
State-owned legal person
H
Class of Long/short
Interest of controlled corporation
115
116
China Merchants Bank
Annual Report 2015
VII Changes in Shares and Information on Shareholders
(3)
So far as the Company is aware, as at 31 December 2015, 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 this report, any discrepancies between the total shown and the sum of the
amounts listed are due to rounding.)
On 8 October 2015, China Merchants Steam Navigation Company Ltd., China Merchants Finance Investment
Holdings Co., Ltd., Shenzhen Yan Qing Investment and Development Company Ltd., Shenzhen Chu Yuan
Investment and Development Company Ltd. and Best Winner Investment Limited jointly published the
Simplified Report on Changes in Shareholdings of China Merchants Bank. For details, please refer to the
relevant announcements on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the
Company.
On 28 December 2015, SASAC of the State Council issued the "Notice Regarding the Restructuring of China
Merchants Group Ltd. and Sinotrans & CSC Holdings Co., Ltd." (Guo Zi Fa Gai Ge (2015) No. 181) (<
於招商局集團有限公司和中國外運長航集團有限公司重組的通知》(國資發改革[2015]181號)), pursuant to
which, Sinotrans & CSC Holdings Co., Ltd. will be transferred to China Merchants Group at nil consideration,
as approved by the State Council. On 24 February 2016, the Enterprise Property Right Registration Form (
*) of Sinotrans & CSC Holdings Co., Ltd. was confirmed by the SASAC of the State Council,
confirming that China Merchants Group Ltd. is registered as the capital contributor of Sinotrans & CSC
Holdings Co., Ltd.; the 22,207,847 shares in China Merchants Bank (accounting for approximately 0.09%
of the entire share capital of the Company) held by Sinotrans & CSC Holdings Co., Ltd. and Wuhan
Changjiang Shipping Company (its subsidiary) are indirectly held by China Merchants Group (the "Change
in Shareholding"). Upon completion of this Change in Shareholding, China Merchants Group Ltd. (including
Sinotrans & CSC Holdings Co., Ltd. and Wuhan Changjiang Shipping Company) will have a de facto control
of an aggregate of 7,581,635,222 shares in China Merchants Bank, accounting for approximately 30.06% of
the entire share capital of the Company (hereinafter referred to as the "Acquisition"). The Acquisition would
trigger an obligation to make a general offer and China Merchants Steam Navigation Company Ltd. (as the
applicant) has applied to the CSRC for an exemption from the obligation to make a general offer. Matters
related with the Change in Shareholding of major shareholders involved in the Acquisition are still subject
to examination by the China Banking Regulatory Commission. The Executive of the Securities and Futures
Commission of Hong Kong has granted a waiver in respect of the Acquisition to China Merchants Group Ltd.
from the obligation to make a general offer for all the shares of China Merchants Bank under Rule 26 of The
Codes on Takeovers and Mergers and Share Buy-backs as a result of the Change in Shareholding. Up to date,
the examination and approval procedures necessary for this Change in Shareholding have not been completed
yet. Upon completion of such examination and approval procedures, China Merchants Group will become
a de facto controller of the Company and the Company will make further announcements in due course
according to relevant requirements. For details, please refer to the "Indicative Announcement Regarding
Important Notice from a Shareholder", "Indicative Announcement Regarding Disclosure of Acquisition Report
(Summary) by Shareholder(s)" and the "Acquisition Report (Summary) of China Merchants Bank Co., Ltd."
published by the Company on 29 February 2016 at the websites of Shanghai Stock Exchange, Hong Kong
Stock Exchange and the Company.
China Merchants Bank
Annual Report 2015
VII Changes in Shares and Information on Shareholders
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 (organisation code: 59963808-5). 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.
in the above chart, the 4.55% equity interest in the Company held by China Merchants Finance Investment Holdings Co.,
Ltd. includes the 0.89% equity interest in the Company held by it through asset management plans.
Internal staff shares
7.7 Issuance of bonds
Issuance of medium-term notes in 2015
According to the business development plan of the Company, the New York Branch of the Company issued medium-
term notes in the amount of USD500 million in Hong Kong in May 2015, all of which are fixed-rate notes for a
term of 3 years with a coupon rate of 2.485%. As at 31 December 2015, the proceeds raised from issuance of the
medium-term notes were fully used to replenish the general working capital of the Company.
117
118
China Merchants Bank
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
Annual Report 2015
Directors, Supervisors, Senior Management,
Employees and Organisational Structure
8.1 Directors, Supervisors and Senior Management
(share)
Shareholding
at the end of
the period
(share)
The Company had not issued internal staff shares during the reporting period.
Aggregate
0.22%
China Merchants Bank Co., Ltd.
(Hong Kong) Ltd.
100%
China Merchants Group Ltd.
90%
China Merchants Finance
Investment Holdings Co., Ltd.
China Merchants International
50%
Finance Company Limited
100%
China Merchants Union
(BVI) Limited
Best Winner Investment
Limited
1.89%
1.53%
Note:
4.99%
13.04%
27.59%
China Merchants China
Direct Investments Limited
51%
Shenzhen Yan Qing
Investment and
Development Company Ltd.
100%
China Merchants
Industry Development
(Shenzhen) Limited
50%
Shenzhen Chu Yuan
Investment and
Development Company Ltd.
4.55%
3.74%
49%
pre-tax
remunerations
received from
the Company
Non-Executive Director
2014.11-2016.5
Executive Director
2013.8-2016.5
474.60
No
Tian Huiyu
Male 1965.12
President and Chief Executive Officer 2013.9-2016.5
Li Yinquan
Sun Yueying
Li Hao
Male 1955.4
Female 1958.6
Male
Non-Executive Director
2001.4-2016.5
1959.5
Yes
2001.4-2016.5
Yes
1959.3
Executive Director,
First Executive Vice President and
2007.6-2016.5
379.68
No
Chief Financial Officer
Fu Gangfeng
Male 1966.12
Non-Executive Director
Long
2010.8-2016.5
Non-Executive Director
Male
Li Xiaopeng
Yes
during the
reporting
period (RMB
ten thousand)
Whether
having received
remunerations
from the related
parties of the
Company during
the reporting
period
Date of
Shareholding
at the beginning
of the period
Name
Gender Birth(Y/M)
Title
Term of office
Chairman
2014.8-2016.5
Yes
2015.11-2016.5
Vice Chairman
2014.3-2016.5
Non-Executive Director
Male
Ma Zehua
China Merchants Holdings
Yes
Vice Chairman
2014.7-2016.5
Non-Executive Director
1956.5
Male
Li Jianhong
2014.8-2016.5
50%
1953.1
China Merchants Steam Navigation
Company Ltd.
477,903,500
3
1.89
BlackRock, Inc.
H
Long
Short
Interest of controlled corporation
Beneficial owner
269,818,362
4
5.88
1.07
1,696,500
4
Beneficial owner
0.04
*
Notes:
(1)
(2)
As far as the Company is aware, the number of the shares as shown in the table above represents the interests and short positions of each
substantial shareholder as at 31 December 2015. These figures may not have been reported in the declaration forms submitted by them
because their updated interests are not reportable under the SFO.
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)
(1.2)
(1.3)
(1.4)
(1.5)
(1.6)
(1.7)
(1.8)
0.006
Long
H
China Merchants Union (BVI) Limited
89.45%
477,903,500
3
10.41
1.89
(中國華馨投資有限公司)
Boyuan Investment Company Limited
H
Long
Interest of controlled corporation
477,903,500
3
10.41
1.89
Guoxin International Investment
H
Long
1.89
10.41
3
477,903,500
Interest of controlled corporation
Long
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..
H
Corporation Limited
1.89
10.41
3
477,903,500
Interest of controlled corporation
Verise Holdings Company Limited
China Merchants Finance Investment Holdings Co., Ltd. held 923,853,653 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.
10.41
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.
(4.1.2)
BlackRock Asset Management Canada Limited held 504,500 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
574,000 H shares (long position) in the Company.
(4.2)
(4.1.4)
BlackRock Asset Management North Asia Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
2,246,124 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)). Black Rock 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 2,778,309 H shares (long position) in the Company.
(4.2.2) BlackRock Advisors (UK) Limited held 45,693,283 H shares (long position) in the Company.
(4.2.3) BlackRock International Limited held 1,540,498 H shares (long position) in the Company.
(4.2.4) BlackRock Asset Management Ireland Limited held 29,046,784 H shares (long position) in the Company.
(4.2.5) BLACKROCK (Luxembourg) S.A. held 539,792 H shares (long position) in the Company.
(4.2.6) BlackRock Investment Management (UK) Limited held 10,693,693 H shares (long position) in the Company.
(4.2.7) BlackRock Asset Management Deutschland AG held 229,231 H shares (long position) in the Company.
(4.2.8) BlackRock Fund Managers Limited held 1,969,711 H shares (long position) in the Company.
(4.2.9)
10.55%
10%
100%
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..
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, energy transport and logistics, ship maintenance and ocean engineering),
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.
(4.1.1) BlackRock Japan Co., Ltd. (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 5,342,500 H shares (long
position) in the Company.
(2)
7.4 Information on the Company's largest shareholder
and its parent company
VII Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2015
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 2015 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 22,000 H shares (long position) in the Company.
BlackRock Life Limited held 88,000 H shares (long position) in the Company.
(1)
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:
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 follows:
BlackRock, Inc. was deemed to hold interests in a total of 269,818,362 H shares (long position) and 1,696,500 H Shares (short position) in the
Company (of which, 128,500 H shares 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)
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.
China Merchants Industry Development (Shenzhen) Limited held 55,196,540 A shares (long position) in the Company. China
Merchants Industry Development (Shenzhen) Limited was a wholly owned subsidiary of China Merchants China Direct Investments
Limited. China Merchants Group Ltd. indirectly controls 27.59% interest in China Merchants China Direct Investments Limited through
China Merchants Finance Holdings Company Limited, its wholly owned subsidiary. 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 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 days prior notice in writing. Therefore, China Merchants Group Ltd. is a related party that dominates the major decision-
makings of China Merchants Industry Development (Shenzhen) Limited.
JPMorgan Chase & Co. was deemed to hold interests in a total of 503,854,268 H shares (long position) and 44,962,101 H Shares (short
position) in the Company by virtue of its control over a number of corporations, which were directly or indirectly wholly-owned by JPMorgan
Chase & Co. except for the following:
(2.1)
China International Fund Management Co Ltd. held 6,570,000 H shares (long position) in the Company. China International Fund
Management Co Ltd. was held as to 49% by JPMorgan Asset Management (UK) Limited, which was an indirect wholly-owned
subsidiary of JPMorgan Chase & Co..
113
114
China Merchants Bank
Annual Report 2015
VII Changes in Shares and Information on Shareholders
(3)
(4)
The entire interest and short position of JPMorgan Chase & Co. in the Company included a lending pool of 139,743,375 H shares. Besides,
35,996,897 H shares (long position) and 44,962,101 H shares (short position) were held through derivatives as follows:
5,080,620 H shares (long position) and 6,686,000 H shares (short position)
2,597,000 H shares (short position)
China Merchants Zhi Yuan Zeng Chi Bao No.1 Collective Asset Management Plan (1†£ÂÂÌÏŒ) and China
Merchants Zhi Yuan Zeng Chi Bao No.2 Collective Asset Management Plan (#⠀²¶¶¦¤À) held 223,523,762
A shares (long position) in the Company. China Merchants Zhi Yuan Zeng Chi Bao No.1 Collective Asset Management Plan (
1) and China Merchants Zhi Yuan Zeng Chi Bao No.2 Collective Asset Management Plan (2
**¦¤à¥¤) are both under control by China Merchants Finance Investment Holdings Co., Ltd., referred to in (1.2) above.
28,188,277 H shares (long position) and 30,543,649 H shares (short position)
(3.4) The 477,903,500 H shares referred to in (3) and (3.1) to (3.3) represent the same shares.
2,728,000 H shares (long position) and 5,135,452 H shares (short position)
Boyuan Investment Company Limited (referred to in (3)) was deemed to hold the 477,903,500 H shares in the Company which
Guoxin International Investment Corporation Limited was deemed to hold by virtue of holding 90% interest in Guoxin International
Investment Corporation Limited.
Verise Holdings Company Limited was wholly-owned by Guoxin International Investment 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.
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.
(3.3)
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 (1.3) above, respectively.
(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 Boyuan Investment Company Limited:
through physically settled derivatives (on exchange)
through cash settled derivatives (off exchange)
through physically settled derivatives (off exchange)
through cash settled derivatives (on exchange)
(3.2)
Mr. Li Yinquan is a Non-executive Director of the Company. He obtained a master's degree in economics from the
Graduate School of the People's Bank of China and a master's degree in finance from FINAFRICA, Italy. He is a senior
economist. He has been a Director of the Company since April 2001. He is a deputy to the 12th session of the
National People's Congress of Hong Kong Special Administrative Region. He is a director of China Merchants Group,
the vice chairman and CEO of China Merchants Capital Investments Co., Ltd., the chairman of China Merchants
Kunlun Equity Investment Fund Management Co., Ltd. and China Merchants China Investment Management Limited,
a director of China Merchants China Direct Investments Limited (a company listed on Hong Kong Stock Exchange),
and an independent non-executive director of Universal Medical Financial & Technical Advisory Services Company
Limited. He was the chief financial officer and deputy general manager of China Merchants Group Ltd..
Ms. Sun Yueying is a Non-executive Director of the Company. She is a bachelor's degree holder and is a senior
accountant. She has been a Director of the Company since April 2001. She has been the chief accountant of China
COSCO Shipping Corporation Limited (+ĦRA), a non-executive director of China COSCO
Holdings Company Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), the
chairman of COSCO Finance Co., Ltd. and a director of China Merchants Securities Co., Ltd. (a company listed on
Shanghai Stock Exchange). She was the chief accountant of China Ocean Shipping (Group) Company.
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 joined the Company in May 1997 as the Executive Assistant President of the Head Office. He was
the general manager of the Shanghai Branch of the Company from April 2000 to March 2002. Mr. Li has been 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. He is concurrently the chairman of CMFM and the vice chairman of Shenzhen CMB Qianhai Financial
Asset Exchange Co., Ltd. (深圳市招銀前海金融資產交易中心有限公司).
Mr. Fu Gangfeng is a Non-executive Director of the Company. He 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 has been
a Director of the Company since August 2010. He is the chief financial officer of China Merchants Group Ltd., an
executive director of China Merchants Holdings (International) Co., Ltd. (a company listed on Hong Kong Stock
Exchange) and the vice chairman of China Merchants Shekou Industrial Zone Holdings Co., Ltd. (À¯*I*
PRESÁRA) (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..
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 125
China Merchants Bank
Annual Report 2015
Ms. Su Min is a Non-executive Director of the Company. She 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. She has been a
Director of the Company since September 2014. Ms. Su is concurrently the general manager of China Merchants
Finance Holdings Company Limited, the chairman of Shenzhen China Merchants Qihang Internet Investment
Management Co., Ltd. (ÀÍGIERATÁRA) and a supervisor of China Merchants Capital
Investments Co., Ltd.. Ms. Su 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., 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, 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).
Mr. Leung Kam Chung, Antony is an Independent Non-executive Director of the Company. He 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 has been an Independent Non-
executive Director of the Company since January 2015. He is concurrently the chief executive officer of Nan Fung
Group, the chairman of charitable organizations, Heifer International - Hong Kong and "Food Angel", and the
chairman of Harvard Business School Association of Hong Kong. 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, 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. The government
services that Mr. Leung had engaged in included 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, member
of the board of Hong Kong Airport Authority and Director of the Hong Kong Futures Exchange.
Mr. Wong Kwai Lam is an Independent Non-executive Director of the Company. He 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 has been an Independent Non-executive Director of
the Company since July 2011. 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 board of directors of Chinese University of Hong Kong Medical Center Co., Ltd. (★‡ªÀ+ÒÁRA
]) and a member of the Governance Committee of Prince of Wales Hospital located in Shatin, Hong Kong. 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.
126
China Merchants Bank
Annual Report 2015
Mr. Hong Xiaoyuan is a Non-executive Director of the Company. He 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
has been a Director of the Company since June 2007. He is concurrently the assistant general manager of China
Merchants Group Ltd. and the chairman of China Merchants Finance Holdings Company Limited, the chairman of
China Merchants Finance Investment Holdings Co., Ltd., China Merchants Holdings (U.K.) 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. (Ò¤£Ã¤Â¶¢ÈÌ9+Ù®Â) and the vice 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. Mr. Tian 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 served consecutively as the deputy
general manager of Shanghai Branch of CCB, the head and general manager of Shenzhen Branch of CCB from
December 2006 to March 2011. Mr. Tian acted as the business executive of retail banking at the head office and
general manager of Beijing Branch of China Construction Bank Corporation ("CCB") (a company listed on Hong
Kong Stock Exchange and Shanghai Stock Exchange) from March 2011 to May 2013. He joined the Company in
May 2013 and was appointed as the President of the Company in September 2013. Mr. Tian is concurrently the vice
chairman of CMB-China Unicom Consumption Finance Co., Ltd. (RA).
124
China Merchants Bank
Annual Report 2015
Mr. Li Xiaopeng is the Vice Chairman and Non-executive Director of the Company. He obtained his Ph.D. in finance
from Wuhan University. He is a senior economist. He has been a Director of the Company since November 2014
and the Vice Chairman of the Company since November 2015. Mr. Li is currently the general manager of China
Merchants Group Ltd.. He is concurrently 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 Merchants
Capital Investments Co., Ltd., the chairman of China Merchants United Development Company Limited, the
chairman of China Merchants Investment and Development Co., Ltd. (Ã¥ŒĦRA¬), 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 deputy general manager of Henan Branch of Industrial and
Commercial Bank of China Limited ("ICBC"), the general manager of the banking department of the head office
of ICBC, the general manager of ICBC Sichuan Branch, the vice president of China Huarong Asset Management
Corporation, the assistant to the president of 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,
and the chairman of the board of supervisors of China Investment Corporation. He also served concurrently 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.
Mr. Ma Zehua is the Vice Chairman and Non-executive Director of the Company. He obtained a master's degree in
international law from Shanghai Maritime Institute (now known as Shanghai Maritime University), and is a senior
economist. He has been the Director of the Company since March 2014 and the Vice Chairman of the Company
since August 2014. Mr. Ma is currently a deputy to the 12th session of the National People's Congress of the PRC
and a member of the Foreign Affairs Committee. From 1990 to 2016, Mr. Ma served as the general manager of
COSCO (UK) Ltd., the general manager of development department and head of overseas business division of
COSCO Group, the assistant to president and general manager of development department of COSCO Group, the
president of COSCO Americas, Inc., the deputy general manager of Guangzhou Ocean Shipping Company, the
general manager of Qingdao Ocean Shipping Company, the vice president of COSCO Group, the vice president
of China Shipping (Group) Company, a director, the president and the chairman of China Ocean Shipping (Group)
Company.
Mr. Li Jianhong is the Chairman and Non-executive Director of the Company. He 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. Mr. Li has been a Director of the Company since July 2014 and the
Chairman of the Company since August 2014. Currently, he serves as the Chairman of China Merchants Group
Ltd. Mr. Li 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 the 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.
Posts
8.5 Biography of Directors, Supervisors and Senior
Management and Information of Their Concurrent
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 123
China Merchants Bank
Annual Report 2015
From August 2015 up to now
From January 2012 to June 2015
From September 2006 up to now
From November 2011 up to now
From September 2011 up to now
From September 2006 up to now
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
From July 2014 up to now
From July 2013 to January 2016
From July 2014 up to now
From July 2002 to March 2015
From December 2000 to
January 2016
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
Directors
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
Ms. Pan Yingli is an Independent Non-executive Director of the Company. She 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 has been
an Independent Non-executive Director of the Company since November 2011. 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 the Decision-making Consultation Research Base Studio of Shanghai Municipal Government (
TÀI). She was an associate professor, a professor and a tutor of doctorate candidates in
East China Normal University, and joined 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.
Term of office
120
China Merchants Bank
Annual Report 2015
Mr. Wang Liang is an Executive Vice President 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 has been
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.
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 Executive 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. Wang Qingbin is an Executive Vice President of the Company. He obtained a master's degree in finance from
Chinese Academy of Social Sciences and a senior economist. He joined the Company in May 2000 and successively
served as the general manager of Jinan Branch and Shanghai Branch, and an Executive Assistant President of the
Head Office. He has been an Executive Vice President of the Company since June 2011, and the general manager of
Beijing Branch since November 2013.
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 served as 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, an independent non-executive director of Great Eagle
Holdings Limited (a company listed on Hong Kong Stock Exchange) and a director of the Hongkong Japan Business
Co-operation Committee and a director of CMB International Capital Corporation 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 Executive Assistant President of the Head Office. He has been an Executive
Vice President of the Company since May 2006.
Mr. Tian Huiyu, please refer to Mr. Tian Huiyu's biography under the paragraph headed "Directors" above.
Mr. Li Hao, please refer to Mr. Li Hao's biography under the paragraph headed "Directors" above.
Senior Management
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 129
China Merchants Bank
Annual Report 2015
Ms. Huang Dan has been an Employee Supervisor of the Company since March 2015. She 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. She is an engineer. Ms. Huang 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. She has been the Deputy Director of the Labor Union of
the Head Office of China Merchants Bank since December 2014.
Mr. Jin Qingjun has been an External Supervisor of the Company since October 2014. He obtained a master's
degree in law from the Graduate School of China University of Political Science and Law. 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. Since September 2002, 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 Guotai Junan Securities Co., Ltd. (a company listed on Shanghai Stock Exchange), Gemdale
Corporation (a company listed on Shanghai Stock Exchange), Tianjin Changrong Print and Packing Equipment Co.,
Ltd. (a company listed on Shenzhen Stock Exchange), Invesco Great Wall Fund Management Company Limited,
New China Asset Management Co., Ltd., Times Property Holdings Limited (a company listed on Hong Kong Stock
Exchange) and Xi'an Dagang Road Machinery Co., Ltd. (KOR) (a company listed on
Shenzhen Stock Exchange), as well as a director of Konka Group 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. Xiong Kai has been an Employee Supervisor of the Company since August 2014. He obtained a doctorate
degree in legal theory from the Graduate School of Chinese Academy of Social Sciences. He worked at the Ministry
of Public Security from July 1994 to April 2006 and held the positions of deputy section officer, section officer and
deputy director. He served as the deputy director (researcher), director, deputy division director and division director
at the CPC General Office from April 2006 to July 2014. He was the General Manager of the Inspection and Security
Department at the Head Office of China Merchants Bank from July 2014 to August 2015. Mr. Xiong has been the
Director of the General Office of the Head Office of China Merchants Bank since August 2015. He concurrently
serves as the General Manager of the Asset Security Department of the Company.
Mr. Dong Xiande has been an External Supervisor of the Company since June 2014. Mr. Dong graduated from
Shanghai Harbour School (E) majoring in accounting and statistics and is a senior accountant. Mr.
Dong was the deputy head of Treasury Department of Qinhuangdao Port Authority since August 1984, the head of
Treasury Department of Qinhuangdao Port Authority since September 1985 (during which he concurrently served
as the director of Settlement Centre of Qinhuangdao Port Authority from December 1997 to July 1998), the chief
accountant of Qinhuangdao Port Authority from June 1998 to August 2002 (during which he concurrently served as
the head of Treasury Department of Qinhuangdao Port Authority from June 1998 to March 1999), and the director
and chief accountant of Qinhuangdao Port Group Co., Ltd. from August 2002 to February 2008 when he retired.
Mr. Dong was a non-executive director of the fifth session of the Board of Directors of China Merchants Bank Co.,
Ltd. from June 2002 to April 2004, and a shareholder supervisor of the seventh session of the Board of Supervisors
of China Merchants Bank Co., Ltd. from June 2007 to June 2010.
Mr. Pan Ji has been an External Supervisor of the Company since May 2011. He graduated from Beijing Institute
of Economics majoring in Labour Economics. He previously served as the supervisor (at director-general level) of the
Board of Supervisors of the State-owned Assets Supervision and Administration Commission under the State Council.
He used to serve as the deputy director of the Cadre Division Office and the deputy head of Planning & Recruitment
Department of the Labour & Personnel Bureau, the vice director, office head, the chief of the Central Committee,
the assistant inspector (at deputy director-general level) of the Recruitment Office of the Examination Recruitment
Department of the Ministry of Personnel, the assistant to Commissioner and office head of the Investigating
Commissioner Office under the State Council, the supervisor and office head of the Board of Supervisors of the
Central Enterprises Work Committee, and the supervisor (at deputy director-general level) of the Board of Supervisors
of the State-owned Assets Supervision and Administration Commission under the State Council.
China Merchants Bank
Annual Report 2015
128
Mr. Liu Zhengxi has been a Shareholder Supervisor of the Company since May 2012. He graduated from
Hangzhou Institute of Commerce majoring in enterprise management. Mr. Liu served as a section officer, the deputy
director of the Planning and Financial Division and the deputy director of the Labor Wage Division of Shandong
Provincial Department of Labor and Social Security from 2000 to 2004, the deputy director and the director of
the Distribution Department and the Head of the Capital Operation and Gains Management Department of State-
owned Assets Supervision and Administration Commission of Shandong Province from 2004 to 2011, the vice
president of Shandong State-owned Assets Investment Holding Co., Ltd. from March 2011 to August 2015 and
the legal representative of Shandong Pharmaceutical Group Co., Ltd. () from May 2015 to
December 2015. He has also been a director and deputy secretary of Party Committee of Shandong State-owned
Assets Investment Holdings Co., Ltd. (ÈRAERAR]) since August 2015, and the chairman (legal
representative), secretary of Party Committee and general manager of Shandong Pharmaceutical Group Co., Ltd. (
¯) since December 2015.
Mr. Fu Junyuan was a Non-executive Director of the Company from March 2000 to September 2015, and has been
a Shareholder Supervisor of the Company since September 2015. He obtained a doctorate degree in management
and is a senior accountant. He was the chief accountant of China Harbour Engineering (Group) Ltd. and the chief
accountant of China Communications Construction (Group) Ltd. from October 1996 to September 2006. He has
been an executive director and chief financial officer of China Communications Construction Ltd. (a company listed
on Hong Kong Stock Exchange and Shanghai Stock Exchange). He has also been the chairman of CCCC Finance
Company Limited and the vice chairman of Jiang Tai Insurance Broker Co., Ltd. since September 2006.
Mr. Zhu Genlin was a Non-executive Director of the Company from April 2001 to May 2003, and has been a
Shareholder Supervisor of the Company since May 2003. Mr. Zhu graduated from Shanghai University of Finance and
Economics and obtained a master's degree in economics. He is a senior economist and associate researcher. He was
the chief financial officer of Shanghai Automotive Industry Corporation (Group) from February 2002 to August 2010,
the vice president of Shanghai Automotive Industry Corporation (Group) from August 2010 to January 2012 and
the vice president of SAIC Motor Corporation Limited (a company listed on Shanghai Stock Exchange) from January
2012 to June 2015. He is concurrently the deputy chairman of Automobile Branch of Shanghai Foreign Investment
Association (上海市外商投資協會汽車分會).
), 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 (R탣¥=¬KŁ) of the People's Bank
of China from February 1994 to July 2003. He served as the deputy head of the Banking Supervision Department
|| (R) of the CBRC, director of CBRC Shanxi Bureau, director of CBRC Shenzhen Bureau, head
of the banking related case audit bureau (**##≤BBE) of the CBRC and head of the banking related
consumer protection bureau (Rí¯⠀⠀¤¤¤) of the CBRC from July 2003 to July 2014. He was appointed
as a member of the CPC Committee at the Head Office of China Merchants Bank in July 2014. He is concurrently 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 (深圳市金融發展決策諮詢委員會).
Mr. Liu Yuan has been the Chairman of the Board of Supervisors of the Company since August 2014. He graduated
from Renmin University of China with a bachelor's degree in global economy and is an economist. He served as
the deputy section officer and section officer of the management office of foreign affairs bureau (¥Â¥¥£)
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 () of State Administration
of Foreign Exchange from October 1991 to February 1994. He held the positions of secretary (deputy level) of the
General Office (^), researcher of the regulatory office I of the banking division (RĀK
Supervisors
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 127
China Merchants Bank
Annual Report 2015
Mr. Zhao Jun is an Independent Non-executive Director of the Company. He 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. He has
been an Independent Non-executive Director of the Company since January 2015. Mr. Zhao is currently the chairman
of Fupu Fund Management Co., Ltd. (). He was a managing partner of DT Capital Partners,
the managing director and the chief representative in China of ChinaVest, Ltd..
Ms. Guo Xuemeng is an Independent Non-executive Director of the Company. She obtained a master's degree in
accounting of economics department from Northern Jiaotong University (renamed as Beijing Jiaotong University in
2003) and a doctorate degree in economics from Beijing Jiaotong University. She has been an Independent Non-
executive Director of the Company since July 2012. She is concurrently a professor, a tutor of doctorate candidates
of the School of Economics and Management as well as the vice dean of the Graduate School of Beijing Jiaotong
University, the secretary-general of Transportation and Economics Committee of China Communication and
Transportation Association, a direct member of Railway Accounting Association (¤ª††?ª¤§1), and
an independent non-executive director of Gvitech Corporation (RŰNERSOR) and Luoyang North Glass
Technology Co., Ltd.. From July 2001 to November 2012, she successively served as the deputy secretary of the
CPC committee of the School of Economics and Management, the deputy director of the general office, the vice
dean and deputy secretary of the CPC committee of the School of Economics and Management of Beijing Jiaotong
University.
Mr. Pan Chengwei is an Independent Non-executive Director of the Company. He graduated from Cadre
Institute under the Ministry of Transport with an associate bachelor's degree and is an accountant. He has been
an Independent Non-executive Director of the Company since July 2012. He is currently an independent non-
executive director of Shenzhen Nanshan Power Co., Ltd., (a company listed on Shenzhen Stock Exchange) and the
China International Marine Containers (Group) Co., Ltd. (a company listed on Hong Kong Stock Exchange and the
Shenzhen Stock Exchange). He was the general manager of finance department of China Ocean Shipping (Group)
Company (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), the general manager
of 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.
Chief Financial Officer
Director, Deputy Secretary of the
CPC Committee
Mr. Leung Kam Chung, Antony, Independent Non-executive Director of the Company, serves as the Chairman
of charitable organizations, Heifer International - Hong Kong and "Food Angel", and ceased to be Senior
Advisor and Member of the International Advisory Board of Blackstone.
Deputy General Manager
Chief Accountant
Mr. Fu Gangfeng, Non-executive Director of the Company, serves as Executive Director of China Merchants
Holdings (International) Company Limited; Mr. Fu Gangfeng serves as Vice Chairman of China Merchants
Shekou Industrial Zone Holdings Co., Ltd. (¯¢¯¯*&£❀❀Ħ2), the surviving entity after
combination with China Merchants Properties Limited () by way of merger.
Mr. Li Hao, Executive Director and First Executive Vice President of the Company, concurrently serves as
Chairman of CMFM and Vice Chairman of Shenzhen CMB Qianhai Financial Asset Exchange Co., Ltd. (
招銀前海金融資產交易中心有限公司).
Ms. Sun Yueying, Non-executive Director of the Company, serves as Chief Accountant of China Cosco
Shipping Corporation Limited (+£¥¥¥¥£!), the new entity resulting from combination of
China Ocean Shipping (Group) Company with China Shipping (Group) Limited, and ceased to be the Chief
Accountant of China Ocean Shipping (Group) Company.
Mr. Li Yinquan, Non-executive Director of the Company, serves as Independent Non-executive Director of
Universal Medical Financial & Technical Advisory Services Company Limited, and ceased to be the Deputy
General Manager of China Merchants Group Ltd., the Chairman of China Merchants Finance Holdings
Company Limited and Director of China Merchants Holdings (International) Co., Ltd..
Mr. Tian Huiyu, Executive Director, President and Chief Executive Officer of the Company, concurrently serves
as Vice Chairman of CMB-China Unicom Consumption Finance Co., Ltd.
Mr. Li Xiaopeng, Vice Chairman of the Company, concurrently serves as Chairman of the Board of Directors
of China Merchants Holdings (International) Co., Ltd., Chairman of China Merchants Capital Investments
Co., Ltd., Chairman of China Merchants United Development Company Limited, Chairman of China
Merchants Investment and Development Co., Ltd. (), Vice President of China Tourism
Association, and ceased to concurrently serve as Chairman of China Merchants Energy Shipping Company
Limited and China Merchants Huajian Highway Investment Company Limited.
Mr. Ma Zehua, Vice Chairman of the Company, ceased to be the Chairman of China Ocean Shipping (Group)
Company (COSCO Group).
13.
12.
11.
10.
9.
8.
Mr. Hong Xiaoyuan, Non-executive Director of the Company, serves as Chairman of China Merchants Finance
Holdings Company Limited, Chairman of Shenzhen CMB Qianhai Financial Asset Exchange Co., Ltd.
H®ÌŒÂÂÂÌÌ‚+Ò¤®), Vice Chairman of China Merchants Capital Investments Co., Ltd., and
ceased to be the Chairman of Bosera Asset Management Co., Ltd., General Manager of China Merchants
Finance Holdings Company Limited and Director of China Merchants Securities Co., Ltd..
7.
4.
3.
2.
1. Mr. Li Jianhong, Chairman of the Company, ceased to be the Chairman of the Board of Directors of China
Merchants Holdings (International) Co., Ltd., the Chairman of China International Marine Containers (Group)
Limited and the Chairman of China Merchants Capital Investments Co., Ltd..
8.3 Changes of Information of Directors and Supervisors
during the Reporting Period
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 121
China Merchants Bank
Annual Report 2015
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.
According to the resolutions passed at the 2015 First Extraordinary General Meeting of the Company and the
voting results of the employee representatives meeting of the Company, Mr. Fu Junyuan and Ms. Huang Dan
were elected as Shareholder Supervisor and Employee Supervisor of the Ninth Session of the Board of Supervisors
of the Company, respectively. Mr. Yu Yong, a Former Employee Supervisor, ceased to be Employee Supervisor of
the Company with effect from March 2015 and Mr. An Luming, a Former Shareholder Supervisor, ceased to be
Shareholder Supervisor of the Company with effect from August 2015. There were no changes to other members of
the Board of Supervisors. Mr. Dong Xiande resigned as External Supervisor of the Company in September 2015 and
Mr. Pan Ji resigned as External Supervisor of the Company in November 2015. Their resignations will take effect only
after new External Supervisors have been appointed at the general meeting of the Company to fill their vacancies.
According to the resolutions passed at the 26th meeting of the Ninth Session of the Board of Directors of the
Company, Mr. Wang Liang and Mr. Zhao Ju were appointed as Executive Vice Presidents of the Company. Their
qualifications for serving as Executive Vice Presidents have been approved by the CBRC, Shenzhen Office in
December 2014 and February 2015, respectively.
According to the resolutions passed at the 2014 Second Extraordinary General Meeting of the Company, Mr. Leung
Kam Chung, Antony and Mr. Zhao Jun were elected as Independent Non-executive Directors of the Ninth Session of
the Board of Directors of the Company. Their qualifications for serving as Directors were approved by the banking
regulator(s) in the PRC in January 2015. According to the resolution passed at the 2015 First Extraordinary General
Meeting of the Company, Mr. Zhang Feng was nominated as a Non-executive Director of the Company, but his
appointment qualification is still subject to approval by the banking regulator(s) in the PRC. Mr. Li Xiaopeng was
elected as the Vice Chairman of the Company at the 35th meeting of the Ninth Session of the Board of Directors of
the Company. His appointment qualification has been approved by the PRC banking regulator(s) in November 2015.
Mr. Zhang Guanghua submitted a letter of resignation to the Company on 14 July 2015 due to work reasons, and
ceased to be Vice Chairman and Executive Director of the Company. Mr. Xu Shanda and Mr. Xiao Yuhuai ceased to
be Independent Non-executive Director of the Company with effect from January 2015. Mr. Fu Junyuan submitted
a letter of resignation to the Company on 26 August 2015 due to work reasons, and ceased to be Non-Executive
Director of the Company. Ms. Guo Xuemeng submitted a letter of resignation to the Company on 12 November
2015 due to work reasons and her resignation will take effect only after a new Independent Non-Executive Director
has been elected at the general meeting of the Company to fill her vacancy and whose qualification for serving as
the independent non-executive director has been approved by the PRC banking regulatory authorities.
8.2 Appointment and Resignation of Directors,
Supervisors and Senior Management
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
Chief Financial Officer
Assistant General Manager
Executive Director &
Chief Financial Officer
Vice President
Executive Director &
5.
Ms. Su Min, Non-executive Director of the Company, serves as General Manager of China Merchants Finance
Holdings Company Limited, Chairman of Shenzhen Merchants Qihang Internet Investment Management Co.,
Ltd. (NBA), Supervisor of China Merchants Capital Investments Co., Ltd.,
and ceased to be the Chief Accountant and a member of the Communist Party of China Committee of China
Shipping (Group) Company, Chairman of CS Finance Company, and director of China Shipping Development
Co., Ltd. and China Shipping Container Lines Company Limited.
6.
Ms. Guo Xuemeng, Independent Non-executive Director of the Company, serves as an Independent Non-
executive Director of Luoyang North Glass Technology Co., Ltd., and ceased to be Independent Non-executive
Director of Beijing Bode Communication Equipment Co., Ltd. (§ŒÌŒØSĦRA).
General Manager
Mr. Wong Kwai Lam, Independent Non-executive Director of the Company, serves as an Independent Non-
executive Director of Hutchison Port Holdings Trust.
Chairman
Chairman
Title
Construction Co., Ltd.
Shandong State-owned Assets
Investment Holdings Co. Ltd.
Construction Co., Ltd.
SAIC Motor Corporation Limited
China Communications
China Merchants Group Ltd.
China Merchants Group Ltd.
China Communications
China Merchants Group Ltd.
China Merchants Group Ltd.
China Ocean Shipping (Group)
Company
Liu Zhengxi
Fu Junyuan
Zhu Genlin
Fu Junyuan
Fu Gangfeng
Hong Xiaoyuan
Li Xiaopeng
Li Yinquan
Sun Yueying
Name of Company
China Merchants Group Ltd.
China Ocean Shipping (Group)
Company
Li Jianhong
Ma Zehua
122
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
14.
16.
17.
15.
Mr. Liu Zhengxi, Shareholder Supervisor of the Company, ceased to be the vice president of Shandong State-
owned Assets Investment Holdings Co., Ltd. and was redesignated as a director and deputy secretary of the
CPC committee of Shandong State-owned Assets Investment Holdings Co., Ltd., and concurrently serves as
Chairman (legal representative), secretary of the CPC committee and general manager of Shandong Province
Pharmaceutical Group (AĦJARÃĀ).
Mr. Jin Qingjun, External Supervisor of the Company, concurrently served as an independent director of Xi'an
Dagang Road Machinery Co., Ltd. and Times Property Holdings Limited, as well as a director of Konka Group
Co., Ltd..
Mr. Xiong Kai, Employee Supervisor of the Company, ceased to be the general manager of the Inspection and
Security Department of the Company and was appointed as director of General Office of the Company. He
concurrently serves as General Manager of Asset Security Department of the Company.
8.4 Current Positions Held by Directors and Supervisors
in the Shareholders' Companies
Name
Mr. Zhu Genlin, Shareholder Supervisor of the Company, ceased to be the vice president of SAIC Motor
Corporation Limited and was appointed as vice president of SAEFI Automotive Branch.
210005
310007
78
2,705
143,826
23 Hangda Road, Hangzhou
63
315042
142,565
Ningbo Branch
342 Min'an East Road, Ningbo
1,145
32
1 Hanzhong Road, Nanjing
2,503
Nanjing Branch
Hangzhou Branch
1088 Lujiazui Ring Road, Pudong New District,
Shanghai
Waigaoqiao Bonded Area,
66,621
Yangtze River Delta
Shanghai Branch
200120
107
4,382
Pudong New District, Shanghai
209,507
Waigaoqiao Building, 6 Jilong Road,
200131
1
35
2,835
Zone Branch
Shanghai Pilot Free Trade
Suzhou Branch
No. of
215028
226007
13
412
112
19,486
134
111 Gongnong Road, Nantong
China Merchants Bank
Annual Report 2015
Postal
No. of
Volume of
assets
Regions
Bohai Rim
Name of branches
310,273
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
Nantong Branch
Wuqiao Avenue, Lucheng District, Wenzhou
31,486
36
1,156
112,288
Wuxi Branch
9 Xueqian Road, Wuxi
214001
15
682
30,733
Wenzhou Branch
1-3/F, Block 2, 4, 5, Hongshengjin Garden,
325000
12
495
495
36 Wansheng Street, Industrial Park, Suzhou
12,311
Business address
201201
132
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
8.9 Information about Employees
As at 31 December 2015, the Company had 76,192 employees (including dispatched employees). In addition, the
Company is responsible for payment of costs for 439 retired employees. The composition of our employees in service
is set out as follows:
2
To further improve the Company's legal entity governance structure, stabilize management and key personnel
team, establish a sound mid and long-term incentive mechanism combining incentives and restraints, and promote
the long-term, sustained and healthy development of the Company, 2015 First Phase Employee Stock Ownership
Scheme of the Company (Draft) (by way of subscribing A Shares in Private Placement) and the relevant resolutions
were considered and approved at the 2014 Annual General Meeting, the First Class Meeting of the Shareholders of
A Shares for 2015 and the First Class Meeting of the Shareholders of H Shares for 2015 of the Company, and the
"resolution regarding Termination of the H Share Appreciation Rights Scheme" was also approved at the aforesaid
general meeting, pursuant to which it was resolved that, upon obtaining the approval for the Employee Stock
Ownership Scheme at the General Meeting, the H-Share Appreciation Rights yet to be granted shall be suspended
immediately; subject to the approvals and implementation of the Employee Stock Ownership Scheme, the H-Share
Appreciation Rights Scheme shall be terminated officially and automatically and the grant of the share appreciation
rights yet to be granted shall also be terminated, and the implementation of the related specific matters will be
arranged for by the Board. Currently, the implementation of the Employee Stock Ownership Scheme is still subject
to approval from the relevant regulatory authorities. For details of the abovementioned matters, please refer to
the relevant announcements dated 10 April 2015, 22 April 2015 and 19 June 2015 published on the websites of
Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
Logistical support
1.00%
Operational staff
1.82%
21.44%
General management
12.96%
Retail staff
41.05%
R&D staff
8.8 Employee Stock Ownership Scheme and H Share
Appreciation Rights Incentive Scheme
According to the "Policies on Evaluation of Performance of Directors by the Board of Supervisors (Provisional)",
the Board of Supervisors 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 2015) and the "Assessment Standards of H-Share
Appreciation Rights Incentive Scheme for the Senior Management".
The Company offers remuneration to independent directors and external supervisors according to the "Resolution in
respect of Adjustment to Remuneration of Independent Directors and External Supervisors"; 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 2015); 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.
130
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
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 concurrently serves as a director of CMB International Capital Holdings Corporation Limited 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.
Mr. Xu Shiqing is the Secretary of the Board of Directors, and one of the joint company secretaries of the
Company. He was a doctor of philosophy in Business Administration of the Southern California University and a
senior economist. Mr. Xu joined the Company in 1993. He held various positions such as the executive assistant of
the General Office of the Head Office, the assistant general manager of International Business Department of the
Head Office, the deputy general manager of International Business Department, the deputy general manager of
Offshore Business Department of the Head Office, the assistant general manager of the Fuzhou Branch, the deputy
general manager of the Planning and Treasury Department of the Head Office, the person-in-charge of Custodian
Department of the Head Office, the general manager of Planning and Financial Department and Treasury Department
of the Head Office, the general manager of Planning and Financial Department of the Head Office, the general
manager of Strategic Development Department and Overseas Development Department of the Head Office, and the
general manager of Hong Kong Branch.
Joint Company Secretaries
Mr. Xu Shiqing, please refer to his biography above.
Ms. Seng Sze Ka Mee, Natalia has been one of the joint company secretaries of the Company since August
2006. Ms. Seng is the Chief Executive Officer - China and Hong Kong of Tricor Group and an Executive Director of
Tricor Services Limited (hereinafter referred to as "Tricor"), and also a Practice Leader of Tricor's Corporate Services
and China Consultancy Services. Ms. Seng is a Chartered Secretary, a Past President (2007-2009) and a retired
Council Member (1996-2012) and a Fellow of The Hong Kong Institute of Chartered Secretaries ("HKICS"); she
is concurrently a Fellow and a retired Council Member (2010-2014) of The Institute of Chartered Secretaries and
Administrators in the United Kingdom, and a Fellow of both The Hong Kong Institute of Directors and The Taxation
Institute of Hong Kong. Ms. Seng was appointed by the government as a member of the Standing Committee on
Company Law Reform and the Corruption Prevention Advisory Committee of Independent Commission Against
Corruption for a term of two years from February 2016 to January 2018. Ms. Seng has become a member of the
Advisory Panel to the Rewrite of the Company Ordinance as a representative of HKICS. Ms. Seng was appointed
by government as a lay member to the Council of the Hong Kong Institute of Certified Public Accountants from
December 2013 to November 2015, and has been an appointed member of the Inland Revenue Department Users'
Committee since 2009. Ms. Seng holds a master's degree in Business Administration (Executive) from City University
of Hong Kong. Apart from the Company, she has also been providing secretarial services to other listed companies
with support of her professional team.
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 131
8.6 Explanation on the office location of Chairman of
the Company
Mr. Li Jianhong, Chairman of the Company, also acts as 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.
8.7 Evaluation and incentive system for directors,
supervisors and senior management
(2) Educational Structure
1
Technical secondary school
degrees or below
1.45%
15.77%
Business address
code
No. of
branches
No. of
assets
Staff
Name of branches
(RMB million)
7088 Shennan Boulevard, Shenzhen
518040
1
5,777
1,880,899
686 Lai'an Road, Pudong New District, Shanghai
Head Office
Credit Card Center
Regions
Head Office
Postal
Volume of
Bachelor's degrees
68.09%
Corporate staff
21.73%
Master's degrees
14.69%
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure 133
Core technical team and key technical personnel
During the reporting period, there was no change in the personnel including the Company's core technical team and
key technical staff (other than the directors, supervisors or senior management personnel) who may have significant
influence on the Company's core competitiveness.
Staff Remuneration Policy
The Company's remuneration policy is in line with its operation targets, cultural concept and values. It aims to
refine and improve its incentive and restrictive mechanisms, realise its corporate goals, enhance its organisational
performance and minimize 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
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.
8.10 Branches and Representative Offices
In 2015, the Company continued to push forward expansion of its branch network. During the reporting period,
five second-level branches were approved to start business, namely: Tianjin Pilot Free Trade Zone Branch, Jingdezhen
Branch, Shihezi Branch, Fujian Pilot Free Trade Zone Fuzhou Branch and Liuan Branch; Nanyang Branch, Jilin Branch
and Fujian Pilot Free Trade Zone Xiamen Branch (second-level) got approval to prepare for establishment; Nantong
Branch got approval to upgrade to first-level branch, Panjin Sub-branch got approval to upgrade to second-level
branch, Guangzhou Nansha Sub-branch got approval to upgrade and rename to Guangdong Pilot Free Trade Zone
Nansha Branch. Outside Mainland China, Luxembourg Branch got approval to start business.
The following table sets forth the branches and representative offices as at 31 December 2015:
Junior college degrees
code
2
Staff (RMB million)
90,170
66
166
1
12 Harcourt Road, Central, Hong Kong
Outside Mainland China Hong Kong Branch
12,860
242
9
810000
4 Xinning Road, Chengxi District, Xining
Xining Branch
14,965
307
12
750000
217 Xinhua Street East, Xingqing District,
Yinchuan
Yinchuan Branch
Yunyan District,Guiyang
20,200
408
22,107
474
26,905
665
USA Representative Office
71,508
509 Madison Avenue, Suite 306,
NewYork, U.S.A
London Representative Office
Taipei Representative Office
Luxembourg Branch
China Merchants Bank
Annual Report 2015
IX Corporate Governance
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, including the "Top Ten Excellent Board of Directors of Companies Listed on the Main Board
in 2015" selected by 21st Century Media; ranking first in the "Top Ten of Investors' Most Respected 100 Listed
Companies in China" selected by the Association of Chinese Listed Companies; the "Silver Award for Composition
of Annual Reports in Greater China" in the ARC International Annual Report Competition known as Annual
Report Oscar; and the "Silver Award for Outstanding Annual Reports of Banks" selected by League of American
Communications Professionals LLC (LACP) in 2014.
9.3 Information about General Meetings
During the reporting period, the Company convened 2 shareholders' general meetings in Shenzhen, namely, the
2014 Annual General Meeting, the First Class Meeting of the Shareholders of A Shares for 2015 and the First Class
Meeting of the Shareholders of H Shares for 2015 held on 19 June 2015 and the 2015 First Extraordinary General
Meeting, the Second Class Meeting of the Shareholders of A Shares for 2015 and the Second Class Meeting of
the Shareholders of H Shares for 2015 held on 25 September 2015. 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 website of Hong
Kong Stock Exchange. The notifying, gathering, convening and voting procedures of the meetings complied with
relevant requirements of the Company Law, 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.
9.4 Board of Directors
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;
devising the Company's major principles, policies and development plans; deciding on the Company's operating
plans, investment proposals and the establishment of internal management organs; preparing annual financial
budgets, final accounts and profit appropriation plans; and appointing members of senior management. The
Company's management team has discretionary powers in terms of operation, and the Board of Directors would not
intervene in any specific matters in the Company's daily operation and management.
In institution 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 director 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 related party transactions, etc., thus providing a solid basis for the Company
to enhance its operation and management capabilities.
139
branches
2
3,407
40
48,253
106
2
1
Total
Other assignments
L-2180
5th floor, 4rue Jean Monnet, Luxembourg
333, Section 1, Jilong Road, Xinyi District, Taipei
048616
1002
535 Madison Avenue 18th Floor, New York, U.S.A
One Raffles Place, Tower 2, #32-61, Singapore
39 Cornhill EC3V 3ND, London, UK
New York Branch
Singapore Branch
1,209
3888
18
710001
1 Gaoxin No.2 Road, Xi'an
730030
9 Qingyang Road, Chengguan District, Lanzhou
China Merchants Bank Mansion,
Urumchi Branch
Lanzhou Branch
Xi'an Branch
Chongqing Branch
55,864
1,486
49
610000
No. 1, the 3rd section of Renmin Road South,
Wuhou District, Chengdu
Chengdu Branch
Staff (RMB million)
code branches
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 135
China Merchants Bank
Annual Report 2015
1 Shimao Road North, Haikou
88 Xingguang Road, New North District,
Chongqing
401121
264
28
550001
284 Zhonghua Road North,
Guiyang Branch
19
530022
92-1 Minzu Avenue, Nanning
18
010040
9 Chilechuan Avenue, Saihan District, Huhhot
43
650051
48 Dongfeng Road East, Kunming
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.
Kunming Branch
Hohhot Branch
Nanning Branch
26,592
685
18
830000
74,425
1,490
45
64,080
1,735
60
29,360
846
2 Huanghe Road, Urumchi
For details of information disclosure and management of investor relations of the Company, please refer to the
section headed "Communications with shareholders" of this report.
Through their presence at meetings of the Board of Directors and the special committees of 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.
The Board of Directors continued to perform their duties of scientific decision-making and strategic management,
continuously strengthened risk management and capital management, made scientific decisions after review and
deliberation of important issues including results and distribution of profits, formulation and implementation of
business strategies, changes of directors and senior management, risk and capital management, remuneration and
appraisal, financial supervision and internal control, structural adjustment, material external investments and material
related party transactions so as to guarantee compliant operation and steady development of the Company. During
the year, the special committees of the Board of Directors diligently performed their duties and made full advantage
of their expertise and research capability. The matters under their review covered most of the resolutions proposed to
the Board of Directors, thus enhancing the efficiency and scientific decision-making ability of the Board of Directors,
and promoted the healthy development of the businesses of the Company.
Branches
Sub-branches
Strategic Customers Department
Institutional Customers Department
Financial Institutions Department
Small Enterprises Finance Department
Transaction Banking Department
Offshore Finance Center
General Office of Retail Finance
Investment Banking Department
Financial Market Department
Asset Management Department
Asset Custody Department
Bills Business Department
Retail Network Banking Department
Wealth Management Department
Private Banking Department
Retail Credit Business Department
Basic Retail Customers Department
(Pension Finance Department)
Credit Card Center
Bills Center
Direct Banking Center
Risk Management Department
Credit Approval Department
Asset Security Department
Head Office
Banking and Financial Markets
General Office of Investment
Finance
General Office of Corporate
1
18
389
29
1,717
76,192
5,208,037
136
China Merchants Bank
Annual Report 2015
VIII Directors, Supervisors, Senior Management, Employees and Organisational Structure
8.11 The Company's Organisational Structure:
China Merchants Bank
Operation Management Department
Office of the Board of Directors
General Office
Supervision and Management Center for
the Protection of Customer Interests
Training Center
Human Resources Department
Strategic Development Department
Assets and Liabilities Management Department
Financial Accounting Department
Process and Information Management Office
Investment Management Department
Project Management Department
Procurement Management Department
Office of Board of Supervisors
18,071
Information Technology Department
Legal Compliance Department
Nanjing Audit
Division
Shenyang Audit
Division
Audit Department
Nomination Committee
Supervisory Committee
Assets and Liabilities Management Committee
Risk and Compliance Management Committee)
IT Management Committee
Beijing Audit
Division
Xi'an Audit
Division
Business Continuity and Emergency Committee)
Internet Finance Committee
Wuhan Audit
Division
Chengdu Audit
Division
Fuzhou Audit
Division
137
138
China Merchants Bank
Annual Report 2015
IX Corporate Governance
9.2 Overview of Corporate Governance
In 2015, the domestic economy entered the new normal in which the economic slowdown was mingled with
profound changes in industrial structure and growth momentum. The economic downturn, interest rate liberalisation,
financial disintermediation and the Internet finance confronted the banking sector with unprecedented difficulties
and challenges. The Board of Directors, the Board of Supervisors and the special committees earnestly implemented
the national policies and regulatory requirements, performed their duties with diligence, made decisions scientifically
and operated effectively according to laws and regulations, successfully completed analysis and review of important
issues of the operation and management of the Company, and guaranteed compliant operation and sustainable and
steady development of the Company. Particulars of their achievements are set out as follows:
During the year, the Company convened a total of 65 important meetings at which 268 proposals were reviewed
and 51 reports were delivered. Among the 65 meetings there were 2 shareholders' general meetings (31 proposals
were reviewed), 14 meetings of the Board of Directors (79 proposals were reviewed and 11 reports were delivered),
11 meetings of the Board of Supervisors (43 proposals were reviewed and 5 reports were delivered), 34 meetings
of the special committees of the Board of Directors (110 proposals were reviewed and 30 reports were delivered),
2 meetings of the special committees of the Board of Supervisors (3 proposals were reviewed), 1 meeting of
non-executive directors (1 report was delivered) and 1 meeting of independent non-executive directors (2 proposals
were reviewed and 4 reports were delivered). Seven activities including research, field study and training were
organised by the Board of Directors, and 5 by the Board of Supervisors.
Shenzhen Audit
Division
Shanghai Audit
Division
Executive Office of
President
Related Party Transaction Control Committee
Operational Risk Management Department
Market Risk Management Department
Special Assets Operating Center
Operation Center
Research and Development Center
Testing Center
Data Center
Labor Union of the Head Office
Administration Department
Representative Offices (Beijing, Shanghai,
Taipei, United States of America, London)
Audit Department
Banking Department
Inspection and Security Department
China Merchants Bank
Annual Report 2015
Corporate Governance
9.1 Corporate Governance Structure:
Strategy Committee
Shareholders' General Meeting
Nomination Committee
Board of Directors
Board of Supervisors
Remuneration and Appraisal
Committee
Risk and Capital Management Committee
Audit Committee
Office of the Board of
Directors
Office of Board of
Supervisors
IX Corporate Governance
243
(1) Professional Structure
80,542
49
110003
12 Shiyiwei Road, Heping District, Shenyang
Shenyang Branch
North-eastern China
59,943
1,102
33
40,450
918
32
23
528200
523129
200 Hongfu Road, Nancheng District, Dongguan
12 Denghu Road East, Guicheng Street,
Nanhai District, Foshan
Dongguan Branch
Foshan Branch
25,722
450
16
362000
47,581
907
30
361001
No. 6 Complex Building, Hongtai Industrial Park,
309 Hudong Road, Siming District, Xiamen
Huangxing Building, No. 301, the middle section
of Fengze Street, Quanzhou
1,592
Quanzhou Branch
56,776
17 Renmin Road, Zhongshan District, Dalian
330003
468 Dieshan Road, Donghu District, Nanchang
Nanchang Branch
107,588
2,242
62
430022
518 Jianshe Avenue, Wuhan
Wuhan Branch
Central China
29,991
578
25
130022
9999 Renmin Avenue, Nanguan District,
Changchun
Changchun Branch
57,928
975
37
150001
3 Zhongyang Avenue, Daoli District, Harbin
55,562
1,251
37
116001
Dalian Branch
Harbin Branch
Xiamen Branch
62,002
1,087
100005
1
9
1
100031
112
4,740
241,753
Qingdao Branch
65 Hai'er Road, Laoshan District, Qingdao
266103
63
1,943
66,024
Tianjin Branch
Yujia Building, 255 Guangdong Road and
300204
41
1,610
97,268
9 Qianjin Road, Hexi District, Tianjin
Jinan Branch
7 Gongqingtuan Road, Jinan
250012
56
35 Jinrong Avenue, Xicheng District, Beijing
156 Fuxingmen Nei Dajie, Beijing
Beijing Branch
Beijing Representative Office
Shijiazhuang Branch
39
350003
60 Guping Road, Fuzhou
264,923
4,560
106
518001
105,542
2,542
66
510620
5 Huasui Road, Tianhe District, Guangzhou
2 Shennan Road Central, Shenzhen
47
Shenzhen Branch
Fuzhou Branch
Pearl River Delta and
West Side of
Taiwan Strait
3,373
134
1
063000
44 Beixin Road West, Lubei District, Tangshan
Tangshan Branch
18,017
298
14
050000
172 Zhonghua Street South, Shijiazhuang
Guangzhou Branch
1,279
81,473
Changsha Branch
Hefei Branch
1,764
9
570100
1-3/F Complex Building C, Haian Yihao,
Haikou Branch
32,663
821
25
1 Xinjian Road South, Taiyuan
Taiyuan Branch
54,669
1,124
35
450018
030001
Zhengzhou Branch
96 Nongye Road East, Zhengzhou
410005
54
1,431
48,702
China Merchants Bank Mansion,
766 Wuyi Avenue, Changsha
42
1,078
39,864
169 Funan Road, Hefei
230061
3/3
14/14
Tian Huiyu
Executive directors
1/2
2/2
2/2
1/1
0/2
0/2
0/2
1/2
1/1
2/2
Zhang Guanghua (resigned)
==
1/1
141
Independent
སམྦུཀྑུསྦུསཛྫསྶསྶས
2/2
7/7
1/1
8/8
5/3
1/1
4/4
2/2
2/2
13/14
Li Hao
2/2
8/8
2/2
14/14
14/14
Li Jianhong
Non-executive directors
Actual times of attendance/Required times of attendance
General
Meeting
Control
Committee
Committee Committee
Committee Committee
Audit
Shareholders'
Transaction
Capital
Management
Remuneration
Nomination and Appraisal
Strategy
Committee
Board of
Directors(1)
Related Party
Risk and
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
2015.
9.4.5 Attendance of Directors at Relevant Meetings
IX Corporate Governance
China Merchants Bank
Annual Report 2015
142
3/3
1/1
Ma Zehua
12/14
Su Min
8/8
2/2
14/14
Hong Xiaoyuan
7/7
9/9
14/14
Fu Gangfeng
4/4
3/3
3/3
10/12
9/9
8/8
14/14
Sun Yueying
5/6
13/14
Li Yinquan
3/3
13/14
Li Xiaopeng
3/3
Fu Junyuan (resigned)
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.
Special committees under the Board of Directors
Leung Kam Chung, Antony
(5)
(6)
arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
and
any other task delegated by the Board of Directors.
In 2015, the Risk and Capital Management Committee considered and passed the Quarterly Reports on
Comprehensive Risk of Previous Year and Current Year, the Quarterly Report on Weakness and Risks Revealed during
the Audit Process in Previous and Current Years, the Report on Risk Appetite Execution in the First Half of the Year,
the Report on Write-offs of Doubtful Debts and Accountability Verification and Punishment, the Audit Report on
Internal Credit Risk Assessment System, the Report for Case Prevention, the Assessment Report on Internal Capital
Adequacy, the Report on Outsource Management, the Report on Business Continuity, the Report on the Work
Summary of Consolidation Management and Implementation of Verification Policies, the Major Resolutions on Profit
Appropriation, Write-off of Large-amount Doubtful Loans, Capital Increase and Restructuring of CMBIC, Capital
Increase to CIGNA & CMB Life, Revising Certain Risk Preference Indicators and Risk Management and Appraisal
Indicators, Amending the Scope of Outsource Services and Extension of the Validity Period for the Issuance of
Financial Bonds; listened to the Report on Macro-Economic Stress Tests on Credit Risk and the Report on Risk Pre-
warning System of China Merchants Bank; and formulated or revised a number of systems and measures in respect
of risk and capital management, including the "Measures for Credit Risk Portfolio Management of China Merchants
Bank", the "Measures for Identification, Appraisal and Management of Significant Risks of China Merchants Bank",
the "Measures for Consolidation Management of China Merchants Bank", the "Measures for Equity Investment and
Management of China Merchants Bank", the "Regulations on Capital Management of China Merchants Bank", the
"Anti-money Laundering Policy of China Merchants Bank", the "Measures for Management of Leverage Ratios of
China Merchants Bank", the "Compliance Policies of the Group", the "Regulations on Compliance Management
of China Merchants Bank (3rd Edition)", the "Administrative Measures for Information Disclosure of Capital
Adequacy of China Merchants Bank (3rd Edition)", the "Overall Policy on Stress Tests of China Merchants Bank",
the "Administrative Measures for Appraisal Procedures of Internal Capital Adequacy of China Merchants Bank”,
the "Policies on Measurement Model Verification of China Merchants Bank", the "Administrative Measures for
Development of Internal Rating for Non-retail Risk Exposure and Quantitative Risk Parameters in Respect of Internal
Credit Risk Rating System of China Merchants Bank (3rd Edition)" and the "Administrative Measures for Retail Risk
Exposure Pool and Quantitative Risk Parameters in Respect of Internal Credit Risk Rating System of China Merchants
Bank".
9.5.5 Audit Committee
The majority of members and the chairman of the Audit Committee are independent non-executive directors.
The current members of the Audit Committee are Guo Xuemeng (Chairman), Wong Kwai Lam, Pan Chengwei (all
being independent non-executive directors), Fu Gangfeng and Sun Yueying (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.
147
148
China Merchants Bank
submit proposals on perfecting the management of risks and capital of the Bank;
IX Corporate Governance
Main authorities and duties:
(1)
propose the appointment or replacement of external auditors;
(2)
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)
(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;
Annual Report 2015
(4)
IX Corporate Governance
China Merchants Bank
Annual Report 2015
145
146
China Merchants Bank
Annual Report 2015
IX Corporate Governance
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 Nomination Committee currently include Wong Kwai Lam
(Chairman), Leung Kam Chung, Antony, Pan Yingli (all being independent non-executive directors) and Li Yinquan
(a non-executive director). 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)
study the appraisal standards for directors and senior management, and conduct appraisals and make
recommendations based on the actual conditions 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;
(3)
(4)
any other task delegated by the Board of Directors.
In 2015, the Remuneration and Appraisal Committee considered and passed the Resolution on 2015 First Phase
Employee Stock Ownership Scheme, the Report on 2014 Final Accounts of Staff Costs of China Merchants Bank, the
Resolution on Amendments to Policies on Remunerations of Senior Management of China Merchants Bank Co., Ltd.,
the Resolution on Approving the Performance Appraisal of H Share Appreciation Rights of China Merchants Bank
in 2015 and the Resolution on Adjusting the Price of H Share Appreciation Rights, and listened to the verification
report on total staff costs, as well as the remuneration and performance-linked bonus for senior management in
2014 issued by KPMG.
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 (all being non-executive directors), Li Hao (an executive director) and Leung Kam Chung, Antony
and Zhao Jun (both being independent non-executive directors). It is mainly responsible for control, management,
supervision and assessment of risks of the Bank.
Main authorities and duties:
(1)
(2)
(3)
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;
make regular assessment on the risk policies, management status, risk-withstanding ability and capital status
of the Bank;
perform relevant duties under the advanced capital measurement method pursuant to the authorisation given
by the Board of Directors;
examine the internal control system of the Bank, and make recommendations for improvement in the internal
control of the Bank;
In 2015, the Nomination Committee considered and passed the Resolution on Nomination of Mr. Zhang Feng as a
Non-executive Director.
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;
(8)
reviewing the compliance of the Company with the Code of Corporate Governance and the disclosures in the
Report of Corporate Governance.
149
140
China Merchants Bank
Annual Report 2015
IX Corporate Governance
9.4.1 Composition of the Board of Directors
As at 31 December 2015, 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. All two 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. Currently, 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.
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.
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.
9.4.2 Appointment, re-election and removal of directors
formulating, reviewing and supervising the Code of Conduct and the Compliance Handbook applicable to
directors and employees; and
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.
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.
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. Except
the independent non-executive directors, who will be treated individually due to the restriction of their terms of
office, other new directors shall, upon expiry of the current session of the Board of Directors (the term of office for
each session is three years), be subject to re-election at the general meeting together with other members of the
Board.
China Merchants Bank
Annual Report 2015
IX Corporate Governance
9.4.3 Responsibilities 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, their attendance of meetings was satisfactory, with the
attendance rates of each director at 92% or above.
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, major related party transactions, external guarantees, the appointment
and removal of directors and senior management and the remuneration for senior management. In addition, for
the six special committees under the Board, 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.
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 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.
non-executive directors
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).
inspecting and supervising the policies and practices of the Company for compliance with laws and regulatory
requirements;
inspecting and supervising the trainings and continuing professional development of directors and senior
management;
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;
examine the accounting policies, financial reporting procedures and financial position of the Bank; and
any other task delegated by the Board of Directors.
In 2015, the Audit Committee considered and approved a number of proposals on the regular reports of the
Company, the internal control assessment report, the annual audit plan and audit conclusions of the accounting
firm, appointment of the accounting firm and performance assessment results concluded by the Audit Department in
2014, and listened to the reports on audit work summary, quarterly internal audit work and working plans for 2014
issued by KPMG.
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 report for 2015:
1.
2.
3.
Before the auditors commenced their annual audit, the Audit Committee considered and discussed the
audit plan of the accounting firm for 2015, 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 2015. 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 annual meeting of the Board of Directors was held, the Audit Committee voted on and prepared
a resolution on the Company's Annual Report for 2015 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
2015 to the Board of Directors.
China Merchants Bank
Annual Report 2015
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), Guo Xuemeng, Zhao Jun (all being independent non-executive directors), Fu Gangfeng (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)
identify connected persons 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
(4) review the announcements on related party transactions of the Bank.
In 2015, the Related Party Transaction Control Committee considered and passed the resolutions regarding various
issues including the report on the management of related party transactions of the Company for 2014, the special
audit report on the related party transactions of the Company for 2014, stock ownership scheme in respect of
related party transactions, and the major related party transaction projects with China Shipping (Group) Limited and
its subsidiaries and Anbang Property & Casualty Insurance Company Ltd., and the upper limit on the continuing
related party transactions for 2015 to 2017 with Anbang Insurance Group and CM Securities.
9.6 Corporate Governance Functions
(7)
any other task delegated by the Board of Directors.
review the regulations and policies in respect of remuneration of the Bank; and
1 During the reporting period, the Board of Directors held a total of 14 meetings, of which six were on-site and telephone
meetings and eight were meetings convened and voted by correspondence.
2/2
2/2
Notes:
13/14
2.
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.
China Merchants Bank
Annual Report 2015
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 2015.
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 attending to the interests and
requests of small and medium shareholders.
During the reporting period, the independent non-executive directors expressed their independent opinions on
material issues including change of directors, appointment and remuneration of the senior management, profit
appropriation and related party transactions 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 the
annual report for the year:
1.
The independent non-executive directors listened to reports on the performance of the Company in 2015
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 2015 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 2015.
143
144
China Merchants Bank
Annual Report 2015
IX Corporate Governance
2.
3.
4.
5.
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.
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.
9.5 Special Committees of the Board of Directors
2/2
ន ន ន ន ន ន
2/2
2/2
1/1
5/6
8/8
1/1
Wong Kwai Lam
13/14
6/6
9/9
1/1
Pan Chengwei
14/14
1/1
9/9
7/7
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.
Pan Yingli
1/1
5/6
2/2
Guo Xuemeng
14/14
9/9
Zhaojun
14/14
8/8
2/2
====
7/7
7/7
1/2
12/14
In 2015, 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 34 meetings
to study and review 110 significant issues, including operating results and profit appropriation, strategies
implementation, change of directors and senior management, risk and capital management, remuneration and
appraisal, financial supervision and internal control, significant external investments, significant 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.
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 Strategy Committee consists of equity holding directors and directors from senior management. The current
members of the Strategy Committee are Li Jianhong (Chairman), Ma Zehua, Li Xiaopeng, Su Min (all being
non-executive directors) 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
herewith.
The composition and duties of the six special committees as well as their work in 2015 are summarized as follows:
9.5.1 Strategy Committee
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.
9.4.4 Chairman of the Board and the President
(5)
conduct preliminary examination on the candidates for directors and senior management and make
recommendations to the Board of Directors; and
(4)
(3)
study the standards and procedures for selection of directors and senior management, and make
recommendations to the Board of Directors;
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;
(2)
(1)
Main authorities and duties:
The majority of the Nomination Committee are independent non-executive directors, the chairman as well. The
current members of the Nomination Committee include Leung Kam Chung, Antony (Chairman), Pan Chengwei,
Pan Yingli (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.
9.5.2 Nomination Committee
conduct extensive searches for qualified candidates for directors and senior management;
make recommendations and proposals on important issues for discussion and determination by the Board of
Directors.
Main authorities and duties:
In 2015, the Strategy Committee considered the Financial Budget Report for the year 2015, the Proposal of the
Profit Appropriation for the year 2014, the Resolution on the General Mandate to Issue Shares and/or Share
Options, the Resolution on Authorising Management to Consider and Approve Equity Investment, the Resolution on
Establishment of Sydney Branch and China Merchants Bank (Luxembourg) Co., Ltd. (í (4) ĦR27),
the Assessment Report on Strategies Implementation of China Merchants Bank in 2014 and the Resolution or Report
on Implementation of the Operating Plan of China Merchants Bank in the first half of 2015.
(1)
formulate the operational goals and medium-to-long term development strategies of the Bank, and make an
overall assessment on strategic risks;
consider material investment and financing plans and make proposals to the Board of Directors;
(3)
(2)
China Merchants Bank
Annual Report 2015
IX Corporate Governance
(4)
evaluate and monitor the implementation of Board resolutions; and
(5)
supervise and review the implementation of the annual operational and investment plans;
During the reporting period, with good corporate governance, clear and leading development strategies and
outstanding operating results, as well as the effective guidance and communication associated with the capital
market, the Company stood out from 2,800 listed companies, and ranked first in "Top Ten of Investors' Most
Respected 100 Listed Companies in China" selected by the Association of Chinese Listed Companies, receiving high
recognition and good rating from the capital market.
China Merchants Bank
During the reporting period, the Company further strengthened management of information disclosure and
insider trading, and reinforced employees' compliance consciousness and increased their vigilance towards insider
information leakage and insider trading by organizing special trainings and examinations, which was useful in
minimizing compliance risk and reputational risk arising from information leakage.
IX Corporate Governance
Annual Report 2015
Information Disclosure
The information disclosure of the Company is based on its sound corporate governance, well-developed internal
control and perfect information disclosure system, and can ensure investors' access to information in a timely,
accurate and equal manner by leveraging on good corporate governance and internal control.
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 more than 380 disclosure documents in aggregate on Shanghai Stock Exchange and Hong
Kong Stock Exchange, including periodic reports, interim announcements, and corporate governance documents,
circulars to shareholders, proxy forms and reply slips in a total size of more than 2.40 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 in light of the macroeconomic and financial environment,
further improving initiative and transparency in information disclosure in periodic reports. No material error was
reported regarding information disclosure during the reporting period.
In addition, during the reporting period, the Company revised the "Guidelines for Information Disclosure and Insider
Information Management Relating to Substantial Shareholders" in accordance with new regulatory requirements and
actual situation of work, so as to ensure that the shareholders will play an active role in performing their information
disclosure obligations in a timely manner.
Leung Kam Chung, Antony
In 2016, following the core idea of "improve quality and control risks", the Company will continue to improve the
disclosure quality of periodic reports and ad hoc announcements so as to satisfy investors' requirements. Meanwhile,
the Company will further optimize and improve our workflows and take effective measures to prevent the risks
associated with information disclosure.
155
Pan Chengwei
Wong Kwai Lam
Independent non-executive directors
Li Hao
Tian Huiyu
Having perfectly completed all its tasks for the year, the investor relations management team of the Company forged
ahead with implementing the transformation strategies of "Asset-light Banking" and "One Body with Two Wings".
They organised a series of interactions and communications in respect of different themes on the capital market,
and communicated the suggestions and opinions on the capital market to the management in a timely manner,
better reflecting the role of investor relations management in facilitating communications between the management
and the capital market. In 2015, in the context of continuous business transformation in the banking sector, the
Company maintained its leading position in market valuation among its peers, showing certain effect of its market
value management.
Zhang Guanghua (resigned)
During the reporting period, the Company's Annual Report 2014 won Silver Award for Written Text in the
International ARC Annual Report Competition known as Annual Report Oscar, and Silver Award for Banking Annual
Report in League of American Communications Professionals LLC (LACP), one of the world's leading annual report
competitions.
In 2015, adhering to the basic investor-oriented principle of improving investor experience and increasing efficiency,
the Company 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. During the reporting period, the Company held two results
announcement and analyst meetings, one press conference and one global roadshow for annual results and one
domestic roadshow for the interim results. The Company made arrangement for reception of 100 visits made by 248
domestic and foreign institutional investors and investment banks, brokerage analysts; attended investor conferences
held by 32 major domestic and foreign investment banks and brokerages, and conducted effective communication
with a total of 654 institutional investors; answered 270 calls from investors, handled 502 online messages from
investors. These measures have effectively satisfied the needs of domestic and foreign investors and analysts to
communicate with the Company.
Regulations
9.11 Communications with Shareholders
Executive directors
Pan Yingli
Guo Xuemeng
Zhao Jun
Provision of Information and Scope of Trainings
Corporate
Governance
Policies and
Business/
Management
√
V
153
154
China Merchants Bank
Annual Report 2015
IX Corporate Governance
9.9 Company Secretary under Hong Kong Listing Rules
Mr. Xu Shiqing, Secretary of the Board of Directors of the Company, and Ms. 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. Xu Shiqing is the major contact person of the Company on internal issues.
During the reporting period, Mr. Xu Shiqing and Ms. 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.
9.10 Misconduct Reporting and Monitoring
In 2015, the Company had no material internal malignant cases or external malignant cases or incidents involving
theft, robbery or material safety issues.
Investor Relations
Su Min
The Board of Supervisors discharges its supervisory duties primarily by: holding regular meetings, 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, performing off-site investigation and having talks with directors and the senior
management over their performance of duties, 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.
Fu Gangfeng
9.8 Trainings and Investigations/Surveys Conducted by
Directors and Supervisors During the Reporting
Period
In 2015, the Supervisory Committee under the Board of Supervisors convened 1 meeting where the audit opinions
on resignation of Mr. Han Mingzhi, Chairman of the Board of Supervisors of the Company were reviewed and
considered. In addition, the 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, and supervised the duty performance
of the directors and offered comments and suggestions on some issues.
The members of the Supervisory Committee of the Ninth Session of the Board of Supervisors were Jin Qingjun
(chairman), Fu Junyuan, Liu Zhengxi and Xiong Kai. 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.
The Supervisory Committee under the Board of Supervisors
Annual Report 2015
IX Corporate Governance
China Merchants Bank
152
151
During the reporting period, the Company's Board of Directors and Board of Supervisors organised 12 investigations/
surveys and training activities. The Chairman of the Board of Supervisors conducted investigations/surveys on 11
operating entities of the Company, leading to continuous improvement in the performance and effectiveness of
decision-making and supervision of Directors and Supervisors.
In 2015, the Nomination Committee under the Board of Supervisors convened 1 meeting where proposals regarding
the evaluation report on duty performance of the directors in 2014 and the evaluation report on duty performance
of the supervisors in 2014 were reviewed and considered.
The Nomination Committee under the Board of Supervisors
The Nomination Committee and the Supervisory Committee are established under the Board of Supervisors, each
consisting of four supervisors. The chairman of the Nomination Committee and the Supervisory Committee is served
by an external supervisor respectively.
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
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.
In 2015, the Company convened 2 shareholders' general meetings and 6 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.
During the reporting period, the Board of Supervisors convened 11 meetings, of which 5 were on-site meetings
and 6 were meetings convened and voted by correspondence. 43 proposals regarding strategic planning, business
operations, financial activities, internal control, risk management, corporate governance and evaluation of the duty
performance of the directors and supervisors were considered, and a number of special reports involving strategic
management, internal capital adequacy assessment, internal audit, write-offs of doubtful debts and the prevention
and control of crimes were reviewed at these meetings.
9.7.3 Duty performance of the Board of Supervisors during the reporting period
IX Corporate Governance
China Merchants Bank
Annual Report 2015
The members of the Nomination Committee of the Ninth Session of the Board of Supervisors were Pan Ji (chairman),
Zhu Genlin, Dong Xiande 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.
Hong Xiaoyuan
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 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. 7
investigations/surveys/visits by Directors were organised which involved visiting the Head Office departments, various
branches and sub-branches and subsidiaries to get familiar with business operations of the Head Office, branches
and subsidiaries, the implementation of the transformation strategies of "Asset-light Banking" and "One Body with
Two Wings", risk management, as well as problems and challenges encountered.
IX Corporate Governance
Fu Junyuan (resigned)
Sun Yueying
Li Yinquan
Li Xiaopeng
Ma Zehua
Li Jianhong
Non-executive directors
Name of Directors
A Nomination Committee and a Supervisory Committee are established under the Board of Supervisors.
9.7.2 How the Board of Supervisors performs its supervisory duties
China Merchants Bank
Annual Report 2015
156
According to the training records for 2015 kept by the Company for Directors, the status of relevant trainings is as
follows:
China Merchants Bank
Annual Report 2015
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 planning, 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 accounts
for not less than one-third of the members of the Board of Supervisors. 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 corporate governance and financial management of
large state-owned enterprises and legal affairs, and have 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.
The Company also provided its directors with the latest information and relevant trainings on the Hong Kong Listing
Rules and other applicable regulatory requirements to ensure that they follow and better understand good corporate
governance, and took a number of approaches such as the provision of special reports and reference information to
improve and update their knowledge and skills.
During the reporting period, the Board of Supervisors set a more practicable goal and conducted its investigations/
surveys on certain major issues more effectively in terms of frequency, width and depth, which included the reform
of systems and mechanism across the Bank, the implementation of the "One Body with Two Wings" strategy and
the building of an asset-light bank, internal control and compliance and risk prevention. The Board of Supervisors
organised five investigations/ surveys on a collectively basis during the year, of which four were conducted
domestically and one was conducted overseas with a total of 18 branches and affiliated entities involved. The Board
of Supervisors, based on those investigations/ surveys, put forward a number of targeted and practical proposals
regarding implementation of system reform, reinforcement of risk prevention, improvement of refined management,
enhancement of employee care and consolidation of team building. 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 CBRC, thus increasing the scope of application of such investigation/ survey results and
fully exerting its supervisory duty.
150
China Merchants Bank
Report of the Board of
Supervisors
Annual Report 2015
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 onsite and offsite 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, and provide independent audit
advices and the recommendations on operation management to the Board of Directors, promote the rectification
and implementation of audit findings and strengthen the examination and application of rectifications.
In 2015, the Company further expanded its audit coverage, put more efforts on risk audit, established an audit-
themed talk system, took more follow-up actions on audit issues and improved the effectiveness of rectifying
problems identified during the audit process, thereby promoting the Company's internal control and risk
management level and effectively assuring the sustainable and healthy development of all business lines of the Bank.
China Merchants Bank
X Report of the Board of Supervisors
Annual Report 2015
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.
Independent opinions on relevant matters from the Board of Supervisors:
Lawful operation
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 was 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.
Authenticity of financial statements
KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants have audited the financial
reports for 2015 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 give a true, objective and accurate view of the financial position and operating results of the
Company.
Purchase and sale of assets
During the reporting period, the Company has no new significant acquisition or disposal of assets.
Related party transactions
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.
The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to
the general meeting in 2015, and concluded that the Board of Directors had duly implemented relevant resolutions
passed at the general meeting(s).
Internal control
The Board of Supervisors had reviewed the "Report on Assessment of Internal Control of China Merchants Bank
Co., Ltd. for 2015", and concurred with the Board of Directors' representations regarding the completeness,
reasonableness, effectiveness and implementation of the internal control system of the Company.
By Order of the Board of Supervisors
Liu Yuan
Chairman of the Board of Supervisors
30 March 2016
159
IX Corporate Governance
9.17Internal Audit
During the reporting period, the Company organised evaluation campaigns regarding internal control during the
year 2015 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 "2015 Report on Assessment
of Internal Control of China Merchants Bank Co., Ltd.", and the "Auditors' Report on Internal Control" issued by
KPMG Huazhen Certified Public Accountants with standard unqualified opinions.
Implementation of resolutions passed at the general
meeting(s)
9.16Internal Control
9.12Shareholders' Rights
In accordance with the laws and regulations such as the "Basic Principles for Internal Control of Enterprises" and the
relevant guidelines, the "Internal Control Guidelines for Commercial Banks" as well as the requirements of Shanghai
Stock Exchange and Hong Kong Stock Exchange, the Company formulated the objectives and principles of internal
control, and established an internal control system consisting of all necessary elements, to exert control over the
whole process of operation management of the Company, and continued to enhance the integrity, rationality and
effectiveness of our internal control system in practice.
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.
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 10 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.
Making proposals at the shareholders' general meeting
IX Corporate Governance
China Merchants Bank
IX Corporate Governance
158
157
China Merchants Bank
Annual Report 2015
9.15 Compliance with the Corporate Governance Code
During the reporting period, save as disclosed below, 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). In respect of code provision E.1.2 of the Corporate
Governance Code, the Chairman of the Board (also the Chairman of the Strategy Committee) was unable to attend
the 2014 Annual General Meeting of the Company, the 2015 First Class Meeting of the Shareholders of A Shares
and the 2015 First Class Meeting of Shareholders of H Shares held on 19 June 2015 due to business engagement.
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 2015 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
might have a significant adverse effect on the Company's ability of sustainable operation.
9.14Statement Made by the Directors about Their
Responsibility on the Financial Statements
During the reporting period, the Company did not make any amendment to the Articles of Association.
9.13 Major Amendments to the Articles of Association of
the Company
Annual Report 2015
(31,681)
2
2
Share of profits of joint ventures
134
Share of profits of associates
156
(17,061)
75,079
Income tax
12
160
73,431
(17,382)
(59,266)
58,018
Profit before taxation
11
202,166
104,954
56,049
39,494
Other net income
6
12,018
9,671
Operating income
166,367
China Merchants Bank
Annual Report 2015
7
(67,670)
(61,081)
Charge for insurance claims
(287)
(332)
Operating profit before impairment losses
134,209
Impairment losses
Profit for the year
4,224
Equity shareholders of the Bank
966
427
Available-for-sale financial assets:
net movement in fair value reserve
53,419
7,415
Cash flow hedge: net movement in hedging reserve
Equity-accounted investees - share of
404
788
other comprehensive income
64
35
5,658
8,665
Items that will not be reclassified subsequently
to profit or loss
Remeasurement of defined benefit liability
2014
56,049
Attributable to:
58,018
Note
Non-controlling interests
Earnings per share
Basic and diluted (RMB)
The notes on pages 171 to 302 form part of these financial statements.
57,696
55,911
322
138
14
2.29
2.22
China Merchants Bank
Annual Report 2015
XII Financial Statements
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2015
(Expressed in millions of Renminbi unless otherwise stated)
Profit for the year
Other comprehensive income for the year
after tax and reclassification adjustments
Items that will be reclassified to profit or loss
Exchange difference on translation of financial
statements of overseas subsidiaries
2015
Net fee and commission income
164
(4,379)
161
XII Financial Reports
China Merchants Bank
The Articles of Association of China Merchants Bank Co., Ltd..
11.6
Annual Reports disclosed on the Hong Kong Stock Exchange;
11.5
Annual Report 2015
11.4 Original copy of all the documents and announcements of the Company which were publicly disclosed during
the reporting period in the designated newspapers of China Securities Regulatory Commission;
11.3
11.2 Accounting statements signed and executed by Legal Representatives, Presidents, Chief Financial Officer and
the person in charge of the Finance and Accounting Department;
Original copy of the Annual Report containing signatures of the directors and senior management of the
Company;
11.1
Documents Available for Inspection
XI Documents Available for Inspection
The directors of the Bank are responsible for the preparation of consolidated financial statements that give a true
and fair view in accordance with International Financial Reporting Standards issued by the International Accounting
Standards Board 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.
Original copy of audit reports containing seals of the accounting firm, signatures and seals of certified public
accountants;
Financial Reports
12.1
Audit Report
(53)
Directors' responsibility for the consolidated
financial statements
We have audited the consolidated financial statements of China Merchants Bank Co., Ltd ("the Bank") and its
subsidiaries (together "the Group") set out on pages 164 to 302, which comprise the consolidated statement of
financial position as at 31 December 2015, the consolidated statement of profit or loss, the consolidated statement
of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the
consolidated cash flow statement for the year then ended and a summary of significant accounting policies and
other explanatory information.
Independent auditor's report to the shareholders of China Merchants Bank Co., Ltd
(a joint stock company incorporated in the People's Republic of China with limited liability)
KPMG
HKSZA1600017
Independent Auditor's Report
Annual Report 2015
XII Financial Statements
China Merchants Bank
162
303
164
162
(See Annex)
12.3 Supplemental information about the unaudited financial statements
12.2 Financial statements and notes thereto
Auditor's responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report
is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
We conducted our audit in accordance with International Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation
of the consolidated financial statements that give a true and fair view 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
Bank's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the
consolidated financial statements.
2014
(Restated)
Interest income
Interest expense
Net interest income
34
234,722
228,036
4
(97,993)
(110,834)
136,729
117,202
Fee and commission income
5
57,798
43,341
Fee and commission expense
2015
(3,847)
Note
For the year ended 31 December 2015
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
China Merchants Bank
Annual Report 2015
XII Financial Statements
HKSZA1600017
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group
as at 31 December 2015 and of the Group's financial performance and cash flows for the year then ended in
accordance with International Financial Reporting Standards and have been properly prepared in compliance with
the disclosure requirements of the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
8th Floor, Prince's Building
10 Chater Road
Central, Hong Kong
30 March 2016
163
China Merchants Bank
XII Financial Statements
Annual Report 2015
Consolidated Statement of Profit or Loss
(Expressed in millions of Renminbi unless otherwise stated)
Other comprehensive income for the year, net of tax
Operating expenses
5,605
7,449 788
13
(b) Other comprehensive income for the year
55,911
(a) Net profit for the year
165 49,104
427 48,939
1,261
7,632 26,194
491 265,956
(1,736) 265,465
15,636
46,347 95,471
interests Total
reserve Subtotal
Non-
controlling
Regulatory
Proposed
general Retained
profit Exchange
reserve profits appropriations
reserve reserve reserve
(5,547) (951) 23,502
7,449 788 5,188
Changes in equity for the year
25,220 67,523
At 1 January 2014
capital reserve
Note
Investment
revaluation Hedging Surplus
Share Capital
55,911
427 8,664
138 56,049
1 8,665
Total comprehensive income for the year
(15,636)
(15,636)
(5,188)
7,632 (7,632)
45
5,188
44
44
(iii) Dividends paid for the year 2013
(ii) Appropriations to regulatory general reserve
(i) Appropriations to statutory surplus reserve
(d) Profit appropriations
(38)
Total equity attributable to equity shareholders of the Bank
(38)
84
(ii) Decrease in non-controlling interests
57
to non-wholly owned subsidiaries
(i) Non-controlling shareholders' contribution
(c) Changes by the shareholder's equity
139 64,714
64,575
427
55,911
788
7,449
84
2014
952 361,758
(343) 360,806
Total comprehensive income for the year
2 5,605
5,603
966
(53)
404
4,286
13
(b) Other comprehensive income for the year
322 58,018
57,696
57,696
4,286
(a) Net profit for the year
966 46,402
505
24,222
10,700
controlling
Non-
Regulatory
general Retained
reserve profits appropriations reserve Subtotal interests Total
53,979 121,665
(1,309) 314,404 656 315,060
16,897
profit Exchange
Share Capital revaluation Hedging Surplus
Note capital reserve reserve reserve reserve
25,220 67,523 1,902 (163) 28,690
4,286 404 5,319
Changes in equity for the year
At 1 January 2015
296 46,698
(20) (15,656)
404
966 63,299
17,402
64,679 145,887
241 34,009
6,188
25,220 67,523
17,402
(17,402)
(28) (16,925)
(16,897)
(16,897)
10,700 (10,700)
(5,319)
57,643
5,319
44
44
(i) Appropriations to statutory surplus reserve
(ii) Appropriations to regulatory general reserve
(iii) Dividends paid for the year 2014
(iv) Proposed dividends for the year 2015
At 31 December 2015
(d) Profit appropriations
.......(83) (83)
(ii) Decrease in non-controlling interests
83
57
to non-wholly owned subsidiaries
(i) Non-controlling shareholders' contribution
(c) Changes by the shareholder's equity
324 63,623
45
Proposed
(iv) Proposed dividends for the year 2014
16,897
Income tax paid
291,923
423,231
Cash generated from operating activities
3,693
18,923
Other liabilities
20,000
42,600
Borrowing from central bank
24,909
125,226
maturity over 3 months
other financial institutions with original
Balances and placements with banks and
66,561
216,945
other financial institutions
Deposits and placements from banks and
529,162
267,260
Deposits from customers
(32,283)
(26,683)
Other assets
(22,811)
(19,750)
13
400,420
169
The notes on pages 171 to 302 form part of these financial statements.
(175,979)
(371,603)
Net cash used in investing activities
2
2
Loans repaid by joint ventures
1,297
167
and other assets
Proceeds from the disposal of properties and equipments
(331,091)
(8,125)
Payment for the purchase of properties and equipments
and other assets
39,675
51,407
Gains received from investments
579,100
451,491
Proceeds from the disposal of investments
(787,928)
(865,591)
Payment for the purchase of investments
Investing activities
272,173
(9,079)
(347,286)
Loans and advances to customers
(59,267)
1,759
- Impairment losses on investments and other assets
31,254
57,507
- Impairment losses on loans and advances
73,431
75,079
Adjustments for:
Profit before tax
Cash flows from operating activities
2014
2015
427
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Cash Flow Statement
Annual Report 2015
XII Financial Statements
China Merchants Bank
The notes on pages 171 to 302 form part of these financial statements.
656 315,060
(1,309) 314,404
16,897
(163) 28,690 53,979 121,665
1,902
25,220 67,523
At 31 December 2014
For the year ended 31 December 2015
(16,897)
- Unwind of discount
(655)
38,689
Balances with central bank
Changes in:
(3)
(4)
- Net gains on disposal of properties and equipment
(156)
(134)
- Share of profits of joint ventures
(2)
(2)
- Share of profits of associates
(1,137)
3,921
- Interest expense on issued debt securities
(4,177)
(37,749)
(48,175)
(9,008)
- Net gain on debt securities and equity investments
413
436
- Interest income on investments
- Amortisation of other assets
3,535
4,086
- Depreciation of properties and equipments and
investment properties
7,150
Total equity attributable to equity shareholders of the Bank
Investment
Net cash generated from operating activities
(Expressed in millions of Renminbi unless otherwise stated)
408,752
716,064
21(d)
Goodwill
Intangible assets
Investment properties
Property and equipment
Interest in associates
Interest in joint ventures
Debt securities classified as receivables
259,434
353,137
21(c)
Held-to-maturity investments
278,526
299,559
21(b)
Available-for-sale financial assets
9,315
10,176
54(f)
Derivative financial assets
40,190
59,081
21(a)
23
2,732
1,465
24
Liabilities
Total assets
4,731,829
5,474,978
14,091
12,848
30
Other assets
10,291
16,020
29
Deferred tax assets
Financial assets at fair value through profit or loss
9,953
28
3,292
3,595
27
1,684
1,708
26
27,445
31,835
25
19
54
9,954
23,560
24,934
2,448,754
Consolidated Statement of Financial Position
Annual Report 2015
XII Financial Statements
China Merchants Bank
166
165
139
324
64,575
63,299
The notes on pages 171 to 302 form part of these financial statements.
Non-controlling interests
At 31 December 2015
Attributable to:
Total comprehensive income for the year
64,714
63,623
1
2
8,664
5,603
Non-controlling interests
Equity shareholders of the Bank
Attributable to:
8,665
2015
Equity shareholders of the Bank
Borrowing from central bank
(Expressed in millions of Renminbi unless otherwise stated)
2015
344,980
343,924
2,739,444
124,085
185,693
55,986
63,779
639,992
569,961
567% 20
Interest receivable
Loans and advances to customers
18
Note
17
16
Balances with banks and other financial institutions
15
15,222
16,099
14,793
14,381
Balances with central bank
Precious metals
Cash
Assets
2014
Placements with banks and other financial institutions
Amounts held under resale agreements
62,600
19
Deposits from banks and other financial institutions
17,402
46(b)
Proposed profit appropriations
121,665
145,887
Retained profits
53,979
64,679
45
Regulatory general reserve
28,690
34,009
44
Surplus reserve
(163)
241
43
Hedging reserve
1,902
6,188
42
Investment revaluation reserve
25,220
67,523
67,523
41
16,897
Exchange reserve
47
(343)
For the year ended 31 December 2015
20,000
Consolidated Statement of Changes in Equity
Annual Report 2015
XII Financial Statements
China Merchants Bank
168
167
Company Chop
The notes on pages 171 to 302 form part of these financial statements.
Tian Huiyu
Director
Li Jianhong
Director
Capital reserve
Approved and authorised for issue by the Board of Directors on 30 March 2016.
5,474,978
Total equity and liabilities
315,060
361,758
Total equity
656
952
57
Non-controlling interests
314,404
360,806
Total equity attributable to equity shareholders of the Bank
4,731,829
25,220
(1,309)
Share capital
7,575
54(f)
Derivative financial liabilities
13,369
20,227
21(e)
Financial liabilities at fair value through profit or loss
45,349
39,073
35
Interest payable
3,571,698
10,246
34
66,988
185,652
33
Amounts sold under repurchase agreements
94,603
178,771
32
Placements from banks and other financial institutions
697,448
40
711,561
31
Deposits from customers
Debt securities issued
3,304,438
251,507
Equity
2014
36
2015
Note
XII Financial Statements
China Merchants Bank
Annual Report 2015
4,416,769
The notes on pages 171 to 302 form part of these financial statements.
Total liabilities
39,678
771
867
64,345
39
5,113,220
Other liabilities
106,155
37(a)
6,524
6,068
Tax payable
Salaries and welfare payable
12,820
11,656
Deferred tax liabilities
29
38
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
In the Bank's statement of financial position (see Note 60), investments in joint ventures are stated at cost less
impairment losses.
2 Significant accounting policies (continued)
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. 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)) or, when
appropriate, the cost on initial recognition of an investment in an associate (see Note 2(f)).
When judge whether there is a joint control, the Group usually considers the following cases:
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.
Investment in joint ventures 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 joint ventures' net
assets. Any acquisition-date excess over cost, the consolidated statement of profit or loss includes the Group's share
of the post-acquisition, 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.
whether any party within the joint arrangement cannot control the relevant activities of the joint ventures;
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
ventures.
whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
parties sharing control.
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.
(f) Associates
175
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.
When judge whether there is a significant influence, the Group usually considers the following cases:
representation on the Board of Directors or equivalent governing body of the investee;
participation in policy-making processes;
material transactions between the entity and its investee.
Interests in the associates 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 associates until the date on which
significant influence or joint control ceases.
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
acquisition-date excess over cost, the consolidated statement of profit or loss includes the Group's share of the
post-acquisition, 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)).
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.
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 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. 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)).
176
China Merchants Bank
Annual Report 2015
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.
XII Financial Statements
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.
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.
Annual Improvements to IFRSS 2010-2012
(e)
(b) Changes in accounting policies
(g) Goodwill
Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 2 to
both periods presented in these consolidated financial statements.
The Group has adopted the following Annual Improvements to IFRSS with an initial effective date of 1 January 2015.
•
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
•
•
Annual Improvements to IFRSS 2011-2013
Amendments to IAS 19, Employee benefits: Defined benefit plans: Employee contributions
Amendments to IAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements
The Group has early adopted the Amendments to IAS 27 "Separate Financial Statements Equity Method in
Separate Financial Statements" as at 1 January 2015 with an effective date of 1 January 2016. The amendments
allow an entity to apply the equity method to account for its investments in subsidiaries, joint ventures and
associates in its separate financial statements. The amendments shall be adopted retrospectively. The adoption of
the amendments can eliminate the differences in the subsequent measurement in joint ventures and associates of
the Group in its separate financial statements prepared in accordance with the IFRSS and the China Accounting
Standards issued by the Ministry of Finance of the PRC, and the adoption does not have material impact on the
Group's consolidated financial statements.
(c)
Basis of measurement
Unless stated otherwise, the financial statements are presented in Renminbi ("RMB"), which is the Group's functional
and presentation currency, rounded to the nearest million, unless otherwise stated.
The financial statements are prepared using the historical cost basis except that financial assets and liabilities at fair
value through profit or loss including derivatives, and available-for-sale financial assets are stated at their fair value.
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.
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.
Judgements made by management in the application of IFRSS that have significant effect on the financial statements
and estimates with a significant risk of material adjustment in the future period are discussed in Note 55.
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
174
173
In the Bank's statement of financial position (see Note 60), its investments in subsidiaries are stated at cost less
allowances for impairment losses.
Joint ventures
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.
Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only
to the extent that there is no evidence of impairment.
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
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
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.
Goodwill represents the excess of
Hedge accounting
(ii)
Initial recognition and classification (continued)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market, other than those that the Group intends to sell immediately or in the near term,
and those that are designated as available-for-sale financial assets upon initial recognition.
Available-for-sale financial assets
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.
Other financial liabilities
Other financial liabilities, other than that at fair value through profit or loss, are measured at amortised cost
using the effective interest method.
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 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, they are measured at fair value and changes therein, other than impairment losses
and foreign currency differences on debt instruments, are recognised in OCI 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.
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 and amortised.
(ii)
Fair value measurement principles
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 in the principal or, in its absence, the most advantageous
market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
When available, the Group measures the fair value of an instrument using the quoted price in an active market for
that instrument. A market is regarded as active if transactions of the assets or liabilities take place with sufficient
frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active
market, then the Group uses valuation techniques to maximise the use of relevant observable inputs and minimise
the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market
participants would account in pricing a transaction.
China Merchants Bank
Annual Report 2015
XII Financial Statements
2 Significant accounting policies (continued)
(i) Financial instruments (continued)
179
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".
Derivatives that do not qualify for hedge accounting
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 per cent to 125 per cent for
the hedge to be deemed highly effective.
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.
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.
(i)
Hedge effectiveness testing
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 hedges 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.
2 Significant accounting policies (continued)
(iii)
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.
Financial instruments (continued)
(i)
2 Significant accounting policies (continued)
(i)
Financial instruments
(i)
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
Initial recognition and classification
Both the period and method of amortisation are reviewed annually.
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 (other than goodwill)
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 recognised immediately in profit or loss as a gain on a bargain
purchase.
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 2015.
(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
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.
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.
XII Financial Statements
China Merchants Bank
Annual Report 2015
178
177
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.
Held-to-maturity investments
Except for loans and non-standard debt investments that are recognised using settlement date accounting, purchase
or sale of other financial assets is recognised using trade date accounting. From these date, any gains and losses
arising from changes in fair value of the financial assets or financial liabilities measured at fair value are recorded.
Financial liabilities are derecognised on the date when the obligations specified in the contracts are discharged,
cancelled or expired.
the separation of the embedded derivative from the financial instrument is not prohibited.
the designation eliminates or significantly reduces an accounting mismatch which would otherwise
arise;
the assets or liabilities are managed, evaluated and reported internally on a fair value basis;
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:
the asset or liability contains an embedded derivative that significantly modifies the cash flows that
would otherwise be required under the contract; or
XII Financial Statements
The amendments introduce a relief to reduce the complexity of accounting for certain contributions from employees
or third parties under defined benefit plans. When the contributions are eligible for the practical expedient provided
by the amendments, a company is allowed to recognise the contributions as a reduction of the service cost in
the period in which the related service is rendered, instead of including them in calculating the defined benefit
obligation. The amendments do not have an impact on these financial statements as the defined benefit plans
operated by the Group are wholly funded by contributions from the Group and do not involve contributions from
employees or third parties.
172
Proceeds from the issue of certificates of deposits
23,105
29,377
Proceeds from non-controlling shareholders
83
84
Repayment of negotiable interbank certificates of deposits
(143,500)
(28,812)
(3,000)
(31,790)
Repayment of redemption of non-controlling equity
(83)
(38)
Dividends paid
(16,925)
24,155
(15,656)
290,867
Proceeds from the issue of negotiable interbank
China Merchants Bank
Annual Report 2015
170
China Merchants Bank
XII Financial Statements
Annual Report 2015
Financing activities
Note
2015
2014
Proceeds from the issue of debt securities
200
15,395
Proceeds from the issue of medium term notes
3,046
5,076
certificates of deposits
Interest paid on issued debt securities
Repayment of certificates of deposit
(1,724)
China Merchants Bank
Annual Report 2015
XII Financial Statements
Notes to the Financial Statements
(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.
As at 31 December 2015, apart from the Head Office, the Bank had 47 branches in the Mainland China, Hong Kong,
New York, Singapore 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 Significant accounting policies
(a) Statement of compliance and basis of preparation
These 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 financial statements also comply with the
applicable disclosure provisions of the Rules Governing the Listing of Securities on the HKEX.
(3,096)
171
The notes on pages 171 to 302 form part of these financial statements.
112,124
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").
Interest paid
124,885
Net cash generated from financing activities
99,409
21,879
Net increase in cash and cash equivalents
Cash and cash equivalents as at 1 January
Effect of foreign exchange rate changes
Cash and cash equivalents as at 31 December
Cash flows from operating activities include:
Interest received
153,702
471,471
349,949
118,073
10,670
3,449
49(a)
635,843
471,471
189,783
188,752
2 Significant accounting policies (continued)
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.
185
186
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.
China Merchants Bank
Annual Report 2015
XII Financial Statements
Impairment losses are recognised in the consolidated statement of profit or loss.
(n)
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.
(i)
Financial assets (continued)
(ii)
Impairment losses on loans and receivables, held-to-maturity investments (continued)
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.
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.
Homogeneous groups of loans and receivables, held-to-maturity investments
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 (continued)
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.
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 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;
disappearance of an active market for financial assets because of financial difficulties; or
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
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.
Impairment losses on loans and receivables, held-to-maturity investments
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.
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 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.
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.
China Merchants Bank
Annual Report 2015
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
XII Financial Statements
(n) Impairment (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:
no objective evidence of impairment exists for an individually assessed loans and receivables, held-to-
maturity investments; and
for homogeneous groups of loans and receivables, held-to-maturity investments that are not
individually significant with similar credit risk characteristics.
Incurred but not yet identified impairment
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:
2 Significant accounting policies (continued)
Other assets
If the bond is converted into shares, the carrying value of the liability component and any interest payable at
the time of conversion, are transferred to "share capital" based on the numbers of shares issued at par and the
differences are recognised as share premium in capital reserve.
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.
Other provisions and contingent liabilities
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 2015
XII Financial Statements
2 Significant accounting policies (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.
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.
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.
(ii)
Fee and commission income
Fee and commission income is recognised in the consolidated statement of profit or loss when the corresponding
service is provided.
(iii)
Dividend income
(iv)
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.
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.
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 all other changes in
fair value 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.
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".
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.
(ii)
China Merchants Bank
Annual Report 2015
XII Financial Statements
2 Significant accounting policies (continued)
(n) Impairment (continued)
(ii)
Other assets (continued)
Calculation of recoverable amount
The recoverable amount of an asset 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).
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
Once recognised, the impairment losses will never be reversed.
(o) Convertible bonds issued
At initial recognition the liability component of the convertible bonds issued is calculated as the present value of
the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial
recognition to similar debt securities that do not have a conversion option. The liability component is subsequently
carried at amortised cost until it is converted or redeemed. Any excess of proceeds over the amount initially
recognised as the liability component is in substance an option and is recognised as the equity component in the
capital reserve.
significant changes in the technological, market, economic or legal environment that have an adverse effect
on the borrower;
187
188
China Merchants Bank
Annual Report 2015
XII Financial Statements
2 Significant accounting policies (continued)
(p) Financial guarantee issued, provisions and contingent liabilities
(i)
Financial guarantees issued
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.
it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
Operating lease
significant financial difficulty of the issuer or borrower;
(viii) Equity instrument
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
assets.
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 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
(vii)
Financial instruments (continued)
(i)
(ix)
2 Significant accounting policies (continued)
China Merchants Bank
Annual Report 2015
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.
the terms of the embedded derivative would meet the definition of a derivative if they were contained in a
separate contract; and
the host contract is not itself carried at fair value through profit or loss;
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
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.
The Group's derivative financial instruments mainly include spot, 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.
Derivative financial instruments
XII Financial Statements
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.
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.
At initial recognition, the Group classifies the perpetual bonds issued or their components as financial assets,
financial liabilities or equity instruments based on their contractual terms and their economic substance after
considering the definition of financial assets, financial liabilities and equity instruments.
the estimated useful lives
3 years
3-5
3-5 
years
Leasehold improvements (self-owned property)
Leasehold improvements (leasing property)
$
Motor vehicles and others
3 years
20 years
20 years
Perpetual bonds
Computer equipment
Buildings
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:
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.
(j) Property, equipment, investment property and depreciation
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
182
181
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 according to the contractual terms, the redemption price is
charged to equity.
Investment properties
a breach of contract, such as a default or delinquency in interest or principal payments;
Loans and advances to customers
Investments
Finance and operating lease
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
Where the Group is a lessor under finance leases, an amount representing the net investment in the lease is included
in the 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. Finance income implicit
in the lease payment is recognised as "interest income" over the period of the leases in proportion to the funds
invested. Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(n)(i).
(iii) Operating leases
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 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.
Impairment losses on initial classification and on subsequent remeasurement are recognised in the consolidated
statement of profit or loss.
(m) Resale and repurchase agreements
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.
183
184
China Merchants Bank
Annual Report 2015
XII Financial Statements
2 Significant accounting policies (continued)
(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:
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".
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, and available-for-sale financial assets in accordance with the
Group's holding intention at acquisition.
Repossessed assets are measured at fair value at the date of exchange. They are not depreciated or amortised.
(i)
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
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.
Cash equivalents
(v)
Specific items
(iv)
Financial instruments (continued)
(i)
2 Significant accounting policies (continued)
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".
XII Financial Statements
180
189
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 and other asset when the asset is ready for its intended use. No depreciation is provided for construction
in progress.
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.
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.
China Merchants Bank
Annual Report 2015
XII Financial Statements
2 Significant accounting policies (continued)
(k) Repossessed assets
(I)
China Merchants Bank
Annual Report 2015
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.
45,268
China Merchants Bank
7.65
9.28
10.53
12.47
14.31
the Bank's shareholders
Year-end net assets attributable to
1.67
2.10
2.30
2.22
2.29
Diluted earnings
1.67
2.10
2.30
2.22
(in millions of RMB)
Year end
Share capital
25,220
5,474,978
Total assets
2,220,060
2,532,444
3,571,698 3,304,438 2,775,276
Deposits from customers
2,629,961
3,207,698
2.29
3,750,443
Total liabilities
21,577
165,010
21,577
200,401
265,956
25,220
25,220
315,060
361,758
Total shareholders' equity
5,113,220 4,416,769
Net loans and advances to customers (1)
Basic earnings
0.63
59,266
Impairment losses on assets
40,889
48,356
54,144
61,081
67,670
Operating expenses
96,666
113,818
133,118
166,525
202,302
Net operating income
Results for the year
2011
2012
31,681
10,218
5,583
8,350
0.62
0.67
0.69
Dividend
Per share
(RMB)
36,129
51,743
0.42
55,911
the Bank's shareholders
Net profit attributable to
47,122
59,558
68,425
73,431
75,079
Profit before tax
57,696
2013
2,739,444
4,016,399 3,408,099
2,148,330
To overcome periodic economic fluctuations successfully requires a bank to keep
its strategic determination, regardless of difficulties and temptations. A successful
experience of the Bank drawn from previous practices is to make retail banking
business as its strategic direction and stick to it persistently. In 2015, the Bank's retail
loan balances and profit before tax both accounted for half of its results under each
sector, further consolidating its competitive advantage in retail finance. In addition,
corporate finance and financial institutions finance had made breakthroughs in their
key business areas with ever-increasing customer bases. And the Bank had further
developed a more clearly defined "One Body with Two Wings" strategy and "Asset-light
Banking" direction.
III Chairman's Statement
Annual Report 2015
China Merchants Bank
16
Chairman
Li Jianhong
A successful bank should have the capability to survive periodic economic fluctuations.
From 2015 onwards, China's real economy has gradually entered into an adjustment
period characterised by "reducing overcapacity, destocking, deleveraging, cutting
down costs and improving weaknesses", domestic banks were then exposed to great
challenges in their risk management capability. In response to this challenge, the
Board persistently improved the risk preference indicator system, further enhanced the
monitoring and control of risk management, and fully implemented the dynamic and
well-balanced operation concept of "keeping balance between efficiency, quality and
scale". All members of the Board diligently fulfilled their duties to thoroughly study
the Bank's important resolutions and actively offer advice for further development
of the Bank. Moreover, they also conducted special studies on the risk management
status of certain branches based on actual conditions, traced and analysed the changes
in conditions, thoroughly studied the risk management and operation status and
effectively put forward risk management and control proposals. In addition, they further
improved the vertical audit management system and focused on the rectification of
problems identified during the process of audits and the enforcement of accountability
for such problems, thereby further enhancing the rectification of problems and the
effectiveness of the management systems.
In 2015, the Bank realised a net profit attributable to shareholders of the Bank of
RMB57.696 billion, representing a year-on-year increase of 3.19%. Return on average
equity (ROAE) and return on average asset (ROAA) attributable to shareholders of the
Bank were 17.09% and 1.13%, respectively. After complete relaxation of the ceiling
for deposit interest rates, the Bank's net interest margin recorded an increase rather
than a decrease as compared with that of the previous year, demonstrating its strong
profitability. Meanwhile, the proportion of net non-interest income continued to
increase, thanks to the Bank's initial achievements in business transformation. The cost-
to-income ratio decreased continually, and operating efficiency further improved.
The deepening of economic transformation and financial reform brought about
profound changes to the operation environment of the PRC banking industry in the
past year. The increasing pace of reform in interest rates and exchange rates, the
further development of financial disintermediation, the drastic volatility in the capital
market, and the persistence of the overcapacity problem, all put commercial banks'
profit growth under pressure and led to a higher risk of deterioration in asset quality.
The Bank proactively adapted to the "new normal", vigorously grasped emerging
opportunities, overcame challenges, and demonstrated its sound and stable operating
style.
Chairman's Statement
Annual Report 2015
III Chairman's Statement
China Merchants Bank
14
Note: (1) Net loans and advances to customers represent gross loans and advances to customers less allowances for loan impairment losses.
11.53
A forward-looking strategic deployment is essential for overcoming tough economic
cycles. In 2015, the Bank ranked 28th among the global top 1,000 banks by The Banker
magazine, demonstrating that it has grown into a bank with strong market reputation
and influence. Therefore, it is vital for the Bank to identify its core strengths and major
challenges, work out its way into the future and make beforehand deployments. Since
2015, the Bank has formulated its new five-year plan according to the requirements
of the Board of Directors as its overall deployments in line with the state's "13th Five-
year Plan". With a goal to become the "Best Commercial Bank in China", the Bank
has made "Retail Banking, Keeping Ahead" a core essence of its strategic objectives
and "Innovation-driven Development" a tool to realise the new five-year plan. Shared
by the Board of Directors, the management and employees throughout the Bank, the
above plan has stemmed from the Bank's long historical experience and will spearhead
the Bank's future development.
As for innovation-driven development, it first comes to the innovation of our business
models and service modes. In 2015, the Bank, adhering to the customer-centric service
concept of "We are here, just for you", vigorously promoted the deployment and
innovation of Internet finance by utilising mobile Internet concept and focusing on
diverse cross-industry cooperation, and diligently studied and explored new business
models in payment and settlement, consumer finance, mobile banking, direct banking
and credit verification service. As for improving customer experience, the Bank
proactively made innovations based on the perspectives of Internet, mobile handsets
and scenarios and launched various new functions including "visual counters" and
"cash withdrawal via face-scanning ()", thus offering more convenient and
efficient services to its customers.
Our innovation-driven development is also reflected in the market-oriented mechanism
innovation. During the year, the Board advocated and promoted the Employee Stock
Ownership Scheme of the Bank to bring together the long-term interests of its
management, employees and shareholders, and continuously improved the incentive
and constraint mechanism, demonstrating its corporate culture of respect, caring and
sharing.
China Merchants Bank
Annual Report 2015
10
President
Tian Huiyu
In 2015, under the counter-cyclical pressure, the Bank adhered to differentiate itself
in the tough operating environment by capitalising on the "One Body with Two
Wings" strategy. We continued to boost our retail finance business, making the "one
body" a firm cornerstone for the Bank to survive the tough operating environment.
The proportion of profit before tax of retail banking reached 46.34%, up by 6.70
percentage points year-on-year. The bank maintained its lead in a number of areas
including private banking, wealth management and credit cards businesses. We
grasped opportunities to penetrate into emerging businesses, making the "two wings"
the powerful "dual-engine" for the Bank to surf through high waves. Playing a leading
role in transaction banking among its peers, the Bank saw a significant increase in the
number of core customers in supply chains and the amount of settlement deposits. The
market share of cross-border settlement and sales of foreign exchange was 4.48%,
ranking first among small and medium-sized banks nationwide. Our investment banking
and asset management businesses have become a dual-driver for further growth and
grasped a number of market opportunities arising out of mergers and acquisitions
and restructuring, capital market, government-guided funds and emerging financing
business. The business of the privatisation of overseas-listed Chinese enterprises has
become an industry benchmark, with bond underwriting business ranking first among
the domestic small- and medium-sized banks. We ranked second among our peers in
terms of the volume of asset management. The volume of asset custody amounted to
RMB7.16 trillion. We outperformed our peers in several key indicators of bills business.
Profits form financial markets business doubled for two consecutive years.
In 2015, the Bank steadfastly pursued its strategic transformation, making its
preliminary achievements in "Asset-light Banking". Our assets have become more
"light". We made initial success in structural adjustments despite various challenges
and difficulties. We significantly scaled down risk assets in areas including the
overcapacity industries, while increasing our allocations in low-risk and quality retail
assets such as credit-card and home mortgages. Balance of our retail loans accounted
for nearly half of our total loans, and the proportion of our corporate loans to
customers with high credit rating increased by 6.1 percentage points, thus further
optimising our asset structure. Our liabilities have become more "light". Persistently
following the operating principle where "assets determine liabilities", we vigorously
optimised the mechanism for pricing of deposits and differentiated authorisation, and
significantly reduced the proportion of high-cost structured deposits. As a result, we
saw a rise in the proportion of demand deposits and an increase of 11 basis points in
net interest margin, effectively offsetting the adverse impact of several interest rate
cuts during the year. Our income has become more "light". The proportion of our net
non-interest income increased to 32.41%, and the cost-income ratio fell to a historical
low of 27.55%.
As at the end of 2015, total assets of the Group amounted to RMB5,474.978 billion,
up by 15.71% from the beginning of the year; total deposits from customers amounted
to RMB3,571.698 billion, up by 8.09% from the beginning of the year; and total
loans and advances to customers amounted to RMB2,824.286 billion, up by 12.35%
from the beginning of the year. Net profit attributable to the shareholders of the Bank
amounted to RMB57.696 billion, up by 3.19% year-on-year. The return on average
net equity (after tax) attributable to the shareholders of the Bank was 17.09%, down
by 2.19 percentage points year-on-year. Under the advanced approach, the capital
adequacy ratio was 12.57%, up by 0.19% as compared with that at the beginning of
the year. The non-performing loan ratio was 1.68%, the allowance coverage ratio of
non-performing loans was 178.95% and the allowance ratio of loans was 3.00%.
In 2015, the Bank unswervingly implemented various requirements of the regulatory
authorities and the Board of Directors, fully promoted the building of an asset-light
bank and the implementation of the "One Body with Two Wings" strategy, further
highlighted its features and enhanced brand image, thus reinforcing its position as a
forerunner in business transformation.
President's Statement
11.41
Annual Report 2015
China Merchants Bank
18
17
Chairman
China Merchants Bank Co., Ltd.
In 2015, the Bank actively fulfilled its social responsibilities by firmly committing to
social welfare activities. The Bank enhanced financial support to various sectors related
to people's livelihood with focus on developing green financial products, promoting
green operations and contributing to economic restructuring, transformation and
upgrading for the purpose of realising sustainable value creation and value sharing.
During the year, the Bank established an online public welfare platform, through which
a number of sustainable public welfare programs were initiated in collaborations with
One Foundation and China Children and Teenagers' Fund to advocate the idea of
"Everybody Goes for Charity"(^\\). "More Pleasure from Monthly Donations
(A)", a small-amount monthly donation program initiated by the Bank that
brings many public welfare institutions and clients together, has seen continuous rollout
and a stable increase in the number of sign-up clients committed to monthly donations.
The banking industry is expected to confront with severe challenges and tough tests, as
China is now gearing up its reform of the supply front, with structural adjustments as
the development trend and logics for a period of time in the future. A series of adverse
and unfavorable factors, such as decline in the asset demand, narrowing of interest
spread, increase in non-performing assets and competition from new financing media,
will continue to pose threat to the Bank. As the Bank has been recognised for its high-
quality client portfolio and sound risk preference, investors thus have an expectation
that it could deliver good performance even when risks are on the rise.
Shouldering the strong expectations from its investors, and exposed to the complicated
economic situation and tough business environment, the Bank will continue to
accelerate its transformation and seize opportunities in 2016 to capture more market
shares through business innovation and increase efficiency through risk management so
as to lay a sound foundation for achieving the goal of becoming the best commercial
bank in China and continuing to create values for its investors and the society.
In the past year, changes occurred in the shareholdings of major shareholders of
the Bank. Looking back at its history, despite previous changes in the structure and
shareholdings of its shareholders, the Bank has always adhered to the market-driven
operation mechanism and the regulated corporate governance model. These formed
the essence and foundation for our growth and success. In future, the market-driven
operation mechanism and the management model of the Bank will not be weakened,
but rather, they will be enhanced and innovated from time to time, making the market-
driven operation mechanism a competitive advantage of the Bank.
III Chairman's Statement
IV President's Statement
4,731,829
2,448,754
11.14
11.91
22.22
19.28
17.09
attributable to the Bank's shareholders
Return on average equity (after tax)
1.39
1.46
1.39
1.28
1.13
attributable to the Bank's shareholders
Return on average assets (after tax)
Key financial ratios
(%)
1,604,371
1,863,325
2,794,971
24.78
24.17
Cost-to-income ratio
27.55
the weighted approach
Capital adequacy ratio under
8.22
8.34
9.60
9.93
the weighted approach
Tier 1 capital adequacy ratio under
11.74
0.56
0.83
1.11
1.68
Non-performing loan ratio
36.00
35.85
34.23
30.42
0.61
2014
9.27
(in millions of RMB)
15.71
4,731,829
5,474,978
+/(-)%
Changes
31 December
2014
2015
Total liabilities
of which: total loans and advances to customers
Total assets
(in millions of RMB)
31 December
14.76
12.47
14.31
3.15
2.22
2,824,286
2,513,919
12.35
5,113,220
(%)
2.2 Financial Ratios
Il Summary of Accounting Data and Financial Indicators
China Merchants Bank
Annual Report 2015
12
11
Net operating income is the sum of net interest income, net fee and commission income, other net income as well as the gains on investment
in associates and joint ventures.
Note:
2.29
14.76
360,806
Total equity attributable to the Bank's shareholders
8.09
3,304,438
3,571,698
of which: total deposits from customers
15.77
4,416,769
314,404
2015
3.15
2.29
Changes
Operating Results
2.1 Key Accounting Data and Financial Indicators
Summary of Accounting Data
and Financial Indicators
Annual Report 2015
Il Summary of Accounting Data and Financial Indicators
China Merchants Bank
In December 2015, the Company was ranked among the "Top Ten Excellent
Board of Directors of Companies Listed on the Main Board in 2015" selected
by 21st Century Media.
In November 2015, the Company stood out from the 2,800 listed
companies, and ranked first in the "Top Ten of Investors' Most Respected
100 Listed Companies in China" selected by the Association of Chinese
Listed Companies.
On 26 November 2015, at the Tenth Annual Conference for 21st Century
Asian Finance held by 21st Century Business Herald, the Company won the
"Best Retail Bank in Asia for 2015" award.
In November 2015, the Company was honored the "Best Cross-Border
Trade Settlement Award" for its outstanding performance in corporate
finance in the special survey of corporate finance towards all the CFOs in
China conducted by the "CFO" magazine of the Ministry of Industry and
Information Technology.
On 22 July 2015, the Company leapt to the 235th place in Fortune Global
Top 500 Companies, up by 115 places from the previous year with its
operating revenue of USD45.61 billion, being one of the fastest rising
companies.
On 8 July 2015, the Company leapt to 29th in Fortune China Top 500
Chinese Companies for 2015, up by 4 places from the previous year with
its operating revenue of RMB165.863 billion, and ranked sixth among all
Chinese banks, only after the big-5 state-owned banks.
On 1 July 2015, the Company's ranking continued to rise in the list of global
top 1,000 banks for 2015 published by The Banker magazine (a prestigious
international financial magazine). It ranked 28th, up by 8 places from the
previous year with its tier 1 capital of USD49.351 billion and sixth among all
Chinese banks, only after the big-5 state-owned banks.
I Company Information
Annual Report 2015
2015
(in millions of RMB)
2015
2014
+/(-)%
Changes
+/(-)%
2014
2015
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)
Per Share
3.19
2.22
55,911
Net profit attributable to the Bank's shareholders
2.24
73,431
75,079
Profit before tax
166,525
202,302
Net operating income (Note)
57,696
2014
(restated)
21.48
(-)/+
Asset quality indicators
percentage point
Decreased by 0.05
6.66
6.61
Equity to total assets
percentage point
Increased by 0.17
11.74
11.91
percentage point
Increased by 0.33
9.60
9.93
Capital adequacy ratio
Tier 1 capital adequacy ratio
Capital adequacy indicators under the weighted
approach (1)
Non-performing loan ratio.
1.68
1.11
Increased by 0.57
2.3 Five-year Financial Summary
Changes
13
Il Summary of Accounting Data and Financial Indicators
China Merchants Bank
Annual Report 2015
The Group has re-classified the income from credit card repayment by instalments from fee income to interest income since 2015. The
relevant financial indicators on net interest income and net non-interest income 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;
Increased by 0.41
percentage point
2.59
3.00
Allowance ratio of loans (3)
percentage point
Decreased by 54.47
233.42
178.95
Allowance coverage ratio of non-performing loans(2)
Notes: (1) As at 31 December 2015, 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 12.57% and 10.83%, respectively, up by 0.66 percentage point and 0.90 percentage point respectively as compared with those
calculated in accordance with the weighted approach.
2014
percentage points
Changes
2.75
Net interest margin
percentage point
Increased by 0.14
2.45
2.59
Net interest spread
percentage points
2.64
the Bank's shareholders
17.09
Return on average equity (after tax) attributable to
Decreased by 0.15
1.28
1.13
2015
Profitability indicators
Return on average assets (after tax) attributable to
the Bank's shareholders
19.28
Increased by 0.11
percentage point
Decreased by 2.19
As percentage of net operating income
(%)
31 December
percentage point
31 December
Decreased by 2.87
percentage points
30.42
Cost-to-income ratio (excluding business tax and surcharges)
percentage points
Increased by 2.79
27.55
32.41
- Net interest income
- Net non-interest income
percentage points
Decreased by 2.79
67.59
29.62
70.38
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.
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.
China Merchants Bank
Annual Report 2015
Zhang Guanghua
8
Directors' and Supervisors' emoluments (continued)
The emoluments of the Directors and Supervisors during the year are as follows: (continued)
Tian Huiyu
During the reporting period, Dong 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.
Executive directors
XII Financial Statements
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.
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 37(a)(iii).
During the reporting period, Yu Yong resigned as the Bank's supervisor 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, Fu Junyuan resigned as the Bank's non-executive director due to the change of job assignment.
During the reporting period, An Luming resigned as the Bank's shareholders supervisor due to the change of job assignment.
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.
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.
21,619
2,162
405
| || | ||
Li Hao
1,898
218
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.
Non-executive directors
300
Ma Zehua
Discretionary
197
16,632
2014
An Luming
Zhu Genlin
Liu Yuan (ii)
Zhao Jun (ii)
Guo Xuemeng
Pan Yingli
Pan Chengwei
Liang Jinsong (ii)
Wong Kwai Lam
Li Jianhong (ii)
directors and supervisors
Salaries,
allowances
and benefits
||||
| | |
RMB'000
Directors' fees
Independent non-executive
Hong Xiaoyuan
Fu Gangfeng
Fu Junyuan
Su Min (ii)
Sun Yueying
Li Yinquan
Li Xiaopeng (ii)
in kind
RMB'000
2,825
375
1,680
258
1,989
300
300
400
400
375
Huang Dan
Xiong Kai
Jin Qingjun
Dong Xiande (iv)
Pan Ji (iv)
Liu Zhengxi
Fu Junyuan (iii & iv)
Zhu Genlin
3,797
437
3,360
Liu Yuan
275
275
Zhao Jun
300
300
Guo Xuemeng (iv)
bonuses
RMB'000
300
2,247
1,685
219
1,904
(i)
Total
RMB'000
bonuses contributions
RMB'000
RMB'000
Retirement
scheme
Discretionary
2015
RMB'000
Salaries,
allowances
and benefits
in kind
Directors' fees
RMB'000
(iv)
(iii)
(ii)
(i)
358 - 47
Notes:
Yu Yong (iv)
Xiao Yuhuai (iv)
Xu Shanda (iv)
Zhang Guanghua (iv)
and supervisors
non-executive directors
Former Executive,
The emoluments of the Directors and Supervisors during the year are as follows: (continued)
Directors' and Supervisors' emoluments (continued)
8
XII Financial Statements
China Merchants Bank
Annual Report 2015
196
An Luming (iv)
Retirement
scheme
contributions
Shi Rongyao (iii)
RMB'000
1,304
Guan Qizhi (iii)
2,416
278
2,138
Yu Yong (iii)
150
150
150
150
Peng Zhijian (iii)
3,198
273
825
2,100
Han Mingzhi (iii)
Xiao Yuhuai (iii)
Xu Shanda (iii)
जै
75
| | | |
(i)
RMB'000
RMB'000
RMB'000
Total
contributions
169
bonuses
1,473
18,176
300
During the reporting period, Peng Zhijian retired as the Bank's supervisor due to the change of job assignment.
During the reporting period, Shi Rongyao retired as the Bank's supervisor due to the change of job assignment.
During the reporting period, Guan Qizhi retired as the Bank's supervisor due to the change of job assignment.
On 9 March 2015, Yu Yong retired as the Bank's supervisor due to the change of job assignment.
During the reporting period, Fu Yuning retired as the Bank's non-executive director due to the change of job assignment.
During the reporting period, Wang Daxiong retired as the Bank's non-executive director due to the change of job assignment.
During the reporting period, Xiong Xianliang retired as the Bank's non-executive director due to the change of job assignment.
During the reporting period, Yi Xiqun retired as the Bank's independent non-executive director upon expiry of his term of office.
During the reporting period, Xu Shanda retired as the Bank's independent non-executive director due to the change of job assignment.
During the reporting period, Xiao Yuhuai retired as the Bank's independent non-executive director due to the change of job assignment.
During the reporting period, Han Mingzhi retired as the Bank's supervisor due to the change of job assignment.
(iii)
Notes: (continued)
Directors' and Supervisors' emoluments (continued)
199
XII Financial Statements
China Merchants Bank
Annual Report 2015
80
On 10 March 2015, the Bank's workers' congress considered and elected Huang Dan as employee supervisor of the 9th Supervisory Committee
of the Bank.
On 26 August 2014, the Bank's workers' congress considered and elected Liu Yuan and Xiong Kai as employee supervisors of the 9th
Supervisory Committee of the Bank.
On 20 October 2014, the Bank's 2nd 2014 extraordinary general meeting of shareholders considered and approved the Resolution on election
of Jin Qingjun as an external supervisor.
On 30 June 2014, the Bank's 2013 general meeting of shareholders considered and approved the Resolution on election of Dong Xiande as an
external supervisor.
From 28 August 2014 to 29 August 2014, the Bank's 14th meeting of the 9th Supervisory Committee considered and approved the Resolution
on election of Liu Yuan as a chairman of the Supervisors of the Bank, and elected Liu Yuan as the chairman of the 9th Supervisory Committee
of the Bank.
On 20 October 2014, the Bank's 2nd 2014 extraordinary general meeting of shareholders considered and approved the Resolution on election
of Zhao Jun as an independent non-executive director.
On 20 October 2014, the Bank's 2nd 2014 extraordinary general meeting of shareholders considered and approved the Resolution on election
of Liang Jinsong as an independent non-executive director.
On 30 June 2014, the Bank's 2013 general meeting of shareholders considered and approved the Resolution on election of Su Min as a
non-executive director.
On 20 October 2014, the Bank's 2nd 2014 extraordinary general meeting of shareholders considered and approved the Resolution on election
of Li Xiaopeng as a non-executive director.
On 30 June 2014, the Bank's 2013 general meeting of shareholders considered and approved the Resolution on election of Li Jianhong as a
non-executive director.
On 29 September 2015, the Board of Directors approved the discretionary bonuses of the Bank's directors, supervisors and executive officers
for 2014. Disclosures in 2014 (Note 8, 9 & 56(h)) had been adjusted correspondingly.
(ii)
(i)
Notes:
28,334
2,362
5,936
1,860
in kind
RMB'000
scheme
Discretionary
1,999
170
516
1,313
300
300
300
300
300
| | | |
300
300
||||
5,211
437
1,414
3,360
5,211
437
1,414
3,360
6,513
546
1,767
4,200
(i)
RMB'000
225
60
60
401
Retirement
and benefits
Salaries,
allowances
2014
75
Directors' fees
RMB'000
Yi Xiqun (iii)
Xiong Xianliang (iii)
Wang Daxiong (iii)
Fu Yuning (iii)
and supervisors
non-executive directors
Former Executive,
Total
The emoluments of the Directors and Supervisors during the year are as follows: (continued)
8
XII Financial Statements
China Merchants Bank
Annual Report 2015
198
Huang Dan (ii)
Xiong Kai (ii)
Jin Qingjun (ii)
Dong Xiande (ii)
225
Pan Ji
Liu Zhengxi
453
52
Directors' and Supervisors' emoluments (continued)
Pan Yingli
Liang Jinsong
300
LO
Interest expense
4
Note: For the year ended 31 December 2015, included in the above is interest income of RMB1,137 million accrued on impaired loans (2014:
RMB655 million) and nil for impaired debt securities investments (2014: Nil).
228,036
234,722
not at fair value through profit or loss
Interest income on financial assets that are
37,749
48,175
Investments
20,461
12,102
Amounts held under resale agreements
10,579
5,962
Balances and placements with banks and other financial institutions
8,318
8,598
Balances with central bank
5,131
4,866
63,630
78,076
82,168
76,943
- Discounted bills
5
2015
2014
Deposits from customers
Agency services fees
4,116
3,799
Remittance and settlement fees
7,692
9,562
Bank cards fees
2014
(Restated)
2015
Fee and commission income
110,834
97,993
not at fair value through profit or loss
- Retail loans
Interest expense on financial liabilities that are
7,150
Debt securities issued
1,637
2,790
Amounts sold under repurchase agreements
41,032
26,549
Deposits and placements from banks and other financial institutions
142
1,056
Borrowing from central bank
64,102
60,448
3,921
13,681
- Corporate loans
2014
(Restated)
Salaries and staff welfare
(i)
(u) Employee benefits
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.
(t) Offsetting
On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign
operation is reclassified from equity to the consolidated statement of profit or loss when the profit or loss on
disposal is recognised.
(s) Foreign currencies translations (continued)
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are translated
into RMB at the foreign exchange rates ruling at that date. Non-monetary assets and liabilities, and share capital
which are measured at historical cost in a foreign currency are translated into RMB at the foreign exchange rates
ruling at the date of the transaction, whilst those stated at fair value are translated into RMB at the foreign
exchange rate ruling at the date of valuation. Income and expenses denominated in foreign currencies are translated
at the exchange rates ruling at the dates of the transactions. When the gain or loss on a non-monetary item,
including available-for-sale equity instrument, is recognised directly in equity, any exchange component of that gain
or loss is recognised directly in equity, all other foreign exchange differences arising on settlement and translation of
monetary and non-monetary assets and liabilities are recognised in the consolidated statement of profit or loss.
The assets and liabilities of operations outside Mainland China are translated into RMB at the spot exchange rates
ruling at the end of the reporting period. The equity items, excluding "Retained profits", are translated to RMB at
the spot exchange rates or the rates that approximate the spot exchange rates on the transaction dates. The income
and expenses of foreign operation are translated to RMB at the spot exchange rates or the rates that approximate
the spot exchange rates on the transaction dates. Foreign exchange differences arising from translation are
recognised as "exchange reserve" in other comprehensive income.
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.
Foreign currencies translations
the same taxable entity; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation
authority on either:
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
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:
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.
Deferred tax is provided using the statement of financial position liability method, for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. 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.
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.
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.
(s)
(r) Taxation
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
300
190
Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
employees.
(ii)
Post employment benefits
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.
2015
193
Interest income
XII Financial Statements
China Merchants Bank
Annual Report 2015
3
Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
(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.
Operating segments, and the amounts of each segment item reported in the 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.
(w) Segmental reporting
Loans and advances to customers
For the purposes of these 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.
During the vesting period, the equity incentives that is expected to vest is reviewed. Any adjustment to the
cumulative fair value recognised in prior years is charged or credited to the consolidated statement of profit or loss
for the year of the review. On vesting date, the amount recognised as an expense is adjusted to reflect the actual
amount of equity incentives that vest.
Share-based payment
(iii)
(u) Employee benefits (continued)
2 Significant accounting policies (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
192
191
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.
(v) Related parties
7,017
The Group offers equity incentives to its employee, namely H share Appreciation Rights Scheme for the Senior
Management ("the Scheme"). The Scheme is accounted for as cash settled plan. The fair value of the equity
incentives is measured at grant date using Black-Scholes model, taking into account the terms and condition upon
which the equity incentives were granted. Where the employees have to meet vesting conditions before becoming
unconditionally entitled to the equity incentives, the total estimated fair value of the equity incentives is spread over
the vesting period, taking into account the probability that the equity incentives will vest.
4,215
Li Hao
Tian Huiyu
Executive directors
The emoluments of the Directors and Supervisors during the year are as follows:
Directors' and Supervisors' emoluments
8
XII Financial Statements
China Merchants Bank
Annual Report 2015
Auditors' remuneration amounted to RMB22 million for the year ended 31 December 2015 (2014: RMB17 million), included in other general
and administrative expenses.
Performance bonus is included in the above salaries and bonuses, the details of which are disclosed in Note 37(c).
(ii)
(i)
Notes:
61,081
67,670
14,593
16,419
Other general and administrative expenses (Note (ii))
3,349
3,842
Rental expenses
3,535
4,086
Property, equipment and investment properties depreciation
10,425
11,929
Business tax and surcharges
Non-executive directors
29,179
Li Jianhong
Li Xiaopeng
Pan Chengwei
275
Commissions from credit commitment and lending business
275
300
300
Wong Kwai Lam
directors and supervisors
Independent non-executive
Hong Xiaoyuan
Fu Gangfeng
|||
4,746
3,797
437
- 4,200 - 546
3,360
| |
(i)
RMB'000
Total
Retirement
scheme
bonuses contributions
RMB'000
RMB'000
Discretionary
Salaries,
allowances
and benefits
in kind
RMB'000
195
2015
Su Min
Sun Yueying
Li Yinquan
Ma Zehua
31,394
Directors' fees
RMB'000
5,067
611
Net gains/(loss) from available-for-sale financial assets
(359)
(118)
at fair value through profit or loss
Net losses from financial instruments designated
1,618
3,073
- Bonds, derivatives and other trading activities
2,467
2,398
- Foreign exchange
Trading profits from
(145)
2014
(Restated)
XII Financial Statements
China Merchants Bank
Annual Report 2015
194
43,341
57,798
7,279
7,897
Others
13,033
4,204
4,785
18,644
Commissions on trust and fiduciary activities
2015
Distributions from investment in funds
6 Other net income
21
4,779
- Social insurance and corporate supplemental insurance
Others
4
19,968
21,548
- Salaries and bonuses (Note (i))
-
2014
Staff costs
7 Operating expenses
9,671
12,018
341
311
2015
188
Gain on disposal of bills
539
534
4,519
476
4,426
4,238
Net trading gains from precious metals
Others
498
475
Rental income
Insurance income
2014
46
10
5
2015
36
XII Financial Statements
46
China Merchants Bank
Annual Report 2015
18 Amounts held under resale agreements
(a) Analysed by nature of counterparties
2015
124,085
Amounts held under resale agreements in Mainland
2014
51
185,693
(51)
3,829
47,067
57,358
Banks
32,965
113,525
90,323
72,219
33,808
(46)
185,693
124,085
2015
2014
133,415
87,020
48,449
30,226
6,839
Other financial institutions
343,924
205,082
43,575
117,135
3,560
36,099
344,980
(c) Analysed by assets types
Bonds
Loans and advances to customers
Bills
Trust beneficiary rights
Asset management schemes
Debtor beneficiary rights
(d) Movements of allowances for impairment losses
At 1 January
Charge for the year
66,458
At 31 December
Between one month and one year (inclusive)
Over one year
-
191,746
296,789
215,321
139,873
344,124
344,955
Amounts held under resale agreements outside Mainland
Banks
Less: Impairment allowances
- Banks
(b) Analysed by residual maturity
128,803
Maturing
344,124
344,980
(200)
343,924
344,980
2015
2014
- Within one month (inclusive)
25
2014
- Other financial institutions
As at 31 December
Less: Impairment allowances
- Banks
(a) Movements of allowances for impairment losses
As at 1 January
Charge for the year
As at 31 December
2015
2014
30,387
935
36,659
422
31,322
37,081
32,570
18,971
13
8
32,583
Other financial institutions
18,979
- Banks
Other financial institutions
2015
2.29
2.22
2015
2014
464,686
103,803
1,472
569,961
503,089
135,145
1,758
639,992
(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 15.0% and 5.0% for eligible RMB
deposits and foreign currency deposits respectively as at 31 December 2015 (2014: 17.5% and 5.0% 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.
Surplus deposit reserve maintained with the PBOC and central banks outside the Mainland China are mainly for clearing purposes.
China Merchants Bank
Annual Report 2015
XII Financial Statements
16 Balances with banks and other financial institutions
Balances in Mainland
Banks
Balances outside Mainland
2015
63,905
(123)
(a) Analysed by nature of counterparties
Placements in Mainland
- Banks
Other financial institutions
Placements outside Mainland
-
- Banks
Less: Impairment allowances
Banks
(b) Analysed by residual maturity
Maturing
- Within one month (inclusive)
-
- Between one month and one year (inclusive)
- Over one year
(c) Movements of allowances for impairment losses
As at 1 January
Charge for the year
institutions
56,060
17 Placements with banks and other financial
China Merchants Bank
Annual Report 2015
(71)
(3)
(3)
(126)
(74)
63,779
55,986
2015
2014
74
53
52
21
126
74
205
206
XII Financial Statements
2014
Recreational activities
137,189
2,653,747
2,340,361
China Merchants Bank
Annual Report 2015
XII 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)
Gross loans and advances to customers
Operation outside Mainland China
2014
Financial concerns
Property development
Wholesale and retail
Transport and transport equipment
Manufacturing
Information technology
2015
956,700
1,210,076
Retail loans and advances
1,353,856
1,308,654
Discounted bills
89,815
75,007
Residential mortgage
491,290
321,424
Credit cards
312,985
219,621
Micro-finance loans
308,973
336,924
Others
96,828
78,731
Others
Corporate loans and advances
Residential mortgage
Credit cards
7,754
259
267
1,804
1,889
6,397
4,717
Retail loans and advances
16,625
14,627
Gross loans and advances to customers
170,539
173,558
Note:
As at 31 December 2015, 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 2014).
209
25,220
8,165
Corporate loans and advances
158,931
22,551
Micro-finance loans
Others
46,585
29,410
37,168
36,031
14,860
42,097
13,876
7,925
13,468
18,265
3,627
431
2,025
2,221
22,305
153,914
65,045
76,477
Others
Corporate loans and advances
Discounted bills
Retail loans and advances
Gross loans and advances to customers
Less: Impairment allowances
- Individually assessed
- Collectively assessed
Net loans and advances to customers
(b) Analysis of loans and advances to customers
(i)
Analysed by industry sector and category:
Operation in Mainland China
2015
1,507,770
2014
1,467,585
89,815
1,226,701
75,007
971,327
(a) Loans and advances to customers
2,824,286
19 Loans and advances to customers
China Merchants Bank
Annual Report 2015
416
106,729
97,219
10,693
63,484
11,381
45,492
4,640
1,180
343,924
344,980
2015
2014
200
200
207
208
XII Financial Statements
210,481
2,513,919
(9,577)
gas and water
109,942
98,514
Construction
96,387
98,350
Leasing and commercial services
80,788
49,343
52,178
61,179
Water, environment and public utilities management
33,431
30,328
Telecommunications, software and IT services
28,076
20,092
Production and supply of electric power, heating power,
(14,624)
140,548
Transportation, storage and postal services
(70,218)
(55,588)
(84,842)
(65,165)
2,739,444
2,448,754
2015
2014
Manufacturing
318,679
342,005
Wholesale and retail
236,513
259,298
Property development
175,912
143,952
145,473
25,220
Mining
2015
57,696
947
Debt securities classified as receivables (Note 21(d))
_
(9)
20
- Held-to-maturity investments (Note 21(c))
40
35
- Available-for-sale financial assets (Note 21(b))
57
257
financial institutions (Note 16(a), Note 17(c), Note 18(d))
Investments
4
Amounts due from banks and other
57,507
Loans and advances to customers (Note 19(c))
2014
2015
48
79
42
64
2014
2015
11 Impairment losses
Maximum aggregate amount of relevant loans made
by the Group outstanding during the year
31,254
the Group outstanding at year end
Others
335
202
201
17,382
17,061
(4,946)
(7,207)
22,328
24,268
120
133
738
21,470
500
23,415
720
2015
Total
Deferred taxation
Subtotal
- Overseas
- Hong Kong
- Mainland China
Current income tax expense
(a) Income tax in the consolidated statement of profit or loss represents:
12 Income tax
31,681
59,266
2014
Aggregate amount of relevant loans made by
Loans to directors, supervisors and executive officers of the Group are as follows:
10 Loans to directors, supervisors and executive officers
25
1
1
2
-
1
1
1
23
20
6,500,000 7,000,000
4,500,001 - 5,000,000
5,000,001 -5,500,000
27
2,000,001 -2,500,000
3,000,000 3,500,000
3,500,001 - 4,000,000
4,000,001 -4,500,000
500,001 – 1,000,000
Nil - 500,000
RMB
2014
2015
The number of the Directors and Supervisors whose emoluments are within the following bands is set out below:
Directors' and Supervisors' emoluments (continued)
8
XII Financial Statements
200
China Merchants Bank
Annual Report 2015
2014
55,911
1,000,001 - 1,500,000
1,500,001-2,000,000
During the year ended 31 December 2015, 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 2015, 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 2015, 3 (2014: 3) are Directors
or Supervisors 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:
XII Financial Statements
China Merchants Bank
Annual Report 2015
131 |│|
11221-
(Note 8)
2014
2015
6,500,001 – 7,000,000
5,500,001 -6,000,000
5,000,001 - 5,500,000
4,500,001 - 5,000,000
3,500,001 -4,000,000
3,000,001 -3,500,000
RMB
The number of the five highest paid individuals whose emoluments fell within the following bands is set out below:
26,053
2,184
1,785
19,629
7,069
16,800
17,844
(Note 8)
2014
RMB'000
2015
RMB'000
Contributions to defined contribution retirement schemes
Discretionary bonuses (Note 8(i))
Salaries and other emoluments
China Merchants Bank
Annual Report 2015
XII Financial Statements
2
(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:
Reclassification adjustments for amounts transferred to profit or loss:
- On disposal
7,270
4,645
Changes in fair value recognised during the period
Available-for-sale financial assets:
2014
2015
(b) Movement in the fair value reserve relating to components of other
comprehensive income
8,665
(2,703)
11,368
5,605
(421)
(53)
7,142
Other comprehensive income
(64)
scheme redesigned through reserve
Remeasurement of defined benefit
35
35
64
64
other comprehensive income
Equity-accounted investees-share of
427
11
(1,537)
427
145
4,224
Notes:
Statutory deposit reserve (Note (i))
Surplus deposit reserve (Note (ii))
Fiscal deposits
12 Income tax (continued)
(i)
15 Balances with central bank
Note: Movements of the share capital are included in Note 40 of the consolidated financial statements.
equity shareholders of the Bank (in RMB)
Basic and diluted earnings per share attributable to
(in million) (note)
Net profit attributable to equity shareholders of the Bank
Weighted average number of shares in issue
The calculation of basic earnings per share for the year 2015 and 2014 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 2015 and
2014.
14 Earnings per share
Net movement in the fair value reserve during the period recognised
in other comprehensive income
XII Financial Statements
203
788
404
Net movement in the hedging reserve during the period recognised
in other comprehensive income
222
9
- Realised losses
566
395
Effective portion of changes in fair value of hedging instruments
Reclassification adjustment for amounts transferred to profit or loss
Cash flow hedge:
7,415
204
966
China Merchants Bank
Annual Report 2015
788
The applicable income tax rate in Hong Kong is 16.5% during 2015 (2014: 16.5%).
(ii)
The applicable income tax rate for the Bank's operations in Mainland China is 25% during 2015 (2014: 25%).
(i)
Notes:
17,382
17,061
Income tax expense
(136)
(177)
Effects of different applicable rates of tax prevailing in other areas
(1,623)
(iii)
(2,365)
783
833
- Effects of non-deductible expenses
18,358
18,770
73,431
75,079
2014
Profit before taxation
Tax at the PRC statutory income tax rate of 25% (2014: 25%)
966
2015
- Effects of non-taxable income
Taxation for overseas operations is charged at the applicable rates of tax prevailing in relevant countries.
Tax effects of the following items:
XII Financial Statements
1,051
404
(135)
China Merchants Bank
Annual Report 2015
(263)
539
· Net movement in hedging reserve
Exchange differences
Cash flow hedge:
7,415
(2,440)
9,855
4,224
(1,413)
5,637
-
Available-for-sale financial assets:
amount
Net-of-tax
Net-of-tax Before-tax Tax benefit/
amount
amount (expense)
benefit/
(expense)
amount
13 Other comprehensive income
Before-tax
2015
Tax
- Net movement in fair value reserve
(a) Tax effects relating to each component of other comprehensive income
2014
59,081
259,434
716,064
21(d)
353,137
408,752
Debt securities classified as receivables
21(c)
Available-for-sale financial assets
21(a)
278,526
299,559
21(b)
9,315
10,176
54(f)
Derivative financial assets
1,438,017
40,190
Held-to-maturity investments
996,217
(i)
Financial assets held for trading
17,543
- PRC government bonds
Financial assets at fair value through profit or loss
2014
(Restated)
2015
40,190
59,081
7,168
8,272
Financial assets at fair value through profit or loss
(!!)
50,809
2014
2015
Note
In Mainland
Listed
Financial assets held for trading
(i)
Financial assets designated at fair value through profit or loss
33,022
2014
lease receivables
Note
- Collectively assessed
(92)
(1,692)
(169)
- Individually assessed
Less: Impairment allowances
97,600
(12,167)
109,767
Net investment in finance
105,635
116,986
9,745
(716)
10,461
11,996
(1,048)
13,044
5,351
Over 5 years
(11,351)
103,774
(1,626)
95,882
(a)
21 Investments
XII Financial Statements
China Merchants Bank
Annual Report 2015
214
213
23,560
24,934
4,201
3,094
Others
7,691
8,765
Loans and advances to customers
11,668
13,075
Debt securities
2014
2015
20 Interest receivable
As at 31 December 2015, the Group's net investments in finance leases, included in "loans and advances" were nil
(2014: Nil).
2015
- Bonds issued by policy banks
2,536
6,165
7,168
8,272
844
1,072
813
837
31
235
(iii) Analysed by issuing authority
2015
Bands issued by commercial banks and other financial institutions
Other debt securities
Unlisted
6,324
7,200
1,257
735
420
- Bonds issued by commercial banks and other financial institutions
Other debt securities
Outside Mainland
63
Outside Mainland
2014
(Restated)
Issued by:
- Sovereigns
57,122
2015
- PRC government bonds
In Mainland
Listed
(b) Available-for-sale financial assets
21 Investments (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
216
215
40,190
59,081
16,521
19,450
- Corporates
18,018
21,784
- Banks and other financial institutions
5,651
17,847
66
9,622
299
3,970
304
712
740
1,100
1,580
2,535
1,347
- Equity investments
Other debt securities
-
- Bonds issued by commercial banks and other financial institutions
49,777
Outside Mainland
- Investments in funds
4
- Equity investments
12,744
13,472
- Other debt securities
5,358
4,513
- Bonds issued by commercial banks and other financial institutions
1
33,010
Unlisted
Outside Mainland
- Other debt securities
- Bonds issued by policy banks
PRC government bonds
(Restated)
2014
2015
In Mainland
Listed
(ii) Financial assets designated at fair value through profit or loss
(a) Financial assets at fair value through profit or loss (continued)
21 Investments (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
33,022
50,809
12
1,027
Long position in precious metal contracts
5
5
- Investments in funds
3,874
(6,773)
(1,618)
59,253
Charge for the year (Note 11)
48,764
7,002
3,228
38,534
At 1 January
Total
assessed
assessed
12,287
assessed
Which are
collectively
advances
which are
collectively
Impairment allowances for
impaired loans and advances
for loans and
Impairment
allowances
2014
84,842
14,624
7,806
Which are
individually
62,412
5,732
32,895
assessed
assessed
a % of gross
loans and
advances as
Gross
impaired
individually
losses are
for which
impairment
collectively
14,876
losses are
impairment
losses are
advances
for which
collectively
Loans and
Impaired loans and advances
2014
(Restated)
(1)
(22)
Release for the year (Note 11)
for which
impairment
226
50
176
9,577
4,733
50,855
At 1 January
Total
assessed
assessed
assessed
Which are
individually
65,165
Which are
collectively
2015
advances
which are
collectively
allowances
for loans and
Impairment
(c) Movements of allowances for impairment losses
19 Loans and advances to customers (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
210
Impairment allowances for
impaired loans and advances
Charge for the year (Note 11)
12,194
11,603
At 31 December
Exchange difference
1,464
839
625
(1,137)
(1,137)
previously written off
Recoveries of loans and advances
Unwinding of discount
(38,383)
(29,229)
(9,154)
Write-offs
(1,979)
(1,165)
(1)
(813)
Release for the year (Note 11)
59,486
35,689
assessed
Total
loans and
advances
The table below provides an analysis of finance lease receivables for leases of certain property and equipment in
which the Group is the lessor:
(e) Finance leases receivables
19 Loans and advances to customers (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
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.
individually.
collectively: that is portfolios of homogeneous loans and advances; or
Impaired loans and advances include loans and advances for which objective evidence of impairment has been identified and include
impairment losses are assessed in following ways:
2015
These loans and advances include those for which no objective evidence of impairment has been identified on individual basis.
(ii)
(i)
Notes:
2,448,754
10,907
2,675
2,435,172
2,376,658
10,907
(iii)
2014
Total
minimum
lease
receivables
Unearned
(6,177)
65,430
5 years (inclusive)
30,733
(4,678)
35,411
34,386
(4,126)
38,512
Within 1 year (inclusive)
receivables
income
lease
finance
value of
minimum
Unearned
minimum
lease
receivables
Total
Present
Present
value of
minimum
lease
receivables
finance
income
2,675
63,895
2,363,076
72,096
20,483
20,484
7,408
2,486,027
7,408
2,413,844
0.00
72,184
1
72,183
2,441,735
- Non-financial institution
customers
Gross loans and advances to
(note (iii))
(note (ii))
(note (ii))
(note (i))
loans and
advances
impaired
individually
assessed
Fair value of
collaterals
held against
- Financial institutions
1.14
5,743
2,513,919
- Financial institutions
- Non-financial institution
customers
Net loans and advances to
(65,165)
(9,577)
(4,733)
(50,855)
(65,077)
(9,576)
(4,733)
(50,768)
customers
- Non-financial institution
(88)
(1)
(87)
- Financial institutions
and advances to
Impairment allowances for loans
Less:
5,743
1.11
72,096
94,381
Over 1 year but within
- Bonds issued by PBOC
- Non-financial institution
(314)
(4)
(310)
- Financial institutions
loans and advances to
Impairment allowances for
Less:
8,486
customers
1.68
34,326
13,070
2,776,890
8,479
1.73
2,738,534
34,315
13,070
2,691,149
2,824,286
(62,102)
(7,806)
(14,620)
19 Loans and advances to customers (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
212
211
2,654,006
2,739,444
19,695
19,702
5,264
5,264
2,714,478
2,629,047
- Non-financial institution
customers
85,438
7
85,431
- Financial institutions
Net loans and advances to
(84,842)
(14,624)
(7,806)
(62,412)
(84,528)
- Non-financial institution
customers
(d) Loans and advances to customers and allowances for impairment losses (continued)
7
85,752
losses are
advances
for which
impairment
Loans and
2015
- Financial institutions
-
Gross loans and advances to
(d) Loans and advances to customers and allowances for impairment losses
19 Loans and advances to customers (continued)
collectively
XII Financial Statements
65,165
9,577
4,733
50,855
At 31 December
68
12
56
Exchange difference
China Merchants Bank
Annual Report 2015
Impaired loans and advances
for which
impairment
losses are
11
85,741
(note (iii))
(note (ii))
(note (ii))
(note (i))
loans and
advances
Fair value of
collaterals
held against
individually
assessed
impaired
loans and
advances as
Gross
impaired
advances
Total
assessed
assessed
assessed
a % of gross
loans and
individually
losses are
impairment
for which
collectively
0.01
651
2014
171,115
At 1 January
Movements of allowances for impairment losses
- Corporates
Banks and other financial institutions
-
- Sovereigns
Issued by:
408,752
(68)
Charge for the year
408,820
Less: Impairment allowances
65
Bonds issued by commercial banks and other financial institutions
Outside Mainland
85,901
313,473
- Fund asset management schemes and others
111,393
245,053
717,081
(1,017)
716,064
Exchange difference
At 31 December
2015
77,265
219
68
1
4
63
1,017
2
947
68
2014
2015
408,752
716,064
21,335
20,389
386,823
694,928
594
747
2014
- Broker asset management schemes
2014
112,038
- Trust beneficiary rights
20
78
71
2014
2015
At 31 December
Release for the year
Exchange difference
Charge for the year
At 1 January
(9)
Movements of allowances for impairment losses
261,326
372,158
259,434
353,137
3,501
1,620
142,583
180,402
113,350
For the year ended 31 December 2015, the Group did not dispose debt securities classified as held-to-maturity prior
to their maturity (2014: Nil).
4
2
95
56,330
48,198
- Insurance asset management schemes
21,335
20,389
21,167
11,089
- Bonds issued by commercial banks and other financial institutions
Other debt securities
594
747
- PRC government bonds
2014
2015
In Mainland
Unlisted
(d) Debt securities classified as receivables
21 Investments (continued)
Annual Report 2015
XII Financial Statements
China Merchants Bank
71
78,067
420
62
previously written off
207
- Investments in funds
122
231
- Equity investments
6,213
8,030
- Other debt securities
6,875
25
9,979
2,096
Bonds issued by policy banks
Outside Mainland
29
723
- Investments in funds
835
1,091
- Equity investments
- Bonds issued by commercial banks and other financial institutions
36,267
20,170
Less: Impairment allowances
60,902
125,911
135,896
83,346
102,761
Corporates
Banks and other financial institutions
- Sovereigns
Issued by:
2014
2015
(b) Available-for-sale financial assets (continued)
21 Investments (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
278,526
299,559
19,728
35,839
(442)
(428)
2,376
69,269
1,214
3,393
- Bonds issued by commercial banks and other financial institutions
48
- PRC government bonds
Outside Mainland
243
20
- Investments in funds
311
- Equity investments
3,468
61,294
- Other debt securities
20,454
37,742
- Bonds issued by commercial banks and other financial institutions
90,921
66,726
- Bonds issued by policy banks
231
99
49,238
Other debt securities
8,246
3,945
12,602
- Bonds issued by commercial banks and other financial institutions
302
- Bonds issued by policy banks
94
- Bonds issued by PBOC
In Mainland
Unlisted
258,798
263,720
(169)
(239)
Less: Impairment allowances
258,967
263,959
20
62
- Investments in funds
1,258
1,273
- Equity investments
- Other debt securities
299,559
5,912
Movements of allowances for impairment losses
130
• Other debt securities
-
16
- Bonds issued by commercial banks and other financial institutions
Outside Mainland
376
- Other debt securities
In Mainland
3,360
Unlisted
352,615
(71)
(95)
Less: Impairment allowances
256,145
352,710
803
729
Other debt securities
256,074
522
3,360
Less: Impairment allowances
(655)
278,526
Recoveries of loans and advances
(654)
(1)
Unwinding of discount
(14,917)
(10,461)
(4,456)
Write-offs
(1,641)
2015
353,137
3,360
522
Fair value of listed debt securities
- Corporates
- Banks and other financial institutions
-
- Sovereigns
Issued by:
-
588
259,434
- Bonds issued by commercial banks and other financial institutions
218
217
611
667
11
23
(14)
(2)
At 31 December
Exchange difference
Write-offs
(3)
43
574
611
Releases for the year
Charge for the year
2015
1,542
At 1 January
2014
China Merchants Bank
Annual Report 2015
XII Financial Statements
35
(c) Held-to-maturity investments
-
21 Investments (continued)
488
Outside Mainland
2,816
491
PRC government bonds
8,822
12,656
- Bonds issued by commercial banks and other financial institutions
- Other debt securities
865
165,890
Bonds issued by policy banks
109,428
170,540
- PRC government bonds
2014
(Restated)
2015
133,197
Listed
In Mainland
fair value through profit or loss
- Certificates of deposit issued
758
Discounted cash flow
Risk-adjusted discount rate
fund investments
138
4
Risk-adjusted discount rate
Unlisted derivative financial
instruments
Binomial lattice Model
2,302
Volatility
Financial liabilities designated at
Discounted cash flow
Liquidity discount
Unlisted available-for-sale
Valuation techniques
Market comparison
approach
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.
Basis of determining the market price for recurring fair value measurements categorised within Level 1
Bloomberg's quoted prices are used for financial instruments with quoted prices in an active market.
Discounted cash flow
Fair value of foreign currency bonds without quoted prices in an active market, is measured by using the
comprehensive valuations issued by Bloomberg.
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.
(iii) 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:
Fair value as at
31 December 2015
equity investments
Unlisted available-for-sale
equity investments
Unlisted available-for-sale
346
Unobservable input
Risk-adjusted discount rate
Available-
XII Financial Statements
Total
753
893
- In profit or loss
- In other comprehensive income
Purchases
Disposals and settlement on maturity
At 31 December 2015
34
assets
20
21
21
570
(125)
(ii)
570
(8)
17
China Merchants Bank
Annual Report 2015
for-sale
financial
125
21 Investments (continued)
(f) Financial instruments at fair value (continued)
(iii) Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurements categorised within Level 3 (continued)
(1) Valuation of financial instruments with significant unobservable inputs
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:
Assets
At 1 January 2015
(3)
Profit or loss
Financial
assets
designated
at fair value
through
profit or
financial
loss-debt
assets
securities
15
Derivative
(i)
292,668
21 Investments (continued)
71
728
276,094
2,115
- Investments in funds
263
29
25
1,316
317
249,457
753
278,526
34,470
893
328,031
Liabilities
28,316
Financial liabilities held for trading
- Equity investments
26,737
12
33,022
(122)
Financial assets designated at fair value
through profit or loss
- Debt securities
1,454
249,357
5,589
9,300
125
15
7,168
9,315
Available-for-sale financial assets
-
Debt securities
Derivative financial assets
- Precious metal relevant financial liabilities
977
- Short position in equity securities
2,214
9,752
2,610
12,362
Derivative financial liabilities
10,246
10,246
2,214
30
2,610
23,615
During the year there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair
value hierarchy.
223
224
China Merchants Bank
Annual Report 2015
XII Financial Statements
20,975
5,099
5,099
3,020
30
30
977
Financial liabilities designated at fair value
through profit or loss
-
Precious metal contracts with other banks
977
30
1,007
- Certificates of deposit issued
- Debt securities issued
Others
| | | |
2,029
2,029
410
2,610
(f) Financial instruments at fair value (continued)
(255)
- Certificates of deposit issued
1,246
13
(111)
(13)
230
(230)
2014
Effect on profit or loss or other
comprehensive income
111
Favourable
13
1
(13)
(1)
73
(73)
2
(Unfavourable)
(2)
(Unfavourable)
Effect on profit or loss or other
(iii) Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurements categorised within Level 3 (continued)
(2) The sensitivity of the fair value measurement on changes in unobservable inputs for Level 3 financial
instruments measured at fair value on an on-going basis (continued)
Available-for-sale financial assets
- Equity investments
Investments in funds
Financial liabilities designated at fair value through profit or loss
· Certificates of deposit issued
Financial assets designated at fair value through profit or loss
comprehensive income
Favourable
- Debt securities
Available-for-sale financial assets
– Equity investments
- Investments in funds
Financial liabilities designated at fair value through profit or loss
(3)
(4)
2015
Derivative financial assets
(f) Financial instruments at fair value (continued)
261
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
HKD1,000
100% Financial
Limited
Tian Huiyu
Holdings Corporation
Limited (note (i))
advisory
services
Hong Kong
company
Shanghai
RMB6,000
100% Finance lease
Limited
Lian Bolin
32,298
712
company
CMB Finance Lease Company
Limited (note (ii))
(261)
CMB International Capital
Economic
nature
During the year ended 31 December 2015, 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.
Changes in valuation technique and the reasons for making the changes
During the year ended 31 December 2015, the Group has not changed the valuation technique of the above
financial assets which are measured at fair value on an on-going basis.
227
228
China Merchants Bank
Annual Report 2015
XII Financial Statements
Legal
representative
22 Investments in subsidiaries
Name of company
Place of
incorporation
and operation
Particulars of
% of
ownership
the issued and
paid up capital
(in millions)
held by Principal
the Bank activities
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.
1,242
21 Investments (continued)
China Merchants Bank
Annual Report 2015
21 Investments (continued)
(f) Financial instruments at fair value (continued)
(iii) Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurements categorised within Level 3 (continued)
(1) Valuation of financial instruments with significant unobservable inputs (continued)
Assets
Derivative
financial
Financial assets
designated
at fair value
through
profit or
XII Financial Statements
Available-
for-sale
financial
assets
securities
assets
Total
At 1 January 2014
Profit or loss
loss-debt
31
China Merchants Bank
Annual Report 2015
225
Total unrealised gains and losses
included in the consolidated
statement of profit or loss for
assets held at the end of the
reporting period
Liabilities
At 1 January 2015
(3)
20
17
226
Financial liabilities
designated at fair
value through profit
or loss-certificates
of deposit issued
2,610
122
Issues
Disposals and settlement on maturity
At 31 December 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
(430)
2,302
121
In profit or loss
XII Financial Statements
125
858
assets held at the end of the
reporting period
Liabilities
At 1 January 2014
Financial liabilities
designated at fair
value through profit
or loss-certificates
of deposit issued
5,296
In profit or loss
statement of profit or loss for
Issues
At 31 December 2014
Total unrealised gains and losses included in the consolidated statement
of profit or loss for liabilities held at the end of the reporting period
45
1,056
(3,787)
2,610
39
Disposals and settlement on maturity
702
included in the consolidated
893
- In profit or loss
(36)
(36)
- In other comprehensive income
(4)
(4)
Purchases
Total unrealised gains and losses
91
Disposals and settlement on maturity
(16)
(16)
At 31 December 2014
15
125
753
91
28,322
China Merchants Fund
Management Co., Ltd (note (iv))
12
Loans to joint ventures
Share of net assets
Unlisted shares, at cost
2014
2015
23 Interest in joint ventures
XII Financial Statements
Share of profits for the year
China Merchants Bank
Annual Report 2015
Wing Lung Bank Limited ("WLB") is a wholly owned subsidiary of the Bank acquired in 2008 by way of agreement. 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" on 28
July 2015 which agreed that the Bank made capital contribution of USD400 million (or its equivalent) to its primary subsidiary, CMBICHC. The
capital contribution didn't complete until 31 December 2015, and 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)
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 EUR63,567,567.57. 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.
(i)
Share of other comprehensive income for the year
1,458
Group's
Particulars of
Place of
incorporation
and operation
structure
Name of joint ventures
business
Form of
2,727
Details of the Group's interest in major joint ventures are as follows:
64
156
134
1,465
2,732
7
5
35
issued and
Notes:
Limited
company
Financial liabilities designated at fair value
through profit or loss
(ii)
16,879
12,362
20,227
13,369
(i)
1,007
Financial liabilities held for trading
2015
2014
- Equity securities at fair value
Precious metal relevant financial liabilities
18
30
3,330
Listed
Li Hao
3,348
Financial liabilities held for trading
management
55% Asset
RMB210
Shenzhen
Tian Huiyu
Limited
company
100% Banking
(i)
HKD1,161
China Merchants Bank
Annual Report 2015
XII Financial Statements
21 Investments (continued)
(e) Financial liabilities at fair value through profit or loss
Note
2015
2014
220
977
effective
CIGNA &CMB Life Insurance
Company Limited (note(i))
Merchants Union Consumer
Shenzhen Lianzhao Information
Technology Co., Ltd.
enterprise
Investment
5.16%
RMB484,160
Shenzhen
Finance Company Limited
(note (iv))
Partnership
Fund management
51.00%
RMB10,000
Shenzhen
Limited company
Shenzhen Zhaoyin Synergetic
Fund Management Co.,Ltd.
Electronic document
processing
Shenzhen Synergetic Hesheng
Merge& Acquisition Fund
50.00%
Limited company
RMB40,000
Wing Lung Bank Limited
(note (iii))
229
services
and advisory
exchange platform
Financial assets
49.00%
Shenzhen
RMB100,000
CMB Qianhai Financial Assets
Exchange Co., Ltd.
Consumer finance
50.00%
RMB2,000,000
Limited company Shenzhen
Computer network
service
50.00%
Limited company Shenzhen
Principal
HKD6,000
Limited company
custodian services
for retirement
schemes
administration and
Provision of trustee,
13.33%
HKD150,000
Hong Kong
Limited company
Joint Electronic Teller Services
Limited (note (iii))
Bank Consortium Holding
Limited (note (ii))
Life insurance
50.00%
activity
interest
paid up capital
(in thousands)
RMB1,450,000
Shenzhen
Limited company
business
Hong Kong
Limited company
HKD10,024
i-Tech Solutions Limited
Reinsurance business
21.00%
HKD200,000
Hong Kong
Limited company
BC Reinsurance Limited
Hong Kong
Life insurance
business
HKD420,000
Hong Kong
Limited company
Hong Kong Life Insurance
Limited
network services
Provision of ATM
2.88%
16.67%
4,700
3,348
(ii) Financial liabilities designated at fair value through profit or loss
-
- Short position in equity securities
Financial liabilities designated at fair value
through profit or loss
- Precious metal contracts with other banks
- Certificates of deposit issued
- Debt securities issued
- Precious metal relevant financial liabilities
Others
3,330
18
18
∞
3,330
3,330
18
Derivative financial liabilities
3,348
Financial liabilities held for trading
368,816
262,205
295,743
1,638
80
66
790
1,104
138
Liabilities
2,822
35,242
263,075
1,242
299,559
45,484
322,086
1,246
994
33,538
| | | |
2,087
21 Investments (continued)
(f) Financial instruments at fair value (continued)
Assets
Level 1
Level 2
2014
Level 3
Annual Report 2015
Total
- Debt securities
3,988
28,310
- Equity investments
712
-
- Long position in precious metal contracts
Financial assets held for trading
2,087
XII Financial Statements
27,802
1,683
2,302
3,985
8,455
8,455
2,352
2,352
China Merchants Bank
14,577
16,879
-
7,575
7,575
18
25,482
2,302
2,302
1,007
- Investments in funds
Debt securities
21 Investments (continued)
(f) 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:
XII Financial Statements
•
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.
221
222
China Merchants Bank
Annual Report 2015
Level 1 inputs: unadjusted quoted prices in active markets that are observable at the measurement date for
identical assets or liabilities;
XII Financial Statements
China Merchants Bank
Annual Report 2015
12,362
2015
2014
In Mainland
- Precious metal contracts with other banks
Others
Outside Mainland
- Certificates of deposit issued
- Debt securities issued
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 presented and cumulatively as at 31 December 2015 and 2014.
2,087
2,352
2,214
3,985
3,020
8,455
5,099
16,879
2,029
- Equity investments
21 Investments (continued)
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:
6
6,773
44,036
50,809
Financial assets designated at fair value
through profit or loss
- Debt securities
5
3,469
8,272
Derivative financial assets
-
10,172
4
10,176
Available-for-sale financial assets
4,803
(f) Financial instruments at fair value (continued)
1
--
Assets
Financial assets held for trading
2015
Level 1
Level 2
Level 3
Total
744
_
6,028
- Long position in precious metal contracts
43,004
1,027
49,032
1,027
- Equity investments
- Investments in funds
744
- Debt securities
Hong Kong
(5,022)
China Merchants Bank
Annual Report 2015
1,325
1,153
814
3,292
At 1 January 2014
1,126
1,035
835
2,996
235
236
China Merchants Bank
Annual Report 2015
At 31 December 2014
28 Goodwill
As at
Addition
1 January
in the year
WLB (Note (i))
CMFM (Note (ii))
CMBICHC (Note (iii))
10,177
355
1
Total
10,532
1
Release in
the year
XII Financial Statements
Net book value:
1,723
245
9
1
25
35
1,532
2,424
1,059
5,015
171
956
199
1,326
35
314
41
390
Transfers
1
-
1
Exchange difference
1
5
6
At 31 December 2014
207
1,271
As at
31 December
Impairment
Net value at
loss
China Merchants Bank
Annual Report 2015
XII Financial Statements
29 Deferred tax assets, deferred tax liabilities (continued)
(a) Analysed by nature of deferred tax assets and liabilities
The components of deferred tax assets/liabilities are as follows:
Deferred tax assets
2015
2014
Deductible/
(taxable)
temporary
difference
Deductible/
(taxable)
temporary
Deferred tax
difference
Deferred tax
Impairment allowances for loans and
advances to customers and other assets
63,217
15,783
36,647
9,150
Investment revaluation reserve
(7,614)
(1,905)
(2,203)
(550)
Salary and welfare payable
9,669
9,520
Additions
15,153
10,291
31 December
10,177
(579)
9,598
355
1
355
1
10,533
(579)
9,954
Notes:
(i)
(ii)
(iii)
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 merger
cost over the fair value of the identifiable net assets was recognised as goodwill. Please find the details about WLB in Note 22.
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 merger cost
over the fair value of the identifiable net assets was recognised as goodwill. Please find the details about CMFM in Note 22.
On 1 April 2015, CMBICHC acquired a 100% equity interests in Shenzhen Rongbo Information and Technology Corporation Limited
("Rongbo"). On the acquisition date, the fair value of Rongbo's identifiable net assets was RMB2.60 million. A sum of RMB1 million being
the excess of merger cost over the fair value of the identifiable net assets was recognised as goodwill. Rongbo's principal activities include
development and sale of computer software and hardware, sale of communication equipment and office automation equipments, advisory
service of computer technology and information.
Impairment test for CGU containing goodwill
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.
The recoverable amount of the CGU is 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.
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 12% and 15% (2014:
12% and 12%) was used.
29 Deferred tax assets, deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Net amount
2015
2014
16,020
(867)
(771)
At 1 January 2014
Amortisation:
At 31 December 2014
193
206
257
14
21
412
471
China Merchants Bank
Annual Report 2015
XII Financial Statements
27 Intangible assets
Cost/valuation:
At 1 January 2015
Additions
Transfers
Exchange difference
Land use right
Software
Core deposit
Total
1,532
2,424
1,059
5,015
6
709
715
(24)
-
192
(24)
2014
Over 5 years
793
1,708
1,684
1,684
1,701
The net book value of investment properties at the end of the reporting period is analysed by the remaining terms
of the leases as follows:
Held in Mainland China
-Medium-term leases (10 - 50 years)
Held in Hong Kong
- Long leases (over 50 years)
- Medium-term leases (10 - 50 years)
2015
2014
550
596
550
596
99
1,059
1,088
1,158
1,088
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. As at 31
December 2015, fair value of these properties was RMB4,784 million (2014: RMB4,216 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)
2015
2,418
3
3,135
1
-
1,274
1,502
819
3,595
1,325
1,153
814
3,292
Land use right
Software
Core deposit
Total
Cost/valuation:
At 1 January 2014
1,297
1,991
1,034
4,322
Additions
Transfers
220
432
652
6
6
Exchange difference
427
1,517
32
35
2
1,102
43
48
5,754
At 31 December 2015
Amortisation:
At 1 January 2015
Additions
Transfers
1
Exchange difference
2
6
8
At 31 December 2015
243
1,633
283
2,159
Net book value:
At 31 December 2015
At 1 January 2015
207
1,271
245
1,723
360
5,290
1,322
Others
455
(i)
In 2015, the Group has disposed repossessed assets with total cost of RMB73 million (2014: RMB444 million).
(ii)
The Group plans to dispose the repossessed assets by auction, bid and transfer.
31 Deposits from banks and other financial institutions
In Mainland
230
Other financial institutions
Outside Mainland
-
Banks
2015
2014
176,934
203,283
527,101
386,030
704,035
589,313
7,526
108,135
711,561
697,448
China Merchants Bank
Annual Report 2015
XII Financial Statements
32 Placements from banks and other financial
691
institutions
(943)
1,398
325
Premium receivables
129
135
Defined benefit plan (Note 37(b))
27
70
Others
5,141
7,159
12,848
14,091
Total
Repossessed assets
Residential properties
Others
Total
Less: Impairment allowances
Net repossessed assets
Notes:
2015
2014
1,044
746
628
652
1,672
(981)
158
In Mainland
- Other financial institutions
5,283
185,652
66,988
2015
2014
PRC government bonds
12,833
13,328
- Bonds issued by policy banks
67,336
16,428
- Bonds issued by commercial banks and other financial institutions
1,994
3,823
Other debt securities
1,159
1,588
83,322
35,167
Discounted bills
102,330
30,908
Loans and advances
913
185,652
66,988
239
3,153
- Banks
61,705
5,426
Outside Mainland
- Banks
2015
2014
165,471
77,917
1,100
166,571
77,917
12,200
16,686
178,771
94,603
33 Amounts sold under repurchase agreements
(a) Analysed by nature of counterparties
In Mainland
- Banks
Other financial institutions
Outside Mainland
Banks
(b) Analysed by assets type
Securities
2015
2014
173,439
56,279
9,060
182,499
986
Prepayment for lease improvement and other miscellaneous items
229
At 1 January 2015
Recognised in profit or loss
Recognised in other
comprehensive Income
Exchange difference
At 31 December 2015
Impairment
allowances
on loans and
advances to
customers and
other assets
Investment
revaluation
reserve
Salary and
welfare
payable
Others
Total
9,184
(553)
1,322
(433)
9,520
6,638
1,096
(527)
7,207
(1,413)
(124)
(1,537)
3
(40)
(37)
(b) Movements of deferred tax
15,825
(771)
(867)
(1,087)
(276)
1,512
369
Total
64,185
16,020
41,246
10,291
Deferred tax liabilities
Impairment allowances on loans and
advances to customers and other assets
249
42
212
34
Investment revaluation reserve
(252)
(61)
(13)
(3)
Others
(5,304)
(848)
(802)
Total
(5,307)
(4,823)
225
(1,966)
(1,124)
At 31 December 2014
9,184
(553)
1,322
(433)
9,520
237
238
China Merchants Bank
Annual Report 2015
XII Financial Statements
30 Other assets
(a)
2015
2014
Amounts pending for settlement
4,919
3,883
Prepaid lease payments
1,091
913
Repossessed assets (Note (a))
691
455
Guarantee deposits
463
926
Recoverable from reinsurers
(17)
2,418
(18)
(2,703)
15,153
Impairment
allowances
on loans and
advances to
customers and
other assets
Investment
revaluation
reserve
Salary and
welfare
payable
Others
Total
At 1 January 2014
Recognised in profit or loss
Recognised in other
comprehensive income
Exchange difference
4,009
1,887
1,621
(223)
7,294
5,174
(299)
71
4,946
(2,440)
(263)
1
10
- Banks
(14)
Insurance
underwriting
Beijing Zhongguancun Gazelle
Investment Fund Management
Limited
Limited company
Beijing
RMB30,000
25.00%
Fund Management
Shanghai Rosefinch Jiawu
Limited partnership Shanghai
HKD86,500
49.00%
Investment
Investment Center
Summarised financial information of the associates that are not individually material to the Group:
2015
100 per cent
Group's effective interest
2014
100 per cent
Group's effective interest
Other
Total
comprehensive
comprehensive
Profit or loss
income
27.00%
income
Principal activity
Group's
212
31
China Merchants Bank
Annual Report 2015
XII Financial Statements
24 Interest in associates
Share of net assets
Goodwill
Share of profits for the year
231
2015
2014
52
17
2
2
54
19
2
2
The following list contains the information as of 31 December 2015 of associates, which are unlisted corporate
entities and principally affected the results or assets of the Group:
Name of associate
Form of business
structure
Place of
incorporation
and operation
Professional Liability Underwriting
Services Limited
Limited company
Hong Kong
Particulars of
issued and
paid up capital
(in thousands)
HKD3,000
effective
interest
69
5
2
1,772
1,270
761
3,765
733
8,369
Reclassification and transfers
4,291
(4,444)
1
30
8
(114)
Disposals/write-offs
(38)
(259)
(108)
(452)
(857)
Exchange difference
137
4
11
115
5
272
At 31 December 2015
68
7 -
Additions
5,985
51
7
2
7 2
232
China Merchants Bank
Annual Report 2015
XII Financial Statements
25 Property and equipment
Land and
buildings
Construction
Computer
in progress
Motor
Leasehold
Aircrafts
vehicles
equipment improvements
and vessels
and others
Total
Cost:
At 1 January 2015
17,166
6,806
7,238
4,914
1,872
43,981
21,624
1
Group's effective interest
54
351
370
Group's effective interest
9,082
7,704
1,378
4,031
149
27
185
885
23
85
11
42
2014
100 per cent
14,448
12,039 2,409
5,194
219
69
288
456
Group's effective interest
7,224
297
6,020
2,756 8,062
18,164
25
XII Financial Statements
23 Interest in joint ventures (continued)
Notes:
(i)
(ii)
(iii)
(iv)
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 on the
Bank's level. 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.
The Bank's subsidiary, WLB, holds 14.29% of the entity's common share and is entitled to 13.33% of the paid dividends.
The Bank's subsidiary, WLB, is one of the five founders of the entity and jointly controls the entity. WLB holds 20.00% of the entity's common
share and is entitled to 2.88% of the paid dividends.
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 and share the risks, profits and losses based on the above proportion of their
shareholdings.
Summarised financial information of the joint ventures which are individually material to the Group is as below:
(i)
CIGNA & CMB Life Insurance Company Limited:
Other
Assets Liabilities Equity Revenue
Profit
or loss
comprehensive
income
Total
comprehensive
income
Cash Depreciation
and cash
and
equivalents
amortisation
Income tax
2015
100 per cent
15,408
30
1,204
110
958
66
(42)
(84)
80
2
(42)
40
1
Summarised financial information of the joint ventures that are not individually material to the Group (others):
Other
Total
Profit or loss
comprehensive
income
comprehensive
income
2015
100 per cent
Group's effective interest
199
209
28
37
408
65
2014
100 per cent
206
(84)
2,597
131
190
95
34
144
228
220
68
10
34
(ii)
MUCFC:
Other
Total
Cash Depreciation
Profit comprehensive comprehensive
and cash
Assets
Liabilities
Equity Revenue
or loss
income
income
equivalents
and
amortisation
Income tax
2015
100 per cent
2,105
Group's effective interest
1,053
1,915
4,134
176
5,608
2,316
227
4,099
16,536
Net book value:
At 31 December 2014
12,219
6,806
2,291
2,598
1,645
1,886
27,445
At 1 January 2014
12,773
4,241
1,672
2,515
1,255
1,743
24,199
China Merchants Bank
Annual Report 2015
XII Financial Statements
25 Property and equipment (continued)
(a) Analysed by remaining terms of leases
The net book value of land and buildings at the end of the reporting period is analysed by the remaining terms of
the leases as follows:
Held in Mainland China
4,947
- Long-term leases (over 50 years)
Medium-term leases (10 - 50 years)
96
9
5
Disposals/write-offs
(33)
||||
Exchange difference
33
At 31 December 2014
4,947
4,317
3,670
153
3,790
16,036
1,016
716
74
774
3,416
(12)
29
(23)
(1)
(402)
(2,108)
(468)
(3,011)
28
26
Reclassification and transfers
Held in Hong Kong
2015
Exchange difference
At 31 December
Accumulated depreciation:
At 1 January
Depreciation
Exchange difference
At 31 December
Net book value:
At 31 December
At 1 January
(a)
Analysed by remaining terms of leases
(b)
2015
2014
2,477
140
2,379
68
77
30
2,694
2,477
793
678
127
119
8,254
41
At 1 January
Transfers
- Long-term leases (over 50 years)
Medium-term leases (10-50 years)
Cost:
XII Financial Statements
2014
335
13,439
374
9,832
13,774
10,206
999
1,069
855
925
1,854
1,994
Held overseas
Freehold
18
19
15,646
12,219
(b)
As at 31 December 2015, the Board of Directors considered that there is no impairment loss on property and
equipment (2014: nil).
(c)
As at 31 December 2015, the process of obtaining the registration license for the Group's properties with an
aggregate net carrying value of RMB270 million (2014: RMB560 million) was still in progress.
(d)
As at 31 December 2015, the Group has no significant unused property and equipment (2014: nil).
233
234
China Merchants Bank
Annual Report 2015
26 Investment properties
836
Transfers
4,106
(16)
(5)
4
50
3
36
At 31 December 2015
5,978
5,894
2,956
497
4,491
19,816
Net book value:
At 31 December 2015
15,646
4,134
2,360
2,652
5,255
1,788
31,835
At 1 January 2015
12,219
6,806
2,291
2,598
Exchange difference
1,645
(676)
(83)
6,279
Depreciation
5,752
51,651
Accumulated depreciation:
At 1 January 2015
4,947
4,947
2,316
227
4,099
16,536
Depreciation
1,081
720
220
836
3,959
Reclassification and transfers
(40)
1
(1)
1
(39)
Disposals/write-offs
(15)
(130)
(448)
1,886
1,102
Motor
464
(54)
438
Disposals/write-offs
(112)
(33)
(1,490)
(2,125)
(548)
(4,308)
Exchange difference
74
1
29
6
33
143
At 31 December 2014
6,806
7,238
4,914
1,872
5,985
At 1 January 2014
27,445
43,981
Accumulated depreciation:
29
18
17,166
Reclassification and transfers
Computer
Leasehold
(18)
Construction
Land and
buildings
Aircrafts
vehicles
equipment improvements
and vessels
and others
Total
Cost:
At 1 January 2014
16,879
in progress
5,989
4,241
1,021
2,598
343
2,692
Additions
819
5,533
1,408
6,185
7,473
40,235
232
2014
Change
(3,023)
Payment/
transfers
Ending
balance
Beginning
32
in the year
balance
1,218
(1,203)
47
13
4
3,080
1,580
122
(1,471)
in the year
175
47
(88)
Basic retirement security
Supplementary pension
Unemployment insurance
(ii) Post-employment benefits-defined contribution plan
Basic retirement security
91
Supplementary pension
Unemployment insurance
2015
Payment/
Beginning
balance
Change
12
transfers
in the year
Ending
balance
1,385
122
1,601
(1,353)
(1,582)
79
141
6
94
in the year
(89)
10
49
38
28
10
2014
Beginning
balance
Change
in the year
Payment/
transfers
Ending
in the year
balance
38
28
15
13
15
28
As at 31 December 2015, the Group has offered 7 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.
247
248
(a) Salaries and welfare payable (continued)
China Merchants Bank
Annual Report 2015
XII Financial Statements
13
6
28
in the year
2,889
(2,763)
175
Defined contribution pension schemes
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 2015, the Group's
contributions to the schemes are determined by local governments and vary at a range of 12% to 35% (2014: 10%
to 35%) of the staff salaries.
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 2015, the Group's annual contributions to this plan are determined based on 8.33% of the
staff salaries and bonuses (2014: 8.33%).
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.
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme (continued)
balance
(a) Salaries and welfare payable (continued)
Other long-term employee benefits
Cash settled share-based transactions
Cash settled share-based transactions
2015
Payment/
Beginning
balance
Change
in the year
transfers
Ending
(iii)
37 Staff welfare scheme (continued)
1,353
China Merchants Bank
Annual Report 2015
- Injury insurance
1
35
(33)
3
- Maternity insurance
3
53
(52)
4
80
Housing reserve
1,546
(1,640)
148
Labour union and employee education
expenses
1,111
(1,060)
1,404
5,865
24,004
242
(23,615)
(1,545)
14
2015
37 Staff welfare scheme (continued)
Payment/
Beginning
Change
transfers
balance
in the year
in the year
Ending
balance
1,611
Salary and bonus
Social insurance
Medical insurance
4,215
17,248
(16,887)
4,576
37
2,400
(2,398)
39
Welfare expense
XII Financial Statements
6,254
Payment/
- Maternity insurance
2
44
(43)
3
Housing reserve
108
1,548
(1,414)
242
1
Labour union and employee education
1,165
857
(669)
1,353
5,057
19,093
(18,285)
5,865
245
246
expenses
2014
(29)
1
Beginning
balance
in the
Change
year
transfers
Ending
in the year
balance
Salary and bonus
Welfare expense
29
Social insurance
3,576
36
15,069
82
(14,430)
(81)
4,215
37
169
1,464
(1,619)
14
- Injury insurance
- Medical insurance
(a) Salaries and welfare payable (continued)
Expected dividends rate
Other long-term employee benefits (continued)
1.41%
1.41%
1.41%
1.41%
2014
Phase I
Phase II
Phase III
Phase IV
Phase V
Phase VI
Phase VII
Fair value at measurement
date (in RMB)
1.16
10.22
3.25
3.60
4.22
3.90
3.74
1.41%
1.41%
1.41%
Risk-free interest rate
43%
43%
43%
43%
43%
43%
43%
Option life (year)
1.83
2.85
Share price (in HKD)
3.85
6.35
7.39
8.52
6.25%
6.25%
6.25%
6.25%
6.25%
6.25%
6.25%
5.14
19.46
19.46
19.46
8.42
9.58
Expected dividends rate
5.27%
5.27%
5.27%
5.27%
5.27%
5.27%
5.27%
7.33
Risk-free interest rate
2.58%
2.58%
2.58%
2.58%
2.58%
2.58%
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining life
of the share options), 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.
Share options were granted under a service condition. This condition has 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 grants.
249
(i) Short-term employee benefits
2.58%
Expected volatility
6.17
3.83
19.46
19.46
19.46
19.46
Exercise price (in HKD)
24.85
6.31
17.54
16.40
14.21
4.83
14.78
Expected volatility
26%
26%
26%
26%
26%
26%
26%
Option life (year)
2.83
14.84
13.99
13.93
13.36
10 years
Options granted on 7 July 2014
2.070
3 years after the grant date
10 years
The number and weighted average exercise prices of share options are as follows:
2015
2014
Weighted
average
exercise price
(HKD)
3 years after the grant date
Number of
options
(in million)
exercise price
(HKD)
Number of
options
(in million)
Outstanding as at the beginning of the year
15.43
9.70
16.40
9.11
Granted during the year
14.84
Weighted
average
2.28
1.259
10 years
(1)
All share appreciation rights shall be settled in cash. The terms and conditions of the scheme are listed below:
(2)
Number of
unexercised
options
at the end of
2015
(in millions)
Exercise conditions
Contract period
of options
Options granted on 30 October 2007
Options granted on 7 November 2008
Options granted on 16 November 2009
Options granted on 18 February 2011
Options granted on 22 May 2013
0.922
0.954
1.110
10 years
10 years
2 years after the grant date
10 years
1.228
3 years after the grant date
10 years
Options granted on 4 May 2012
1.259
3 years after the grant date
2 years after the grant date
2 years after the grant date
(iii)
Forfeited during the year
(0.90)
Phase VI Phase VII
Fair value at measurement
date (in RMB)
1.82
10.26
4.25
4.61
5.09
4.81
4.63
Share price (in HKD)
Phase V
18.30
18.30
18.30
18.30
18.30
18.30
Exercise price (in HKD)
24.00
5.46
16.69
15.56
18.30
14.61
2015
Phase IV
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 life of the option is used as an input into this model.
15.64
(1.69)
Outstanding at the end of the year
14.58
8.80
15.43
9.70
Exercisable at the end of the year
15.23
3.91
Phase I Phase II Phase III
16.29
The options outstanding at 31 December 2015 had an weighted average exercise price of HKD14.58 (2014:
HKD15.43) and a weighted average remaining contractual life of 5.67 years (2014: 6.76 years).
Pursuant to the requirements set out in the Scheme, if any dividends were distributed, capital reserve was converted
into shares, share split or dilution, an adjustment to the exercise price is applied.
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(iii)
Other long-term employee benefits (continued)
(3)
Fair value of share options and assumptions
3.49
(a) Salaries and welfare payable (continued)
(RMB in
XII Financial Statements
11,287
29,966
4
29,970
Notes:
(i)
(ii)
(iii)
The CBRC and 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 Mainland China 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 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 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 Mainland China 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 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 Mainland China Interbank Bond Market.
241
242
China Merchants Bank
Annual Report 2015
XII Financial Statements
36 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:
Annual
Discount Repayment
1
11,286
RMB11,300
6.40
million)
Fixed rate bond (Notes (i)) 180 months
Sep 4, 2008
5.90 (for the
RMB7,000
6,994
1
6,995
first ten
years);
Date of
8.90 (from 11
if the notes
are not called
by the Bank)
Fixed rate bond (Notes (ii)) 180 months
Fixed rate bond (Notes (iii)) 120 months
Dec 28, 2012
Apr 18, 2014
5.20
RMB11,700
11,686
2
11,688
year onwards,
interest
Nominal
Beginning
1,231
60
1,291
first 5 years);
T*+2.80 (from
6 year
onwards, if
the notes are
not called by
the Bank)
2,430
119
USD200
2,549
(b) Long-term debt securities
As at the end of the reporting period, long-term debt securities issued by the Bank were as follows:
Annual
Date of
interest
Nominal
Beginning
Discount
Issue in or premium
Repayment
for
T represents the 5 years US Treasury rate.
million)
3.50 (for the
59
Debt type
Term to maturity
issuance
rate
value
balance
Issue in or premium
the year amortisation
for
Ending
the year
1,258
balance
(%)
(in million)
million)
million)
Fixed rate bond
Fixed to floating
rate notes
144 months
120 months
Dec 28, 2009
Nov 6, 2012
5.70
HKD1,500
1,199
(RMB in
Debt type
(in million)
(RMB in
3,571,698
3,304,438
Customer deposits include marginal deposits for guarantees as follows:
2015
2014
Guarantee for acceptance bills
Guarantee for loans
Guarantee for issuing letters of credit
191,988
167,437
49,188
48,199
56,499
54,705
Deposit for letters of guarantee
Others
60,172
42,739
57,867
51,006
415,714
1,093,027
1,210,167
448,191
375,105
240
China Merchants Bank
Annual Report 2015
XII Financial Statements
34 Deposits from customers
Corporate customers
- Demand deposits
-
-Time deposits
2015
2014
364,086
1,167,467
1,194,064
1,237,765
2,361,531
2,211,411
Retail customers
-Demand deposits
-
-Time deposits
835,062
644,836
973,646
35 Interest payable
Issued debt securities
Customer deposit and others
106,155
China Merchants Bank
Annual Report 2015
XII Financial Statements
36 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:
Date of
Annual
interest
Discount Repayment
Nominal
251,507
Beginning
Term to maturity issuance
rate
value
balance
Issue in or premium
the year amortisation
for
Ending
the year
balance
(RMB in
Debt type
(%)
21,291
24,832
36 Debt securities issued
2015
2014
1,398
1,352
37,675
43,997
39,073
45,349
Note
14,748
2015
Subordinated notes issued
36(a)
32,519
32,396
Long-term debt securities issued
36(b)
27,995
27,636
Negotiable interbank certificates of deposit
Certificates of deposit issued
176,245
2014
Term to maturity
issuance
rate
60 months
Aug 11,2014
3.25
USD500
3,094
151
3,245
Notes:
(v)
On 11 Aug 2014, CMBIL issued USD 500 million with annual interest rate of 3.25% guaranteed notes due 2019 on the HKEX.
243
244
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme
(a) Salaries and welfare payable
2015
Payment/
Beginning
Change
transfers
Fixed rate notes (Note (v))
million)
million)
(in million)
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 at the end of the reporting period, long-term debt securities issued by CMB International Leasing Management
Limited ("CMBIL"), CMBICHC's subsidiary, were as follows:
Annual
Discount
Repayment
Debt type
Term to maturity
Date of
issuance
interest
Nominal
Ending
Beginning
value
balance
Issue in or premium
the year amortisation
for
Ending
the year
balance
(RMB in
(RMB in
(%)
rate
balance
in the year
in the year
in the year
in the year
balance
Short-term employee benefits (i)
Post-employment benefits
- defined contribution plans (ii)
Other long-term employee benefits (iii)
5,057
19,093
(18,285)
5,865
balance
49
(2,763)
175
13
15
28
5,119
21,997
(21,048)
6,068
China Merchants Bank
Annual Report 2015
2,889
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 of 2013 of RMB2,000 million financial bonds on 26 June 2013 and the second tranche of 2013 of RMB2,000 million financial bonds
on 24 July 2013. As at 31 December 2015, the Bank held RMB440 million financial bonds issued by CMBFLC.
Ending
Change
balance
Short-term employee benefits (i)
5,865
24,004
(23,615)
6,254
Post-employment benefits
- defined contribution plans (ii)
Other long-term employee benefits (iii)
175
3,080
transfers
(3,023)
28
10
38
6,068
27,094
(26,638)
6,524
2014
Payment/
Beginning
232
(iv)
(iii)
Notes:
2
998
20,982
8
20,990
*
R represents the 1-year fixed deposit rate ("Rate") promulgated by the PBOC. The Rate on 14 March 2012 was 3.50%.
Notes:
(i)
(ii)
996
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 RMB 13,500 million floating rate debt on 14 March 2012 on the Mainland China Interbank Bond Market.
China Merchants Bank
Annual Report 2015
XII Financial Statements
36 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:
Annual
Discount Repayment
Date of
interest
Nominal
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 Wai 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.
Beginning
RMB1,000
4
value
balance
the year amortisation
the year
Ending
balance
(RMB in
(RMB in
(%)
(in million)
million)
13,495
million)
60 months
60 months
36 months
Mar 14, 2012
Mar 14, 2012
Apr 10, 2014
4.15
RMB6,500
6,495
2
6,497
R*+0.95
4.10
RMB13,500
13,491
12 CMB 01 (note (i))
12 CMB 02 (note (i))
14 CMB 03 (note (ii))
37 Staff welfare scheme (continued)
Debt type
issuance
1,000
36 months
Jul 24, 2013
4.87
RMB1,000
1,000
1,000
60 months
Jul 24, 2013
4.98
1,000
RMB1,000
1,000
36 months
Dec 7, 2015
3.75
RMB200
200
200
4,000
200
4,200
1,000
Term to maturity
RMB1,000
Jun 26, 2013
rate
value
balance
Issue in or premium
the year amortisation
for
Ending
the year
balance
(RMB in
(RMB in
5.08
(%)
million)
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))
36 months
Jun 26, 2013
4.99
RMB1,000
1,000
1,000
60 months
(in million)
No. of shares
(in million)
25,220
Capital
Equities
920
3,623
2,622
Other net income
53,419 39,494
4,115
4,974
5,672
8,972
12,942 25,860 16,765
993
13,613
117,202
136,729
(3,708)
9,228 4,601
11,466
50,826
60,856 62,406
58,256
Net interest income/(expense)
(14,413) (19,694)
Net fee and commission income
2,084
6,010
2,466
- Others
(3,535)
(4,086)
(409)
(578)
(142)
(182)
(1,222) (1,265) (2,104) (1,719)
- Depreciation
Operating expenses
3,953
166,367
12,041
18,853
26,448
68,584
77,421 89,186
74,491
Operating income
9,671
12,018
1,102
1,509 202,166
2,953
(453)
(5,121)
Interbank
financial business
financial business
business
Retail
Corporate financial
Segment results, assets and liabilities
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 to the relevant factors.
Other business covers investment properties, businesses in subsidiaries, associates and joint ventures, and
other relevant businesses. None of these segments meets any of the quantitative thresholds so far for
determining reportable segments.
Other Business
(a)
Other business
50 Operating segments (continued)
China Merchants Bank
Annual Report 2015
258
257
This segment covers interbank transactions such as interbank lending and repurchasing activities, asset
custody activities and financial market businesses.
Interbank finance business
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 provision of financial services to corporations and governmental institutions includes lending and deposit
taking activities, clearing and cash management services, trade finance and offshore businesses, investment
banking and other services.
Corporate finance business
The Group makes business decisions, reporting and performance assessment by segment: corporate finance, retail
finance, interbank finance and other business. In 2015, the profits and/or losses from treasury functions were
proportionally allocated to corporate finance, retail finance and interbank finance segments from other business. The
Group's business reporting segments are as follows:
XII Financial Statements
Total
2015
2014
18,063
16,581
income/(expense)
Internal net interest
136,729 117,202
15,986
19,014
7,144
8,513
51,279
67,527
42,793
41,675
External net interest income
2014
(Restated)
(Restated)
2015
2014
2015
2014
2015
2014
2015
(20,890)
(22,192) (35,954) (30,149)
(3,121)
(2,487)
(b) Reconciliations of reportable segments revenue, profit or loss, assets, liabilities
and other material items
50 Operating segments (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
Capital expenditure represents total amount incurred for acquiring long-term segment assets.
Note:
1,484
2,786
1,484
2,786
2015
joint ventures
678,269
Reportable segment liabilities 2,244,895 2,169,013 1,147,024 1,028,265 989,926 702,617
Interest in associates and
886,272 1,527,731 1,411,906 5,438,740 4,701,214
Reportable segment assets 1,398,748 1,380,976 1,265,735 1,022,060 1,246,526
8,125
9,084
940
4,230
326
252
483,362 5,060,114 4,383,257
2014
Revenue
Total revenue for reportable segments
Consolidated total assets
Other unallocated assets
Deferred tax assets
Intangible assets
Goodwill
Total assets for reportable segments
Assets
2014
2015
73,431
75,079
Consolidated profit before income tax
Other profit
73,431
75,079
Total profit or loss for reportable segments
Profit
166,367
202,166
Consolidated revenue
Other revenue
166,367
202,166
3,951
The Group manages its businesses by divisions, which are organised by a mixture of both business lines and
geography.
2,911
1,691
23,145
36,716
52,379 53,964 51,128
losses
(loss) before impairment
Reportable segment profit/
(61,413)
(4,484) (3,459) (67,957)
(2,629)
(3,303)
16,224
(31,868)
(22,112)
(332)
(287)
(332)
(287)
Charge for insurance claims
(57,546)
(63,584)
(2,718)
(3,619)
(23,457) (38,058)
7,557
Impairment losses
(39,871)
Capital expenditure (Note)
75,079 73,431
(2,671)
4,796
16,199
22,983
29,105
30,798 34,792
12,508
(loss) before tax
Reportable segment profit/
158
136
158
136
and joint ventures
Share of profit of associates
(1,950) 134,209 104,954
(879) (59,266) (31,681)
(2,897)
(25)
(162)
(7,611)
(23,166) (16,336)
2,908
5,438,740
9,954
The Group's principal activities are commercial lending and deposits taking. The funding of existing retail and
corporate loans are mainly from customer deposits.
There are no other significant non-cash transactions during the year.
255
The exchange reserve comprises all foreign exchange differences arising from the translation of the financial
statements of operations outside Mainland China.
47 Exchange reserve
2015 profit appropriation is proposed in accordance with the resolution passed at the meeting of the Board of
Directors held on 30 March 2016 and will be submitted to the 2015 annual general meeting for approval.
29,531
16,897
33,421
17,402
Total
- cash dividend: RMB6.90 per every 10 shares (2014: RMB6.70 per
every 10 shares)
256
Dividends
10,700
Regulatory general reserve
5,188
5,319
Statutory surplus reserve
2014
2015
15,636
(b) Proposed profit appropriations
Dividends in 2013, approved and to be declared RMB6.20
per every 10 shares
7,446
16,897
China Merchants Bank
Annual Report 2015
48 Capital, reserves and dividends.
4,096
for the year
for the year
Other comprehensive income
53,189
53,189
Net profit for the year
(2) 40,790
505
10,720 19,748
XII Financial Statements
2 311,251
reserve profits appropriations reserve Total
53,208 109,043
Proposed
profit Exchange
general Retained
Capital revaluation Hedging Surplus
reserve reserve reserve reserve
76,681 1,673 (163) 28,690
4,096 404 5,319
Changes in equity for 2015:
Note capital
Balance at 1 January 2015 (restated) 60 25,220
Share
Regulatory
Investment
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 belows (note: the Statement of Changes in Equity for the year ended 31 Dec. 2014 and the
balance of equity as at 1 Jan. 2015 are restated since the bank has adopted "IAS No.27 - Equity Method in Separate
Financial Statement" in advance.):
16,897
Dividends in 2014, approved and to be declared RMB6.70
per every 10 shares
2014
2015
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.
44 Surplus reserve
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)(iii).
43 Hedging reserve
1,902
6,188
Ending Balance
7,269
4,643
net of deferred tax
At 1 January
Changes in fair value of available-for-sale financial assets,
(421)
financial assets, net of deferred tax
Realised (gain)/loss on disposal of available-for-sale
(5,547)
35
64
1,902
2014
2015
Share of investment revaluation reserve of joint ventures
Beginning Balance
145
Statutory surplus reserve
At 31 December
2015
53,979
64,679
7,632
10,700
46,347
53,979
2014
2015
(a) Dividends approved/declared by shareholders
46 Profit appropriations
At 31 December
Statutory general 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 2015.
45 Regulatory general reserve
XII Financial Statements
China Merchants Bank
Annual Report 2015
28,690
34,009
5,188
23,502
28,690
5,319
2014
404
(2) 4,498
Total comprehensive income
4,096
60 25,220 76,681
16,897
(16,897)
(15,636)
(15,636)
(7,446)
7,446
(5,188)
5,188
(restated)
1,673 (163) 28,690
Balance at 31 December 2014
Dividends paid for the year 2013
general reserve
Appropriations to regulatory
surplus reserve
Appropriations to statutory
Profit appropriations
6 59,993
51,877
788
7,322
Proposed dividends for the year 2014
53,208 109,043
16,897
2 311,251
(b) Significant non-cash transactions
471,471
635,843
15,175
17,473
Debt securities investments
190,039
296,458
68,983
147,714
Placements with banks and other financial institutions
Amounts held under resale agreements
47,336
56,014
Balance with banks and other financial institutions
149,938
118,184
Cash and balances with central bank
2014
2015
(a) Analysis of the balances of cash and cash equivalents (with original maturity
within 3 months):
49 Notes to consolidated cash flow statements
XII Financial Statements
China Merchants Bank
Annual Report 2015
Total comprehensive income
50 Operating segments
6 8,116
7,322
63,928 128,791
241 34,009
5,769
60 25,220 76,681
Balance at 31 December 2015
17,402
(17,402)
Proposed dividends for the year 2015
(16,897)
(16,897)
17,402
Dividends paid for the year 2014
(5,319)
|---- 5,319
general reserve
Appropriations to regulatory
surplus reserve
Appropriations to statutory
Profit appropriations
(2) 57,687
53,189
404
10,720 (10,720)
10,720
352,041
Investment
Regulatory
for the year
for the year
Other comprehensive income
51,877
-
6 44,357
1,261
(4) 266,894
15,636
reserve Total
appropriations
profit Exchange
general Retained
reserve profits
45,762 86,697
7,446 22,346
51,877
Net profit for the year
788 5,188
7,322
Changes in equity for 2014:
(5,649)
Share Capital revaluation Hedging Surplus
capital reserve reserve reserve reserve
(951) 23,502
25,220 76,681
Balance at 1 January 2014 (restated)
Note
Proposed
788
The movements of investment revaluation reserve:
4,701,214
819
159
159
163
200
200
200
240
1,321
Tang Zhi Hong
159
Li Hao
159
184
184
184
210
1,243
Ding Wei
127
159
163
184
163
184
1,321
200
granted
(in thousand)
granted
(in thousand)
granted
(in thousand)
granted
No. of shares
exercised
Total no. of
shares
(in thousand) (in thousand) (in thousand)
Ma Wei Hua
318
240
318
307
307
307
1,883
Zhang Guang Hua
159
159
163
200
200
326
184
210
1,211
150
150
150
922
954
1,272
1,381
1,443
1,443
2,280
150
9,695
In 2015, no member of senior management had exercised any share appreciation rights (2014: Nil).
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme (continued)
(b)
Post-employment benefits - defined benefit plan
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.
The latest actuarial valuation of the Plan was performed in accordance with IAS 19 issued by the IASB as at 31
December 2015 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 108% (2014: 122%).
The amounts recognised in the statement of financial position as at 31 December 2015 are analysed as follows:
Fair value of the Plan assets
Note:
Total
Xu Shi Qing
Lian Bo Lin
Tang Xiao Qing
163
153
184
184
210
894
Wang Qing Bin
131
153
184
184
210
862
Tian Hui Yu
300
300
Liu Jian Jun
Wang Liang
210
210
150
150
granted
(in thousand)
granted
(in thousand)
(in thousand)
Phase VII
No. of shares
159
159
163
200
200
200
240
1,321
Li Hao
159
Zhang Guang Hua
159
200
200
200
240
1,321
Tang Zhi Hong
159
159
163
184
163
1,883
307
307
Amount
250
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(iii)
Other long-term employee benefits (continued)
(4)
The number of share appreciation rights granted to members of senior management:
2015
Phase I
Phase II
Phase III
Phase IV Phase V Phase VI
No. of shares No. of shares No. of shares No. of shares No. of shares No. of shares
granted granted granted granted granted granted
Phase VII
No. of shares No. of shares Total no. of
granted exercised
shares
(in thousand) (in thousand) (in thousand) (in thousand) (in thousand) (in thousand) (in thousand) (in thousand) (in thousand)
Ma Wei Hua
318
318
326
307
184
Present value of the funded defined benefit obligation
Net asset recognised in the statement of financial position
184
1,243
150
Xu Shi Qing
150
150
Total
922
954
1,109
1,228
1,259
150
1,259
8,801
2014
Phase I
No. of shares
granted
Phase II
No. of shares
Phase III
No. of shares
Phase IV
No. of shares
Phase V
No. of shares
Phase VI
No. of shares
2,070
Lian Bo Lin
150
150
Ding Wei
127
159
163
184
184
184
210
1,211
Wang Qing Bin
131
153
184
184
210
862
Tian Hui Yu
300
300
Liu Jian Jun
210
210
Wang Liang
210
9,953
2015
(340)
11,656
China Merchants Bank
Annual Report 2015
XII Financial Statements
39 Other liabilities
Clearing and settlement accounts
Salary risk allowances (note)
Insurance liabilities
Payment and collection account
Cheques and remittances returned
Others
2015
12,820
2014
7,001
8,000
3,700
1,866
1,709
1,295
1,369
15
116
40,875
12,294
25,783
528
Others
2015
2014
%
%
1.4
1.7
0.6
0.9
5.0
5.0
347
3.0
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.
38 Tax payable
2015
2014
Corporate income tax
9,840
8,383
Business tax and surcharges payable
2,633
2,745
3.0
64,345
39,678
Note:
42 Investment revaluation reserve
259
4,416,769
5,113,220
Consolidated total liabilities
22,658
41,232
Other unallocated liabilities
10,854
11,874
XII Financial Statements
Tax payable
5,060,114
Total liabilities for reportable segments
Liabilities
4,731,829
5,474,978
9,723
9,927
9,880
15,538
1,059
4,383,257
China Merchants Bank
Annual Report 2015
254
253
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.
40 Share capital
By type of share:
Listed shares
- A-Shares
- H-Shares
Registered capital
2015
2014
20,629
20,629
4,591
4,591
25,220
25,220
All H-Shares are ordinary shares and rank pari passu with the A-Shares. There is no restriction condition on these
shares.
At 1 January 2015 and at 31 December 2015
25,220
41 Capital reserve
The capital reserve primarily represents share premium by the Bank. The capital reserve can be used to issue shares
with the shareholders' approval.
At 1 January 2015 and 31 December 2015
2015
67,523
2014
67,523
Staff salary and incentive scheme
(c)
Pension increase rate for the defined benefit pension plan
Long-term average rate of salary increase for the Plan
2014
316
294
12
11
5
6
(29)
(22)
29
2015
18
9
Actual obligation at 31 December
340
316
251
252
China Merchants Bank
Annual Report 2015
XII Financial Statements
37 Staff welfare scheme (continued)
(b)
7
Actuarial losses due to financial assumption changes
Actuarial gain due to demographic assumption changes
Actuarial losses due to liability experience
Actual benefits paid
27
2014
386
(316)
70
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.
There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2015 and 2014.
The amounts recognised in the consolidated statement of profit or loss are as follows:
Current service cost
Net interest income
Net expense for the year included in retirement benefit costs
2015
2014
(12)
(11)
1
2
(11)
(9)
The actual losses on the Plan assets for the year ended 31 December 2015 was RMB4 million (2014: actual losses
was RMB1 million).
The movements in the defined benefit obligation during the year are as follows:
Present value of obligation at 1 January
Current service cost
Interest cost
Post-employment benefits – defined benefit plan (continued)
367
The movements in the fair value of the Plan assets during the year are as follows:
Interest income
Total
236
64.3
249
64.5
63
17.2
63
16.3
68
Cash
18.5
19.2
367
100
386
100
No deposit with the Bank was included in the amount of the Plan assets (2014: Nil).
The principal actuarial assumptions adopted in the valuation are as follows:
Discount rate
- Defined benefit scheme
- Defined benefit pension scheme
74
Bonds
%
Amount
Expected return on the Plan assets other than interest losses
Actual benefits paid
Exchange difference
Fair value of the Plan assets at 31 December
2015
2014
386
400
6
8
(9)
(10)
(29)
(22)
13
10
367
386
The major categories of the the Plan assets are as follows:
2015
2014
Amount
%
Fair value of the Plan assets at 1 January
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.
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, adjusts the foreign exchange exposures based on the trend of foreign exchange
rate movements to mitigate the banking book foreign exchange risk.
China Merchants Bank
(9,577)
(14,624)
Less: Impairment allowances
20,484
34,326
Gross amount
For which impairment allowances are individually assessed
Impaired loans and advances to customers
2014
2015
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 on the balance sheet and the carrying amount of the off balance sheet items disclosed in Note 52(a). At
31 December 2015, the maximum exposure to credit risk of the Group's relevant on balance sheet items and off
balance sheet items is RMB8,043,986 million (2014: RMB7,597,633 million).
Maximum exposure
(i)
Credit risk (continued)
(a)
54 Risk management (continued)
Annual Report 2015
XII Financial Statements
China Merchants Bank
Carrying amount
266
19,702
For which impairment allowances are collectively assessed
Gross amount
Neither overdue nor impaired
Carrying amount
Less: Impairment allowances
- collectively assessed
Gross amount
- Over 1 year
- 6 months to 1 year (inclusive)
- 3 months to 6 months (inclusive)
- within 3 months (inclusive)
752
25,105
Overdue but not impaired
2,675
5,264
Carrying amount
(4,733)
(7,806)
Less: Impairment allowances
7,408
13,070
Gross amount
10,907
Less: Impairment allowances
265
Analyses of loans and advances by industry and loan portfolio are stated in Note 19.
2015
320,110
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 statement of financial position. Income
received and receivable for providing these services are recognised in the 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
53 Transactions on behalf of customers
XII Financial Statements
China Merchants Bank
Annual Report 2015
264
263
The Group expects that the amount of redemption before the maturity date of these government bonds through the
Group will not be material.
2014
23,497
2015
26,729
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 those bonds sold
by it should 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 Minister
of Finance 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 2015, the Group was a defendant in certain outstanding litigations with gross claims of RMB1,100
million (2014: RMB595 million) arising from its banking activities. The Board of Directors consider 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 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 lease include
contingent rental.
2014
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.
243,797
(243,797)
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 financial 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 financial 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.
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.
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.
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.
(a) Credit risk
54 Risk management
XII Financial Statements
China Merchants Bank
Annual Report 2015
2014
831,473
2015
1,820,694
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 wealth management products and funds obtained are not assets and liabilities of the Group and are not
recognised in the statement of financial position. The funds obtained from wealth management services that have
not yet been invested are recorded under other liabilities.
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, PBOC bills, 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.
(b) Wealth management services
Entrusted funds
(320,110)
12,958
- collectively assessed
Total carrying amount
268
267
88,929
115,400
2014
2015
- Loans and advances to customers
other credit enhancements held against
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 and other credit enhancements
(iv)
Note: Bonds issued by the PRC Government, PBOC and PRC Policy Banks held by the Group amounted to RMB532,353 million (2014: RMB428,082
million (credit quality: AA-)) are included.
617,984
738,397
154,334
159,815
463,607
578,515
7,574
15,763
China Merchants Bank
Annual Report 2015
5,543
XII Financial Statements
(b) Market risk
260
The banking book foreign exchange risk of the Group arises from the mismatch in the non-RMB assets and
liabilities. The Group stringently monitors its foreign exchange risk exposures to manage its foreign exchange
risk within an acceptable level.
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 using a prudent approach and compliant with the regulatory requirements, and managing the
foreign exchange risk through management of limits, controlled adjustments and budget.
(2) Banking book
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
54 Risk management (continued)
269
XII Financial Statements
China Merchants Bank
Annual Report 2015
Since 11 August 2015, with accelerating devaluation and increasing volatility of RMB, the Group reduced
its foreign exchange exposure and risk limit threshold, strengthened its tracking of the movements in the
currency market, improved risk monitoring level, so as to effectively control the Group's foreign exchange risk
exposure in the trading book. Due to the prudent trading strategies and strict risk management methods,
trading book of foreign exchange businesses maintained stable, the risk indicators performed well.
For management purpose, the Group adopts quantitative indicators such as exposure indicator, market
value at risk indicator (VaR, including interest rate, foreign exchange rate, 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.
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.
Trading book
(1)
The IMF announced RMB join the SDR in December 2015, followed by the PBOC's announcement of RMB exchange
rate index, which will accelerate the process of RMB exchange rate unpeg to USD, and gradually reference to a
basket of currencies, the RMB exchange rate formation mechanism will be more transparent, and will be more
conducive in enhancing the liquidity and stability of RMB in the future. Along with the Fed rate hike and difference
in Sino US economic development trend, USD increased significantly at the end of the fourth quarter, capital outflow
boosted the appreciation of USD against RMB. Under the current easing of conditions, without PBOC's intervention,
the exchange rate of RMB against USD, HKD, JPY and other currencies may continue to remain low.
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 functional currency of the Group is RMB. 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,
Supervisors, 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.
Foreign exchange risk
(i)
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 arsing 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.
54 Risk management (continued)
Carrying amount
14,671
540,986
China Merchants Bank
Loans and advances that were overdue or impaired had the terms been renegotiated amounted to RMB4,531 million
as at 31 December 2015 (2014: RMB996 million).
2,448,754
2,739,444
2,411,949
2,683,636
(48,215)
(58,812)
2,460,164
2,742,448
23,223
30,842
(2,640)
(3,600)
25,863
34,442
6
282
254
2,217
31,689
XII Financial Statements
441,823
Annual Report 2015
(a) Credit risk (continued)
8,667
7,095
43
(619)
662
2014
67
668
(601)
2015
Total
Unrated
Lower than A-
A- to A+
AA to AA+ (Note)
AAA
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)
54 Risk management (continued)
13,023
In the first half of 2015, the Group has further optimized the foreign exchange risk measuring method of
the banking book, which offers a logical reference for the management decision making. The Group has
continuously strengthened its foreign exchange risk monitoring in the banking book and authorization limits
management, to ensure the risk exposure is in a reasonable range.
2,293
3,865
2,990
1,473
1,420
170,945
28,664
30,122
13,218 15,988
1,862
1,819
597,665 515,926
527,907
173,827 199,294
607,634
201,537
Northeast region
Coast region
Pearl River Delta and West
25,521
25,823
14,922
11,163
2,522
7,910
2,529
8,078
Western region
2,517
2,230
2,077
1,791
68
91
20,205
19,487
11,212
431
2,827
2,832
16,917
16,788
7,510
3,683
2,798
2,736
385,401 333,656 382,889 328,146
421,469 378,606 422,455 370,196
142,219 126,892 140,900 121,176
336,928 311,443 296,496 279,541
5,474,978 4,731,829 5,113,220 4,416,769
Subsidiaries
Total
Overseas
Central region
11,312
30,436
3,572 10,514
Total liabilities
Total assets
2015
Geographical information
50 Operating segments (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
"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 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;
"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;
"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
Jiangxi province, Shanxi province and Hainan province;
"Bohai Rim region" refers to branches in Beijing municipality, Tianjin municipality, Shandong province and
Hebei province;
"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
province;
"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;
To support the Bank's operations and management's assessments, the Geographical segments are defined as follows:
In presenting information on the basis of geographical segments, operating income is allocated based on the
location of the branches that generate the revenue. Segment assets and non-current assets are allocated based on
the geographical location of the underlying assets.
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 and Luxembourg, subsidiaries operating in Hong Kong and Shanghai and representative offices in
London, New York and Taipei.
(c) Geographical segments
50 Operating segments (continued)
Annual Report 2015
2,674
XII Financial Statements
Non-current assets
31,057
Profit before tax
2014
2,657
2,914
762,902 590,741 761,795 586,447
511,402 425,612 503,469 414,438
Bohai Rim region
Yangtze River Delta region
25,146
58,343
1,998
31,968
23,340
24,225
2,105,486 1,863,145 1,808,257 1,629,954
Headquarter
2014
2015
2014
2015
2014
2015
2014
2015
Revenue
6,311
(c) Geographical segments (continued)
5,345
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.
2014
398,937
2015
349,816
Credit risk weighted amounts of contingent liabilities and commitments
These commitments and contingent liabilities 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 RMB1,496,021 million at 31
December 2015 (2014: RMB1,725,348 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, and
onshore and offshore syndicated loans.
1,225,128
2,610
266,094
338,012
5,884
1,170,100
23,694
33,029
4,062
5,979
399,489
363,035
279,857
188,469
249,322
235,692
China Merchants Bank
Annual Report 2015
2014
XII Financial Statements
(b) Capital commitments
8,117
6,263
7,991
2,293
2,613
2014
2015
Over 5 years
1 year to 5 years (inclusive)
Within 1 year (inclusive)
Total future minimum lease payments under non-cancellable operating leases of properties are payable as follows:
572
1,965
4,380
251
4,631
2014
2015
(c) Operating lease commitments
Authorised but not contracted for
Contracted for
For purchase of property and equipment:
Authorised capital commitments were as follows:
52 Contingent liabilities and commitments (continued)
2015
2,537
Credit card commitments
3,022
13,367
66,988
185,652
2014
2015
Other assets
- Trading assets
- Held-to-maturity investments
- Available-for-sale financial assets
Assets pledged
Amounts sold under repurchase agreements
The following assets have been pledged as collateral for liabilities under repurchase arrangements:
51 Assets pledged as security
73,431
75,079
43,858
10,406
Others
49,878
8,883
67,980
29,050
202,166 166,367
3,853
Bills of acceptances
2,752
- with an original maturity within 1 year (inclusive)
Irrevocable letters of credit
Irrevocable guarantees
Irrevocable loan commitments
- with an original maturity over 1 year
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 failed completely to perform as contracted.
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
Contractual amount
67,746
186,429
52 Contingent liabilities and commitments
102,330
The transactions under repurchase agreements are conducted under terms that are usual and customary to standard
lending and securities borrowing and lending activities.
31,821
262
China Merchants Bank
Annual Report 2015
XII Financial Statements
261
6,592
84
14,356
3,823
15,962
3,892
308,735
3,875,890
94,687
33,977
Debt securities issued
83,601
5,352
loss (including derivatives)
value through profit or
Financial liabilities at fair
3,832
218,188
Other liabilities
4,532
202,985
253,890
617
Credit commitments (Note)
position:
12,000
Net off-balance sheet
(102,492)
2,357
2,437 315,048
(81,942)
14,619
379,934
position
Net on-balance sheet
5,669
628
49,797
8,245
2,575
17,956
23,615
106,155
411 103,522
29,159 4,416,769
879,039
3,304,438
34,184
3,487
323,354
1,853
derivatives)
(including
Investments
97,111
34,632
16,613 2,448,754
77,640
Other assets
214,718
to customers
Loans and advances
6,111
8,402
4,886
829,782 110,738
10,060 525,051
2,139,783
940,676
95,413
4,255,824
17,652
7,538
3,064
174,441
74,400
210,658
2,892,528
Deposits from customers
799,722
other financial institutions
Amounts due to banks and
Liabilities
151,398
52,154
9,428
562
22,079
5,514
996,217
107,010
3,705
572
31,596 4,731,817
121,043
26,811
(39,226)
the exchange rates against RMB for all foreign currencies is the change in the same direction simultaneously;
and
909,241
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, which are also the trading book market risk preference quantitative indicators of the Group,
adopt VaR and portfolio stress testing methodologies and directly link to the Bank'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 pipeline 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.
Trading book
(1)
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
(ii)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
Based on the assumptions above, actual changes in the Group's net foreign exchange gains and losses resulting from
increases or decreases in foreign exchange rates may be different from the results of this sensitivity analysis.
the foreign exchange exposures calculated include spot foreign exchange exposures, forward foreign
exchange exposures and options.
(iii)
(ii)
the foreign exchange rate sensitivity is the foreign exchange gains and losses recognised as a result of a
standard 100 basis point fluctuation in the foreign currency exchange against RMB;
(i)
In 2015, the Group continued to enhance the trading book market risk management framework based on
existing practice. The Group has optimised the procedures, processes and tools for the measurement and
monitoring of market risk, and enhanced application of management tools in management of market risk.
The above sensitivity analysis is based on a static foreign currency exposure profile of assets and liabilities. In view of
the nature of the RMB exchange rate regime, the analysis is based on the following assumptions:
For management purpose, the Group adopts quantitative indicators such as exposure indicator, market value
at risk indicator (VaR, including interest rate, foreign exchange rate, 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. The VaR includes general market value at risk and pressures market value at risk which calculated by
using historical simulation.
273
(b) Market risk (continued)
52,091
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
In 2015, there were five interest rate cuts by the PBOC, one-year benchmark deposit rate was cut by 125
basis points in total; one-year benchmark lending rate was also cut by 125 basis points, at the same time the
PBOC has fully liberalized the deposit interest rate ceiling. To mitigate the negative impact of the interest rate
cuts and deposit interest rate celling, the Group adopted active countermeasures, including coordinating the
interest rate risk management and FTP management, continue to adjust the duration of the loans; improving
the deposit differential pricing mechanism, pricing sensitivity and pertinence, based on the interest rate
sensitivity analysis and customer pricing behaviour analysis; reasonably control structured deposit and other
related high cost deposits, maintaining a comparative advantage on the cost of liabilities. In future, the
Group will continue to take on several measures to improve the fine management capacity of banking book
interest rate risks, in systems, processes and evaluations aspects, to achieve steady growth in net interest
income and economic value.
The Group has primarily adopted scenario simulation analysis, re-pricing gap analysis, duration analysis and
stress testing for the measurement and analysis of interest rate risk under the banking book. Through assets
and liabilities analysis meetings and reporting framework, the Group analyses the route causes of interest
rate risk under the banking book, proposes management advices and implements management measures.
In 2015, the Group paid close attention to changes in the external interest rate environment, predicted
movements in interest rates in rolling basis; strengthened NII fluctuations monitoring analysis; deepened NII
schedule and budget gap analysis. On the foundation of the macro prediction and refinement of internal
management mentioned above, the Group took the initiative to put forward an prospective program
of optimizing assets and liabilities; to ensure that the overall interest rate risk levels remained within
management objectives, and to safeguard the stable operation of the NII.
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 managed
concentratively by the Asset and Liability Management Department.
Banking book
(2)
Interest rate risk (continued)
(ii)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
274
In 2015, the downward of market interest rate, and significantly decreased yield curve for all kinds of bonds
resulting in the "bull market" in the RMB bonds market. The Group conducted comprehensive researches
on and timely tracked the macro economy, monetary policy and market situation, and deployed trading
strategies correspondingly. All risk indicators under the trading book performed well.
7,947
(37)
100
24
(1,450)
(516)
(10,647)
(674)
750
98,997
7
151
(8,993)
(101,401)
position
- net currency option
69,352 222,927
(70,826) (99,112)
942,182
(952,313)
50,907
(49,483)
283,065 429,980 178,230
(384,466) (439,124) (79,240)
- forward sold
- forward purchased
Derivatives:
17,861 (49,063)
9
37
123,824
Credit commitments generally expire before they are drawn, therefore the above net position (net of pledged deposits) does not represent the
future cash out flows.
(100)
100
(94)
Change in foreign currency
exchange rate (in basis points)
2014
(100)
94
Change in foreign currency
exchange rate (in basis points)
2015
Increase/(decrease) in annualised net profit
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.
The following table set forth the results of the Group's foreign exchange risk sensitivity analysis on the assets and
liabilities as at 31 December 2015 and 31 December 2014.
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
272
271
Note:
458,014
4,640
114,031
financial
1,189
6,756
(20,880)
(11,533) 1,440,803
454 116,993
20,549 5,474,978
5,666
6,446
135,391
184,832
5,134,206
7,686
7,728
Other assets
(135,718)
1,582,388
derivatives)
Investments (including
24,428 104,832
18,796 2,739,444
102,365
28,437
161,429
Liabilities
Debt securities issued
215,920 (168,451)
(including derivatives)
profit or loss
fair value through
Financial liabilities at
135,962
39,131
5,532
12,060
4,475 1,138,584
67,698 3,571,698
(ii)
78,385
254,346
3,135,623
Deposits from customers
other financial institutions 1,051,084
Amounts due to banks and
87,923
158,776
2,473,949
customers
USD
Total
Others
in million
Original currency
HKD
USD
RMB
Equivalent in RMB million
2015
Assets and liabilities by original currency are shown as follows:
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
HKD
235,039
Assets
central bank
Loans and advances to
8,359
16,848
593,396
11,119
7,011
109,509
465,757
and other financial
institutions
Amounts due from banks
33,796
6,852
584,342
1,713
28,345
44,537
509,747
Cash and balances with
Other liabilities
119,943
10,425
864
Assets
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
11,138
(196)
10
(2,319)
(194) (15,260)
36,492 (25,192)
9,341
(69,751) (1,274)
8
(15,074)
position
2014
- net currency option
Original currency
Equivalent in RMB million
banks and other
Amounts due from
16,669
3,044
646 654,785
13,327
18,874
621,938
with central bank
Cash and balances
HKD
USD
Total
Others
HKD
USD
RMB
in million
institutions
(62,286)
73,414
377,497
Net on-balance sheet
position
146,276
27,012
3,733
133
7,205
1,604
251,507
123,459
58,090 5,113,050
421
-
(6,156)
27,802 (25,916)
(14,504)
(5,163)
6,043
3,131
122,682
175,569
4,756,709
9,263
(74,159)
12,709
1,425
76,282
93,045 997,887
(56,359) (1,007,819)
61,572
(52,239)
347,450 495,820
(417,201) (482,020)
- forward sold
- forward purchased
Derivatives:
29,708
11,832
24,088 851,622
24,916
76,905
725,713
Credit commitments (Note)
position:
Net off-balance sheet
15,153
(3,541) 361,928
Interest rate risk (continued)
1,294,461
2015
19,954
Loans and advances to customers
(Note (ii))
593,396
711
10,480
45,004
61,785
124,077
463,243
other financial institutions
Amounts due from banks and
584,342
466,158
118,184
Cash and balances with central bank
(Note (i))
Total
12,173
421,499 972,196
609,807
553,893
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
- Financial assets at fair value
Investments (Note (iii))
38,018 2,739,444
5 years Indefinite
5 years
After
3 months 1 year but
within
XII Financial Statements
China Merchants Bank
Annual Report 2015
278
277
Actual changes in the Group's net interest income resulting from increase or decrease in interest rates may differ
from the results of this sensitivity analysis.
there are no other changes to the portfolio.
(iii)
there is a parallel shift in the yield curve and in interest rates; and
(ii)
all assets and liabilities that reprice or are due within one year reprice or are due at the beginning of the
respective periods;
(i)
This sensitivity analysis is based on a static interest rate risk profile of assets and liabilities. The analysis measures
only the impact of changes in the interest rates within a year, as reflected by the repricing of the Group's assets and
liabilities within a year, on annualised interest income. The analysis is based on the following assumptions:
995
(995)
1,042
(25)
25
54 Risk management (continued)
59,912
(c) Liquidity risk
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, Supervisors, 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.
but within
1 year
1 month
but within
3 months
on demand 1 month
Within
Repayable
After
After
After
2015
(c) Liquidity risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
The Group had adopted various measures to deal with the liquidity risk profile for this year, to ensure the smooth
operation of the bank's liquidity: (1) utilized FTP regulating mechanism to guide branches to absorb the duration
and total amount of liabilities, to balance the source of funding and usage of funding. (2) strengthened the asset
and liability management of the bill business and other related business, improved the maturity mismatch situation.
(3) carried out short-term and long-term initiative liabilities in a flexible manner, including the issuance of interbank
deposits, certificates of deposit, as well as the use of central bank monetary policy tools for financing, coordination
of liquidity and cost of liability, ensuring the Group's source of funding. (4) steadily progressed in assets backed
securitization. The total amount of assets backed securities issued in 2015 was RMB23,020 million, including
RMB7,200 million for mortgages and RMB15,820 million for credit card receivables for vehicle. (5) through proactive
risk management, the Group deployed investment and financing strategy based on the fundamental of dynamic
forecasting of future cash flows, to reduce cost and increase revenue.
In the first half of 2015, the overall market liquidity was more relaxed, only appeared as periodic tightened phase
due to seasonal factors during the Spring Festival. Despite foreign exchange exposure continued to decline, under
the guidance of the PBOC cutting interest rates in a timely manner and reducing the open market reverse repurchase
rate, the market outlook was expected by institutions to be stabilized on the funding side and the inter-bank
funding maintained at relaxed level. The Group's liquidity risk remained in a medium-low level. During the second
half
year,
the PBOC monetary policy continued to put in more weights, in the continuation of lowering interest rates
and RMB deposit reserve ratio (RRR), the PBOC reformed the deposit reserve appraisal system, and established the
interest rate corridor, lead down the market medium-term and long-term interest rate. The overall market liquidity
remained neutral and relaxed. During the year end, affected by MLF maturity, deposit deviation assessment and
seasonal factors influences, market liquidity slightly fluctuated, the Group made liquidity arrangements in advance to
ensure a smooth overall operation of the Group.
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.
The Group's liquidity risk management is coordinated by Head Office with branches 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.
Liquidity risk arises when the Group fails to satisfy customers' demand for drawing down on maturing liabilities, new
loans and reasonable finances, or when it fails to meet their needs at a normal cost.
(25)
2,546
- Held-to-maturity investments
63,634
Other liabilities
251,507
32,519
27,257
95,056
65,659
22,662
31,016
27,802
7,674
388
9,781
3,857
1,135
1,637
Debt securities issued
7,666
13,531
11,503
270
279
592,014 361,758
612,947 823,705
286,809
295,914 43,033
(2,292,664)
(Short)/long position
9,789 5,113,220
123,629
2,115
2,518
39,448
428,890
963,975
701,242 514,913
2,454,963
Total liabilities
3,330
(including derivatives)
through profit or loss
Financial liabilities at fair value
121,629
145,463
49,024
5,435 10,980
557,946 1,250,784
4,641
997,156
11,988
162,299
Total assets
Other assets
383,659
receivables
- Debt securities classified as
353,137
12
228,206
106,212
15,016
2,364
1,327
16,286
299,559
3
2,052
3,571,698
1,138,584
288
357,544
3,735
22,805
146,406 247,988
294,047 603,543
378,326 339,324
2,009,673 306,603
other financial Institutions
Deposits from customers (Note (iv))
Amounts due to banks and
5,474,978
601,803
863,153
1,041,837
119,779
83,618
1,065
716,064
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.
25
(1,042)
2014
Change in interest rates
(in basis points)
30,734
394,816
972,249
5,113,220 3,571,581
123,411
26
24,232
143,840
8,015
6,551
21,425
68
6,228
108,411
22
6,620
97,439
102
27,802
251,507
123,629
8,110
6,088
4,304
388
361,758 (350,032)
231,240
172,095
1 year
3 months
Over
Over
3 months
or less
(include
overdue)
Total
2014
Interest rate risk (continued)
(ii)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
276
275
32,473
275,982
9,202
357,570
603,585
1,138,584 871,075 254,003
3,571,698 2,596,345
Asset-liability gap
Investments (including derivatives)
2,739,444
Loans and advances to customers (Note)
593,396
Amounts due from banks and other
financial institutions
39,522
544,820
584,342
Cash and balances with central bank
Assets
Non-
interest
bearing
Over
5 years
1 year
to 5 years
Over
Over
3 months
to 1 year
3 months
or less
(include
overdue)
Total
1,438,017
Over
535,143 45,374 10,168
1,647,629 905,992 176,721
493,957 252,123 380,022
2,009
Total liabilities
Other liabilities
profit or loss (including derivatives)
Debt securities issued
Financial liabilities at fair value through
Deposits from customers
Amounts due to banks and other
financial institutions
Liabilities
176,313
306,716
566,911
119,779
119,779
5,474,978 3,221,549 1,203,489
Total assets
Other assets
15,003
296,912
9,102
702
(Decrease)/increase in annualised net interest income
to 1 year
5 years
94
31,165
10,275
165
6,213
15,817
917
378,973
914,524
4,416,769 2,968,908
102,427
Total liabilities
6,035
20,793
23
106,155
103,522
Other liabilities
Debt securities issued
23,615
profit or loss (including derivatives)
Financial liabilities at fair value through
927
38,380
61
32,868
121,496
Asset-liability gap
Change in interest rates
(in basis points)
2015
The Group uses sensitivity analysis to measure the potential effect of changes in interest rates on the Group's net
interest income. The following table sets forth the results of the Group's interest rate sensitivity analysis on the
assets and liabilities as at 31 December 2015 and 31 December 2014.
Interest rate risk (continued)
(ii)
(b) Market risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2015 and 31 December
2014, net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the principals or interest was
overdue.
Note:
23,371
220,838
191,120
379,351
(499,620)
315,060
6,726
1,444
335,500
2,068
Investments (including derivatives)
41,677
150,223
962,393
2,448,754
Loans and advances to customers (Note)
2,817
41,218
86,569
394,447
525,051
22,267
632,518
654,785
Cash and balances with central bank
Amounts due from banks and other
financial institutions
Assets
Non-
interest
bearing
996,217
to 5 years
147,862 244,913
212,029
20,526
663,147 193,298
2,278,910 681,858
3,304,438
Deposits from customers
879,039
financial institutions
Amounts due to banks and other
Liabilities
144,867
253,706
570,093
4,731,829 2,469,288 1,293,875
Total assets
107,022
107,022
Other assets
12,761
378,652
Analysis of the Group's assets and liabilities by residual maturity is as follows:
4,205
542
64
Equity options purchased
97
Credit default swaps
Other derivatives
Liabilities
Assets
Total
More than
5 years
Between
1 year and
5 years
Between
3 months
and 1 year
Within
3 months
Fair value
Notional amounts with remaining life of
2015
Derivatives held for trading
Use of derivatives (continued)
(f)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
286
285
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.
In cash flow hedge, the Group uses interest rate swaps as hedging instruments to hedge the cash flows arising from
the interest risk of RMB loans and interbank assets portfolios.
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 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.
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.
Equity options written
56
120
97
3,123
269,150
2,687
133,294
133,169
Foreign exchange swaps
(4,400)
5,536
730,071
19,885
460,622
249,564
Forwards
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.
(17)
35,908
35,908
Spot
Currency derivatives
(492)
465
1,150,588
409
75,345
817,880
256,954
Interest rate swaps
Interest rate derivatives
30
(1,682)
(f) Use of derivatives
XII Financial Statements
740,608
654,424
1,866
1,072
3,338
1,218
21,529
23,741
58,174
4,499,568 1,664,088
4,361,175
58,174
Other liabilities
31,059
30,880
10,896
31,895
5,942
110,672
106,155
Debt securities issued
388
7,332
676
1,659
2,393
977
13,425
931,203
471,147
36,232
1,866
China Merchants Bank
Annual Report 2015
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.
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.
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 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 2015, 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.
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.
(e) Capital management (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
284
283
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.
54 Risk management (continued)
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
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;
The objectives of the Group's capital management are to:
(e) Capital management
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.
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.
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.
(d) Operational risk
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
293,850
293,850
Gross loan commitments
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;
13,369
Options purchased
18,238
752
29,995
107,663
161,828
Interest rate swaps
Interest rate derivatives
Liabilities
Assets
Total
More than
5 years
Between
1 year and
5 years
Between
3 months
and 1 year
3 months
Within
Fair value
Notional amounts with remaining life of
2014
Derivatives held for trading
(f) Use of derivatives (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
(7,575)
10,176
Total
(92)
47
300,238
204
(240)
Currency derivatives
28,252
6,921
21,331
Options written
1,233
22,509
5,883
16,626
Options purchased
(1,270)
1,393
218,782
3,332
21,122
77,173
Foreign exchange swaps
(4,142)
5,362
727,310
46,906
395,102
285,302
Forwards
(793)
874
20,019
20,019
Spot
138,277
27,528
395
2,276
Interest rate derivatives
Cash flow hedge derivatives
(2)
5
217
I
I
(1)
(1)
151
56
64
97
(876)
(6,975)
9,323
1,136,249
23,876
632,339
480,034
54,638
588
20,185
33,865
Options written
634
46,482
716
Interest rate swaps
1,700
9,800
18,010
2,362
(60)
9
5,597
2,863
1,409
1,325
Foreign exchange swaps
Currency derivatives
372
(32)
38
15,525
16,089
395
867
1,037
Interest rate swaps
Interest rate derivatives
through profit or loss
designated at fair value
financial instruments
conjunction with
Derivatives managed in
(14)
49
336
29,510
13,226
profit or loss
fair value through
Financial liabilities at
66,230
31,286
18
388
9,781
3,865
1,188
1,657
3,330
20,227
271,745
251,507
Debt securities issued
20,227
profit or loss
fair value through
Financial liabilities at
582
415,583
637,988
305,339
312,800
3,855
24,491
254,747
148,542
1,152,224 379,034 341,555
3,690,568 2,018,276
3,571,698
97,416
43,477
33,336
Other liabilities
After
2014
Non-derivative financial
(c) Liquidity risk (continued)
54 Risk management (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
282
281
377,020 377,020
Gross loan commitments
2,084
39,171
Deposits from customers
497,980
522,836
706,565
5,221,561 2,454,990
5,067,218
2,066
1,010
4,648
3,919
1,537
19,267
54,350
86,797
85,202
997,935
After
1,138,584
Amounts due to banks and
18,881
3,869
2,255
502,642
353,137
investments
-Held-to-maturity
2,549
81,673
199,827
52,637
12,878
12,823
362,387
299,559
financial assets
- Available-for-sale
761
5,094
31,642
13,543
6,289
8,262
65,591
59,081
profit or loss
fair value through
131,033
346,591
13
- Debt securities
liabilities
Non-derivative financial
513,189
1,309,981
1,288,761
1,313,288
3,016
33
371
44
21,586
126,064
146,600
1,715
other financial institutions
797
575,095
6,167,555
5,361,937
1,163
9,390
16,485
16,914
Other assets
49,586
383,829
727,709
716,064
receivables
classified as
161,061 1,006,180
After
1 month
3 months
350
1,650
8,741
17,313
17,313
Other assets
5
33,937
157,185
154,585
42,134
33,909
421,755
408,752
as receivables
- Debt securities classified
11
255,724
98,688
17,684
4,393
1,553
378,053
259,434
investments
- Held-to-maturity
2,188
490
276
70
5,736
546
3,167
398,580
712,440
463,474
202,376
28,945
203,853
242,362
422,184
5,787
1,633,583
903,677
3,413,620
3,304,438
Deposits from customers
55,094
879,039
and other financial
Amounts due to banks
liabilities
Non-derivative financial
537,870
1,009,669
1,204,875
1,326,826
555,500
506,320
169,871
5,310,931
4,632,805
institutions
227,113
42,673
11,784
9,660
532,092
525,051
institutions
banks and other financial
Amounts due from
504,847
149,938
654,785
654,785
central bank
Cash and balances with
assets
329,040
Indefinite
5 years
After
but within
but within
1 year
3 months
1 month
but within
Within
Repayable
on demand
Total
amount
Carrying
1 year
5 years
(3,365)
77,311
44,008
8,066
346,918
278,526
financial assets
- Available-for-sale
722
2,077
18,306
7,920
11,312
4,018
44,355
40,190
71,531
profit or loss
- Financial assets at
Investments
23,819
662,767
659,299
1,031,943
408,216
128,084
1,532
2,915,660
2,448,754
customers
Loans and advances to
fair value through
481,555
5,410
50,238
8,005
1,193
2,297
103,522
485,079
1,664,864
649,207
728,234
898,117
428,001
35,774
12,572 4,416,769
(Short)/long position
(1,492,997)
(152,158) (191,884) 365,900
565,606
619,482
601,111 315,060
Notes:
(i)
For balances with central bank, the amount with an indefinite maturity represents statutory deposit reserve and fiscal balances maintained with the
PBOC.
13,100
12,450
25,641
40,836
357,289
2,944
879,039
3,304,438
Financial liabilities at fair value
through profit or loss
(including derivatives)
977
2,380
1,622
670
(ii) 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.
7,332
10,275
23,615
Debt securities issued
5,859
31,757
9,145
28,610
30,784
106,155
Other liabilities
359
(iii) 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.
(iv) The deposits from customers that are repayable on demand included time deposits matured and awaiting for customers' instructions.
China Merchants Bank
Annual Report 2015
Amounts due from
banks and other
financial institutions
593,396
597,368
11,544
465,863
62,507
45,870
10,856
466,158
728
customers
2,739,444
3,311,031
21,943
131,985
439,169
1,034,042
788,968
855,004
39,920
Loans and advances to
681,507
118,184
584,342
XII Financial Statements
54 Risk management (continued)
(c) Liquidity risk (continued)
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.
2015
After
After
After
Carrying
amount
Repayable
Total on demand
584,342
Within
1 month
but within
3 months
3 months
but within
1 year
1 year
but within
5 years
After
5 years
Indefinite
Non-derivative financial
assets
Cash and balances with
central bank
1 month
Investments
447,982
1,618,482
327,078
75,539
69,849
43,562
542 525,051
Loans and advances to customers
(Note (ii))
1,532
118,394 388,499 970,897
518,480
427,737
23,215 2,448,754
Investments (Note (iii))
- Financial assets at fair value
through profit or loss
(including derivatives)
3,815
11,041
7,540
15,872
1,476
9,761
8,481
other financial institutions
Amounts due from banks and
504,847 654,785
280
China Merchants Bank
Annual Report 2015
XII Financial Statements
54 Risk management (continued)
(c) Liquidity risk (continued)
Cash and balances with central bank
After
2014
After
After
49,505
Repayable
on demand
1 month
1 month
but within
3 months
3 months
but within
1 year
1 year but
within
5 years
After
5 years
Indefinite
Total
(Note (i))
149,938
Within
- Available-for-sale financial assets
7,542
10,711
9,142
901
324
73,136
107,022
Total assets
171,867
497,049
536,350
1,264,017
5,868
993,607
613,683 4,731,829
Amounts due to banks and
other financial Institutions
4,569
419,093
234,423
193,695
26,765
494
Deposits from customers (Note (iv))
655,256
196,234
5,735
Other assets
38,749
183,495
35,863
2,166
278,526
- Held-to-maturity investments
792
3,163
15,147
78,302
11,916
162,019
259,434
- Debt securities classified as
receivables
33,693
41,529
152,693
152,995
27,837
5
408,752
11
- Financial assets at
Total liabilities
6,300
Total
Note:
442
214
3,003
3
2
5,830
9,049
10,518
Credit valuation adjustment risk weighted assets
15,168
(g) Fair value information
(i)
Financial assets
The Group's financial assets 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.
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.
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.
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).
China Merchants Bank
Annual Report 2015
XII Financial Statements
54 Risk management (continued)
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.
(g) Fair value information (continued)
Other derivatives
Interest rate derivatives
13,227
377
14,586
90
གྲུབ
(45)
(74)
Total
(10,246)
287
Currency derivatives
288
XII Financial Statements
54 Risk management (continued)
(f)
Use of derivatives (continued)
(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.
2015
2014
Credit risk weighted assets of counterparties
China Merchants Bank
Annual Report 2015
858
(i) Financial assets (continued)
The fair value measurements for Level 1 are based on quoted price of foreign currency bonds in active market
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.
Level 3
amount
value
Subordinated notes issued
Long-term debt securities
issued
32,519
34,680
34,680
32,396
32,898
27,995
Level 2
28,146
27,636
27,248
60,514
62,826
62,826
60,032
60,146
55 Significant accounting estimates and judgements
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.
289
28,146
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:
Level 1
Fair
2015
2014
Carrying
amount
Fair
value
Level 1
Held-to-maturity investments 353,137
372,697
1,332
Level 2
371,353
Level 3
value
12
Fair
value
264,612
(ii)
Financial liabilities
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:
2015
2014
Carrying
amount
Fair
Carrying
Carrying
amount
259,434
124
9,315
3,629
1,039
36
117
804
82
29
29
Equity options written
15
142
ཚ།
36
29
53
Equity options purchased
1
868
93
775
Credit default swaps
Other derivatives
(9,570)
8,862
1,016,872
17
16
(2)
24
Interest rate derivatives
3,286
Cash flow hedge derivatives
343
Foreign exchange swaps
Currency derivatives
(29)
73
10,957
9,941
515
124
Interest rate swaps
377
143
Interest rate derivatives
13,540
29,510
49,350
(360)
Derivatives managed in
Interest rate swaps
conjunction with
financial instruments
designated at fair value
through profit or loss
2
75,079
134
(59,266)
156
(31,681)
2013
57,696
58,018
(17,061)
55,911
(17,382)
2012
56,049
73,431
2011
Other net income
70.38
3.71
In 2015, the Group realised a profit before tax of RMB75.079 billion, representing an increase of 2.24% as
compared with 2014. The effective income tax rate was 22.72%, representing a decrease of 0.95 percentage point
as compared with 2014.
4.96
5.81
5.94
16.17
67.59
17.34
23.72
26.40
Net fee and commission income
78.94
77.65
74.30
21.92
The following table sets out the impact of changes in major income/loss items of the Group on its profit before tax
for 2015.
In 2015, the net operating income of the Group was RMB202.302 billion, representing an increase of 21.48% as
compared with 2014. The net interest income accounted for 67.59% of the total net operating income, representing
a decrease of 2.79 percentage points as compared with 2014; the net non-interest income accounted for 32.41% of
the total net operating income, representing an increase of 2.79 percentage points as compared with 2014.
(in millions of RMB)
4.83
(restated)
2015
Net interest income
%
2014
The following table sets out the composition of the net operating income of the Group in the corresponding period
of the past five years.
5.2.2 Operating income
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
24
14
75,079
Profit before tax for 2015
(22)
Gains on investment in associates and joint ventures
(27,585)
Profit before tax for 2014
Changes in 2015
Net interest income
Net fee and commission income
Other net income
73,431
Changes in profit before tax
19,527
2,347
(6,589)
45
Operating expenses
Provision for insurance claims
Impairment losses on assets
13,925
Gains on investment in associates and
joint ventures
0.07
6,686
Liabilities
Deposits from customers
5,516
(9,170)
Placements from banks and other financial institutions
2,519
(15,849)
(3,654)
(13,330)
Issued debts
3,294
(19,837)
(65)
Borrowings from the central bank
918
(4)
Changes in interest expense
12,247
(25,088)
914
(12,841)
Changes in net interest income
14,276
5,251
19,527
3,229
26,523
Changes in interest income
(12,976)
2.64
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
In 2015, affected by the interest rate cuts, the average yield of the interest-earning assets was 4.72%, while the
average cost ratio of interest-bearing liabilities was 2.13%, down by 42 basis points and 56 basis points respectively
as compared with the previous year. However, benefiting from the constant optimisation of the liabilities structure,
the cost ratio of interest-bearing liabilities declined remarkably. In 2015, the net interest margin and net interest
spread of the Group were 2.75% and 2.59%, respectively, up by 11 basis points and 14 basis points respectively as
compared with 2014.
The following table sets forth, for the periods indicated, the breakdown of changes in interest income and interest
expense due to changes in volume and interest rate of the Group. Changes in volume are measured by changes in
average balances (daily average balances), while changes in interest rate are measured by changes in average interest
rate; changes in interest income and expense caused by changes in volume and interest rate together are accounted
for as the amount of changes in interest income and expense caused by changes in volume.
(in millions of RMB)
2015 compared with 2014
Increase/(decrease) due to
Volume
Interest rate
Net increase/
(decrease)
Assets
Loans and advances
Investments
17,358
(8,402)
12,348
(1,922)
8,956
10,426
Balances with the central bank
618
(338)
280
Placements with banks and other financial institutions
(3,801)
(9,175)
25
/
46
China Merchants Bank
Annual Report 2015
12,852
3.94
1,259,927
12,074
3.80
Balances with the central bank
640,596
2,218
1.37
578,060
2,047
1,293,552
1.40
institutions
514,153
3,278
2.53
433,144
4,721
4.32
Total
5,157,623
58,538
4.50
Placements with banks and other financial
Investments
5.48
38,983
V Report of the Board of Directors
The following table sets out the average balances of assets and liabilities, interest income/interest expense and
annualised average yield/cost ratio of the Group for the periods indicated. The average balances of interest-earning
assets and interest-bearing liabilities are the average of daily balances.
July to September 2015
October to December 2015
Annualised
Annualised
Average
Interest
average
Average
Interest
average
(in millions of RMB, except for percentages)
balance
income
yield (%)
balance
income
yield (%)
Interest-earning assets
Loans and advances
2,709,322
40,190
5.89
2,821,656
26
2.75
Net interest margin
2.45
6.29
Investments
1,174,151
48,175
4.10
873,418
37,749
4.32
Balances with the central bank
604,403
8,598
150,929
1.42
8,318
1.48
Placements with banks and
other financial institutions
498,585
18,064
3.62
603,612
31,040
5.14
Total
563,026
2,400,646
5.94
159,885
0.09
0.07
0.05
0.06
Total
100.00
100.00
100.00
100.00
100.00
5.2.3 Net interest income
In 2015, the Group's net interest income amounted to RMB136.729 billion, representing an increase of 16.66% as
compared with 2014.
The following table sets out the average balances of assets and liabilities, interest income/interest expense, and
average yield/cost ratio of the Group for the period indicated. The average balances of interest-earning assets and
interest-bearing liabilities are the average of the daily balances.
2015
2014 (restated)
(in millions of RMB, except for percentages)
Average
balance
Interest
Income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Interest-earning assets
Loans and advances
2,691,458
4,968,597
234,722
4.72
4,440,702
4.17
92,385
3,921
4.24
Borrowings from the central bank
30,612
1,056
3.45
4,000
142
3.55
Total
4,602,442
97,993
2.13
4,113,539
110,834
2.69
Net interest income
136,729
/
117,202
/
Net interest spread
2.59
7,150
2
171,336
4.44
228,036
5.14
(in millions of RMB, except for percentages)
Average Interest
balance expense
Average
cost ratio
(%)
Average
Average
balance
Interest
cost ratio
expense
(%)
Interest-bearing liabilities
Deposits from customers
3,350,298
60,448
1.80 3,056,634
64,102
2.10
Placements from banks and other financial
institutions
1,050,196
29,339
2.79
960,520
42,669
Issued debts
(332)
1,169,137
9,671
(61,081)
1,211,447
Time
0.72
6,186
864,524
0.68
39,038
6,965
Demand
Deposits from corporate customers
(%)
expense
balance
(%)
1,027,006
29
39,494
53,419
13,681
7,017
Commissions from credit commitment and loan business
4,215
4,204
Commissions from custody and other trustee businesses
18,644
13,033
Others
7,897
7,279
Fee and commission expense
(4,379)
(3,847)
Net fee and commission income
expense
Agency service fees
Average
cost ratio
Average
82,168
1,448,378
5.19
76,943
1,483,592
Corporate loans
5.67
yield (%)
balance
yield (%)
income
balance
(in millions of RMB, excluding percentages)
Average
income
Retail loans
1,087,562
78,076
Average
cost ratio
Interest
Average
balance
Loans and advances
5.59
5,131
91,772
4.04
4,866
120,304
Discounted bills
7.39
63,630
860,497
7.18
Interest
4,116
3,799
Settlement and clearing fees
11,474
5,092,787
2.87
434,934
13,736
3.16
400,385
Subtotal
1,111,845
3,350,298
14,445
60,448
1.30 1,022,973
1.80 3,056,634
16,535
1.62
64,102
Total deposits from customers
Time
0.48
2,799
41,381
3.54
Subtotal
2,238,453
46,003
2.06
2,033,661
47,567
2.34
Deposits from retail customers
Demand
711,460
2,971
0.42
588,039
2.10
Interest expense on placements from banks and other financial institutions
In 2015, the interest expense on placements from banks and other financial institutions of the Group amounted to
RMB29.339 billion, representing a decrease of 31.24% as compared with the previous year, which was primarily
attributable to the decrease in the interest rate of inter-bank borrowing.
Interest expense on issued debts
12,154
9,829
65,573
49,323
In 2015, net fee and commission income of the Group amounted to RMB53.419 billion, increased by 35.26% as
compared with that of the previous year, which was primarily attributable to the increase in agency service fees,
commissions from custody and other trustee businesses.
The following table sets forth, for the periods indicated, the principal components of net fee and commission
income of the Group.
(in millions of RMB)
2015
2014 (restated)
Fee and commission income
57,798
43,341
Bank card fees
9,562
7,692
39,494
Interest
53,419
(4,379)
In 2015, the interest expense on issued debts of the Group amounted to RMB7.150 billion, representing an increase
of 82.35% as compared with the previous year, which was primarily attributable to the increase in the volume of
issued debts.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
5.2.6 Net non-interest income
In 2015, the Group recorded a net non-interest income of RMB65.573 billion, representing an increase of
RMB16.250 billion or 32.95% as compared with the previous year. Specifically, the net non-interest income from
retail banking business amounted to RMB26.780 billion, representing an increase of 50.81% over the previous year
and accounting for 40.84% of the Group's net non-interest income; the net non-interest income from corporate
banking business amounted to RMB16.235 billion, representing a decrease of 1.99% over the previous year and
accounting for 24.76% of the Group's net non-interest income. The net non-interest income of financial institutions
business amounted to RMB14.982 billion, representing an increase of 55.66% over the previous year and accounting
for 22.85% of the Group's net non-interest income. The net non-interest income from other businesses amounted
to RMB7.576 billion, representing an increase of 40.95% over the previous year and accounting for 11.55% of the
Group's net non-interest income.
The following table sets forth, for the periods indicated, the principal components of net non-interest income of the
Group.
(in millions of RMB)
Fee and commission income
Less: Fee and commission expense
Net fee and commission income
Other net non-interest income
Total net non-interest income
5.2.7 Net fee and commission income
2015
2014 (restated)
57,798
43,341
(3,847)
Average
Average
Interest
2,400,646
5.94
159,885
2,691,458
4.50
3.22
150,929
20
IV President's Statement
In 2015, the Bank established the Internet finance development strategy of "building
service platforms, connecting to external traffic and conducting traffic operation (
¥À ·
· )”. Our open mobile finance platform has served a sizable
number of users, the APPS of Mobile Banking and CMB Life () were both
upgraded to the next generation, and the registered members and transaction volume
of Small Business E Home continued to surge. "Zhao Ying Tong ()", a financial
transaction platform for financial institutions, became the first-mover in seizing market
opportunities, and CMB-China Unicom Consumption Finance Co., Ltd. (¾Ð
A) officially opened for business. Our cooperation with third-party platforms was
also initiated during the year. At present, we have established comprehensive strategic
partnership with various Internet companies and telecommunication operators including
Didi Taxi (), China Mobile and China Unicom. Riding on the trend of online
payment, we have established "All-in-one Net", an online light account cross-bank
payment platform, and "All-in-one Mobile (-)", an offline payment platform. In
addition, we proactively embraced various cutting-edge technologies to launch the new
payment function of "cash withdrawal via face-scanning ()" and Apple Pay,
vigorously improved Internet users' experience of online payment, and timely launched
the "Free Online Transfer" service to implement inclusive finance, which received warm
applause from the public.
In 2015, in response to changes in customer and market demands, the Bank geared
up the reform of operation systems and processes, and began the second-phase
reform across the Bank based on the experience of the system reform of the first
batch of 11 pilot branches, thus further optimised the organisational structure. In
addition, we gradually promoted the streamlining of the "customer-centric" end-to-
end operation processes, constantly developed and optimised the models and tools
for risk management, thus putting risk monitoring and pre-warning management in
place, optimised the unified risk exposure management mechanism, promoted post-
disbursement management, and improved provision management, all contributing
to protection and control of asset quality in a multi-dimensional way. We carried out
inspections and audits throughout our business operation, thus effectively improved
our compliance management. We vigorously promoted the reform of human resources,
proactively implemented measures for management of assets and debts, and established
the decision-making mechanism for investment banking and asset management.
In 2015, the performance of a number of our strategic emerging businesses known
as light assets business ran in parrel with large-sized state-owned banks despite our
smaller volume of assets, thereby differentiating us from our peers in terms of the
"Asset-light Banking". We so far have received positive market response and trust
from investors. In 2015, the Bank was a frontrunner among listed banks in terms of
cumulative increase in share price and the price/book ratio of its A shares, and ranked
first in the "Top Ten of investors' Most Respected 100 Listed Companies in China".
Our achievements in 2015 were attributable to the hard work of our staff and the
unwavering support from our customers, investors and the community. On behalf of
the Bank, I would like to extend my sincere gratitude to all who care about and support
the development of the Bank.
2016 is the starting year of the "13th Five-year Plan". Facing the complicated operating
environment at home and abroad, we will continuously implement the transformation
strategies of "Asset-light Banking" and "One Body with Two Wings", respond flexibly
to the changing environment and grasp market opportunities arising from economic
restructuring, and persistently stick to organic growth which places equal emphasis
on strategic transformation and development results. We will adhere to our operation
strategies and strive to first work out a path of characterised business transformation
of Chinese commercial banks in the next three to five years.
China Merchants Bank Co., Ltd.
China Merchants Bank
Annual Report 2015
6.29
In 2015, from the perspective of the terms of loans and advances of the Company, the average balance of
short-term loans was RMB1,317.558 billion, with the interest income amounting to RMB87.863 billion, and the
average yield reaching 6.67%; the average balance of medium to long-term loans was RMB1,140.707 billion, with
the interest income amounting to RMB64.167 billion, and the average yield reaching 5.63%. The average yield of
short-term loans was higher than that of medium to long-term loans. It was mainly attributable to the relatively
higher yield of credit card overdrafts and micro enterprise loans among short-term loans.
Interest income from investments
July to September 2015
2014
2015
The following table sets forth, for the periods indicated, the average balances, interest expense and average cost
ratio for deposits from corporate and retail customers of the Group.
In 2015, the Group's interest expense on deposits from customers was RMB60.448 billion, down by 5.70% as
compared with the previous year, which was primarily attributable to the optimisation of the structure of deposits
from customers, resulting in a decrease of 0.30 percentage point in the average cost ratio as compared with the
previous year.
Interest expense on deposits from customers
In 2015, the interest expense of the Group was RMB97.993 billion, down by 11.59% as compared with the previous
year, which was primarily attributable to the decrease in the cost ratio of interest-bearing liabilities.
5.2.5 Interest expense
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
28
27
In 2015, the interest income from placements with banks and other financial institutions of the Group was
RMB18.064 billion, down by 41.80% as compared with the previous year, and the average yield for placements with
banks and other financial institutions was 3.62%, down by 1.52 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.
Interest income from placements with banks and other financial institutions
In 2015, the interest income from investments of the Group increased to RMB48.175 billion, up by 27.62% as
compared with the previous year, and the average yield of investments was 4.10%, down by 0.22 percentage point
as compared with the previous year.
President
?
Liu Yuan
Chairman of the Board of Supervisors
Provision for insurance claims
Gains on investment in associates
Gains on investment in joint ventures
Impairment losses on assets
Profit before tax
Income tax
Net profit
Net profit attributable to the Bank's shareholders
2015
136,729
2014
(restated)
117,202
53,419
39,494
12,018
(67,670)
Operating expenses
October to December 2015
Other net income
Net interest income
22
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
Report of the Board of Directors
5.1 Analysis of Overall Operation
In 2015, the domestic economy has entered the "New Normal", characterised by complicated macroeconomic
conditions, great downward pressure and frequent occurrence of risks. Under the background of economic
slowdown, interest rate liberalisation and faster opening up of the financial industry, the Group continued to
implement its transformation strategies of "Asset-light Banking" and "One Body with Two Wings", forged forward
with structural adjustments and maintained a sound development momentum, which are reflected in the following
aspects:
Slight increase in earnings. In 2015, the Group realised a net interest income of RMB136.729 billion, representing
a year-on-year increase of 16.66%; the net non-interest income was RMB65.573 billion, representing a year-on-
year increase of 32.95%; however, affected by significant increase in impairment losses on assets, the net profit
attributable to the shareholders of the Bank amounted to RMB57.696 billion, representing a year-on-year increase of
3.19%. The return on average asset (ROAA) and return on average equity (ROAE) attributable to the shareholders of
the Bank were 1.13% and 17.09%, respectively, down by 0.15 percentage point and 2.19 percentage points from
the previous year, respectively.
The balance sheet expanded steadily. As at the end of 2015, the Group's total assets amounted to RMB5,474.978
billion, representing an increase of 15.71% as compared with the beginning of the year. The total loans and
advances to customers amounted to RMB2,824.286 billion, representing an increase of 12.35% as compared with
the beginning of the year. Total liabilities of the Group amounted to RMB5,113.220 billion, representing an increase
of 15.77% as compared with the beginning of the year. Total deposits from customers amounted to RMB3,571.698
billion, representing an increase of 8.09% as compared with the beginning of the year.
The non-performing loans increased while the allowance coverage ratio remained stable. As at the end of 2015, the
Group had a balance of non-performing loans of RMB47.410 billion, representing an increase of RMB19.493 billion
as compared with the beginning of the year. The non-performing loan ratio was 1.68%, up by 0.57 percentage
point as compared with the beginning of the year. The non-performing loan allowance coverage ratio was 178.95%,
representing a decrease of 54.47 percentage points as compared with the beginning of the year.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
23
5.2 Analysis of Income Statement
5.2.1 Financial highlights
(in millions of RMB)
Net fee and commission income
(287)
Annualised
Average
35,570
35,055
Net interest income
1.88
22,255
4,688,513
Net interest spread
1.94
4,806,177
Total
3.37
380
44,677
3.40
23,483
2.56
2.62
2.70
Average
2014 (restated)
2015
The following table sets forth, for the periods indicated, the average balances, interest income and average yield of
different types of loans and advances of the Group.
In 2015, the interest income from loans and advances of the Group was RMB159.885 billion, representing an
increase of 5.93% as compared with the previous year.
Interest income from loans and advances
In 2015, the Group recorded an interest income of RMB234.722 billion, representing an increase of 2.93% as
compared with that of the previous year, mainly due to the increase in the volume of interest-earning assets. Interest
income from loans and advances continued to be the biggest component of the interest income of the Group.
5.2.4 Interest income
V Report of the Board of Directors
(in millions of RMB, excluding percentages)
China Merchants Bank
Annual Report 2015
In the fourth quarter of 2015, the net interest margin of the Group was 2.77%, up by 7 basis points as compared
with the third quarter of 2015.
In the fourth quarter of 2015, the net interest spread of the Group was 2.62%, up by 6 basis points as compared
with the third quarter of 2015. The annualised average yield of the interest-earning assets was 4.50%, unchanged
as compared with the third quarter of 2015 while the annualised average cost ratio of interest-bearing liabilities was
1.88%, down by 6 basis points as compared with the third quarter of 2015.
Net interest margin
2.77
238
27,804
Borrowings from the central bank
3.58
3,473,271
Deposits from customers
Interest-bearing liabilities
(in millions of RMB, except for percentages)
cost (%)
expense
balance
cost (%)
expense
balance
average
Interest
Average
average
Interest
14,859
Annualised
1.70
13,413
2,095
232,183
4.62
1,796
154,120
Issued debts
2.50
6,367
1,010,954
2.27
6,590
1,150,982
institutions
Placements from banks and other financial
1.56
3,400,699
57,825
Off-balance sheet:
299
112
31
661
426
354
1,494
868
(4)
(2)
Any significant balances and transactions between the Bank and its subsidiaries have been offset in the consolidated
financial statements.
(h) Key management personnel
117
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.
Discretionary bonuses (Note 8(i))
Share-based payment
Contributions to defined contribution retirement schemes
2015
RMB'000
2014
RMB'000
(Note 8)
46,236
42,534
14,751
- Loans and advances to customers
On-balance sheet:
Salaries and other emoluments
The Bank's largest shareholder CMSNCL and its related companies hold 29.97% (2014: 20.00%) shares of the Bank
as at 31 December 2015 (among them 13.04% shares is held by CMSNCL (2014: 12.54%)). The Group's transactions
and balances with CMSNCL and its related companies are disclosed as follows:
3,269
Net fee and commission
2,439
- Placements with banks and other financial institutions
28,102
29,826
- Loans and advances to customers
325
310
- Investments
440
440
- Deposits from banks and other financial institutions
Other net income
13,497
- Placements from banks and other financial institutions
93
164
- Deposits from customers
1,657
1,374
Off-balance sheet
- Irrevocable guarantees
- Bills of acceptances
Interest income
Interest expense
18,688
(c)
Shareholders and their related companies
There were no individually assessed allowances for impairment losses made against loans and advances granted to
related parties during the year.
%
RMB
%
HKD
%
RMB
%
CMFM
WLB
CMBFLC
CMBICHC
HKD
At 1 January 2015
Change
%
CMSNCL
The subsidiaries held by the Bank
The Bank held by
the largest shareholder
The change of proportion of the Bank held by the largest shareholder and the portion of the subsidiaries
held by the Bank
RMB210,000,000
CMFM
RMB210,000,000
HKD1,160,950,575
HKD1,160,950,575
RMB6,000,000,000
RMB6,000,000,000
RMB
3,162,424,323
12.54 1,000,000,000 100.00
127,046,014 0.50
6,000,000,000
5.60% p.a.
6.00% to 6.15% p.a.
0.35% p.a.
2.35% to 4.00% p.a.
2014
2015
4.35% p.a.
4.75% to 4.90% p.a.
0.35% p.a.
1.10% to 2.75% p.a.
Time deposits
Demand deposits
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)
Annual Report 2015
XII Financial Statements
China Merchants Bank
294
293
55.00
115,500,000
100.00 1,160,950,575 100.00
6,000,000,000
3,289,470,337 13.04 1,000,000,000 100.00
At 31 December 2015
55.00
115,500,000
100.00
100.00 1,160,950,575
5,588
- Balances with banks and other financial institutions
2014
2015
6
China Merchants Bank
Annual Report 2015
XII Financial Statements
56 Material related-party transactions (continued)
(d) Companies controlled by directors and supervisors other than those under Note
56(c) above
2015
2014
On-balance sheet:
- Loans and advances to customers
- Investments
- Deposits from customers
37
Off-balance sheet:
Interest income
Interest expense
6,110
8,390
1,425
2,149
30,929
10,454
1,076
1,320
220
- Irrevocable guarantees
Other net income
175
580
- Irrevocable guarantees
2015
2014
5,124
4,395
12,346
- Investments
119,679
40,038
1,849
1,237
-
- Irrevocable letters of credit
- Bills of acceptances
93
1,186
58
47
Interest income
Interest expense
496
318
1,151
487
Net fee and commission income
200
HKD1,000,000,000
737
Net fee and commission income
Interest income
Interest expense
Net fee and commission income
2015
2014
1,700
200
10,287
3,520
6,000
6,000
- Irrevocable guarantees
9
20
13
915
71
295
296
China Merchants Bank
Annual Report 2015
XII Financial Statements
56 Material related-party transactions (continued)
(g) Subsidiaries
On-balance sheet
6
Off-balance sheet:
- Deposits from customers
- Investments
204
144
Other net income
1
(e) Associates and joint ventures other than those under Note 56(c) above
2015
2014
On-balance sheet:
-
– Loans and advances to customers
5
7
-
Deposits from customers
442
102
Interest expense
36
4
Net fee and commission income
454
349
(f)
Other shareholders holding more than 5% shares
On-balance sheet:
546
HKD1,000,000,000
RMB4,300,000,000
RMB5,900,000,000
The following table sets out an analysis of the carrying amounts of interests held by the Group as at 31 December
2015 and 31 December 2014 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 2015 and 31 December 2014 in which assets are
recognised relating to the Group's interests in structured entities sponsored by third parties:
Wealth management products
Asset management schemes
Trust beneficiary rights
Asset backed securities
Investment in funds
Wealth management products
Asset management schemes
Trust beneficiary rights
Asset backed securities
Investment in funds
2015
Carrying amount
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.
Amounts
held under
resale
Debt
agreements
for-sale Held-to- securities
financial maturity classified as
assets investments receivables
Total
exposure
11,381
10,693
2,773
2,672
300
606,424
78,067
118
300
617,805
Available-
(a) Interest in the structured entities sponsored by third party institutions
59 Interests in unconsolidated structured entities
XII Financial Statements
China Merchants Bank
Annual Report 2015
290
9,556
15,169
5,475
5,427
61,267
77,881
The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note
37(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.
China Merchants Bank
Annual Report 2015
XII Financial Statements
56 Material related-party transactions (continued)
(i)
Annuity scheme
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
2015 and 31 December 2014.
57 Non-controlling interests
Non-controlling interests represent the interests that the Group does not hold in the non-wholly owned subsidiaries.
There is no subsidiary of the Group which has material non-controlling interests during the reporting period.
58 Transfer of financial assets
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 trusts. 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.
Securitisation of credit assets
The Group sells the credit assets to special purpose trust, and then the special purpose trust issues the assets backed
securities to investors.
The Group's book value of securitised credit assets on transfer day is RMB47,565 million for the year ended 31
December 2015. The asset value of senior tranches of securitisation of credit assets is RMB898 million at Group
level. The asset value of subordinated tranches of securitisation of credit assets is RMB194 million at Group level.
297
298
China Merchants Bank
Annual Report 2015
300
617,805
XII Financial Statements
88,760
5,563
292,976
292,976
112,038
175,522
175,522
108,976
2,135
317
2,452
1,367
3,502
3,502
317
247,484
317
365,662
478,457
478,457
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.
China Merchants Bank
Annual Report 2015
XII 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. 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 2015, the amount of the unconsolidated non-principal-guaranteed wealth management
products, which are sponsored by the Group, is RMB1,820,694 million (2014: RMB831,473 million).
As at 31 December 2015, the balance of reverse repurchase transactions and money market placement between
the Group and its non-principal-guaranteed wealth management products, which are sponsored by the Group, is
RMB208,150 million (2014: RMB117,333 million) and RMB5,723 million (2014: RMB11,470 million) respectively. The
above transactions were made in accordance with normal business terms and conditions.
During the year of 2015, the amount of fee and commission income received from such category of
non-principal-guaranteed wealth management products by the Group is RMB7,728 million (2014: RMB5,373 million).
The total amount of non-principal-guaranteed wealth management products issued by the Group after 1 January
2015 with a maturity date before 31 December 2015 was RMB2,622,189 million (2014: RMB2,420,525 million).
1,367
45,492
63,484
6,140
6,140
5,563
22,074
992
3,765
992
992
2,672 684,909
713,420
713,420
2014
Carrying amount
Amounts
held under
resale
agreements
Available-
for-sale
financial
assets
Debt
Held-to-
securities
maturity classified as
Maximum
investments
receivables
Total
exposure
6,140
88,760
- Deposits from customers
55 Significant accounting estimates and judgements
(a) Impairment losses on loans and receivables
China Merchants Shenzhen RMB210 million
Fund
Tian Huiyu
Limited
company
Subsidiary
100% Banking
Hong Kong HKD1,161 million
Wing Lung Bank
Limited (WLB)
company
Leasing Company
Limited (CMBFLC)
Lian Bolin
Limited
55% Asset Management
Subsidiary
Shanghai RMB6,000 million
CMB Financial
(CMBICHC)
Limited
Corporation
Capital Holdings
company
Tian Huiyu
Limited
100% Financial advisory services Subsidiary
CMB International Hong Kong HKD1,000 million
100% Finance lease
Subsidiary
Limited
Li Hao
RMB11,550,000,000
RMB13,750,000,000
2015
WLB
CMBFLC
CMBICHC
CMSNCL
CMG
2014
Name of related party
The change of the registered capital of each company
Unfulfilled administrative procedures of the acquisition: (a) The concentration of operators caused by the acquisition
requires review and reply from the Ministry of Commerce, and a reply of "not prohibited" should be obtained. (b)
Matters related to the change of major shareholders' holding proportion caused by the acquisition are subject to the
review of CBRC. (c) CMG should apply to the China Securities Regulatory Commission for an exemption from the
obligation to make a general offer.
On 28 December 2015, the State-owned Assets Supervision and Administration Commission of the State Council
(the "SASAC of the State Council") issued an approval letter approving that Sinotrans & CSC Holdings Co., Ltd.
("Sinotrans & CSC") be allocated into CMG at nil consideration. On 24 February 2016, the Enterprise Property Right
Registration form of Sinotrans & CSC was confirmed by the SASAC of the State Council, confirmed that CMG is
registered as the promoter of Sinotrans & CSC. The shares of the Bank held by Sinotrans & CSC and its subsidiary
Wuhan Changjiang Shipping Company ("Wuhan Changjiang Shipping") are indirectly held by CMG (the "Change in
Shareholding"), which lead to an aggregate of over 30.00% of the total share capital of the Bank are hold by CMG,
with the completion of changes in equity, CMG (including Sinotrans and Wuhan Changjiang Shipping) can control
the actual shares of the a total of 30.06%. In accordance with the "Administrative Rules on Acquisition of Listed
Company", investor can actually control over 30% of the voting rights of the listed entity, will have the control of
the listed entity.
(iii)
(a) Material connected person information (continued)
56 Material related-party transactions (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
(ii) As the largest shareholder, CMSNCL who is the subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2015 (2014: 12.54%).
CMG holds 29.97% of the Bank (2014: 20.00%) through its subsidiaries.
(i)
Notes:
Co., Ltd (CMFM)
Management
company
agency services
(continued)
and distribution, shipping
Joint stock
limited
company
292
291
The Group uses judgement to assess whether the Group has a present legal or constructive obligation as a result of
past events at each financial reporting date, and judgement is used to determine if it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and to determine a reliable estimate
of the amount of the obligation.
(h) Provisions
Estimation of the ultimate cost of certain liability claims can be a complex process. There are several sources of
uncertainty that need to be considered in the estimating of the liability that the Group will ultimately pay for such
claims. In particular, the claims arising from the employees' compensation and other liability policies can be longer
in tail and difficult to estimate. The Group has appointed an independent actuary to estimate the claim liabilities
using established actuarial methodologies. The methodologies are statistical in nature and can be affected by various
factors. The more significant factors that can affect the reliability of the liability estimation include jurisprudence
that can broaden the intent and scope coverage of the protections offered in the insurance contracts issued by
the Group, the extent to which actual claim results differ from historical experience and the time lag between the
occurrence of the event and the report of such claim to the Group.
The estimation of the ultimate liability arising from claims made under insurance contracts is one of the Group's
critical accounting estimates. Estimates and judgements are continually evaluated and based on historical experience
and other factors, including expectations of loss events that have been incurred but not reported ("IBNR") to the
Group as of the end of the reporting period. The estimation of IBNR claims is generally subject to a greater degree
of uncertainty than the estimation of the cost of settling claims already notified to the Group, where information
about the claim events is available. IBNR claims may not be apparent to the insured until many years after the event
that gives rise to the claim has happened.
(g) Ultimate liability arising from claims made under insurance contracts
Actuarial assumptions are made in valuing future pension obligations as set out in Note 37(b). There is uncertainty
that these assumptions will hold true in the future. They are reviewed periodically and are updated where necessary.
Defined benefit plan
(f)
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.
China Merchants Bank
Annual Report 2015
(e) Income taxes
55 Significant accounting estimates and judgements
XII Financial Statements
China Merchants Bank
Annual Report 2015
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.
(d) 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.
Fair value of financial instruments
(c)
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.
(b) Impairment of available-for-sale financial assets
Loan portfolios are assessed periodically to assess whether impairment losses exist and the amounts of impairment
losses if they do. Objective evidence for impairment includes observable data indicating that there is a significant
decrease in the estimated future cash flows from an individual loans and receivables. Objective evidence for
impairment is described in accounting policy 2(n)(i). The impairment loss for a loans and receivables that is
individually evaluated for impairment is the decrease in the estimated future cash flow of that loans and receivables.
When loans and receivables are collectively evaluated for impairment, the estimate is based on historical loss
experience for assets with credit risk characteristics similar to the loans and receivables. Historical loss experience is
adjusted on the basis of the relevant observable data that reflect current economic conditions. Management reviews
the methodology and assumptions used in estimating future cash flows regularly to reduce any difference between
loss estimates and actual loss experience.
(continued)
XII Financial Statements
56 Material related-party transactions
(a) Material connected person information
The largest
shareholder
- Transportation, building
and repair, procurement,
supply chain management
Company Limited
(CMSNCL)
13.04%
(Note (ii))
Steam Navigation
RMB5,900 million
China Merchants Beijing
parent
company
Li Jianhong
Limited
company
shareholder's
The largest
with the Bank Legal form representative
Legal
relationship
the
operating management
service
Transportation, shipping
agency, warehousing
and storage, leasing,
manufacturing building
and facility, repair and
contracting, sales
29.97%
(Note (i)&(iii))
RMB13,750 million
Proportion Proportion of
of the Bank the Company
held by
held by
the Company
the Bank Business
paid capital
Company name location
China Merchants Beijing
Group (CMG)
Registered Issued and fully
The Bank's largest shareholder and its parent company and the Bank's subsidiaries.
Li Jianhong
5,282
Maximum
16,275
Less: Adjustments for conversion to credit equivalent amounts
(510,979)
Balance of adjusted off-balance sheet assets
791,776
Net tier 1 capital
347,444
Balance of adjusted on-balance sheet and off-balance sheet assets
6,275,592
Leverage ratio
5.54%
305
306
China Merchants Bank
Annual Report 2015
XII Financial Statements
(C) Liquidity Coverage Ratio
In accordance with CBRC's Administrative Measures on Liquidity Coverage Ratio of Commercial Banks effective on
31 December 2015, the Group's liquidity coverage 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. For the quarter
ended 31 December 2015, the Group's liquidity coverage ratio was as follows:
Quarter ended 31 December 2015
High quality liquid assets
Total high quality liquid assets (HQLA)
Cash outflows
Unweighted
amount
(Average value)
Weighted
amount
(Average value)
655,927
Retail deposits and small business funding, of which:
Stable deposits
1,616
81
Less stable deposits
1,302,755
Off-balance sheet exposure at gross notional amount
223,989
Total securities financing transaction exposures
6,275,592
China Merchants Bank
Annual Report 2015
XII Financial Statements
(B) Leverage Ratio (continued)
Leverage ratio, net tier-1 capital, on-balance sheet and off-balance sheet exposures and other information:
2015
On-balance sheet items (excluding derivatives and securities financing
transactions (SFT))
5,251,604
Less: Asset amounts deducted in determining Basel III Tier 1 capital
(12,765)
Balance of adjusted on-balance sheet assets (excluding derivatives and SFTs)
5,238,839
Replacement cost associated with all derivatives transactions
(net of eligible cash variation margin)
1,370,543
9,780
Add-on amounts for potential future exposure associated with all derivatives transactions
Gross-up for derivatives collateral provided where deducted from the
balance sheet assets
Less: Deductions of receivables assets for cash variation margin
provided in derivatives transactions
Less: Exempted central counterparty leg of client-cleared trade exposures
Effective notional amount of written credit derivatives
Less: Adjusted effective notional deductions for written credit derivatives
Total derivative exposures
46
20,989
Gross SFT assets (with no recognition of netting), after adjusting for
sale accounting transactions
210,481
Less: Netted amounts of cash payables and cash receivables of gross SFT assets
Counterparty credit risk exposure for SFT assets
13,508
Agent transaction exposures
11,163
Balance of adjusted on-balance sheet and off-balance sheet assets
137,054
Business relations deposits(excluding correspondent banks operations)
Total cash inflows
112,525
68,016
872,219
Adjusted value
TOTAL HQLA
655,927
TOTAL NET CASH OUTFLOWS
LCR (%) (i)
578,360
113.61%
Note:
(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 2015
XII Financial Statements
(D) Currency concentrations other than RMB
Non-structural position
USD
2015
HKD
Others
Total
(in millions of RMB)
Spot assets
376,968
175,507
Spot liabilities
(165,555)
Other cash inflows
530,114
1,151,766
Cash inflows from fully honoured payments
1,037,960
257,764
Non-business relations deposits (including all the counterparties)
1,448,892
920,230
Liabilities and obligations arising from unsecured funding
Secured funding
1,548
1,548
25,408
Additional requirements, of which:
Cash outflows arising from derivative contracts and other
transactions arising from related collateral requirements
Cash outflows arising from secured debt instruments funding
23,219
22,975
108
Unsecured wholesale funding, of which:
108
430,248
24,691
42,267
42,267
Other contingent funding obligations
912,536
18,453
Total cash outflows
1,450,579
Cash inflows
Secured lending transactions (including reverse
repurchase agreements and securities borrowed)
274,089
274,089
Committed credit facilities and committed liquidity facilities
Other contractual lending obligations
(132,478)
(12,766)
13,508
Capital adequacy ratio
Components of capital base
Core tier-1 capital:
2015
2014
10.83%
10.44%
10.83%
10.44%
12.57%
12.38%
Qualifying portion of share capital
25,220
25,220
Qualifying portion of capital reserve
73,889
69,227
Surplus reserves
33,981
28,664
Regulatory general reserve
64,680
53,979
Retained profits
162,405
137,910
Qualifying portion of non-controlling interests
329
288
Tie-1 capital adequacy ratio
Core tier-1 capital adequacy ratio
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:
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.
4,491,115
Approved and authorized for issue by the Board of Directors on 30 March 2016.
Li Jianhong
Tian Huiyu
Company Chop
Director
Director
301
302
China Merchants Bank
Annual Report 2015
XII Financial Statements
61 Possible impact of amendments, new standards and
interpretations issued but not yet effective for the
year ended 31 December 2015
Up to the date of issue of the financial statements, the IASB has issued the following amendments, new standards
and interpretations which are not yet effective for the year ended 31 December 2015 and which have not been
adopted in these financial statements.
IFRS 9, Financial instruments
Others (note (i))
IFRS 15, Revenue from Contracts with Customers
1 January 2018
1 January 2017
So far the Group has concluded that the adoption of other standards is unlikely to have a significant impact on its
operating results and financial position, except for IFRS 9 "Financial instruments". Since the Group is in the process
of making an assessment on overall impact of IFRS 9, the Group cannot quantify the impact on its operating results
and financial position.
62 Non-adjusting events after the reporting period
Save as otherwise disclosed in Note 22, Note 46(b) and Note 56(a), 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 financial statements.
63 Comparative figures
During the financial year, the Bank has reclassified the credit card holder instalment income from commission
revenue to interest revenue, and has adjusted the corresponding contemporary comparison figures.
In 2015, CBRC reclassified the National Development Bank from commercial banks and other financial institutions to
policy banks, the corresponding investments are reclassified, comparative figures in Note 21 has been adjusted.
Equity listed in the Bank's statement of financial position (Note 60) is restated for the early adoption of the
Amendments to IAS 27 "Separate Financial Statements - Equity Method in Separate Financial Statements" (Note
2(b)).
China Merchants Bank
Annual Report 2015
XII Financial Statements
Unaudited Supplementary Financial Information
(Expressed in millions of Renminbi unless otherwise stated)
(A) Capital adequacy ratio
Effective for accounting periods
beginning on or after
791,776
(304)
Total core tier-1 capital
358,334
3,208,152
2,893,732
Note (i): Others represent exchange reserve of foreign currency financial statements under CBRC's Administrative Measures on the Capital of Commercial
Banks (Trial).
Note (ii): The Group's other tier-1 capital is qualifying portion of non-controlling interests.
303
304
China Merchants Bank
Annual Report 2015
XII Financial Statements
(A) Capital adequacy ratio (continued)
In 2015, in accordance with the advanced capital management approach approved by CBRC in April 2014, the Bank
calculated core tier-1 capital adequacy ratio is 10.38%, tier-1 capital adequacy ratio is 10.38%, capital adequacy
ratio is 12.15%, net capital is RMB360,460 million and total risk-weighted assets is RMB2,966,543 million.
In 2015, 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 9.93%, tier-1 capital adequacy ratio is 9.93%, capital adequacy ratio is 11.91%, net capital is
RMB416,834 million and total risk-weighted assets is RMB3,499,231 million.
In 2015, 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 9.44%, tier-1 capital adequacy ratio is 9.44%, capital adequacy ratio is 11.46%, net capital is
RMB373,866 million and total risk-weighted assets is RMB3,261,357 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
but outside the scope of regulatory consolidation
Adjustments for fiduciary assets
Adjustments for derivative financial instruments
Adjustment for securities financing transactions
Adjustment for off-balance sheet items
Other adjustments
2015
5,474,978
(2,717)
10,813
403,409
56,352
55,965
Total risk-weighted assets
360,200
313,980
Regulatory deductions from core tier-1 capital
12,766
12,003
Net core tier-1 capital
347,434
301,977
Other tier-1 capital (Note (ii))
10
5
Net tier-1 capital
347,444
301,982
(1,308)
Tier-2 capital:
30,000
30,000
Surplus provision for loans impairment
24,006
24,190
Qualifying portion of non-controlling interests
1,959
2,162
Total tier-2 capital
55,965
56,352
Regulatory deductions from core tier-2 capital
Net tier-2 capital
Net capital
Qualifying portion of tier-2 capital instruments and their premium
36,928
(74,897)
589,403
(372,930)
Forward purchased
Manufacturing
318,679
43
342,005
41
Wholesale and retail
236,513
59
259,298
51
Property development
175,912
76
143,952
80
Transportation, storage and postal services
145,473
38
140,548
37
Production and supply of electric power,
heating power, gas and water
109,942
46
98,514
49
Construction
96,387
38
other security
Amount
other security
Amount
19,040
74,570
60,718
154,328
2,971
213
19,459
8,303
1,438
3,131
12,872
86,079
103,233
232,576
98,350
421,888
XII Financial Statements
(F) Further analysis on loans and advances to customers
analysed by industry sector
Operation in Mainland China
2015
% of gross
loans and
advances
2014
% of gross
loans and
advances
covered by
covered by
collateral or
collateral or
China Merchants Bank
Annual Report 2015
175,766
Leasing and commercial services
41
Credit cards
312,985
219,621
Micro-finance loans
308,973
92
336,924
Others
96,828
89
78,731
Retail loans and advances
1,210,076
71
956,700
Gross loans and advances to customers
2,653,747
61
2,340,361
ཁམས བ 8༅ &$ཁ ཥ
32
25
41
47
100
100
89
94
73
321,424
100
491,290
Residential mortgage
49,343
43
Mining
52,178
43
61,179
7724
40
44
Water, environment and public utilities
management
33,431
32
30,328
80,788
Telecommunications, software and IT services
38
20,092
Others
76,477
46
65,045
Corporate loans and advances
1,353,856
49
1,308,654
Discounted bills
89,815
100
75,007
28,076
63,951
81,319
30,496
Spot liabilities
(299,403)
(211,982)
(28,423)
536,915
(539,808)
Forward purchased
429,980
178,230
50,907
659,117
Forward written
(439,124)
(79,240)
(49,483)
(567,847)
Net option position
151
7
(674)
(516)
Net long position
Net structural position
51,742
33,366
2,753
87,861
22
32,713
2
30,426
146,351
360,138
Spot assets
495,820
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)
32,737
Net long position
52,370
(1,477)
261,032
Net structural position
537
19,295
19,832
2014
USD
HKD
Others
Total
(in millions of RMB)
Non-structural position
210,139
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
129,176
252,299
46,499
32,795
119,656
198,950
12,825
2,510
15,335
21,193
1,267
26,743
49,203
163,906
33,014
37,444
470,568
2014
Banks and
Public
other financial
sector
institutions
entities
Others
Total
44,309
4,201
165,281
213,791
269,218
5,208,037
90,109
110,789
Investments in subsidiaries.
307
308
China Merchants Bank
Annual Report 2015
XII Financial Statements
(E) International claims
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.
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.
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.
Foreign currencies transactions in Mainland China
Asia Pacific excluding Mainland China
- of which attributed to Hong Kong
Europe
North and South America
153,731
Foreign currencies transactions in Mainland China
- of which attributed to Hong Kong
Europe
North and South America
2015
Banks and
Public
other financial
sector
institutions
entities
Others
Total
39,779
3,163
Asia Pacific excluding Mainland China
59
311,251
Total equity and liabilities
Other assets
Deferred tax assets
Intangible assets
Investment properties
Property and equipment
Interest in joint ventures
Total assets
Investments in subsidiaries
254,708
351,704
Held-to-maturity investments
262,942
276,846
Available-for-sale financial assets
Debt securities classified as receivables
8,346
715,864
40,664
5,208,037
8,434
9,388
9,962
15,626
2,279
408,504
2,596
535
23,510
24,091
1,223
1,391
39,664
581
9,607
Derivative financial assets
37,218
15,176
16,099
14,290
13,783
Balances with central bank
Precious metals
543,228
Assets
Cash
2015
60 The Bank's statement of financial position
XII Financial Statements
China Merchants Bank
Annual Report 2015
300
352,041
2014
(Restated)
630,661
Balances with banks and other financial institutions
55,927
54,960
Financial assets at fair value through profit or loss
22,411
23,648
Interest receivable
2,222,388
2,506,618
Loans and advances to customers
343,955
342,928
Amounts held under resale agreements
137,848
202,534
Placements with banks and other financial institutions
47,015
4,491,115
China Merchants Bank
Annual Report 2015
309
60 The Bank's statement of financial position (continued)
76,681
25,220
25,220
48(a)
Surplus reserve
Hedging reserve
76,681
Investment revaluation reserve
Share capital
Equity
4,179,864
4,855,996
27,843
53,441
Capital reserve
5,769
1,673
241
XII Financial Statements
Total equity
2
Exchange reserve
16,897
17,402
109,043
128,791
Proposed profit appropriations
Retained profits
53,208
63,928
Regulatory general reserve
34,009
(163)
11,105
12,100
28,690
Other liabilities
66,075
185,285
40,059
112,659
700,042
702,862
Deposits from customers
20,000
Borrowing from central bank
Liabilities
2014
(Restated)
Total liabilities
Note
2015
62,600
3,421,403
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
Amounts sold under repurchase agreements
Interest payable
5,363
3,158,746
Salaries and welfare payable
84,559
5,367
Debt securities issued
9,266
235,854
Derivative financial liabilities
12,929
19,786
Financial liabilities at fair value through profit or loss
Tax payable
43,873
37,559
7,084
13,876
9,381
Residential mortgage
4,423
2,258
5,769
2,599
129
Credit card
9,974
4,744
8,502
7,079
7,406
10,490
4,292
6,886
11,211
5,166
Micro-finance loans
5,990
during
10,279
1,563
and advances
Impaired loans
and advances
Individually
assessed
impairment
Collectively
assessed
impairment
statement of
profit or loss
Impaired loans
and advances
written off
allowance
allowance
the year during the year
Manufacturing
Wholesale and retail
24,338
15,237
4,551
15,541
20,689
15,862
14,615
6,556
2014
870
losses charged to
2,761
8,231
6,663
3,427
Residential mortgage
3,015
Overdue loans
3,273
476
6,547
276
9,610
3,612
8,458
4,796
2,884
Credit card
6,574
2,064
3,227
Micro-finance loans
10,686
5,550
9,633
consolidated
Overdue loans
Impaired loans
Individually
assessed
impairment
Collectively
assessed
impairment
statement of
profit or loss
Impaired loans
during
and advances
and advances
allowance
allowance
the year
and advances
written off
during the year
Manufacturing
Wholesale and retail
14,639
9,627
4,753
11,055
Impairment
to consolidated
Residential mortgage
2015
% of gross
advances
loans and
% of gross
2014
2015
Operation outside Mainland China
(F) Further analysis on loans and advances to customers
analysed by industry sector (continued)
XII Financial Statements
China Merchants Bank
Annual Report 2015
310
7,925
61
Manufacturing
13,468
46
18,265
44
Recreational activities
3,627
41
loans and
431
advances
covered by
collateral or
Transport and transport equipment
86
42,097
95
14,860
Wholesale and retail
67
36,031
53
37,168
Property development
68
29,410
54
46,585
Financial concerns
other security
Amount
other security
Amount
collateral or
covered by
Impairment
losses charged
96
2,025
99
Others
6,397
52
4,717
53
Retail loans and advances
16,625
80
14,627
83
Gross loans and advances to customers
170,539
62
62
173,558
71
China Merchants Bank
Annual Report 2015
XII Financial Statements
(F) Further analysis on loans and advances to customers
analysed by industry sector (continued)
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:
1,889
Information technology
97
Micro-finance loans
28
2,221
83
Others
22,305
70
22,551
68
Corporate loans and advances
153,914
60
158,931
70
2,110
8,165
100
7,754
100
Credit cards
259
267
1,804
977
25,224
312
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.
(i)
(ii)
Strategy Committee
Main authorities and duties of the Strategy Committee are:
to formulate the operational goals and medium-to-long term development strategies of the Bank, and
make an overall assessment on strategic risks;
to consider material investment and financing plans and make proposals to the Board of Directors;
to supervise and review the implementation of the annual operational and investment plans;
to evaluate and monitor the implementation of Board resolutions; and
Board committees
to make recommendations and proposals on important issues for discussion and determination by the
Board of Directors.
Main authorities and duties of the Audit Committee are:
to propose the appointment or replacement of external auditors;
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;
to coordinate the communication between internal auditors and external auditors;
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;
to examine the internal control system of the Bank, and make recommendations for improvement in
the internal control of the Bank;
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
any other task delegated by the Board of Directors.
Audit Committee
(J) Corporate governance
XII Financial Statements
China Merchants Bank
Annual Report 2015
overdue more than 90 days
Rescheduled loans and advances overdue
less than 90 days
2015
% of total loans
and advances
2014
% of total loans
and advances
0.16%
996
0.04%
2,506
0.09%
534
0.02%
2,025
0.07%
462
0.02%
The amount of the Group's rescheduled loans and advances to financial institutions as at 31 December 2015 was 1
million (2014: 1 million).
(1) Non-bank Mainland China exposures
The Bank is a commercial bank incorporated in the Mainland with its banking business primarily conducted in the
Mainland. As of 31 December 2015 and 31 December 2014, most of the Bank's exposures arose from businesses
with Mainland non-bank institutions or individuals. Analyses of various types of exposure by counterparty have been
disclosed in the notes to the financial report.
(iii)
- rescheduled loans and advances
Related Party Transactions Control Committee
to identify connected persons of the Company according to relevant laws and regulations;
to review the regulations and policies in respect of remuneration of the Bank; and
any other task delegated by the Board of Directors.
Nomination Committee
Main authorities and duties of the Nomination Committee are:
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;
to study the standards and procedures for selection of directors and senior management, and make
recommendations to the Board of Directors;
to conduct extensive searches for qualified candidates for directors and senior management;
to conduct preliminary examination on the candidates for directors and senior management and make
recommendations to the Board of Directors; and
any other task delegated by the Board of Directors.
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;
http
://www.cmbchina.com
: China Merchants Bank Tower, No 7088,
Shennan Boulevard, Shenzhen, China
: (0755) 83198888
Tel
Fax
: (0755) 83195555
Postcode
518040
Add
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
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 the announcements on related party transactions of the Bank.
315
316
China Merchants Bank
Annual Report 2015
XII Financial Statements
(J) Corporate governance (continued)
Board committees (continued)
(iv)
Risk and Capital Management Committee
(v)
(vi)
Main authorities and duties of the Risk and Capital Management Committee are:
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;
to make regular assessment on the risk policies, management status, risk-withstanding ability and
capital status of the Bank;
to perform relevant duties under the advanced capital measurement method pursuant to the
authorisation given by the Board of Directors;
to submit proposals on perfecting the management of risks and capital of the Bank;
to arrange and instruct risk prevention works in accordance with the authorisation of the Board of
Directors; and
any other task delegated by the Board of Directors.
Main authorities and duties of the Related Party Transactions Control Committee are:
Less:
4,531
customers
Western region
8,196
2,207
Subsidiaries
1,505
835
Total
44,972
(ii)
3,851
By overdue period
been overdue with respect to either principal or
interest for periods of:
2015
2014
- between 3 and 6 months (inclusive)
13,798
10,295
- between 6 and 12 months (inclusive)
18,449
9,247
Gross loans and advances to customers which have
9,041
Central region
1,717
China Merchants Bank
Annual Report 2015
XII Financial Statements
(G) Overdue loans and advances to customers
(i)
By geographical segments
2015
2014
Headquarters
4,525
2,237
Yangtze River Delta region
9,430
8,262
Bohai Rim region
3,471
2,459
Pearl River Delta and West Coast region
5,841
3,656
Northeast region
2,963
- over 12 months
12,725
5,682
Total
16,817
8,647
28,155
16,577
18,790
9,384
13,217
8,336
The amount of the Group's overdue loans and advances to financial institutions as at 31 December 2015 was RMB11
million (2014: RMB1 million).
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.
313
314
China Merchants Bank
Annual Report 2015
XII Financial Statements
(H) Rescheduled loans and advances to customers
Rescheduled loans and advances to
2014
311
2015
Provision of overdue loans and advances for
44,972
25,224
As a percentage of total gross loans and advances:
- between 3 and 6 months (inclusive)
0.49%
0.41%
- between 6 and 12 months (inclusive)
0.65%
0.37%
- over 12 months
Total
0.45%
0.23%
1.59%
1.01%
China Merchants Bank
Annual Report 2015
XII Financial Statements
(G) Overdue loans and advances to customers (continued)
(iii) Collateral information
Unsecured portion of overdue loans and advances
Value of collaterals held against overdue loans and advances
which impairment losses are individually assessed
Secured portion of overdue loans and advances
66
33,022
27.96
278,526
20.83
299,559
Available-for-sale financial assets
0.94
9,315
0.71
10,176
Held-to-maturity investments
Derivative financial assets
7,168
0.57
8,272
Financial assets designated at fair value through
profit or loss
3.31
3.53
50,809
Percentage of
the total (%)
Amount
0.72
Percentage of
the total (%)
353,137
259,434
Bonds issued by the PRC government
(restated)
2014
31 December
31 December
2015
(in millions of RMB)
The following table sets forth the components of the portfolio of financial assets held for trading of the Group.
As at 31 December 2015, the net value of financial assets held for trading of the Group was RMB50.809 billion,
representing an increase of 53.86% as compared with that at the end of the previous year. Such investments
were made mainly to seize the opportunities of transactions in the bond market. In 2015, China's macro-economy
growth and inflation continued to hit new lows, and the acceleration of IPOs and the replacement of local debts
posed impact on short-term liquidity and medium and long-term asset allocation demands, respectively. Under this
situation, the central bank lowered the deposit reserve ratios and the lending benchmark interest rates appropriately
to replenish market liquidity, and completed the full process of interest rate liberalisation. The interbank market
interest rates continued the downward trend shown in 2014, in which the interest rates of medium- and long-term
bonds continued to decline and the interest spreads of highly-rated credits kept narrowing. Based on its intensified
market research, the Group adopted the aggressive trading strategy in line with market situations. The Group
proactively conducted spread transactions of bonds and interest rate swaps while moderately expanded trading
exposure, thereby achieving relatively better trading revenue.
Financial assets held for trading
24.56
100.00
100.00
1,438,017
Total investments
41.03
408,752
49.80
716,064
Investment receivables
26.04
996,217
17,543
Amount
(in millions of RMB, excluding percentages)
Amount
1,467,585
75,007
971,327
53.39
3.18
43.43
89,815
1,226,701
1,507,770
Percentage of
the total (%)
Amount
31 December 2014
31 December 2015
Corporate loans
Percentage of
the total (%)
Total loans and advances to customers
Discounted bills
Corporate loans
(in millions of RMB, excluding percentages)
The following table sets forth, as at the dates indicated, the loans and advances to customers of the Group by
product type.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
As at 31 December 2015, total loans and advances of the Group amounted to RMB2,824.286 billion, representing
an increase of 12.35% as compared with the end of the previous year; total loans and advances accounted for
51.59% of the total assets, representing a decrease of 1.54 percentage points as compared with the end of the
previous year.
5.3.1.1 Loans and advances
100.00
Retail loans
Financial assets held for trading
58.38
38.64
31 December 2014
31 December 2015
The following table sets forth the components of the investment portfolio of the Group according to accounting
classification.
Investments of the Group are composed of listed and unlisted financial instruments denominated in Renminbi and
foreign currencies, including financial assets designated at fair value through profit or loss, derivative financial assets,
available-for-sale financial assets, held-to-maturity investments and investment receivables.
Investments
5.3.1.2 Investments
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
4
2.98
34
As at 31 December 2015, retail loans amounted to RMB1,226.701 billion, representing an increase of 26.29% as
compared with the end of the previous year. Retail loans accounted for 43.43% of total loans and advances, up
by 4.79 percentage points as compared with the end of the previous year. During the reporting period, the Group
further reinforced its retail customer base of micro enterprises. In order to meet market demands and put credit risk
under control, the Group moderately increased the amount of retail loans, which were primarily residential mortgage
loans and credit card loans with some retail consumption loans, thus further optimising loan structure.
Retail loans
As at 31 December 2015, discounted bills amounted to RMB89.815 billion, representing an increase of 19.74% as
compared with the end of the previous year. As for the development of its discounted bills business, based on the
loan granting schedule, the Group made flexible adjustments to the scale of bills financing, and increased the overall
return on bill assets by taking a number of measures such as optimisation of structure, centralisation of operation,
acceleration of circulation and profit through volume.
Discounted bills
As at the end of 2015, the Group's total corporate loans amounted to RMB1,507.770 billion, representing an
increase of 2.74 % as compared with the end of the previous year. Total corporate loans accounted for 53.39% of
total loans and advances to customers, representing a decrease of 4.99 percentage points as compared with the end
of the previous year. In 2015, the corporate loans of the Group were granted mainly to support the development
of the real economy by satisfying the diversified financing needs of customers. The Group increased loans granted
to strategic customers and quality credit projects on the premise of effective control over credit risks, and further
optimised the corporate loan structure while maintaining a control over total loan volume and conducting structural
adjustment.
100.00
2,513,919
100.00
2,824,286
33
5,351
Bonds issued by policy banks
9,622
China Merchants Bank
36
35
278,526
279,137
(611)
300,226
(667)
299,559
Net available-for-sale financial assets
Less: Impairment allowances
Total available-for-sale financial assets
V Report of the Board of Directors
317
Fund investments
2,215
2,906
Equity investments
73,828
66,728
Other bonds
34,190
66,235
1,012
Bonds issued by commercial banks and other financial institutions
Annual Report 2015
As at 31 December 2015, the net amount of held-to-maturity investments of the Group amounted to RMB353.137
billion, representing an increase of 36.12% as compared with the end of the previous year. Held-to-maturity
investments are held on a long-term basis for the strategic allocation of assets and liabilities of the Group.
Given the generally bullish bond market in the whole year, the Group reasonably extended the duration of
investment portfolios based on the requirements of interest rate risk management of bank account and liquidity
risk management, and moderately increased its investment in medium to long term bonds bearing fixed interest
rates when the yields of bonds were at a higher level in the first half of the year. The purchase focused on bonds
issued by the PRC government, policy banks and local governments, leading to a faster growth of such category of
investments.
259,505
353,232
Total held-to-maturity investments
6,979
2,100
9,410
14,214
Bonds issued by commercial banks and other financial institutions
Other bonds
133,197
Held-to-maturity investments
165,890
109,919
171,028
Bonds issued by the PRC government
2014
(restated)
31 December
2015
31 December
(in millions of RMB)
The following table sets forth the components of held-to-maturity investments of the Group.
Bonds issued by policy banks
91,223
68,822
Bonds issued by policy banks
Bonds issued by policy banks
Bonds issued by the PRC government
2014
(restated)
31 December
31 December
2015
(in millions of RMB)
The following table sets forth the components of the portfolio of financial assets designated at fair value through
profit or loss of the Group.
Financial assets designated at fair value through profit or loss
V Report of the Board of Directors
Bonds issued by commercial banks and other financial institutions
Other bonds
China Merchants Bank
Annual Report 2015
33,022
50,809
Total financial assets held for trading
15,048
17,784
6,458
5,860
Bonds issued by commercial banks and other financial institutions
Others (Note)
6,165
Note: including other bonds, equity investments and fund investments and paper precious metal.
304
299
3,874
99
94
Bonds issued by the People's Bank of China (the "PBOC")
77,265
94,429
Bonds issued by the PRC government
31 December
2014
(restated)
2015
31 December
(in millions of RMB)
The following table sets forth the components of the portfolio of the available-for-sale financial assets of the Group.
In 2015, in order to stabilise economic growth and lower financing cost for real economy, the central bank made
several cuts to the deposit reserve ratios and the benchmark lending interest rates, and adjusted market liquidity
by using such monetary policy tools as MLF and PSL since the beginning of the year, leading to improvement in the
inter-bank market liquidity as compared with 2014. In response to the market trends, the Group took opportunities
to increase its investments primarily in interest-bearing bonds and bonds with high credit ratings, and moderately
extended bond duration, thus optimising the structure of assets and liabilities.
As at 31 December 2015, the net value of available-for-sale financial assets of the Group was RMB299.559
billion, representing an increase of 7.55% as compared with that at the end of the previous year. This category of
investments was made mainly to improve operation performance.
Available-for-sale financial assets
7,168
8,272
Total financial assets designated at fair value through profit or loss
2,133
3,439
655
3,970
4,731,829
100.00
5,474,978
0.30
3,535
4,086
10,425
11,929
29,179
31,394
2014 (restated)
2015
Rental expenses
3,842
Other general and administrative expenses
Business tax and surcharges
Staff costs
(in millions of RMB)
The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
Group.
In 2015, the Group's operating and administrative expense amounted to RMB67.670 billion, representing an
increase of 10.79% as compared with 2014. The cost-to-income ratio was 27.55%, representing a decrease of
2.87 percentage points 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 management and control achieved
fruitful results, leading to a slower increase in operating expenses compared with that of operating income. Staff
costs increased by 7.59% as compared with that of 2014 due to the increase in headcount. Other general and
administrative expenses increased by 12.51% as compared with that of 2014, and depreciation charges and rental
expenses increased by 15.59% and 14.72% respectively as compared with those of 2014. The Company has always
attached great importance to investments in research and development. In 2015, our research and development
expenses amounted to RMB4.133 billion, representing an increase of 6.69% as compared with that of 2014.
5.2.9 Operating expense
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
9,671
Depreciation of fixed assets and investment properties
12,018
3,349
14,593
31,681
335
57
35
31,254
2014 (restated)
2015
Total impairment losses on assets
Other assets
16,419
-
- Investments
- Loans and advances
Allowances for asset impairment charged/(reversed) on
(in millions of RMB)
In 2015, impairment losses on assets of the Group were RMB59.266 billion, representing an increase of 87.07% as
compared with that of 2014. The following table sets forth, for the periods indicated, the principal components of
impairment losses on the assets of the Group.
5.2.10 Impairment losses on assets
Total operating expenses
61,081
67,670
- Amounts due from banks and other financial institutions
Other net income in total
341
311
- Securities, derivatives and other trading activities
2,467
2,398
2014 (restated)
2015
- Foreign exchange
Net trading profit/(loss)
(in millions of RMB)
The following table sets forth, for the periods indicated, the principal components of other net income of the Group.
3,073
In 2015, other net income of the Group was RMB12.018 billion, representing a year-on-year increase of 24.27%,
which was mainly attributable to the increase in gains from changes in the fair value of financial instruments held
for trading and the disposal of available-for-sale financial assets.
Other fee and commission income increased by RMB618 million or 8.49% as compared with the previous year.
Commission income from custody and other trustee businesses increased by RMB5.611 billion or 43.05% as
compared with the previous year, which was primarily attributable to the rapid growth in the income from wealth
management businesses such as the entrusted wealth management products which amounted to RMB8.913 billion,
representing an increase of 42.75% as compared with the previous year.
Commission income from credit commitment and loan business increased by RMB11 million or 0.26% as compared
with the previous year.
Agency service fees increased by RMB6.664 billion or 94.97% as compared with the previous year, which was
primarily attributable to the rapid increase in the fees from agency distribution of funds and insurance policies.
Settlement and clearing fees decreased by RMB317 million or 7.70% as compared with the previous year, which was
primarily attributable to the decrease in the settlement income of letter of credit.
Bank card fees increased by RMB1.870 billion or 24.31% as compared with the previous year, which was primarily
attributable to the increase in the POS income.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
30
5.2.8 Other net income
1,618
Net gains/(losses) on financial instruments designated at
fair value through profit or loss
Others
539
188
Net gains on trading of precious metal
475
498
Insurance operating income
4,238
4,519
Bills spread income
476
534
Rental income
21
4
Gains on investment in funds
(145)
611
Net gains/(losses) on investment in available-for-sale financial assets
(359)
(118)
57,507
Less: Impairment allowances
1,002
500
1,484
0.05
2,786
0.50
23,560
0.46
24,934
9.91
469,065
0.03
9.67
1.18
55,986
1.16
63,779
14.16
670,007
10.97
600,441
21.05
529,617
996,217
31,835
27,445
14,091
0.23
12,848
0.21
9,953
0.18
9,954
0.22
10,291
0.58
0.29
0.07
3,292
0.07
3,595
0.04
1,684
0.03
1,708
0.58
16,020
26.27
1,438,017
51.75
Interest receivable
under resale agreements
Inter-bank lending and financial assets purchased
Balances with banks and other financial institutions
Cash, precious metal and balances with the central bank
Investments
Net loans and advances to customers
Provision for impairment losses on loans
Total loans and advances to customers
Investment in associates and joint ventures
(in millions of RMB, excluding percentages)
As at 31 December 2015, the total assets of the Group amounted to RMB5,474.978 billion, representing an increase
of 15.71% as compared with the end of 2014, which was mainly attributable to the increase in loans and advances
to customers and investment receivables 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 2015
32
31
Impairment losses on loans was the largest component of impairment losses on assets. In 2015, impairment losses
on loans was RMB57.507 billion, representing an increase of 84.00% 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 amidst economic downturn. For details of the provision for impairment losses
on loans, please refer to the section headed "Loan quality analysis" in this chapter.
59,266
The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
Fixed assets
Investment properties
Intangible assets
2,448,754
50.04
2,739,444
(1.38)
(65,165)
(1.55)
(84,842)
53.13
2,513,919
51.59
2,824,286
Percentage of
the total (%)
Amount
Percentage of
the total (%)
Amount
31 December 2014
31 December 2015
Total assets
Other assets
Goodwill
Deferred tax assets
257
(95)
766
Net held-to-maturity investments
5,500
155,000
(71)
155,000
China UnionPay Co., Ltd.
Equity investment
120,600
345,708
10.00 180,000,000
Equity investment
306,671
(招聯消費金融有限公司)
Consumption Finance Co., Ltd.
Equity investment
(5,000)
995,000
50.00 1,000,000,000
1,000,000
Investment in CMB-China Unicom
Co., Ltd.
Taizhou Bank Co., Ltd.
Equity investment
EPS Company (Hong Kong) Ltd.
2.10
HK$792
HK$(23) Equity investment
HK$71,149 HK$21,474
HK$8,502
20,000
20.00
HK$2,000
Joint Electronic Teller Services Ltd.
13.33 20,000,000
HK$20,000
HK$8,400
Bank Consortium Holdings Ltd.
Equity investment
149,700
3.77 99,800,000
189,620
Yantai City Commercial Bank
Equity investment
HK$1,950
HK$8,400
2
Corporation Ltd.
351,658
148,543
1,391,417
CMB International Capital Holdings
Corporation Limited
Equity investment
3,214,831
2,404,037
30,313,858
of shares
('000)
('000)
Origination
855,545
period
reporting
reporting
Change in
owners'
equity
for the
for the
Carrying
value
at end of
period ('000)
(shares)
231,028,792
100.00
32,081,937
Wing Lung Bank Ltd.
period (¹)
100.00 1,000,000,000
855,545
290,306
50.00 725,000,000
646,443
CIGNA & CMB Life Insurance
716,899 Equity investment
383,184
882,274
55.00 115,500,000
708,193
China Merchants Fund Management
Co., Ltd
by promotion
establishment
upon
1,723,195 Ownership
1,549,897
6,000,000
N/A
100.00
6,000,000
CMB Financial Leasing Co., Ltd.
upon
establishment
by promotion
217,146 Ownership
Hong Kong Life Insurance Ltd.
HK$70,000
16.67
70,000,000
1,195,623
Interest rate derivatives
Liabilities
Fair value
Assets
Liabilities
Assets
(in millions of RMB)
amount
Fair value
839
amount
Nominal
31 December 2014
31 December 2015
The major categories and amount of derivative financial instruments held by the Group as at 31 December 2015, are
shown in the following table. For details, please refer to Note 54(f) to the financial report "Risk Management - Use
of derivatives".
Derivative financial instruments
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
Profits/(losses) for the reporting period indicate the impact on the net profit of the Group for the reporting period attributable to the
Bank's shareholders.
1
Nominal
Currency derivatives
Other derivatives
1,141,846
217
39
In compliance with the PRC enterprise accounting principles, at the end of 2015, the Group conducted an
impairment test on the goodwill arising from the acquisition of WLB and China Merchants Fund and determined
that provision for impairment was not necessary. As at 31 December 2015, 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 the second half of 2015, the RMB derivatives market developed rapidly along with the progress of reform in the
interest rate and exchange rate regime. The Group actively seized opportunities arising from interest rate fluctuations
in the inter-bank market to aggressively increase the proprietary trading in interest rate derivatives such as interest
rate swaps, significantly increasing its share in the interest rate derivatives trading market and generating greater
income from such trading activities. In the context of the suspension of RMB appreciation trend and the substantially
increased RMB exchange rate fluctuations since August 2015, the Group actively seized market opportunities
brought about by the fluctuation of RMB foreign exchange swap transactions and option transactions to aggressively
increase the proprietary trading in derivatives, significantly expanding its share in the foreign exchange derivatives
trading market, and eventually generating considerable income from such trading activities.
(10,246)
9,315
1,382,085
(7,575)
10,176
2,337,686
Total
(2)
(629)
(9,615)
8,879
16
1,039
(2)
1,020,501
420
360,545
(538)
(7,035)
9,332
5
Note:
at end of
period
Equity investment
Equity investment
HK$3,000
I-Tech Solutions Limited
HK$(78) Equity investment
HK$1,222
HK$3,875
810,000
27.00
HK$810
Professional Liability Underwriting
Services Ltd.
50.00
Equity investment
HK$5,025
HK$82,851
42,000,000
21.00
HK$21,000
BC Reinsurance Ltd.
Equity investment
HK$30,007 Equity investment
HK$6,389
HK$130,062
HK$15,344
3,000,000
HK$2,922
HK$45
N/A
3.00
HK$570
China Insurance Brokers Co., Ltd.
MOP6,000
60,000
6.00
MOP6,000
Luen Fung Hang Life Ltd.
HK$11,254
100,000
7.83
HK$4,023
AR Consultant Service Ltd.
Equity investment
Equity investment
HK$136
136,000
0.35
HK$136
Hong Kong Precious Metals
Exchange Ltd.
Equity investment
percentage
(%)
3.75 110,000,000
Initial
investment
('000)
372,158
Market/fair
value
value
value
Carrying
Market/fair
31 December 2014
352,615
value
256,074
Carrying
Securities investments
Held-to-maturity listed investments
(in millions of RMB)
The following table sets forth, as at the dates indicated, the carrying value and market value of the held-to-maturity
listed investments in our investment portfolio of the Group.
All bond investments classified as financial assets designated at fair value through profit or loss and available-for-sale
investments were stated at market value or fair value. Due to the lack of a mature trading market for the investment
receivables in the Group's investment portfolio, the Group did not make any assessment on their market value or fair
value.
Carrying value and market value
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
408,752
31 December 2015
716,064
261,326
Initial
USY39656AA40
period ('000)
period (%)
('000)
(shares)
('000)
Currency
Name
Stock code
Shareholdings
the reporting
period
period
investment
Profits/
(losses) for
securities
Investments
Percentage
of total
Carrying
value
at end of
at end of
at end of
Net investment receivables
(68)
(1,017)
Credit
Investment in non-standard debt securities
21,335
20,389
594
21,229
11,154
Bonds issued by commercial banks and other financial institutions
Other bonds
747
Bonds issued by the PRC government
- Trust beneficiary rights
Investment in standard debt securities
2014
2015
31 December
31 December
The following table sets forth the composition of the Group's investment receivables.
Investment receivables are unlisted PRC certificated bonds and other investment in debt securities held by the Group,
which are not publicly quoted in China or overseas. As at 31 December 2015, the Group's net investment receivables
amounted to RMB716.064 billion, representing an increase of 75.18% as compared with the end of the previous
year, which was mainly due to an increase in the investment in non-standard debt securities. Please refer to Section
5.9.1 of this report for details of the investment in non-standard debt securities of the Company.
Investment receivables
259,434
353,137
(in millions of RMB)
78,067
111,636
- Broker asset management schemes
Less: Provision for impairment losses
408,820
717,081
Total investment receivables
45,451
254,858
- Fund asset management schemes and others
24,557
143,351
- Broker asset management schemes
402
- Trust beneficiary rights
56,330
48,198
- Insurance asset management schemes
Non-credit
40,450
58,615
Shareholding
86,836
101,702
Industrial and Commercial Bank of China
USD
- Fund asset management schemes and others
N/A
Other securities investments at the end of the period
1.62
27,940
319,500
24,726
HK$
China Mobile Ltd.
00941.HK
1.68
HK$
3,741
USD
Master Card
MA
1.83
31,600
10,000,000
32,323
HK$
Agricultural Bank of China Ltd.
38,400
Other securities investments at the end of the period
USD
202,912
2,500
50,000
Name of companies
Shareholdings
(losses)
Profits/
Companies in which the Company holds controlling interests and other Investee companies
Shareholdings in non-listed financial companies
Annual Report 2015
V Report of the Board of Directors
China Merchants Bank
38
37
As at 31 December 2015, the foreign currency bonds invested by the Company were categorised by their issuers
as follows: 46.17% of the foreign currency bonds were issued by the PRC government and Chinese companies;
13.48% by overseas governments and institutions; 15.22% by overseas financial institutions and 25.13% by
overseas non-financial companies. The Company has made a provision for impairment losses of USD92 million for its
investments in foreign currency bonds, and the floating valuation gains of the investment in foreign currency bonds
was USD470,000.
As at 31 December 2015, the Group had a balance of investments in foreign currency bonds of USD7.454 billion,
among which USD4.242 billion was held by the Company and USD3.212 billion was held by Wing Lung Group.
Analysis on investments in foreign currency bonds
0.91
2,013
N/A
21,478
12.82
220,548
N/A
01288.HK
3.05
Notes: 1. The above table shows the top 10 securities held by the Group as at the end of the period in the descending order of their carrying value;
2. Other securities investments refer to those other than the top 10 securities.
15,182,000
USD
China Construction Bank Corporation
XS1328130197
11.56
199,097
1,003,512
4,830
HK$
Hong Kong Exchanges and Clearing Ltd.
25,000
720
N/A
34,000
USD
Bank of Communications
XS1257592037
00388.HK
1,332
23.85
52,530
53,015
15.62
N/A
34,720
11.33
HK$
46,932
25,189
Bank of China Ltd.
03988.HK
7.06
217,444
2,049
USD
Visa Inc
15,682
8.67
126,583
189
127,000
127,000
RMB
Wing Lung Growth Fund
V
WLGF II
5.4.10 Changes in the allowances for impairment losses on loans
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 was 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 allowances for impairment losses were determined on a
portfolio basis.
The following table sets forth the changes in the allowances for impairment losses on loans of the Group.
(in millions of RMB)
Balance at the beginning of the period
Balance at the end of the period
Unwinding of discount on impaired loans (Note)
Release for the period
Recovery of loans and advances previously written off
Write-offs
As at the end of the reporting period, the balance of repossessed assets of the Group amounted to RMB1.672
billion. After deduction of allowances for impairment losses of RMB981 million, the net repossessed assets amounted
to RMB691 million.
Foreign exchange rate movements
Transfers in/out
Charge for the period
5.4.9 Repossessed assets and allowances for impairment losses
Percentage
of the
total (%)
Note: Represents the restructured non-performing loans.
(in millions of RMB, excluding percentages)
amount
2015
Loan
Restructured loans (Note)
4,531
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 0.16%, an increase of 0.12 percentage point as
compared with that at the end of the previous year.
of the
total (%)
0.16
0.04
Of which: restructured loans overdue for
more than 90 days
2,506
0.09
534
0.02
Loan
amount
996
2014
31 December
48,764
At the end of
the reporting
period
2015
At the end of
the previous
year
31 December
2014
Increase/decrease at
the end of the reporting
period as compared with
the end of the previous
year (%)
(in millions of RMB, except for percentages)
As at 31 December 2015, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
advanced approach were 12.57% and 10.83%, respectively, representing an increase of 0.66 percentage point and
0.90 percentage point respectively as compared with those under the weighted approach.
The Group
the advanced approach (1)
1. Net core Tier 1 capital
347,434
Percentage
15.05
301,977
Capital adequacy ratios under
65,165
5.5 Analysis of Capital Adequacy Ratio
China Merchants Bank
Annual Report 2015
59,486
32,895
(1,979)
(1,641)
(1,137)
(655)
V Report of the Board of Directors
1,464
(38,383)
226
84,842
68
65,165
Note: 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 RMB84.842 billion,
representing an increase of RMB19.677 billion as compared with that at the end of the previous year. The
non-performing loan allowance coverage ratio was 178.95%, representing a decrease of 54.47 percentage points as
compared with the end of the previous year; the loan allowance ratio was 3.00%, representing an increase of 0.41
percentage point as compared with the end of the previous year.
47
48
651
(14,917)
31 December 2014
69.85
V Report of the Board of Directors
The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
31 December 2015
31 December 2014
(in millions of RMB, excluding percentages)
Deposits from customers
Amount
Percentage
of the
total (%)
3,571,698
Amount
3,304,438
Percentage
of the
total (%)
74.82
Deposits from banks and other financial institutions
711,561
13.92
697,448
15.79
Borrowings from the central bank
2. Net Tier 1 capital
0.39
20,227
Financial liabilities designated at fair value through
profit or loss
2.14
94,603
As at 31 December 2015, the total liabilities of the Group amounted to RMB5,113.220 billion, representing an
increase of 15.77% as compared with the end of 2014, which was primarily due to the steady growth in deposits
from customers, placements from banks and other financial institutions, proceeds from disposal of financial assets
under repurchase agreements and bonds payable.
3.50
institutions
Placements from banks and other financial
0.45
20,000
1.22
62,600
178,771
5.3.2 Liabilities
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
931
0.04
Total overdue loans
80,368
Total loans and advances to customers
2,824,286
0.03
2.84
100.00
2.10
2,513,919
100.00
As at the end of the reporting period, overdue loans of the Group amounted to RMB80.368 billion, up by
RMB27.664 billion from the end of the previous year and accounting for 2.84% of its total loans, representing
an increase of 0.74 percentage point as compared with the end of the previous year. Among the overdue loans,
collateralised and pledged loans accounted for 46.17%, guaranteed loans accounted for 33.36%, while credit loans
accounted for 20.47% (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 was 1.05.
China Merchants Bank
Annual Report 2015
5.4.8 Restructured loans
52,704
31 December 2015
878
0.19
40
40
1.25
27,480
1.09
Overdue from 3 months up to 1 year
Overdue more than 3 years
32,247
19,542
0.78
Overdue from 1 year up to 3 years
11,847
0.42
4,751
1.14
347,444
Overdue within 3 months
15.05
(in millions of RMB, except for percentages)
As at 31 December 2015, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
weighted approach were 11.91% and 9.93% respectively, representing an increase of 0.17 percentage point and
0.33 percentage point, respectively as compared with those at the beginning of the year.
up by 0.38 percentage point
up by 0.38 percentage point
up by 0.22 percentage point
10.37
2,687,891
10.00%
10.00%
11.93%
12.15%
10.38%
2,966,543
10.38%
8. Capital adequacy ratio
7. Tier 1 capital adequacy ratio
6. Core Tier 1 capital adequacy ratio
consideration the minimum requirements
during the grace period)
5. Risk-weighted assets (having taken into
23.09
65.76
6.61
8.62
3. Net capital
360,460
320,740
12.38
4. Risk-weighted assets (without taking into
consideration the minimum requirements
At the end of
the reporting
period
during the grace period)
Of which:
Credit risk weighted assets
Market risk weighted assets
Operational risk weighted assets
2,436,307
31,699
297,706
19,123
241,868
2,765,712
31 December
2015
At the end of
the previous
year
31 December
2014
416,834
369,532
12.80
3,499,231
3,146,571
11.21
15.05
9.93%
11.91%
9.60%
9.60%
11.74%
up by 0.33 percentage point
up by 0.33 percentage point
up by 0.17 percentage point
Note: (1) The "weighted approach" refers to the weighted 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.
35,396
13,369
9.93%
14.52
301,982
15.05
Increase/decrease at
the end of the reporting
period as compared with
the end of the previous
year (%)
The Group
Capital adequacy ratios under the weighted
approach (1)
1. Net core Tier 1 capital
347,444
2. Net Tier 1 capital
4. Risk-weighted assets
5. Core Tier 1 capital adequacy ratio
6. Tier 1 capital adequacy ratio
7. Capital adequacy ratio
347,434
301,977
3. Net capital
268,845
307,888
2. Net Tier 1 capital
9.48
7.53
63.52
23.54
5. Risk-weighted assets (having taken into
consideration the minimum requirements
during the grace period)
254,897
6. Core Tier 1 capital adequacy ratio
3,208,152
10.83%
10.83%
12.57%
2,893,732
10.44%
10.44%
12.38%
10.87
up by 0.39 percentage point
up by 0.39 percentage point
up by 0.19 percentage point
7. Tier 1 capital adequacy ratio
8. Capital adequacy ratio
314,910
36,972
3. Net capital
403,409
358,334
12.58
4. Risk-weighted assets (without taking into
consideration the minimum requirements
22,610
during the grace period)
2,748,687
Of which:
Credit risk weighted assets
2,657,383
2,471,180
Market risk weighted assets
Operational risk weighted assets
3,009,265
301,982
Information on leverage ratio (3)
sheet assets
31 December
2015
31 December
2014
Increase/decrease at
the end of the reporting
period as compared with
the end of the previous
(in millions of RMB, except for percentages)
year
year (%)
Capital adequacy ratios under the advanced
approach
1. Net core Tier 1 capital
307,888
268,845
14.52
The Company
9. Adjusted balance of on- and off-balance
At the end of
the reporting
period
As at 31 December 2015, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
advanced approach were 12.15% and 10.38%, respectively, representing an increase of 0.69 percentage point and
0.94 percentage point respectively as compared with those under the weighted approach.
10. Leverage ratio
6,275,592
5.54%
(Note 3)
4.96%
(Note 3)
up by 0.58 percentage point
At the end of
the previous
Notes: (1) 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 Co., Ltd. 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 Co., Ltd. As at 31 December 2015, the subsidiaries qualified for calculating the
capital adequacy ratio of the Group include Wing Lung Bank, CMBIC, CMBFL and CMFM.
The "minimum requirements during the grace period" means that, during the parallel run 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, so as to obtain the required capital amount subject to the capital
floor requirements. 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 parallel run period.
(3) Since the leverage ratios were calculated in accordance with the "Regulations on Leverage Management of Commercial Banks (Revised)"
issued by China Banking Regulatory Commission on 12 February 2015 with effect from 2015, the Group's leverage level as at the end
of the third quarter, first half and the first quarter of 2015 were 5.55%, 5.26% and 5.51%, respectively. However, the leverage ratios
and the on- and off- balance sheet balances for 2014 were calculated in accordance with the "Regulations on Leverage Management of
Commercial Banks" issued by China Banking Regulatory Commission on 1 June 2011.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
49
49
(2)
0.30
2,546,291
2,285,300
7,575
43.96
1,241,633
Collateralised loans
2.46
11,077
17.93
450,713
4.40
19,587
15.75
444,698
Guaranteed loans
0.55
38.64
16,250
7,451
Micro enterprise loans
310,777
11.00
4,744
1.53
338,813
13.48
3,612
1.07
Residential mortgage loans
499,455
17.69
2,258
0.45
0.77
329,178
1.31
42.16
45
As at the end of the reporting period, the percentage of collateralised loans increased by 1.80 percentage points
as compared with the end of the previous year, while the percentage of credit loans increased by 2.09 percentage
points as compared with the end of the previous year which was mainly due to the increase of credit card loans.
Note: (1) Represents the percentage of non-performing loans in a certain category to the total loans of that category.
1.11
27,917
100.00
2,513,919
1.68
47,410
100.00
2,824,286
Derivative financial liabilities
customers
Total loans and advances to
1,059,962
2.98
3.18
89,815
Discounted bills
0.31
1,189
15.25
383,301
0.95
3,574
13.34
376,819
Pledged loans
1.19
12,651
75,007
55
13.09
0.26
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.
In 2015, the Group steadily developed its retail loan business, adjusted the loan structure, increased credit card loans
and residential mortgage loans and moderately slowed down the granting of micro enterprise loans. As a result,
the percentage of retail loans increased by 4.79 percentage points to 43.43%. As the repayment ability of certain
individual borrowers deteriorated due to economic downturn, the non-performing retail loan ratio was 1.07%, up
by 0.30 percentage point as compared with the end of the previous year.
Since 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, the proportion of corporate loans for the reporting
period decreased by 4.99 percentage points as compared with the end of the previous year. Due to the combined
adverse impact of the four distinctive periods of the Chinese economy, namely "dealing simultaneously with the
slowdown in economic growth, making difficult structural adjustments, absorbing the effects of the previous
economic stimulus policies, and exploring new policies", the non-performing corporate loan ratio of the Group
increased accordingly. As at the end of the reporting period, the non-performing corporate loan ratio of the Group
was 2.28%, up by 0.89 percentage point as compared with the end of the previous year, among which, the increase
of non-performing loans included in "Others" category was mainly due to the deterioration in repayment ability of
certain major customers.
43
44
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
5.4.3 Distribution of loans and non-performing loans by industry
31 December 2015
31 December 2014
Percentage
Non-
Loan
of the
(4)
performing
Percentage
Non-
Non-
Loan
of the
performing
performing
(In millions of RMB, excluding percentages)
balance
total (%)
loans
loan ratio (1)
balance
total (%)
Non-
performing
871
The Company will transfer its overdue discounted bills to corporate loans for accounting purposes.
Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
Credit card loans
313,244
11.09
4,296
1.37
219,888
8.75
2,069
0.94
Others(4)
103,225
3.65
1,779
1.72
(3)
83,448
899
1.08
Total loans and advances
2,824,286
100.00
47,410
1.68
2,513,919
100.00
27,917
1.11
Notes:
(1) Represents the percentage of non-performing loans to the total loans of a certain category.
(2)
3.32
46
46
China Merchants Bank
Annual Report 2015
7,897
5.32
122,946
4.89
4,462
3.63
Discounted bills (3)
89,815
3.18
75,007
2.98
Retail loans
1,226,701
43.43
5.26
13,077
Notes:
19.07
479,535
1.99
10,733
19.12
539,925
Yangtze River Delta
0.91
2,658
Percentage
of the
total (%)
Loan
amount
total (%)
amount
1.07
(in millions of RMB, excluding percentages)
148,523
0.91
1,467,585
58.38
20,466
1.39
Working capital loans
768,942
27.23
19,220
2.50
762,925
30.35
12,574
1.65
Fixed asset loans
Others(2)
370,599
3,810
1.03
350,416
13.94
1,324
0.38
Trade finance
219,706
7.78
3,406
1.55
231,298
9.20
2,106
13.12
of the
Loan
Percentage
1.15
971,327
4,644
Financial industry
0.20
1.37
5,534
Transportation, storage and postal services
0.23
1.63
6,585
0.30
2.08
8,400
0.16
loans (%)
2015
Transportation, storage and postal services
Wholesale and retail
(in millions of RMB)
ABCDEFG:
of total
Percentage
(under the
advanced
approach)
31 December
Balance as at
Percentage
of net capital
Industry
Top ten
borrowers
5.4.6 Loans to the top ten single borrowers
V Report of the Board of Directors
(%)
Transportation, storage and postal services
4,572
1.13
31 December 2014
31 December 2015
5.4.7 Distribution of loans by overdue term
As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to
RMB8.400 billion, representing 2.08% of the Group's net capital. The loan balance of the top ten single borrowers
totalled RMB48.681 billion, representing 12.07% of the Group's net capital and 1.72% of the Group's total loan
balance, respectively.
1.72
12.07
48,681
0.12
0.87
3,502
Transportation, storage and postal services
Total
J
0.13
0.89
3,570
Information transmission, software and IT services
0.16
Production and supply of electric power, gas and water
4,000
0.99
0.14
Transportation, storage and postal services
loans
3,940
0.14
H
Transportation, storage and postal services
3,934
0.98
0.14
0.98
loan ratio(1)
Corporate loans
1,507,770
performing
performing
of the
Loan
Non-
Non-
Non-
31 December 2015
31 December 2014
Percentage
5.4.4 Distribution of loans and non-performing loans by region
Percentage
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
In 2015, the Group facilitated the development of real economy, constantly optimised its risk asset portfolio, and
prioritised on consumption industries less impacted by economic cycles, strategic emerging industries of the State
and local major infrastructure projects. The differentiated risk prevention and control strategy was formulated for
key areas such as overcapacity industries, 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 risk, revenue and
cost. During the reporting period, 84% of the increment in non-performing corporate loans was related primarily
to three industries, i.e. manufacturing, wholesale and retail, and mining. Total loans associated with the above
industries reduced thanks to the continuous optimisation of asset structure.
Loan
(2) Consists primarily of finance, agriculture, forestry, animal husbandry, fishery, accommodation and catering, health care, social works, etc.
102,314
4.07
396
0.39
Production and supply of electric
power, heat, gas and water
112,337
3.98
78
0.07
101,064
4.02
Mining
58,308
0.76
2.06
of the
Non-
performing
463,440
of Taiwan Strait
Pearl River Delta and West Side
0.78
2,675
13.72
344,987
1.16
4,274
13.03
368,137
Bohai Rim
2.06
9,895
performing
11.57
1.26
4,790
13.50
381,327
Head Office
loan ratio(1)
loans
total (%)
balance
loan ratio (1)
loans
total (%)
balance
(in millions of RMB, excluding percentages)
290,911
3,923
6.73
64,960
1,037
0.79
104,240
4.15
750
0.72
Discounted bills
89,815
3.18
75,007
2.98
Retail loans
1,226,701
43.43
4.67
13,077
971,327
38.64
7,451
0.77
Total loans and advances
to customers
2,824,286
100.00
47,410
1.68
2,513,919
100.00
27,917
1.11
1.07
132,034
Others(2)
0.25
2.58
1,629
2.51
Leasing and commercial services
84,240
2.98
186
0.22
52,152
2.07
110
0.21
Water conservancy, environment
and public utilities
33,531
1.19
125
55
0.89
22,313
0.45
134
1.07
16.41
30,101
Information transmission,
0.49
150
1.21
30,421
0.37
software and IT service
2.28
5,071
385,848
Transportation, storage and
postal services
159,349
5.64
1,387
0.87
148,473
5.91
741
0.50
Construction
101,270
3.59
772
0.26
3,000
544,936
1.19
7,999
23.77
671,321
Credit loans
loan ratio(1)
loans
total (%)
balance
loan ratio (¹)
performing
Non-
performing
of the
21.68
Loan
460
179,983
53.39
34,333
2.28
1,467,585
58.38
20,466
1.39
Manufacturing
332,147
11.77
15,238
4.59
360,270
14.33
7.16
9,628
Wholesale and retail
251,373
8.90
10,279
4.09
301,395
11.99
6,547
2.17
Property development
213,080
7.54
1,174
0.55
2.67
Non-
performing
performing
loans
of the
total (%)
0.75
2,409
12.81
322,046
2.57
8,862
12.22
345,113
Western China
1.64
4,331
10.48
263,511
3.41
Overseas
9,956
292,361
Central China
1.41
1,823
5.13
128,884
2.14
3,012
4.99
140,913
North-east China
0.95
3,675
15.35
10.35
57,773
2.05
69,523
balance
(In millions of RMB, excluding percentages)
Loan
Non-
Percentage
Non-
31 December 2014
Percentage
31 December 2015
5.4.5 Distribution of loans and non-performing loans by type of guarantees
In 2015, the Group implemented differentiated supervisory management by category for regional branches. For
the risk concentrated regions, the Group selectively raised the loan approval standard and dynamically adjusted the
credit granting rights, so as to prevent the occurrence of regional systematic risk. As at the end of the reporting
period, the percentage of the balance of loans extended to the Pearl River Delta and West Side of Taiwan Strait and
the loans of the Head Office recorded a relatively large increase. During the reporting period, 62% of the increment
in non-performing loans of the Group was related primarily to Western China and Central China.
Note: (1) Represents the percentage of non-performing loans in a certain category to the total loans of that category.
1.11
27,917
100.00
2,513,919
1.68
47,410
2.77
Subsidiaries
235,297
8.33
712
0.30
1.09
228,674
451
0.20
Total loans and advances to
customers
2,824,286
100.00
9.10
34,333
(1) Represents the percentage of non-performing loans in a certain category to the total loans of that category.
1,507,770
Demand
Time
Subtotal
Total deposits from customers
835,062
6.28%
644,836
19.52
375,105
Substandard
10.50
448,191
13.56
1,210,167
33.88
1,093,027
33.08
2014
2015
Hedging reserve
Capital reserve
Share capital
(in millions of RMB)
Deposits from retail customers
31 December
5.3.3 Shareholders' equity
As at 31 December 2015, the percentage of demand deposits to total deposits from customers of the Group was
56.07%, representing an increase of 7.09 percentage points as compared with the end of 2014. Among the figures,
the corporate demand deposits accounted for 49.44% of the corporate deposits, representing an increase of 5.41
percentage points as compared with that at the end of 2014, and the retail demand deposits accounted for 69.00%
of the retail deposits, representing an increase of 10.00 percentage points as compared with that at the end of
2014.
100.00
3,304,438
100.00
3,571,698
31 December
25,220
Subtotal
2,211,411
39,073
0.76
45,349
1.03
Bonds payable
Deferred income tax liabilities
Other liabilities
Total liabilities
251,507
4.92
106,155
2.40
867
0.02
771
0.02
64,345
66.12
2,361,531
37.46
1,237,765
33.43
1,194,064
66.92
Time
973,646
32.69
1,167,467
Demand
Deposits from corporate customers
1.26
29.46
25,220
67,523
67,523
97.03
of the
total (%)
Amount
2,439,368
95.71
2.61
73,794
Special mention
Percentage
5.3.4 Market share of deposit and lending businesses
According to the "Statements of Incomes and Expenditures relating to Lendings by Financial Institutions" published
by the PBOC in December 2015, the market share and ranking of the Bank among the small- and medium-sized
Chinese banks (including national and regional banks) in terms of total deposits and loans as at the end of the
reporting period are as follows:
Items
Total deposits expressed in RMB
Total domestic savings deposits expressed in RMB
Total loans expressed in RMB
Total domestic personal consumption loans in RMB
Note:
Market share (%)
31 December 2014
31 December 2015
Percentage
of the
total (%)
6.59%
15.11%
Ranking
1
1
2
1
46,634
Effective from 2015, the People's Bank of China has no longer separately published the aggregate sum of national small- and medium-sized
banks in preparing the "Statements of Incomes and Expenditures Relating to Lendings by Financial Institutions", and the denominator used for
calculation of the market share in this report will be extended to all small-and-medium-sized banks (including national and regional banks). As
a result of the changes in the denominator, the market share of the Company narrowed as compared with the previous year. With effect from
2015, the People's Bank of China has implemented a new statistical system for deposits and loans, therefore, the deposits in this report include
placements from non-deposit-taking financial institutions and placements from overseas financial institutions, and the loans include placements
with non-deposit-taking financial institutions, indicating an expansion in the denominators as compared with previous years.
During the reporting period, the Group saw a steady growth in the volume of credit assets and an increase in
non-performing assets. The allowance coverage ratio remained steady. As at 31 December 2015, total loans and
advances to customers of the Group were RMB2,824.286 billion, representing an increase of 12.35% as compared
with the end of the previous year; the non-performing loan ratio was 1.68%, up by 0.57 percentage point from the
end of the previous year; whereas the non-performing loan allowance coverage ratio was 178.95%, representing a
decrease of 54.47 percentage points as compared with the end of the previous year; the loan allowance ratio was
3.00%, representing an increase of 0.41 percentage point as compared with the end of the previous year.
5.4.1 Distribution of loans by 5-tier loan classification
The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.
(in millions of RMB, excluding percentages)
Normal
Amount
2,703,082
5.4 Loan Quality Analysis
1.86
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
121,665
145,887
Retained profits
53,979
64,679
Regulatory general reserve
Proposed profit appropriations
28,690
Surplus reserve
(163)
241
1,902
6,188
Investment revaluation reserve
34,009
Interest payable
53.39
16,897
42
42
41
315,060
361,758
Total shareholders' equity
17,402
656
314,404
360,806
Total equity attributable to the shareholders of the Bank
Minority shareholders' equity
(1,309)
(343)
Difference arising from converting financial statements denominated
in foreign currency
952
0.26
23.38
0.25
1.11
27,917
1.68
47,410
100.00
2,513,919
100.00
2,824,286
Total loans and advances to customers
Total non-performing loans
0.12
China Merchants Bank
Annual Report 2015
2,994
5,127
Loss
0.30
7,580
0.39
11,050
Doubtful
0.69
17,343
1.11
0.18
V Report of the Board of Directors
Under the 5-tier loan classification system, non-performing loans of the Group are divided into substandard loans,
doubtful loans and loss loans. Affected by the slowdown in economy, the non-performing loans and special mention
loans of the Group had increased. As at the end of the reporting period, the total non-performing loans of the
Group amounted to RMB47.410 billion, representing an increase of 69.82% as compared with the end of the
previous year. Specifically, the increase of non-performing loans was mainly due to the contribution of substandard
loans. During the reporting period, the proportion of substandard loans increased by 0.42 percentage point to
1.11%. As at the end of the reporting period, the special mention loans amounted to RMB73.794 billion, accounting
for 2.61% of the total loans, representing an increase of 0.75 percentage point over the end of the previous year.
5.4.2 Distribution of loans and non-performing loans by product type
31 December 2015
0.15
Corporate loans
loan ratio(1)
loans
total (%)
balance
loan ratio (¹)
loans
total (%)
balance
(In millions of RMB, excluding percentages)
Non-
performing
performing
of the
Loan
Non-
31 December 2014
Percentage
Non-
performing
performing
of the
Loan
Non-
Percentage
31,233
11,656
6.79%
100.00
Amount
Percentage
31 December 2014
(in millions of RMB, excluding percentages)
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
of the
total (%)
China Merchants Bank
Annual Report 2015
Deposits from customers
4,416,769
100.00
5,113,220
0.90
39,678
As at 31 December 2015, total deposits from customers of the Group amounted to RMB3,571.698 billion,
representing an increase of 8.09% as compared with the end of 2014. Deposits from customers accounted for
69.85% of the total liabilities of the Group, being the major funding source of the Group.
Amount
31 December 2015
10,246
12,820
Taxes payable
0.14
Percentage
of the
total (%)
0.13
6,524
Accrued payroll
6,068
66,988
3.63
185,652
repurchased
Proceeds from disposal of financial assets
0.23
1.52
General risk
value during
the reporting
period
period
301
109
815
347
the reporting
109
243
Pressure risk
value during
121,176
Minimum value
Average value
Maximum value
123 +1
4
Item
No.
Unit: RMB 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 2015:
The Group uses various approaches to calculate its market risk capital. Specifically, it uses the internal model
approach to calculate the general market risk capital of the entities in Mainland China, and uses the standardised
approach to calculate the specific market risk capital of the entities in Mainland China as well as the market risk
capital and specific market risk capital of overseas institutions. As at the end of 2015, the market risk capital of the
Group was RMB2.96 billion, and its risk-weighted assets were RMB36.97 billion. Of which, the market risk capital
calculated under the internal model approach was RMB760 million, and the market risk capital calculated under the
standardised approach was RMB2.20 billion.
Market risk capital measurement
671
Value at the end of the period
234
2.
The following results of operating segments are presented by business segments and geographical segments. As
business segment information can better reflect the business operations of the Group, the Group chooses business
segment information as the primary reporting format. Segment reporting data are principally derived from the
multi-dimensional profitability report on the Company's management accounting system.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
Firstly, the Company made continuous achievements in its market innovation initiatives. Since the relaunch
of pilot securitisation, the Company issued the first individual residential mortgage-backed securities (RMBS)
under the filing system of the CBRC and the first credit card automobile installment asset-backed securities
among domestic banks under the registration system of the central bank; innovatively connected overseas
RQFII funds with domestic investments, thus achieving breakthrough in cross-border securitisation of
assets of domestic commercial banks; issued the first rotation-buying based securities backed by structured
credit card assets that can be completely transferred out of balance sheet; and innovated issuance of
securities at a premium, full costing investor-bearing mode and other innovative initiatives. Secondly, the
Company continued to take the lead in terms of market share. As at the end of the reporting period, the
Company issued a total of 8 cases of credit asset-backed securities, covering corporate loans, credit card
automobile installment loans and residential housing mortgages, thus becoming the bank which offers
the most diversified securitisation portfolios in China. During the reporting period, the total amount of
newly issued securities was RMB23.02 billion, and the aggregate issue volume of the Company amounted
to RMB51.66 billion with a market share of approximately 7%, ranking first among domestic commercial
banks. Specifically, the securitisation of credit card loans, automobile installment loans and RMBS ranked first
or second in their respective category among domestic commercial banks. Thirdly, the Company enjoyed a
superior brand advantage in market competition. As at the end of the reporting period, the Company has
established various securitisation brands, including "HEXIN (1)”, “HEJIA (F)" and "HEXIANG ()"
for domestic niche market segments, and developed a relatively unique brand influence. The various brands
of "HE (A)" brands posted a registered total issue amount of RMB110.0 billion, providing larger room for
future operation transformation.
Based on the Company's exploration and practice for nearly two years, securitisation of credit assets has
gradually become an important means and breakthrough for the Company to implement the "Asset-light
Banking" strategy. The Company, with its forward-looking vision, was among the first movers in this field
and seized opportunities to establish its leading position in the domestic market, which is mainly manifested
in the following aspects:
Securitisation of credit assets offered new channels for operation transformation
As at the end of the reporting period, the percentage of risk-weighted assets to total assets under the
weighted approach was 62.62%, down by 2.99 percentage points from 65.61% as at the end of the
previous year. The growth rate of risk-weighted assets under the weighted approach stood at 10.69%, 5.27
percentage points lower than the growth rate of the Company's total assets, which was 15.96%.
Percentage of risk-weighted assets to total assets continued to decline
V Report of the Board of Directors
Western China
378,606
8
370,196
8
11,212
15
Overseas
5.8.2 Progress of "Asset-light Banking" and "One Body with Two Wings" achieved
gradually through continuous promotion of strategic transformation
(in millions of RMB, except for percentages)
Corporate finance
Item
2014
2015
The principal businesses of the Group include corporate finance, retail finance and financial institutions finance. The
following table summarises the operating results of the business segments of the Group for the periods indicated.
Business segments
5.6 Results of Operating Segments
China Merchants Bank
Annual Report 2015
8,927
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.
As at the end of 2015, 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
-
"Asset-light Banking", "One Body with
Two Wings"
Building "Asset-light Banking" 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 "Asset-light Banking" in the financial industry, and is also a feasible approach to the accomplishment of
the Company's transformation and transcendence. The" Asset-light Banking" strategy has been formulated to achieve
more efficient growth and more lucrative return through less capital consumption, more streamlined operation and
higher flexibility. Its essence features mainly in "light" assets, "light" operating model and "light" management
pattern. The Company will make concerted efforts to promptly accommodate market changes and create values for
customers under the "customer-centric" service concept, thereby achieving the ultimate goal of value enhancement.
The Company will establish the "One Body with Two Wings" business structure under which retail finance is the
mainstay business supported by corporate finance and financial institutions finance, and develop those businesses
into three profit-generating pillars characterised by mutual integration, mutual coordination and mutual promotion.
As for retail finance, the Company will develop best banking service and increase its value contribution through
three major businesses, namely wealth management, consumer finance and small- and micro-enterprise finance.
With respect to corporate finance, the Company will develop professional banking service, establish two business
systems, namely transaction banking and investment banking, and focus on four major businesses, namely cash
management, trade finance, cross-border finance and M&A financing, aiming to develop superior business features.
With regard to financial institutions finance, the Company will develop elite banking service which will forge new
profit drivers through macro asset management and transactions in the financial market. By establishing the "One
Body with Two Wings" business structure, the Company will be in a better position to overcome the challenges of
interest rate liberalisation and periodic economic fluctuations.
5.7.2 Outstanding overdue debts
53
3.
Net non-interest income maintained a rapid growth
4.
In 2015, the Company continued to vigorously expancyymiound wealth management, credit cards and other
businesses, resulting in a rapid growth in the net non-interest income. In 2015, the Company realised the net
non-interest income of RMB59.570 billion, representing a year-on-year increase of 33.74%. The proportion
of the net non-interest income to our net operating income was 31.02%, up by 2.76 percentage points as
compared with the previous year. Fee and commission income amounted to RMB53.425 billion, representing
an increase of 33.68% as compared to the previous year, among which, fees and commission income from
wealth management services amounted to RMB23.244 billion, representing an increase of 70.32% as
compared to the previous year. Specifically, income from entrusted wealth management services amounted
to RMB8.913 billion, representing an increase of 42.75% as compared to the previous year; income from
agency distribution of trust schemes amounted to RMB3.866 billion, representing an increase of 70.84%
as compared to the previous year; income from agency distribution of insurance policies amounted to
RMB2.812 billion, representing an increase of 31.65% as compared to the previous year; income from agency
distribution of funds amounted to RMB7.519 billion, representing an increase of 164.10% as compared to
the previous year; income from agency distribution of precious metal amounted to RMB134 million. Such
growth is primarily attributable to substantial growth in income from wealth management services driven
by rapid surges in the domestic capital market during the first half of 2015 and the quality customer base
of the Company. Bank card fees amounted to RMB9.461 billion, representing an increase of 24.62% as
compared to 2014 (calculated on the same statistical calibre). Income from agency sales of bonds amounted
to RMB1.809 billion, representing an increase of 66.41% as compared to the previous year. Custodian fee
income amounted to RMB3.567 billion, representing an increase of 68.89% as compared to the previous
year.
The capital efficiency remained stable
As at the end of the reporting period, the capital adequacy ratio and Tier 1 capital adequacy ratio of
the Company measured under the weighted approach were 11.46% and 9.44% respectively; up by 0.19
percentage point and 0.32 percentage point respectively as compared with those as at the end of the
previous year. The capital adequacy ratio and Tier 1 capital adequacy ratio of the Company measured under
the advanced approach were 12.15% and 10.38% respectively, up by 0.22 percentage point and 0.38
percentage point respectively as compared with those at the end of the previous year. The risk adjusted
return on capital (RAROC) before tax under the weighted approach was 21.15%, maintaining at a level
which was significantly higher than the capital cost.
5.
The operational efficiency was kept at a satisfactory level
54
China Merchants Bank
Annual Report 2015
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 2015, the balance of credit commitments was RMB1,170.100 billion. For details of the contingent liabilities
and commitments, please refer to "Contingent liabilities and commitments" in "Notes to the Financial Statements"
of this report.
5.7 Others
3
2,077
3
Subsidiaries
311,443
7
279,541
6
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
5,345
Total
4,731,829
100 4,416,769
100
73,431
100
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
7
3
As at the end of the reporting period, the cost-to-income ratio of the Company was 27.28%, representing
a decrease of 3.28 percentage points as compared with the previous year; the revenue per person was
RMB2.54 million, representing an increase of 15.29% as compared with the previous year; the profit before
tax per person was RMBO.91 million; the profit before tax per outlet was RMB43.80 million.
56
1.
Overview of the macroeconomic and financial outlook
In 2015, the domestic economy generally continued its slowdown trend with decelerating social investments due
to overcapacity and destocking pressure. The industrial growth rate generally stayed low while the consumption
growth rate has been stable since the second half of the year. Due to weak demands at home and abroad, imports
and exports remained sluggish. The product price index remained low. From the perspective of monetary finance,
in order to relieve the intensifying downward pressure on the domestic economy, the central bank, on the premise
of adopting the prudent monetary policies, took various measures including deposit reserve ratio cuts and interest
rate cuts and employed various monetary policies to ensure a moderately loose liquidity position in the market and
a lower social financing cost. As a result, growth in social financing, credit facilities and money supply generally
remained stable. On the other hand, the government increased its fiscal efforts, supported the swap of local debts,
innovatively adopted the PPP model and promoted the policy bank to issue long-term special financial bonds, so as
to boost steady economic growth. The exchange rate of RMB against USD experienced large drops after the foreign
exchange regime was reformed in August. The downward trend became increasingly notable when the expected
USD interest hike became a reality at the end of the year. The domestic capital market was generally bullish in the
first half of the year. However, it suddenly turned into drastic slumps in the middle of the year, then fluctuated
within certain ranges and plummeted again at the end of the year, reflecting the uncertainties in the effectiveness
of the PRC government's various reform policies and investors' expectation of sequent economic situation. The
economic indicators for the whole year suggested a struggle to bottom out from this economic downturn cycle.
57
58
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
2.
5.9.1 The Impact of Changes in Operating Environment and Key Business Concerns
Net interest margin
In particular: firstly, the percentage of demand deposits of low cost savings and the demand deposits and placements
from banks and financial institutions to total deposits rose quickly in substitution of high-cost debts under the
current monetary policies, thus lowering the cost of debts at a rapid pace; secondly, the Company tightened control
over the cost of structured deposits and medium- and long-term debts with interest rates higher than that quoted
in the open market in the context of continuous interest cuts; thirdly, the proportion of income from credit card
repayment by instalments increased rapidly, leading to higher profitability of overall retail loans. However, on the
other hand the central bank's interest rate cuts had negative impacts on the net interest margin.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
Looking forward to 2016, given that the negative impact of the five interest rate cuts announced in 2015 will be
fully reflected in the re-pricing of the Company's assets and liabilities. Coupled with the combined effects of the
increase in the cost of debts which may result from changes in the debt structure due to interest rate liberalisation
and the declining financing needs from the real economy, it is expected that the Company's overall net interest
margin will show a steady decline trend. On the other hand, certain potential factors would have positive effect on
the net interest margin: firstly, as the monetary policies are currently loosening at a steady pace, the percentage
of demand deposits to total deposits may continue to rise from historical highs in 2015, which will help lower
the cost of liabilities; secondly, given the increased volatility in the foreign currency market, the Company expects
a slower pace in interest rate cuts and a greater possibility in deposit reserve ratio cuts. The latter will free up
statutory deposits to generate investment income, which in turn will increase the returns on assets. In response to
the changes in the external situation, the Company will further optimise its loan portfolio, properly allocate the
credit resources of the Bank and strengthen innovation on investment and financing businesses, striving to improve
the return on assets. Meanwhile, the Company will consistently implement the operating principle of maintaining
a reasonable asset-to-liability ratio and exercise reasonable control over the cost of debts, aiming to maintain the
relative advantage of the net interest margin and profitability of the Company.
In face of the accelerated interest rate liberalisation, the Company will continue to promote all related work in
response to interest rate liberalisation. Firstly, the Company will establish a product pricing management mechanism
which takes the market yield curve as the basis for pricing, and internal fund transfer pricing (FTP) as the tool, and
covers all the deposits and loans denominated in domestic currency and foreign currencies. Secondly, the Company
will independently research and develop the product pricing management system covering all on- and off-balance
sheet asset and liability businesses, comprehensively and accurately estimate the cost and return of each item
and implement the "customer-centric" differentiated pricing strategy. Thirdly, the Company will strengthen the
management of interest rate risk in an active and forward-looking manner, constantly optimise the asset-liability
structure and continuously improve its interest rate risk with strong asset sensitivity. Fourthly, the Company will
enhance the management and operational capabilities of the treasurer and strengthen the management of market
financing and active liability taking.
3.
Assets quality of key areas
As at 31 December 2015, the non-performing loan ratio of the Company was 1.80%, representing an increase of
0.60 percentage point as compared with the end of the previous year, while the proportion of special mention loans
to the total was 2.65%, up by 0.71 percentage point from the end of the previous year. The allowance coverage
ratio of our non-performing loans was 177.09%, representing a decrease of 52.90 percentage points as compared
with the end of the previous year. The credit cost ratio was 2.35%, an increase of 0.92 percentage point as
compared with the end of the previous year. The risk exposure was generally controllable.
In 2015, the net interest margin of the Company was 2.81%, up by 11 basis points as compared with the previous
year. The increase against the backdrop of interest rate cuts was primarily due to the fact that the Company
proactively improved interest rate risk management, constantly optimised the asset and liability structure, proactively
increased the percentage of fixed-rate loans before and during the interest rate cut cycle and controlled the cost
of debts despite interest rate cuts in the market by leveraging on the Bank's advantage in retail finance, which not
only offset the negative impact of interest rate cuts on interest spread, but also enabled the Company to widen its
interest spread.
55
5.9 Changes of the External Environment and the
Corresponding Measures.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
6.
The e-banking channel replacement ratio improved continuously
During the reporting period, the Company continued to establish the "light" operation platform to develop
its mobile phone-based retail business, thereby effectively raising the e-bank channel replacement ratio. As at
the end of the reporting period, the overall counter replacement ratio in respect of retail e-banking channels
reached 97.32%, representing an increase of 1.94 percentage points over the previous year. Visual electronic
counters played a remarkable role in replacement of processing non-cash transactions at outlets, with the
replacement ratio of non-cash transactions reaching 20.48%. The overall counter replacement ratio in
respect of corporate e-banking channels reached 59.04%; whereas 95.50% of transaction settlements were
completed via online corporate finance services, representing an increase of 2.54 and 2.18 percentage points
respectively over the previous year.
Analysis on achievements in implementing the "One Body with Two Wings" strategy
1.
2.
During the reporting period, both corporate finance and financial institutions finance of the Company grew
rapidly, laying a solid foundation for the development of our retail finance. In 2015, our corporate finance
boosted the expansion of retail customer base by vigorously promoting retail finance services including
payroll service, corporate card service and pension. With the coordinated support of retail finance business
by corporate finance business, the Company handled an amount of over RMB1,000 billion under its payroll
service, issued 122,200 cards under its corporate card service and managed pension assets of over RMB130.0
billion. Meanwhile, the asset management business of our financial institutions finance offered wealth
management products based on market changes to promote the development of our retail finance, aiming at
catering to the differentiated investment needs and risk preferences of retail customers. During the reporting
period, the Company offered 3,527 wealth management products with a total amount of RMB7,235.603
billion to retail customers, and the balance amounted to RMB907.384 billion as at the end of the period.
3.
The value contribution of retail finance continued to grow
In 2015, the value contribution of retail finance grew steadily. Profit before tax reached RMB34.792 billion,
representing an increase of 19.54% as compared to the previous year, and its proportion to the Company's
pre-tax profit increased continuously to 50.47%, 7.73 percentage points higher than that for the previous
year. The net operating income from retail finance grew rapidly to RMB89.186 billion, representing an
increase of 30.04% as compared to the previous year; and accounted for 46.44% of the Company's net
operating income, representing an increase of 2.93 percentage points as compared to the previous year. The
risk adjusted return on capital (RAROC) before tax of the retail finance under the weighted approach was
80.4%, representing an increase of 26.4 percentage points as compared to the previous year.
Rapid growth in income from financial institutions finance and slight decrease in income from
corporate finance
During the reporting period, the Company recorded operating income from financial institutions finance of
RMB26.448 billion, representing an increase of 40.29% as compared to the previous year; operating income
from corporate finance of RMB74.491 billion, representing a decrease of 3.78% as compared to the previous
year. For the reasons for such decrease, please refer to the section headed "Corporate finance".
Satisfactory achievements were made in the operation strategy where "one body' is a driver for 'two
wings', while 'two wings' are supplements for 'one body'"
126,892
In 2015, the retail finance of the Company exerted its advantage in retail customer resources to enhance
the referral of corporate customers. During the reporting period, our Diamond-class customers made a
referral of 853 corporate customers, and the small- and micro-enterprise customers opened 8,891 active
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.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
The Company's development strategy of "One Body with Two Wings" puts more emphasis on mutual
promotion and overall optimum of the Company's business segments while further highlighting the strategic
position of our retail finance business.
15
Percentage
(2,671)
(3.64)
Total
75,079
100.00
73,431
100.00
During the reporting period, the percentage of profit from retail finance of the Group continued to grow. Profit
before tax amounted to RMB34.792 billion, up by 19.54% from the previous year, representing 46.34% of the total
profit before tax, representing an increase of 6.70 percentage points as compared with the previous year. At the
same time, the cost-to-income ratio of retail banking business (excluding business tax and surcharges) was 35.72%,
representing a decrease of 3.92 percentage points as compared with 2014.
51
52
China Merchants Bank
V Report of the Board of Directors
Annual Report 2015
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.
Total assets
Total liabilities
31 December 2015
50
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
As at 31 December 2015, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Company under the
weighted approach were 11.46% and 9.44%, respectively, representing an increase of 0.19 percentage point and
0.32 percentage point respectively as compared with those at the beginning of the year.
(in millions of RMB, except for percentages)
The Company
Capital adequacy ratios under
the weighted approach
1. Net core Tier 1 capital
6.39
4,796
Other businesses
22.06
515,926
12
North-eastern China
173,827
4
170,945
Central China
333,656
7
328,146
248
15,988
22
2. Net Tier 1 capital
3,865
7,510
10
30,798
41.94
Retail finance
34,792
46.34
29,105
39.64
Financial institutions finance
22,983
30.61
16,199
5
At the end of
the reporting
period
31 December
Type of risk exposure
Legal person
Group
Portion covered by the foundation
IRB approach
Financial institution
576,858
576,858
Corporate
1,577,865
1,577,865
Retail
1,443,562
1,443,562
Unit: RMB million
Of which: Personal housing mortgages
Qualified revolving retail
Other retail
491,748
561,704
561,704
390,110
390,110
Portion not covered by the foundation On-balance sheet
2,426,490
2,722,954
IRB approach
Off-balance sheet
Counterparty
158,050
7,350
166,857
491,748
11
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:
up by 0.32 percentage point
up by 0.32 percentage point
up by 0.19 percentage point
2015
At the end of
the previous
year
31 December
2014
Increase/decrease at
the end of the reporting
period as compared with
the end of the previous
year (%)
307,888
268,845
14.52
307,888
268,845
14.52
3. Net capital
Balance of credit risk exposures
373,886
12.64
4. Risk-weighted assets
3,261,357
2,946,283
10.69
5. Core Tier 1 capital adequacy ratio
9.44%
9.12%
6. Tier 1 capital adequacy ratio
9.44%
7. Capital adequacy ratio
11.46%
9.12%
11.27%
331,937
Profit before
tax by segment
527,907
Pearl River Delta and West Side of
511,402
9
503,469
10
11,163
15
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
3,683
Bohai Rim
5
3,572
Evaluation on implementation of the "Asset-light Banking" strategy
(%)
Profit before
tax by segment
Percentage
(%)
12,508
16.66
59
31 December 2015
Total profit before tax
2015
(in millions of RMB, except for percentages)
Amount
Percentage
(%)
Percentage
5
Amount
Amount
Percentage
(%)
Head Office
2,105,486
38
1,808,257
35
31,968
42
Yangtze River Delta
762,902
14
761,795
(%)
Western China
421,469
8
(in millions of RMB, except for percentages)
Amount
(%)
Amount
Percentage
(%)
Amount
Percentage
(%)
Head Office
1,863,145
39
1,629,954
37
1,998
Percentage
3
590,741
12
586,447
13
10,514
15
Bohai Rim
425,612
9
414,438
9
14,922
20
Yangtze River Delta
Taiwan Strait
2014
31 December 2014
422,455
8
431
1
Overseas
142,219
3
140,900
3
1,791
2
Subsidiaries
Total
31 December 2014
336,928
296,496
6
6,263
8
5,474,978
100
5,113,220
100
75,079
100
Total assets
Total liabilities
Total profit before tax
6
1.
In 2015, the retail finance of the Company maintained a rapid growth in its profit contribution and steady
improvement in value contribution. Its profit before tax reached RMB34.792 billion, representing an increase of
19.54% as compared with the previous year. As a percentage to the total profit before tax of the Company, it
increased to 50.47%, representing an increase of 7.73 percentage points as compared with the previous year.
The net operating income from the retail finance also maintained a rapid growth. It reached RMB89.186 billion,
representing an increase of 30.04% as compared with the previous year, and accounting for 46.44% of the net
operating income of the Company, up by 2.93 percentage points as compared with the previous year. Among
which, the net interest income from retail finance reached RMB62.406 billion, representing an increase of 22.78%
as compared with the previous year and accounting for 69.97% of the net operating income from retail finance
of the Company; the net non-interest income from retail finance amounted to RMB26.780 billion, representing an
increase of 50.81% as compared with the previous year and accounting for 30.03% of the net operating income
from retail finance, and 44.96% of the net non-interest income of the Company. In 2015, the retail finance of the
Company recorded a commission income of RMB9.353 billion from bank cards (including credit cards), representing
an increase of 24.86% as compared with the previous year on the same calibre; the fee and commission income
from retail wealth management was RMB17.079 billion, representing an increase of 83.86% as compared with the
previous year and accounting for 66.04% of the net fee and commission income from retail finance.
The proprietary funds invested in non-standard debt assets, the resale to Party B under repurchase
agreement () and the resale to Party C under repurchase agreement () (CMB as
funding provider)
V Report of the Board of Directors
7.
As at the end of the reporting period, the Company's wealth management funds invested in margin financing in the
secondary stock trading market amounted to approximately RMB30 billion, significantly lower than that as recorded
during the peak season due to the stock market crash. The Company exercised strict risk control over margin
financing in the secondary stock trading market and dynamically adjusted the product leverage ratio according to
market conditions. Following the stock market crash, the Company further verified the source of subordinated funds,
increased subordinated investors' obligations to cover their short position, raised the threshold for subordinated
investors to withdraw gains and lowered the concentration of any single stock to constantly strengthen risk control
over the business, and made reasonable investments within the permitted scope in accordance with the CBRC's
window guidance and policy requirements for structured products. As at the reporting period, the risks associated
with this business were kept under control.
As at the end of the reporting period, the Company's wealth management funds invested in the equity-pledged
financing business amounted to RMB24.442 billion, representing a substantial decrease as compared with that as
at the end of the previous year, which was mainly due to the fact that the Company had vigorously lowered the
share pledge ratio, raised the pre-warning/closing line, controlled the concentration of pledged shares and enhanced
the restricted share pledge management since April 2015 to strictly prevent the market downturn risk, taking into
consideration the gradual accumulation of investment risk due to the excessive growth in the domestic stock market
within a short term. The Company has prudently and gradually relaunched the business of wealth management
funds invested in the equity-pledge financing since the fourth quarter of 2015. As at the end of the reporting
period, the risks associated with this business were controllable.
As at 31 December 2015, the balance of the Company's proprietary funds invested in non-standard debt assets
amounted to RMB684.791 billion, representing an increase of 87.40% as compared with that at the end of the
previous year. Among which, the balance of our proprietary funds invested in non-standard debt assets under the
credit category amounted to RMB238.384 billion, representing a decrease of 0.21% as compared with that at the
end of the previous year. The non-performing ratio was 0.80%, up by 0.80 percentage point as compared with that
at the end of the previous year. The balance of our proprietary funds invested in non-standard debt assets under
the non-credit category amounted to RMB446.407 billion, representing an increase of 252.77% as compared with
that at the end of the previous year. Such investment business developed on the basis of risk exposure of financial
institutions were mainly classified into three categories: the first category comprises negotiated deposits or term
deposits being placed with other commercial banks, which recorded a balance of RMB53.498 billion as at the end of
the reporting period, representing a decrease of RMB3.734 billion as compared with that at the end of the previous
year. The second category comprises the beneficiary rights to discounted bank acceptance bills and commercial
acceptance bills, which recorded a balance of RMB380.090 billion as at the end of the reporting period, representing
an increase of RMB320.632 billion as compared with that at the end of the previous year, which was mainly due
to the fact that the Company had actively adjusted the asset structure and increased the volume of its interbank
investment in bills assets in response to changes in the economic situation. The third category comprises creditor's
beneficiary rights to other commercial banks (creditor's rights include wealth management products, domestic letter
of credit, etc.), which recorded a balance of RMB12.819 billion as at the end of the reporting period, representing
an increase of RMB2.967 billion as compared with that at the end of the previous year. The Company has enhanced
and will continue to enhance risk review and compliance review in the use of funds, accurately measure risks and
make adequate capital provision based on the nature of investment assets in strict compliance with the requirements
of the "Notice on Regulating the Interbank Business of Financial Institutions" (Yin Fa [2014] No. 127). As at 31
December 2015, the balance of provision for our proprietary funds invested in non-standard debt assets under the
credit category amounted to RMB4.774 billion, with an allowance ratio of 2.00%.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
As at 31 December 2015, the balance of the Company's reverse repurchase businesses (CMB as funding provider)
including the trust beneficiary rights under resale agreements, the asset management schemes and the debenture
beneficiary rights aggregated to RMB25.724 billion, representing a decrease of 76.65% as compared with that at
the beginning of the year. The three items of non-performing assets totalled RMB764 million with a non-performing
loan ratio of 2.97%, of which RMB564 million is being claimed against the relevant financial institutions. It is
estimated that the possibility to eventually record a loss on those assets is remote. The Company has made capital
provision for these assets based on the risk exposure of corresponding financial institutions, and has ceased to
engage in the third-party reverse repurchase businesses of the trust beneficiary rights and the asset management
schemes as required by the "Notice on Regulating the Interbank Business of Financial Institutions" (Yin Fa [2014]
No. 127), the existing transactions of which will be settled as contracted. As at the end of the reporting period, the
balance of the Company's resale to Party C under repurchase agreement () amounted to RMB11.459
billion, down by 56.28% as compared with that at the end of the previous year.
8.
Internet Finance
In 2015, in response to challenges from the Internet, interest rate liberalisation and financial disintermediation
and the external unfavorable environment of economic downturn, internally, the Company promoted the overall
development of Internet finance featuring "building service platforms, connecting to external traffic and conducting
traffic operation (內建平台、 外接流量、 流量經營)”, so as to transform its operation management into the
Internet-based operation model. Externally, the Company focused on diversified cross-industry cooperation,
promoted the innovation of the external competition and cooperation model, developed the cross-industry financial
service platform, tapped external traffic and innovated its financial products and services. The optimised operation
model has started to demonstrate the vitality of the eco-system, establishing CMB's unique competitive edge in the
differentiated Internet finance.
As for retail finance, adhering to its strategy of "prioritising the development of mobile phone applications", the
Company strove to migrate its customer services to mobile handset interface. Meanwhile, the Company focused on
mobile phone application to restructure its internal and external service processes and promote the Internet-based
operation across the Company. As at the end of the reporting period, total downloads of the mobile user application
"CMB Life ()" reached 62,720,000 times, the total number of registered users of CMB Life ()
reached 20,540,000, and the number of such active customers reached 18,390,900 during the year. For the relevant
data on Mobile Banking, please refer to Section 5.10.4. As for the Internet account system, the Company has
developed the "light" account product "All-in-one Net (-)" which has integrated various platforms including
"CMB Life ()", Mobile Banking and Online Banking, laying a solid foundation for obtaining external traffic
and securing customers via both online and offline platforms. As for mobile payment, the Company has developed
the card-free payment product "All-in-one Net Payment (-)" for its users, and introduced two-dimensional
code, biometrics and other new interactive features. The Company has built into its credit cards a new hybrid
payment tool "Yi Zhao Guo (-)" which connects merchants with users, thereby restructuring the restaurant
vouchers and movie ticket system under the existing business system and rapidly expanding the volume of its offline
consumption platform to seize the payment service market. The Company also jointly launched the VISA-Checkout
with VISA and the HCE "All-in-one Mobile * Yun Shan Fu (-)" with China Union Pay respectively, both
receiving high recognition from all walks of life. Thanks to the cooperation with Apple through China Union Pay in
mobile payment, the Company became one of the first card issuers supporting Apple Pay, and maintained a leading
position among its peers in terms of market share. As for the online and offline service integration, the Company
focused on mobile phone application to re-engineer the service processes of its existing outlets, fully explored
and optimised the 020 "light" customer acquisition model, and improved the data-driven customer acquisition
efficiency.
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64
V Report of the Board of Directors
As for corporate finance, the Company continued to innovate its Internet technology and customer service model,
tapped into innovative corporate customers' various demands for supply chain management, financial management
and daily production and operation by capitalising on its Small Business E Home (E) platform, and has
preliminarily built the point-to-point system for its corporate financial services. In order to meet Internet-based
enterprises' demand for online payment and settlement service, guarantee transactions and offline collection and
payment service, the Company has improved the mobile cheque service, E+ account service and other innovative
products, thereby catering to enterprises' demand for non-office transactions and settlements in different banks and
regions and at different time. As at the end of the reporting period, the number of registered customers of "Small
Business E Home (E)" exceeded 10,000,000, and the number of customers using the mobile cheque service
was over 240,000.
As for financial institutions finance, the Company stepped up the development of the Zhao Ying Tong ()
financial institution investment and financing platform, promoted the transformation of its financial institution
business towards "online and mobile Internet-based operation model", developed rapid and convenient transaction
functions, and relied on its existing platforms to roll out the "official flagship store" business model, thus upgrading
its services targeted at financial institution customers, and becoming the channel service platform and the financial
institution resource-sharing platform covering its seven major product lines including "Yi Hu Tong (F)", "Zi
Chan Tong ()”, “Kua Jing Tong ()", "Li Cai Tong ()", "Jiao Yi Tong ()", "Piao Ju Tong (
)" and "Tuo Guan Tong ()". During the reporting period, the number of customers of the "Zhao Ying
Tong ()" financial institution wealth management business increased by 655 to 731, covering various financial
institutions such as securities firms, trust companies, financial companies and insurance companies.
In 2015, the Company proactively forged a cross-industry alliance to explore the new development model of
Internet-based finance service. As for living service finance, CMB and Didi Taxi () have jointly announced a
strategic cooperation in which they will commence comprehensive cooperation in capital, payment and settlement,
finance, services and marketing in future. The "Didi Mode ()" jointly developed by both parties for
payment cooperation has entered into the pilot run stage and will be launched in 2016. It is the first time for a
commercial bank to enter into the mobile payment field through cooperation with a mobile Internet company. As
for Internet-based consumption finance, CMB-China Unicom Consumption Finance Co., Ltd. (GAR✰27)
("CMB-China Unicom Company"), jointly established by CMB and China Unicom, received its financial license and
commenced trial operation in March 2015. It has also launched two flagship product lines known as "Hao Qi Dai
()" and "Ling Ling Hua (3)", both of which achieved remarkable results. As at the end of the reporting
period, CMB-China Unicom Company had an aggregate of 6,468,700 registered users, the majority of whom
were frequent users of small-amount consumption loans, with a credit size of RMB4.913 billion, a loan balance of
RMB2.028 billion and a non-performing loan ratio of 0.63%. As for Internet-based asset trading, the Company and
China Merchants Group Ltd. made a joint investment to register and establish a financial asset trading center in
Qianhai, Shenzhen. By leveraging on the policy advantage in Qianhai and the most cutting-edge Internet technology,
the Company has offered the cross-border financial asset trading services to institutional members and individual
investors and forged a cloud-based wealth management platform.
China Merchants Bank
Annual Report 2015
62
61
During the reporting period, the Company prudently carried out the business of wealth management funds invested
in beneficiary rights of margin financing and securities lending. As at the end of the reporting period, balance of
wealth management funds invested in beneficiary rights of margin financing and securities lending amounted to
RMB27.570 billion, representing a decrease of RMB39.007 billion or 58.59% as compared to the end of the previous
year, mainly due to the fact that customers' financing demand weakened in the wake of drastic fluctuations in the
domestic stock market and that securities firms were able to raise funds by way of bond issues, leading to reduced
demand for margin financing and securities lending. The Company implemented strict entry approval system for such
business, strengthened its daily monitoring, verified its asset value on a monthly basis after the stock market crash,
and suspended the businesses newly introduced by securities firms which were subject to penalty by the CSRC, so as
to strengthen risk control over such business. As at the end of the reporting period, the risk exposure of the wealth
management funds invested in beneficiary rights of margin financing and securities lending of the Company was
kept under control without overdue.
60
60
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
In respect of real estate credit business, the Company continued to enhance the on- and off-balance sheet quota
control on full statistical calibres, proactively and dynamically adjusted its credit policy, and strengthened the
customer list management. The Company also optimised its resources allocation by allocating its credit resources
to strategic customers and implemented stringent entry standards with respect to customers, regions and projects,
thereby further raising the proportion of its strategic customers 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 RMB331.621 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 RMB22.195 billion as compared with the beginning of
the year. Among which, the balance of loans for domestic corporate real estate amounted to RMB173.226 billion,
representing an increase of RMB32.378 billion as compared with the end of the previous year, which accounted
for 6.69% of the Company's total loans, up by 0.53 percentage point as compared with the end of the previous
year, and the non-performing loan ratio was 0.67%, up by 0.35 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, proprietary investment and investment of wealth management products in
non-standard assets.
In respect of loans extended to local government financing platforms, the Company implemented quota
management on full statistical calibres. The Company further specified the requirements of controlling the total
amount of loans, adhered to the entry standard of "high level and strong cash flow", and prioritised the allocation
of its credit resources to the government financing platforms being operated under commercial principles 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, with a focus on the progress of
replacement of local government debts, 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 RMB257.605 billion (including businesses such as actual and contingent
credit, bond investments, proprietary investment and investment of wealth management products in non-standard
assets), representing an increase of RMB19.009 billion as compared with the beginning of the year. Among which,
the balance of loans on balance sheet amounted to RMB131.299 billion, representing an increase of RMB16.815
billion as compared with the end of the previous year, which accounted for 5.07% of the total loans granted
by the Company, up by 0.06 percentage point as compared with the end of the previous year. There was no
non-performing asset.
For overcapacity industries such as iron and steel, cement, plate glass, electrolytic aluminium, shipbuilding,
polysilicon and coal chemicals, the Company dynamically adjusted its credit policies, raised its entry standards,
supported its quality customers, refined customer list management 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 economic downturn, 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 coal chemical industry. During the reporting period, the balance of our
loans extended to overcapacity industries amounted to RMB49.044 billion, representing an increase of RMB6.300
billion as compared with the end of the previous year, and accounting for 1.89% of total loans of the Company, up
by 0.02 percentage point as compared with that at the beginning of the year. The non-performing loan ratio of the
Company was 5.46%, up by 3.71 percentage points as compared with that at the beginning of the year.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
4.
As at the end of 2015, the Company's risk-weighted assets under the weighted approach increased by 10.69%, 5.27
percentage points lower than the growth rate of total assets. The Company has maintained a reasonable and healthy
growth in its risk-weighted assets, which was mainly attributable to the fact that the Company has implemented the
operation strategy of "Asset-light Banking", increased its effort to develop the asset-light businesses and moderately
slowed down the growth of risk-weighted assets. In 2016, the Company will continue to implement the operation
strategy of "Asset-light Banking", optimise the asset structure, raise the asset turnover rate and improve the lean
management, in order to keep the growth rate of risk-weighted assets under that of total assets.
5.
Capital Management
6.
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
countercyclical capital requirements under the transitional arrangements of the CBRC.
On 18 April 2014, the CBRC approved the Company's implementation of the advanced approach for capital
measurement. Meanwhile, the CBRC also allowed a grace period for commercial banks which have been approved
to adopt the advanced approach for capital measurement. During the grace period, commercial banks shall
calculate their respective capital adequacy ratio by using the advanced approach for capital measurement and other
approaches and shall comply with the minimum capital requirements. The volume of risk weighted assets of the
Company under the advanced approach is significantly lower than that under the weighted approach. This is mainly
due to the diversified nature of retail assets which bring about significant capital efficient effect under the advanced
approach. As the Company always places emphasis on the strategy of retail banking, retail assets account for a
larger proportion in its total assets.
With respect to the optimisation of asset structure, in 2015, the Company issued a total of 4 credit asset-backed
bonds with total amounts of RMB23.02 billion in the inter-bank bond market. The Company will further expedite
the development of its asset securitisation business next year. As regards to the optimisation of capital structure, the
Company continued to pay attention to various new capital instruments.
The Company's capital management goals for 2015 to 2017 were set at 9% for the core Tier 1 capital adequacy
ratio, 10% for the Tier 1 capital adequacy ratio and 12% for the capital adequacy ratio respectively, all to be
achieved by the end of 2017. The Company's core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and
capital adequacy ratio under the advanced approach in 2015 was 1.38, 0.38 and 0.15 percentage point(s) higher
than the aforesaid capital management goals, respectively.
The investment of wealth management funds in beneficiary rights of margin financing and securities
lending, margin financing in the secondary stock trading market, and equity-pledged financing
Growth rate of risk-weighted assets
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
Impact of new regulatory requirements for the deposit-to-loan ratio
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
Retail customers and total assets under management from retail customers
As at the end of December 2015, the number of retail customers of the Company reached 66.94 million,
representing an increase of 19.00% as compared with the beginning of the year. Among which, the number of
Sunflower-level and above customers (being retail customers of the Company with minimum total daily average
assets of RMB500,000 per month) reached 1,647,600, representing an increase of 27.76% as compared with the
beginning of the year. The balance of total assets under management (AUM) from our retail customers amounted
to RMB4,749.6 billion, representing an increase of 36.88% as compared with the beginning of the year and an
incremental increase of RMB635.0 billion as compared with the previous year. Among which, the balance of total
assets under management from Sunflower-level and above customers amounted to RMB3,729.6 billion, representing
an increase of 43.41% as compared with the beginning of the year, and accounting for 78.52% of the balance of
total assets under management from retail customers of the Bank. The balance of deposits from retail customers
amounted to RMB1,129.124 billion, representing an increase of 11.33% as compared with the beginning of the
year. Of which, the percentage of demand deposits grew to 71.10%, up by 10.05 percentage points as compared
with the previous year. According to the data released by the PBOC, the Company continued to rank first among
domestic small- and medium-sized banks in terms of the balance and the increment of retail deposits. The total
number of All-in-one Cards held by retail customers was 91.16 million, representing an increase of 19.92%
as compared with the end of the previous year. The average deposit balance per All-in-one Card amounted to
RMB11,100, almost unchanged as compared with the previous year; and the accumulated transaction amount of
All-in-one Cards was RMB2,047.245 billion, representing a growth of 20.13% as compared with the previous year.
The transaction amount of "All-in-one Card" via POS reached RMB907.3 billion, representing an increase of 11.96%
as compared with the previous year.
In 2015, the Company further consolidated its retail customer base through a number of initiatives, thereby
achieving steady growth in total assets under management (AUM) and volume of deposits from retail customers.
During the reporting period, by drawing upon the development opportunities of Internet finance, the Company
actively capitalised on opportunities brought about by Big Data and vigorously promoted the customer acquisition
model through "light" channels. The Company also upgraded its services in all aspects and provided its customers
with professional asset portfolio service according to their customised fund requirements as well as differentiated
risk preferences and life cycles. At the same time, the Company strengthened analysis of market volatility and
important policies, and increased efforts in prospective analysis of medium-term trend opportunities and risks and
portfolio strategy, with a view to help customers preserve and enhance the value of their assets. In addition, the
Company secured the settlement funds of the mass customers in daily life by providing various facilitation services
including CMB Life (), All-in-one Net and payment of utility fees, and solidified settlement funds of personal
loan customers with complementary financing services and convenient settlement instruments. Furthermore, the
Company continued to strengthen the development and promotion of new deposit products so as to cater for
customers' demand for diversified and flexible deposit products, thereby effectively mitigating the impact of deposit
migration as a result of various factors such as interest rate liberalisation, market volatility and diversified wealth
management products.
Wealth management
9.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
During the reporting period, the Company actively responded to the sustained market volatility and intense
competition from other industries, and assisted customers in recognising investment trends in the global market
and in building a reasonable investment philosophy with authoritative global market research results constantly
provided by the Investment Decision-making Committee from time to time. Moreover, the Company progressively
diversified its wealth management product portfolio, formulated investment strategies, developed and implemented
product investment portfolio, with a view to continuously create value for customers. In addition, the Company
further improved customer service procedures for pre-sale, during sale and post-sale stages under the customer-
centric principle, constantly launched the compliance education program for staff, strengthened the management of
licensed sales and compliant sales, so as to establish a sound and compliant asset portfolio service system.
Private banking
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 individual, family and enterprise customers with professional,
comprehensive and private services 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 2015, the Company had 49,032 private banking customers (retail customers of the
Company with minimum total daily average assets of RMB10 million per month), representing an increase of 49.12%
as compared with the beginning of the year; total assets under management from private banking customers
amounted to RMB1,252.1 billion, representing an increase of 66.37% as compared with the beginning of the year.
During the reporting period, the net operating income (excluding credit card income) from customers holding private
banking cards amounted to RMB4.821 billion, representing an increase of 31.97% as compared with the previous
year. Currently, the Company has established a high-end customer service network consisting of 45 private banking
centres and 62 wealth management centres.
In 2015, in order to proactively respond to market fluctuations, the Company continued to deepen customer
management, strengthen self-initiated customer acquisition, establish overseas organisational framework, promote
the development of market-research-driven products and implement asset allocation, and pushed forward the
comprehensive upgrade of private banking business by providing various services including discretionary entrustment,
tax planning, overseas equity trust, family trust, M&A financing and investment banking matchmaking, with a view
to building an integrated financial service platform.
Credit cards
As at the end of the reporting period, the Company had issued 69.17 million credit cards in total; the total number
of active cards was 37.82 million, and 6.18 million new cards were issued during the reporting period. As at the
end of the reporting period, the number of active credit cards users was 31.03 million, representing an increase
of 19.03% as compared with the end of the previous year. The Company continued to improve the efficiency of
customer acquisition and customer management. The cumulative transaction value of credit cards in 2015 was
RMB1,819.5 billion, representing an increase of 36.67% as compared with the previous year, and the average
transaction value per month of each active card was RMB4,331. The percentage of the revolving balances of credit
cards was 24.72%. The balance of credit card overdrafts was RMB313.056 billion, representing an increase of
42.50% as compared with the end of the previous year. In 2015, the Company reclassified the income from credit
card repayment by instalments from non-interest income to interest income. After the adjustment, interest income
from credit cards for 2015 amounted to RMB26.729 billion, representing an increase of 56.81% as compared with
2014 (calculated on the same statistical calibre). Non-interest income from credit cards was RMB9.598 billion,
representing an increase of 38.78% as compared with 2014 on the same calibre. Adversely affected by the downturn
of the overall macro-economy of China, the non-performing loan ratio of credit cards business reached 1.37%,
up by 0.43 percentage point as compared with the end of the previous year. As the Company actively improved
risk pre-warning system, developed differentiated risk control strategy, introduced multi-dimensional monitoring
technology based on Big Data and strengthened risk control measures including post-loan management, the quality
of credit card assets maintained stable, the non-performing loan ratio stayed at a low level in the industry, and the
risk exposure was under control.
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67
In 2015, the Company recorded RMB7,980.6 billion in accumulated sales of personal wealth management products,
RMB605.7 billion in the distribution of open-ended funds, RMB105.4 billion in premium from agency distribution of
insurance policies and RMB280.0 billion in agency distribution of trust schemes. Fee and commission income from
retail wealth management business was RMB17.079 billion, representing an increase of 83.86% as compared with
the previous year and accounting for 66.04% of net fee and commission income from retail finance. Among them,
income from agency distribution of funds amounted to RMB7.511 billion, representing an increase of 164.29% as
compared with the previous year; income from agency distribution of insurance policies amounted to RMB2.805
billion, representing an increase of 31.94% as compared with the previous year; income from entrusted wealth
management amounted to RMB3.209 billion, representing an increase of 54.20% as compared with the previous
year; income from agency distribution of trust schemes amounted to RMB3.429 billion, representing an increase of
63.60% as compared with the previous year.
Business overview
On 29 August 2015, the decision to amend "The PRC Commercial Banking Law" was voted and approved by
the Standing Committee of the National People's Congress, pursuant to which the regulatory indicators for the
deposit-to-loan ratio was officially removed with effect from 1 October 2015. The promulgation of this policy will
generally benefit the loan granting of the Company. However, due to the fact that credit resources are still subject
to the requirements of capital adequacy ratio, coupled with the negative impact of macro-economic downturn and
the deteriorated quality of loan assets as well as the Company's own liquidity management needs, the removal of
the deposit-to-loan ratio may have limited impact on the grant of the Company's loans, but will have a positive
effect on weakening the competition on securing deposits and controlling debt level. Subsequently, as for its assets,
the Company will put in more efforts to support the financing demands of its customers while optimising its loan
structure and customer portfolio, thereby propelling the development of real economy. As for its liabilities, the
Company will fully take into consideration liquidity management and profit targets, and constantly optimise its
liabilities structure and financing channels. Meanwhile, the Company will strive to reduce its liability cost and the
financing cost for customers by increasing efforts to develop the non-deposit liability business, such as the increase
in placements from banks and other financial institutions and the issuance of bonds, therefore promoting the stable
development of all business segments.
5.9.2 Outlook and Measures
Looking into 2016, the economic and financial situation at home and abroad will remain complicated and volatile.
Internationally, the normalisation of US monetary policies and the declining price of bulk commodities will trigger a
series of deep-seated problems; European economic recovery will be overcast by geopolitical factors; and emerging
economies will be more vulnerable to volatility. As such, the global economy can hardly shake off sluggishness, and
the stability of international financial markets and cross-border capital flow will be further undermined. Domestically,
the central government has set a clear goal to accomplish the five key tasks of "reducing overcapacity, destocking,
deleveraging, cutting down costs and overcoming weaknesses". The balance sheets of commercial banks will be
directly affected in the crucial stage of economic adjustment. Financial disintermediation will put more pressure
on banks' earnings after full liberalisation of deposit interest rates, while new entrants in the financial market will
trigger fiercer cross-industry competition.
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China Merchants Bank
Annual Report 2015
In contrast to its domestic peers, the Company has always prioritised development of retail finance business, and
promotes construction of its retail finance business system. It has developed a solid, premium and broad retail
customer base by capitalising on its business management system, product system, service system and risk prevention
system which are subject to improvement from time to time. The Company possesses outstanding competitive edge
in such core retail businesses as wealth management, private banking, retail credit and consumer finance.
V Report of the Board of Directors
At the same time, however, reform of the economic and financial systems and industrial upgrading will bring to
banks ample opportunities for further growth. Judging from the source of driving force, the three major drivers,
namely policy adjustments for economic reform, capital flow and resources restructuring and spontaneous market
evolvement and adjustment, will give birth to eight major growth opportunities for commercial banks: residential
sector will still have room to explore while retail banking will have larger room for growth; the wealth and asset
management market will increasingly expand, and diversified cross-market capital deployment will gear up onto
a faster lane; the multi-layer capital market will grow more mature and reasonably reflect the investment value
of listed companies, which will provide abundant opportunities for investment banking; investments will play a
critical role in stabilising economic growth, and infrastructural construction in certain regions will still have room for
faster growth with more assets to be allocated; the accelerated "going global" process of Chinese enterprises and
globalisation of RMB will bring valuable opportunities for cross-border finance; regional coordinated development
will surge with stunning growth and there will be vast market potential in regional transport integration,
urbanisation construction, public services and other fields; emerging industries will grow mature and provide
unmissable structural opportunities in the industries; and the dividend from reform of state-owned enterprises will
release gradually, which will bring multiple opportunities for banking transformation and customer restructuring.
At a deeper level, enterprises' financing needs are experiencing structural changes "from lower end to upper end",
"from debts to equities" and "from single market to multi-markets". "From lower end to upper end" means that
enterprises in need of financing have gradually changed from traditional and mature enterprises at the lower end of
their life cycles to hi-tech and innovative enterprises at the upper end of their life cycles; "from debts to equities"
means that enterprises' financing methods have shifted from the heavily reliant traditional debt financing to equity
financing, which was frequently referred to as financial disintermediation in the past; and "from single market to
multi-markets" means that financing channels have changed from the previous single market and single financing
method to multi-faceted market and multiple financing methods with a combination of equity and debt financing,
domestic and overseas financing, and off- and on-shore financing as well as domestic currency and foreign
currencies financing. Despite the lessened demand for traditional credit financing, emerging financing needs are
becoming new growth drivers for banking businesses.
Confronted with both challenges and opportunities under the new situation, the Company will unwaveringly implement
the transformation strategies of "Asset-light Banking" and "One Body with Two Wings", enhance risk management,
deepen structural adjustments and promote system reform. Under the current operating environment, the Company
plans to achieve a growth rate of approximately 11% and 9% respectively in proprietary loans and proprietary deposits
in 2016. Meanwhile, the Company will allow only moderate growth in risk assets, vigorously optimise assets structure,
raise capital utilisation ratio, and strive to "convert risk assets into good ones" by capitalising on existing credit resources.
In 2016, the Company intends to take the following major initiatives: Firstly, enhance asset quality management by
operating non-performing assets as a breakthrough to improve its overall risk management capability and fundamental
management capability, so as to prevent its existing asset quality from deterioration; secondly, deepen structural reform
to adjust its credit structure by reducing existing risk assets and utilising quality assets, improve its ability to acquire basic
retail customers through Internet platforms, optimise the credit financing procedures and culture of corporate finance
through implementing "customer list management", and raise the resource utilisation ratio by "either retaining or
reducing risk assets"; thirdly, promote system reform of the second batch of its branches across the Bank, optimise the
organisational structure of the Head Office, conduct system optimisation and put in place ancillary procedures, so as to
establish the "customer-centric" operation system which is manifested not only in the "organisational structure", but also
in the "operation systems".
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
5.10Business Operation
In 2015, facing the challenging and complicated economic and financial situations, the Company continued to
implement the transformation strategies of "Asset-light Banking" and "One Body with Two Wings", highlighted
its operational features by leveraging on its own advantages, fortified its business foundation through strict risk
control, promoted business operations primarily through structural adjustments, pushed forward reform-oriented
transformation, and achieved sustained and rapid development of all business lines. The profit contribution of
retail finance exceeded 50%, primarily driven by remarkably predominant businesses such as private banking,
wealth management and credit card businesses and the continuous rapid growth of high-end customer base. The
Company further featured its corporate finance and financial institutions finance, resulting in the fast growth in the
number of core customers of transaction banking business and the volume of settlement deposits, and outraced
its peers in investment banking, asset management, financial market and bills businesses in terms of business scale
as it captured market opportunities in a timely manner. Meanwhile, the Company further optimised its assets and
liabilities structure through promotion of asset-light operation and innovation efforts. As a result, the non-interest
income business achieved rapid growth, demonstrating the effectiveness of asset-light banking gradually.
5.10.1 Retail finance
Tough operating environment will bring many challenges to the Company. On the front of risk control, decelerating
macro-economy will pose direct impact on asset quality and put more pressure on making provisions, while the
complicated and volatile economic situation will fuel volatility in the financial market, posing a greater challenge
to commercial banks' capability and competency in risk control. On the front of business operation, economic
restructuring will reduce customers' appetite for traditional credit financing and further increase pressure on assets
investment. In addition, interest rate cuts will restrict banks' bargaining power on quality customers, and financial
disintermediation will further increase pressure on the growth of debts. On the front of earnings growth, worsening
financial environment may urge regulators to raise the regulatory standards for risk control, capital management
and indicators of commercial banks, which, coupled with the net interest margins adversely impacted by assets and
debts, particularly, the increase in provision expenditures resulted from deteriorating asset quality, will inevitably lead
to a slowdown in banks' earnings.
Other Financial Businesses
V Report of the Board of Directors
Asset management business
Firstly, business transformation was continuously deepened. According to regulatory requirements, the Company
increased the development and issuance of net-value products, and promoted net-value management of interest
rate products. As at the end of the reporting period, the balance of net-worth products amounted to RMB961.702
billion, representing an increase of 296.33% as compared with the beginning of the year, and accounting for
52.82% of the balance of wealth management business, up by 23.64 percentage points as compared with the
beginning of the year.
In addition to the rapid increase in volume, the wealth management business of the Company also made a number
of achievements in other fields as follows.
China Merchants Bank
Annual Report 2015
Secondly, quality assets were sought extensively. In 2015, in response to changes in risk appetite in the market, the
Company increased its bond asset investments and carried out actively-managed external investments under custody
in cooperation with asset management institutions of other financial institutions; made investments in securitised
assets and government-guided funds in a scientific way in line with market trend; invested in non-standard debt
assets within the quota limit in strict compliance with the regulatory guidance. As at the end of the year, the balance
of the wealth management funds of the Company invested in non-standard debt assets amounted to RMB168.761
billion. The non-standard debt assets were mainly from lending companies and banks and other financial institutions
in the industry. Based on its analysis on the credit standing of borrowers and the source of repayment funds of
investment projects, the Company selected to invest mainly in projects which had good credit standing, and for
which the source of repayment funds could be verified and projects covered by adequate cash flow. As a result, our
asset quality did not deteriorate obviously. In addition, the Company prudently carried out the business of wealth
management funds invested in beneficiary rights of margin financing and securities lending as well as the margin
financing in the secondary stock market, and strictly implemented the equity-pledged financing standards. For
details, please refer to Section 5.9.1 of this report.
During the reporting period, the wealth management business of the Company maintained a good development
momentum. The Company issued an aggregate of 8,330 wealth management products in the year, and recorded an
aggregate of RMB13.40 trillion in the sales of bank-wide wealth management products, representing an increase
of 83.81% 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 RMB1,820.693 billion, representing an increase of 118.97% as
compared with the beginning of the year.
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 member of Shanghai Clearing House for comprehensive foreign exchange settlements. As at 31 December
2015, the balance of all types of deposits of the Company from futures exchanges and futures companies was
RMB7.637 billion with 271 futures margin depository accounts.
5.10.3 Financial institutions finance
Financial institutions finance
Since the establishment of the financial institutions finance segment of the Company in late 2013, all business lines
of this segment saw rapid development. The financial institutions finance of the Company continued to record stable
growth in profits with increasing value contribution. During the reporting period, the financial institutions finance
of the Company realised pre-tax profit of RMB22.983 billion, up by 41.88% as compared with the previous year,
accounting for 33.34% of the profit before tax of the Company, up by 9.55 percentage points as compared with the
previous year; the operating income was RMB26.448 billion, representing an increase of 40.29% as compared with
the previous year, and accounting for 13.77% of the operating income of the Company. In particular, net interest
income was RMB11.466 billion, up by 24.25% as compared with the previous year, and the net non-interest income
was RMB14.982 billion, up by 55.66% as compared with the previous year.
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China Merchants Bank
Annual Report 2015
During the reporting period, the Company continuously consolidated its customer base. The Company had 1,027,800
corporate depositors, exceeding one-million benchmark. Among which, more than 300,000 were new customers
who opened accounts during the reporting period, representing an increase of 38.63% as compared with the
previous year.
V Report of the Board of Directors
With respect to M&A finance business, the Company has achieved a leap forward in both volume and efficiency and
forged a well-received market brand image. During the year, the Company completed a series of professional and
complicated projects with significant influence, and took a leading position in privatisation of China concept stocks
and large M&A syndicated financing business. Thanks to the constant improvement and innovation in its business
models, the Company achieved the zero breakthroughs in M&A matchmaking transactions, and realised seamless
link-up between M&A bridge financing and corporate wealth management. Moreover, the Company also explored
to lead syndicated commitment so as to enhance distribution capabilities. During the year, a total of RMB46.840
billion was granted for financing M&A activities, representing an increase of 64.18% as compared with the previous
year. Income from M&A intermediary business reached RMB542 million, representing an increase of 216.37% as
compared with the previous year.
Thirdly, remarkable results were achieved in product innovation. In 2015, the Company was the first to launch
the following products in China: successfully completed the first QDIE (Qualified Domestic Investment Enterprise)
transaction across the country after pilot implementation of the QDIE policy in Qianhai, Shenzhen; piloted the first
property fee asset securitisation product in the country, namely the "Special Plan for Securitisation of Property Fee
Asset of Shimao Tiancheng (X£»¤¤à¤#)"; and issued the first inter-bank open-ended net value
structured product, namely the "Ririying Structured Wealth Management Plan (= =5&y)". During the
reporting period, in order to capture business opportunities emerging in the domestic capital market, the Company
increased creation and issuance of equity-related products and improved the overall competitiveness of its products.
The Company innovated and launched the "Zhiyuan" and "Hongyuan" equity plus debt product portfolios for
investment in private placement assets and hedge funds, and the "Hengruibohui" direct equity investment products
for investment in the Sunshine Private Placement Funds in the secondary market leveraging on the manager of
managers fund("MOM") mode.
Business overview
The Company intensified construction of channels and enhanced value contribution from its financial institutions
customers for the purpose of deepening comprehensive cooperation with its customer base of financial institutions;
proactively responded to changes in the market and regulatory policies and adjusted and optimised the structure
of the over-the-counter treasury business to generate more revenue; the cross-border RMB interbank collaboration
business and bills business of the Company saw a rapid growth and maintained their leading position in the
industry. As at 31 December 2015, the balance of placements from banks and other financial institutions reached
RMB702.862 billion, representing an increase of 0.40% as compared with the beginning of the year. Among which,
the proportion of demand deposits increased by 24.52 percentage points as compared with the beginning of the
year to 58.51%, indicating optimization of the deposit structure; the balance of over-the-counter assets with other
financial institutions such as placements with other banks and assets purchased under resale agreements (including
bills and beneficial rights) amounted to RMB147.4 billion as at the end of the reporting period, down by 62.30%
as compared with the beginning of the year, mainly due to gradual settlement and clearance upon maturity of
suspended businesses; the balance of funds under third-party custody amounted to RMB173.517 billion, representing
an increase of 53.52% as compared with the beginning of the year, and the total number of customers under
third-party custody business was 6,445,400, representing an increase of 51.66% as compared with the beginning
of the year. During the reporting period, as the Company sped up the turnover of bills and shortened the duration
of transactions, the trading amount of discounted bills business for the whole year reached RMB33,711.952 billion,
representing an increase of 270.06% as compared with the previous year; the rediscount business with the central
bank amounted to RMB69.953 billion, representing an increase of 16.26% as compared with the previous year;
the volume of interbank cross-border RMB clearing service reached RMB2,260.0 billion, representing an increase
of 187.90% as compared with the previous year, and the total number of clearing accounts amounted to 132,
representing an increase of 19 as compared with the beginning of the year. The number of interbank cross-border
RMB clearing accounts ranked first among national small- and medium-sized banks. As for the settlement and
custody of margin trading and short selling, the Company maintained business cooperation with 73 securities firms
including 9 new firms who just commenced cooperation with the Company during the year.
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In 2015, 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 an asset-light bank and keeping abreast of the changes
in customers' financing needs. The Company had 26,500 corporate borrowers, representing a decrease of 23.85%
as compared with the beginning of the year.
China Merchants Bank
China Merchants Bank
Annual Report 2015
79
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.
E-banking Channels
The efficiently operated physical outlets of the Company are primarily located in the 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 2015, the Company had 132 branches, 1,575 sub-branches, one exclusive
branch-level operation center (credit card center), one representative office, 3,202 self-service centers, 12,495
self-service machines (including 2,197 Automatic teller machines and 10,298 cash recycle machines) and 2,618
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 in Singapore; a representative office in both London
and Taipei; and a branch in Luxembourg. In addition, the London Branch of the Company has been approved to
commence operation by the British regulatory authority on 19 January 2016.
Physical distribution channels
75
The Company provides products and services via multiple distribution channels. Our distribution channels are mainly
divided into physical distribution channels and e-banking channels.
5.10.4 Distribution channels
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
In 2015, the Company's spot trading volume of bonds reached RMB3,170.6 billion, representing an increase of
54.58% as compared with the previous year; the trading volume of RMB-denominated options reached USD80.5
billion, representing an increase of 98.77% as compared with previous year; the trading volume of RMB interest rate
swap business reached RMB1,260.8 billion, representing an increase of 1,261.56% as compared with the previous
year; the trading volume of RMB exchange rate swaps reached RMB2,863.6 billion, representing an increase of
50.00% as compared with the previous year. According to the data from the China Foreign Exchange Trade System
and the National Interbank Funding Center, the trading volume of RMB options in the interbank market and the
volume of RMB interest rate swap transactions of the Company both ranked first in the whole market.
Foreign currency investments: the Company seized opportunities to increase investments based on its judgment on
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 newly issued bonds and range trading operation to realise interest spread gains. Secondly,
the Company proactively developed secondary market operations and derivative products to increase returns of debt
portfolio. As at the end of the reporting period, the balance of the foreign exchange investment portfolio Company
amounted to USD4.242 billion, with a portfolio duration of 2.12 years and the portfolio yield of 2.65%.
RMB investment business: 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 aggressively extended the duration of its investments. The incremental investments were primarily medium
to long-term bonds with maturity of 5 years or above, prioritising on government bonds and credit bonds with
good credit standing. Secondly, the Company proactively adjusted and optimised the structure of its portfolios by
capitalising on the opportunities brought about by fluctuations in interest rates and credit spreads, and reinforced
analysis and management of credit bonds to increase earnings. As at the end of the reporting period, the balance of
RMB bond portfolio of the Company was RMB740.621 billion, with a portfolio duration of 4.08 years and a portfolio
yield rate of 4.02%.
Financial markets business
As a typical example of the Company's transformation into an asset-light bank, our asset custody business
experienced rapid growth in 2015, recording a historical high in terms of volume and income of assets under
custody, as well as in product offerings. As at the end of the reporting period, the balance of assets under custody
amounted to RMB7, 155.779 billion, representing an increase of 101.97% as compared with that at the beginning
of the year; the accumulative custody fee income amounted to RMB3.567 billion, representing a year-on-year
increase of 68.89%; the number of asset custody projects reached 11,506, representing an increase of 48.71% as
compared with that at the beginning of the year. In respect of the asset custody business, the Company has not only
realised full coverage of its customer base of assets under custody, but also established a relatively balanced and
diversified business structure to effectively mitigate the impact of market volatility on its custody business. During
the reporting period, the Company took further steps to push ahead its custody services and system innovation by
focusing on service upgrading. In respect of services, the Company became one of the first recognised outsourcing
service providers for funds approved to be registered with Asset Management Association of China and also the
first institution in the industry offering a full range of services for QDIE cross-border innovative products, including
custody and administrative services. In respect of the system, the Company successfully launched its proprietary
G2 core business system for asset custody and took the lead to realise direct connection with the systems of China
Securities Depository and Clearing Corporation Limited (+), China Bonds Depository and
Clearing Corporation Limited (+¤£#*#$#^) and Shanghai Clearing House, thus maintaining its leading
position in the industry in terms of custody system, and providing its custody service customers with safe, efficient
and professional "Valuation at One Key (-)" custody services.
Asset custody business
Annual Report 2015
V Report of the Board of Directors
78
With respect to bond underwriting business, the Company vigorously developed financial bonds and assets
securitisation businesses with a focus on perpetual bonds and ultra-short-term commercial papers in 2015.
During the year, the Company led the underwriting of bonds of RMB400.394 billion, representing an increase of
64.46% as compared with the previous year, ranking fifth among its domestic peers and first among the national
small-and medium-sized banks respectively. Specifically, the amount of short-term commercial notes underwritten
by the Company ranked first (according to the rankings by Bloomberg) in the market, while the amount of financial
bonds underwritten by the Company ranked second (according to the rankings by WIND). The Company underwrote
521 bonds, representing an increase of 61.80% as compared with the previous year. During the year, income from
our lead underwriting business reached RMB1.462 billion, representing a growth of 90.74% as compared with the
previous year.
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 classification of
certain enterprises based on the calibre of the Company at the beginning of the year after they become larger.
The Company proactively withdrew from granting loans to small enterprises with potential risks for prudent
sake, so as to further prevent the general risk of granting loans to small enterprises against the backdrop of the
current economic slowdown. In the meantime, in order to fully implement the development strategy of "Asset-
light Banking", the Company proactively reduced the granting of general loans occupying relatively larger amounts
of capital, and increased the use of bills of acceptance, letters of guarantee, letters of credit and other types of
credits. Therefore, as at the end of the reporting period, the Company had a total of 783,100 small enterprise
customers, representing an increase of 56.18% (calculated on the Bank's calibre) as compared with the beginning
of the year. However, balance of the loans of the Company granted to small enterprises totalled RMB198.199
billion, representing a decrease of 14.02% over the beginning of the year, and accounting for 15.99% of domestic
corporate loans, down by 3.32 percentage points as compared with the beginning of the year. Adversely affected
by the weak financing demand of small enterprises and intensified competition in the industry, the floating range
of weighted average interest rate of new small enterprises loans of the Company during the reporting period was
22.35%, down by 0.61 percentage point as compared with the previous year.
With respect to offshore business, the Company increased efforts in marketing and promotion of offshore business
with a view to enlarging its customer base and solidifying its business foundation, thereby realising a steady growth
in offshore business. As at 31 December 2015, the number of offshore customers reached 39,700, representing an
increase of 26.43% as compared with the beginning of the year; offshore international settlement amounted to
USD283.178 billion, representing an increase of 48.00% as compared with the previous year; and deposits from
offshore customers amounted to USD16.336 billion, representing an increase of 35.18% as compared with the
beginning of the year. As a result of the deteriorated foreign trade situation and foreign exchange rate fluctuation,
balance of offshore loans amounted to USD6.765 billion, representing a decrease of 25.83% as compared with the
beginning of the year; credit assets remained good with a non-performing loan ratio of 0.55%. The cumulative net
non-interest income reached USD132 million, which remained stable as compared with the previous year.
Investment banking business
In 2015, 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 sectors 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
2015, the balance of credit loans to strategic emerging industries was RMB55.913 billion, representing an increase
of RMB3.627 billion as compared with the end of the previous year, and accounting for 4.31% of the total corporate
loans of the Company; and the balance of green credit loans was RMB156.503 billion, representing an increase of
RMB5.556 billion as compared with the end of the previous year, and accounting for 12.07% of the total corporate
loans of the Company. For further details of loans extended to areas strictly regulated by the state such as the real
estate industry and local government financing vehicles, please refer to Section 5.9.1 in this report.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
The "Qian Ying Zhan Yi (F)" program is a strategic brand of the Company to serve innovative emerging
enterprises. During the reporting period, targeting at this group of customers, the Company adopted the "equity
financing plus debt financing" model and focused on promoting the investment and loan coordination business
model with "consultants plus investments" features, operating as an investment bank, so as to offer comprehensive
services to innovation-oriented growth corporate customers. As changes in certain enterprises resulted in the
updating of relevant data at the beginning of the year in accordance with the "Qian Ying Zhan Yi (FR)"
registration standards, the number of the "Qian Ying Zhan Yi (FR)" customers at the beginning of the
year was adjusted accordingly compared with the end of the previous year. As at 31 December 2015, the total
number of registered customers reached 26,442, representing an increase of 25.60% as compared with the
beginning of the year. The customers that have credit lines granted by the Company accounted for 47.55% of
all registered customers, indicating a continuous expansion in our customer base; the credit lines granted to such
customers amounted to RMB411.629 billion, representing an increase of 34.33% as compared with the beginning
of the year; the balance of loans granted to such customers as at the end of the reporting period amounted to
RMB158.285 billion, representing an increase of 22.05% as compared with the beginning of the year, more than
the loans granted to other enterprises. As a high-quality customer base which the Company has been striving to
expand, the "Qian Ying Zhan Yi (F)" program adopts the customer acquisition model of targeted marketing
according to a specific target list. As its industry distribution structure is kept in line with the direction of economic
transformation, its non-performing loan ratio was lower than the overall non-performing loan ratio of the Company's
loans, which stood at 1.64%. As at end of the reporting period, 47 "Qian Ying Zhan Yi (F)" customers had
completed IPO in China and opened special accounts to receive proceeds from IPO, with a total of RMB8.516 billion
under custody.
In 2015, 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 2015, the balance
of syndicated loans amounted to RMB86.784 billion, representing an increase of RMB14.434 billion as compared
with the end of the previous year.
Discounted bills
In 2015, after taking into consideration its total credit, liquidities, gains and risks profile, the Company effectively
allocated and promoted its discounted bills business. The volume of the directly discounted bills amounted to
RMB1.55 trillion during the reporting period, ranking first among its peers for two consecutive years. As at 31
December 2015, balance of discounted bills amounted to RMB82.816 billion, representing an increase of 24.14% as
compared with the end of the previous year and accounting for 3.20% of total loans and advances to customers.
Corporate customer deposits
73
Corporate loan businesses of the Company include working capital loans, fixed asset loans, trade finance and other
loans, such as M&A loans and corporate mortgage loans. As at 31 December 2015, total corporate loans of the
Company amounted to RMB1,296.974 billion, representing an increase of 2.64% as compared with the end of the
previous year and accounting for 50.09% of total loans and advances to customers. Among which, the balance of
the medium to long-term loans to domestic enterprises amounted to RMB494.340 billion, accounting for 39.89% of
the total loans to domestic enterprises, up by 0.59 percentage point as compared with the end of the previous year.
The non-performing loan ratio of corporate loans was 2.60%, representing an increase of 1.01 percentage points
as compared with the end of the previous year, which was mainly due to weaker solvency of enterprises during the
economic downturn, as well as the stringent criteria of the Company for recognition of non-performing loans, which
is aimed to reflect the quality of its loan assets in a more prudent way. The floating range of weighted average
interest rates of new corporate loans in RMB decreased by 4.01 percentage points to 9.32% as compared with the
previous year.
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V Report of the Board of Directors
Annual Report 2015
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 2015, the total number of customers using cash management service of the Company
reached 831,906, representing an increase of 51.74% as compared with the end of the previous year. Thanks to the
Company's continuous efforts to forge the "C+ Cash Management Solution" brand, the number of newly opened
accounts exceeded 210,000, and the number of newly issued "All-in-one Card for Company (2)" reached
270,000. Basic cash management business experienced healthy development. The Company continuously pushed
forward the innovation and promotion of various products such as "C + Account-deposits portfolio", Cross-Border
Cash Pool, Virtual Cash Pool, Multi-level Cash Pool, and launched mobile terminals for Cross-bank Solution for Cash
Management ("CBS"). The Company optimised cross-bank cash management products iteratively, and launched
the "CBS5 Cash Management Cloud Service" (CBS5 R), an innovative cross-bank cash management
product, which effectively promoted the marketing of various key projects focusing on customs, tax, social security
and housing provident funds. The number of group customers under management reached 485, and the number of
companies under management exceeded 25,400.
With respect to supply chain finance, the Company further optimised all the transaction procedures for core
customers through smart supply chain finance, established a product system which fully covers "settlement plus
financing" offerings by adhering to the dual-core strategy of fostering the "core banking for core customers",
focused on developing the innovative products such as C+ smart bill pool, payment agency service, platform-based
supply chain, new financing channels for supply chain and provided tailored finance solutions for eight core
industries including healthcare and medical care. In 2015, in adherence to the "customer-oriented" concept, the
Company further tapped on its quality customers in the supply chain and raised the standards for core enterprises
and their upstream and downstream customers. Calculated on the new statistical calibre, as at 31 December 2015,
the Company had a total of 572 core customers in the supply chain and 10,537 customers from upstream and
downstream industries, representing an increase of 247% and 264% (calculated on the same calibre) respectively
as compared with the beginning of the year. The balance of supply chain finance amounted to RMB67.998 billion,
representing an increase of 60.88% as compared with at the end of the previous year.
With respect to integrated financing for domestic trade as well as for domestic and foreign trade, the Company
focused on innovation of integrated financing products for domestic trade and foreign trade, and completed
the first offshore and onshore transaction in the industry via BPO, a new settlement channel. The Company also
proactively made adjustments to its distribution structure of financing assets, focused on promoting innovation of
businesses involving the use of domestic letter of credit, and aggressively developed cross-bank domestic letter of
credit business, with a view to effectively save capital. During the reporting period, the trading volume of cross-bank
domestic letter of credit business calculated on full statistical calibres amounted to RMB71.1 billion, representing an
increase of 332.24%; the total amount of domestic letter of credit issued reached RMB238.811 billion, representing
an increase of 3.94% as compared with the previous year; and the amount of domestic trade financing provided
totalled RMB515.693 billion, representing an growth of 15.90% as compared with the previous year.
With respect to corporate card business, thanks to coordinated marketing of retail and corporate lines, the Company
had issued a total of 122,200 corporate cards as at 31 December 2015. Intermediary business income amounted to
RMB108 million during the reporting period.
In order to further implement the strategy of "One Body with Two Wings", in 2015, the Company strengthened
its investment banking division by making appropriate adjustments, established four major business systems,
namely debt capital market system, M&A finance system, structured financing system, equity capital market system,
and diversified their respective investment banking product systems, thereby initially achieving embedded risk
management and promoting the steady development of various businesses.
China Merchants Bank
Corporate loans
In 2015, the corporate customer deposits of the Company maintained steady growth with significant improvement
in quality. As at 31 December 2015, the balance of corporate customer deposits amounted to RMB2,292.279
billion, representing an increase of 6.89% as compared with the end of the previous year; the daily average balance
amounted to RMB2, 163.282 billion, representing an increase of 9.89% as compared with the previous year; the
demand deposits accounted for 50.11% of total deposits from our corporate customers, up by 5.30 percentage
points as compared with the end of the previous year. In 2015, the average cost of deposits from corporate
customers was 2.06%, down by 0.30 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.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
V Report of the Board of Directors
Corporate customers
In 2015, in proactive response to external challenges and opportunities for its corporate finance, the Company
focused on growing its customer base and strategic business transformation, accelerated formation of two major
business systems, namely transaction banking and investment banking, and thus further enhanced its differentiated
competitive edges. During the reporting period, the Company achieved profit before tax from corporate finance of
RMB12.508 billion, accounting for 18.14% of profit before tax of the Company. In view of the narrowing interest
spread due to interest rate cuts, weak external demand for credit loans and declining imports and exports, the net
operating income from corporate finance of the Company was RMB74.491 billion, representing a decrease of 3.78%
as compared with the previous year, and accounting for 38.79% of the net operating income of the Company.
Among which, the net interest income from corporate finance amounted to RMB58.256 billion, representing a
decrease of 4.27% as compared with the previous year, and accounting for 78.21% of the net operating income of
corporate finance; and net non-interest income of corporate finance amounted to RMB16.235 billion, representing a
decrease of 1.99% as compared with the previous year and accounting for 21.79% of the net operating income of
corporate finance, and 27.25% of the net non-interest income of the Company.
Business overview
5.10.2 Corporate finance
The Company put great emphasis on loan risk management and endeavoured to formulate a whole-process risk
management system covering its front, middle and back office. During the reporting period, the Company actively
strengthened the management of its retail credit team to enhance the team's professional risk management
capabilities; steadily promoted centralised loan approval by the Head Office, with the proportion of retail loans
subject to centralised approval accounting for more than 70%, suggesting a new stage of automatic investigation
and approval for housing mortgage business. After years' development, the centralised loan approval centre of the
Head Office has developed a number of diversified risk control tools, including information review and verification
via Extranet. Meanwhile, the Company constantly optimised and applied the risk-control model to product policy
formulation, loan approval, post-loan and other procedures, and basically established a standardised, systematic
and data-based risk control system. In addition, after the release of loans, relying on the analysis of system and
data, the Company achieved effective control over the work flow and strategy for post-loan collection, and built
a standardised system comprising of pre-warning, loan recovery and disposal so that the Company was able to
prevent default risks at an early stage and improve the post-loan management efficiency. Moreover, the Company
constantly upgraded and improved the asset-light development of retail credit operating platforms, further enhanced
the operational efficiency of the Cloud Mortgage PAD Platform and promoted the online operation of peer-to-peer
lending serial products by successively launching various projects such as release of loans in peer-to-peer lending and
supporting services associated with peer-to-peer lending.
V Report of the Board of Directors
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0
With respect to cross-border finance business, the Company increased efforts in the innovation of asset-light
products by capitalising on structural development opportunities, committed to promoting the rapid development
of "Cross-border Zi Ben Tong (1)", upgraded the smart cross-border finance platform and successfully
launched the Global Cash Management Project (±¸Â¥40) (Phase I). Despite a decline in both imports
and exports under unfavourable external situations, the Company completed onshore international settlements
of USD307.604 billion, representing a slight increase of 0.42% as compared with the previous year; cross-border
Renminbi settlements of RMB830.807 billion, representing an increase of 19.08% as compared with the previous
year, the market share of our cross-border payments was 3.53%, up by 0.14 percentage point as compared with
the beginning of the year, and ranking second among all domestic small- and medium-sized banks (based on
the statistics of the State Administration of Foreign Exchange); foreign exchange settlements for customers of
USD175.233 billion, representing a growth of 9.73% as compared with the previous year, and a market share
of 4.48%, up by 0.12 percentage point as compared with the beginning of the year, and ranking first among all
domestic small- and medium-sized banks (based on the statistics of the State Administration of Foreign Exchange).
The number of onshore customers of our international business reached 65,958, representing a growth of 19.11%
as compared with the previous year. Affected by the adverse external conditions such as slow recovery of the global
economy and the inadequacy of effective financing needs of foreign trade enterprises, as well as the internal policies
which the Company adopts to cease loan granting to the high-risk customers whose transactions were verified to
be merely cross-border arbitrage in strict compliance with the prudent macro-regulatory requirements of the State
Administration of Foreign Exchange, the Company granted accumulated international trade facilities of USD21.935
billion, representing a decrease of 40.73% as compared with the previous year, and handled international factoring
of USD8.899 billion, representing a decrease of 46.45% as compared with the previous year, and international
forfeiting of USD9.936 billion, representing a decrease of 46.16% as compared with the previous year.
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V Report of the Board of Directors
During the reporting period, the Company continued to implement mobile Internet transformation for its credit card
business by rolling out CMB Life 5.0 (5.0) and pioneering with the user-oriented platform system, thereby
achieving a successful transformation from a payment tool to an open platform with over 20 million subscribers;
optimised its service channels primarily consisting of the smart "WeChat/Weibo customer service" platform, which
brought into reality the "Internet+"-based integrated multi-channel services and improved customer's experience and
enhanced its service value; vigorously promoted its asset-light customer acquisition model, improved its efficiency in
acquiring customers using data-driven technology, and optimised its customer mix; improved and launched "online
application + offline verification ()" project across the Bank to boost the cross-sales across the
retail system of the Bank; continued to build the multi-level and multi-dimensional credit card product system by
rolling out co-branded credit cards such as mobile Internet-based Hearthstone (), Menghuanxiyou ()
and Momo (E), as well as Diamond Credit Card (+) tailored for high-end customers and All-Currencies
MasterCard (*) tailored for customers who have overseas spending needs, with a view to actively secure
high-value customers through product innovation; launched the first Big Data-based smart marketing platform so
as to improve the targeted marketing efficiency and operational capability of its high-yield businesses; focused on
traffic and loyalty management, targeting at restaurant vouchers and movie tickets, being the two popular lifestyle
activities for customers with a new hybrid payment product known as "All-in-one Payment (-)" which features
one lump-sum payment by equity and cash and aims at improving customers' easy payment experience. In order
to promote the mobile Internet-oriented transformation of points management, the Company piloted with a brand
new management system for points accumulation, and launched various points promotional activities such as "Lucky
Draw from Point Accumulation" (5), "Accumulated points for bonus" (I) and "Crowd Funding
Charity" (*); continued to improve customers' experience of using cards in overseas countries and regions
through a number of special overseas marketing activities, with a view to maintaining its leading position in the
overseas market, and launched Visa Checkout products ahead of its peers to benefit its customers with an easier
and safer cross-border payment solution.
Retail loans
As at 31 December 2015, the total retail loans of the Company amounted to RMB1,209.524 billion, representing
an increase of 26.62% as compared with the beginning of the year and accounting for 46.71% of the total loans
and advances to customers, up by 4.91 percentage points as compared with the end of the previous year. The
creditworthiness and solvency of certain individual customers deteriorated due to weak macro-economic conditions,
declining financing demand and accelerated risk exposures. As at 31 December 2015, the balance of the special
mention retail loans of the Company amounted to RMB16.249 billion, representing an increase of 27.19% as
compared with the end of the previous year, and the proportion of special mention retail loans remained unchanged
as compared with the end of the previous year; balance of non-performing loans amounted to RMB13.032 billion
with a non-performing loan ratio of 1.08%, up by 0.30 percentage point as compared with the end of the previous
year. Excluding credit cards, the mortgage and pledged loans accounted for 87.72% of the balance of new non-
performing retail loans of the Company in 2015, representing a mortgage and pledge rate of 60.04%. Given that a
vast majority of such new non-performing retail loans were fully secured by collaterals, the risk associated with non-
performing retail loans was generally controllable.
In 2015, the Company responded to the market and customers' needs by actively supporting the development
of housing finance and steadily increasing loans to small and micro- enterprises. As at the end of the reporting
period, balance of housing loans of the Company was RMB491.266 billion, representing an increase of 52.87% as
compared with the end of the previous year and accounting for 40.62% of retail loan of the Company. Meanwhile,
the Company proactively carried out asset securitisation of housing mortgage, and became the third bank in China
to offer securitised personal housing mortgage products. During the reporting period, the Company issued a total
of RMB7.2 billion of securitised personal housing mortgage products. As at the end of the reporting period, balance
of loans granted by the Company to small and to micro enterprises totalled RMB308.973 billion, representing a
decrease of 7.94% (calculated on the Bank's calibre) as compared with the end of the previous year, and accounting
for 25.55% of retail loans, down by 9.59 percentage points as compared with the beginning of the year. The non-
performing loan ratio of loans granted to small and micro- enterprises was 1.54%, representing an increase of 0.46
percentage point as compared with the end of the previous year. During the reporting period, the floating ranges of
weighted average interest rate of loans of the Company newly granted to small and micro-enterprise was 37.03%,
up by 3.46 percentage points as compared with the previous year.
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China Merchants Bank
Annual Report 2015
China Merchants Bank
Annual Report 2015
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 VaR and portfolio stress testing methodologies 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 implemented, monitored and reported on a daily basis.
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In 2015, the Company continued to enhance the trading book market risk management framework based on
existing practice, and optimised the approaches, processes and tools for the measurement and monitoring of
market risk.
(2)
V Report of the Board of Directors
The Company has set up its market risk governance framework for trading book, covering interest rate
risk, foreign exchange risk and commodity price risk. 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 interest rate risk management
of the trading book, ensuring the effectiveness of interest rate risk management of trading book. 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.
China Merchants Bank
Annual Report 2015
Trading book
1.
Interest rate risk arises from adverse changes in the interest rates and maturity profiles which may result in loss to
the income and market value of financial instruments and positions held by the Company.
Interest rate risk
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. The 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.
5.11.3 Market risk management
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 the end of 2015, the assets of the Company exposed to the country risk
remained insignificant, 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.
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 fulfill 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.
5.11.2 Country risk management
V Report of the Board of Directors
(1)
The Company uses quantitative 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 (covering various risk factors
relating to trading book), to manage the interest rate risk of trading book. The measures for management of
interest rate risk include setting the indicators for business authorisation and risk limits, daily monitoring and
ongoing reporting. Specifically, VaR includes general VaR and stress VaR, which are both calculated using the
historical simulation model.
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Banking book
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 centralised exchange rate management of banking book through limit management,
budget control and other approaches.
Banking book
Since 11 August 2015, RMB depreciation deteriorated with increased volatility. To keep relevant risks under
effective control, the Company reduced risk exposure to and lowered risk limit threshold of foreign exchange
business while increasing efforts in tracking foreign exchange market trends to strengthen risk monitoring
work, thereby exercising effective control over risk exposures of the Company's trading book to foreign
exchange business. The foreign exchange services of its trading book maintained smooth operation and
the indicators of its market risk achieved good performance since the Company adopted prudent trading
strategies and implemented strict risk management policies.
The Company uses the quantitative 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 sensibility indicator and accumulated loss indicator to control exchange
rate risk. The measures for management of exchange rate risk include setting the indicators for business
authorisation and risk limits, daily monitoring and ongoing reporting.
The Company has established the market risk (including exchange rate risk) management structure and
system of trading book to implement centralised 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.
(2)
Trading book
(1)
In 2015, RMB market rates continued a downward trend, and the yields of various RMB-denominated bonds
fell back to their historically low levels, leading to an evident "bull market". The Company conducted a
comprehensive research and timely track on macro economy, monetary policy and market conditions, and
formulated corresponding trading strategy. All interest rate risk indicators under the trading book were under
good control.
After the IMF announced admission of RMB to SDR in December 2015, China announced the index for RMB-related
exchange rates, and it will expedite the de-pegging of RMB to USD to gradually establish the RMB exchange rate
regime which is determined primarily with reference to a basket of currencies, allowing more transparency to
enhance the liquidity and stability of RMB in future. Against the backdrop of interest rate hikes by the US Federal
Reserve and due to the differences between China and the United States in economic development trend, USD
significantly strengthened at the end of the year, and USD appreciation against RMB was even accelerated as a result
of faster capital outflow in the fourth quarter. In the context of the currently relaxed exchange rates announced by
the central bank, in the absence of intervention from the central bank, it is probable that the RMB exchange rates
will remain at low levels.
Exchange rate risk management
2.
V Report of the Board of Directors
China Merchants Bank
Annual Report 2015
In 2015, PBOC cut RMB benchmark deposit and lending rate for a total of five times. Specifically, the
one-year benchmark deposit rate was cut by a total of 125 basis points, and the one-year benchmark lending
rate was cut by 125 basis points accordingly. In addition, deposit rate cap was fully liberalised. In order to
reduce the negative impact brought about by interest rate cuts and liberalisation of deposit rate cap, the
Company proactively took countermeasures to integrate interest rate risk management with FTP management
in an organic manner, and continued to make adjustments to duration of loans. Based on the analysis
of interest rate sensitivity and customers' price behaviour, the Company improved differentiated pricing
for deposits as well as pricing sensitivity and relevance, and exercised reasonable control over high-cost
deposits including structured deposit, so as to maintain a comparative advantage in cost of debts. Such
countermeasures have made a total of positive contribution of approximately RMB4.5 billion to NII. In future,
the Company will continue to take various measures to enhance its management capabilities of interest
rate risks associated with bank accounts in terms of system, process and assessment, with a view to achieve
steady growth in net interest income and economic value.
In 2015, the Company closely monitored the change of the external interest rate environment and conducted
rolling forecast for future movements in interest rates. In addition, the Company also strengthened its
monitoring and analysis of NII fluctuation, and deepened its analysis of NII progress and anticipation
difference. Based on the above-mentioned macro prediction and refined internal management, the Company
proactively put forward the proposal on optimisation of assets and liabilities, so as to ensure that the overall
interest rate risk level remains anchored to the management target and to safeguard the stable operation of
NII.
The Company has primarily adopted scenario simulation analysis, re-pricing gap analysis, duration analysis
and stress testing for the measurement and analysis of interest rate risk under the banking book. By
convening regular meetings for analysis of assets and liabilities and through its established reporting
framework, the Company analyses the causes of interest rate risk under the banking book, puts forward
management suggestions and implements management measures.
The Company has established the governance and management framework for banking book in accordance
with the 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 bank-related
departments in the interest rate risk management of the banking book, ensuring the effectiveness of interest
rate risk management. The interest rate risk associated with banking book of the Company is subject to
centralised management by the Asset and Liability Management Department.
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 unfavourable 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 Board of Supervisors, the senior
management, special committees and relevant departments 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.
China Merchants Bank
Annual Report 2015
Fifthly, the Company strengthened management and comprehensively fortified the three defense lines. To strengthen
the first defense line, the Company streamlined the procedures, specified the duties and responsibilities of key
roles in asset business, specified the standards for discharging duties and the risk management responsibilities and
continued to enforce stringent requirements for qualifications of customer relationship managers. To create a strong
second defense line, the Company continued to improve regulations and systems in order to provide coverage
for the whole business, and optimised the business process; and continued to improve the risk manager team,
and improved the professional skills and overall quality of the risk management team. In order to give full play to
the supervision, assessment and value-added functions of internal audit of the third defense line, the Company
continued to carry out inspection of on-site audit, further increased efforts on off-site audit and strengthened
audit rectification and accountability, thereby promoting the sustained and healthy development of operation and
management activities.
Sixthly, the Company steadily increased application of quantitative risk management tools. The Company had
completed development and optimization of a number of models, including the pre-warning model which are
applied in the routine risk management for improving the effectiveness of risk monitoring and early warning.
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Annual Report 2015
V Report of the Board of Directors
New York Branch
Established in 2008, the Company's New York Branch provides various services including corporate deposits,
corporate loans, project financing, trade financing, cash management, M&A financing and advisory for enterprises
and financial institutions in China and the U.S.. With strong support from the parent bank and focusing on the U.S.
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, while serving as a showcase and
platform in improving the international management level and global service capabilities of the Company.
In 2015, leveraging on the advantages of Hong Kong as the bridgehead of China's foreign economic and trade
activities and as one major international finance center of the world, 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 rapidly expand its
share in the retail banking market. Meanwhile, 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. However, due to drastic changes in the external operating environment and poor
performance in the cross-border business coordination, the Hong Kong Branch recorded a decrease in net operating
income and profit before tax as compared with the previous year. During the reporting period, the Hong Kong
Branch realised net operating income of HK$1.922 billion, profit before tax of HK$1.658 billion and profit per capita
for the whole year of over HK$10.76 million.
In 2015, in addition to its traditional cross-border businesses, the New York Branch grasped the business
opportunities brought about by privatisation of China concept stocks and overseas M&A deals of Chinese private
enterprises to handle several privatisation deals and cross-border M&A deals. Meanwhile, the New York Branch
exerted its own advantage to establish a M&A consultancy and syndication team and develop the coordinated service
capability as an investment banker and a trading company, and successfully carried out the cross-border investment
consultancy business and the cross-border non-standard asset custody business. During the reporting period, the
New York Branch realised the profit before tax of USD60.09 million, representing an increase of 7.47% as compared
with the previous year.
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 solutions 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 without solution pay.
In 2015, the Singapore Branch adhered to its strategy of developing cross-border finance and local businesses
simultaneously, and expanded its M&A financing and other emerging businesses vigorously, thus realising steady
growth in each business line. During the reporting period, the Singapore Branch grasped policy opportunities
successfully arranged cross-border RMB loans under the global financing mode for enterprises within the Guangxi
Yanbian Comprehensive Financial Reform Experimental Zone, completed the first cross-border loan deal under the
Yanbian financial reform policy, and successfully promoted the M&A business of Singapore enterprises in China.
Local businesses of the Singapore Branch were gradually transforming towards coordinated development of customer
base expansion, business growth and capital intensity. During the reporting period, the Singapore Branch realised
net operating income of USD 17,120,000, up by 6.20% as compared with the previous year.
Luxembourg Branch
Established in March 2015, the Luxembourg Branch of the Company is an important cross-border financial platform
in the EU region. It provides diversified services including corporate deposits, corporate loans, project financing,
trade financing, M&A financing, M&A consultancy, bond distribution and underwriting, cash management and asset
management for enterprises "going global" from China and "being 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. During the reporting period, the Luxembourg
Branch carried out every business line in an orderly way, with total assets of €194 million and net operating income
of €709,400.
China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
5.10.6 Wing Lung Group
Singapore Branch
Established in 2002, the company's Hong Kong Branch is principally engaged in corporate banking and retail
banking. With regard to corporate 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".
Hong Kong Branch
5.10.5 Overseas businesses
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Annual Report 2015
V Report of the Board of Directors
Mobile banking
The personal mobile banking business of the Company continued to maintain rapid growth in 2015 as mobile
banking customers were increasingly active with an aggregate of 1.589 billion logins in the Bank's mobile banking
application, making it the most dynamic e-channel for customers of the Company. As of 31 December 2015, the
aggregate number of downloads of the Bank's mobile banking application reached 63,154,800, and the aggregate
number of customers who downloaded the application reached 27,588,800, of which 18,615,600 users were active
customers during the year. Meanwhile, the number of mobile banking transactions and volume of mobile payments
have been increasing rapidly. In 2015, the total cumulative number of mobile banking transactions amounted to
2.525 billion, up by 182.10% as compared with the previous year; and the cumulative transaction amount reached
RMB9.20 trillion, up by 158.51% as compared with the previous year. Of which, the cumulative number of mobile
banking transactions was 535 million, up by 137.28% as compared with the previous year; and the amount of
mobile banking transactions was RMB8 trillion, up by 155.60% as compared with the previous year; the cumulative
number of mobile payment transactions was 1.990 billion, up by 197.18% as compared with the previous year; and
the accumulated amount of mobile payment transactions was RMB1.20 trillion, up by 179.75% as compared with
the previous year.
During the reporting period, the Company launched its Mobile Bank 4.0 with such core functions as real-time
interconnection, intelligent services and natural interaction, realising the leaped development in system
structure, function innovation and user experience, and made a first stride forward in the transformation from
a transaction-based APP to an operation-based platform featuring self-service and self-selling. The Mobile Bank
4.0 officially applied the unified and open user system "All-in-one Net", in which customers may get access into
CMB's various platforms with "a mobile phone number and a password", thus realising the goal of "light account,
all-in-one net (CFƑ · ±ND)". In addition, the Company continued to optimise and upgrade its "WeChat
Banking", and the number of users has currently reached 10.32 million, establishing a diversified multi-facet light
intelligence service model.
As at 31 December 2015, the number of users of corporate mobile banking services of the Company amounted
to 253,000. The total number of transactions including account enquiries, payments and settlements completed
through corporate mobile banking reached 6,670,000 in the year, which effectively met our corporate customers'
demand for mobile financial services, and has become an online marketing and service channel targeting corporate
customers.
Online banking
The online banking business of the Company maintained a healthy growth in 2015, with a steady increase in the
number of users and more frequent use of online banking.
As for the retail online banking business, as at the end of 2015, the number of active users of the retail online
banking professional edition of the Company reached 20,996,100, and the online banking replacement ratio
was 96.51%, representing an increase of 2.89 percentage points as compared with the previous year. During the
reporting period, customers increasingly used mobile phones and other mobile handsets to get access to online
financial services along with continuous development of Internet finance. As the PC-based e-bank professional
version was negatively affected by the change of transaction habits and the diversification of transaction channels,
the total cumulative number of online retail finance transactions was 1.152 billion, representing a decrease of
6.27% as compared with the previous year; however, the accumulated transaction amount reached RMB30.53
trillion, representing an increase of 17.29% as compared with the previous year. Specifically, the cumulative
number of online banking transactions was 398 million, up by 12.43% as compared with the previous year; and
the accumulated amount of online banking transactions was RMB29.71 trillion, up by 17.76% as compared with
that the previous year; the cumulative number of online payment transactions was 754 million, down by 13.83% as
compared with the previous year; and the accumulated amount of online payment transactions was RMB820 billion,
up by 2.50% as compared with the previous year.
China Merchants Bank
Annual Report 2015
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 2015, the total number of corporate online banking customers of the
Company reached 825,411, representing an increase of 52.09% as compared with the end of the previous year. The
accumulated number of corporate online banking transactions of the whole Bank was 129.65 million, representing
an increase of 70.64% as compared with the previous year. The accumulated transaction amount of corporate
online banking transactions of the whole Bank amounted to RMB83.49 trillion, representing an increase of 72.25%
as compared with the previous year.
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, online wealth management, direct
transactions, distant assistant service and online interactive service.
In 2015, the Company constantly improved the service capability and customer experience for its direct banking in
accordance with the general targets of implementing "service upgrading" and "Asset-light Banking" throughout the
bank. As a result, the online intelligent services accounted for 43.21%, up by 9.94 percentage points as compared
with the previous year; the manual telephone access ratio reached 97.30%; the percentage of manual telephone
responses within 20 seconds reached 91.46%; and the customer service satisfaction ratio reached 99.27%, up by
0.93 percentage points as compared with the previous year, all setting a record high.
Founded in 1933, Wing Lung Bank has a capital of HK$1.161 billion as at 31 December 2015, and is a
wholly-owned subsidiary of the Company in Hong Kong. The principal operations of Wing Lung Bank and its
subsidiaries ("Wing Lung Group") comprise deposit-taking, lending, investment and wealth management, credit
cards, online banking, documentary bills, leasing and hire purchase loans, foreign exchange, futures and securities
brokerage, asset management, insurance business, Mandatory Provident Fund, property management, trustee,
nominee and investment banking services. At present, Wing Lung Bank has a total of 38 banking offices in Hong
Kong, 4 branches and sub-branch 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 2015, the
total number of employees of Wing Lung Group is 1,945.
In 2015, profits attributable to the shareholders of Wing Lung Group was HK$3.250 billion, representing an increase
of 2.56% as compared with the previous year. In 2015, it recorded a net interest income of HK$3.870 billion,
representing a decrease of 0.70% as compared with the previous year. The net interest margin was 1.61%, down
by 11 basis points as compared with the previous year. Net non-interest income was HK$2.088 billion, representing
an increase of 24.67% as compared with the previous year. The cost-to-income ratio for 2015 was 33.28%,
representing an increase of 1.12 percentage points as compared with the previous year. The non-performing loan
ratio (including trade bills) was 0.07%.
As at 31 December 2015, the total assets of Wing Lung Group amounted to HK$256.976 billion, representing
an increase of 3.80% as compared with the end of 2014. Total equity attributable to shareholders amounted to
HK$26.433 billion, representing an increase of 14.59% as compared with the end of 2014. Total loans and advances
to customers (including trade bills) amounted to HK$146.104 billion, representing a decrease of 5.17% as compared
with the end of 2014. Deposits from customers amounted to HK$180.213 billion, representing a decrease of 1.74%
as compared with the end of 2014. Loan-to-deposit ratio was 64.42%, up by 0.95 percentage point as compared
with the end of 2014. As at 31 December 2015, the total capital ratio of Wing Lung Group was 17.30%, its Tier-1
capital ratio was 13.54% and its common equity Tier-1 capital ratio was 11.64%. The average liquidity maintenance
ratio for the reporting period was 41.72%, all above regulatory requirements.
For detailed financial information on Wing Lung Group, please refer to the 2015 annual report of Wing Lung Bank,
which is published at the website of Wing Lung Bank (www.winglungbank.com).
5.11 Risk Management
The Company, through transforming itself into an asset-light 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
the supreme authority of the Company in relation to risk management. The Committee is responsible for reviewing
and deciding the most significant bank-wide risk management policies that align with the risk appetite, strategies,
policies and authorisations approved by the Board.
In 2015, 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 54
to the financial statements.
5.11.1 Credit risk management
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 business
at different authorisation levels. The decision-making entities include: the Risk and Compliance Management
Committee, the Loan Approval Committee and the Special Loan Approval Committee of the Head Office, as well as
the Risk Control 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 credit assets into different
categories under an internal 10-category classification system. The classification of a credit asset may be initiated
by a relationship manager or a risk control officer and then reviewed by credit risk management departments of the
Head Office and our branches according to their respective authorisation.
In 2015, under the tough internal and external conditions resulting from the combined adverse impact of the
four distinctive periods of the Chinese economy, namely "dealing simultaneously with the slowdown in economic
growth, making difficult structural adjustments, absorbing the effects of the previous economic stimulus policies,
and exploring new policies", the Company accelerated transformation of risk management by adjusting asset
structure, supporting strategic businesses and strengthening management fundamentals in accordance with the
guiding philosophy of "once-and-for-all solution, guarantee the targets for asset quality and build a first-class risk
management bank", thereby effectively preventing relevant risks.
Firstly, the Company continued to improve the comprehensive risk management system and the centralized risk
management mechanism. The Company established the working rules for the Risk and Compliance Management
Committee of the Head Office of CMB to regulate the existing comprehensive risk and compliance management
activities; improved the identification, assessment and management mechanism for material risks of CMB to
strengthen the centralised management of authorisation and risks for investment banking, asset management and
agency services; streamlined a variety of emerging financing businesses and included them into the unified risk
management system, thereby laying a solid foundation for the healthy and sustainable development of our business.
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China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
Secondly, the Company optimized asset portfolio allocation, and actively adjusted the asset structure. The Company
aggressively developed low-capital-consumption asset business, such as personal housing mortgage and credit
card businesses. In relation to corporate credit loans, the Company focused on structural adjustment by strictly
enforcing admittance standards and continuous optimisation of asset structure in key areas: enforced the control list
system for overcapacity industries to further reduce the risk loans; applied exposure limits on real estate industries
and controlled loans for shantytown renovation, extended reasonable support to asset investment of the Bank;
and controlled total credit facilities extended to government financing platforms to facilitate efficient use of credit
facilities within such limits.
Thirdly, the Company tightened monitoring and control of asset quality, deepened risk warning, examination and
supervision, reduced or withdrew risky assets in key areas; enhanced examination on new non-performing loans to
minimise occurrence of non-performing loans. The Company tightened monitoring and management of overdue
loans by a establishing screening and tracking mechanism for overdue loans; improved the three-layered pre-warning
mechanism involving the Head Office, branches and sub-branches, perfected the risk pre-warning organization
with clear division of responsibilities, and established a dynamic risk screening, rating, reduction and withdrawal
mechanism; enforced risk screening by deepening risk screening on more than ten portfolios, namely corporate
customers with significant balance, real estate financing, guarantee companies, second-level branches, private
financing, income-prepaid financial collateral business so as to proactively prevent and control risks; firmly reduced
and withdrew risky assets in seven areas, namely overcapacity industries, customers with small enterprise risk, private
guarantee companies, customers with high group risks, customers with general risk pre-warning, risk guarantee
circle and micro-finance loans; strengthened continuous review of new non-performing loans throughout the whole
process, sought accountability for the non-performing loans granted to customers who were granted loans for the
first time to avoid occurrence of non-performing loans.
Fourthly, the Company introduced innovative approaches for disposal of non-performing loans so as to dispose
non-performing loans aggressively through different means. The Company had explored quasi-asset securitisation
disposal of non-performing loans, strengthened recovery of cash, improved the approval system and process for
restructuring-specific loans, and accelerated the restructuring of risky customers while maintaining the sound
development of restructuring-specific loan business. As a result, a variety of measures were taken to mitigate the
risk of non-performing assets.
V Report of the Board of Directors
During the reporting period, the Company recorded an increase in non-performing loans as a result of the adverse
impact from economic downturns at home and abroad. Thanks to the comprehensive countermeasures including
accelerated collection, writing off and transfer of non-performing loans, the risk of further decline in asset quality
had been effectively controlled.
China Merchants Bank
Annual Report 2015
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 World Trade Organisation (WTO). As at the end of
the reporting period, the Company had 50% equity interest 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.
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 2015, CMBFL had a registered capital of RMB6.0 billion and 184 employees; total assets of
RMB103.966 billion, up by 0.56% as compared with the end of the previous year; net assets of RMB11.998 billion,
up by 16.14% as compared with the end of the previous year. In 2015, CMBFL realised net profit of RMB1.496
billion, up by 5.13% as compared with the previous year.
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China Merchants Bank
Annual Report 2015
V Report of the Board of Directors
5.10.8 CMB International Capital
Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong.
Currently, the business scope of CMBIC and its subsidiaries mainly covers investment banking, securities brokerage,
asset management, wealth management and equity investments.
As at 31 December 2015, CMBIC had a registered capital of HK$1.0 billion, 163 employees, total assets of
HK$3.306 billion, representing an increase of 25.85% as compared with the beginning of the year and net assets of
HK$2.045 billion, representing an increase of 10.18% as compared with the beginning of the year. In 2015, CMBIC
achieved net profit of HK$344 million, representing an increase of 6.50% as compared with the previous year.
On 20 January 2016, the Company increased its capital contribution to CMBIC by USD400 million. The registered
capital of CMBIC upon completion of the capital increase was increased to HK$4.129 billion.
5.10.9 China Merchants Fund
CMFM was established on 27 December 2002 with a registered capital of RMB210 million. As at the end of
the reporting period, the Company had 55% equity interest in CMFM. The businesses of CMFM include fund
establishment, fund management and other operations approved by the CSRC.
As at 31 December 2015, CMFM reported total assets of RMB3.211 billion, up by 40.46% as compared with the
end of the previous year, net assets of RMB1.439 billion, up by 51.16% as compared with the end of the previous
year and a workforce of 272 employees. The total size of the asset management business of CMFM (including public
funds, social security funds and corporate annuity funds of fund firms, as well as the special account business of
fund firms and their subsidiaries) amounted to RMB866.3 billion, representing an increase of 103.50% as compared
with the previous year. In 2015, CMFM realised net profit of RMB548 million, representing an increase of 128.33%
as compared with the previous year.
5.10.10 CIGNA & CMB Life Insurance
As at 31 December 2015, CIGNA & CMB Life Insurance had a registered capital of RMB1.45 billion and a workforce
of 2,288 employees, total assets of RMB18.164 billion, representing an increase of 25.72% as compared with the
end of the previous year, and net assets of RMB2.756 billion, representing an increase of 14.40% as compared
with the end of the previous year. In 2015, CIGNA & CMB Life Insurance realised insurance income of RMB7.847
billion, representing an increase of 47.92% as compared with the previous year, and net profit of RMB292 million,
representing an increase of 33.33% as compared with the previous year.
Direct banking
We broadened our horizons and built up the ecological system of commercial banking with an open mind and long-term
perspective. Internally, we broke the operating philosophy that rooted from isolated account system and transformed into
an open user system. CMB APP and CMB Life APP are not just transaction tools but also operational platforms. These two
APPS are popular among the young generation. Externally, through win-win cooperation and online-offline integration, we
attracted traffic, expanded scenarios and opened the application programming interface (API) for CMB services. We were
determined to seize the opportunities arising from the commercial applications of 5G technology, and to develop Internet
supply chain financial services by way of embedding into the industry chain. The services of CMB will be available wherever
the customers are.
3.2 Analysis of Income Statement
The Group:
China Merchants Bank Co., Ltd.
China Merchants Bank:
The Company, the Bank, CMB or
Definitions
Annual Report 2017
Definitions/Significant Risk Warning
China Merchants Bank
China Merchants Bank Co., Ltd. and its subsidiaries
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.
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 2017 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 22nd meeting of the Tenth Session of the Board of Directors of the Company was held at its Shekou Training
Center on 23 March 2018. The meeting was presided by Li Jianhong, Chairman of the Board of Directors. 15 out of
15 eligible Directors attended the meeting in person. 8 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.
Proposal of profit appropriation: it was proposed that 10% of the audited net profit of the Company for 2017
of RMB64.510 billion, equivalent to RMB6.451 billion, will be allocated to the statutory surplus reserve, while
1.5% of the total amount of the risk assets, equivalent to RMB2.760 billion, will be 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 will declare a cash dividend of RMB0.84 (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 profit appropriations amount in HKD would be calculated
based on the average benchmark rate for RMB to HKD published by the People's Bank of China for the previous
week (including the day of the general meeting) before the date of the general meeting. The retained profits will be
carried forward to the next year. In 2017, 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 2017 Annual General Meeting
of the Company.
China Banking Regulatory Commission or CBRC:
China Banking Regulatory Commission
China Securities Regulatory Commission or CSRC:
China Securities Regulatory Commission
China Insurance Regulatory Commission or CIRC:
China Insurance Regulatory Commission
SFO:
Deloitte Touche Tohmatsu Certified Public
Accountants LLP (Special General Partnership)
Deloitte Touche Tohmatsu Certified Public
Accountants LLP:
China Merchants Securities Co., Ltd.
CM Securities:
CIGNA & CMB Life Insurance:
CIGNA & CMB Life Insurance Co., Ltd.
China Merchants Fund Management Co., Ltd.
China Merchants Fund or CMFM:
CMB International Capital Holdings Corporation Limited
CMB International Capital or CMBIC:
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:
The Stock Exchange of Hong Kong Limited
Hong Kong Stock Exchange or SEHK:
4.
3.
2.
1.
73
3.12 Profit Appropriation
71
3.11 Risk Management
65
3.10 Business Operations
49
3.9 Changes in the External Environment and Corresponding Measures
42
3.8 Business Development Strategies
39
3.7 Other Financial Disclosures in accordance with the Regulatory Requirements
38
3.6 Results of Operating Segments
37
3.5 Analysis of Capital Adequacy Ratio
34
3.4 Analysis of Loan Quality
29
3.13 Requirements of the Environmental, Social and Governance Reporting Guide
Securities and Futures Ordinance
73
73
Important Notice
Annual Report 2017
Important Notice
China Merchants Bank
IX Financial Statements
125
25
124
VII Corporate Governance
106
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
91
V Changes in Shares and Information on Shareholders
81
IV Important Events
74
3.16 Permitted Indemnity Provision
73
3.15 Management Contracts
3.14 Compliance with relevant Laws and Regulations
(Chapter 571 of the Laws of Hong Kong)
VIII Report of the Board of Supervisors
Model Code for Securities Transactions by Directors of
Listed Issuers of Hong Kong Stock Exchange
China Merchants Bank
Annual Report 2017
||||||||||
M
We are here
Just for you
2017 Annual Report
Preference Share Stock Code: 04614
H Share Stock Code: 03968
(a joint stock company incorporated in the
People's Republic of China with limited liability)
CHINA MERCHANTS BANK CO., LTD.
CHINA MERCHANTS BANK
M 招商銀行
9
President
China Merchants Bank Co., Ltd.
The past is the prologue of the future. In the past, CMB has always maintained its strategic foresight and made major
deployments that surpassed its short-term interests at critical junctures, therefore formed its differentiated competitive
advantages. For the next 30 years, CMB will continue to lead the trend and write new legends while always keeping its
original aspiration in mind.
With a comprehensive solid foundation, retail finance is the symbol of CMB. Over the past 30 years of development, we
firmly grasped the opportunities arising at different times, stuck to the concept of "customer-centric", used "All-in-one
Card" to replace bankbook, took the lead to realise inter-bank withdrawals, replaced deposits with AUM (assets under
management) to innovate the new model of wealth management, thereby realising two leap forwards and laying solid
foundation for retail business. Today, we shall follow the trend once again to build a best customer experience bank
by focusing on improving customer experience. Looking into the future, we will strive to achieve growth in orders of
magnitude for monthly active users of CMB APP and CMB Life APP in the next three years, and take these parameters as
major breakthroughs in enhancing customer experience in the next three years, so as to achieve the third key leap forward
and apply our advantages in service quality in the Internet-based applications.
We worked diligently to form the initial outline of the wholesale financial customer service system step by step. The
specialised operating systems for strategic customers, financial institutions customers, institutional customers and small-sized
enterprise customers have been implemented, and the Customer Relationship Management System has been gradually
improved. Two product systems of transaction banking and investment banking had distinctive features. Strategic businesses
such as cash management, merger and acquisition, asset management, asset custody, financial market transactions and bills
gradually established leading market positions. Our next task is to focus on customer experience, enlarging our customer
base in a solid and robust way, emphasizing comprehensive customer services and in-depth management, and completely
discarding the credit culture of business opportunism.
There are no shortcuts in serving our customers. We always remember the initial mindset of "we are here just for you",
the faith of "sincerity and integrity, like family and friends", the patience of "small moves making big differences" and the
persistence of "irrigating everything quietly like the spring rain for decades on end". We are against business opportunism,
and we will never forget where our services started. We will return to the fundamentals of customer service, shake off
the burden of business scale, not deliberately pursue the growth of short-term income, and shift our focus to customer
experience. We firmly believe that sound financial indicators are the natural outcome of serving customers, whereas
customer experience is the fundamental and decisive factor.
We know that technology is, after all, just tools and means, and that customers are the origin for all business philosophy. In
the past, we competed with our competitors. In the future, we need to catch up with our customers. Therefore, during the
strategic period of the new era, we further put forward the objective of "building the bank with best customer experience",
regarded customer experience as our guiding star, and focused on enhancing customer experience as the principle of all
works. Taking customer experience as the new starting point of the new era, we strived to achieve a quality leapfrogging
development of China Merchants Bank.
Contents
We changed our mindset thoroughly and re-examined our internal management based on the principle of putting customer
experience in priority. By using Fintech concepts and means, we reformed the business processes, rebuilt the operating
system, optimised cost management and made innovation in systems and mechanisms. By closely focusing on customer
needs and in-depth integration of technologies and businesses, we used technology agility to drive business agility and
created the best customer experience.
Contents
2
Model Code:
19
3.1 Analysis of the Overall Operation
19
III Report of the Board of Directors
Il Summary of Accounting Data and Financial Indicators
19
16
I Company Information
11
President's Statement
7
Chairman's Statement
4
Significant Risk Warning
3
Definitions
3
Important Notice
1
We re-set our coordinate system, benchmarked with Fintech companies in a comprehensive manner, and built Fintech
infrastructure with focus on the establishment of five basic technologies, namely Mobile Internet, Big Data, Cloud
Computing, Artificial Intelligence and Blockchain.
3.3 Analysis of Balance Sheet
President's Statement
Going forward, the banking industry will be presented with a number of historical opportunities and greater room for
growth in this new era. As one of the leaders in the PRC banking industry, China Merchants Bank should make new
achievements and get a new look in this great era, further improve its operation and management in accordance with the
standards of the world's top-tier banks, and basically reach the benchmark of the world's top-tier commercial banks in eight
areas: returns to shareholders, strategic deployment, risk management, customer experience, staff satisfaction, Fintech
development, operational efficiency and brand reputation.
In addition, China Merchants Bank has diligently fulfilled its responsibilities regarding "customer service, value creation,
green development, career development and social harmony", aiming to build a better society through financial services. In
2017, China Merchants Bank continued to explore ways of utilising its professional capabilities in public welfare activities
to create greater shared value for the society through targeted poverty alleviation, employee volunteering activities and
encouraging cardholders to make donations. The Bank gave more care to its staff, supported their career development,
promoted work-life balance and listened to their opinions, in an effort to grow together with its staff. The Bank continued
to develop green finance vigorously, supported the development of a green, low-carbon and environmentally friendly
economy with its own professional capabilities, and jointly created a better living environment through development of new
technologies, improvement of its staff's awareness on environment protection and other self-initiated approaches. China
Merchants Bank was awarded the "Outstanding Enterprises for Social Responsibilities in China for 2017" at the Award
Ceremony for Social Responsibilities and Public Welfare in China for 2017 co-sponsored by Xinhuanet.com and the Research
Center of Corporate Social Responsibility at the Chinese Academy of Social Sciences.
Chairman's Statement
China Merchants Bank
Annual Report 2017
6
Chairman
Li Jianhong
In 2017, the Board of Directors adhered to the prudent operation principles of "ensuring assets quality, prioritising
operation efficiency, putting risks under control and maintaining proper scale", and took the following initiatives to
enhance strategic guidance, monitor risks in a forward-looking manner and increase investments in Fintech. Firstly,
we implemented the strategic task of "outperforming the market and peers" and formulated the relevant assessment
mechanism for staff expenses management, encouraging the Bank to improve its assets quality and overall performance and
enhance its competitive edge under the premise of risks being fully exposed; secondly, we further improved the overall risk
management and constantly removed the blind spots, flaws and weaknesses in risk management; thirdly, in response to the
rapid development of Fintech, we established the "Fintech Innovation Project Fund" specially for investments in Fintech, so
as to boost the Fintech innovation of China Merchants Bank. At the same time, members of the Board of Directors diligently
and proactively carried out special researches, timely identified the changes in the development pattern and the trend of
the global banking industry, conducted in-depth studies on the significant resolutions of China Merchants Bank, and set the
right course of development to ensure stable and healthy business growth.
The strategic plan for "building the best commercial bank in China with innovation-driven development, leading retail
banking and distinguished features", which was determined by the Board of Directors, has been well implemented. In 2017,
CMB APP 6.0 integrated with the Al-powered Fintech was launched, and the cross-border direct link payment Blockchain
platform, which marked the first cross-border Blockchain project in China and the Asia-Pacific region, was also rolled out.
The Fintech innovation continued to fuel the growth in our businesses and customers. The number of retail customers
exceeded 100 million while customers found their user experience constantly improved. Our advantage in retail business
has been further enhanced. As at the end of 2017, the Company's net operating income from retail businesses accounted
for 51.28% of its total income, representing a year-on-year increase of 1.85 percentage points. Our wholesale business
has developed its distinguished features. Our transaction banking, investment banking and financial market product system
have constantly been enriched and improved. We also significantly improved our capability of serving strategic customers.
China Merchants Bank continued to create value for all parties of society. As at the end of 2017, the total market
capitalisation of China Merchants Bank exceeded RMB710 billion, representing an increase of 64% as compared with the
beginning of the year. Throughout the year, the increase in stock price and market valuation of our A shares and H shares
both ranked first among domestic medium- and large-sized listed banks, showing a stunning performance in the capital
market and bringing rather satisfactory return to our shareholders. In adhering to our "customer-centric" service concept,
CMB is committed to offering customers better services that are more intelligent and convenient, thus creating value for our
customers. Employees are our most valuable assets. Putting into practice the "people-oriented" concept, China Merchants
Bank has formed a strategic partnership and community of interests with its employees by establishing the comprehensive
system for recruitment, training, pooling, exchange and allocation of talents through multiple channels and means. In
2017, China Merchants Bank was also enlisted among the Top 30 of the "China Best Employer Award 2017" organised by
Zhaopin Limited and the Social Survey Research Center of the Peking University.
2017 was an extraordinary year witnessing China's entry into a new era as announced at the 19th CPC National Congress,
and was also the 145th anniversary of China Merchants Group and the 30th anniversary of China Merchants Bank. Over the
past year, facing tough challenges from internal and external operating environment, China Merchants Bank has stayed true
to its original aspiration and maintained its strategic positioning. It made a great move forward in regaining its past glory,
and honoured the 19th CPC National Congress, the 145th anniversary of China Merchants Group and the 30th anniversary
of China Merchants Bank by delivering satisfactory operating results.
Chairman's Statement
Annual Report 2017
Chairman's Statement
China Merchants Bank
4
3
The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures.
Please refer to Chapter III for the details in relation to risk management.
Significant Risk Warning
Talents are indispensable for the exploration of a new development path. We made innovations in systems and mechanisms,
established technology-equipped Fintech innovation and incubation platforms and built a trial and error system to
encourage staff to start small-group internal entrepreneurship targeting users and markets.
"Talent + Innovation" is the fundamental driving force of China Merchants Bank in this new era. Over the past three
decades, talents have been the key for the successful growth of China Merchants Bank. Facing its historic mission and
challenges from Fintech in the new era, China Merchants Bank will make itself an epitome of strugglers, learners and
Fintech users, and maximise the potential and capabilities of talents through the market-oriented incentive mechanism. As a
bank with an inherent disposition towards technology, the Board of Directors and senior management of China Merchants
Bank, while having strong sense of crisis and clear strategy orientation, will adhere to the belief that a bank can go through
a process of disruption, fault tolerance and win-win situation by embracing technological advances through increased
investments in Fintech to improve its Fintech functionality, accelerate its Fintech application and foster its competitive edge
in Fintech in the new era.
Good corporate governance serves as a crucial systemic safeguard for China Merchants Bank in the new era. In 2018,
the Board of Directors will continue to support China Merchants Bank in its healthy and sustainable development and
increase its support in the implementation of the "talents + innovation" initiative for further business development. The
Bank will further increase the amount of the Fintech innovation fund and the investments in Fintech while following the
principles of "tolerating failures and rewarding achievements". At the same time, the Bank will unremittingly promote
the implementation of system innovation and offer innovative medium- to long-term incentives. In addition, the Bank will
adhere to the concept of maintaining a dynamic balance among "quality, efficiency and scale" in its development, hold on
to a conservative risk preference and constantly monitor its various operational risks.
In 2017, China Merchants Bank realised a net profit attributable to shareholders of the Bank of RMB70.150 billion,
returning to a two-digit growth of 13.00%. Return on average equity (ROAE) attributable to ordinary shareholders of the
Bank was 16.54%, representing a year-on-year increase of 0.27 percentage point and showing a sign of bottoming out.
The non-performing loan ratio was 1.61%, representing a decrease of 0.26 percentage point as compared with the end of
the previous year, and the balance of non-performing loans decreased by RMB3.728 billion, both realising a decrease. Our
total assets amounted to more than RMB6.29 trillion, representing an increase of 5.98% as compared with the end of the
previous year, achieving a steady and healthy growth.
China Merchants Bank Co., Ltd.
President
China Merchants Bank
Annual Report 2017
2018 marks the first year to implement the guiding principles issued by the 19th CPC National Congress, and also the
40th anniversary of the Reform and Opening-Up of China. China Merchants Bank, as a brainchild of China's Reform and
Opening-Up policy, will give full play to its aptitude for reform and innovation with strong support from all its shareholders.
We will continue to deliver good operating results that "outperform the market and peers" with the dual driving forces -
talents and innovation. More value would be created for all walks of life in the society and more contributions would be
made to China's development in the new era!
Tian Huiyu
7
The vision of "building CMB into a bank that thrives for centuries" requires us to work together for the future based on
our past experiences. Therefore, we took initiatives to change with the trend, proposed the objective of building a "Digital
Bank", and prioritised technological development as the most important task of transformation. Each and every business,
process and management shall be rebuilt by means of Fintech, and the overall organisation, every manager and employee
shall be re-equipped with the Fintech mentality, so as to provide sustainable "nuclear power" for the second half of the
strategic transformation of "Light-operation Bank". As such, we decided to allocate 1% of the pre-tax profits (RMB790
million) for the previous year to set up special FinTech innovation project funds in addition to the conventional IT cost and
investment in 2017. The fund will increase to 1% of the operating income for the previous year in 2018 (RMB2.21 billion).
Future investment may be further increased if necessary. We believe that investing in Fintech is investing in the future.
Over the first decade of this century, substantial breakthroughs were made in the Mobile Internet, Big Data, Cloud
Computing, Artificial Intelligence, Blockchain and other cutting-edge technologies, and they have been widely used in the
past 5 years. The next round of technological revolution has kicked off. The human lifestyle and business ecology have
been or are being reconstructed. There are still great uncertainties in the future. As long as they are frontrunners in the
application of cutting-edge technologies, even the start-up companies will have a greater chance of "evolution" in the
future to achieve the goal of "winning through dimensionality reduction strikes" and become new "overlords".
Therefore, in an era of unprecedented changes not found in the past 100 years, we have seen that Internet technology
companies such as Apple, Alphabet (Google's parent company), Microsoft, Amazon, Facebook, Tencent and Alibaba step
into the top 10 listed companies in the world in terms of market value, while several traditional "giant" enterprises are
unable to keep up with the pace of development. We can not predict what could happen in the future, but we will be
ready no matter what lies ahead.
2018 coincides with the 40th anniversary of the Reform and Opening-Up Policy. It is also the starting point to set out a
new journey. The banking industry has commenced its differentiation. Under the circumstances of preventing and resolving
financial risks, strong supervision and de-leveraging will completely reshape the competitive landscape of the financial
industry. Our long-term adherence to the sound risk management culture and the compliant operation philosophy has
further enhanced the relative competitive advantages of CMB. The PRC economy has shifted from a period of rapid
growth to a stage of high-quality development. Through continuous strategic transformation, CMB has eliminated the
burden of scale and switched its growth curve, thus achieving a dynamic balanced development of "quality, efficiency
and scale", which is in line with the national high-quality development concept. What is even more exciting is that our
strategic transformation has won us valuable time, allowing us to more comfortably pursue the higher-level, higher-quality
development.
The Bank has made remarkable achievements over the past three decades. The past years were marked with our glories,
but they do not guarantee us to win out in the future. The wheel of era has never stopped. We cannot live only in our
past achievements. Instead, we must overcome cyclical factors and dodge potential pitfalls to find new opportunities and
growing points.
Over the past year, China Merchants Bank further promoted the strategic transformation of "Light-operation Bank",
demonstrating the transformation results of "more secure structure, more distinctive features and clearer model". The
strategic advantages are being translated into our financial advantages. This provides us with strategic opportunities to
further deepen our reform and free us to solve several deep-rooted fundamental problems that may restrict our higher-
quality development.
Banking is an industry with a long history. From the credit contract that came with the "obligatory donation" of the
Babylonian temples in 2000 BC to the earliest Venetian bank in the 16th century, and from the banknotes in the Song
Dynasty and private banks in the Ming and Qing Dynasties, to the birth of Imperial Bank of China in 1897, the traditional
business model of banks has been inherited for thousands of years, which is long standing even after the rise of great
powers and the change in dynasties. Today, none of the factors including the cyclical factors of economic downturn, the
market factors relating to the change of interest rates and exchange rates, and the policy factors such as de-leveraging and
strong supervision will change the business model of banks. Technology, however, is the only thing that may fundamentally
change and subvert the business model of banks.
In the past year, the price of A shares and H shares of China Merchants Bank rose by more than 70%. Our latest market
capitalisation exceeded RMB710 billion, ranking 11th among the listed banks in the world. This shows the recognition from
the market and investors, which motivates us to strive forward.
Over the past year, China Merchants Bank realised a net operating income and a net profit attributable to shareholders
of the Bank of RMB221.037 billion and RMB70.150 billion, representing a year-on-year increase of 5.12% and 13.00%,
respectively. At the end of the year, our total assets exceeded RMB6.29 trillion, representing an increase of 5.98% as
compared with the end of the previous year, and our asset quality was stable with improvements, as both the balance
of non-performing loans and the non-performing loan ratio declined. Even more delightful is that Fintech has taken the
number of our customers to a new level, with a total number of over 100 million retail customers and over 1.57 million
corporate customers. Total number of users on CMB APP and CMB Life APP also exceeded 100 million, with more than 45
million monthly active users.
We've made much accomplishment in the last three decades.
Chairman
President's Statement
Annual Report 2017
President's Statement
China Merchants Bank
李进化
$
the Company
during the
related
parties of
from the
Aggregate
pre-tax
remunerations
during the
(share)
(RMB ten
thousand)
reporting
having
received
remunerations
Chairman
2013.8-2019.6
Li Jianhong
Male
1956.5
period
Yes
Non-Executive Director
2014.7-2019.6
Executive Director
Tian Huiyu
Male
(share)
2014.8-2019.6
Term of office
91
(Y/M)
During the reporting period, the voting rights of the domestic and offshore preference shares of the Company in
issue had not been restored.
5.6.6 Accounting policies for preference shares and the reason of adoption
The Company made accounting judgments over its preference shares then issued and outstanding in accordance
with the requirements of the relevant accounting principles, including the "International Accounting Standard 39 -
Financial Instruments: Recognition and Measurement" and the "International Accounting Standard 32 - Financial
Instruments: Presentation" promulgated by International Accounting Standards Board. As the preference shares
issued and outstanding of the Company carry no obligation to deliver cash and cash equivalents, nor have they
any contractual obligations to deliver a variable number of its own equity instruments for settlement, they were
therefore measured as other equity instruments.
China Merchants Bank
Annual Report 2017
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
1965.12
Directors, Supervisors, Senior Management,
Employees, and Organisational Structure
6.1 Directors, Supervisors and senior management
Whether
received from
Shareholding
Title
the Company
beginning
at the
reporting
of the
end of
period
Date of Birth
period
the period
Name
Gender
at the Shareholding
522.06
Su Min
2013.9-2019.6
2016.11-2019.6
Wang Daxiong Male
1960.12
Non-Executive Director
2016.11-2019.6
Leung Kam
Male
1952.1
Independent Non-Executive Director
2015.1-2019.6
50.00
22 23 24 2
No
Yes
No
Yes
Yes
Yes
Yes
No
Chung, Antony
Wong Kwai Lam Male
1949.5
Non-Executive Director
1964.10
Male
Zhang Jian
Fu Gangfeng
Male
1966.12
Non-Executive Director
2010.8-2019.6
Sun Yueying
Female 1958.6
Non-Executive Director
2001.4-2019.6
Executive Director, First Executive
Li Hao
President and Chief Executive Officer
Male
2007.6-2019.6 (note 1)
474.60
Vice President and Chief Financial Officer
Hong Xiaoyuan Male
1963.3
Non-Executive Director
2007.6-2019.6
Female
1968.2
Non-Executive Director
2014.9-2019.6
1959.3
Yes
Guo Xuemeng
2011.7-(note 2)
In February 2017, the qualification of Mr. Wong See Hong for serving as a Director was approved by the CBRC, and
Ms. Guo Xuemeng ceased to be the Independent Non-Executive Director of the Company.
6.2 Appointment and resignation of Directors, Supervisors and senior
management
93
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
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.
(8)
In January 2018, Mr. Li Xiaopeng resigned as the Vice Chairman and Non-Executive Director of the Company due to
other business commitment.
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 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.
5.6.5 Restored voting rights of preference shares
90
90
China Merchants Bank
V Changes in Shares and Information on Shareholders
Annual Report 2017
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 staff will be disclosed separately upon
confirmation of payment.
In May 2017, Mr. Ding Wei resigned as the Executive Vice President of the Company due to other business
commitment.
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", as well as the websites of
Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
Mr. Wang Jianzhong and Mr. Shi Shunhua were appointed as members of the CPC Committee of the Company in
April 2017.
Mr. Hong Xiaoyuan, Non-Executive Director of the Company, serves as a director of China Merchants Holdings
(Hong Kong) Company Limited and concurrently serves as the Chairman of China Merchants Innovative
Investment Management Co., Ltd. and a director of China Merchants RenHe Life Insurance Company Limited.
Mr. Zhang Jian, Non-Executive Director of the Company, ceased to concurrently serve as the Chairman of
Shenzhen China Merchants Ping An Asset Management Co., Ltd. (À¥£¤à¤¶REGĀ)
and concurrently serves as a director of Shenzhen China Merchants Ping An Asset Management Co., Ltd.,
a director of Siyuanhe Equity Investment Management Co., Ltd. (®ÃTHARAĀ) and the
Chairman of China Merchants Financial Technology Co., Ltd. (DINBOR21).
Ms. Sun Yueying, Non-Executive Director of the Company, concurrently serves as the Chairman of China
Shipping Finance Co., Ltd..
Mr. Fu Gangfeng, Non-Executive Director of the Company, serves as a director and general manager of China
Merchants Group Ltd. and ceased to concurrently serve as the chief financial officer of China Merchants
Group Ltd..
13.
12.
11.
10.
9.
8.
7.
6.
5.
4.
3.
2.
1.
6.3 Changes of information of Directors and Supervisors
5.6.3 Dividend distribution of preference shares
As of the end of the reporting period, the offshore and domestic preference shares of the Company in issue had
not yet reached the dividend payment date(s), no distribution of dividend for preference shares was made by the
Company.
5.6.4 Repurchase and conversion of preference shares
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.
1959.5
Male
Li Xiaopeng
2015.11-2018.1
Former Vice Chairman
No
2 2 2 2 2
No
No
No
Former Independent Non-Executive Director 2012.7-2017.2
1966.9
Female
332.22
2012.6-present
Executive Assistant President
1958.5
Former Non-Executive Director
Mr. Wang Daxiong, Non-Executive Director of the Company, concurrently serves as the Chairman of COSCO
SHIPPING Capital Insurance Co., Ltd. and the vice Chairman of New China COSCO Financial Holdings Limited
(新華遠海金融控股有限公司).
2014.11-2018.1
Male
Pursuant to the relevant requirements of the "Guiding Opinions on Establishing the Independent Director System in Listed Companies" (K
KELDAك٥‡ƒ£§), the term of office of Independent Directors shall not exceed six years. Therefore, the term of
office of Mr. Pan Chengwei, an Independent Director, will expire earlier than conclusion of the Tenth Session of the Board of Directors.
The term of office of Mr. Wong Kwai Lam expired in July 2017 and the term of office of Ms. Pan Yingli expired in November 2017. The
Company is in the process of finding a new candidate for its Independent Director. Pursuant to the relevant requirements of the "Guiding
Opinions on Establishing the Independent Director System in Listed Companies" ( (HRELIA£ÌƒỲ⠀⠀⠀⠀) ), not less
than one third of the total Directors shall be Independent Directors in a listed company. Therefore, Mr. Wong Kwai Lam and Ms. Pan Yingli will
continue to fulfill their duties until the new Independent Director takes office.
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.
(7)
(6)
(5)
(4)
(3)
(2)
(1)
Notes:
No
158.20
Independent Non-Executive Director
2008.5-2017.5
Former Executive Vice President
1957.5
Ding Wei
Mr. Leung Kam Chung, Antony, Independent Non-Executive Director of the Company and the Chairman of
charitable organizations, Heifer - Hong Kong, ceased to serve as the Chairman of Harvard Business School
Association of Hong Kong.
Mr. Wong Kwai Lam, Independent Non-Executive Director of the Company, ceased to be a member of
the Strategic Investment Society of The Chinese University of Hong Kong and concurrently serves as the
Chairman of Opera Hong Kong.
Mr. Pan Chengwei, Independent Non-Executive Director of the Company, ceased to serve as an independent
director of Shenzhen Nanshan Power Co., Ltd..
46
2014.
=) and head of the regulatory office VII of the banking regulatory division II (£ƒ=¬£¥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 (R) of the CBRC, director of CBRC Shanxi Bureau, director of CBRC
Shenzhen Bureau, head of the Banking-related Case Audit Bureau (*) of the CBRC and head
of the Banking-related Consumer Protection Bureau (Rí¬¤¤¤) of the CBRC from July 2003 to July
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 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 (
****NE). 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 (
¤¬) of State Administration of Foreign Exchange from October 1991 to February 1994. He held the
positions of secretary of the General Office (2), researcher of the regulatory office I of the banking
division (—), head of the regulatory office III of the banking regulatory division || (=
Supervisors
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. (ƒ±ªÂÂÌŤ¶), EC World Asset Management Private Limited and an
Independent Director of Tahoe Life Insurance Company Limited. He previously served as the Deputy Chief Executive
of BOCHK, head of ABN AMRO Bank for the Southeast Asia region, 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 ReutersƑª) and
Financial Management Commission of the Hong Kong Administration Society (†¤¥ª¥¾¢HEAM).
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
concurrently serves as the Independent Non-Executive Director of Bright Scholar Education Holdings Limited (a
company listed on New York Stock Exchange) and the Independent Non-Executive Director of Sichuan Xunyou
Network Technology Co., Ltd. (|| 37 36 4922), a company listed on the Shenzhen Stock Exchange.
He was a Managing Partner of DT Capital Partners, the Managing Director and the Chief Representative in China of
ChinaVest, Ltd..
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 Modern Finance in 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 and the chief expert of Pan Yingli Studio of
the Decision-making Consultation Research Base of Shanghai Municipal Government (ADFAIL
IF). 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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
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 an Independent
Non-Executive Director of China International Marine Containers (Group) Co., Ltd. (a company listed on Hong Kong
Stock Exchange and the Shenzhen Stock Exchange). 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.
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.,
the Chairman of Opera 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 The
Chinese University of Hong Kong Medical Center Co., Ltd. (+¯¯‡ªÀ+), a member of the
Advisory Board of the School of Continuing and Professional Studies of The Chinese University of Hong Kong and
a member of the Governance Committee of Prince of Wales Hospital located in Shatin, Hong Kong. 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.
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. He also 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., and the Chairman of charitable organizations, Heifer - Hong Kong and "Food
Angel". 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.
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. He 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 concurrently serves as a Director of China Merchants Securities
Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), the Chairman of COSCO
SHIPPING Capital Insurance Co., Ltd. (RBÉRORA) and a Vice Chairman of New China COSCO
Financial Holdings Limited (*£££¸¤®). 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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
96
97
95
98
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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. and a member of Visa Asia Pacific Senior Advisory Council.
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 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. He concurrently serves as a Director of Asian Financial Cooperation
Association.
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.
Mr. Liu Yuan, please refer to Mr. Liu Yuan's biography under the paragraph headed "Supervisors" 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 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.
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 concurrently the Secretary of the CPC
Committee of the Dalian Branch 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 was 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. He served as the General Manager of the Inspection and
Security Department at the Head Office of the Company from November 2015 to January 2018.
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 External Supervisor of Bank of Chengdu Corporation Limited (a company listed on Shanghai Stock Exchange)
and an Independent Director of 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 (UTHe
served as a managing partner of Shenzhen Finance Accounting Firm (1) from October 1997
to October 2008. He served as a senior partner of Daxin Certified Public Accountants from October 2008 to October
2012.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
99
99
Mr. Ding Huiping is an External Supervisor of the Company. He obtained a doctorate degree in Enterprise
Economics from Universitet I 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), 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), China International Marine Containers (Group) Ltd. (a company
listed on Hong Kong Stock Exchange and Shenzhen Stock Exchange) and China Merchants Securities Co., Ltd. (a
company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange). He served as an Independent Director
of the Company from May 2003 to May 2006.
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 is a Deputy General
Manager of Finance Affairs Department of SAIC Motor Corporation Limited, and General Manager of of SAIC Motor
Financial Holding Management Co., Ltd.. He consecutively 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 consecutively served as a Division Head, Assistant to Executive
Controller and concurrently a 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. ((E) ĦR2).
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 is concurrently the senior partner of King & Wood Mallesons, Beijing and a part-time
professor at the School of Law in both China University of Political Science and Law and 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), Bank of Tianjin Co., Ltd. (a company listed on
Hong Kong Stock Exchange), Guotai Junan Securities Co., Ltd. (a company listed on Shanghai Stock Exchange), CSG
Holding Co., Ltd. (a company listed on Shenzhen Stock Exchange), Invesco Great Wall Fund Management Company
Limited, Times Property Holdings Limited (a company listed on Hong Kong Stock Exchange), Zhong Fa Zhan Holdings
Limited (a company listed on Hong Kong Stock Exchange), Shenzhen Asiantime International Construction Co., Ltd.
(a company listed on Shenzhen 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 and
Shenzhen Stock Exchange), New China Asset Management Co., Ltd., Xi'an Dagang Road Machinery Co., Ltd. (a
company listed on Shenzhen Stock Exchange), Tianjin Changrong Print and Packing Equipment Co., Ltd. (a company
listed on Shenzhen Stock Exchange) and Gemdale Corporation (a company listed on Shanghai 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. 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 is a Director and Chief Accountant of Hebei Port Group
Co., Ltd. (ªÂ¬]) and concurrently 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 served as a Shareholder Supervisor of the Company from June 2010 to
May 2013.
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 is an Executive
Director and the Chief Financial Officer of China Communications Construction Co., Ltd. (a company listed on Hong
Kong Stock Exchange and Shanghai Stock Exchange) and concurrently 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. (+Ħ✰**&S). 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 served as a Non-Executive Director of the Company from March 2000 to August 2015.
China Merchants Bank
Annual Report 2017
Male
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 concurrently serves as a Director of Shenzhen CMB Qianhai Financial Asset Exchange Co., Ltd., a
Director of Shi Jin Shi Credit Service Co., Ltd.), a Director of China Merchants Insurance
Holdings Co., Ltd. (), a Director of China Merchants Ping An Asset Management Co., Ltd.,
a Director of China Merchants RenHe Life Insurance Company Limited, a Director of Siyuanhe Equity Investment
Management Co., Ltd. (IRATIOR) and the Chairman of China Merchants Financial Technology
Co., Ltd. (INR). 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), Business Director and General Manager of the Corporate Banking Department at
the Head Office of China Merchants Bank, 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.
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 serves as the Director of China Merchants Holdings (Hong Kong) Company Limited and the Assistant
General Manager of China Merchants Group Ltd. and the Chairman and CEO of China Merchants Finance Holdings
Company Limited. He concurrently serves as the Chairman of China Merchants Finance Investment Holdings Co.,
Ltd., China Merchants China Direct Investments Limited (a company listed on Hong Kong Stock Exchange), Shenzhen
CMB Qianhai Financial Assets Exchange Centre Co., Ltd. (UÒ¤£Ì¤Â¾ÂÌÌ‚+Ù), China
Merchants United Development Company Limited, China Merchants Innovative Investment Management Co., Ltd.,
the Vice Chairman of China Merchants Capital Investments Co., Ltd. and the Director of China Merchants RenHe
Life Insurance Co,. Ltd..
Hong Xiaoyuan
Su Min
Sun Yueying
Fu Gangfeng
China Merchants Group Ltd.
Li Jianhong
Name
China COSCO Shipping Corporation Limited
China Merchants Group Ltd.
China Merchants Group Ltd.
Name of Company
6.4 Current positions held by Directors and Supervisors in the
shareholders' companies
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
94
Mr. Xu Lizhong, an Employee Supervisor of the Company, serves as the Secretary of the CPC Committee
of the Dalian Branch of the Company, and ceased to serve as the General Manager of the Inspection and
Security Department at the Head Office of the Company.
Mr. Han Zirong, External Supervisor of the Company, concurrently serves as the external supervisor of Bank of
Chengdu Corporation Limited and ceased to serve as the independent director of that company.
Mr. Jin Qingjun, External Supervisor of the Company, concurrently serves as an independent director of
CSG Holding Co., Ltd., an independent non-executive director of Zhong Fa Zhan Holdings Limited and an
independent director of Shenzhen Asiantime International Construction Co., Ltd..
Mr. Zhao Jun, Independent Non-Executive Director of the Company, concurrently serves as the independent
non-executive director of Sichuan Xunyou Network Technology Co., Ltd. (1521).
Mr. Wong See Hong, Independent Non-Executive Director of the Company, concurrently serves as an
independent director of Tahoe Life Insurance Company Limited.
Zhang Jian
Wang Daxiong
Fu Junyuan
Wen Jianguo
Wu Heng
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 serves as 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. (¾£XÏ£ÁR
A) 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 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).
China Merchants Finance Holdings Co., Limited
China Merchants Group Ltd.
Title
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 concurrently serves as the Chairman of CMFM and the Vice Chairman of Shenzhen CMB Qianhai
Financial Asset Exchange Co., Ltd. §£•¤È`¯‡Ù³Â¬), the Vice Chairman of Wing Lung
Bank, 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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
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 (+¥Ð£ÐR^
]) and concurrently serves as 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), the Chairman of COSCO Finance Co., Ltd. and the Chairman of China Shipping Finance Co., Ltd..
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
Director and General Manager of China Merchants Group Ltd., and the Vice Chairman of China Merchants Shekou
Industrial Zone Holdings Co., Ltd. (±##⠀⠀S) (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., the General Manager of the Finance Division of China Merchants Group Ltd. and
the Chief Financial Officer and Chief Accountant of China Merchants Group Ltd..
Mr. Tian Huiyu is an Executive Director, President and Chief Executive Officer of the Company. He obtained a
bachelor's degree in Infrastructure Finance and Credit from Shanghai University of Finance and Economics and a
master's degree in Public Administration from Columbia University. He is a senior economist. He is concurrently the
Chairman of WLB, the Chairman of CMBIC, 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.
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. and concurrently
serves as the Chairman of China Merchants RenHe Life Insurance Co., Ltd.. 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.
Directors
6.5 Biography of Directors, Supervisors and senior management and
information of their concurrent posts
From July 2014 up to now
From February 2018 up to now
From January 2016 up to now
From September 2011 up to now
From September 2015 up to now
From September 2015 up to now
From May 2016 up to now
From September 2006 up to now
From July 2009 up to now
From May 2015 up to now
Term of office
Deputy General Manager of Finance Department
Executive Director & Chief Financial Officer
Director & Chief Accountant
General Manager of Finance Department
Chairman
Assistant General Manager
General Manager
Director and General Manager
Chief Accountant
Chairman
COSCO Shipping Financial Holdings Co., Limited
China Communications Construction Co., Ltd.
Hebei Port Group Co.,Ltd.
SAIC Motor Corporation Limited
Lian Bolin
Yes
2017.4-present
2006.5-2019.6
Executive Vice President
1960.3
Male
Tang Zhihong
243.95
2015.3-2019.6
Employee Supervisor
1966.6
Female
Huang Dan
333.67
2016.6-2019.6
Employee Supervisor
1964.3
Male
Xu Lizhong
40.00
2016.6-2019.6
External Supervisor
1963.7
Han Zirong Male
40.00
379.68
2016.6-2019.6
2 2 2 2 2 2 1 1 1 ≥ ≥ ≥ ≥ ≥ 2
No
end of
of the
reporting
at the
beginning
the Company
Shareholding
at the Shareholding
remunerations
received from
Whether
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
92
92
No
No
No
No
Yes
Yes
Yes
No
No
No
No
External Supervisor
Ding Huiping Male 1956.6
40.00
41.67
2017.2-2019.6
Independent Non-Executive Director
1953.6
Wong See Hong Male
50.00
2015.1-2019.6
Independent Non-Executive Director
1962.9
Male
Zhao Jun
50.00
2011.11-(note 2)
Independent Non-Executive Director
1955.6
Female
Pan Yingli
50.00
2012.7-2018.7 (note 3)
Independent Non-Executive Director
1946.2
Pan Chengwei Male
50.00
Chairman of Board of Supervisors,
Liu Yuan
Male 1962.1
2014.8-2019.6
65,800
65,800
2014.10-2019.6
External Supervisor
1957.8
Male
Jin Qingjun
2016.6-2019.6
Shareholder Supervisor
1976.8
Male
period
Wu Heng
Shareholder Supervisor
1962.10
Male
Wen Jianguo
2015.9-2019.6
Shareholder Supervisor
1961.5
Male
Fu Junyuan
Employee Supervisor
474.60
2016.6-2019.6
Date of Birth
period
the period
2015.1-2019.6
Executive Vice President
Secretary of the Party Discipline Committee 2014.7-present
1963.2
Xiong Liangjun Male
2013.12-2019.6
Executive Vice President
Male 1965.8
Liu Jianjun
2008.12-2019.6
Executive Vice President
1960.7
Male
Zhu Qi
reporting
period
during the
the Company
related
parties of
having
received
remunerations
from the
during the
Aggregate
pre-tax
Wang Liang Male
thousand)
1965.12
379.68
Member of the CPC Committee
1962.12
Male
Shi Shunhua
255.59
2017.4-present
Member of the CPC Committee
1962.10
Wang Jianzhong Male
2015.2-2019.6
Executive Vice President
1964.11
Male
Zhao Ju
2016.11-2019.6
Secretary of Board of Directors
No
379.68
No
379.68
No
No
233.43
During the reporting period, there had been no repurchase or conversion of preference shares.
(RMB ten
Name
Gender (Y/M)
Title
Term of office
(share)
(share)
Regions
Head Office
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
6.6 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.
On 4 November 2016, as approved at the 2016 First Extraordinary General Meeting of the Company, the Board
of Directors might 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
relevant grant during the reporting period. For details of the abovementioned matters, please refer to the relevant
announcements dated 18 August and 25 August 2017 published by the Company on the websites of Shanghai
Stock Exchange, Hong Kong Stock Exchange and the Company.
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 2017); and offers remuneration to Employee
Supervisors in accordance with the policies on remuneration of employees of the Company. Non-Executive Directors
and Supervisors nominated by shareholders of the Company do not receive any remuneration from the Company.
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 and evaluating 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 of Directors"
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 2017) and the "Assessment
Standards of the H-Share Appreciation Rights Incentive Scheme for the Senior Management".
6.8 Progress on H Share Appreciation Rights Scheme
China Merchants Bank
Annual Report 2017
6.7 Evaluation and incentive system for Directors, Supervisors and
senior management
Mrs. Seng Sze Ka Mee, Natalia has served as the Company's Joint Company Secretary since August 2006.
Mrs. Natalia Seng is the Chief Executive Officer of Tricor Group in China and Hong Kong and an Executive Director
of Tricor Services Limited (hereinafter referred to as "Tricor"), and also a business leader of Tricor's Corporate
Services and China Consultancy Services. She was one of the founders of the company secretarial team of Ernst &
Young in Hong Kong prior to joining Tricor in 2002. Mrs. Seng's professional area covers business advisory, corporate
governance, fiduciary services and regulatory compliance for private and listed companies. 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), and a retired council member (2010-2014) of The Institute of Chartered Secretaries
and Administrators in the United Kingdom. Mrs. Seng has been appointed by the HKSAR Government as a member
of the Standing Committee on Company Law Reform for a period of two years (February 2018-January 2020). She
represented HKICS as a member of an Advisory Group on the Rewrite of the Companies Ordinance. Mrs. Seng is
also a fellow of The Taxation Institute of Hong Kong and an appointed member of the Inland Revenue Department
Users' Committee. Mrs. Seng holds a Master's degree in Business Administration (Executive) from City University of
Hong Kong.
Mr. Wang Jianzhong, a Member of the CPC Committee of the Company, he obtained a bachelor's degree in
Accounting from Dongbei University of Finance and Economics and is an assistant economist. Mr. Wang joined
the Company in November 1991 and successively served as the General Manager of Changsha Branch, the Deputy
General Manager of Corporate Banking Department, the General Manager of Foshan Branch, the General Manager
of Wuhan Branch, the Business Director of General Office of Corporate Finance Group and the General Manager of
Beijing Branch of the Company since October 2002. He serves as a Member of the CPC Committee of the Company
and has concurrently served as the General Manager of Beijing Branch of the Company since April 2017.
Mr. Shi Shunhua, a Member of the CPC Committee of the Company, he obtained an MBA degree from China
Europe International Business School and is an economist. Mr. Shi joined the Company in November 1996 and
successively served as the Assistant General Manager and the Deputy General Manager of Shanghai Branch of the
Company, the General Manager of Suzhou Branch, the General Manager of Shanghai Branch and the Business
Director of General Office of Corporate Finance Group since May 2003. He has served as a Member of the CPC
Committee of the Company since April 2017. He is concurrently the Business Director of General Office of Corporate
Finance Group of the Company.
Joint company secretaries
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.
101
Mr. Zhao Ju is an Executive Vice President of the Company. Mr. Zhao obtained an EMBA degree 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 CMBIC and the Chief Executive
Officer and a Director of CMB International Capital Corporation Limited.
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 concurrently, 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.
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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
100
Mr. Wang Liang, please refer to his biography in "Senior Management" above.
(RMB
102
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Name of branches
Business address
Postal code
No. of
Staff
million)
Head Office
Credit Card Center
7088 Shennan Boulevard, Shenzhen
686 Lai'an Road, Pudong New District, Shanghai
No. of
assets
Volume of
China Merchants Bank
Annual Report 2017
The following table sets forth the branches and representative offices as at 31 December 2017:
6.10 Branches and representative offices
103
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2017
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.
Staff training program
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 organizational
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 remuneration policy
During the reporting period, there was no change in the personnel including the Company's core technical team and
key technical staff (other than the Directors, Supervisors or senior management personnel) who may have significant
influence on the Company's core competitiveness.
Core technical team and key technical personnel
As at 31 December 2017, the Company had 72,530 employees (including dispatched employees). The classification
of our employees by profession is: 28,975 employees in retail finance, 15,633 employees in corporate finance,
14,357 employees in operation management, 7,563 employees in general management, 3,715 employees in risk
management, 1,698 employees in research and development, and 589 employees in administrative and logistical
support. The classification of our employees by educational background is: 12,752 employees with master's degree
and above, 51,028 employees with bachelor's degree, 7,732 employees with junior college degree, and 1,018
employees with technical secondary school degrees or below.
6.9 Information about employees
In 2017, the Company continued to push forward expansion of its branch network. In China, Langfang Branch
(second-level) got approval to start business; Tongzhou Branch (second-level) was in the process of upgrading to a
first-level branch. Outside Mainland China, Sydney Branch got approval to start business.
branches
200131
1
1,593
64,914
744
24,216
45
1,251
54,553
618
21,602
487
18,479
19
449
19,093
14
47
56,374
1,866
63
650051
Hohhot Branch
Nanning Branch
9 Chilechuan Avenue, Saihan District, Huhhot
92-1 Minzu Avenue, Nanning
010098
530022
Guiyang Branch
381
Yinchuan Branch
Xining Branch
550001
750001
810000
26522210
28
875
26,268
284 Zhonghua Road North, Yunyan District,Guiyang
138 Beijingzhong Road, Jinfeng District, Yinchuan
4 Xinning Road, Chengxi District, Xining
13,040
254
11,180
9,465
39 Cornhill EC3V 3ND, London, UK
1
1
2
Other assignments
Total
49
Taipei Representative
Office
Luxembourg Branch
London Branch
Sydney
1
2
2
20 Boulevard Royal, L-2449 Luxembourg
L-2180
1
38
333, Section 1, Jilong Road, Xinyi District, Taipei
1 Chongren Street Wuhua District, Kunming
1
048616
Outside Mainland China Hong Kong Branch
12 Harcourt Road, Central, Hong Kong
1
227
27
123,961
USA Representative Office
New York Branch
Singapore Branch
London Representative
Office
Harbin Branch
509 Madison Avenue, Suite 306, New York, U.S.A
535 Madison Avenue 18th Floor, New York, U.S.A
1
1
10022
1
125
59,963
1 Raffles Place, Tower 2, #32-61, Singapore
10022
3,236
Kunming Branch
2 Huanghe Road, Urumchi
430022
91
2,544
114,410
Nanchang Branch
468 Dieshan Road, Donghu District, Nanchang
330008
53
1,465
70,238
Changsha Branch
766 Wuyi Avenue, Changsha
410005
54
1,369
518 Jianshe Avenue, Wuhan
Wuhan Branch
Central China
24,159
45,734
116001
39
1,314
518040
3 Zhongyang Avenue, Daoli District, Harbin
150010
40,001
Changchun Branch
130022
29
32
38
1,050
41,626
695
9999 Renmin Avenue, Nanguan District, Changchun
Hefei Branch
169 Funan Road, Hefei
230006
9,828
Western China
Chengdu Branch
No. 1, the 3rd section of Renmin Road South,
Wuhou District, Chengdu
610000
52
1,551
275
50,828
9 Qingyang Road, Chengguan District, Lanzhou
1 Gaoxin No.2 Road, Xi'an
730030
710075
Chongqing Branch
88 Xingguang Road, New North District, Chongqing
401121
Urumchi Branch
Lanzhou Branch
Xi'an Branch
830006
10
Complex Building C, Haian Yihao, 1 Shimao Road
North, Haikou
40
1,215
43,852
Zhengzhou Branch
96 Nongye Road East, Zhengzhou
450018
40
570125
1,235
Taiyuan Branch
8 Xinjian Road South, Taiyuan
030001
31
866
31,459
Haikou Branch
48,546
18/F, 20 Fenchurch Street, London, UK
L39, GPT, 1 Farrer Place, Sydney NSW
1
33
Shanghai Audit
Division
Shenzhen Audit
Division
Nanjing Audit
Division
Shenyang Audit
Division
Audit Department
Supervisory Committee
Assets and Liabilities Management Committee
Risk and Compliance Management Committee)
IT Management Committee
Beijing Audit
Division
Business Continuity and Emergency Committee)
Xi'an Audit
Division
Wuhan Audit
Division
Chengdu Audit
Executive Office of
President
Related Party Transaction Control Committee
Office of Board of
Supervisors
Office of the Board of
Directors
*independent secondary department
106
China Merchants Bank
VII Corporate Governance
Annual Report 2017
Corporate Governance
7.1 Corporate governance structure:
Division
Strategy Committee
Nomination Committee
Nomination Committee
Board of Directors
Board of Supervisors
Remuneration and Appraisal
Committee
Risk and Capital Management Committee
Audit Committee
Shareholders' General Meeting
Fuzhou Audit
Division
Internet Finance Committee
China Merchants Bank
Annual Report 2017
7.4.2 Appointment, re-election and removal of Directors
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 commencing
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.
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).
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.
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.
China Merchants Bank
Annual Report 2017
VII Corporate Governance
The list of Directors of the Company is set out in Chapter VI 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.
7.4.3 Responsibilities of Directors
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 senior management and the remuneration for senior management. In addition, for the
relevant 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.
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 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.
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
and External Supervisors. The appraisal results have been reported to the general meeting.
7.4.4 Chairman of the Board of Directors and the President
The position 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, 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.
109
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 98.96%, of which the attendance
rate at meetings of special committees was 100%.
Note #secondary department
The Company values the diversity of the members of the Board of Directors, and 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 regularly and put forward proposals in
respect of any intended changes to the Board of Directors in line with the strategies of the Company.
7.4.1 Composition of the Board of Directors
VII Corporate Governance
7.2 Overview of corporate governance
In 2017, the PRC economy has rebounded, maintaining its steady growth. However, numerous compelling factors
in domestic and foreign economics remained distinct. The growth rate of international direct investment slowed
down; global debts accumulated continuously; the tendency of protectionism increased; the supply-side reform and
financial deleveraging still have a long way to go. Facing complicated economic situations at home and abroad and
various severe challenges in banking operation, the Board of Directors, the Board of Supervisors and the special
committees of the Company fully capitalised on their professional advantages to perform their duties diligently.
They conducted forward-looking researches and made scientific decisions on strategic guidance, risk management,
internal control and compliance, internal audit, management of related party transactions, incentives and constraints
mechanism, as well as management of corporate governance, effectively protected shareholders' interests as a
whole, and continuously pushed forward the Company's strategic transformation towards "Light-operation Bank"
and "One Body with Two Wings". Particulars of their achievements are set out as follows:
During the year, the Company convened a total of 51 important meetings at which 252 proposals were reviewed
and 52 reports were delivered. Among the 51 meetings there were 1 shareholders' general meeting (24 proposals
were reviewed), 12 meetings of the Board of Directors (80 proposals were reviewed and 17 reports were delivered),
8 meetings of the Board of Supervisors (39 proposals were reviewed and 8 reports were delivered), 25 meetings
of the special committees of the Board of Directors (104 proposals were reviewed and 23 reports were delivered),
3 meetings of the special committees of the Board of Supervisors (5 proposals were reviewed), 1 meeting of
Non-Executive Directors (1 report was delivered) and 1 meeting of Independent Non-Executive Directors (3 reports
were delivered). 3 special researches were organised by the Board of Directors, and 4 by the Board of Supervisors.
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.
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 "Excellent Management Award of Hong Kong Listed Companies" awarded
by Chamber of Hong Kong Listed Companies, "Best Board of Directors Award" in the selection of the "Gold Round
Table Award" by the Board of Directors, the "Silver Award for Annual Reports Worldwide" selected by League of
American Communications Professionals LLC, all the seven awards of "Asia Regional Banking Segments" selected by
Institutional Investor of U.S., and the "Best New Media Operation Award of Chinese Listed Companies" hosted by
China Securities Journal.
7.3 Information about general meetings
During the reporting period, the Company convened 1 shareholders' general meeting. On 26 May 2017, the
Company held the 2016 Annual General Meeting, the First Class Meeting of the Shareholders of A Shares for 2017
and the First Class Meeting of the Shareholders of H Shares for 2017.
At present, the Board of Directors of the Company had fifteen members, including seven Non-Executive Directors,
two Executive Directors, and six Independent Non-Executive Directors. All seven 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 been engaged in financial management for a long time
with extensive professional experience. Among the six Independent Non-Executive Directors, three are renowned
experts in accounting and finance, and the others are financial experts and investment bankers with international
vision, and they all have extensive knowledge of the development of domestic and overseas banking industry. The
three Independent Non-Executive Directors from Hong Kong 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 three 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.
108
China Merchants Bank
VII Corporate Governance
Annual Report 2017
7.4 Board of Directors
The Board of Directors is an independent policy-making body of the Company, responsible for executing resolutions
passed by the general meetings; formulating 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 adopts a system in which the President assumes full
responsibility under the leadership of the Board of Directors. The 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.
The Board of Directors of the Company facilitates scientific and reasonable decision-making through the
establishment of a diversified directorship structure, and continues to improve the decision-making and operational
efficiency through promoting the effective operation of special committees. The Board of Directors focuses on key
issues, directions, and strategies, and continues to strengthen the development philosophy to seek balance, health
and sustainability. The Board of Directors ensures the Company to achieve dynamic and balanced development
in quality, efficiency and scale through effective management of its strategy, risks, capital, remuneration, internal
control and connected transactions, etc., thus providing a solid basis for the Company to enhance its operation and
management capabilities.
107
Anti-money Laundering Management Center*
Data Center*
Testing Center"
Supervision and Management Center for
the Protection of Customer Interests*
Investment Management Department*
Procurement Management Department*
Project Management Department"
Pension Finance Department"
Strategic Customers Department
Financial Accounting Department
Institutional Customers Department
Small Enterprises Finance Department
Transaction Banking Department
Loan Approval Center*
Bills Center*
Offshore Finance Center
Investment Banking Department
General Office of Corporate
Financial Institutions Department
Finance
Assets and Liabilities Management Department
Human Resources Department
3,097
1
25
435
38
1,830
72,530
Strategic Planning and Implementation Department
5,943,375
Annual Report 2017
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
105
6.11 The Company's organisational structure:
Office of the Board of Directors
Office of Board of Supervisors
General Office
China Merchants Bank
1,671
Banking and Financial Markets
General Office of Investment
Head Office
Legal Compliance Department
CMB Research Institute
Training Center
Labor Union of the Head Office
Administration Department
Banking Department
Representative Offices (Beijing, Shanghai,
United States of America, London, Taipei)
Inspection and Security Department
Direct Banking Center"
Operational Risk Management Department*
Market Risk Management Department"
Loan Approval Center*
Pre-warning Center"
Special Assets Operating Center*
Operation Center*
Research and Development Center*
Overseas Divisions#
General Office of Retail Finance
Audit Department
Operation Management Department
Branches
Sub-branches
China Merchants Bank
Financial Market Department
Asset Management Department
Asset Custody Department
Bills Business Department*
Information Technology Department
Retail Network Banking Department
Private Banking Department
Retail Credit Business Department
Basic Retail Customers Department
Credit Card Center
(Consumer Finance Center)
Risk Management Department
Credit Approval Department
Asset Security Department
Wealth Management Department
58
40,029
12 Shiyiwei Road, Heping District, Shenyang
17 Renmin Road, Zhongshan District, Dalian
Yujia Building, 255 Guangdong Road and 9 Qianjin
300201
43
1,715
76,142
Road, Hexi District, Tianjin
Jinan Branch
7 Gongqingtuan Road, Jinan
250012
57
Tianjin Branch
1,767
Yantai Branch
133 Yingchun Street, Laishan District, Yantai
264003
18
Shijiazhuang Branch
Tangshan Branch
172 Zhonghua Street South, Shijiazhuang
45 Beixin Road West, Lubei District, Tangshan
050000
16
063000
64,270
865
41,390
48
12
499
30,044
Nantong Branch
111 Gongnong Road, Nantong
Bohai Rim
Beijing Representative
Office
Beijing Branch
26/F, Building 3, No.1 Yuetan South Street, Xicheng
District, Beijing
100045
1,571
226007
516
17
156 Fuxingmen Nei Dajie, Beijing
100031
109
4,781
284,849
Qingdao Branch
65 Hai'er Road, Laoshan District, Qingdao
266103
14
514
Postal code
13,234
468
17,290
Dongguan Branch
200 Hongfu Road, Nancheng District, Dongguan
523000
Foshan Branch
12 Denghu Road East, Guicheng Street, Nanhai
District, Foshan
528200
32871
34,698
34,244
18
104
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Volume of
110003
assets
No. of
No. of
(RMB
Regions
Name of branches
Business address
China Merchants Bank
Annual Report 2017
362000
51,395
933
419
9,136
213
3,420
Pearl River Delta and
West Side of
Taiwan Strait
Guangzhou Branch
Shenzhen Branch
Fuzhou Branch
Xiamen Branch
Quanzhou Branch
5 Huasui Road, Tianhe District, Guangzhou
2016 Shennan Boulevard, Futian District, Shenzhen
316 Jiangbingzhong Boulevard Road, Fuzhou
No. 6 Complex Building, Hongtai Industrial Park,
309 Hudong Road, Siming District, Xiamen
Huangxing Building, No. 301, the middle section of
Fengze Street, Quanzhou
510623
77
77
2,733
112,129
518001
109
5,054
342,847
350014
34
1,142
53,937
361012
36
31,279
730
21,817
97,435
Nanjing Branch
Bonded Area, Pudong New District, Shanghai
Zone Branch
12,062
45
1
Shanghai Pilot Free Trade Waigaoqiao Building, 6 Jilong Road, Waigaoqiao
218,865
4,747
100
200120
1088 Lujiazui Ring Road, Pudong New District,
Shanghai
Shanghai Branch
Yangtze River Delta
478,828
1
201201
2,492,601
4,414
16
Shenyang Branch
Dalian Branch
North-eastern China
million)
Staff
branches
1 Hanzhong Road, Nanjing
210005
6,302
23 Hangda Road, Hangzhou
Hangzhou Branch
141,502
30
1,161
59,074
1,280
2,556
150,297
2,840
79
223362
325000
77
Wenzhou Branch
310007
1-3/F, Block 2, 4, 5, Hongshengjin Garden, Wuqiao
Avenue, Lucheng District, Wenzhou
342 Min'an East Road, Ningbo
315042
Suzhou Branch
36 Wansheng Street, Industrial Park, Suzhou
Ningbo Branch
215028
Wuxi Branch
9 Xueqian Road, Wuxi
214001
4/4
1/1
1/1
1/1
➢==➢➢ = ང ང
7/7
12/12
-----
1/1
7/7
12/12
Zhang Jian
1/1
Wang Daxiong
Executive Directors
HH
12/12
Pan Chengwei
7/7
12/12
Wong Kwai Lam
7/7
2/2
12/12
Leung Kam Chung, Antony
Tian Huiyu
Independent Non-Executive Directors
1/1
1/1
4/4
7/7
12/12
Li Hao
0/0
5/5
==
12/12
Control
7/7
Management
Shareholders'
Transaction
Capital
Remuneration
Nominating and Appraisal
Committee Committee
Actual times of attendance/Required times of attendance (2)
Related Party
Risk and
Special committees under the Board of Directors
Audit
Strategy
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
2017.
7.4.5 Attendance of Directors at relevant meetings
Annual Report 2017
VII Corporate Governance
China Merchants Bank
110
12/12
Board of
Directors (1) Committee
General
Committee
Committee
2/2
12/12
Hong Xiaoyuan
12/12
Fu Gangfeng
7/7
2/2
12/12
Sun Yueying
5/5
11/12
Li Xiaopeng (resigned)
0/0
5/5
12/12
Li Jianhong
Non-Executive Directors
Meeting
Committee
Su Min
Pan Yingli
(2)
Guo Xuemeng (resigned)
VII Corporate Governance
China Merchants Bank
Annual Report 2017
The Risk and Capital Management Committee studied and considered the quarterly reports on comprehensive risk,
capital management plan (2017-2019) and the implementation of risk preference indicators of non-standard wealth
management assets for the year, and provided advices and recommendations for the continuous improvement in
the risk system and capital allocation of the Company. Also, the Risk and Capital Management Committee reviewed
the reports on management of annual business continuity, annual anti-money laundering, optimisation of asset
management business and prevention of structural risks to promote healthy business development, assessment and
update of market risk pressure test plans for trading accounts, self-inspection and inspection of fulfilment of risk
control responsibilities by the Board of Directors, the Board of Supervisors and the senior management, so as to
effectively monitor the risk management.
In 2017, the Risk and Capital Management Committee adhered to the operating philosophy of dynamic and
balanced development based on "quality, efficiency and size" and prudent risk management concepts. In response
to the trend of changes in complex external situations and internal operation management, the Risk and Capital
Management Committee focused on and prevented liquidity risk, credit risk, compliance risk and asset business risk
so as to assist the Board of Directors to enhance the risk management capabilities.
any other task delegated by the Board of Directors.
arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
and
submit proposals on perfecting the management of risks and capital of the Company;
perform relevant duties under the advanced capital measurement method pursuant to the authorisation given
by the Board of Directors;
make regular assessment on the risk policies, management status, risk-withstanding ability and capital status
of the Company;
supervise the status of risk control by the senior management of the Company in relation to credit risk,
market risk, operational risk, liquidity risk, strategic risk, compliance risk, reputation risk, country risk and
other risks;
(6)
(5)
(4)
(3)
(2)
(1)
Main authorities and duties:
The members of the Risk and Capital Management Committee 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). The Risk and Capital Management Committee is mainly responsible for control,
management, supervision and assessment of risks of the Company.
7.5.4Risk and capital management committee
Annual Report 2017
VII Corporate Governance
China Merchants Bank
114
113
In 2017, the Remuneration and Appraisal Committee continuously implemented the H Share Appreciation Rights
Scheme, the grant of the final phase had been completed successfully. The Remuneration and Appraisal Committee
conducted efficiency appraisal and price adjustment to the appreciation rights granted, which ensured the steady
and orderly development of the medium-to-long term incentive mechanism for the management.
7.5.5 Audit committee
The majority of members and the Chairman of the Audit Committee are Independent Non-Executive Directors.
The 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). None
of them have 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 Company.
Main authorities and duties:
(1)
(2)
7.5.6 Related party transaction control committee
Annual Report 2017
VII Corporate Governance
China Merchants Bank
116
115
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 2017 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 2017 to the Board of Directors.
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 2017. 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 auditors commenced their annual audit, the Audit Committee considered and discussed the audit
plan of the accounting firm for 2017 and the unaudited financial statements of the Company.
3.
2.
1.
In 2017, the Remuneration and Appraisal Committee fully considered the current macroeconomic situation, the
development trend of the banking industry and the development trend of the Company, reviewed and approved the
Resolution on the Optimisation of the Remuneration Management Measures for China Merchants Bank, and agreed
to revise the Administrative Measures on Total Staff Costs of China Merchants Bank Co., Ltd. and the Administrative
Measures for the Remuneration of Senior Management of China Merchants Bank Co., Ltd., so as to further enhance
the corporate governance and improve the incentive mechanism for the management and employees.
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 2017:
examine the accounting policies, financial reporting procedures and financial position of the Company; and
(8) any other task delegated by the Board of Directors.
review and supervise the mechanism for the Company's employees to whistle blow any misconduct in respect
of financial reports, internal control or otherwise, so as to ensure that the Company always handles the
whistle blowing issues in a fair and independent manner and takes appropriate actions;
examine the internal control system of the Company, and put forward the advices to improve the internal
control of the Company;
audit the financial information of the Company and disclosure of such information, and is responsible for
the annual audit work of the Company, 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;
coordinate the communications between internal auditors and external auditors;
monitor the internal audit system of the Company and its implementation, and evaluate the work procedures
and work effectiveness of the internal audit department;
propose the appointment or replacement of external auditors;
(7)
(6)
57
(4)
(3)
In 2017, under the circumstance where new external policies have been introduced and financial supervision
continued to tighten, the Audit Committee enhanced the communication and contact with internal auditors and
external auditors. Starting from the regular report and internal and external audit, the Company timely obtained
audit findings, focused on rectification and accountability, and continued to strengthen the application of audit
results to enhance audit efficiency. Moreover, the Audit Committee also reviewed the Resolution on Changes of
Accounting Policies, quarterly audit and work plan report and internal control and appraisal report, to monitor and
verify the truthfulness, accuracy, completeness and timeliness of the information contained in the reports.
The majority of members and the Chairman of Related Party Transaction Control Committee are Independent
Non-Executive Directors. The 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). The Related Party Transaction Control Committee is mainly responsible
for inspection, supervision and review of related party transactions of the Company.
review the regulations and policies in respect of remuneration of the Bank; and
(4) any other task delegated by the Board of Directors.
study the standards for assessment of Directors and senior management members and make assessment and
put forward proposals depending on the actual conditions of the Company;
111
112
China Merchants Bank
VII Corporate Governance
Annual Report 2017
7.5 Special committees of the Board of Directors
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.
In 2017, 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 25 meetings to
study and review 127 significant issues, including strategic implementation and assessment, profit appropriation
preliminary plan, annual financial budget and final account report, remuneration and appraisal, capital management
plan, comprehensive risk report, internal control, external investments, 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.
The composition and duties of the six special committees as well as their work in 2017 are summarized as follows:
7.5.1 Strategy committee
The Strategy Committee consists of Non-Executive Directors and Executive Directors. The members of the Strategy
Committee are Li Jianhong (Chairman) (a Non-Executive Director), Tian Huiyu (an Executive Director) and Fu
Gangfeng (a Non-Executive Director). The Strategy Committee is mainly responsible for studying the medium-to-long
term development strategies and significant investment decisions of the Company and making relevant proposals,
and decide on the annual operation plan.
Main authorities and duties:
(1)
(2)
(4)
(5)
formulate the operational goals and medium-to-long term development strategies of the Company, and make
an overall assessment on strategic risks;
consider material investment and financing plans and make proposals to the Board of Directors;
supervise and review the implementation of the annual operational and investment plans;
evaluate and monitor the implementation of Board resolutions; and
make recommendations and proposals on important issues for discussion and determination by the Board of
Directors.
In 2017, the Strategy Committee focused on advancing the capital replenishment plan of the Company, reviewed
the proposal of the issuance of domestic and offshore preference shares, effectively provided the support for the
implementation of the strategy of the Bank, and made arrangements for the use of funds raised at home and
abroad in advance and proactively promoted the smooth progression of relevant work. Based on this, the Strategy
Committee also revised the Articles of Association of China Merchants Bank Co., Ltd., Rules of Procedures for
Shareholders' General Meetings of China Merchants Bank Co., Ltd. and Rules of Procedures for the Board of
Directors of China Merchants Bank Co., Ltd..
In 2017, the Strategy Committee studied and reviewed the "Annual Strategy Implementation and Appraisal Report of
China Merchants Bank in 2016", fully analysed the implementation of the strategic objectives of "to build itself into
the best commercial bank in China featuring innovation-driven development, the retail banking-prioritised business
strategy and distinctive advantages", attached high importance to the development and application of Fintech across
the whole bank, and increased the efforts of financial innovation. In order to strengthen the integrated operation
of the Company and reinforce the capital base of its branches, the Strategy Committee also considered a series of
significant investment including the establishment of direct-sale bank and the Frankfurt Branch, and the increase of
investment in China Merchants Fund and Merchants Union Consumer Finance.
China Merchants Bank
VII Corporate Governance
The Independent Non-Executive Directors reviewed the continuing connected transactions of the Company
and made confirmations as required by the Hong Kong Listing Rules.
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.
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.
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.
(3)
(2)
(1)
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). The Remuneration and Appraisal
Committee is responsible mainly for formulating the appraisal standards for Directors and senior management of the
Company 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:
7.5.3 Remuneration and appraisal committee
In 2017, based on the current operating conditions of the Company, its assets and liabilities scale and the
shareholding structure, the Nomination Committee conducted research and discussion on the structure, number
of Directors and composition of the Board of Directors from a variety of aspects such as skills, knowledge and
experience, and continuously promoted the addition and replacement of candidates for Directors.
any other task delegated by the Board of Directors.
(5)
(4)
(3)
conduct preliminary examination on the candidates for Directors and senior management and make
recommendations to the Board of Directors; and
conduct extensive searches for qualified candidates for Directors and senior management;
study and review the remuneration policies and proposals in respect of Directors and senior management of
the Company, make recommendations to the Board of Directors and supervise the implementation of such
proposals;
study the standards and procedures for selection of Directors and senior management, and make
recommendations to the Board of Directors;
(1)
The majority of the Nomination Committee are Independent Non-Executive Directors, the Chairman as well.
The 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).
The Nomination Committee 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:
12/12
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.
2.
3.
4.
5.
6.
The Independent Non-Executive Directors listened to reports on the performance of the Company in 2017
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 2017 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 2017.
The Independent Non-Executive Directors reviewed the work plan for preparing the annual report and the
unaudited financial statements of the Company.
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 Company according to the Bank's business operations, asset scale and
shareholding structure of the Company;
Main authorities and duties:
(1)
(2)
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 of the Board of Directors and the special committees under the Board of Directors on
their behalf.
China Merchants Bank
VII Corporate Governance
Annual Report 2017
7.4.6 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 2017.
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.
7.4.7 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 "Attendance of Directors at relevant meetings" in this report.
119
Business/
Management
Policies and
Regulations
Corporate
Governance
Wong See Hong
Zhao Jun
Guo Xuemeng (resigned)
Pan Yingli
Pan Chengwei
Wong Kwai Lam
Leung Kam Chung, Antony
Independent Non-Executive Directors
Li Hao
Tian Huiyu
Executive Directors
Wang Daxiong
During the reporting period, the Board of Directors held a total of 12 meetings, of which two were on-site and telephone meetings and
ten were meetings convened and voted by correspondence.
(2)
Notes: (1)
1/1
1/1
Zhao Jun
12/12
8 - 88 -
2/2
7/7
0/0
7/7
4/4
0/0
2/2
1/1
Zhang Jian
1/1
4/4
Wong See Hong
11/11
6/6
3/3
=======
1/1
1/1
1/1
1/1
0/0
1/1
0/0
Su Min
Hong Xiaoyuan
Sun Yueying
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.
7.7.2 How the Board of Supervisors performs its supervisory duties
A Nomination Committee and a Supervisory Committee are established under 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.
7.7.1 Composition of the Board of Supervisors
The Board of Supervisors is a supervisory body of the Company 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.
7.7 Board of Supervisors
VII Corporate Governance
China Merchants Bank
Annual Report 2017
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.
reviewing the compliance of the Company with the Code of Corporate Governance and the disclosures in the
Report of Corporate Governance; and
formulating, evaluating and supervising the Code of Conduct and the Compliance Handbook applicable to
Directors and employees;
7.7.3 Duty performance of the Board of Supervisors during the reporting period
evaluating and supervising the policies and practices of the Company for compliance with laws and
regulatory requirements;
(5)
(4)
(3)
During the reporting period, the Board of Directors has performed the following duties on corporate governance:
formulating and evaluating 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;
evaluating and supervising the trainings and continuing professional development of Directors and senior
management;
(1)
7.6 Corporate governance functions
In 2017, the Related Party Transactions Control Committee reviewed the fairness of the related party transactions,
assisted the Board of Directors to ensure the reasonableness and timeliness of related party transactions, reviewed
and approved resolutions such as the 2016 Annual Report of Related Party Transactions and the List of Related
Parties in 2017, and reviewed the related party transactions of the Company with China COSCO Shipping
Corporation Limited, Merchants Union Consumer Finance Company Limited, Gemdale Corporation, Guotai Junan
Securities Co., Ltd. and CMB Financial Leasing.
review the administrative measures on related party transactions of the Company, and to monitor the
establishment and improvement of the related party transactions management system of the Company; and
review the announcements on related party transactions of the Company.
inspect, supervise and review major related party transactions and continuing related party transactions, and
to control the risks associated with related party transactions;
identify related parties of the Company pursuant to relevant laws and regulations;
(4)
(3)
(6)
Annual Report 2017
During the reporting period, the Board of Supervisors convened 8 meetings, of which 2 were on-site meetings
and 6 were meetings convened and voted by correspondence. 39 proposals regarding strategic planning, business
operations, financial activities, internal control, risk management, consolidated statement management, related
party transaction, corporate governance, evaluation of the duty performance of the Directors and Supervisors
and resignation audit on senior management members were considered, 7 of special reports involving disposal of
non-performing assets, the prevention and control of crimes, consumer rights protection, assessment on strategy
implementation and internal audit were reviewed at those meetings.
During the reporting period, the Board of Supervisors of the Company had no objection to the matters supervised.
Fu Gangfeng
Li Xiaopeng (resigned)
Li Jianhong
Non-Executive Directors
Name of Directors
Provision of Information and Scope of Trainings
According to the training records for 2017 kept by the Company for Directors, the status of relevant trainings is as
follows:
During the reporting period, the Company's Board of Directors and Board of Supervisors organised 7 investigations/
surveys. The Chairman of the Board of Supervisors conducted investigations/surveys on 17 operating entities of
the Company. The performance and effectiveness of decision-making and supervision of Directors and Supervisors
continued to improve. Among them, three investigations/surveys/visits by Directors were organised which involved
visiting departments of the Head Office, branches and sub-branches and subsidiaries to get familiar with overall
business operations of the Head Office, 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. Four investigations/surveys by Supervisors were organized, with a total of 17 branches and
departments of the Head Office involved. The Board of Supervisors put forward a series of targeted opinions and
proposals regarding operation management, internal control and compliance, risk prevention, the basic management
of "Extending a Helping Hand (campaign, the positioning and development of second-level branches,
the improvement of retail banking service, team building and caring for employees, and solved the difficulties and
problems raised by our branches through the problem solving supervision system, thus significantly improving the
effectiveness of solving problems. Based on the actual situation, the Board of Supervisors classified the investigation/
survey results so as to effectively pass them in the forms of investigation/survey reports, work briefs and special
reports 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.
VII Corporate Governance
China Merchants Bank
Annual Report 2017
manner.
The Company regularly and from time to time delivered reading materials such as CMB Operation Information
Monthly Magazine, CMB Monthly Magazine of Capital Market Information and relevant regulatory polices to
Directors and Supervisors and ensured them to obtain necessary information to perform their duties in a timely
In 2017, the Company convened 1 shareholder general meeting and 2 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.
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 familiarising 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.
7.8 Trainings and investigations/surveys conducted by Directors and
Supervisors during the reporting period
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.
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 Company 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.
The Supervisory Committee under the Board of Supervisors
In 2017, the Nomination Committee under the Board of Supervisors convened 1 meeting where proposals regarding
the evaluation report on duty performance of the Board of Directors and its members in 2016, the evaluation
report on duty performance of the Board of Supervisors and its members in 2016, the evaluation report on duty
performance of the senior management and its members in 2016 were considered.
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.
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.
The Nomination Committee under the Board of Supervisors
7.7.4 Operation of the special committees under the Board of Supervisors
Annual Report 2017
VII Corporate Governance
China Merchants Bank
118
117
In 2017, the Supervisory Committee under the Board of Supervisors convened 2 meetings where the work plan
of the Board of Supervisors in 2017 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.
7.5.2 Nomination committee
129
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Independent opinions on relevant matters from the Board of Supervisors:
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 2017
VIII Report of the Board of Supervisors
China Merchants Bank
124
123
In 2017, the Company continued to promote audit standardisation, and formulated or revised 5 audit policies
including information technology, protection of consumers' rights and market risk management, 7 audit standards
including auditors' professional ethics, internal audit and the management measures for internal audit on overseas
branches. At the same time, the Company implemented every regulatory requirement consistently, strove to improve
the efficiency of internal audit, better determined the goals of internal control, enhanced internal audit on key
areas, key risks and key points, and took various measures to improve the rectification results of audit. We also put
more resources in building the audit information platform, further strengthened 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.
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, subsidiaries), 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.
7.17 Internal audit
During the reporting period, the Company organised evaluation campaigns regarding internal control during the
year 2017 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 "2017 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.
During the reporting period, in accordance with the unified arrangement of CBRC, the Company conducted a series
of special rectification works of "Three Violations, Three Arbitrages and Four Improprieties" across the Bank, and
carried out self-examination in accordance with the list of governance focus and chaos issued by the CBRC; we put
forward the management improvement measures from these aspects of system improvement, process optimisation,
system construction, culture promotion, business training and supervision and inspection. At the same time, in
accordance with the overall objectives of the special rectification works of the CBRC and the inherent needs of
strategic transformation of the Company, the Company proactively optimised and adjusted its business and customer
structure and adhered to its operation philosophy of "customer-centric and creating value for customers", and
continuously improved its capabilities of serving real economy and strengthened its internal control compliance and
risk management level, so as to consolidate its management base for long-term development. During the reporting
period, the Company steadily pushed forward the transformation of risk management and internal control and
compliance from a "palliative" to a "cure" through the following initiatives: to proactively carry out the "Code of
Conduct Training for Employees", "Training on Compliance" and "Case Study Warning Training" with a view to
constantly reinforcing employees' awareness of compliance; to continue to promote the management initiatives such
as investigations on employees' abnormal behaviors, maintaining a record of employee's non-compliance conduct
and keeping a list of restriction on employees' violation and conducting due diligence investigation on termination
of employment in an effort to improve the management mechanism of employee conduct; to launch the "Extending
a Helping Hand()" campaign throughout the Bank for a period of 3 years to refine the management;
to continue to strengthen the supervision and inspection of various business activities and non-compliance
accountability and to earnestly implement the strict management requirements so as to ensure the compliance
operation and healthy development of businesses.
7.16 Internal control
VII Corporate Governance
Lawful operation
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.
Authenticity of financial statements
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu have audited the financial reports
for 2017 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.
IX Financial Statements
China Merchants Bank
23 March 2018
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 2017", and concurred with the Board of Directors' representations regarding the completeness, reasonableness,
effectiveness and implementation of the internal control system of the Company.
China Merchants Bank
Annual Report 2017
Internal control
Implementation of resolutions passed at the general meeting(s)
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.
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
During the reporting period, the use of proceeds of the Company was consistent with such usages as committed in the
Prospectus of the Company.
Use of proceeds
The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to the
general meeting in 2017, and concluded that the Board of Directors had duly implemented relevant resolutions passed at
the general meeting(s).
Annual Report 2017
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).
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 2017 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
might have a significant adverse effect on the Company's ability of sustainable operation.
VII Corporate Governance
China Merchants Bank
Annual Report 2017
During the reporting period, the Company held one global road show of annual results, two results presentation
meetings and analyst meetings and one press conference. Mr. Li Jianhong, Chairman of the Board of Directors,
President Tian Huiyu paid high attention to the management of investor relations, personally attended the 2016
annual results, the 2017 interim results conferences, and marketing conferences and answered concerns from
investors and analysts one by one. After the issue of 2016 annual results, President Tian Huiyu and other senior
management members led its roadshow team to conduct a worldwide roadshow in Hong Kong, America, Singapore
and Europe, visited a total of 108 important institutions, further conducted recommendation and communication
upon the problems of business development, advantages and characteristics, future strategy and valuation
improvement. A total of 231 institutional investors and analysts and 42 press reporters at home and abroad were
present in the 2016 annual results representation meeting and press conference of the Company, and the number of
attendees in the results representation meeting hit a new high since its listing in 2002. A total of 371 institutional
investors and analysts at home and abroad, a new high in terms of the number of attendees, were present in the
telephone conference for 2017 interim results representation. In addition, the Company made arrangement for
reception of 112 visits made by 293 domestic and foreign institutional investors and investment banks, brokerage
analysts; attended investor conferences held by 27 major domestic and foreign investment banks and brokerages,
and conducted effective communication with a total of 1,221 institutional investors; answered 361 calls from
investors, handled 286 online messages from investors. These measures have effectively satisfied the needs of
domestic and foreign investors and analysts to communicate with the Company.
In 2017, by taking an innovative, professional, open-minded and positive attitude, and adhering to the
investor-oriented objective of improving investor experience and increasing efficiency, the Company focused on
market trend, emphasized fundamental analysis, maintained continuous and positive communication with various
investors and analysts in the capital markets, 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. On the backdrop of further promoting business transformation in the banking sector, the
Company continued to rank ahead among its peers in the market capitalisation of its A and H shares, showing a
remarkable achievement in the management of market capitalisation.
Investor relations
7.11 Communication with shareholders
In 2017, the Company had no internal cases causing huge losses, external cases or incidents involving theft or
robbery, or material safety issues.
7.10 Misconduct reporting and monitoring
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.
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.
7.9 Company secretary under Hong Kong Listing Rules
Annual Report 2017
VII Corporate Governance
China Merchants Bank
120
Information disclosure
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.
During the reporting period, the Company issued 287 documents in domestic and foreign capital market with a
total of approximately 3,070,000 words, and disclosed all the statutory information in a true, accurate, complete,
compliant manner. In the meantime, in view of meeting investors' demand, the Company timely disclosed its
preliminary annual and interim results so as to guide market expectation reasonably. In addition, the Company
continued to disclose the hot issues concerned by its investors and the information particularly related to the banking
sector in its periodic reports, further improving timeliness, proactivity and transparency in information disclosure.
During the reporting period, the Company formulated the "Management Measures on Information Disclosure
Suspension and Exemption of China Merchants Bank Co., Ltd." in accordance with the regulatory requirements and
daily work practices, which played an active role in safeguarding the legal rights and interests of the Company and
investors in compliance with the obligation of information disclosure. At the same time, the Company established
a mechanism for disclosing information contacts and improved the scope of submission of major and sensitive
information and quantitative criteria to upgrade the accuracy and timeliness of submission of major and sensitive
information, thus to further perfect the system of information disclosure management. In addition, the Company
continued to enhance the employees' awareness of compliance with information disclosure requirement, proactively
prevented the divulging of insider information and insider trading risk and ensured its full compliance with the
relevant requirements in information disclosure, through holding special training and examinations on information
disclosure attended by all employees of the Bank. The Company's well-regulated operation and outstanding
information disclosure practice has also received recognition from the regulatory authorities. The Company received
the highest grade A in the annual appraisal of the information disclosure of listed companies organised by the SSE.
7.12 Shareholders' rights
7.14 Statement made by the Directors about their responsibility on
the financial statements
7.13 Major amendments to the Articles of Association of the Company
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.
Making inquiries to the Board of Directors
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.
Convening of extraordinary board meeting
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.
7.15 Compliance with the Corporate Governance Code
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.
Annual Report 2017
VII Corporate Governance
China Merchants Bank
122
121
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.
Convening of extraordinary general meeting
Making proposals at the shareholders' general meeting
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.
Financial Statements
Financial statements and notes thereto
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 consolidation of
structured entities or not significantly affects most of the
accounts in the consolidated financial statements.
Consolidation of Structured Entities
Principal accounting policies and significant judgements
applied in determining the de-recognition of financial
assets transferred are set out in notes 2(h)(vi), 2(h)(x) and
2(z)(viii) to the consolidated financial statements.
The Group analyzes the contractual rights and obligations
in the transactions, tests and assesses the extent to which
the associated risks and rewards of ownership of the loans
and advances to customers transferred are transferred,
so as to determine whether the de-recognition criteria
were met. Significant judgement should be made by the
management to determine whether the de-recognition
criteria were met.
In year 2017, as set out in note 59 to the consolidated
financial statements, the Group transferred loans and
advances to customers with gross balance of 73,698
million and 46,338 million through securitisations and
disposal to third parties, respectively.
We identified de-recognition of loans and advances
to customers transferred as a key audit matter due to
the materiality of the amount of loans and advances
to customers transferred and the significant judgement
applied by management in determining whether the loans
and advances to customers transferred should be de-
recognised.
customers transferred
De-recognition of loans and advances to
Key audit matter
Key Audit Matters (continued)
DTTHK(A)(18)100033
Annual Report 2017
IX Financial Statements
China Merchants Bank
128
The structured entities include the wealth management
products, asset management schemes, mutual funds,
etc. as disclosed in note 60 to the consolidated financial
statements.
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 interests that it holds in the
structured entities.
How our audit addressed the key audit matter
Our procedures in relation to the de-recognition of loans and
advances to customers transferred included evaluating the
design and testing the operating effectiveness of relevant
controls over the transfers, including review and approval of
the disposal plans, review and approval of contractual terms
for different disposal options and the assessment results of
whether risks and rewards had been transferred.
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.
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.
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
127
DTTHK(A)(18)100033
China Merchants Bank
Annual Report 2017
We have checked the appropriateness of disclosures related
to the structured entities in the consolidated financial
statements.
We also evaluated management judgement in whether
has control in the 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
structured entities 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.
We have checked the appropriateness of disclosures related
to the loans and advances to customer transferred in the
consolidated financial statements.
For a sample of loans and advances to customers
transferred, we have checked the transfer results of risks
and rewards of ownership of these transferred loans and
advances to customers tested by management and assessed
whether the de-recognition criteria were met for loans and
advances to customers transferred.
For a sample of loans and advances to customers
transferred, we have examined relevant transfer agreements
and other related legal documents, assessed the Group's
obligations and rights, to assess whether the Group had
transferred its rights to receive contractual cash flows, or
whether the transfers qualified for the "pass-through" of
those cash flows, to independent third parties.
IX Financial Statements
Independent Auditor's Report
In addition, for the collectively assessed loans and advances
to customers and debt securities classified as receivables,
we evaluated the appropriateness of the models used by the
Group for determining the allowance ratios with reference
to market practice and sample checked the historical data
and the relevant calculations.
For a sample of loan 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 manner.
DTTHK(A)(18)100033
(A joint stock company incorporated in the People's Republic of China with limited liability)
To the shareholders of China Merchants Bank Co., Ltd.
Deloitte
Independent Auditor's Report
Annual Report 2017
IX Financial Statements
China Merchants Bank
126
125
272
131
126
(See Annexures)
Unaudited supplementary financial information
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 131 to 271, which comprise the consolidated statement of
financial position as at 31 December 2017, 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 2017, 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.
Our procedures in relation to impairment of loans and
advances to customers and debt securities classified as
receivables included evaluating the design and testing the
operating effectiveness of 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 notes 2(n)
and 2(z) 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 2017, 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 RMB3,414,612 million, against
which related impairment allowance of RMB150,432
million has been made. While, as set out in note 21(d)
to the consolidated financial statements, debt securities
classified as receivables amounted to RMB572,241 million,
against which related impairment allowance of RMB4,302
million has been made.
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.
Impairment of loans and advances to customers
and debt securities classified as receivables
We also tested the management's estimation of the
expected future cash flows from customers, including
expected recoverable amount of collateral and pledge held,
recalculated the impairment allowance and compared the
results in order to assess whether there was any material
misstatement.
Key audit matter
DTTHK(A)(18)100033
IX Financial Statements
China Merchants Bank
Annual Report 2017
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.
Key Audit Matters
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.
Basis for Opinion
Key Audit Matters (continued)
Due to the non-public issuance of domestic and offshore preference shares, the Company amended the Articles of
Association. For details, please refer to the announcement, shareholders' circular and the documents of shareholders'
general meetings of the Company published on 24 March 2017, 26 May 2017, 25 October 2017 and 8 January
2018 respectively.
7,048
China Merchants Bank
Annual Report 2017
(108,559)
(129,953)
Deposits and placements from banks and other financial institutions
230,351
262,296
Deposits from customers
(17,264)
(11,390)
Other assets
Balances and placements with banks and other financial institutions
with original maturity over 3 months
(470,444)
Loans and advances to customers
(40,633)
(25,205)
(329)
(127)
(292)
(995)
(29)
(3)
(322,105)
9,925
30,597
Borrowing from central bank
803,283
Proceeds from the disposal of investments
(794,146)
(923,275)
Payment for the purchase of investments
Investing activities
(120,615)
(5,660)
Net cash (used in) generated from operating activities
(51,432)
(24,316)
Income tax paid
(96,299)
25,174
Cash (used in) generated from operating activities before tax
(6,732)
20,833
Other liabilities
267,508
84,730
(30,834)
765,069
13,436
(52,042)
- Impairment losses on loans and advances
78,963
90,680
Adjustments for:
Profit before tax
Cash flows from operating activities
139
The adoption of amendments to IAS 12 and amendments to IFRS 12 have had no significant impact on the
consolidated financial statements.
A reconciliation between the opening and closing balances of these items is provided in note 51b. Consistent with
the transition provisions of the amendments, the Group has not disclosed comparative information for the prior year.
Apart from the additional disclosure in note 51b, the application of these amendments has had no impact on the
Group's consolidated financial statements.
60,052
Specifically, the amendments require the following to be disclosed: (i) changes from financing cash flows; (ii)
changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in
foreign exchange rates; (iv) changes in fair values; and (v) other changes.
New and revised IFRSS effective in the current period applied by the Group (continued)
Amendments to IAS 7 Disclosure Initiative
i.
(b) Changes in accounting policies (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
2.
Annual Report 2017
IX Financial Statements
China Merchants Bank
As part of the actual improvements to IFRS 2014-2016 cycle
The Group has applied these amendments for the first time in the current year. The amendments require an entity to
provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities, including both cash and non-cash changes. In addition, the amendments also require disclosures on
changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in
cash flows from financing activities.
(45,721)
64,560
(126)
Balances with central bank
Changes in:
- Net gains on disposal of properties and equipment
- Share of profits of joint ventures
- Share of profits of associates
- Interest expense on issued debt securities
- Interest income on investments
(11,632)
(729)
- Impairment losses on investments and other assets
- Net gain on debt securities and equity investments
724
- Amortisation of other assets
4,287
5,062
- Depreciation of properties and equipment and investment properties
(1,001)
(561)
- Unwind of discount
1,599
576
Investments and net gains received from investments
52,205
60,509
77,860
1,170
1,000 80,030
(a) Net profit for the year
(b) Other comprehensive income for the year
13
Total comprehensive income for the year
70,150
70,150
(2,359)
29
(5,266)
(67)
(2,359)
(7,692)
1 (7,691)
(5,266)
(67)
70,150
(2,359) 62,458
459 70,638
29
2,522
3,083
Non-
1,859
capital instruments
reserve
reserve reserve reserve
reserve profits appropriations reserve Subtotal
capital interest Total
At 1 January 2017
Changes in equity for the year
39,431
25,220
1,454 (19) 39,708
67,838
180,447
18,663 1,516
402,350
1,012 403,362
34,065
(5,266)
(67) 6,451
67,523
460 62,947
(c) Capital contribution from equity holders
34,065
52,449
Proceeds from the issue of debt securities
Financing activities
2016
2017
Note
Annual Report 2017
IX Financial Statements
China Merchants Bank
12,432
5
13,720
191
67
(774)
(17,504)
(16,336)
(84,471)
The notes on pages 138 to 271 form part of these consolidated financial statements.
Net cash generated from(used in) investing activities
Payment for the purchase of properties and equipment and other assets
Proceeds from the disposal of properties and equipment and other assets
Proceeds from the disposal of subsidiaries, associates, joint venture
Loans repaid by joint ventures
(606)
Payment for the purchase of subsidiaries, associates, joint venture
561
Proceeds from the issue of negotiable interbank certificates
of deposits
559,795
34,065
1,170
463 35,698
(1) Non-controlling shareholders' contribution
to non-wholly owned subsidiaries
22(iv)
(533,210)
(569,088)
Repayment of negotiable interbank certificates of deposits
(5,227)
(30,186)
Repayment of issued debt securities
495
Proceeds from non-controlling shareholders
34,065
Proceeds from the issue of preferred shares
1,170
Proceeds from the issue of perpetual debt capital
14,740
19,086
Proceeds from the issue of certificates of deposits
545,430
Amendments to IFRS 12
debt controlling
Recognition of Deferred Tax Assets for Unrealised Losses
Amendments to IAS 12
6,451
3,083
(30,719)
2,522
(18,663)
(29)
77 (18,615)
(i) Appropriations to statutory surplus reserve
(ii) Appropriations to regulatory general reserve
(d) Profit appropriations
447
6,451
(6,451)
47
3,083
(3,083)
(iii) Dividends declared and paid
for the year 2016 (note(i))
(18,663)
(18,663)
46
77 (18,586)
1,170
34,065
non-wholly owned subsidiaries
(i) Non-controlling shareholders' contribution to
(166) (166)
(c) Capital contribution from equity holders
303 59,249
1,859 58,946
62,081
(260)
(4,734)
1,170
Total comprehensive income for the year
495
495
(ii) Decrease in non-controlling interests
(i) Capital injection from preference shareholders
(32) (32)
(iv) Issuance of perpetual capital instruments 58
28
42
34,065
34,065
4 (3,131)
(ii) Decrease in non-controlling interests
8
(29)
6,188 241 34,009
(4,734) (260) 5,699
Regulatory
general Retained
reserve profits appropriations
64,679 145,887
Proposed
profit Exchange
Non-
controlling
reserve Subtotal interests Total
17,402
(343) 360,806
952 361,758
Changes in equity for the year
3,159 34,560
1,859 41,544
60 41,604
(a) Net profit for the year
62,081
62,081
299 62,380
(b) Other comprehensive income for the year
13
(4,734) (260)
1,261
(iv) Distribution to perpetual capital instruments 58
25,220 67,523
reserve reserve reserve
(29)
(v) Proposed dividends for the year 2017
At 31 December 2017
(21,185)
21,185
25,220
34,065 67,523
(3,812)
(86) 46,159
At 1 January 2016
70,921 219,878
(843) 480,210
1,170
2,012 483,392
Notes: (i) China Merchants Fund Management Co., Ltd. cancelled the dividends distribution scheme of the year 2016 in 2017.
2016
Total equity attributable to equity shareholders of the Bank
Investment
Share Capital revaluation Hedging Surplus
Note capital reserve
21,185
(d) Profit appropriations
(i) Appropriations to statutory surplus reserve
(ii) Appropriations to regulatory general reserve
The notes on pages 138 to 271 form part of these consolidated financial statements.
73,803
83,869
Interest paid
169,991
188,045
Cash flows from operating activities include:
Interest received
532,112
460,425
137
51(a)
(4,219)
635,843
532,112
(110,891)
(67,468)
(3,996)
22,663
Cash and cash equivalents as at 31 December
Effect of foreign exchange rate changes
7,160
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents as at 1 January
138
IX Financial Statements
New and revised IFRSS effective in the current period applied by the Group
Amendments to IAS 7
i.
(b) Changes in accounting policies
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.
(a) Statement of compliance and basis of preparation
Basis of preparation, principal accounting policies, accounting
estimates and judgements
2.
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.
(b) Principal activities
China Merchants Bank
As at 31 December 2017, apart from the Head Office, the Bank had 51 branches in the Mainland China, Hong
Kong, New York, Singapore, London, Sydney and Luxembourg. In addition, the Bank has four representative offices
in Beijing, London, New York and Taipei.
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.
Organisation
Organisation and principal activities
(a)
1.
(Expressed in millions of Renminbi unless otherwise stated)
For the year ended December 31, 2017
Notes to the Financial Consolidated Statements
Annual Report 2017
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").
Net cash (used in) generated from financing activities
(12,574)
(14,483)
(19) 39,708
1,454
25,220 67,523
At 31 December 2016
18,663
(18,663)
(iv) Proposed dividends for the year 2016
(77) (17,479)
(17,402)
67,838 180,447
(17,402)
(5,699)
3,159 (3,159)
(77) (17,479)
(166) (166)
བུདྨེ
(17,402)
1,261
3,159 (27,521)
5,699
5,699
46
47
(iii) Dividends declared and paid for the year 2015
18,663
1,516 402,350
1,012 403,362
Interest paid on issued debt securities
(17,402)
(18,692)
Dividends paid
(166)
(32)
Payment for acquiring additional non-controlling equity
(8,019)
(11,916)
Repayment of certificates of deposit
2016
2017
(Expressed in millions of Renminbi unless otherwise stated)
For the year ended 31 December 2017
Consolidated Cash Flow Statement
Annual Report 2017
IX Financial Statements
China Merchants Bank
136
135
The notes on pages 138 to 271 form part of these consolidated financial statements.
Disclosure Initiative
Non-controlling interests
Perpetual
Note
general Retained
(141)
60
31
Other comprehensive income for the year, net of tax
13
(7,691)
(3,131)
Attributable to:
Equity shareholders of the Bank
44
(7,692)
Non-controlling interests
1
4
Total comprehensive income for the year
62,947
59,249
Attributable to:
Equity shareholders of the Bank
62,458
(3,135)
(260)
(67)
(4,620)
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2017
(Expressed in millions of Renminbi unless otherwise stated)
Profit for the year
Other comprehensive income for the year
after tax and reclassification adjustments
Items that may be reclassified subsequently to profit or loss
Exchange difference on translation of financial
statements of overseas subsidiaries
Available-for-sale financial assets:
net movement in fair value reserve
Cash flow hedge: net movement in hedging reserve
Equity-accounted investees share of
other comprehensive (expense) income
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit liability
Note
2017
70,638
2016
62,380
(2,359)
1,859
(5,369)
58,946
Annual Report 2017
Non-controlling interests
303
Placements with banks and other financial institutions
17
154,628
200,251
Amounts held under resale agreements
18
252,550
278,699
Loans and advances to customers
103,013
19
3,151,649
Interest receivable
20
28,726
26,251
Financial assets at fair value through profit or loss
21(a)
64,796
55,972
3,414,612
76,918
16
Balances with banks and other financial institutions
The notes on pages 138 to 271 form part of these consolidated financial statements.
China Merchants Bank
IX Financial Statements
Annual Report 2017
Consolidated Statement of Financial Position
At 31 December 2017
(Expressed in millions of Renminbi unless otherwise stated)
Note
2017
2016
Assets
Cash
Precious metals
Balances with central bank
16,412
16,373
9,309
2,981
15
600,007
581,156
489
IX Financial Statements
China Merchants Bank
132
2016
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
3
242,005
215,481
2017
4
(80,886)
144,852
134,595
5
69,908
66,003
(5,890)
(5,138)
Net fee and commission income
(97,153)
Note
(Expressed in millions of Renminbi unless otherwise stated)
For the year ended 31 December 2017
IX Financial Statements
DTTHK(A)(18)100033
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:
о
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.
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.
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.
The engagement partner on the audit resulting in the independent auditor's report is Eric Tong.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
23 March 2018
China Merchants Bank
IX Financial Statements
Annual Report 2017
Consolidated Statement of Profit or Loss
64,018
60,865
Other net income
6.
Income tax
12
(20,042)
(16,583)
Profit for the year
70,638
62,380
Attributable to:
Equity shareholders of the Bank
Non-controlling interests
70,150
62,081
488
299
Earnings per share
Basic and diluted (RMB)
14
2.78
2.46
The notes on pages 138 to 271 form part of these consolidated financial statements.
131
78,963
Derivative financial assets
90,680
292
11,169
14,489
Operating income
220,039
209,949
Operating expenses
7
(70,431)
(65,148)
Operating profit before impairment losses
149,608
144,801
Impairment losses
11
(59,926)
(66,159)
Share of profits of associates
3
29
Share of profits of joint ventures
995
Profit before taxation
56(f)
18,916
8,688
Capital reserve
Investment revaluation reserve
Hedging reserve
Surplus reserve
Regulatory general reserve
231441
34,065
67,523
67,523
(3,812)
1,454
45
(86)
(19)
46
46,159
39,708
47
70,921
- Preference shares
34,065
Other equity instruments
25,220
130
Tax payable
Proposed
profit Exchange
Other liabilities
Total liabilities
Equity
Share capital
39
26,701
67,838
19,523
1,070
897
40
80,346
65,843
5,814,246
5,538,949
41
25,220
29
Retained profits
219,878
180,447
Total equity and liabilities
6,297,638
5,942,311
The notes on pages 138 to 271 form part of these consolidated financial statements.
Approved and authorised for issue by the Board of Directors on 23 March 2018.
Li Jianhong
Director
Tian Huiyu
Director
Company Chop
China Merchants Bank
403,362
IX Financial Statements
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
(Expressed in millions of Renminbi unless otherwise stated)
2017
Other
Total equity attributable to equity shareholders of the Bank
Investment
Regulatory
Share
equity Capital revaluation Hedging Surplus
Annual Report 2017
8,020
483,392
1,170
Proposed profit appropriations
48(b)
21,185
18,663
Exchange reserve
49
(843)
1,516
Total equity attributable to shareholders of the Bank
Total equity
480,210
Non-controlling interests
58
3,182
1,012
- Non-controlling interest
2,012
1,012
- Perpetual debt capital
58(a)
402,350
38(a)
Deferred tax liabilities
275,082
26
1,612
1,701
27
7,255
3,914
Goodwill
Deferred tax assets
28
9,954
9,954
29
50,120
31,010
Other assets
Total assets
30
23,372
28,180
6,297,638
5,942,311
43,857
49,812
25
82
Available-for-sale financial assets
21(b)
383,101
389,138
Held-to-maturity investments
21(c)
558,218
477,064
Debt securities classified as receivables
21(d)
The notes on pages 138 to 271 form part of these consolidated financial statements.
572,241
Interest in joint ventures
Interest in associates
Property and equipment
Investment properties
Intangible assets
23
5,059
3,630
24
20
528,748
133
134
China Merchants Bank
33
125,620
162,942
Deposits from customers
Interest payable
34
4,064,345
3,802,049
35
36,501
Amounts sold under repurchase agreements
36,246
36
26,619
23,576
Derivative financial liabilities
Debt securities issued
56(f)
21,857
11,152
37
296,477
Financial liabilities at fair value through profit or loss
Salaries and welfare payable
248,876
32
IX Financial Statements
Annual Report 2017
Note
272,734
2017
2016
Liabilities
(3,135)
414,838
330,108
Deposits from banks and other financial institutions
31
439,118
555,607
Placements from banks and other financial institutions
Borrowing from central bank
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
Group's functional and presentation currency, rounded to the nearest million.
(c) Basis of measurement
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.
Long-term Interests in Associates and Joint Ventures
China Merchants Bank
Annual Report 2017
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.
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. However, 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.
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.
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
IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities,
and general hedge accounting and impairment requirements for financial assets.
Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
IFRS 9 Financial Instruments
ii.
(b) Changes in accounting policies (continued)
141
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
China Merchants Bank
Annual Report 2017
1 January 2019
Annual Improvements to IFRS Standards 2015-2017 Cycle
Amendments to IFRSS
1 January 2018
As part of the Annual Improvements to IFRS Standards
2014-2016 Cycle
Amendments to IAS 28
1 January 2018
IX Financial Statements
142
China Merchants Bank
IX Financial Statements
Annual Report 2017
IX Financial Statements
China Merchants Bank
In addition, some of these financial assets fail the contractual cash flow characteristics test or are held with
a business model whose objective is neither to collect contractual cash flows nor to both collect contractual
cash flows and sell these financial assets, and therefore will be measured subsequently at fair value with
fair value gains or losses to be recognised in profit or loss instead of other comprehensive income. On initial
application of IFRS 9, investment revaluation reserve relating to those financial assets subsequently measured
at fair value through profit or loss will be transferred to retained profits as at 1 January 2018.
Debt instruments classified as available-for-sale financial assets carried at fair value as disclosed in note 21(b):
Some of these financial assets satisfy the contractual cash flow characteristics tests, and are held within
a business model whose objective is achieved by both collecting contractual cash flows and selling these
debt instruments. Accordingly, these financial assets will continue to be subsequently measured at FVTOCI
upon the applications of IFRS 9, and the fair value gains or losses accumulated in the investment revaluation
reserve will continue to be subsequently reclassified to profit or loss when the debt instruments are
derecognised.
The remaining financial assets which fail the contractual cash flow characteristics test or are held with a
business model whose objective is neither to collect contractual cash flows nor to both collect contractual
cash flows and sell these financial assets, and therefore will be measured subsequently at fair value with fair
value gains or losses to be recognised in profit or loss under IFRS 9. On initial application of IFRS 9, fair value
gains or loss, representing the differences between the amortised cost and fair value, will be adjusted to
retained profits as at 1 January 2018.
However, some of these financial assets satisfy the contractual cash flow characteristics tests, but are held
within a business model whose objective is achieved by both collecting contractual cash flows and selling
these financial assets. Accordingly, these financial assets will be measured at FVTOCI upon the applications
of IFRS 9, and the fair value gains or losses accumulated in the investment revaluation reserve will continue
to be subsequently reclassified to profit or loss when the financial assets are derecognised. Upon initial
application of IFRS 9, fair value gains or loss, representing the differences between the amortised cost and
fair value, will be adjusted to other comprehensive income as at 1 January 2018.
Most of these financial assets are held within a business model whose objective is to collect contractual cash
flows that are solely payments of principal and interest on the principal outstanding ("contractual cash flow
characteristics test"). Accordingly, they will continue to be subsequently measured at amortised costs upon
the application of IFRS 9.
Loans and advances to customers as disclosed in note 19, debt securities classified as receivables disclosed in
note 21(d) and held-to-maturity investments as disclosed in note 21(c), measured at amortised costs:
•
Classification and measurement
Based on the Group's financial instruments and risk management policies as at 31 December 2017, the Group
anticipates the following impacts on initial application of IFRS 9:
Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
IFRS 9 Financial Instruments (continued)
Changes in accounting policies (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
ii.
(b)
2.
Annual Report 2017
Transfers of Investment Property
Amendments to IAS 40
1 January 2019
a date to be determined
Leases
IFRS 16
1 January 2018
Revenue from Contracts with Customers and the related
Amendments
IFRS 15
1 January 2018
on or after
Effective for annual
period beginning
Financial Instruments
IFRS 9
Standards and amendments that are not yet effective and have not been adopted by the Group
ii.
(b) Changes in accounting policies (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
2.
Annual Report 2017
IX Financial Statements
China Merchants Bank
140
IFRS 17
2.
Insurance Contracts
1 January 2021
1 January 2019
1 January 2018
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
Prepayment Features with Negative Compensation
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts
Amendments to IAS 28
Amendments to IFRS 10
and IAS 28
Amendments to IFRS 9
Amendments to IFRS 4
1 January 2018
Classification and Measurement of Share-based Payment
Transactions
1 January 2019
Uncertainty over Income Tax Treatments
1 January 2018
Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 2
IFRIC 23
IFRIC 22
1 January 2019
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 and future periods,
or in the period of the revision and future periods if the revision affects both current and future periods.
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).
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
ii.
whether any party within the joint arrangement cannot control the relevant activities of the joint ventures;
whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
parties sharing control.
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
ventures.
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.
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)).
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.
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 judge whether there is a joint control, the Group usually considers the following cases:
When the Group ceases to have joint control over a joint venture and no significant impact occurs, 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(h)).
2.
(f)
IX Financial Statements
Associates
Associate is an entity in which the Group has significant influence, but not control, or joint control, including
participation in the financial and operating policy decisions.
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.
When judging whether there is a significant influence, the Group usually considers the following cases:
representation on the Board of Directors or equivalent governing body of the investee;
China Merchants Bank
Annual Report 2017
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.
IX Financial Statements
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(d) Subsidiaries and non-controlling interests and business combination
Financial statements include financial statements of the Bank and its subsidiaries. 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.
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.
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(h)) 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)).
Business combination
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.
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.
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.
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 acquiree's identifiable net assets.
The choice of measurement basis is made on a transaction-by-transaction basis.
147
148
China Merchants Bank
IX Financial Statements
Annual Report 2017
2.
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
participation in policy-making processes;
material transactions between the entity and its investee.
Investments in associates are 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)).
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.
ii.
(b) Changes in accounting policies (continued)
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Annual Report 2017
IX Financial Statements
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144
143
The Group do not anticipate that the application amendments to IFRS 9 will have a material impact on the
classification of financial assets in the respective reporting periods.
The amendments revise existing requirements in IFRS 9 regarding termination rights in order to allow measurement
at amortised cost (or depending the business model, at fair value through other comprehensive income) in the case
of negative compensation payments (where the lender has make a settlement payment in the event of termination
by the borrower).
Amendments to IFRS 9 Prepayment Features with Negative Compensation
Based on the assessment by the Group, the adoption of the new classification and measurement basis and expected
credit loss model mentioned above under IFRS 9 will reduce retain profits at 1 January 2018 by RMB9.0 billion and
increase other comprehensive income at 1 January 2018 by RMB3.2 billion, after deducting the deferred tax.
The Group anticipates that the application of IFRS 9 does not have a material impact on Group's current hedge
designation and hedge accounting.
The Group anticipates that the application of the expected credit loss model of IFRS 9 will result in earlier provision
of credit losses which are not yet incurred in relation to the Group's financial assets measured at amortised costs,
debt instruments measured at FVTOCI, loan commitments and other items that subject to the impairment provision
upon application of IFRS 9 by the Group.
Impairment
Some equity instruments are qualified for designation as measured at FVTOCI under IFRS 9 and the Group
elects this option. For these financial assets, the fair value gains or losses accumulated in the investment
revaluation reserve as at 1 January 2018 will no longer be subsequently reclassified to profit or loss under
IFRS 9, which is different from the current treatment under IAS 39. This will affect amounts recognised in
the Group's profit or loss and other comprehensive income but will not affect total comprehensive income.
The Group will not elect the option for designation at FVTOCI for the remaining available-for-sale equity
instruments carried at fair value. Therefore, the remaining equity instrument, together with funds not
qualified for the designation at FVTOCI, will be measured at fair value with subsequent fair value gains or
losses to be recognised in profit or loss. Upon initial application of IFRS 9, investment revaluation reserve
relating to these remaining financial assets will be transferred out to retained profits as at 1 January 2018.
The Group anticipates that the application of IFRS 9 does not have a material impact on the measurement basis of
other financial assets and liabilities of the Group.
Equity instruments, funds classified as available-for-sale financial assets carried at fair value as disclosed in
note 21(b):
Classification and measurement (continued)
Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
IFRS 9 Financial Instruments (continued)
Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
IFRS 15 Revenue from Contracts with Customers
(b) Changes in accounting policies (continued)
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.
Step 1: Identify the contract(s) with a customer
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 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(h)).
149
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.
Standards and amendments that are not yet effective and have not been adopted by the Group (continued)
IFRS 16 Leases
ii.
(b) Changes in accounting policies (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
IX Financial Statements
2.
China Merchants Bank
Annual Report 2017
The Group anticipates that the application of IFRS 15 may result in more disclosures, however, the Group does
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.
Clarification to IFRS 15 was issued in relation to the identification of performance obligation, principle versus agent
considerations, as well as licensing application guidance.
Clarification to IFRS 15 Revenue from Contracts with Customers
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.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 3: Determine the transaction price
Step 2: Identify the performance obligations in the contract
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:
2.
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
IX Financial Statements
China Merchants Bank
146
145
In addition, the Group currently considers refundable rental deposits paid and refundable rental deposits received as
rights and obligation under lease to which IAS 17 applies. Based on the definition of lease payments under IFRS 16,
such deposits may be adjusted to amortised cost and such adjustments are considered as additional lease payments.
Adjustments to refundable rental deposits paid would be included in the carrying amount of right-of-use assets.
Adjustments to refundable rental deposits received would be considered as advance lease payment.
As at 31 December 2017, the Group has non-cancellable operating lease commitments of RMB14,471 million as
disclosed in note 54(c). 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.
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.
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 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 are 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.
Annual Report 2017
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(g) Goodwill
Goodwill represents the excess of
(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest
based on the fair value of net assets acquired in the acquiree and the fair value of the Group's previously
held equity interest in the acquiree; over
(ii)
Financial instruments
Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated
to each cash-generating unit ("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)).
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.
(h)
(i)
Initial recognition and classification
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.
2.
(ii)
China Merchants Bank
150
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.
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.
Classification
Core deposit
28 years
(i)
Finance and operating lease
(I)
Both the periods and method of amortisation are reviewed annually.
Software and Others
2~20 years
30-50 years
Land use right
Annual Report 2017
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.
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.
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.
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.
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;
Available-for-sale financial assets
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market;
Loans and receivables
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;
Held-to-maturity investments
the blend instrument that includes embedded derivative which match the condition.
the designation eliminates or significantly reduces an accounting mismatch which would otherwise
arise;
the assets or liabilities are managed, evaluated and reported internally on a fair value basis;
Financial instruments are designated as financial assets and financial liabilities at fair value through profit or
loss upon initial recognition when:
Financial assets and financial liabilities at fair value through profit or loss (continued)
Initial recognition and classification (continued)
Financial instruments (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
IX Financial Statements
(i)
(h)
2.
China Merchants Bank
Annual Report 2017
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;
The amortization period of intangible assets is as follow:
Financial assets and financial liabilities 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:
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.
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 2017.
Repossessed assets are measured at fair value at the date of exchange. They are not depreciated or amortised.
Impairment losses on initial classification and on subsequent remeasurement are recognised in the consolidated
statement of profit or loss.
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.
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 collected from
third parties are recorded as a financial liability.
Securitisation
(b)
Derecognition of financial assets and liabilities (continued)
(x)
(h) Financial instruments (continued)
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
156
155
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.
(c)
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.
the Group has transferred its rights to receive cash flows from the asset; or
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)
Derecognition of financial assets and liabilities
(x)
The Group classifies preference shares issued as an equity instrument. Fees, commissions and other transaction costs
of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as profit
distribution at the time of declaration.
At initial recognition, the Group classifies the preference shares 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.
Preference shares
(ix)
Perpetual debt capitals issued that should be classified as equity instruments are recognised in equity based on
the actual amount received. Any distribution of interests during the instruments' duration is treated as profit
appropriation. When the perpetual debt capitals are redeemed, the redemption price is charged to equity.
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.
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.
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)
(k) Intangible assets
151
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".
Repossessed assets
(j)
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2017
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.
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.
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.
the estimated useful lives
3 years
3-5 years
3 years
20 years
20 years
Leasehold improvements (self-owned property)
Leasehold improvements (leasing property)
Motor vehicles and others
Computer equipment
Investment properties
Buildings
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:
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.
Property, equipment, investment property and depreciation
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.
Financial liabilities
(d)
Land use rights are stated at cost, amortised on a straight-line basis over the respective lease periods.
152
IX Financial Statements
IX Financial Statements
A financial instrument is an equity instrument if, and only if, both conditions (i) and (ii) below are met:
(i)
(ii)
Finance leases
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).
(iii)
Operating leases
Assets leased in under operating leases
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(i) 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.
157
158
China Merchants Bank
Annual Report 2017
2.
At initial recognition, the Group classifies the perpetual debt capitals 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.
Perpetual debt capitals
(viii)
(h) Financial instruments (continued)
the economic characteristics and risks of the embedded derivative are not closely related to the economic
characteristics and risks of the host contract.
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.
China Merchants Bank
Securitisations
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). When the securitisation results
in derecognisation or partial derecognisation of financial assets, the Group allocates the carrying amount of the
transferred financial assets between the financial assets derecognised and the retained interests based on their
relative fair values at the date of the transfer. Gains or losses on securitisation, which is the difference between the
consideration received and the allocated carrying amount of the financial assets derecognised, are recorded in "other
net income". The retained interests continue to be recognised on the same basis before the securitisation.
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:
when the Group transfers substantially all the risks and rewards of ownership of the financial assets, the
Group shall derecognise the financial assets;
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
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
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
assets.
Equity instrument
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.
China Merchants Bank
IX Financial Statements
Annual Report 2017
2.
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(vii)
the terms of the embedded derivative would meet the definition of a derivative if they were contained in a
separate contract; and
(m)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(n) Impairment (continued)
(i)
Financial assets (continued)
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;
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;
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 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.
Impairment losses on loans and receivables, held-to-maturity investments
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.
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.
159
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
2.
Annual Report 2017
IX Financial Statements
Insurance contracts
Insurance contracts classification
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.
Insurance income recognition
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
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.
IX Financial Statements
(n) Impairment
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;
it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
the disappearance of an active market for that financial asset because of financial difficulties of the issuer;
China Merchants Bank
(i)
the host contract is not itself carried at fair value through profit or loss;
(vi)
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.
IX Financial Statements
Annual Report 2017
2.
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(h) Financial instruments (continued)
Derivatives that do not qualify for hedge accounting
(v)
Embedded derivatives
Derivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an
embedded derivative separately from the host contract when:
China Merchants Bank
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.
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.
Hedge effectiveness testing
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.
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)
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.
(h) Financial instruments (continued)
154
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.
(h)
(iii)
IX Financial Statements
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Financial instruments (continued)
Specific items
Cash equivalents
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.
Placements with banks and other financial institutions
153
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.
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".
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).
Investments
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.
Loans and advances to customers
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.
(iv)
Derivative financial instruments
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.
Resale and repurchase agreements
2.
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
China Merchants Bank
Annual Report 2017
Annual Report 2017
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
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.
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 highly 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.
Other provisions and contingent liabilities
(ii)
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.
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".
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.
Financial guarantees issued
IX Financial Statements
(i)
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.
(o) Precious metals
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.
Reversal 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.
Recognition of impairment losses
Other assets (continued)
Impairment (continued)
China Merchants Bank
(p) Financial guarantee issued, provisions and contingent liabilities
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.
2.
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.
Taxation
(r)
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.
Premium income
(iv)
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.
dividend income from listed investments is recognised when the underlying investment is declared
ex-dividend.
Dividend income
Annual Report 2017
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.
Fee and commission income
(ii)
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.
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 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.
Interest income
(i)
(q) Income recognition
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
(iii)
IX Financial Statements
Post employment benefits
(ii)
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
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.
(s) Foreign currencies translations
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.
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 relevant adjustment to interest costs on
those foreign currency borrowings;
Exchange differences on transactions entered into in order to the effective portion of the 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, which is executable, to set off the recognised amounts or
realise the asset and settle the liability simultaneously, the transactions are intended to be settled on a net basis.
China Merchants Bank
Annual Report 2017
2.
(n)
(i)
IX Financial Statements
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Employee benefits
Salaries and staff welfare
Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
employees.
(ii)
Annual Report 2017
IX Financial Statements
China Merchants Bank
164
IX Financial Statements
China Merchants Bank
Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
(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. The Group only charges a relevant
commission.
(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.
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.
(w) Segmental reporting
For the purposes of these consolidated financial statements, parties are considered to be related to the Group if
the Group has the ability, directly, indirectly or jointly, 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.
(v) Related parties
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Annual Report 2017
(iii)
IX Financial Statements
166
165
The fair value of the H share appreciation rights is using Black-Scholes model, taking into account the terms and
condition upon which the H share appreciation rights were granted.
The Group offers H share appreciation rights 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.
Share-based payment
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.
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 of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and liabilities are not
discounted.
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.
163
China Merchants Bank
€
Collectively assessed
2.
Fair value of financial instruments
(iii)
(z) Significant accounting estimates and judgements (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
2.
Annual Report 2017
IX Financial Statements
China Merchants Bank
168
167
For available-for-sale for equity investments, 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 equity investments as well as other factors, such as sector performance and financial
information regarding the investee.
Impairment of available-for-sale for equity investments
(ii)
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 reviews the methodology and assumptions used in estimating
future cash flows regularly to reduce the difference between expected and actual losses.
Impairment losses on loans and advances to customers, debt securities classified as receivables and
held-to-maturity investments
(i)
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.
(z) Significant accounting estimates and judgements
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
2.
(n)
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.
(iv)
Held-to-maturity investments
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.
(vii)
Impairment of goodwill
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.
(viii)
De-recognition of financial assets transferred
In its normal course of business, the Group transfers its financial assets through various types of transactions
including regular way sales and transfers, securitization, financial assets sold under repurchase agreements. The
Group applies significant judgement in assessing whether it has transferred these financial assets which qualify for a
full de-recognition.
Where the Group enters into structured transactions by which it transfers financial assets to structured entities, the
Group analyzes whether the substance of the relationship between the Group and these structured entities indicates
that it controls these structured entities to determine whether the Group needs to consolidate these structured
entities. This will determine whether the following de-recognition analysis should be conducted at the consolidated
level or at the entity level from which the financial assets are transferred.
The Group analyzes the contractual rights and obligations in connection with such transfers to determine whether
the de-recognition criteria are met based on the following considerations:
•
whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer
qualifies for the "pass through" of those cash flows to independent third parties.
Annual Report 2017
the extent to which the associated risks and rewards of ownership of the financial assets are transferred.
Significant judgment is applied in the Group's estimation with regard to the cash flows before and after
the transfers and other factors that effect the outcomes of Group's assessment on the extent that risks and
rewards are transferred.
(vi)
(z)
Significant accounting estimates and judgements (continued)
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
IX Financial Statements
2.
China Merchants Bank
Annual Report 2017
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
(v)
169
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 interests that it holds in the structured entities.
Control over structured entity
estimating time that required from the appearance of loss to its confirmation and specific loan
provision, receivables and hold-to-maturity investment impairment, and 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.
Impairment losses on loans and receivables, held-to-maturity investments (continued)
Impairment losses on available-for-sale financial assets
Impairment allowances are calculated on a collective basis for the following:
no objective evidence of impairment exists for an individually assessed loans and receivables,
held-to-maturity investments; and
for homogeneous groups of loans and receivables, held-to-maturity investments that are not
individually significant with similar credit risk characteristics.
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:
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;
Financial assets (continued)
Homogeneous groups of loans and receivables, held-to-maturity investments
Portfolios of homogeneous loans and receivables, held-to-maturity investments are collectively assessed using
the historical loss experience of similar credit risk characteristics and current economic conditions 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 2017
2.
(n)
IX Financial Statements
Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
Financial assets (continued)
Impairment (continued)
(i)
2. Basis of preparation, principal accounting policies, accounting
estimates and judgements (continued)
China Merchants Bank
Annual Report 2017
162
161
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).
Calculation of recoverable amount
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.
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.
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.
Other assets
(ii)
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 other comprehensive income.
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.
For available-for-sale equity investments measured at fair value, a significant or prolonged decline in the fair value of
the security below its cost is considered to be objective evidence of impairment.
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.
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 reclassified from other comprehensive income and is
recognised in the consolidated statement of profit or loss.
160
China Merchants Bank
IX Financial Statements
Annual Report 2017
(n) Impairment (continued)
(i)
(3,131)
60
(7,691)
China Merchants Bank
Annual Report 2017
IX Financial Statements
13. Other comprehensive income (continued)
(b)
Movements relating to components of other comprehensive income are as follows:
31
2016
Available-for-sale financial assets:
Changes in fair value recognised during the year
(4,868)
(2,978)
Reclassification adjustments for amounts transferred to profit or loss:
On disposal
(501)
(6)
37
(4,701)
1,570
2017
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)
Net movement in the fair value reserve during the year recognised
in other comprehensive income
Notes:
(i)
(ii)
2017
530,509
68,012
1,486
600,007
2016
504,959
74,365
1,832
581,156
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 2017 (2016: 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.
1
Total
1
5
-
6,000,001 -6,500,000
6,500,001 -7,000,000
7,500,001 -8,000,000
5,500,001 -6,000,000
5,000,001 -5,500,000
4,500,001 - 5,000,000
HKD
2016
2017
The number of the five highest paid individuals whose emoluments fell within the following bands is set out below:
42,337
512111
Fiscal deposits
Surplus deposit reserve (note (ii))
Statutory deposit reserve (note (i))
(5,369)
(4,620)
Cash flow hedge:
Effective portion of changes in fair value of hedging instruments
Reclassification adjustment for amounts transferred to profit or loss
- Realised losses
(88)
(48)
21
(212)
Net movement in the hedging reserve during the period recognised
in other comprehensive income
(67)
(260)
14. Earnings per share
The calculation of basic earnings per share for the years 2017 and 2016 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 diluted earnings
per share as there are no potential ordinary shares outstanding during the years 2017 and 2016.
(12)
1,795
Note:
2017
70,150
2016
62,081
25,220
25,220
2.78
2.46
The Bank issued non-cumulative preference share during the year ended 31 December 2017. For the purpose of calculating basic earnings per
share, dividends on non-cumulative preference shares declared in respect of the period should be deducted from the amounts attributable to equity
shareholders of the Bank.
The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur
as at 31 December 2017. Therefore the conversion feature of preference shares has no effect on the diluted earnings per share calculation.
15. Balances with central bank
(1,642)
(9,486)
10. Loans to directors, supervisors and executive officers
(141)
90,680
78,963
22,670
19,741
811
(5,235)
822
(3,712)
(358)
(268)
1,970
184
20,042
16,583
Note:
(i)
The applicable income tax rate for the Group's operations in Mainland China is 25% during 2017 (2016: 25%).
(ii)
The applicable income tax rate in Hong Kong is 16.5% during 2017 (2016: 16.5%).
(iii)
Taxation for overseas operations is charged at the applicable rates of tax prevailing in relevant jurisdictions.
13. Other comprehensive income
(a) Tax effects relating to each component of other comprehensive income
Available-for-sale financial assets:
- Net movement in fair value reserve
Cash flow hedge:
- Net movement in hedging reserve
Exchange differences
Equity-accounted investees-share of
other comprehensive income
Remeasurement of defined benefit
scheme redesigned through reserve
Other comprehensive income
2016
2017
Income tax expense
- Other
33,750
- Mainland China
– Hong Kong
-
Overseas
Subtotal
Deferred taxation
Total
35,849
29,114
1,129
149
740
170
2017
37,127
(17,085)
20,042
(13,441)
16,583
(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% (2016: 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
- Transfer out of prior deferred tax assets
-
30,024
Before-tax Tax benefit/ Net-of-tax
amount (expense) amount
2016
Before-tax Tax benefit/
amount (expense)
Current income tax expense
57
64
50
2016
2017
Maximum aggregate amount of relevant loans made
by the Group outstanding during the year
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:
During the year ended 31 December 2017, the five highest paid individuals include eight persons in total as two of
them are with the same emoluments and being the second highest paid individuals and four of them are with the
same emoluments and being the fifth highest paid individuals. During the year ended 31 December 2016, the five
highest paid individuals include eight persons in total as five of them are with the same emoluments and being the
fourth highest paid individuals.
1
Net-of-tax
amount
(7,154)
1,785
83
(5,369)
1,489
(4,620)
(89)
22
(2,359)
(67)
(2,359)
(347)
1,859
87
(260)
1,859
44
44
(141)
(6,109)
72
11. Impairment losses
- Available-for-sale financial assets (Note 21(b))
2016
2017
(a) Income tax in the consolidated statement of profit or loss represents:
12. Income tax
Annual Report 2017
IX Financial Statements
China Merchants Bank
178
2016
177
66,159
59,926
Total
Loans and advances to customers (Note 19(c))
Amounts due from banks and other financial
institutions (Note 16(b), Note 17(c), Note 18(d))
Investments
1,699
Others
(541)
(886)
- Debt securities classified as receivables (Note 21(d))
(10)
8
- Held-to-maturity investments (Note 21(c))
(56)
(51)
507
121
2016
64,560
2017
60,052
682
Total
Liu Yuan
3,736
400
400
400
384
3,337
281
2,440
417
1,156
9,367
14,640
China Merchants Bank
Annual Report 2017
8.
IX Financial Statements
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
Guo Xuemeng (iv)
Subtotal
The independent non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
Directors'
4,117
2,953
2,159
Ding Huiping
Han Zirong
Xu Lizhong
Huang Dan
Wong See Hong (iii)
Subtotal
500
500
500
500
500
417
500
500
500
500
4,255
491
4,746
400
400
400
500
Jin Qingjun
fees
RMB'000
Salaries,
allowances
China Merchants Bank
Annual Report 2017
8.
IX Financial Statements
Directors' and supervisors' emoluments (continued)
The emoluments of the Directors and Supervisors during the year are as follows: (continued)
Executive directors
Tian Huiyu
Li Hao
Subtotal
174
2016
Directors'
fees
RMB'000
and benefits
Discretionary
in kind
bonuses
Retirement
scheme
contributions
RMB'000
RMB'000
RMB'000
Salaries,
allowances
2017
173
(iv)
Retirement
and benefits Discretionary
scheme
bonuses contributions
in kind
RMB'000
Total
RMB'000
RMB'000
RMB'000
(i)
The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
Total
In February 2017, Guo Xuemeng resigned as the Bank's independent Non-Executive Director.
4,117
2,303
24,607
Notes:
(i)
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.
(ii)
As at 31 December 2017, the Group has offered 10 phases of H share appreciation rights scheme to its senior management ("the Scheme").
Details of the Scheme are set out in Note 38(a)(iii).
(iii)
During the reporting period, Wong See Hong was approved by the China Banking Regulatory Commission in February 2017.
18,187
Total
RMB'000
Wu Heng
Fu Junyuan
4,113
Other general and administrative expenses (note (ii))
18,570
16,767
Subtotal
70,199
64,900
Charge for insurance claims
Total
4,189
232
70,431
65,148
Notes:
(i)
Performance bonus is included in the salaries and bonuses, the details of which are disclosed in Note 38(a).
(ii)
Auditors' remuneration amounted to RMB20 million for the year ended 31 December 2017 (2016: RMB16 million), included in other general
and administrative expenses.
171
172
China Merchants Bank
248
IX Financial Statements
Rental expenses
714
Surplus deposit reserve maintained with the PBOC and central banks outside the Mainland China are mainly for clearing purposes.
- Salaries and bonuses (note (i))
28,286
22,061
- Social insurance and corporate supplemental insurance
4,696
5,038
- Others
6,530
560
5,712
39,512
32,811
Business tax and surcharges
2,152
6,362
Property, equipment and investment properties depreciation
5,062
4,287
Intangible assets amortization
Subtotal
Wen Jianguo
Annual Report 2017
Directors' and supervisors' emoluments
Non-executive directors
Li Jianhong
Li Xiaopeng
Sun Yueying
Fu Gangfeng
Hong Xiaoyuan
Su Min
Zhang Jian
Wang Daxiong
The executive directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
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
Wong Kwai Lam
Pan Chengwei
Pan Yingli
Zhao Jun
Liu Yuan
||||||
8.
9,967
4,746
The emoluments of the Directors and Supervisors during the year are as follows:
Executive directors
Tian Huiyu
Li Hao
Subtotal
2017
Salaries,
allowances
Directors'
fees
RMB'000
in kind
1,147
RMB'000
Total
RMB'000
(i)
4,620
4,200
8,820
601
5,221
546
Retirement
and benefits Discretionary
scheme
bonuses contributions
RMB'000
RMB'000
3,384
(i)
2,029
Total
3,375
16,631
5,533
176
China Merchants Bank
IX Financial Statements
Annual Report 2017
8.
The former executive, non-executive Directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
Directors' and supervisors' emoluments (continued)
Notes:
(i)
(ii)
(iii)
(iv)
On 29 September 2017, the Board of Directors approved the discretionary bonuses of the Bank's directors, supervisors and executive officers
for 2016. Disclosures relating to the directors' and supervisors' emoluments for the year ended 31 December 2016 in Note 8, 9 & 57(h) were
adjusted correspondingly.
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).
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.
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.
The emoluments of the Directors and Supervisors during the year are as follows: (continued)
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.
27,701
1,885
RMB'000
bonuses
RMB'000
Retirement
scheme
contributions
Total
RMB'000 RMB'000
(i)
75
2,162
5
1,602
1,602
175
| | |
| | | |
75
208
1,810
208
75
RMB'000
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.
In 2015, Pan Ji, Dong Xiande resigned as the Bank's external supervisor due to the changes of job assignments, their resignations were
effective.
1
1
1
1
25
25
During the year ended 31 December 2017, 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 2017, there was no arrangement under which a director or a supervisor waived
or agreed to waive any remuneration.
China Merchants Bank
Annual Report 2017
6,500,001 – 7,000,000
7,500,001 -8,000,000
Total
IX Financial Statements
Of the five individuals with the highest emoluments for the year ended 31 December 2017, 3 (2016: 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:
2017
RMB'000
2016
RMB'000
Salaries and other emoluments
Discretionary bonuses (Note 8)
30,014
26,040
12,913
Contributions to defined contribution retirement schemes
9. Individuals with highest emoluments
In 2015, Guo Xuemeng resigned as the Bank's independent non-executive director due to the change of job assignment, her resignation was
effective.
55 NIII——
1
During the reporting period, Zhu Genlin, Liu Zhengxi, Xiong Kai resigned as the Bank's supervisors due to the changes of job assignments.
The number of the Directors and Supervisors whose emoluments are within the following bands is set out below:
HKD
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
2,500,001 -3,000,000
3,000,001 -3,500,000
55--2-||
3,500,001 – 4,000,000
4,500,001 - 5,000,000
5,000,001 -5,500,000
5,500,001 -6,000,000
6,000,001 - 6,500,000
2017
2016
2
1
15
4,000,001 -4,500,000
4,200
in kind
and benefits
directors and supervisors
Liang Jinsong
Wong Kwai Lam
Pan Chengwei
Pan Yingli
Zhao Jun
||||
500
500
Independent non-executive
500
500
3,360
1,660
437
500
500
500
500
500
500
5,457
The non-executive directors' emoluments shown above were for their services as directors of the Bank.
Subtotal
546
6,775
3,780
1,844
491
6,115
7,980
3,873
1,037
| | | |
12,890
Non-executive directors
Li Jianhong
Li Xiaopeng
Sun Yueying
Fu Gangfeng
Hong Xiaoyuan
Su Min
Zhang Jian (iii)
Wang Daxiong (iii)
The executive directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
Discretionary
Fu Junyuan
Wu Heng (iii)
The independent non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
China Merchants Bank
Annual Report 2017
8.
IX Financial Statements
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)
12,926
Li Yinquan (iv)
Liu Zhengxi (iv)
Pan Ji (iv)
Dong Xiande (iv)
Xiong Kai (iv)
Guo Xuemeng (iv)
Subtotal
2016
Salaries,
allowances
Directors'
fees
Zhu Genlin (iv)
Wen Jianguo (iii)
917
257
Jin Qingjun
400
Ding Huiping (iii)
200
Han Zirong (iii)
200
Xu Lizhong (iii)
Huang Dan
1,716
1,973
2,230
Wong See Hong (iii)
3,300
7,049
1,660
| | | |
400
200
200
223
1,939
Subtotal
179
Staff costs
- rental income
4,793
9,250
Borrowing from central bank
46,000
50,329
Deposits from customers
Deposits from banks and other financial institutions
2016
ம்
5.
Interest expense
4.
For the year ended 31 December 2017, included in the above is interest income of RMB561 million accrued on impaired loans (2016:
RMB1,001 million) and nil for impaired debt securities investments (2016: Nil).
Note:
2017
215,481
13,606
Placements from banks and other financial institutions
2016
2017
Fee and commission income
80,886
97,153
at fair value through profit or loss
12,163
Interest expense on financial liabilities that are not
13,436
2,973
6,091
Amounts sold under repurchase agreements
Debt securities issued
5,032
4,441
9,925
Bank cards fees
242,005
45,721
Balances with banks and other financial institutions
Balances with central bank
- Discounted bills
- Retail loans
- Corporate loans
Loans and advances to customers
Placements with banks and other financial institutions
2016
Interest income
3.
Annual Report 2017
IX Financial Statements
China Merchants Bank
170
2017
Interest income on financial assets that are not at fair value
through profit or loss
Amounts held under resale agreements
64,829
52,042
Investments
4,736
5,136
4,743
6,019
65,864
875
8,170
8,679
3,834
4,608
82,573
98,386
1,271
14,011
11,083
Remittance and settlement fees
Investment income
- available-for-sale financial assets
- gain on disposal of bills and others
- physical precious metals
Exchange gain
Other income
(1,960)
China Merchants Bank
Annual Report 2017
Others
Total
5,207
11,632
- financial instruments at fair value through profit or loss
1,067
- insurance income
1,815
(129)
32
2017
2016
Profit/(loss) from fair value change
375
(2,511)
- financial instruments held for trading
precious metals
97
-
– financial instruments designated at fair value through profit or loss
7
(120)
- derivatives instruments
400
(463)
836
2,061
2,937
7,877
6,497
Others
23,358
22,788
Commissions on trust and fiduciary activities
Total
4,038
Commissions from credit commitment and lending business
13,121
12,627
Agency services fees
6,526
10,273
3,712
69,908
66,003
7. Operating expenses
5,658
367
2,098
1,934
2,857
3,202
1,668
2,882
1,142
320
526
451
843
11,169
14,489
2017
6. Other net income
IX Financial Statements
- Within one month (inclusive)
Subtotal
253,304
279,371
Less: Impairment allowances
- Banks
- Other financial institutions
(659)
(672)
(95)
Subtotal
(754)
(672)
Total
252,550
278,699
(b) Analysed by residual maturity
2016
15,089
14,275
10,240
8,657
274,705
3,397
220,939
4,666
86,934
107,540
1,900
154,628
5,777
200,251
(c) Movements of allowances for impairment losses are as follows:
2017
2016
As at 1 January
Charge/(release) for the year (note 11)
As at 31 December
16
119
51
(35)
135
16
18. Amounts held under resale agreements
(a) Analysed by nature of counterparties
2017
2016
Amounts held under resale agreements in Mainland China
Banks
32,365
- Other financial institutions
36,202
116,526
3,319
26,251
Debt securities classified as receivables
21(d)
572,241
528,748
Total
1,597,272
1,459,610
(a)
Financial assets at fair value through profit or loss
Note
2017
2016
Financial assets held for trading
(i)
55,415
43,333
Financial assets designated at fair value through profit or loss
Total
(ii)
9,381
12,639
64,796
477,064
28,726
558,218
Held-to-maturity investments
187
188
China Merchants Bank
IX Financial Statements
Annual Report 2017
21. Investments
Note
2017
2016
Financial assets at fair value through profit or loss
21(a)
64,796
55,972
Derivative financial assets
56(f)
18,916
8,688
Available-for-sale financial assets
21(b)
383,101
389,138
21(c)
55,972
2016
Over one year
2,942
1,830
52,035
56,965
24,937
46,221
62
23
24,999
46,244
77,034
103,209
(116)
(193)
(116)
(196)
76,918
103,013
(b) Movements of allowances for impairment losses are as follows:
As at 1 January
(Release)/charge for the year (note 11)
55,135
As at 31 December
49,093
2017
189
180
China Merchants Bank
IX Financial Statements
Annual Report 2017
16. Balances with banks and other financial institutions
(a) Analysed by nature of counterparties
Balances in Mainland
- Banks
- Other financial institutions
Subtotal
Balances outside Mainland
- Banks
Other financial institutions
Subtotal
Total
Less: Impairment allowances
- Banks
- Other financial institutions
Subtotal
Total
2016
2017
2017
196
160,537
27,918
39,730
154,763
200,267
(98)
(9)
(37)
(7)
(135)
(16)
154,628
200,251
China Merchants Bank
IX Financial Statements
Annual Report 2017
17. Placements with banks and other financial institutions (continued)
(b) Analysed by residual maturity
Maturing
- Within one month (inclusive)
- Between one month and one year (inclusive)
Total
126,845
2016
134,268
26,269
126
(80)
70
116
196
17. Placements with banks and other financial institutions
(a) Analysed by nature of counterparties
Placements in Mainland
- Banks
- Other financial institutions
Subtotal
Placements outside Mainland
Banks
Total
Less: Impairment allowances
- Banks
- Other financial institutions
Subtotal
Total
2017
2016
74,098
52,747
2016
(i)
2017
1,057
1,253
46,886
44,103
Movements of allowances for impairment losses are as follows:
At 1 January
Charge for the year (note 11)
Releases for the year (note 11)
Write-offs
Exchange difference
At 31 December
2017
2016
645
667
24
73
(75)
(129)
(35)
(28)
1,258
37
1,905
58,123
Less: impairment allowances
Total
Classification
Bonds
Listed inside mainland China
Listed outside mainland China
Unlisted
46,547
43,236
383,632
389,783
(531)
(645)
383,101
389,138
Investments in equity and funds
Listed inside mainland China
Listed outside mainland China
Unlisted
231,466
271,916
44,195
27,083
44,170
Subtotal
531
472
Annual Report 2017
IX Financial Statements
China Merchants Bank
182
181
278,699
262
52
1,050
1,048
252,550
2016
277,335
2017
245,059
6,443
Total
Asset management schemes
Trust beneficiary rights
Bills
Bonds
(c) Analysed by assets types
276,965
1,734
278,699
252,550
2,987
- Between one month and one year (inclusive)
Total
249,563
18. Amounts held under resale agreements (continued)
645
(d) Movements of allowances for impairment losses are as follows:
Charge for the year (note 11)
82
200
672
2016
2017
Operation in Mainland China
Analysed by industry sector and category:
(i)
(b) Analysis of loans and advances to customers
Net loans and advances to customers
Subtotal
- Collectively assessed
- Individually assessed
Less: Impairment allowances
Gross loans and advances to customers
Retail loans and advances
Discounted bills
Corporate loans and advances
(a) Loans and advances to customers
19. Loans and advances to customers
At 31 December
At 1 January
Financial assets held for trading
Investments in funds
3,301
Bonds
Listed inside mainland China
35,837
36,818
Listed outside mainland China
9,848
4,396
Unlisted
9,086
Investments in equity, funds and precious metal contracts
Listed inside mainland China
Listed outside mainland China
Unlisted
2
60
582
2
643
1,474
China Merchants Bank
IX Financial Statements
43,333
Annual Report 2017
55,415
1,296
2016
Government bonds
12,286
28,901
Bonds issued by policy banks
1,317
3,074
Bonds issued by commercial banks and other financial institutions
36,085
4,643
Other debt securities
5,083
4,596
Equity investments
32
714
Investments in funds
401
109
Long position in precious metal contracts
211
Total
3,378
21. Investments (continued)
(ii)
4,099
4,633
(b) Available-for-sale financial assets
2017
2016
Government bonds
153,426
132,632
Bonds issued by policy banks
51,715
69,130
Bonds issued by commercial banks and other financial institutions
78,940
101,176
Other debt securities
49,703
40,231
Subtotal
333,784
343,169
Equity investments
4,651
(a) Financial assets at fair value through profit or loss (continued)
4,762
Listed outside mainland China
Financial assets designated at fair value through profit or loss
2017
2016
Government bonds
520
301
Bonds issued by policy banks
2,571
2,948
Bonds issued by commercial banks and other financial institutions
Other debt securities
1,576
5,111
4,714
4,279
Total
9,381
Maturing
Classification
Listed inside mainland China
520
2017
Unlisted
3,355
Telecommunications, software and IT services
754
At 31 December
2,324
3,195
5,519
(212)
(137)
(349)
102,717
13,784
33,931
150,432
2016
Exchange difference
collectively
Impairment
allowances
for loans and
advances
which are
Impairment allowances
for impaired loans
and advances
Which are
collectively
assessed
Which are
individually
assessed
Total
At 1 January
62,412
7,806
14,624
assessed
previously written off
Recoveries of loans and advances
(561)
assessed
Total
At 1 January
70,694
10,108
29,230
110,032
Charge for the year (Note 11)
33,240
9,955
21,255
64,450
Release for the year (Note 11)
(1,005)
(1)
(3,392)
(4,398)
Write-offs
(8,601)
(15,682)
(24,283)
Transfer in
22
22
Unwinding of discount
(1)
(560)
84,842
Charge for the year (Note 11)
9,202
12,019
IX Financial Statements
Annual Report 2017
19. Loans and advances to customers (continued)
(d) Loans and advances to customers and allowances for impairment losses
Impaired loans and
2017
Gross loans and advances to
- Financial institutions
- Non-financial institution
customers
Subtotal
Less:
Impairment allowances for
advances
Loans and
Fair
Gross
impaired
value of
collateral
advances
for which
loans and held against
for which
for which
advances as individually
impairment impairment impairment
losses are
losses are
losses are
a % of
gross loans
China Merchants Bank
assessed
110,032
10,108
45,967
67,188
Release for the year (Note 11)
(1,168)
(1)
(1,459)
(2,628)
Write-offs
(11,176)
(24,766)
(35,942)
Transfer out
(5,700)
(5,700)
Unwinding of discount
(1,001)
(1,001)
Recoveries of loans and advances
previously written off
1,460
1,433
Exchange difference
248
132
2,893
380
At 31 December
70,694
29,230
assessed
assessed
Which are
collectively
109,924
Retail loans and advances subtotal
1,764,355
1,520,851
Gross loans and advances to customers
3,323,739
3,037,908
China Merchants Bank
IX Financial Statements
Annual Report 2017
19. Loans and advances to customers (continued)
(b) Analysis of loans and advances to customers (continued)
136,410
(i)
Operation outside Mainland China
2017
2016
Property development
Financial concerns
Transportation, storage and postal services
Manufacturing
Wholesale and retail
Leasing and commercial services
Telecommunications, software and IT services
63,209
52,922
Analysed by industry sector and category: (continued)
Others
281,653
310,969
67,997
55,806
Financial concerns
44,381
35,891
Water, environment and public utilities management
43,901
35,096
Mining
39,086
46,397
Others
56,838
62,863
Corporate loans and advances subtotal
1,443,496
1,362,540
Discounted bills
115,888
154,517
Residential mortgage
825,797
720,323
Credit cards
491,179
408,951
Micro-finance loans
47,198
44,489
25,613
18,281
Retail loans and advances subtotal
204
247
1,747
1,849
11,376
9,642
20,940
19,743
Gross loans and advances to customers
Notes:
241,305
223,773
As at 31 December 2017, over 90% of the Group's loans and advances to customers were conducted in the People's Republic of China
(unchanged compared the positions as at 31 December 2016).
183
184
China Merchants Bank
IX Financial Statements
Annual Report 2017
19. Loans and advances to customers (continued)
(c)
Movements of allowances for impairment losses are as follows:
Impairment
allowances
for loans and
advances
which are
collectively
2017
Impairment allowances
for impaired loans
and advances
Others
Which are
individually
Micro-finance loans
8,005
14,221
21,732
13,934
13,892
13,444
5,005
11,371
21,686
Production and supply of electric power,
heating power, gas and water
7,065
4,276
Mining
4,211
3,082
Construction
1,937
802
Water, environment and public utilities management
Others
419
147
17,743
Corporate loans and advances subtotal
220,365
17,716
204,030
Residential mortgage
7,613
Credit cards
83,871
impaired
collectively individually
Within 1 year (inclusive)
37,172
(5,093)
32,079
36,268
(4,649)
31,619
Over 1 year but within
5 years (inclusive)
76,868
(11,092)
65,776
receivables
69,845
61,300
Over 5 years
32,215
(4,787)
27,428
22,373
(1,470)
20,903
Subtotal
146,255
(20,972)
125,283
(8,545)
income
lease
Present
value of
minimum
3,151,649
Notes:
(i)
(ii)
(iii)
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 included
impairment losses which are assessed in following ways:
collectively: that is portfolios of homogeneous loans and advances; or
individually.
The fair values of collateral 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.
China Merchants Bank
IX Financial Statements
Annual Report 2017
19. Loans and advances to customers (continued)
(e)
Finance leases receivable
The table below provides an analysis of finance lease receivable for leases of certain property and equipment in
which the Group is the lessor:
2017
2016
Present
Total
minimum
lease
receivables
Unearned
finance
value of
minimum
lease
income
receivables
Total
minimum
lease
receivables
Unearned
finance
128,486
(14,664)
113,822
Less: Impairment allowances
251,851
Leasing and commercial services
Property development
Transportation, storage and postal services
Wholesale and retail
Manufacturing
2016
2017
3,151,649
3,414,612
(110,032)
(150,432)
(80,802)
(116,501)
(29,230)
(33,931)
3,261,681
3,565,044
1,540,594
1,785,295
154,517
115,888
1,566,570
1,663,861
2016
2017
672
275,710
16,488
206,973
205,022
- Individually assessed
(426)
- Collectively assessed
Net investment in finance
lease receivables
(2,674)
(449)
(2,220)
122,183
111,153
20. Interest receivable
Debt securities
Loans and advances to customers
Others
Total
2017
83,433
Construction
104,393
121,824
heating power, gas and water
Production and supply of electric power,
97,464
124,408
174,642
197,782
175,548
214,859
collectively
2,989,949
5,284
5,284
(13,784)
Subtotal
(102,717)
(13,784)
(33,930)
(33,931)
(149,453)
(150,432)
Net loans and advances to
- Financial institutions
Non-financial institution
customers
123,857
123,857
3,281,084
2,082
(101,739)
7,589
Total
3,404,941
2,082
7,589
3,414,612
185
186
China Merchants Bank
IX Financial Statements
Annual Report 2017
19. Loans and advances to customers (continued)
(d) Loans and advances to customers and allowances for impairment losses (continued)
3,290,755
customers
- Non-financial institution
(979)
and
loans and
assessed
assessed
assessed
Total
advances
advances
(note (i))
(note (ii))
(note (ii))
(note (iii))
124,835
1
124,836
3,382,823
3,507,658
15,866
15,866
41,519 3,440,208
41,520 3,565,044
1.67
5,404
1.61
5,404
loans and advances to
- Financial institutions
(978)
(1)
Loans and
advances
for which
impairment
losses are
collectively
Impaired loans and
advances
for which
impairment
losses are
collectively
45,717 3,099,704
45,718 3,261,681
1.97
1.87
8,379
8,379
Less:
Impairment allowances for
loans and advances to
- Financial institutions
(276)
(1)
(277)
- Non-financial institution
customers
(70,418)
(10,108)
(29,229)
Subtotal
(70,694)
(10,108)
(29,230)
(109,755)
(110,032)
Net loans and advances to
- Financial institutions
161,700
161,700
- Non-financial institution
customers
Total
2,968,177
3,129,877
15,392
15,392
16,488
3,200,571
3,038,595
2016
for which
impairment
losses are
individually
Gross
impaired
loans and
advances as
Fair
value of
collateral
held against
individually
assessed
impaired
loans and
a % of
gross loans
assessed
assessed
assessed
Total and advances
advances
(note (i))
(note (ii))
(note (ii))
(note (iii))
Gross loans and advances to
- Financial institutions
161,976
1
161,977
- Non-financial institution
customers
Subtotal
12,639
25,220
8,069
14.84
70,150
62,081
13.00
Changes
2017
2016
+/(-)%
2.78
2.46
13.01
2.78
78,963
2.46
17.69
15.95
10.91
(in millions of RMB, excluding percentages)
Total assets
of which: total loans and advances to customers
Total liabilities
of which: total deposits from customers
Total equity attributable to shareholders of the Bank
Notes: (1)
(2)
31 December
13.01
2017
90,680
210,270
On 20 July 2017, the list of Fortune Global 500 was officially released. The Company was in the list for 6
consecutive years and ranked 216th in 2017. On 31 July, the Company ranked 30th in the Fortune China Top
500 list.
On 21 November 2017, at the "China Star 2017" award ceremony held by Global Finance, the Company
received three awards, namely the "Best Private Bank", "Best Bank For Intergenerational Wealth
Management" and "Best OBOR Initiative - Domestic".
On 7 December 2017, the Company was honored to receive two awards, namely the "Top 30 Employers of
China for 2017" and the "Employer with the Most Female Attention of China for 2017" at the China Best
Employer Awards Ceremony hosted by Zhilian Zhaopin.
On 13 December 2017, the Company was awarded the "Annual Outstanding Credit Card Bank" by "2017
Financial Champions Award organised by Wallstreetcn".
On 22 December 2017, the Company was awarded the "Best Joint-Stock Bank of the Year" at the "2017
Gold Medal of China's Financial Institutions • Gold Dragon Medal Ceremony" sponsored by the Financial
Times.
On 25 December 2017, the Company was awarded "China's Leaders in Fintech: Best National Commercial
Bank" in 2017 by Asian Currency.
15
16
China Merchants Bank
Il Summary of Accounting Data and Financial Indicators
Annual Report 2017
Summary of Accounting Data
5.12
and Financial Indicators
Operating Results
(in millions of RMB, excluding percentages)
Net operating income (1)
Profit before tax
Net profit attributable to shareholders of the Bank
Per Share (RMB)
Basic earnings attributable to ordinary shareholders of the Bank(2)
Diluted earnings attributable to ordinary shareholders of the Bank
Year-end net assets attributable to ordinary shareholders of the Bank
Volume Indicators
Changes
2017
2016
+/(-)%
221,037
2.1 Key accounting data and financial indicators
31 December
2016
Changes
+1(-)%
Return on average equity attributable
16.54
16.27
Increased by 0.27
to ordinary shareholders of the Bank
percentage point
Net interest spread
2.29
2.37
Decreased by 0.08
percentage point
Net interest margin
percentage point
2.43
Decreased by 0.07
percentage point
As percentage of net operating income
- Net interest income
65.53
64.01
Increased by 1.52
percentage points
- Net non-interest income
34.47
35.99
Decreased by 1.52
2.50
to shareholders of the Bank
Increased by 0.06
1.09
6,297,638
5,942,311
5.98
3,565,044
3,261,681
9.30
5,814,246
5,538,949
4.97
4,064,345
3,802,049
6.90
19
402,350
19.35
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.
The Bank issued non-cumulative preference shares, but did not pay any dividend on the preference shares in 2017. Therefore, when
calculating basic earnings per share, return on average equity and net assets per share, no dividend on the preference shares was
deducted from "net profit attributable to shareholders of the Bank", while the preference shares were deducted from both the "average
equity" and the "net assets".
China Merchants Bank
Annual Report 2017
Il Summary of Accounting Data and Financial Indicators
2.2 Financial ratios
(%)
Profitability indicators
Return on average assets attributable
2017
2016
Changes
1.15
On 12 July 2017, the Company won all the seven awards of the "2017 All-Asia Strategy Management Team"
from the U.S. financial magazine Institutional Investors.
percentage points
On 28 June 2017, at the release of "2016 Social Responsibility Report on China's Banking Industry" and the
Social Responsibility Award Ceremony held by the China Banking Association, the Company won the "Best
Charity Contribution Award on Social Responsibility in China's Banking Industry in 2016”.
On 5 June 2017, Caijing magazine released the list of the "Evergreen Award - the First Year's Best Financial
Institutions Selection". The Company was awarded the "Best Annual Joint-stock Bank", "Best Annual Credit
Card Bank", "Best Annual Asset Custodian Bank "and" Best Private Bank of the Year".
Abbreviated Name of H Shares: CM BANK
Stock Code: 03968
Domestic Preference Shares: Shanghai Stock Exchange
Abbreviated Name of Shares: CMB Preference Shares 1
Stock Code: 360028
Offshore Preference Shares: SEHK
Abbreviated Name of Shares: CMB 17USDPREF
Stock Code: 04614
1.1.7 Domestic Auditor:
International Auditor:
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Office Address: 30th Floor, Bund Center, 222
Yan'an Road East, Shanghai,
China
SEHK
Certified Public Accountants for Signature:
Deloitte Touche Tohmatsu
Office Address: 35th Floor, One Pacific Place,
88 Queensway,
Hong Kong
1.1.8 Legal Advisor as to PRC Law: Jun He Law Offices
Legal Advisor as to Hong Kong Law: Herbert Smith Freehills
11
12
China Merchants Bank
I Company Information
Annual Report 2017
1.1.9 Registrar for A Shares:
China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Zeng Hao, Zhu Wei
Share Register and Transfer Office as to H Shares:
H Shares:
Abbreviated Name of A Shares: CMB
Liu Yuan
Chairman of the Board of Supervisors
China Merchants Bank
I Company Information
Annual Report 2017
Company Information
1.1 Company profile
1.1.1 Registered Company Name in Chinese: BSĦRA (Abbreviated Name in Chinese: R¯)
Registered Company Name in English: China Merchants Bank Co., Ltd.
1.1.2 Legal Representative: Li Jianhong
Authorised Representatives: Tian Huiyu, Li Hao
Secretary of the Board of Directors: Wang Liang
Joint Company Secretaries: Wang Liang, Seng Sze Ka Mee Natalia (FCIS, FCS(PE), FHKIOD, FTIHK)
Securities Representative: Zheng Xianbing
Stock Code: 600036
1.1.3 Registered and Office Address:
1.1.4 Mailing Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Postcode: 518040
Tel: +86 755 8319 8888
Fax: +86 755 8319 5109
E-mail: cmb@cmbchina.com
Website: www.cmbchina.com
Customer service hotline: 95555
1.1.5 Principal Place of Business in Hong Kong:
21st Floor, Bank of America Tower, 12 Harcourt Road, Hong Kong
1.1.6 Share Listing:
A Shares:
Shanghai Stock Exchange
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Computershare Hong Kong Investor Services Ltd.
Shops 1712-1716, 17/F, Hopewell Center, 183 Queen's Road East, Wanchai, Hong Kong
Registrar for Domestic Preference Shares:
China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Registrar and Transfer Agent for Overseas Preference Shares:
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.
Build a strong strategic supporting system. Firstly, the Company will realise the "dual-model developments"
(using traditional development model and agile development model simultaneously) of IT projects,
and vigorously enhanced its technology-based 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 reinforce cultural branding of CMB and cultivate the driving
force for sustainable development.
13
14
China Merchants Bank
I Company Information
Annual Report 2017
Investment Value and Core Competitiveness:
Well-developed and refined strategic management. Adhering to the strategy-driven development, the
Company's strategic management has become increasingly well-developed. It has given full play to its comparative
advantages and management potential amidst the crucial period of technological progress, industrial restructuring
and deepening of financial markets. The Company attains proper strategic positioning and vigorously carries out
structural adjustment for business development, customers, channels and products in an effort to promote the
dynamic and balanced development of "Quality, Efficiency and Scale", thus navigating a differentiated development
path with outstanding performance.
Well-structured layout of business plans. Leveraging on its own endowment of resources, the Company
established a clear strategic positioning of "One Body with Two Wings" through its focus on business and
customers, built a professional system of "Investment Bank - Asset Management - Wealth Management", thereby
creating a large number of leading and distinctive businesses and forming the layout of business plans with a
coherent structure and stronger capability to withstand cyclical risks.
Fully empowered Fintech. As a "Digital Bank", the Company regards Fintech as the driver for its transformation
and development, fully empowering its business development. Through benchmarking with Fintech companies,
the Company will build up the overall infrastructure for China Merchants Bank's financial science and technology,
establish an ecological system for the business of China Merchants Bank with an open mindset and a long-term
perspective, and transform the business management model with the concepts and methods of Fintech so as to
strengthen the capability of science and technology, promote the integration of technology with business and
promote business agility based on agile technology.
Advantageous retail finance. The retail bank of the Company set an early lead in the industry and formed an
all-round inward development system in terms of customer base, channels, products and brands. At the same time,
through vigorous promotion of inclusive and intensive growth and enhancement of refined management, key factors
including profit contribution, the proportion of high-end customers and the replacement rate of electronic banking
counters are among the best in the industry, thus the leading advantages of our retail finance are expanding.
Distinctive wholesale finance. The Company actively builds a market-leading wholesale finance business with
distinctive features and leverages on its professional advantages to provide its clients with customized and integrated
financial services. New growth engines such as investment banking, transaction banking, asset custody, asset
management, bills and financial markets have been growing continuously and professional service capabilities have
been fully affirmed and widely recognized by the market and customers.
Scientific and efficient management system. Based on the principle of serving customers and boosting business
development, the Company successfully established 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.
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.
Continuous improvement of the organizational system. In accordance with the direction of "professionalism,
delayering and intensification", the Company creates an efficient light management structure, establishes an
end-to-end customer service process and builds organizational models with distinctive features of the CMB, such
as setting up business divisions in the branch level. The professionalization level and the efficiency of operation
and management have been improving and the speed to respond to customer needs and market changes has been
picking up.
name.
Excellent professional personnel. The Company has cultivated and created a high-quality talent team through a
people-oriented culture and a market-based talent incentive mechanism. The senior management team has extensive
experience and is well settled down. The overall quality of staff and their professional skills are industry-leading. We
proactively embrace competition in Fintech by expanding the investment and recruitment of Fintech talents.
China Merchants Bank
I Company Information
Annual Report 2017
1.4 Awards and honors received in 2017
In 2017, the Company received a number of honors from organisations both at home and abroad, including:
•
•
On 1 February 2017, The Banker released The Top 500 Banking Brands. The Company ranked 12th in the
world with a brand value of USD14.269 billion, up by 1 place from 2016. On 3 July, The Banker released the
ranking of Top 1000 World Banks of 2017, in which the Company ranked 23rd in the world.
On 22 February 2017, the Company was awarded the "Best Private Bank in China" by Euromoney. In this
year's China Private Banking Service Awards, and in addition to receiving the Best Private Bank in serving
ultra-high net worth clients (i.e. more than USD30 million in investment assets), high-net-worth clients (USD5
million to USD30 million in investments assets) and super-wealthy clients (USD1 million to USD5 million),
we have also received a number of first prizes in respect of asset management, family offices, commercial
banking services, investment banking services and technological innovation among all the peers in China,
ranking the first in all niche markets.
On 17 March 2017, in the selection campaign for "The International Excellence in Retail Financial Services
Awards 2017" organised by The Asian Banker magazine, the Company was awarded the "Best Retail Bank
in China" for the eighth time, and the "Best Joint Stock Retail Bank in China" for the thirteenth time. On
8 June, at the International Awards Presentation Ceremony organized by The Asian Banker magazine, the
Company was honored to receive six awards such as the "Best Joint Stock Transaction Bank in China", "Best
Joint Stock Cash Management Bank in China", "Custodian Bank of the Year in China", "Best Financial
Supply Chain Management in China", "Best Cash Management in China "and "Best Treasury Shared Service
Centre in China". On 6 December, the Company won the "Best Overall Private Bank in China" and "Best
Joint Stock Private Bank in China" awards in 2017 again in the Award Programme of China Private Bank and
Wealth Management organized by The Asian Banker magazine.
Industry-leading quality service. The Company developed a unique service model ever since it was founded.
Through its long-term practice, it has established its service concept of "We are here just for you". We attach
importance to the customer service experience, proactively promote service upgrading, and always keep its service
quality ahead. "Good service" has been the tag of the Company, attracting customers and markets by its brand
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, equipping retail business
with significant competitive edges and corporate business with distinctive features, and
enhancing the coordination of business lines.
Closely adhering to the transformation objective of building a "Light-operation Bank",
realising balanced development among "quality, efficiency 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.
Building the "Best Commercial Bank in China" with innovation-driven development,
leading retail banking and distinctive features.
The Bank of New York Mellon SA/NV, Luxembourg Branch
1.1.10 Websites and Newspapers designated for Information Disclosure:
Mainland China:
Hong Kong:
"China Securities Journal", "Securities Times", "Shanghai Securities News"
website of Shanghai Stock Exchange (www.sse.com.cn),
website of the Company (www.cmbchina.com)
website of SEHK (www.hkex.com.hk),
website of the Company (www.cmbchina.com)
Place of maintenance of annual reports: Office of the Board of Directors of the Company
1.1.11 Sponsor for Domestic Preference Shares:
UBS Securities Co., Ltd.
Office Address: 12th and 15th Floor, Yinglan International Financial Center, No. 7 Financial Street,
Xicheng District, Beijing
Sponsor Representative: Lin Ruijing, Luo Yong
China Merchants Securities Co., Ltd.
Office Address: 38-45th Floor, Block A, Jiangsu Building, Yitian Road, Futian District, Shenzhen
Sponsor Representative: Wang Yuting, Wei Jinyang
Continuous Supervision Period: 12 January 2018 to 31 December 2019
1.2 Corporate business overview
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 major economic centres 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 1,869 domestic and overseas correspondent banks in 105 countries (including China) and regions.
The Company was listed on the Shanghai Stock Exchange in April 2002 and on the SEHK in September 2006.
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,
CMB APP and CMB Life APP, transaction banking services and offshore business services such as global cash
management as well as trade financing, asset management, asset custody, investment banking and other services,
have been widely recognised by consumers in China.
In 2017, the Company took the initiative to adapt to the changes in the external environment, steadily pushed
forward the strategic transformation, clearly positioned itself as a "Digital Bank", realised an improvement on asset
quality, and accelerated the growth of earnings. Centering on the theme of "enhancing customer experience", we
are fully committed to the changes of financial technology from 2018 onwards. For further details, please refer to
the sections headed "Chairman's Statement" and "President's Statement".
China Merchants Bank
I Company Information
Annual Report 2017
1.3 Development strategies, investment value and core
competitiveness
Development vision:
Strategic objective:
Strategic positioning:
Development Strategies:
On 15 June 2017, in the "2017 China Financial Innovation Award" organized by The Chinese Banker, the
Company was awarded the "Best Financial Innovation Award". On 21 September, at the Award Ceremony
of China Commercial Bank Competitiveness Ranking for 2017 hosted by The Chinese Banker, the Company
received four awards, namely "First Place in the Ranking of National Commercial Banks in Financial
Appraisal", "Third Place in the Ranking of National Commercial Banks in Core Competitiveness", "Best
Commercial Bank" and "Best Wealth Management Bank".
Cost-to-income ratio(1)
480,210
27.60
16.27
17.09
19.28
22.22
Cost-to-income ratio
30.21
27.60
27.55
30.42
34.23
Non-performing loan ratio
1.61
16.54
1.87
30.21
0.83
Tier 1 capital adequacy ratio under the
advanced approach
13.02
11.54
10.83
10.44
Capital adequacy ratio under the advanced
approach
15.48
13.33
1.68
12.57
ordinary shareholders of the Bank
1.39
Total liabilities
5,814,246
Deposits from customers
Total assets
6,297,638
Net loans and advances to customers (2)
3,414,612
25,220
25,220
403,362
361,758
5,538,949 5,113,220
4,064,345 3,802,049 3,571,698
5,942,311 5,474,978
3,151,649 2,739,444
315,060
25,220
265,956
4,416,769
3,750,443
Return on average equity attributable to
3,304,438
4,731,829
4,016,399
2,448,754
2,148,330
(%)
Key financial ratios
Return on average assets attributable to
shareholders of the Bank
1.15
1.09
1.13
1.28
2,775,276
12.38
Notes: (1)
(2)
(70,431)
(65,148)
(5,283)
Share of profits of associates and joint ventures
998
321
677
Impairment losses on assets
(59,926)
(66,159)
6,233
Profit before tax expenses
Operating expenses
90,680
11,717
Income tax
(20,042)
(16,583)
(3,459)
Net profit
70,638
62,380
8,258
Net profit attributable to shareholders of the Bank
70,150
62,081
78,963
(3,320)
14,489
11,169
"Provisions for insurance claims" was included into "operating expenses" in the consolidated statement of profit or loss for the year,
and was not accounted for separately. The figures of "operating expenses items" for the previous years have been adjusted on the same
calibre.
Net loans and advances to customers represent gross loans and advances to customers less allowances for loan impairment losses.
China Merchants Bank
III Report of the Board of Directors
Annual Report 2017
Report of the Board of Directors
3.1 Analysis of the overall operation
In 2017, confronted with cumulative influence of external conditions such as the macro-economic downturn and
bottoming-out, the economic deleveraging and stringent financial regulation, the Group continued to implement
its strategic direction and positioning of "Light-operation Bank" and "One Body with Two Wings" by carrying out
various businesses in a proactive and sound manner. Our overall operation continued to improve with a number of
indicators outperforming our peers. The dynamic and balanced development of "Quality, Efficiency and Scale" was
achieved, which were reflected mainly in the following aspects:
Earnings increased steadily. In 2017, the Group realised a net profit attributable to shareholders of the Bank of
RMB70.150 billion, representing a year-on-year increase of 13.00%; the net interest income was RMB144.852
billion, representing a year-on-year increase of 7.62%; the net non-interest income was RMB76.185 billion,
representing a year-on-year increase of 0.67%. The return on average asset (ROAA) and return on average equity
(ROAE) attributable to ordinary shareholders of the Bank were 1.15% and 16.54%, up by 0.06 percentage point and
0.27 percentage point from the previous year, respectively.
The scale of assets and liabilities expanded steadily. As at the end of 2017, the Group's total assets amounted to
RMB6,297.638 billion, representing an increase of 5.98% as compared with that at the end of the previous year. The
total loans and advances to customers amounted to RMB3,565.044 billion, representing an increase of 9.30% as
compared with that at the end of the previous year. Total liabilities amounted to RMB5,814.246 billion, representing
an increase of 4.97% as compared with that at the end of the previous year. Total deposits from customers
amounted to RMB4,064.345 billion, representing an increase of 6.90% as compared with that at the end of the
previous year.
The non-performing loans decreased and the allowance coverage ratio remained solid. As at the end of 2017,
the Group had total non-performing loans of RMB57.393 billion, representing a decrease of RMB3.728 billion as
compared with the end of the previous year. The non-performing loan ratio was 1.61%, down by 0.26 percentage
point as compared with the end of the previous year. The non-performing loan allowance coverage ratio was
262.11%, representing an increase of 82.09 percentage points as compared with the end of the previous year.
3.2 Analysis of income statement
3.2.1 Financial highlights
In 2017, the Group realised a profit before tax of RMB90.680 billion, representing a year-on-year increase of
14.84%. The effective income tax rate was 22.10%, representing a year-on-year increase of 1.10 percentage points.
The following table sets out the changes in major income/loss items of the Group for 2017.
(in millions of RMB)
2017
2016
Changes
Net interest income
144,852
134,595
10,257
Net fee and commission income
64,018
60,865
3,153
Other net income
25,220
483,392
Total shareholders' equity
1.11
Year end
180.02
percentage point
Increased by 82.09
percentage points
Allowance ratio of loans (4)
4.22
3.37
Increased by 0.85
Notes: (1)
(2)
percentage point
Cost-to-income ratio is calculated as operating expenses (excluding taxes and surcharges as well as provisions for insurance claims)
dividing by operating income. Since 2017, the numerator has not included depreciation of fixed assets leased out under operating leases
and investment properties, and the indicators for the corresponding period of the previous year have been adjusted accordingly (in 2016
before adjustment: 27.84%).
As at 31 December 2017, the Group's capital adequacy ratio and Tier 1 capital adequacy ratio under the weighted approach were 12.66%
and 10.81%, respectively.
262.11
(3) Allowance coverage ratio of non-performing loans = allowances for impairment losses/balance of non-performing loans.
17
18
China Merchants Bank
Annual Report 2017
Il Summary of Accounting Data and Financial Indicators
2.3 Five-year financial summary
(in millions of RMB)
Results for the year
Net operating income
2017
2016
2015
2014
(4) Allowance ratio of loans = allowances for impairment losses/total loans and advances to customers.
2013
Allowance coverage ratio of non-performing loans (3)
1.87
Increased by 2.61
percentage points
31 December
2017
31 December
2016
Capital adequacy indicators under the
Changes
advanced approach (%)
Tier 1 capital adequacy ratio
13.02
11.54
Share capital
Decreased by 0.26
percentage points
15.48
13.33
Increased by 2.15
percentage points
Equity to total assets
7.68
6.79
Increased by 0.89
percentage point
Asset quality indicators (%)
Non-performing loan ratio
1.61
Capital adequacy ratio(2)
221,037
Increased by 1.48
202,302
0.74
0.69
0.67
0.62
Basic earnings attributable to ordinary
shareholders of the Bank
2.78
2.46
2.29
2.22
2.30
Diluted earnings attributable to ordinary
0.84
shareholders of the Bank
2.46
2.29
2.22
2.30
Year-end net assets attributable to ordinary
shareholders of the Bank
15.95
14.31
12.47
10.53
(in millions of RMB)
210,270
2.78
Dividend
17.69
(RMB)
166,525
Per share
133,118
Operating expenses (1)
65,148
67,957
61,413
54,475
Impairment losses on assets
59,926
66,159
59,266
31,681
70,431
Profit before tax
10,218
51,743
57,696
70,150
the Bank
62,081
68,425
73,431
75,079
78,963
90,680
Net profit attributable to shareholders of
55,911
Net book value:
At 31 December 2016
1,502
1,302
1,778
834
3,914
At 1 January 2016
1,274
Net value
3,595
China Merchants Bank
Annual Report 2017
28. Goodwill
IX Financial Statements
As at
As at
at 31
1 January
2,743
Addition
819
344
Transfers
291
2017
Additions
47
1,633
473
283
40
6,657
2,159
2,108
560
-
-
(1)
Exchange difference
2
2
21
25
At 31 December 2016
(1)
in the year
(iii)
31 December
(i)
(ii)
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. The details about WLB are set out in Note 22.
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. The details about CMFM are set out in Note 22.
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 RMB3 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.
Impairment test for CGU containing goodwill
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.
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.
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 9% and 12% (2016:
11% and 14%) 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.
29. Deferred tax assets, deferred tax liabilities
Notes:
Deferred tax assets
Deferred tax liabilities
2017
2016
50,120
(1,070)
31,010
(897)
49,050
30,113
199
243
Net amount
Release
in the year
9,954
10,533
Impairment
December
2017
loss
2017
WLB (note (i))
10,177
10,177
(579)
(579)
9,598
355
355
355
CMBICHC (note (iii))
1
1
1
Total
10,533
CMFM (note (ii))
At 1 January 2016
1,495
1,178
451
53
398
Group's effective interest
Others
2016
Group's effective interest
Others
2017
comprehensive
income
Total
comprehensive
income
Profit or loss
Other
Summarised financial information of the joint ventures that are not individually material to the Group:
41
83
42
215
162
429
324
262
162
767
1,231
8,121
9,352
81
11
92
158
25. Property and equipment
Group's effective interest
Others
2016
Group's effective interest
Others
2017
The following list contains the information as of 31 December 2017 of associates, which are unlisted corporate
entities and are not individually material to the Group:
29
82
20
3
Share of profits for the year
Total
2
Group's effective interest
2
80
18
Share of net assets
2016
2017
24. Interest in associates
Annual Report 2017
IX Financial Statements
China Merchants Bank
12
1
11
165
7
Goodwill
324
1,533
2,462
and cash
comprehensive
Cash
Total
MUCFC:
(12)
8
301
(23)
(142)
19
119
6,471
2,043
Depreciation
and
11,524
interest
Group's effective
(25)
16
603
(15)
(254)
239
12,941
4,086
23,048
27,134
CIGNA & CMB Life
2016
13,567
195
Assets
Equity
16,241
18,703
MUCFC
2016
192
4
406
595
595
2,082
2,320
21,170
23,490
Group's effective interest
Liabilities
383
812
1,189
1,189
4,163
4,641
42,339
46,980
MUCFC
2017
Income tax
equivalents amortisation
income
Profit or loss
Revenue
8
Other
Total
Profit or loss
(2)
(80)
(16)
(25)
(106)
Exchange difference
(847)
(400)
(6)
(392)
(49)
Disposals/(write-offs)
14
(13)
(229)
27
4,915
703
1,118
656
1,280
1,158
Depreciation
23,494
4,987
909
3,684
6,810
7,104
At 1 January 2017
Reclassification and transfers
Accumulated depreciation:
At 31 December 2017
7,673
Construction
in progress
buildings
Land and
Motor
25. Property and equipment (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
196
43,857
1,423
18,145
2,585
2,357
8,134
3,797
At 1 January 2017
49,812
1,128
24,473
2,524
2,492
2,482
16,713
At 31 December 2017
Net book value:
27,347
5,288
1,947
4,305
15,550
38
77,159
26,420
6,410
19,054
6,269
9,167
3,797
22,654
At 1 January 2017
Cost:
Total
others
equipments
vehicles and
professional
Computer Leasehold
equipment improvements
67,351
in progress
Land and
buildings
Motor
Aircrafts,
vessels and
29
63
83
29
Amortisation:
32
63
83
income
comprehensive
comprehensive
income
Construction
6,416
Additions
1,516
6,829
10,165
2,482
24,847
At 31 December 2017
(1,362)
(6)
(1,033)
(32)
(60)
(231)
Exchange difference
(912)
(411)
113
(7)
(91)
Disposals/(write-offs)
(223)
13
197
(4)
(2,831)
2,402
Reclassification and transfers
12,305
410
8,399
402
1,465
(403)
16
13
473
Classification
528,748
572,241
Total
(6,176)
(4,302)
Less: impairment allowances
534,924
576,543
Subtotal
16
3,000
Creditor's beneficiary rights to other commercial banks
55,216
Inside mainland China
1,962
5,896
Deposit from banks
205,907
261,213
Loans and advances to customers
240,897
290,215
Bills
Non-standard assets
17,690
9,817
Other debt securities
8,518
9,428
Wealth management products
financial institutions
576,505
Outside mainland China
Place of
incorporation
and operation
company
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
Annual Report 2017
IX Financial Statements
China Merchants Bank
192
191
6,176
4,302
5,700
(988)
(2,870)
534,883
(2,227)
1,341
1,017
6,176
2016
2017
At 31 December
Transfer in
Write-off for the year
Release for the year (note 11)
Charge for the year (note 11)
At 1 January
Movements of allowances for impairment losses are as follows:
41
38
2,329
Particulars
of the issued
Bonds issued by commercial banks and other
908
Listed inside mainland China
Classification
477,064
558,218
Total
(90)
(93)
Less: impairment allowances
477,154
558,311
Subtotal
509
Other debt securities
20,180
Listed outside mainland China
25,072
189,165
202,610
Bonds issued by policy banks
2016
266,314
330,120
Government bonds
2017
Held-to-maturity investments
(c)
21. Investments (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
190
Bonds issued by commercial banks and other financial institutions
784
Unlisted
Movements of allowances for impairment losses are as follows:
Government bonds
Investment in bonds
2016
2017
(d) Debt securities classified as receivables
21. Investments (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
90
93
5
(5)
(10)
Fair value of listed debt securities
8
90
2016
2017
484,029
542,523
3,451
262
714
2,661
473,441
554,936
At 31 December
Exchange difference
Charge/(release) for the year (note 11)
At 1 January
95
Computer Leasehold
equipment improvements
% of
ownership
held by the Principal
Summarised financial information of the joint ventures which are individually material to the Group is as below:
23. Interest in joint ventures (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
194
193
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.
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 in MUCFC respectively and share the risks, profits and losses based on the above
proportion of their shareholding. In December 2017, the Group made an additional capital contribution of RMB600 million in CUNC, and
other shareholders of CUNC injected capital proportionally. The capital of CUNC increased to RMB2,859 million, and the Bank's shareholding
percentage is 15.03%, WLB's shareholding percentage is 34.97%, and the Group's shareholding percentage remains unchanged.
The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Company Limited ("CIGNA & CMB Life"), and Life Insurance Company
of North America ("INA") holds the other 50.00% equity interests in 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 shareholding. The
Bank's investment in CIGNA & CMB Life is accounted as an investment in a joint venture.
(iii)
(ii)
(i)
Notes:
(i)
21.00% Reinsurance business
HKD200,000
Hong Kong
Limited company
BC Reinsurance Limited (note (iii))
34.97% Consumer finance
15.03%
50.00%
RMB2,859,320
Shenzhen
Limited company
Merchants Union Consumer Finance
Company Limited. (note(ii))
Life insurance business
50.00% 50.00%
interest of the Bank subsidiaries Principal activity
21.00%
up capital
(in thousands)
RMB2,800,000
(!!)
Assets Liabilities
352
33
319
6,968
2,395
15,576
17,971
interest
Group's effective
75
31
945
732
66
CIGNA & CMB Life
66
13,935
4,790
31,152
35,942
CIGNA & CMB Life
2017
Income tax
equivalents amortisation
income
Cash Depreciation
and cash
and
Total
Other
comprehensive comprehensive
income
Revenue Profit or loss
Equity
666
and paid up
Shenzhen
CIGNA &CMB Life Insurance
Company Limited (note(i))
(ii)
(i)
Notes:
Limited company Li Hao
55% Asset management
RMB1,310
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))
(iii)
Limited company Lian Bolin
RMB6,000
Shanghai
CMB Financial Leasing Company
Limited (note (ii))
Tian Huiyu
Limited company
100% Financial advisory
services
HKD4,129
Hong Kong
CMB International Capital Holdings
Corporation Limited (note (i))
(in millions)
Legal
representative
Economic
nature
Bank activities
capital
100% Finance lease
Limited company
(iv)
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.
of the
ownership
ownership
of
Group's
effective
Particulars of
issued and paid
Place of
incorporation
and operation
Form of
business structure
Name of joint ventures
of
Percentage
Percentage
(141)
44
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.
292
2016
3,630
5,059
2017
Details of the Group's interest in major joint ventures are as follows:
Share of other comprehensive income (expense) for the year
Share of profits for the year
Share of net assets
23. Interest in joint ventures
Annual Report 2017
IX Financial Statements
China Merchants Bank
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
shareholding 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. In December 2017, the Bank made an additional capital contribution of RMB605 million in CMFM,
and other shareholders of CMFM also make capital contribution of RMB495 million proportionally. The capital of CMFM increased to RMB1,310
million, and the Bank's shareholding percentage remains unchanged.
On 30 September 2008, the Bank acquired a 53.12% equity interests in Wing Lung Bank Limited ("WLB"). WLB became a wholly owned
subsidiary of the bank 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.
995
Aircrafts
and vessels
Name of
13
5,255
2,652
2,360
4,134
15,646
At 1 January 2016
43,857
1,423
18,145
2,585
2,357
3,797
15,550
At 31 December 2016
1,788
Net book value:
4,987
909
3,684
6,810
7,104
At 31 December 2016
162
3
47
19
86
Exchange difference
(625)
(287)
23,494
31,835
(a)
(b)
(2)
14
(27)
137
147
Depreciation
986
1,183
At 1 January
Accumulated depreciation:
110
2,884
2,855
At 31 December
(138)
Exchange difference
2,694
83
109
As at 31 December 2017, the Group considered that there is no impairment loss on property and equipment
(2016: nil).
As at 31 December 2017, the process of obtaining the registration license for the Group's properties with an
aggregate net carrying value of RMB4,080 million (2016: RMB1,762 million) was still in progress.
(c)
As at 31 December 2017, the Group has no significant unused property and equipment (2016: nil).
China Merchants Bank
IX Financial Statements
(3)
Annual Report 2017
2017
2016
Cost:
At 1 January
Transfers in
Disposals/write-offs
2,884
26. Investment properties
(312)
(23)
Disposals/(write-offs)
(704)
(332)
(8)
(321)
(43)
Disposals/(write-offs)
(121)
7
166
(1,135)
843
Reclassification and transfers
15,088
450
12,151
490
1,186
vehicles and
others
Total
Cost:
At 1 January 2016
21,624
Exchange difference
4,134
5,608
5,752
6,279
51,651
Additions
798
8,254
(60)
217
13
2
5
(2)
(14)
Reclassification and transfers
4,150
778
365
719
1,211
1,077
Depreciation
19,816
4,491
497
2,956
5,894
1,151
6
1,437
At 31 December 2016
22,654
3,797
50
9,167
19,054
6,410
67,351
Accumulated depreciation:
At 1 January 2016
5,978
6,269
48
7
1,183
At 1 January 2017
At 31 December 2017
Net book value:
3,397
358
2,613
426
(30)
(26)
(2)
(2)
(30)
(29)
(1)
714
40
536
At 31 December 2017
4,634
4,923
1,095
10,652
Amortisation:
4,208
At 1 January 2017
Additions
At 31 December 2017
291
2,108
344
2,743
138
Transfers/disposals
Exchange difference
(99)
2,310
7,255
3,886
1,593
At 31 December 2016
92
76
4
12
1,243
(10)
(10)
Transfers
821
747
74
Additions
5,754
1,102
1,302
1,778
834
3,914
Land use
Software
737
right
Core deposit
Total
Cost/valuation:
At 1 January 2016
1,517
3,135
and Others
(83)
Exchange difference
(13)
2017
Level 3
Level 2
Level 1
as at 31
December
Fair Value
Total
Over 5 years
The fair value hierarchy of Investment properties of the Group are listed as below:
586
358
12
2
264
140
310
216
(3)
1,612
1,701
1,701
1,708
At 31 December
Held in Mainland China
Net book value:
At 31 December
As at 31 December 2017, the Group confirms that there is no need for investment properties to charge impairment
losses (2016:0).
Investment properties of the Group mainly represent the leasing properties of WLB and the portion of the Bank's
properties in Shenzhen, Zhengzhou, Qingdao, Hefei that have been leased out under operating leases or are
available for lease. The fair value of the Group's investment properties are assessed by the independent appraiser
A.G.Wilkinson & Associates, and the fair value is determined by the method of capitalization of net rental income.
There has been no change to the valuation methodology during the year. As at 31 December 2017, the fair value of
these properties was RMB3,721 million (2016: RMB3,779 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)
2017
2016
At 1 January
1,033
Transfers (out)/in
Disposals/write-offs
Exchange difference
Held overseas
1,033
49
(30)
4,045
1,070
2,975
6,657
1,178
3,886
1,593
Transfers/disposals
Cost/valuation:
At 1 January 2017
Additions
Total
Core deposits
79
Software
2,688
and Others
2,688
Total
3,721
3,721
In estimating the fair value of the properties, the highest and best use of the properties is their current use.
Exchange difference
198
China Merchants Bank
197
IX Financial Statements
Annual Report 2017
27. Intangible assets
Land use
rights
(b)
37. Debt securities issued (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2017
The POBC 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 RMB 1,000 million financial bonds on 10 April 2014 in Hong Kong, and debt securities have already
matured on 10 April 2017.
The CBRC and PBOC approved the Bank's issuance of RMB30,000 million financial bonds on 1 April 2017 (Yin Jian Fu [2017] No.114 entitled
"The Approval of Financial Bond by China Merchants Bank") and on 5 May 2017 (Yin Shi Chang Xu Zhun Yu Zi [2017] No.74 entitled "Decision
on Administrative Approval from the People's Bank of China"). The Bank issued RMB18,000 million and RMB12,000 million fixed rate debt on
22 May 2017 and 14 September 2017 respectively on the National Interbank Bond Market.
The CBRC and POBC approve 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, and
debt securities have already matured on 14 March 2017.
(iv)
(iii)
(ii)
(i)
The National Development and Reform Commission approved the Bank's issuance foreign debt on 22 April 2017 (Fa Gai Wai Zi [2017]
No.560 entitled "Approval of 2017 Pilot Enterprise of Foreign Debt Scale Management (2nd Batch) by the National Development and Reform
Commission"). The Bank issued USD800 million floating rate medium-term notes on 12 June 2017 in New York.
Long-term debt securities (continued)
Debt type
Discount or
Term to
maturity
Beginning
Issue during
Nominal value
balance
the year
amortisation
Repayment for Exchange rate
the period
(RMB in
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 2017 and 31 December 2016 was 1.50%.
fluctuation Ending balance
(RMB in
As at the end of the reporting period, long-term debt securities issued by CMBFLC were as follows:
Date of issuance Annual interest rate
USD800
RMB12,000
35,170
May 22, 2017
36 months
(RMB in
4.20
RMB18,000
17,978
1
17,979
Medium term note(note(iv))
36 months
June 12, 2017
3M Libor+0.825
Fixed rate bond (notes (ii)
Note:
36 months
4.30
5,424
(219)
5,206
11,984
1
11,985
Total
20,998
35,386
3
(20,998)
(219)
Sep 14, 2017
(RMB in
200
(RMB in
996
996
(201)
3,268
200
Fixed rate bond (note (iv))
36 months
11 Mar 2016
3.27
RMB3,800
3,800
(5)
3,795
332'
Leased asset backed
5 May 2016
2.98/3.09/R-1.35**
RMB4,110
2,227
(1,974)
253
securities (note v)
Fixed rate bond (note (vi))
36 months
29 Nov 2016
2.63
USD300
Fixed rate bond (notes (i))
74.5 months
(RMB in
RMB200
7 Dec 2015
(%)
(in million)
million)
million)
million)
million)
million)
million)
Fixed rate bond (note (i))
60 months
26 Jun 2013
5.08
RMB1,000
3.75
1,000
60 months
24 Jul 2013
4.98
RMB1,000
1,000
Fixed rate bond (note (ii))
60 months
11 Aug 2014
3.25
USD500
3,471
Fixed rate bond (note (ii)
36 months
Fixed rate bond (note (i))
(1,000)
premium
RMB1,000
million)
million)
million)
million)
million)
million)
Fixed to floating
rate notes
120 months 6 Nov, 2012
3.50 (for the first 5
USD200
1,382
1
(90)
1,293
years); T*+2.80
(from 6 year
onwards, if the
notes are not called
by the Bank)
Fixed to floating
rate notes
120 months 22 Nov, 2017
3.75 (for the first 5
USD400
2,633
14
(47)
47
(in million)
(%)
(RMB in
(RMB in
2,078
Annual Report 2017
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:
Discount or
Exchange
Debt type
Term to
maturity
Beginning
Issue during
premium
Repayment
2,600
rate
Date of issuance
Annual interest rate
Nominal value
balance
the year
amortisation
for the year
fluctuation
balance
(RMB in
(RMB in
(RMB in
(RMB in
Ending
years); T*+1.75%
(from 6 year
onwards, if the
(RMB in
(RMB in
(%)
(in million)
million)
million)
million)
million)
million)
million)
12 CMB 01 (note (i))
60 months
Mar 14, 2012
(RMB in
4.15
6,499
(6,499)
12 CMB 02 (note (i))
60 months
Mar 14, 2012
R*+0.95
RMB13,500
13,499
(13,499)
14 CMB 03 (note (ii))
36 months
Apr 10, 2014
4.10
RMB6,500
1,000
(RMB in
(RMB in
notes are not called
by the Bank)
Total
T represents the 5 years US Treasury rate.
1,382
2,633
15
(137)
3,893
(b) Long-term debt securities
As at the end of the reporting period, long-term debt securities issued by the Bank were as follows:
Discount or
Exchange
Term to
(RMB in
Date of
Issue during
premium Repayment for
rate
Debt type
maturity
issuance
Annual interest rate
Nominal value
balance
the year
amortisation
the year
fluctuation Ending balance
Beginning
Fixed rate bond (note (vi))
Other long-term employee benefits (iii)
29 Nov 2016
in the year
Ending
balance
Salary and bonus
Welfare expense
Social insurance
4,554
24,295
(22,991)
5,858
62
3,337
(3,337)
62
- Medical insurance
3
1,791
(1,752)
42
- Injury insurance
2
23
(22)
3
- Maternity insurance
5
67
(68)
4
transfers
Charge
for the year
balance
Beginning
Ending
balance
Short-term employee benefits (i)
6,254
28,708
(28,643)
6,319
Post-employment benefits
- defined contribution plans (ii)
232
IX Financial Statements
38
3,093
7
(2,641)
Housing reserve
684
Total
6,524
31,808
(31,284)
7,048
China Merchants Bank
IX Financial Statements
Annual Report 2017
38. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(i) Short-term employee benefits
2017
Payment/
45
147
2,085
(2,061)
80
1,863
(1,940)
- Injury insurance
3
25
(26)
- Maternity insurance
4
57
(56)
325
5
62
Housing reserve
1,814
(1,815)
147
Labour union and employee
education expenses
1,404
1,086
(944)
1,546
Total
6,254
28,708
(28,643)
148
in the year
(2,789)
39
171
Labour union and employee
education expenses
1,546
(1,023)
1,616
Total
6,319
32,691
(31,254)
7,756
2016
Payment/
2,812
Beginning
transfers
balance
for the year
in the year
Ending
balance
Salary and bonus
Welfare expense
Social insurance
- Medical insurance
4,576
21,051
(21,073)
4,554
Charge
60 months
Transfers
balance
Fixed rate bond (note (viii))
36 months
20 Jul 2017
4.89
RMB2,500
2,500
(6)
2,494
Fixed rate bond (note (viii))
36 months
3 Aug 2017
4.60
RMB2,000
2,000
(5)
1,995
Total
20,020
14,930
(74)
(4,718)
(673)
29,485
**
Note:
(i)
(ii)
1,496
1,500
RMB1,500
4.80
3.25
USD900
6,244
Leased asset backed
31 months
21 Feb 2017
4.3/4.5/4.73
RMB4,930
4,930
Sg '
(115)
1,956
(25)
(iii)
(357)
(2,744)
2,186
securities (note (vii))
Fixed rate bond (note (viii))
36 months
15 Mar 2017
4.50
RMB4,000
4,000
3,988
Fixed rate bond (note (viii))
36 months
5 Jul 2017
5,862
(iv)
(v)
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 minus a spread of 1.35%. The benchmark interest rate published by PBOC is 4.75% during both
the year ended 31 December 2017 and 2016.
2017
Beginning
Short-term employee benefits (i)
balance
6,319
Charge
for the year
Payment/
Transfers
in the year
Ending
balance
32,691
(31,254)
7,756
Post-employment benefits
- defined contribution plans (ii)
Salaries and welfare payable
Other long-term employee benefits (iii)
Total
2,791
(3,247)
228
45
46
7,048
35,528
(55)
(34,556)
36
8,020
2016
Payment/
Beginning
684
Charge
for the year
(a)
CMBFLC issued the fourth tranche of financial bond on 3 August 2017 amounting to RMB2,000 million. This fixed rate bond pays
annual interest, and matures in 3 years.
As approved by CBRC under its official approval 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 RMB1,000 million on 25 July 2016. The Bank holds
financial bonds issued by CMBFLC amounted to RMB382 million as of 31 December 2017 (31 December 2016: RMB10 million).
On 11 August 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 approval 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 December 2015.
As approved by CBRC Shanghai office under its approval 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. The Bank
holds financial bonds issued by CMBFLC amounted to RMB200 million as of 31 December 2017(31 December 2016: 0).
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 approval 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 during the year ended 31
December 2016 and the year ended 31 December 2017 respectively. CMBFLC redeemed RMB 1,364 million and RMB519 million finance leases
receivable backed securities on 29 July 2016 and 28 October 2016 respectively. CMBFLC redeemed RMB1,974 million finance leases receivable
backed securities in 2017.
207
208
China Merchants Bank
IX Financial Statements
Annual Report 2017
37. Debt securities issued (continued)
(b)
Long-term debt securities (continued)
38. Staff welfare scheme
Note:
(vii)
(viii)
(continued):
On 29 Nov 2016, CMBIL subsidiary issued USD300 million guaranteed notes due 2019 with annual interest rate of 2.625% and USD900
million guaranteed notes due 2021 with annual interest rate of 3.25% on the HKEX. The Bank held Financial Bonds issued by CMBIL amounted
to USD30 million as at 31 December 2017(31 December 2016: USD7 million).
As approved by PBOC under its approval on the grant of administrative permission under ref. Yin Shi Chang Xu Zhun Yu Zi [2016] No.215
and CBRC Innovation Supervision Department under its Notification on Record Approval on The Issuance of Leased Asset Backed Securities by
CMBFLC, CMBFLC issued the first tranche of 2017 of RMB5,636 million leased asset backed securities on 21 February 2017 in the National
Interbank Bond Market. RMB706 million is held by CMBFLC. CMBFLC redeemed RMB2,744 million finance leases receivable backed securities
in 2017.
As approved by CBRC Shanghai office under its approval on Issuance of Financial Bonds by CMBFLC under ref. Hu Yin Jian Fu [2016] No.501
and PBOC under its decision on the grant of administrative permission under ref. Yin Shi Chang Xu Zhun Yu Zi [20178] No.9:
1.
2.
3.
4.
CMBFLC issued the first tranche of financial bond on 15 March 2017 amounting to RMB4,000 million. This fixed rate bond pays
annual interest, and matures in 3 years.
CMBFLC issued the second tranche of financial bond on 5 July 2017 amounting to RMB1,500 million. This fixed rate bond pays
annual interest, and matures in 3 years. The Bank holds financial bonds issued by CMBFLC amounted to RMB300 million as of 31
December 2017.
CMBFLC issued the third tranche of financial bond on 20 July 2017 amounting to RMB2,500 million. This fixed rate bond pays annual
interest, and matures in 3 years. The Bank holds financial bonds issued by CMBFLC amounted to RMB200 million as of 31 December
2017.
(vi)
China Merchants Bank
Annual Report 2017
205
Prepayment for lease improvement and other miscellaneous items
170
453
Premium receivables
88
102
Post-employment benefits
- Defined benefit plan (Note 38(b))
109
53
Assets held for sale (Note (i))
124
Others
Total
12,272
10,792
23,372
28,180
Note (i): The Group has signed an agreement with a third party to dispose its entire interest in Hong Kong Life Insurance Limited, a joint venture of the
Group and plans to complete the disposal within 12 months. Accordingly, the interest in this joint venture was classified as assets held for sale
as at 31 December 2017.
(a)
Repossessed assets
Residential properties
Others
Total
Less: impairment allowances
Net repossessed assets
2017
1,026
2016
219
207
Recoverable from reinsurers
437
28,134
(485)
87
1,570
(53)
(51)
2,625
(161)
30,113
Note:
No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group
is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the
foreseeable future.
China Merchants Bank
IX Financial Statements
1,098
Annual Report 2017
2017
2016
Amounts pending for settlement
7,818
14,260
Prepaid lease payments
1,109
1,000
Repossessed assets (note (a))
868
864
Guarantee deposits
607
30. Other assets
4
488
1,514
201
202
China Merchants Bank
IX Financial Statements
Annual Report 2017
32. Placements from banks and other financial institutions
In Mainland China
- Banks
Other financial institutions
Subtotal
Outside Mainland China
- Banks
- Other financial institutions
Subtotal
Total
33. Amounts sold under repurchase agreements
(a) Analysed by nature of counterparties
In Mainland China
Banks
- Other financial institutions
Subtotal
Outside Mainland China
- Banks
- Other financial institutions
Subtotal
Total
(b) Analysed by assets type
555,607
439,118
4,933
7,196
1,572
(646)
(708)
868
864
Note:
(i)
(ii)
In 2017, the Group has disposed of repossessed assets with a total cost of RMB73 million (2016: RMB481 million).
The Group plans to dispose of the repossessed assets by auction, bid and transfer.
31. Deposits from banks and other financial institutions
In Mainland China
- Banks
Other financial institutions
474
Subtotal
- Banks
Other financial institutions
Subtotal
Total
2017
2016
72,324
359,598
80,612
470,062
431,922
550,674
7,185
11
4,933
Outside Mainland China
1,483
At 31 December 2016
Exchange difference
13,841
3,276
2,891
719
Total
201,347
50,120
123,990
31,010
Deferred tax liabilities
Impairment allowances on loans and
advances to customers and other assets
189
31
229
38
Investment revaluation reserve
(247)
(60)
(238)
(55)
Others
(6,809)
(1,041)
(5,332)
(880)
Total
Others
2,625
10,501
3,884
200
China Merchants Bank
IX Financial Statements
Annual Report 2017
29. Deferred tax assets, deferred tax liabilities (continued)
(a) Analysed by nature of deferred tax assets and liabilities
The components of deferred tax assets/liabilities are as follows:
Deferred tax assets
2017
2016
Deductible/
(taxable)
temporary
difference
Deductible/
(taxable)
temporary
Deferred tax
(6,867)
difference
Impairment allowances on loans and
advances to customers and other assets
166,590
41,616
112,316
28,096
Investment revaluation reserve
5,381
1,344
(1,718)
(430)
Salary and welfare payable
15,535
Deferred tax
(1,070)
(5,341)
(897)
(4)
1,284
(1)
67
57
3,884
2,235
49,050
Impairment
allowances
on loans and
advances to
customers
and other
Investment
revaluation
assets
reserve
41,647
Salary and
welfare
payable
Total
At 1 January 2016
15,825
(1,966)
Recognised in profit or loss
12,305
2,418
207
(1,124)
15,153
929
13,441
Recognised in other
comprehensive Income
Others
2017
(5)
22
(b) Movements of deferred tax are as follows:
At 1 January 2017
Recognised in profit or loss
Recognised in other
comprehensive Income
Exchange difference
At 31 December 2017
Impairment
allowances
on loans and
advances to
customers
and other
Investment
revaluation
Salary and
welfare
1,795
assets
payable
Others
Total
28,134
(485)
2,625
(161)
30,113
13,518
1,260
2,307
17,085
1,773
reserve
2016
122,305
173,218
15,230
16,046
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 2017 and 2016 and as at 31 December 2017 and 2016.
37. Debt securities issued
Subordinated notes issued
Long-term debt securities issued
Negotiable interbank certificates of deposit
Certificates of deposit issued
Total
Note
2017
2016
흐흐
(a)
33,977
31,356
(b)
63,376
40,959
178,189
188,248
20,935
14,519
296,477
275,082
China Merchants Bank
IX Financial Statements
Annual Report 2017
8,938
4,239
3,595
3,185
2016
11,389
7,530
15,230
16,046
26,619
23,576
2017
2016
11,325
7,530
64
11,389
Subordinated notes issued
7,530
2017
2016
In Mainland China
Precious metal contracts with other banks
- Others
Outside Mainland China
- Certificates of deposit issued
- Debt securities issued
Total
7,688
3,498
118
15
(ii) Financial liabilities designated at fair value through profit or loss
37. Debt securities issued (continued)
(a)
As at the end of the reporting period, subordinated notes issued by the Bank were as follows:
ten years);
8.90 (from 11 year
onwards, if the
notes are not
called by
the Bank)
Fixed rate bond (notes(ii)) 180 months
Fixed rate bond (notes (iii) 120 months
Total
28 Dec 2012
18 Apr 2014
5.20
RMB11,700
11,689
11,689
6.40
7,106
RMB11,300
1
11,289
29,974
110
30,084
Notes:
(i)
(!!)
(iii)
The China Banking Regulatory Commission (the "CBRC") and the People's Bank Of China 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.
11,288
2017
109
RMB7,000
Issue
Discount or
Debt type
Term to
maturity
Date of issuance
Annual interest rate
Nominal value
Beginning
balance
during
premium Repayment
Ending
the year
amortisation for the year
6,997
balance
(RMB
(RMB (RMB
(RMB
(%)
(in million)
in million)
in million)
in million) in million)
in million)
Fixed rate bond (notes(i))
180 months
4 Sep 2008
5.90 (for the first
(RMB
206
(!!)
Total
53,123
- Bonds issued by commercial banks and other financial institutions
4,470
12,930
Other debt securities
928
295
Subtotal
85,571
76,929
Discounted bills
40,049
86,013
Total
125,620
162,942
China Merchants Bank
IX Financial Statements
Annual Report 2017
34. Deposits from customers
2017
2016
Corporate customers
Demand deposits
Time deposits
Subtotal
Retail customers
48,273
- Bonds issued by policy banks
10,581
31,900
88,862
40,809
211,167
214,027
61,565
34,849
2
61,567
34,849
272,734
248,876
2017
2016
1,581,802
114,955
5,468
120,423
162,140
5,162
802
35
5,197
125,620
802
162,942
2017
2016
Debt securities
- PRC government bonds
151,323
10,817
1,441,225
1,144,021
1,076,266
26,531
189,935
241,267
35. Interest payable
2017
2016
Issued debt securities
1,820
1,413
Customer deposits and others
34,681
34,833
Total
20,417
36,501
203
204
China Merchants Bank
IX Financial Statements
6,319
36. Financial liabilities at fair value through profit or loss
Financial liabilities held for trading
Financial liabilities designated at fair value through profit or loss
Total
(i)
Financial liabilities held for trading
Precious metal relevant financial liabilities
Short selling securities
36,246
Note
47,405
26,235
2,725,823
2,517,491
- Demand deposits
972,291
951,615
Time deposits
366,231
332,943
Subtotal
1,338,522
1,284,558
Total
4,064,345
44,429
3,802,049
Guarantee for acceptance bills
Guarantee for loans
Guarantee for issuing letters of credit
Deposit for letters of guarantee
Others
Total
2017
2016
78,123
93,670
27,931
47,426
19,035
Customer deposits include deposits for guarantees are as follows:
209
1,093
1,711
2016
1.43%
1.43%
1.43%
1.43%
1.43%
1.43%
Risk-free interest rate
4.29%
Phase I
4.29%
4.29%
4.29%
4.29%
Expected dividends rate
9.67
8.67
7.58
6.50
5.42
4.29%
4.33
Phase II
Phase IV
18.00
18.00
18.00
18.00
Share price (in HKD)
2.71
2.45
4.11
4.20
Phase III
4.48
3.03
10.93
0.34
(in RMB)
measurement date
Fair value at
Phase IX
Phase VI Phase VII Phase VIII
Phase V
3.61
Share appreciation rights life (year)
25.68%
25.68%
Fair value at measurement date (in RMB)
Phase X
Phase IX
Phase VIII
Phase VII
Phase VI
Phase V
2017
The fair value of services received in return for share appreciation rights granted are measured by reference to the
fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted
is measured based on the Black-Scholes model. The contractual lives of the rights are used as an input of the model.
12.19
Fair value of share appreciation rights and assumptions
Other long-term employee benefits (continued)
(iii)
(a) Salaries and welfare payable (continued)
38. Staff welfare scheme (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
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.
The share appreciation rights outstanding at 31 December 2017 had a weighted average exercise price of HKD19.32
(2016: HKD15.81) and a weighted average remaining contractual life of 7.81 years (2016: 6.21 years).
(3)
11.14
10.51
6.71
25.68%
25.68%
25.68%
25.68%
Expected volatility
28.60
18.06
19.49
12.34
12.28
11.71
Exercise price (in HKD)
30.55
30.55
30.55
30.55
30.55
30.55
Share price (in HKD)
4.06
6.98
18.00
18.00
18.00
18.00
Ma Wei Hua
Li Hao
(in thousands) (in thousands)
Total
Exercised
Phase VII Phase VIII Phase IX
Phase X
(in thousands) (in thousands) (in thousands) (in thousands)
(in thousands) (in thousands)
Phase VI
Phase V
2017
307
The number of share appreciation rights granted to members of senior management:
(a) Salaries and welfare payable (continued)
(iii) Other long-term employee benefits (continued)
38. Staff welfare scheme (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
214
213
Share appreciation rights 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 appreciation rights granted.
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining
life of the share appreciation rights) 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.
(4)
307
1,269
614
956
947
240
210
210
158
92
46
Lian Bo Lin
Wang Liang
Liu Jian Jun
Tian Hui Yu
Tang Zhi Hong
1,140
991
300
270
240
180
100
50
1.43%
4.07
1.43%
1.43%
28.32%
28.32%
28.32%
28.32%
28.32%
28.32%
28.32%
28.32%
Expected volatility
28.32%
18.90
13.18
13.12
12.55
14.75
15.88
4.65
23.19
Exercise price (in HKD)
18.00
20.33
Share appreciation
rights life (year)
0.83
1.43%
4%
4%
4%
4%
4%
4%
4%
1.43%
4%
1.43%
1.43%
Risk-free interest rate
4%
Expected dividends rate
9.67
8.58
7.50
6.42
5.33
4.17
2.83
1.83
1.43%
14.23
0.53
12.05
(i)
Capital
No. of shares
(in million)
25,220
Amount
25,220
1 January 2017
Issue in the year
31 December 2017
No. (millions
Total
No. (millions
of shares)
Amount
of shares)
Amount
of shares)
Amount
50
6,597
50
No. (millions
Shares in 2017 (note (ii))
Issuance of Domestic Preference
Shares in 2017 (note (i))
217
218
China Merchants Bank
IX Financial Statements
Annual Report 2017
41. Share capital
By type of share:
Listed shares
2017 & 2016
No. of shares
(in million)
- A-Shares
- H-Shares
Total
20,629
4,591
25,220
All H-Shares are ordinary shares and rank pari passu with the A-Shares. There is no restriction condition on these
shares.
At 1 January 2017 and at 31 December 2017
42. Preference shares
a) Preference shares
Issuance of Offshore Preference
6,597
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.
275
275
December 2017
December 2016
Equity attributed to shareholders of the bank
480,210
- Equity attributed to ordinary shareholders of the bank
446,145
402,350
402,350
– Equity attributed to other equity holders of the bank
34,065
At 31
Equity attributed to non-controlling interests
1,012
- Equity attributed to non-controlling holders of ordinary shares
2,012
1,012
- Equity attributed to non-controlling holders
of other equity instrument (note 58)
1,170
219
9,000
3,182
At 31
Relative information attributed to equity instrument holders
b)
27,468
325
34,065
325
34,065
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Offshore Preference Shares
in the aggregate par value of USD1,000 million on 25 October 2017. Each Offshore Preference Share has a par value of USD20 and 50 million
Offshore Preference Shares were issued in total. The initial dividend rate is 4.40% and is subsequently subject to reset per agreement, but not
exceed 16.68%. Dividends on the Offshore Preference Shares shall be paid out by cash, which shall be priced and announced in RMB. Save for
such dividend at the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution
of the remaining profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative.
The Bank shall be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event
that the Bank cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders
of Ordinary Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of
full dividend payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will
not distribute the dividends that be cancelled in prior years to preference shares holders.
The Offshore Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBRC, all or part of the Offshore Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
China Merchants Bank
Annual Report 2017
IX Financial Statements
42. Preference Shares (continued)
a)
Preference shares (continued)
(!!)
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Domestic Preference
Shares in the aggregate par value of RMB27,500 million on 18 December 2017. Each Domestic Preference Share has a par value of RMB100
and 275 million Domestic Preference Shares were issued in total. The initial dividend rate is 4.81% and is subsequently subject to reset per
agreement, but shall not exceed 16.68%. Dividends on the Domestic Preference Shares shall be paid out by cash. Save for such dividend at
the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution of the remaining
profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative. The Bank shall
be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event that the Bank
cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders of Ordinary
Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of full dividend
payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will not distribute
the dividends that be cancelled in prior years to preference shares holders.
The Domestic Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBRC, all or part of the Domestic Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
The domestic and offshore preference shares have conditions of events triggering mandatory conversion as follows:
(1)
(2)
Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event, that is, the Core Tier-1 Capital Adequacy Ratio drops
to 5.125% or below, the Bank shall have the right to convert, without the approval of the holders of Preference Shares, part or all
of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value of the Preference Shares in
order to restore the Core Tier- 1 Capital Adequacy Ratio of the Bank to above 5.125%. In case of partial conversion, the Preference
Shares shall be converted on a pro rata basis and on identical conditions.
Upon the occurrence of a Tier-2 Capital Trigger Event, the Bank shall have the right to convert, without the approval of the holders
of Preference Shares, all of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value
of the Preference Shares. A Tier-2 Capital Trigger Event means the earlier of the following events: 1) the China Banking Regulatory
Commission ("CBRC") having concluded that without a conversion or write-off, the Bank would become non-viable, and 2) the
relevant authorities having concluded that without a public sector injection of capital or equivalent support, the Bank would become
non-viable.
Upon the occurrence of the above mandatory conversion events, the Bank shall report to the CBRC for review and determination and shall
fulfill the relevant information disclosure obligations of the Securities Law, the CSRC and Hong Kong's laws and regulations such as making
provisional reports or announcements in accordance with relevant regulatory requirements.
27,468
300
65,843
32,606
(HKD)
rights
exercise price
rights
(in million)
(HKD)
exercise price
of share
appreciation
Number
Weighted
average
(in million)
Number
of share
appreciation
2016
2017
The number and weighted average exercise prices of share appreciation rights are as follows:
(2)
Other long-term employee benefits (continued)
(iii)
(a) Salaries and welfare payable (continued)
38. Staff welfare scheme (continued)
Annual Report 2017
Weighted
average
Outstanding as at the beginning of the year
15.81
11.44
Exercisable at the end of the year
11.44
15.81
7.24
19.32
Outstanding at the end of the year
(1.32)
13.82
(2.70)
14.26
Forfeited during the year
(3.30)
13.43
Exercised during this year
3.96
19.68
1.80
28.60
Granted during the year
8.80
14.58
IX Financial Statements
80,346
China Merchants Bank
211
All share appreciation rights shall be settled in cash. The terms and conditions of the scheme are listed below:
As at 31 December 2017, the Group has offered 10 phases of H share Appreciation Rights Scheme to its senior
management ("the Scheme"). The share appreciation rights of the Scheme vest after 2 years or 3 years from the
grant date and are then exercisable within a period of 7 years or 8 years. Each of the share appreciation right is
lined to one H-share.
(1)
45
7
38
balance
in the year
for the year
Number of
unexercised
share appreciation
rights at
Ending
Charge
Beginning
balance
Payment/
1,888
1,394
1,208
44
17
42,207
Transfers
the end of 2017
Contract period of
share appreciation
Exercise conditions
10 years
3 years after the grant date
1.800
10 years
3 years after the grant date
1.590
10 years
3 years after the grant date
1.740
10 years
3 years after the grant date
1.208
10 years
3 years after the grant date
0.499
10 years
3 years after the grant date
0.403
Share appreciation rights granted on 4 May 2012 (Phase V)
Share appreciation rights granted on 22 May 2013 (Phase VI)
Share appreciation rights granted on 7 Jul 2014 (Phase VII)
Share appreciation rights granted on 22 Jul 2015 (Phase VIII)
Share appreciation rights granted on 24 Aug 2016 (Phase IX)
Share appreciation rights granted on 25 Aug 2017 (Phase X)
(in millions)
rights
212
300
1.43%
330
18
684
2,791
(3,247)
228
2016
Payment/
Beginning
balance
Charge
(50)
Transfers
for the year
in the year
balance
79
141
1,659
(1,676)
62
1,351
(882)
Ending
56
12
149
Total
Basic retirement security
Supplementary pension
Unemployment insurance
Total
Defined contribution pension schemes
2017
Payment/
Beginning
balance
Charge
for the year
Transfers
in the year
Ending
balance
62
1,884
(1,885)
61
610
851
(1,312)
610
Unemployment insurance
300
(83)
2016
(28)
5
72
Expected return on the Plan assets other than interest profit or losses
Actual benefits paid
5
6
Interest income
367
36
373
2016
2017
The movements in the fair value of the Plan assets during the year are as follows:
320
285
Actual obligation at 31 December
21
(23)
Actuarial gain or losses due to demographic assumption changes
Exchange difference
Fair value of the Plan assets at 1 January
(55)
46
45
12
232
3,093
(2,641)
684
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 2017, the Group's contributions to the schemes are determined by local governments and vary at a range
of 12% to 20% (2016: 12% to 20%) of the staff salaries.
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 2017, the Group's annual contributions to this plan are determined based
on 0% to 8.33% of the staff salaries and bonuses (2016: 0% to 8.33%).
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.
China Merchants Bank
IX Financial Statements
Annual Report 2017
38. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(iii) Other long-term employee benefits
Cash settled share-based transactions
Cash settled share-based transactions
2017
Beginning
balance
Charge
for the year
Payment/
Transfers
in the year
Ending
balance
83
(21)
Supplementary pension
(ii)
Others
Value added tax
Corporate income tax
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.
Staff salary and incentive scheme
(c)
As at 31 December 2016 and 2017, there is no significant change of the amount in the liabilities of the retirement
benefit plan due to the above mentioned actuarial assumptions.
2.0
Total
4.5
1.1
1.3
1.8
1.7
2016
2017
Pension increase rate for the defined benefit pension plan
Long-term average rate of salary increase for the Plan
- Defined benefit pension scheme
4.3
40. Other liabilities
Clearing and settlement accounts
Salary risk allowances (note)
13,000
21,124
21,990
2016
2017
19,523
26,701
926
1,029
3,049
3,831
15,548
21,841
2016
2017
Note:
Total
Others
Cheques and remittances returned
Payment and collection account
Insurance liabilities
- Defined benefit scheme
Basic retirement security
Discount rate
Post-employment benefits - defined benefit plan (continued)
%
Amount
%
Amount
2016
2017
The major categories of the Plan assets are as follows:
373
394
Equities
Fair value of the Plan assets at 31 December
(29)
Exchange difference
(29)
210
China Merchants Bank
IX Financial Statements
Annual Report 2017
38. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
Post-employment benefits-defined contribution plan
25
267
67.8
228
(b)
38. Staff welfare scheme (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2017
No deposit with the Bank was included in the amount of the Plan assets (2016: Nil).
100
373
100
394
Total
20.9
78
16.0
63
Cash
18.0
67
16.2
64
Bonds
61.1
The principal actuarial assumptions adopted in the valuation are as follows:
Actuarial profit or losses due to financial assumption changes
12
3
Wang Qing Bin
184
163
184
163
200
163
307
326
131
2666
127
Ding Wei
159
159
Tang Zhi Hong
159
159
Li Hao
318
159
153
Tian Hui Yu
Liu Jian Jun
210
210
210
184
184
1,831
270
240
240
200
200
1,883
307
307
ཏྟིཤྩ88 ',,,,,
Note:
795
763
Total
Xu Shi Qing
Xiong Liang Jun
Wang Liang
Lian Bo Lin
318
1,663
(1)
Total
150
Xu Shi Qing
Xiong Liang Jun
Total
683
37
210
180
180
113
810
180
240
210
150
818
52
240
210
210
158
1,230
210
330
210
210
Exercised
Phase IX
Phase VIII
Phase VII
Phase VI
Phase V
Phase IV
Phase III
Phase II
Phase I
2016
7,241
3,296
1,800
1,590
1,740
1,209
499
403
660
240
(in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands)
184
Ma Wei Hua
210
Net expense for the year included in retirement benefit costs
1
Net interest income
2016
(13)
(11)
Current service cost
2017
There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2017 and 2016.
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 2017.
53
(320)
373
2016
109
(285)
394
2017
Net asset recognised in the statement of financial position
Present value of the funded defined benefit obligation
Fair value of the Plan assets
The amounts recognised in the statement of financial position as at 31 December 2017 are analysed as follows:
(13)
The latest actuarial valuation of the Plan was performed in accordance with IAS 19 issued by the IASB as at 1
February 2018 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 138% (2016: 117%).
The actual gains on the Plan assets for the year ended 31 December 2017 was RMB78 million (2016: actual gains
was RMB10 million).
216
Actuarial profit or losses due to liability experience
184
(29)
(28)
5
5
13
11
340
320
Actual benefits paid
Interest cost
Current service cost
Present value of obligation at 1 January
2016
2017
Post-employment benefits – defined benefit plan (continued)
The movements in the defined benefit obligation during the year are as follows:
(b)
38. Staff welfare scheme (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2017
215
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.
(10)
Post-employment benefits – defined benefit plan
180
150
570
210
210
150
630
210
210
900
300
300
300
1,072
210
210
184
184
1,631
210
210
180
510
210
1,800
150
IX Financial Statements
China Merchants Bank
Annual Report 2017
Nil).
In 2017, senior management had exercised 3 million shares of appreciation rights and the weighted average exercise price is HKD13.43. (2016:
11,440
2,160
1,830
38. Staff welfare scheme (continued)
1,059
1,059
946
95
420
210
210
330
180
1,028
(b)
17,402
2017
2016
2016
(b) Proposed profit appropriations
5,699
2017
18,663
3,083
3,159
6,451
67,838
Statutory surplus reserve
3,159
3,083
2016
64,679
67,838
2017
- cash dividend: RMB0.84 per shares (2016: RMB0.74 per shares)
Total
Regulatory general reserve
Dividends
21,185
Dividends in 2016, approved and to be declared RMB0.74 per shares
Dividends in 2015, approved and to be declared RMBO.69 per shares
70,921
18,663
Balances with banks and other financial institutions
27,521
Placements with banks and other financial institutions
(a) Dividends approved/declared by shareholders
43,189
82,361
562,305
15,632
583,692
15,724
9,243
Balances with central bank
Precious metals
30,719
Assets
Cash
2017
50. The bank's statement of financial position
Annual Report 2017
IX Financial Statements
China Merchants Bank
222
221
The exchange reserve comprises all foreign exchange differences arising from the translation of the consolidated
financial statements of operations outside Mainland China.
49. Exchange reserve
2017 profit appropriation is proposed in accordance with the resolution passed at the meeting of the Board of
Directors held on 23 March 2018 and will be submitted to the 2017 annual general meeting for approval.
2016
48. Profit appropriations
IX Financial Statements
Statutory surplus reserve
(1,642)
(501)
(141)
44
Share of investment revaluation reserve of joint ventures
Realised gain on disposal of available-for-sale financial assets,
net of deferred tax
6,188
1,454
Beginning Balance
2016
2017
Changes in fair value of available-for-sale financial assets,
net of deferred tax
The movements of investment revaluation reserve are as follows:
44. Investment revaluation reserve
2017
67,523
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.
43. Capital reserve
Annual Report 2017
China Merchants Bank
220
165,511
1,436
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.
At 31 December
Defined benefit plan, net of deferred tax
(4,869)
60
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 be 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 2017.
47. Regulatory general reserve
IX Financial Statements
China Merchants Bank
Annual Report 2017
39,708
46,159
5,699
34,009
39,708
6,451
Ending Balance
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.
46. Surplus reserve
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(h)(ii).
45. Hedging reserve
1,454
(3,812)
(2,982)
31
2017
204,197
6,610
252,464
Total
2017
2016
2017
2016
2017
2016
2017
2016
(Restated)
(Restated)
Other business
(Restated)
impairment losses
76,610
77,491
68,152
62,133
4,846
5,177
149,608
144,801
Impairment losses (note(i))
(39,826)
Reportable segment profit before
(48,233)
financial business
Wholesale
financial business
Operating expenses
- Depreciation
- Others
(1,542)
(1,497)
(2,368)
(2,394)
(1,152)
(396)
(5,062)
(4,287)
Retail
(24,863) (23,102)
(35,663)
(2,643)
(2,096)
(65,369)
(60,861)
Subtotal
(26,405) (24,599)
(40,231) (38,057)
(3,795)
(2,492)
(70,431) (65,148)
(37,863)
209,949
(19,737)
(363)
Wholesale
Retail
financial business
Other business
Total
2017
2016
Reportable segment liabilities
2,824,718
3,459,039
2,812,631
3,204,988
15,915
2017
1,814,999
1,359,453
financial business
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2016
1,571,688
1,301,502
Interest in associates and joint ventures
2017
1,592,483
901,122
5,079
2016
1,506,820
2017
6,232,200
2016
5,891,139
968,103
3,712
Reportable segment assets
(17,034)
16,350
8,926
(892)
(59,926)
(66,159)
Share of profit of associates and
joint ventures
998
321
998
321
Reportable segment profit/(loss)
before tax
12,395
36,784
48,415
45,099
5,481
4,606
90,680
78,963
Capital expenditure (note (ii))
2,930
1,354
4,494
2,166
29,258
5,719,614
220,039
8,641
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 segments information was reported as follows:
Wholesale 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.
Retail finance business
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.
Other business
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.
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.
The accounting policies of the operating segments are the same as the Group's accounting policies. Operating
segment income represents income generated from external customers, inter-segment transactions are offset.
No customer contributed 10% or more to the Group's revenue for 2017 and 2016. Internal transactions are
conducted at fair value.
225
226
The Group manages its businesses by divisions, which are organised by a mixture of both business lines and
geography.
China Merchants Bank
Annual Report 2017
52. Operating segments (continued)
(a)
Segment results, assets and liabilities
Wholesale
financial business
Retail
financial business
Other business
Total
2017
2016
2017
IX Financial Statements
2016
The Group's principal activities are commercial lending and deposits taking. The funding of existing retail and
corporate loans are mainly from customer deposits.
IX Financial Statements
(14,483)
Non-cash changes:
Accrued interest
5,018
Discount or premium amortisation
9,113
Fair value adjustments
Foreign exchange
At December 2017
(7)
178,189
(29)
13
(1,148)
52. Operating segments
(666)
(11)
2
(1,247)
(2,402)
24,120
101,592
1,820
305,721
(c) Significant non-cash transactions
There are no significant non-cash transactions during the year.
China Merchants Bank
Annual Report 2017
5,018
8,418
7,669
2017
2017
134,595
Net fee and commission income
23,871
25,911
36,390
31,797
3,757
3,157
64,018
60,865
Other net income
144,852
6,619
1,035
900
3,515
3,953
11,169
14,489
Operating income
103,015
102,090
108,383
100,190
9,636
2016
559
67,493
2016
(Restated)
(Restated)
(Restated)
External net interest income
28,441
39,706
89,674
75,356
26,737
19,533
1,369
144,852
Internal net interest income/(expense)
44,084
26,837
(18,716)
(7,863)
(25,368)
(18,974)
Net interest income/(expense)
72,525
66,543
70,958
134,595
(4,611)
5,474,593
3,712
107,701
75,946
4,640
5,316
The transactions under repurchase agreements are conducted under terms that are usual and customary to standard
lending and securities borrowing and lending activities.
Total
- Other assets
- Trading assets
289,715
409,092
- Held-to-maturity investments
586,182
92,362
- Available-for-sale financial assets
Assets pledged
493,050
540,458
Subtotal
162,942
125,620
Amounts sold under repurchase agreements
330,108
414,838
Borrowing from central bank
95,828
2016
494,418
(a) Credit commitments
22,860
Pearl River Delta and
West Coast region
645,313
634,092
632,515
626,656
2,074
1,726
15,998
11,856
54. Contingent liabilities and commitments
29,758
Northeast region
151,548
157,710 150,447
156,670
1,162
1,278
1,555
229
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.
27,501
25,116
2017
53. Assets pledged as security
199,836
Overseas
16,049
16,015
(3,559)
6,745
2,665
2,490
373,028
355,602
368,485
177,271
360,547
13,935
15,181
634
8,108
2,566
2,573
352,226 354,073
353,771
358,334
Central region
6,447
Western region
The following assets have been pledged as collateral for liabilities under repurchase arrangements:
196,693
165
Non-current assets include interest in joint ventures, interest in associates, property and equipment, investment properties, intangible assets,
and goodwill.
Note:
209,949
78,963 220,039
90,680
63,138
73,712
6,297,638 5,942,311 5,814,246 5,538,949
Total
12,546
14,763
173,987
7,287
24,525
30,640
318,155
382,249 338,891
419,432
Subsidiaries
2,703
3,399
1,500
2,071
107
9,077
5,079
5,965
2,331
833
50,120
4,627
31,010
9,375
Consolidated total assets
6,297,638
5,942,311
Liabilities
Total liabilities for reportable segments
5,719,614
5,474,593
9,954
Tax payable
26,701
67,931
19,523
44,833
Consolidated total liabilities
5,814,246
5,538,949
227
228
China Merchants Bank
IX Financial Statements
Annual Report 2017
Other unallocated liabilities
52. Operating segments (continued)
9,954
737
6,232,200
Note:
(i)
Since 2017, the Group has allocated the additional provision to each operating segment and restated the comparable figures.
(ii)
Capital expenditure represents total amount incurred for acquiring long-term segment assets.
China Merchants Bank
IX Financial Statements
Annual Report 2017
52. Operating segments (continued)
(b) Reconciliations of reportable segments revenue, profit or loss, assets, liabilities
and other material items
Total operating income for reportable segments
5,891,139
Total profit before income tax for reportable segments
2016
209,949
90,680
78,963
31/12/2017
31/12/2016
Assets
Total assets for reportable segments
Goodwill
Intangible assets
Deferred tax assets
Other unallocated assets
2017
220,039
12,080
(c) Geographical segments
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.
2,634,760 2,557,785 2,313,672
29,628
25,029
15,387
43,532
76,680
77,480
Yangtze River Delta region
761,970
768,653
745,677
2,908,217
760,973
2,911
19,659
10,312
32,517
30,428
Bohai Rim region
492,441
465,320
484,410
461,735
2,131
2,849
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, Sydney and Luxembourg, subsidiaries operating in Hong Kong and Shanghai and
representative offices in Beijing, London, New York and Taipei.
Headquarter
2017
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.;
"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
province;
"Bohai Rim region" refers to branches and representative offices in Beijing municipality, Tianjin municipality,
Shandong province and Hebei province;
"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;
"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
Jiangxi province, Shanxi province and Hainan province;
"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;
"Overseas" refers to overseas branches in Hong Kong, New York, Singapore, Luxembourg, London, Sydney
and representative offices in London, New York, and Taipei; and
"Subsidiaries" refers to subsidiaries wholly owned or controlled by the Group, including WLB, CMBICHC,
CMBFLC and CMFM.
China Merchants Bank
IX Financial Statements
Annual Report 2017
52. Operating segments (continued)
2016
(c) Geographical segments(continued)
Total liabilities
Non-current assets
Profit before tax
operating income
Geographical information
31/12/2017
31/12/2016 31/12/2017
31/12/2016
31/12/2017 31/12/2016
2017
2016
Total assets
Amounts held under resale agreements
(9,872)
(611,190)
192,431
158,317
Proposed profit appropriations
21,185
18,663
Exchange reserve
(78)
Total equity
461,274
Total equity and liabilities
5,943,375
386,806
Interest paid
China Merchants Bank
IX Financial Statements
Annual Report 2017
50. The bank's statement of financial position (continued)
Retained profits
67,030
69,790
Regulatory general reserve
25,220
25,220
Other equity instruments
_
Preference Shares
34,065
Capital reserve
76,681
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 reserves are as
follows.
76,681
(4,093)
1,206
Hedging reserve
(86)
(19)
Surplus reserve
46,159
39,708
Investment revaluation reserve
Investment
Regulatory
Share Other equity
capital instruments
Changes in equity for 2017:
34,065
(5,299)
(67)
6,451
2,760
34,114
2,522
386,806
(78)
Net profit for the year
64,510
64,510
Other comprehensive income
for the year
Total comprehensive income
for the year
Capital injection from
74,468
Share capital
18,663
67,030
Capital
revaluation Hedging Surplus
general
Retained Proposed profit Exchange
reserve
reserve
reserve
reserve
158,317
reserve
reserve
Total
Balance at 1 January 2017
25,220
76,681
1,206
(19)
39,708
profits appropriations
Equity
5,225,773
5,482,101
Investments in subsidiaries
43,901
43,296
Interest in joint ventures
Property and equipment
Investment properties
Intangible assets
Deferred tax assets
528,553
Other assets
2,043
23,145
23,186
621
534
6,354
2,897
48,734
3,095
30,399
570,175
475,924
277,997
Loans and advances to customers
3,159,655
2,907,561
Interest receivable
27,216
24,695
Financial assets at fair value through profit or loss
Debt securities classified as receivables
57,902
Derivative financial assets
17,691
8,029
Available-for-sale financial assets
341,571
346,090
Held-to-maturity investments
557,942
50,305
preference shareholders
15,550
5,943,375
26,437
23,561
Derivative financial liabilities
21,194
10,344
Debt securities issued
260,560
250,523
Financial liabilities at fair value through profit or loss
Salaries and welfare payable
5,694
Tax payable
Other liabilities
Total liabilities
25,942
18,851
65,802
54,658
6,245
23,638
34,873
Interest payable
5,612,579
Total assets
Liabilities
Borrowing from central bank
414,838
330,108
Deposits from banks and other financial institutions
421,251
34,398
536,868
189,825
155,378
Amounts sold under repurchase agreements
125,585
162,275
Deposits from customers
3,890,024
3,642,640
Placements from banks and other financial institutions
Profit appropriations
5,612,579
(5,299)
3,102
(27,464)
1,261
(17,402)
5,699
(5,699)
3,102
(3,102)
(17,402)
(17,402)
for the year 2016
(18,663)
18,663
Balance at 31 December 2016
25,220
76,681
1,206
(19)
39,708
67,030
158,317
5,699
52,167
56,990
(260)
3,102
29,526
1,261
34,765
Net profit for the year
56,990
56,990
Other comprehensive income
for the year
(4,563)
18,663
(260)
Total comprehensive income
surplus reserve
for the year
Profit appropriations
Appropriations to statutory
Appropriations to regulatory
general reserve
Dividends paid for the year 2015
Proposed dividends
(4,563)
(4,823)
5,699
386,806
224
certificates of
deposit
Certificates of
deposit issued
Debt
securities
issued
At January 2017
188,248
18,114
81,253
Interest
payable
1,413
Total
289,028
Cash changes:
Proceeds from the issue
559,795
19,086
52,449
631,330
Repayment
(569,088)
(11,916)
(30,186)
interbank
Negotiable
The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those which cash flows were classified in the Group's
consolidated statement of cash flows as cash flows from financing activities.
(b) Reconciliation of liabilities arising from financing activities
China Merchants Bank
IX Financial Statements
Annual Report 2017
51. Notes to consolidated cash flow statements
(a) Analysis of the balances of cash and cash equivalents (with original maturity
within 3 months):
Cash and balances with central bank
Balance with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Debt securities investments
Total
2017
223
2016
90,738
58,814
73,463
61,872
98,497
249,992
265,868
5,323
460,425
3,546
532,112
84,424
Appropriations to statutory
2,937
461,274
reserve
capital reserve
Exchange
Retained Proposed profit
general
Surplus
reserve
Hedging
Share Capital
Regulatory
Investment
(78)
21,185
192,431
revaluation
reserve
reserve
profits appropriations
(260)
(4,563)
Changes in equity for 2016:
352,041
17,402
128,791
63,928
34,009
241
5,769
76,681
25,220
Balance at 1 January 2016
Total
reserve
46,159
(86)
69,790
76,681
2,522
(30,396)
2,760
6,451
34,065
34,065
59,066
(78)
64,510
(5,444)
(78)
1
67
(67)
(5,299)
(18,663)
(4,093)
surplus reserve
(6,451)
25,220
Balance at 31 December 2017
21,185
6,451
(21,185)
34,065
Proposed dividends for the year 2017
(18,663)
Dividends paid for the year 2016
(2,760)
2,760
general reserve
Appropriations to regulatory
(18,663)
24,081
8,975
10,290
1,459,610
71,511
1,355,043
other financial institutions
154,297
32,194
3,151,649
30,138
26,869
70,724
Investments (including derivatives)
Amounts due to central bank, banks and
Other assets
100,136
7,073
103,982
275,082
2,851
7,892
Other liabilities
109,510
9,779
5,633
4,635 129,557
1,407
6,283
Liabilities
4,809,336
513,476
162,575
53,562 5,538,949
19,806
248,203
Debt securities issued
3,287
1,187,122
Deposits from customers
3,246,238
91,341 13,707
379,030 133,217
5,363
43,564
1,297,533
13,143
15,294
73,887
3,802,049
148,647
Financial liabilities at fair value through
profit or loss (including derivatives)
18,263
13,520
2,945
34,728
1,945
54,541
181,403
230
China Merchants Bank
240,600
161,407
158,423
90,276
82,177
216,772
78,933
5,942,311
251,683
46,799
548,536
5,152,706
Total
6,503
14,409
151,560
(14,726)
5,827
194,270
60,323
2016
Total
IX Financial Statements
Annual Report 2017
54. Contingent liabilities and commitments (continued)
(a) Credit commitments (continued)
Contractual amount
Irrevocable guarantees
Of which: Financial guarantees
Non-financial guarantees
2017
Irrevocable letters of credit
Open usance letters of credit
Other payment commitments (note)
Bills of acceptances
Irrevocable loan commitments
- with an original maturity within 1 year (inclusive)
- with an original maturity over 1 year
Credit card commitments
Others
Of which: Open sight letters of credit
Total
(b) Market risk (continued)
2,759,505
259,319
65,912
6,297,638
63,937
216,063
429,224
5,588,414
Total
20,355
5,121
(304) 185,239
16,960
33,360
135,223
Other assets
29,556
10,731
1,597,272
10,349
24,625
69,878
Liabilities
Amounts due to central bank, banks and
other financial institutions
1,141,055
2,151
3,493
48,476
1,791
22,750
23,935
profit or loss (including derivatives)
Financial liabilities at fair value through
179,540
51,670
1,492,420
4,064,345
149,594
336,471
3,542,432
Deposits from customers
6,794
15,819
1,252,310
2,585
5,660
103,010
35,848
Investments (including derivatives)
174,502
30,415
USD
RMB
Original currency
in million
Equivalent in RMB million
2017
Assets and liabilities by original currency are shown as follows:
Banking book (continued)
(2)
Foreign exchange risk (continued)
(i)
HKD
9,658
Annual Report 2017
IX Financial Statements
China Merchants Bank
The Group continued to strengthen bank account exchange rate risk monitoring and authorization
management of quota limit to ensure that risks are controlled within a reasonable range.
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.
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'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 audit department is responsible for auditing. 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.
Banking book
(2)
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.
56. Risk management (continued)
Debt securities issued
Others
USD
3,414,612
34,969
198,058 145,395
3,036,190
Loans and advances to customers
14,905
15,346
16,716 484,096
12,419
99,931
Total
355,030
Amounts due from banks and
20,001
4,299
2,207 616,419
16,664
27,997
569,551
Cash and balances with central bank
Assets
HKD
other financial institutions
255,686
33,038
6,930
2016
Banking book (continued)
(2)
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
56. Risk management (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
Equivalent in RMB million
238
(544)
4,577
(160,737)
(23,227)
(453)
29,803
(166,860)
Total
(222)
(12,333)
237
(184,844)
Original currency
RMB
Loans and advances to customers
6,813
18,211
581,963
19,518
6,105
429,784 126,556
other financial institutions
22,290
3,829
in million
2,894 597,529
26,607
548,051
Cash and balances with central bank
Amounts due from banks and
Assets
HKD
USD
Total
Others
HKD
USD
19,977
223,726 138,280
(3,399)
(100,947) (80,313)
29,872
418,512
Net position
212,777
61,326
5,814,246
67,705
177,287
399,352
5,169,902
38,776
Total
(14,729)
152,638
28,449
(95,917) 13,312
206,794
Other liabilities
8,317
5,073
296,477
823
15,975
(185)
(3,768)
4,586
- net currency option position
(45,161)
(62,890)
(37,210) (946,960)
(37,628)
44,839
79,800
17,382 971,067
37,360
396,668 519,657
(462,581) (409,541)
483,392
-forward sold
Derivatives:
42,896
20,447
30,895 1,407,008
35,740
133,144
1,207,229
Credit commitments (note)
Net off-balance sheet position:
46,542
-forward purchased
18,978
Note:
11,261
517,664
33,833
23,417
18,494
(480)
767,961
734,835
206,881
164,416
975,123
899,813
Note: Bonds issued by the governments, central banks and policy banks held by the Group amounted to RMB755,473 million (2016: RMB693,249
million) are included.
Collateral
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:
Estimate of the fair value of collateral and
502,174
other credit enhancements held against
- Loans and advances to customers
38,110
189,250
AAA
AA- to AA+
A- to A+
Lower than A-
Impairment allowances
Subtotal
Unrated
Total
2017
2016
1,083
1,726
(802)
(1,164)
281
562
180,334
2017
2016
13,460
Interest rate risk
(ii)
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.
243
(243)
(15)
15
Increase/decrease) in annualised equity
243
(243)
(15)
15
Increase/decrease) in annualised net profit
100
(100)
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.
(1)
Trading book
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.
19,835
(b) Market risk
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.
235
236
China Merchants Bank
IX Financial Statements
Neither overdue nor impaired
Annual Report 2017
(b) Market risk (continued)
(i) Foreign exchange risk
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, the board of supervisors, 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)
239
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.
56. Risk management (continued)
Subtotal
Impairment allowances
Individually assessed and impaired gross amount of debt investments
7,589
16,488
For which impairment allowances are collectively assessed
Gross amount
Less: impairment allowances
15,866
(13,784)
15,392
(10,108)
Carrying amount
2,082
5,284
Overdue but not impaired
- within 3 months (inclusive)
12,202
16,873
- 3 months to 6 months (inclusive)
Carrying amount
45,718
(29,230)
(33,931)
Less: impairment allowances
IX Financial Statements
Trading book
Annual Report 2017
56. Risk management (continued)
(a) Credit risk (continued)
(i)
Maximum exposure
11
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 54(a). At 31 December 2017, the maximum exposure to credit risk of those items is RMB9,597,033
million (2016: RMB8,680,175 million).
The credit quality of loans and advances to customers can be analysed as follows:
2017
2016
Impaired loans and advances to customers
For which impairment allowances are individually assessed
Gross amount
41,520
(ii)
Change in foreign currency
exchange rate (in basis points)
6
3
Carrying amount
3,395,316
3,115,729
Total carrying amount
3,414,612
3,151,649
The carrying amount of loans and advances that were overdue or impaired had the terms been renegotiated was
RMB18,009 million as at 31 December 2017 (2016: RMB16,671 million).
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(a) Credit risk (continued)
(iii) Credit quality of debt investments
(iv)
At the end of the reporting period, the analysis of the credit quality of debt investments by designated external
credit assessment institution, Standard & Poor's, is as follows:
(67,782)
(100,062)
Less: impairment allowances - collectively assessed
3,183,511
11
- Over 1 year
64
170
Gross amount
12,280
17,060
- 6 months to 1 year (inclusive)
Less: impairment allowances - collectively assessed
(2,912)
Carrying amount
9,625
14,148
Neither overdue nor impaired
Gross amount
3,495,378
(2,655)
Change in foreign currency
exchange rate (in basis points)
100
(100)
2016
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 issued by the MOF and the PBOC. The
redemption price may be different from the fair value of similar instruments traded at the redemption date.
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:
(e) Redemption obligations
At 31 December 2017, the Group was a defendant in certain outstanding litigations with gross claims of RMB728
million (2016: RMB1,444 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.
14,559
14,471
2,396
1,845
8,829
8,925
1 year to 5 years (inclusive)
Over 5 years
Total
3,334
3,701
Within 1 year (inclusive)
Redemption obligations
2017
25,182
2016
25,465
The Group expects that the amount of redemption before the maturity date of these government bonds through the
Group will not be material.
2016
388,340
489,351
2017
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.
2016
The Group's entrusted lending business refers to activities where principals such as government departments,
business entities and individuals provide capital for loan advances through 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)
55. Transactions on behalf of customers
Annual Report 2017
IX Financial Statements
China Merchants Bank
232
231
Entrusted lending business
(489,351)
2017
(c) Operating lease commitments
Note: Other payment commitments refers to the Group as the acceptor of letters of credit payment commitments.
Irrevocable loan commitments only include credit limits granted to offshore customers by overseas branches,
subsidiaries and onshore and offshore syndicated loans.
1,167,224
1,407,008
18,740
68,227
481,401
690,898
55,911
78,561
9,935
1,908
256,655
245,007
73,743
54,480
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 RMB2,042,851 million at 31
December 2017 (2016: RMB1,685,058 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.
Credit risk weighted amounts of contingent liabilities and commitments
2017
355,050
7,026
6,898
128
6,325
740
7,065
2016
2017
- Authorised but not contracted for
Total
- Contracted for
Total future minimum lease payments under non-cancellable operating leases of properties are payable as follows:
For purchase of property and equipment:
(b) Capital commitments
54. Contingent liabilities and commitments (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
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.
2016
361,045
Authorised capital commitments were as follows:
6,586
(388,340)
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.
(722)
(13)
(63,529)
(60,737)
65,441
79,497
40,549 1,001,970
(50,761) (984,505)
350,305 552,468 58,648
(454,714) (422,095) (56,935)
(13,155)
117,218
11,118
(93,291)
Total
- net currency option position
- forward sold
-forward purchased
Derivatives:
17,117
(2,772)
(1,893)
(15)
1,700
2017
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 2017 and 31 December 2016.
Banking book (continued)
(2)
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
21,236
56. Risk management (continued)
IX 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.
1,897
16,867
14,693
(10,934)
Annual Report 2017
(b) Wealth management services
16,147 1,167,224
147,576
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 policies and management requirements for corporate and institutional
clients, credit portfolios management and implements limit control measures under key domains to improve the
quality of credit exposure.
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.
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.
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.
(a) Credit risk
56. Risk management
Annual Report 2017
IX Financial Statements
China Merchants Bank
2016
2,375,766
2,177,856
2017
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:
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.
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.
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.
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.
988,161
Credit commitments (note)
Net off-balance sheet position:
35,369
5,046
403,362
(6,763)
15,340
31,695
343,370
Net position
China Merchants Bank
234
233
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.
35,060
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.
- Available-for-sale financial assets
China Merchants Bank
Debt securities issued
296,477 320,981
49,027
92,948
62,025
79,597
37,384
Other liabilities
116,847 119,283
42,868
38,696
8,490
14,013
8,824
1,244
5,148
Total
5,756,598 5,908,149 2,956,220
863,521
647,040
1,012,542
368,487
55,073
5,266
Gross loan commitments
771,367 771,367
245
118
388
3,237
8,464
938,597
411,211 1,560,176
1,839,188
1,603,878
570,585
Non-derivative financial liabilities
Amounts due to banks and
other financial institutions
1,252,310
Deposits from customers
4,064,345
1,265,833
4,175,394
296,594 403,939
2,609,943 367,920
246
185,110
24,732
9,179
356,795
581,761
252,097
6,878
Financial liabilities at fair value
through profit or loss
26,619
26,658
6,815
3,939
3,697
346,279
150,477
China Merchants Bank
Annual Report 2017
378,904
77,928
58,662
7,378
2,239
Loans and advances to customers
3,151,649 3,805,837
11,949
123,701
503,608
1,067,199
926,595
1,149,939
22,846
Investments
- Financial assets at fair value
through profit or loss
55,972
59,213
401
5,654
9,780
39,332
1,996
2,050
- Available-for-sale financial assets
389,138
422,249
61,285
581,963 586,396
other financial institutions
506,791
56. Risk management (continued)
(c) Liquidity risk (continued)
2016
After
After
After
1 month
3 months
1 year
Carrying
Repayable
Within
but within
IX Financial Statements
but within
amount
Total
on demand
1 month
3 months
1 year
5 years After 5 years
Indefinite
Non-derivative financial assets
Cash and balances with central bank
Amounts due from banks and
597,529
597,529
90,738
but within
19,519
505
1,292
39,219
3,354 5,538,949
1,135,789
644,761 403,362
(ii)
(iii)
(iv)
For balances with central bank, the amount with an indefinite maturity represents statutory deposit reserve and fiscal balances maintained with
the PBOC.
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.
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.
The deposits from customers that are repayable on demand include matured time deposits which are pending for customers' instructions.
China Merchants Bank
Annual Report 2017
IX Financial Statements
56. Risk management (continued)
(c)
Liquidity risk (continued)
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.
2017
After
Carrying
amount
Repayable
Total on demand
Within
1 month
1 month
but within
3 months
After
3 months
but within
1 year
After
1 year
but within
277,047
910,603
(42,371) 384,737
17,385
685,231 1,011,538
6,914
2,890
4,373
11,911
8,200
426
14
Debt securities issued
34,609
79,331
107,979
21,807
31,356
After
34,728
275,082
Total liabilities
(Short)/long position
Notes:
(i)
69,107
25,743
6,825
14,599
8,913
1,030
3,340 129,557
2,835,587
(2,647,542)
686,973
Other liabilities
5 years
5 years
Indefinite
76,330
192,057
111,115
3,613
- Held-to-maturity investments
558,218
682,646
5,176
9,825
46,113
366,084
255,456
(8)
20,020
- Debt securities classified as
receivables
Total
572,241 607,691
60,496
6,153,979 7,074,112
217,399
35,113
170,282
133,974
49,555
1,368
60,496
15,299
18,040
3,048
2,793
Other assets
9,579
24,266
1,307
Non-derivative financial assets
Cash and balances with central bank
616,419 616,419
84,424
531,995
Amounts due from banks and
other financial institutions
Loans and advances to customers
Investments
484,096 489,042
3,414,612 4,119,230
43,932
300,198
34,503
106,161
2,027
5,188
2,221
371,155
298,493
1,123,118 1,127,013
1,185,940
6,689
- Financial assets at fair value
through profit or loss
- Available-for-sale financial assets
64,796
383,101 427,401
71,187
2,363
10,209
35,379
16,741
6,822
19,694
101,158
172,590
(1,595)
Foreign exchange swaps
372,129
460,552
15,532
58
848,271
12,438
(14,003)
Options
149,618
185,538
1,793
336,949
2,234
(3,926)
Subtotal
569,686
670,344
23,598
3,652
1,267,280
16,124
(19,524)
Other derivatives
Equity options purchased
5
1,452
82,060
3,594
6,273
Annual Report 2017
56. Risk management (continued)
(f) Use of derivatives (continued)
2017
Notional amounts with remaining life of
Derivatives held for trading
Fair value
Within
3 months
Between
3 months
and 1 year
Between
1 year and
5 years
More than
5 years
Total
301
Assets
Interest rate derivatives
Interest rate swaps
309,254
1,254,997
487,858
5,682
2,057,791
2,197
(1,808)
Currency derivatives
Forwards
47,939
24,254
Liabilities
54,092
54,398
322
117
7,433
62
52
CF2
(11)
Currency derivatives
Foreign exchange swaps
18,730
13,459
5,791
524
38,504
4,839
221
Subtotal
18,830
15,836
10,630
641
45,937
273
(123)
Total
18,916
(21,857)
The impact of invalid cash flow hedge on profit or loss this year is zero. (2016: Nil)
249
(112)
IX Financial Statements
2,377
Interest rate swaps
Equity options written
143
294
54,092
54,529
(323)
Commodity trading
Subtotal
148
595
108,184
108,927
322
100
(323)
Interest rate derivatives
Interest rate swaps
3,400
2,700
2,400
8,500
(79)
Derivatives managed in
conjunction with financial
instruments designated
at fair value through
profit or loss
Interest rate derivatives
Cash flow hedge derivatives
profit or loss (including derivatives)
China Merchants Bank
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.
188,053
713,529
658,815
1,495,556
1,469,751
1,592,221
555,902
Non-derivative financial liabilities
Amounts due to banks and
other financial institutions
1,297,533
1,305,147
417,794
Deposits from customers
3,802,049
3,805,351
2,342,133
364,598
260,757 394,194
203,763
298,347
15,266
5,379
582,171
225,981
115
Financial liabilities at fair value
through profit or loss
6,673,827
5,840,264
Total
16,459
115,467
3,761
- Held-to-maturity investments
477,064
596,611
9,382
33,966
254,256
298,282
1
- Debt securities classified as
receivables
528,748 547,099
23,576
188,340
222,446
68,661
26,043
1,755
Other assets
58,201
58,893
24,081
11,880
2,695
2,345
939
494
39,854
Debt securities issued
275,082
Other liabilities
56. Risk management (continued)
(d) Operational risk
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.
During the reporting period, through the strengthening of operational risk appraisal and assessment mechanisms,
stepping up the identification, evaluation and monitoring of operational risk in key areas, the Group carried out a
comprehensive special management of low-risk business. Starting with process, institution, employee and system, the
Group focused on the existing problems of critical control segment, and measured these problems by management
requirement's solidification and refinement. Meanwhile, further improvement on operational risk management
framework and methods, developing operational risk assessment mechanism and strengthening operational risk
management economic capital allocation mechanism can enhance the ability and effectiveness of operational risk's
management in the Group. Now all major indexes can meet the requirements of the Group's risk preference.
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.
(e) Capital management
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, additional 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.
Annual Report 2017
247
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(e) Capital management (continued)
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.
(f) 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.
The Group will choose appropriate hedging strategies and tools in light of the risk profile of interest rates or
exchange rates of its assets and liabilities, as well as its analyses and judgement regarding future interest rates or
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.
248
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.
IX Financial Statements
547,247 547,247
23,592
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
China Merchants Bank
25,513
14,674
8,963
1,027
2,509
Total
5,500,329 5,547,670 2,810,329
687,471
691,149
1,020,599
291,189
44,410
2,523
Gross loan commitments
7,010
Financial liabilities at fair value through
724
1,297,533
Amounts due to banks and
other financial institutions
1,297,533
1,004,320
288,508
3,301
1,331
73
Deposits from customers
3,802,049
3,004,092
569,475
220,745
115
7,622
Financial liabilities at fair value through
profit or loss (including derivatives)
34,728
135
Debt securities issued
275,082
Other liabilities
Total liabilities
Asset-liability gap
129,557
5,538,949
403,362
113,940
472
4,643
107,979
Liabilities
187,294
519,396
701,291
16,373
Amounts due from banks and
other financial institutions
581,963
514,789
57,104
6,768
3,302
Loans and advances to customers (note)
3,151,649
1,977,375
723,743
298,778
7,340
151,753
1,459,610
337,869
342,294
395,745
367,643
16,059
Other assets
151,560
151,560
Total assets
5,942,311
3,411,189
1,123,141
Investments (including derivatives)
415
22,195
21,807
3,174
(2,782)
2,582
Actual changes in the Group's net interest income and equity resulting from increase or decrease in interest
rates may differ from the results of this sensitivity analysis.
241
242
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(c)
Liquidity risk
(3,152)
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.
The Group is prudent in managing the risk, which better suits its current development stage. Basically, the Group's
existing liquidity risk management policies and systems meet regulatory requirements and its own management
needs.
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.
The Group measures, monitors and identifies liquidity risk by short-term reserves as well as duration structures and
contingencies. It monitors the limit indicators closely at fixed intervals. Specifically, the Group 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.
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 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 Group draws up liquidity contingency plans and conducts liquidity contingency
drills to prepare for liquidity crises.
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(c)
Liquidity risk (continued)
Analysis of the Group's assets and liabilities by residual maturity is as follows:
2017
Repayable
on demand
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, the board of supervisors, senior management, designated committees and relevant
departments to ensure the effectiveness of the 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 Board of Supervisors shall be responsible for the
supervision and evaluation of the performance of the Board of Directors and senior management in the liquidity
risk management and report to the general meeting of shareholders. 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 Group's liquidity risk
management.
581,156
1,614
2,010
31,356
4,122,959
676
971,281
315
1
128,093
253,508
33,218
157,983
(711,770)
151,860
447,783
486,178
(1,614)
29,311
For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2017 and 31 December
2016, net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the principals or interests were
overdue.
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 2017 and 31 December 2016.
2016
(Decrease)/increase in annualised
net interest income
(Decrease)/increase in equity
2017
Change in interest rates
(in basis points)
25
(25)
Change in interest rates
(in basis points)
25
(25)
(2,010)
Note:
Within
597,529
Assets
90,437
1,901
3,352
Loans and advances to customers (note)
3,414,612
1,481,059
Investments (including derivatives)
1,597,272
354,103
1,669,795
289,976
210,845
52,913
566,062
363,422
23,709
Other assets
185,239
185,239
Total assets
6,297,638
2,823,575
2,050,208
778,808
416,335
228,712
Liabilities
Amounts due to banks and
388,406
484,096
other financial institutions
Amounts due from banks and
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book
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. The audit department is responsible for
auditing.
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. 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 Group conducts stress test on interest rate risk of banking book on
a monthly basis. The results of stress test for 2017 showed that the interest rate risk of banking book of the
Company was generally stable with various indicators staying within the set limits.
The Group has formulated the principles for risk control at different interest rate risk levels. Based on the
risk measurement and monitoring results, the Group 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.
The Group 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.
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.
other financial institutions
2017
3 months
or less
(include
overdue)
Over
3 months
Over
Non-
to 1 year
1 year
to 5 years
Over
5 years
interest
bearing
Assets
Cash and balances with central bank
616,419
600,007
16,412
Total
3,802,049
1,252,310
Deposits from customers
483,392 (1,286,083) 1,071,770
300,150
376,452
21,103
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book (continued)
207,609
2016
Total
or less
(include
overdue)
Over
Over
Non-
3 months
1 year
Over
interest
to 1 year
to 5 years
5 years
bearing
3 months
Cash and balances with central bank
39,883
978,438
4,064,345
908,925
3,056,891
329,543
588,581
7,628
404,127
3,457
2,757
3,354
11,392
Financial liabilities at fair value through
profit or loss (including derivatives)
48,476
83
478,658
Debt securities issued
143,759
Other liabilities
Total liabilities
Asset-liability gap
152,638
5,814,246 4,109,658
3,823
56,327
164
3,195
388
40,987
63,707
32,684
1
152,473
296,477
1 month
240
After
Cash and balances with central bank
(note (i))
90,738
506,791
597,529
Amounts due from banks and
other financial institutions
61,283
377,831
77,081
57,015
6,768
1,985
Total
581,963
(note (ii))
11,949
116,211
488,183
999,446
723,022
789,992
22,846 3,151,649
Investments (note (iii))
- Financial assets at fair value
through profit or loss
(including derivatives)
1
Loans and advances to customers
7,743
Indefinite
5 years
323,615
43,310
6,073
5,814,246
685,968 483,392
243
244
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(c) Liquidity risk (continued)
2016
5 years
After
After
1 month
3 months
1 year
Repayable
on demand
Within
but within
but within
but within
After
1 month
3 months
1 year
After
1,004,784
(262,629) 411,036 1,170,989 1,213,670
13,458
1,883
2,324
795
107,949
151,560
Total assets
188,045
704,358
642,860
1,396,275
1,187,650
1,175,008
648,115
5,942,311
2,316
Amounts due to banks and
417,688
363,649
201,536
295,647
12,721
Deposits from customers (note (iv))
2,341,878
260,082
393,166
581,402
225,406
6,292
115
After
1 month
but within
3 months
other financial Institutions
38,235
2,456
24,074
2,048
64,660
- Available-for-sale financial assets
9,268
19,435
91,468
155,020
109,207
4,740
389,138
- Held-to-maturity investments
631
9,331
11,646
16,850
251,000
1
477,064
- Debt securities classified as
receivables
187,479
38,631
215,722
63,030
22,131
1,755
528,748
Other assets
199,251
49,175
1,292
152,638
3,414,612
6,642
887,849
1,006,228 880,201
358,319 268,551
6,822
484,096
2,209
1,900
102,778
33,898
299,502
43,809
other financial institutions
Loans and advances to customers
(note (ii))
Amounts due from banks and
616,419
531,995
84,424
bank (note (i))
Cash and balances with central
Total
5 years
5 years
After
but within
1 year
3 months
but within
1 year
Investments (note (iii))
- Financial assets at fair value
through profit or loss
(including derivatives)
33,083
161,336
216,900
receivables
- Debt securities classified as
558,218
(8)
860,639 640,654
210,492
306,655
31,217
6,444
3,418
After
- Held-to-maturity investments
4,697
116,255
166,935
68,573
18,304
8,337
83,712
876
1,592
18,354
42,895
14,697
5,298
383,101
119,267
Indefinite
7,905
5,404
1,252,310
3,374
4,064,345
Financial liabilities at fair value through
profit or loss (including derivatives)
6,815
6,119
40,287
21,743
5,126
649
119
48,476
Debt securities issued
48,497
91,414
5,954
1,199
8,725
12,795
8,274
38,461
350,167
77,230
2,935,171
(2,784,817)
Total liabilities
Other liabilities
296,477
32,684
64,695
59,187
(Short)/long position
364,232
340,645 23,509
570,414 221,560
Deposits from customers (note (iv))
572,241
Other assets
15,299
18,040
3,048
2,793
2,554,598
Total assets
150,354
909,814
378,025
1,292
1,494,604
1,415,820
505
182,894
403,330
296,528
Amounts due to banks and
6,297,638
other financial Institutions
1,256,980
185,239
144,262
692,041
1,368
4,239
10,991
Subtotal
China Merchants Bank
15,230
IX Financial Statements
21,857
44,237
4,239
Total
21,857
Derivative financial liabilities
118
48,476
118
11,389
4,239
11,325
64
11,389
other banks
- Certificates of deposit issued
- Debt securities issued
- Others
9,559
Total
7,688
7,688
3,185
3,185
4,239
Annual Report 2017
56. Risk management (continued)
Derivative financial assets
Fair value information (continued)
7,530
7,530
7,530
Subtotal
- Short position in equity securities
- Precious metal relevant financial liabilities
Financial liabilities held for trading
Liabilities
453,798
1,873
357,530
94,395
389,138
1,873
306,358
80,907
Total
Subtotal
43,209
7,530
Financial liabilities designated at fair value
through profit or loss
- Precious metal contracts with other banks
3,498
64
11,152
10,531
621
Derivative financial liabilities
16,046
7,108
8,938
15
158
8,938
3,498
| | | |
15
Subtotal
- Others
8,938
- Debt securities issued
3,595
- Certificates of deposit issued
3,595
41,961
1,090
- Investments in funds
41,214
| | | |
109
- Investments in funds
714
- Equity investments
1,296
- Long position in precious metal contracts
33,141
1,296
714
8,073
Financial assets held for trading
Assets
Total
Level 3
Level 2
Level 1
2016
Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(ii)
Debt securities
(g)
109
8,787
3,296
1,715
85
1,496
342,633
264,312
78,321
– Equity investments
- Debt securities
Subtotal
Available-for-sale financial assets
8,677
12,639
7,949
4,690
11
- Debt securities
through profit or loss
Financial assets designated at fair value
43,333
34,546
8,688
11,325
Level 1
through profit or loss
5,799
1,014
18,836
12,293
28,800
18,373
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
IX Financial Statements
Annual Report 2017
56. 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 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.
251
252
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
7,358
(g) Fair value information (continued)
281
2016
(77)
Currency derivatives
Foreign exchange swaps
2,224
1,462
3,455
7,141
19
(94)
Subtotal
3,134
8,043
11,411
721
23,309
86
(171)
Total
8,688
(11,152)
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:
2017
1,592
- Precious metal contracts with
(ii) 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:
25,169
– Equity investments
73,391
259,938
333,329
1,058
162
2,005
3,225
- Investments in funds
1,905
44,481
161
46,547
Subtotal
Total
76,354
304,581
2,166
383,101
91,453
373,194
2,166
466,813
Liabilities
Financial liabilities held for trading
- Precious metal relevant financial liabilities
- Short selling securities
Subtotal
Financial liabilities designated at fair value
- Debt securities
2017
Available-for-sale financial assets
18,916
Level 2
Level 3
Total
Assets
Financial assets held for trading
Debt securities
10,181
44,590
54,771
- Long position in precious metal contracts
211
211
- Equity investments
32
32
- Investments in funds
401
401
Subtotal
10,213
45,202
55,415
Financial assets designated at fair value
through profit or loss
- Debt securities
4,886
4,495
9,381
Derivative financial assets
18,916
34,728
(68)
2,166
253
Valuation of financial instruments with significant unobservable inputs (continued)
Liabilities
At 1 January 2017
In profit or loss
Issues
Disposals and settlement on maturity
At 31 December 2017
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 1 January 2016
In profit or loss
Issues
Disposals and settlement on maturity
At 31 December 2016
1)
Total unrealised gains and losses included in the consolidated statement of
profit or loss for liabilities held at the end of the reporting period
liabilities
designated
at fair value
through profit
or loss -
certificates of
deposit issued
2,302
121
(2,423)
257
258
China Merchants Bank
IX Financial Statements
Annual Report 2017
(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)
Financial
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)
(3)
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(4)
Available-for-
sale financial
assets
Total
4
1,242
1,246
| | |
(5)
(5)
199
199
435
435
(4)
(4)
(8)
| |
6
6
1,873
1,873
--______(5)
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(g) Fair value information (continued)
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)
2)
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
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.
(1)
Financial Assets
The Group's financial assets 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.
Except for loans and advances and held-to-maturity investments, most of the financial assets will mature
within 1 year, and their carrying value approximate their fair value.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 at least annually, 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 is close to the fair value.
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 :
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.
2017
Carrying
amount
Fair
value
Held-to-maturity investments
558,218
542,664
Level 1
2,967
Level 2
539,697
Level 3
2016
Carrying
amount
Fair
value
Held-to-maturity investments
477,064
484,277
Level 1
2,786
Level 2
Level 3
481,491
259
10
Financial assets and financial liabilities that are not measured at fair value
(4)
(iii)
(g)
2017
Effect on profit or loss or other
comprehensive income
Favourable (Unfavourable)
(3)
Available-for-sale financial assets
- Equity investments
- Investments in funds
Available-for-sale financial assets
- Equity investments
- Investments in funds
201
16
2016
Effect on profit or loss or other
comprehensive income
Favourable
172
16
(201)
(16)
(Unfavourable)
(172)
(16)
Transfers between level 1 and level 2 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
level 1 and level 2 are deemed
During the year ended 31 December 2017, there were no transfers between level 1 and level 2 for
financial instruments which are measured at fair value on an on-going basis.
(4)
Changes in valuation technique and the reasons for making the changes
During the year ended 31 December 2017, the Group has not changed the valuation technique of the
above financial assets which are measured at fair value on an on-going basis.
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
Fair value information (continued)
During the year there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair
value hierarchy.
| | |
Derivative
Unobservable input
Market comparison
Liquidity discount
727
approach
Market approach
499 Discounted cash flow
161
Discounted cash flow
Transaction of near
delivery rate
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
cash flow
Fair value
Valuation techniques
as at
2016
Valuation techniques
Unlisted available-for-sale
equity investments
Unlisted available-for-sale
346
Market comparison
approach
1,369
Discounted cash flow
equity investments
Unlisted available-for-sale
158
Discounted cash flow
fund investments
31 December
2017
779
31 December
Fair value
as at
254
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. 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)
(1)
Basis of determining the market price for recurring fair value measurements categorised within
Level 1
Bloomberg's quoted prices are used for financial instruments with quoted prices in an active market.
(2)
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.
Dealing price of the investment fund derived from the net asset values of the investment funds with
reference to observable quoted price of underlying investment portfolio in active market is used as the basis
of determining the market price for recurring fair value measurements categorised within Level 2.
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. 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
Unlisted available-for-sale
equity investments
Unlisted available-for-sale
equity investments
Unlisted available-for-sale
fund investments
Unobservable input
Liquidity discount
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
maturity
Exchange difference
At 31 December 2016
Total unrealised gains and losses
included in the consolidated
statement of profit or loss for
assets held at the end of the
reporting period
Tradable
financial
assets-debt
Available-
Derivative
financial
for-sale
financial
securities
assets
assets
Total
1,873
1,873
(4)
(4)
(67)
(67)
1,618
1,618
| | |
(1,186)
(1,186)
2,166
Financial assets
designated
at fair value
or loss-debt
through profit
Disposals and settlement on
securities financial assets
Purchases
- In profit or loss
cash flow
255
256
China Merchants Bank
IX Financial Statements
Annual Report 2017
56. 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: (continued)
1)
Valuation of financial instruments with significant unobservable inputs
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:
Assets
At 1 January 2017
Profit or loss
- In profit or loss
- In other comprehensive income
Purchases
Disposals and settlement on
maturity
Exchange difference
At 31 December 2017
Total unrealised gains and losses
included in the consolidated
statement of profit or loss for
assets held at the end of the
reporting period
Assets
At 1 January 2016
Profit or loss
- In other comprehensive income
56. Risk management (continued)
(68)
6,581
(370)
Currency derivatives
Forwards
71,563
53,900
8,374
133,837
2,304
(2,264)
460
Foreign exchange swaps
449,680
13,174
861,255
4,191
(5,460)
Options
137,775
113,106
4,049
398,401
254,930
1,373,348
81,283
IX Financial Statements
Annual Report 2017
56. Risk management (continued)
(f) Use of derivatives (continued)
2016
Derivatives held for trading
Fair value
Within
3 months
1,806
Between
3 months
and 1 year
5 years
More than
5 years
Total
Assets
Liabilities
Interest rate derivatives
Interest rate swaps
378,226
912,033
Between
1 year and
China Merchants Bank
1,508
Subtotal
Interest rate derivatives
Interest rate swaps
810
11,450
8,500
20,760
72
(3)
Derivatives managed in
Cash flow hedge derivatives
conjunction with financial
at fair value through
profit or loss
Interest rate derivatives
Interest rate swaps
910
7,956
721
16,168
67
instruments designated
(2,816)
166
67
607,739
616,686
25,597
1,250,022
8,003
(10,540)
Other derivatives
Equity options purchased
Equity options written
(68)
Commodity trading
Subtotal
334
1
1
2
332
67
(67)
335
332
250
Notional amounts with remaining life of
Shipping business, leasing
2.27%
Construction Group LTD
(note (vi,vii))
General contraction for
construction
Shareholder's
Limited company
Legal
representative
Liu Qitao
parent
company
China Communications Beijing
Construction Co., Ltd
RMB16,175
million
450,164,945
1.78%
Shareholder's
General contraction for
construction, leasing and
repair, technical consulting
Shareholder
571,845,625
Joint stock limited
company
RMB5,855 million
China Communications
of the
the Bank
Bank held
Company
Registered
Company name
location
Issued and
fully paid capital
held by the
by the
held by
The
relationship
Company
Company
the Bank Business
with the Bank
Legal form
Beijing
Proportion
Liu Qitao
(note(iv))
11.63%
2,934,094,716
RMB61,900
million
Co.,Ltd
Anbang Insurance Group Beijing
Legal form
with the Bank
the Bank Business
Company
Company
Legal
The
relationship
held by
by the
held by the
Issued and
fully paid capital
Registered
location
Insurance
International shipping business,
import and export of goods
and technology, etc.
Shareholder's
parent
9.97%
RMB11,000 2,515,193,034
million
Beijing
China COSCO Shipping
Corporation Limited
Co., Ltd.
Joint stock limited Ye Jing
company
(note (iii))
Shareholder
Insurance
11.63%
RMB37,000 2,934,094,716
million
Casualty Insurance
Beijing
Anbang Property &
company
representative
(note (iii))
Joint stock limited
company
(note())
Shareholder
Proportion
of the
(a) Material connected person information (continued)
6.24%
RMB16,191 1,574,729,111
million
China Ocean Shipping Beijing
Co., Ltd.
company
parent
Xu Lirong
Limited company
Zhao Bangtao
business, ship repairing and
building etc.
Guangzhou Haining
Guangzhou
RMB2 million
Company name
103,552,616
0.41%
Business services
Transportation business,
Shareholder
Shareholder
Xu Lirong
0.30%
75,617,340
RMB1,399 million
China COSCO Shipping Shanghai
(Shanghai) Co., Ltd.
(Guangzhou) Co., Ltd.
Shou Jian
Limited company
Shareholder
Shipping business
2.76%
696,450,214
RMB32 million
China COSCO Shipping Guangzhou
trading ships, etc.
leasing, constructing and
time charter, voyage charter,
shipping space booking,
Limited company
No. of
Shares of
Limited company
Maritime Technology
business, shipping agency,
leasing business, shipping
business etc.
Hebei Port Group
Co., Ltd.
Qinhuangdao RMB8,000 million
303,444,770
1.20%
(note(v))
Port construction and
investment management,
port leasing and
Shareholder
Limited company
Cao Ziyu
maintenance business,
handling and warehousing
business etc.
China Merchants Bank
Annual Report 2017
IX Financial Statements
57. Material related-party transactions (continued)
Shipping Co., Ltd.
Li Cui
Zheng Zhuilong
Ship purchasing and marketing Shareholder
Service Co., Ltd.
China COSCO Shipping Hong Kong
HKD500 million
Limited company
54,721,930
0.22%
Leasing business, financing
Shareholder
Limited company
Financial Holdings
business, insurance business
Co., Ltd.
etc.
Shenzhen Tri-Dynas Oil & Shenzhen
RMB299 million
10,121,823
0.04%
Limited company
Company
37
the Bank
by the
held by the
Issued and
fully paid capital
Registered
location
Company name
Company
Proportion
of the
Proportion
of the
Bank held
the Bank
Shares of
No. of
The Bank's main shareholders and its parent company and the Bank's subsidiaries.
Material connected person information
(a)
57. Material related-party transactions
Annual Report 2017
IX Financial Statements
held by
China Merchants Bank
China Merchants Group
(CMG)
RMB13,750 million
Legal
representative
Li Jianhong
parent company
contracting, sales operating
building and facility, repair and
leasing, manufacturing
shareholder's
Legal form
Limited company
The largest
with the Bank
relationship
The
warehousing and storage,
Transportation, shipping agency,
29.97%
(note (i) (ix))
the Bank Business
Company
Company
7,559,427,375
Beijing
73,324
73,324
72,315
63,224
63,376
Long-term debt securities issued
33,945
33,945
33,977
Subordinated notes issued
Level 3
Level 2
Level 1
value
Fair
Carrying
amount
2017
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:
Financial Liabilities
(2)
63,224
Total
97,353
97,169
Total
40,925
40,925
40,959
Long-term debt securities issued
32,399
32,399
31,356
management service, etc.
Subordinated notes issued
Level 2
Level 1
value
amount
Fair
Carrying
2016
97,169
Level 3
Bank held
China Merchants Steam Beijing
Navigation Co., Ltd.
13.04%
(note (ii))
China Merchants Industry Shenzhen
Development (Shenzhen)
Limited company
Shareholder
1.89%
USD0.06 million 477,903,500
British Virgin
Islands
China Merchants Union
(BVI) Limited
Joint stock limited
company
Shareholder
1.53%
USD0.05 million 386,924,063
British Virgin
Islands
Best Winner Investment
Co., Ltd.
marketing business, etc.
materials supply and
Co., Ltd.
domestic commerce,
USD10 million 55,196,540
Investment Holdings
0.22%
Shareholder
of the
Proportion
Proportion
of the
No. of
Shares of
(a) Material connected person information (continued)
57. Material related-party transactions (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
262
261
consulting, etc.
consulting and investment
Limited
enterprise management
Wang Xiaoding
Limited company
Invest and set up industries,
Hong Xiaoyuan
Limited company
service, imports and exports,
investment and management
business
Limited company
Shareholder
Invest and set up industries,
4.99%
RMB600 million 1,258,542,349
Shenzhen
Shenzhen Yan Qing
services, etc.
distribution, shipping agency
chain management and
(CMSNCL)
shareholder
repair, procurement, supply
Li Jianhong
Limited company
The largest
Transportation, building and
Liu Jie
Investment Development
domestic commerce,
Co.,Ltd.
Shareholder
Invest and set up industries,
4.55%
RMB600 million 1,147,377,415
China Merchants Finance Shenzhen
marketing business, etc.
materials supply and
Development Co., Ltd.
RMB5,900 million 3,289,470,337
domestic commerce,
Liu Jie
Limited company
Shareholder
Invest and set up industries,
RMB600 million 944,013,171
Shenzhen Chu Yuan Shenzhen
marketing business, etc.
materials supply and
Investment and
Financial assets and financial liabilities that are not measured at fair value (continued)
Shanghai Automotive
Industry Corporation
China Merchants Bank
Annual Report 2017
1
Other net income
8
11
Operating expenses
1,063
928
Net fee and commission income
4
16
Interest expense
37
Interest income
8,701
8,700
- Irrevocable guarantees
921
3,700
2,700
902
3,047
2,665
Off-balance sheet:
IX Financial Statements
- Placements
57. Material related-party transactions (continued)
On-balance sheet:
43
5,627
5,898
16,328
13,880
200
5,572
5,848
200
2016
2017
On-balance sheet
Subsidiaries
(g)
Other net income
Operating expenses
Net fee and commission income
Interest expense
Interest income
- Irrevocable guarantees
Off-balance sheet:
- Deposits from customers
- Investments
- Loans and advances to customers
(f) Other shareholders holding more than 5% shares
16
- Deposits from customers
On-balance sheet:
- Acceptance bills
- Irrevocable guarantees
Off-balance sheet:
Deposits from customers
- Investments
-Loans and advances to customers
On-balance sheet:
(d) Companies controlled by or be significantly influenced by or appointed
common directors, senior management and/or supervisors of the Bank other
than those under Note 57(c) above
57. Material related-party transactions (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
266
265
(115)
34
Other net income
(15)
(31)
Operating expenses
611
404
Net fee and commission income
Interest income
- Loans and advances to customers
Net fee and commission income
Operating expenses
2016
2017
(e) Associates and joint ventures other than those under Note 57(c) above
(679)
(12)
22
(1,178)
130
700
299
634
310
536
152
2,671
673
21,448
25,327
3,659
955
1,063
6,955
2016
2017
Other net income
Interest expense
274
12
905
At 1 January 2017
The perpetual debt capital is issued by the bank's subsidiary, WLB, on 27 April 2017, with the aggregate nominal
amount is USD170 million as follows:
Perpetual debt capital
a)
Non-controlling interests represent the interests that the Group does not hold in the 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.
58. Non-controlling interests
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
2017 and 31 December 2016.
Annuity scheme
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.
Total
(i)
71,373
99,594
5,148
5,543
6,896
46,494
14,942
44,387
47,557
2016
RMB'000
2017
RMB'000
Contributions to defined contribution retirement schemes
Issue during the period (i)
Share-based payment
Distributions in 2017
At 31 December 2017
269
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.
Repurchase transactions and securities lending transactions
As at 31 December 2017, the Group has transferred credit assets to third party institutions directly amounted to
RMB46,338 million (31 December 2016: RMB20,375 million); RMB45,817 million of these transferred credit assets
are transferred to structured entities (31 December 2016: 16,233 million). The Group carried out an assessment
based on the criteria as detailed in Note 2(h)(vi), Note 2(h)(x) and concluded that these transferred assets qualified
for full de-recognition.
Transactions of credit assets
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 recognised as financial liabilities.
As at 31 December 2017, the carrying amount of such transferred but not derecognised finance leases receivable
amounted to RMB3,668 million (31 December 2016: 2,646 million) and correspondently the carrying amount of
recognised financial liabilities is RMB2,439 million (31 December 2016: 2,227 million).
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 the Group has transferred the ownership of the loans amounted to RMB73,698
million (2016: 19,976 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.
Securitisation of credit assets
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.
59. Transfers of financial assets
IX Financial Statements
China Merchants Bank
Annual Report 2017
(i) There is no maturity of the instruments and the payments of distribution can be cancelled at the discretion of
the issuers. Cancelled interest is not cumulative. There is no obligation of contract that deliver the cash payment to
other parties. WLB declared and paid distributions at 5.2% set on the contract items of perpetual debt capital.
1,170
(29)
29
29
(29)
1,170
Total
1,170
1,170
Distributions/Paid
Principal
Paid in 2017
Salaries and other emoluments
Discretionary bonuses (Note 8(i))
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
3,866
2,835
- Deposits from customers
- Placements from banks and other financial institutions
29,715
7,973
- Deposits from banks and other financial institutions
93
1,330
- Investments
348
2,196
- Loans and advances to customers
9,338
25,782
- Placements with banks and other financial institutions
5,758
1,078
- Balances with banks and other financial institutions
2016
2017
13
1,282
Off-balance sheet
- Irrevocable guarantees
3,256
3,494
57. Material related-party transactions (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
268
267
All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the
consolidated financial statements.
(5)
16
10
12
767
1,578
284
800
230
699
120
Other net income
Operating expenses
Net fee and commission
Interest expense
Interest income
- Bills of acceptances
1,596
Shanghai
758
688
CMG
Name of related party
The information of registered capital of the related parties as at 31 December 2017 and 2016 is as below:
Material connected person information (continued)
(a)
57. Material related-party transactions (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
264
263
The sum of the direct ratio of CMG's shareholdings in the Bank and the above-mentioned relevant numbers may differ slightly in the mantissa
due to rounding.
China Communications Construction Group LTD holds the bank through its subsidiaries (include China Communications Construction Co., Ltd.).
Shanghai Automotive Industry Corporation (Group) ("Shanghai Automotive Industry Group") holds 1.71% of the bank through its subsidiary
(SAIC Motor Corporation Limited) (2016: 1.71%).
China Communications Construction Group LTD ("China Communications Construction Group") holds 2.27% of the bank through its
subsidiaries (2016: 3.05%).
(ix)
(viii)
(vii)
(vi)
Hebei Port Group Company Ltd. directly holds 1.20% of the Bank (2016: 1.21%).
(v)
(iv)
As the largest shareholder, CMSNCL who is the subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2017 (2016: 13.04%).
Anbang Insurance Group Company Ltd. ("AIGC") holds 11.63% of the Bank (2016: 10.72%) through its subsidiary. According to the
announcement of China Insurance Regulatory Commission ("CIRC") [2018] No. 5. AIGC's former Chairman and General Manager Wu Xiaohui
being under suspicion of economic crimes, was prosecuted according to law. Since February 23 2018, CIRC and other authorities concerned
have formed a working group to take over Anbang Group, and the working group's leader will exercise the legal representative duties.
China COSCO Shipping Corporation Ltd. holds 9.97% of the Bank (2016: 9.97%) through its subsidiaries.
(iii)
CMSNCL
(ii)
Shenzhen Yan Qing Investment Development Co., Ltd.
Shenzhen Chu Yuan Investment and
2017
USD10,000,000
RMB61,900,000,000
China Ocean Shipping Co., Ltd.
Anbang Property & Casualty Insurance Co., Ltd.
Anbang Insurance Group Co., Ltd
(Shenzhen) Co., Ltd.
China COSCO Shipping Corporation Limited
China Merchants Industry Development
USD50,000
USD50,000
USD60,000
China Merchants Union (BVI)Ltd.
Best Winner Investment Ltd.
RMB600,000,000
RMB600,000,000
China Merchants Finance Investment Holdings Co., Ltd.
RMB600,000,000
RMB600,000,000
RMB600,000,000
RMB600,000,000
RMB5,900,000,000
RMB5,900,000,000
RMB13,750,000,000
RMB 13,750,000,000
2016
Development Company Ltd.
USD60,000
CMG holds 29.97% of the Bank (2016: 29.97%) through its subsidiaries.
Note:
Tian Huiyu
Limited company
Subsidiary
100% Financial advisory services
HKD4, 129 million
CMB International Capital Hong Kong
Joint stock limited Chen Hong
company
consulting service, imports
and exports
Production and sale of vehicles, Shareholder
1.71%
432,125,895
RMB11,683
million
SAIC Motor Corporation Shanghai
Limited
consulting service
(Group)
domestic trade business,
Chen Hong
Limited company
Shareholder's
parent company
Production and sale of vehicles,
asset management business,
1.71%
(note (vii))
432,125,895
RMB21,599
million
Holdings Corporation
(i)
Limited (CMBICHC)
Shanghai
Management Co., Ltd.
(CMFM)
Li Hao
Limited company
Subsidiary
55% Asset Management
RMB1,310 million
Shenzhen
China Merchants Fund
(WLB)
Tian Huiyu
Limited company
Subsidiary
100% Banking
HKD1,161 million
Hong Kong
Wing Lung Bank Limited
(CMBFLC)
Company Limited
Lian Bolin
Limited company
Subsidiary
100% Finance lease
RMB6,000 million
CMB Financial Leasing
USD10,000,000
RMB37,000,000,000
RMB11,000,000,000
The Bank's largest shareholder CMG holds 29.97% (2016: 29.97%) shares of the Bank through its subsidiaries as at
31 December 2017 (among them 13.04% shares is held by CMSNCL (2016: 13.04%)). The Group's transactions and
balances with CMSNCL and its related companies are disclosed as follows:
Shareholders and their related companies
(c)
There were no individually assessed allowances for impairment losses made against loans and advances granted to
related parties during the year.
4.75% to 4.90%
0.35%
1.10% to 2.75%
4.75% to 4.90%
0.35%
1.10% to 2.75%
2016
4.35%
2017
4.35%
Time deposits
Demand deposits
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:
Transaction terms and conditions
(b)
57. Material related-party transactions (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2017
55.00
115,500,000
605,000,000
720,500,000 55.00
1,160,950,575 100.00
100.00 6,000,000,000 100.00
4,129,000,000
2017
3,289,470,337 13.04
2016
- Loans and advances to customers
707
Interest income
5
222
36
213
91
2,135
1,489
100,553
53,686
3,662
5,109
8,482
11,122
- Factoring
- Bills of acceptances
- Irrevocable letters of credit
- Irrevocable guarantees
Off-balance sheet:
Placements
- Deposits from customers
- Investments
On-balance sheet:
At 31 December 2017
100.00
1,160,950,575
HKD4,129,000,000
CMBICHC
RMB8,000,000,000
RMB8,000,000,000
RMB299,020,000
RMB299,020,000
HKD500,000,000
HKD500,000,000
China COSCO Shipping Financial Holdings Co., Ltd.
Shenzhen Tri-Dynas Oil & Shipping Co., Ltd.
Hebei Port Group Co., Ltd.
RMB2,000,000
RMB3,191,200,000
RMB16,191,351,300
RMB11,000,000,000
RMB37,000,000,000
RMB61,900,000,000
RMB1,398,941,000
RMB2,000,000
RMB1,398,941,000
China COSCO Shipping (Shanghai) Co., Ltd.
Guangzhou Haining Maritime Technology Service Co., Ltd.
RMB3,191,200,000
China COSCO Shipping (Guangzhou) Co., Ltd.
RMB16,191,351,300
HKD4,129,000,000
CMBFLC
RMB6,000,000,000
RMB6,000,000,000
%
RMB
%
HKD
%
6,000,000,000 100.00
100.00
4,129,000,000
RMB
%
CMFM
WLB
Interest expense
The subsidiaries held by the Bank
CMBFLC
%
13.04
3,289,470,337
At 1 January 2017
Change
RMB
CMSNCL
The Bank held by the
largest shareholder
The change of proportion of the Bank held by the largest shareholder and the portion of the subsidiaries
held by the Bank
HKD1,160,950,575
RMB210,000,000
HKD1,160,950,575
RMB1,310,000,000
CMFM
WLB
CMBICHC
HKD
Fair value information (continued)
3.74%
(g)
56. Risk management (continued)
Annual Report 2017
IX Financial Statements
China Merchants Bank
260
(iii)
270
China Merchants Bank
IX Financial Statements
Annual Report 2017
60. Interests in unconsolidated structured entities
Interest in the structured entities sponsored by third party institutions
Adjustments for derivative financial instruments
The Group holds interests 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
income from managing assets on behalf of investors and are financed through the issue of notes to investors.
The following table sets out an analysis of the carrying amounts of interests held by the Group as at 31 December
2017 and 31 December 2016 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 2017 and 31 December 2016 in which assets are
recognised relating to the Group's interests in structured entities sponsored by third parties:
31 December 2017
Carrying amount
(a)
30,435
15,066
Adjustment for securities financing transactions
28,849
Wealth management products
Adjustment for off-balance sheet items
977,930
797,101
Other adjustments
(18,792)
(12,450)
Balance of adjusted on-balance sheet and off-balance sheet assets
7,309,756
6,758,093
19,680
Asset management schemes
Investment in funds
Asset backed securities
93,993
93,993
447,651
447,651
446,603
1,048
34,515
exposure
Total
receivables
Maximum
Debt
securities
classified as
Held-to-
maturity
investments
assets
for-sale
financial
Financial
assets held
for trading
agreements
Available-
Amounts
held under
resale
Total
Investment in funds
Asset backed securities
Trust beneficiary rights
Asset management schemes
Wealth management products
Total
273
Trust beneficiary rights
274
Leverage ratio (continued)
IX Financial Statements
Total derivative exposures
49,351
28,368
Gross SFT assets (with no recognition of netting),
after adjusting for sale accounting transactions
252,550
278,699
Less: Netted amounts of cash payables and
cash receivables of gross SFT assets
Counterparty credit risk exposure for SFT assets
Agent transaction exposures
28,849
15,066
Less: Adjusted effective notional deductions for written credit derivatives
Total securities financing transaction exposures
293,765
Off-balance sheet exposure at gross notional amount
1,754,836
1,379,339
Less: Adjustments for conversion to credit equivalent amounts
(776,906)
(582,238)
Balance of adjusted off-balance sheet assets
977,930
797,101
Net tier 1 capital
459,782
281,399
1,377
1,515
Less: Exempted central counterparty leg of client-cleared trade exposures
Effective notional amount of written credit derivatives
(B)
93,993
Leverage ratio, net tier-1 capital, on-balance sheet and off-balance sheet exposures and other information:
2017
2016
On-balance sheet items (excluding derivatives and
securities financing transactions (SFT))
6,019,868
5,651,310
Less: Asset amounts deducted in determining Basel III Tier 1 capital
(18,792)
(12,450)
Balance of adjusted on-balance sheet assets
(excluding derivatives and SFTs)
6,001,076
5,638,860
Replacement cost associated with all derivatives transactions
(net of eligible cash variation margin)
Add-on amounts for potential future exposure associated
with all derivatives transactions
Gross-up for derivatives collateral provided where deducted
from the balance sheet assets
18,088
14,851
29,748
12,140
Less: Deductions of receivables assets for cash variation margin
provided in derivatives transactions
China Merchants Bank
Annual Report 2017
3,437
8,427
4,427
Core tier-1 capital:
Components of capital base
Capital adequacy ratio
Tie-1 capital adequacy ratio
Core tier-1 capital adequacy ratio
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:
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.
(A) Capital adequacy ratio
(Expressed in millions of Renminbi unless otherwise stated)
Unaudited Supplementary Financial Information
Annual Report 2017
IX Financial Statements
2017
China Merchants Bank
271
Since 2017, the Group has allocated the additional provision to each operating segment and restated the comparable
figures.
62. Comparative figures
Save as otherwise disclosed in Note 48(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. Non-adjusting events after the reporting period
The total amount of non-principal-guaranteed wealth management products issued by the Group after 1 January
2017 with a maturity date before 31 December 2017 was RMB3,289,090 million (2016: RMB3,081,595 million).
During the year ended 31 December 2017, the amount of management fee income received from the unconsolidated
asset management schemes by the Group is RMB1,027 million (2016: RMB939 million).
During year ended 31 December 2017, the amount of fee and commission income received from such category
of non-principal-guaranteed wealth management products by the Group is RMB14,000 million (2016: RMB15,470
million).
As at 31 December 2017, 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 RMB201,641 million (31 December 2016: RMB274,393 million) and RMB9,013
million (31 December 2016: RMB50,283 million) respectively. The above transactions were made in accordance with
normal business terms and conditions.
As at 31 December 2017, the amount of the unconsolidated asset management schemes, which are sponsored by
the Group, is RMB264,591 million (31 December 2016: RMB352,446 million).
As at 31 December 2017, the amount of the unconsolidated non-principal-guaranteed wealth management
products, which are sponsored by the Group, is RMB2,177,856 million (31 December 2016: RMB2,375,766 million).
As at 31 December 2017, the amount of the unconsolidated mutual funds, which are sponsored by the Group, is
RMB392,292 million (31 December 2016: RMB345,450 million).
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 income 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.
272
2016
12.06%
11.54%
444,481
Total core tier-1 capital
1,625
(817)
Others (note (i))
303
208
Qualifying portion of non-controlling interests
197,947
239,560
Retained profits
67,839
70,907
Regulatory general reserve
39,678
46,131
Surplus reserves
68,600
63,272
Qualifying portion of capital reserve
25,220
25,220
Qualifying portion of share capital
13.33%
15.48%
11.54%
13.02%
(b) Interest in the unconsolidated structured entities sponsored by the Group
563
60. Interests in unconsolidated structured entities (continued)
China Merchants Bank
Annual Report 2017
Maximum
classified as
Debt
securities
Held-to-
maturity
investments
assets
financial
for-sale
Financial
assets held
for trading
agreements
Available-
Amounts
held under
resale
Carrying amount
receivables
31 December 2016
597,019
545,023
563
49,984
401
1,048
46,948
46,948
46,547
401
388,780
8,427
597,019
Total
exposure
55,216
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.
558,728
558,728
508,050
2,187
43,318
43,318
43,209
47,056
333
1,102
109
6,376
6,376
118
2,187
3,847
224
83,600
83,600
83,548
52
370,218
370,218
369,168
1,050
55,216
55,216
IX Financial Statements
Balance of adjusted on-balance sheet and off-balance sheet assets
Leverage ratio
6,758,094
52,073
Net structural position
(3,629)
(29,145)
13
(32,761)
2016
USD
HKD
Others
Total
(in millions of RMB)
7,114
Non-structural position
1,863
11,553
North and South America
23,471
5,804
2,057
15,610
Europe
196,252
139,530
35,912
20,810
Spot assets
29,579
15,380
Net long position
USD
HKD
Others
Total
(in millions of RMB)
Non-structural position
Spot assets
Spot liabilities
Forward purchased
Forward written
471,789
(545,168)
215,597
(185,566)
84,678
(69,890)
772,064
(800,624)
490,431
36,210
83,433
610,074
(398,527)
(36,478)
(91,187)
(526,192)
Net option position
(3,145)
(184)
80
(3,249)
- of which attributed to Hong Kong
2017
216,915
35,942
56,036
3,253
34,266
18,517
Net structural position
Net long position
(54,548)
(1,706)
(4,180)
(48,662)
Net option position
(764,969)
(10,483)
(75,022)
(630,853)
Forward written
884,488
79,067
63,786
741,635
Forward purchased
940,032
(948,967)
76,138
(75,224)
(207,309)
(666,434)
Spot liabilities
(59,094)
(30,218)
(509)
(41,210)
31,322
Asia Pacific excluding Mainland China
179,172
73,302
9,758
96,112
Mainland China
Foreign currencies transactions in
Total
Others
entities
institutions
sector
financial
Public
Banks
and other
2017
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
IX Financial Statements
China Merchants Bank
Annual Report 2017
Investments in subsidiaries.
Capital and statutory reserves of overseas branches; and
Investment properties, property and equipment, net of depreciation charges;
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:
149,651
7,309,756
(D) Currency concentrations other than RMB
IX Financial Statements
115,443
1,293,974
129,397
Unsecured wholesale funding, of which:
- Business relations deposits (excluding
correspondent banks operations)
1,636,910
406,679
1,232,010
306,159
- Non-business relations deposits
(including all the counterparties)
1,154,427
1,192,084
1,333,629
769,220
- Liabilities and obligations arising from
unsecured funding
63,258
63,258
1,092
1,092
Secured funding
42,401
49,960
Additional requirements, of which:
- Cash outflows arising from derivative
contracts and other transactions arising
from related collateral requirements
647,894
- Less stable deposits
10,604
212,072
401,212
6.29%
5.75%
China Merchants Bank
IX Financial Statements
Annual Report 2017
(C) Liquidity coverage ratio
In accordance with CBRC's Administrative Measures on Liquidity Coverage Ratio of Commercial Banks effective on
31 December 2015, the Group's liquidity coverage ratio and relevant components were as follows. The basis used
herein may differ from those adopted in Hong Kong or other countries. For the quarter ended 31 December 2017,
the Group's liquidity coverage ratio was as follows:
Quarter ended
31 December 2017
Unweighted
Quarter ended
31 December 2016
Unweighted
Weighted
amount
Weighted
amount
amount
(Average value) (Average value)
(Average value)
amount
(Average value)
High quality liquid assets
Total high quality liquid assets (HQLA)
596,666
637,522
Cash outflows
Retail deposits and small business funding,
of which:
- Stable deposits
322,474
16,124
52,145
Annual Report 2017
52,134
36,697
618,785
Other cash inflows
53,418
51,686
38,545
37,774
Total cash inflows
838,811
836,079
Adjusted value
Adjusted value
TOTAL HQLA
945,283
TOTAL NET CASH OUTFLOWS
Note:
(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.
596,666
637,522
585,613
564,076
101.90%
114.59%
275
276
China Merchants Bank
LCR (%) (i)
611,834
868,522
Cash inflows from fully honoured payments
- Cash outflows arising from secured debt
instruments funding
- Committed credit facilities and
committed liquidity facilities
743,527
42,699
564,728
32,395
Other contractual lending obligations
19,230
19,230
38,540
38,540
Other contingent funding obligations
2,668,869
18,562
2,227,769
26,091
Total cash outflows
1,424,424
1,400,155
Cash inflows
Secured lending transactions (including
reverse repurchase agreements and
securities borrowed)
175,291
175,291
179,520
179,520
36,889
Regulatory deductions from core tier-1 capital
During the year ended 31 December 2017, the amount of management fee income received from the unconsolidated
mutual funds by the Group is RMB1,533 million (2016: RMB1,292 million).
12,450
other security
Amount
other security
Property development
63,209
58
52,922
59
Financial concerns
47,198
40
44,489
35
Transportation, storage and postal services
Amount
25,613
18,281
70
Manufacturing
14,221
58
21,732
32
Wholesale and retail
13,934
73
13,892
85
Leasing and commercial services
13,444
90
collateral or
collateral or
covered by
35,096
44
46,397
62,863
1,362,540
154,517
100
720,323
408,951
100
94
281,653
70
69
109,924
1,520,851
Gross loans and advances to customers
3,323,739
58
advances
covered by
% of gross
loans and
advances
loans and
% of gross
2016
35
2017
(F) Further analysis on loans and advances to customers analysed by
industry sector (continued)
IX Financial Statements
Annual Report 2017
China Merchants Bank
37882228
3,037,908
Operation outside Mainland China
5,005
47
Telecommunications, software and
220,365
58
204,030
53
Residential mortgage
7,613
100
8,005
100
Credit cards
204
247
Micro-finance loans
1,747
98
1,849
Others
56
223,773
61
241,305
Gross loans and advances to customers
89
Corporate loans and advances subtotal
19,743
20,940
Retail loans and advances subtotal
99
9,642
83
11,376
90
50
44
67
IT services
11,371
44
44
21,686
99
66
Production and supply of electric power,
heating power, gas and water
7,065
49
4,276
52
Mining
4,211
89
3,082
17,743
Others
72
147
17
419
17,716
public utilities management
56
802
81
1,937
Construction
69
Water, environment and
279
35,891
55,806
5,320
23,633
North and South America
12,571
850
46,553
59,974
Total
147,589
26,580
304,578
478,747
277
278
1,929
China Merchants Bank
Annual Report 2017
(F) Further analysis on loans and advances to customers analysed by
industry sector
Operation in Mainland China
2017
2016
% of gross
loans and
advances
% of gross
loans and
advances
covered by
covered by
collateral or
collateral or
IX Financial Statements
16,384
Europe
185,072
47,931
Total
154,597
49,620
263,272
467,489
2016
Banks
and other
Public
financial
sector
institutions
entities
Others
Total
Foreign currencies transactions in
144,295
20,857
19,920
- of which attributed to Hong Kong
214,241
155,247
Amount
20,897
Asia Pacific excluding Mainland China
180,899
97,458
2,904
80,537
Mainland China
38,097
other security
Amount
other security
83,871
Telecommunications, software and
241,063
IT services
67,997
Financial concerns
44,381
Water, environment and
public utilities management
43,901
Mining
39,086
Others
56,838
Corporate loans and advances subtotal
1,443,496
Discounted bills
mཨཽ ཞཐཱgg $e8
1,764,355
Retail loans and advances subtotal
136,410
Others
310,969
104,393
Micro-finance loans
Credit cards
100
825,797
Residential mortgage
100
115,888
491,179
52
888
83,433
Manufacturing
251,851
33
275,710
38
Wholesale and retail
206,973
42
214,859
47
Transportation, storage and postal services
205,022
35
175,548
38
Property development
197,782
Construction
38
121,824
heating power, gas and water
Production and supply of electric power,
37
33
97,464
66
174,642
66
69
124,408
Leasing and commercial services
29
18,792
622,831
but outside the scope of regulatory consolidation
449,116
3,530,745
3,368,990
Notes:
(i) :
:(!!)
Others represent exchange reserve of foreign currency consolidated financial statements under CBRC's Administrative Measures on the Capital
of Commercial Banks (Trial).
The Group's additional tier-1 capital includes qualifying portion of non-controlling interests, preferred shares and etc.
China Merchants Bank
IX Financial Statements
(A) Capital adequacy ratio (continued)
In 2017, in accordance with the advanced capital management approach approved by CBRC in April 2014, the Bank
calculated core tier-1 capital adequacy ratio is 11.70%, tier-1 capital adequacy ratio is 12.69%, capital adequacy
ratio is 15.24%, net capital is RMB483,546 million and total risk-weighted assets is RMB3,173,532 million.
In 2017, 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 10.01%, tier-1 capital adequacy ratio is 10.81%, capital adequacy ratio is 12.66%, net capital is
RMB538,761 million and total risk-weighted assets is RMB4,254,180 million.
In 2017, 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 9.50%, tier-1 capital adequacy ratio is 10.30%, capital adequacy ratio is 12.16%, net capital is
RMB475,774 million and total risk-weighted assets is RMB3,911,286 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 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
2017
2016
6,297,638
5,942,311
Adjustments for investments in banking, financial, insurance or
commercial entities that are consolidated for accounting purposes
(6,304)
(3,615)
Adjustments for fiduciary assets
546,534
60,336
Annual Report 2017
Total risk-weighted assets
Net core tier-1 capital
425,689
86,752
Additional tier-1 capital (note (ii))
34,093
18
Net tier-1 capital
459,782
388,780
Tier-2 capital:
Qualifying portion of tier-2 capital instruments and their premium
30,000
30,000
388,762
54,586
Surplus provision for loans impairment
Net capital
Regulatory deductions from core tier-2 capital
60,336
86,752
Net tier-2 capital
1,037
2,166
Qualifying portion of non-controlling interests
29,299
Total tier-2 capital
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;
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;
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 identify connected persons of the Company according to relevant laws and regulations;
Main authorities and duties of the Related Party Transactions Control Committee are:
(iii) Related party transactions control committee
any other task delegated by the Board of Directors.
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 examine the internal control system of the Bank, and make recommendations for improvement in
the internal control of the Bank;
to coordinate the communication between internal auditors and external auditors;
to make recommendations and proposals on important issues for discussion and determination by the
Board of Directors.
to propose the appointment or replacement of external auditors;
Main authorities and duties of the Audit Committee are:
Audit committee
(ii)
to evaluate and monitor the implementation of Board resolutions; and
to supervise and review the implementation of the annual operational and investment plans;
to consider material investment and financing plans and make proposals to the Board of Directors;
to formulate the operational goals and medium-to-long term development strategies of the Bank, and
make an overall assessment on strategic risks;
Main authorities and duties of the Strategy Committee are:
Strategy committee
to review the announcements on related party transactions of the Bank.
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;
283
16,701
China Merchants Bank
(i)
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
(vi)
(v)
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:
(iv) Risk and capital management committee
Board committees (continued)
(J) Corporate governance (continued)
Annual Report 2017
IX Financial Statements
284
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.
% of
total loans
and advances
(J) Corporate governance
2016
2017
(H) Rescheduled loans and advances to customers
The collateral of the Group included cash deposit, shares, land use right, property, motor vehicles and other equipment, etc. The fair value
of collateral 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.
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.
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 with a specific repayment date are classified as overdue when the principal or interest is overdue.
The above analysis represents loans and advances overdue for more than 90 days as required and defined by the HKMA.
Note:
The amount of the Group's overdue loans and advances to financial institutions as at 31 December 2017 was RMB1
million (2016: RMB1 million).
% of
total loans
and advances
23,332
19,168
13,239
33,912
34,185
13,961
11,494
2016
2017
Provision of overdue loans and advances for which impairment losses
are individually assessed
Value of collateral held against overdue loans and advances
28,088
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;
Rescheduled loans and advances
to customers (Note)
Annual Report 2017
IX Financial Statements
China Merchants Bank
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 2017 and 31 December 2016, 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.
(1) Non-bank mainland china exposures
The amount of the Group's rescheduled loans and advances to financial institutions as at 31 December 2017 was 1
million (2016: 1 million).
Note: Represents the restructured non-performing loans.
0.25%
8,066
0.19%
6,716
less than 90 days
Rescheduled loans and advances overdue
0.26%
8,605
0.32%
11,293
- rescheduled loans and advances overdue
more than 90 days
Less:
0.51%
16,671
0.51%
18,009
Board committees
9,029
to study the standards and procedures for selection of directors and senior management, and make
recommendations to the Board of Directors;
to conduct preliminary examination on the candidates for directors and senior management and make
recommendations to the Board of Directors; and
Manufacturing
Impaired loans
and advances
written off
during the year
Impairment
losses charged
to consolidated
statement of
profit or loss
during the year
allowance
allowance
and advances
and advances
19,727
Collectively
assessed
impairment
Impaired loans
Overdue loans
2016
280
China Merchants Bank
Annual Report 2017
IX Financial Statements
(F) Further analysis on loans and advances to customers analysed by
Individually
assessed
impairment
industry sector (continued)
18,969
12,189
10,561
Credit card
6,732
4,677
7,539
4,626
6,904
12,733
Micro-finance loans
1,513
7,219
3,022
4,313
Residential mortgage
17,089
24,446
142
The overdue amounts, impaired amounts of below industry sectors of the Group are as below:
2017
Overdue loans
285
Micro-finance loans
6,277
5,548
9,103
3,279
3,485
4,248
Credit card
(0755) 8319 5555
: (0755) 8319 8888
: China Merchants Bank Tower, No 7088,
Shennan Boulevard, Shenzhen, China
://www.cmbchina.com
Fax
Tel
Add
Postcode 518040
11,273
2,734
3,869
Impaired loans
Individually
assessed
impairment
Collectively
assessed
impairment
and advances
and advances
allowance
allowance
Impairment
losses charged
to consolidated
statement of
profit or loss
during the year
Impaired loans
and advances
written off
during the year
Manufacturing
16,333
17,377
15,006
26,118
26,358
4,737
Residential mortgage
5,715
to conduct extensive searches for qualified candidates for directors and senior management;
11,884
2,336
45,679
23,593
28,855
15,388
10,254
8,892
6,570
47,873
Total
- between 6 and 12 months (inclusive)
- between 3 and 6 months (inclusive)
-
As a percentage of total gross loans and advances:
Total
- over 12 months
- between 6 and 12 months (inclusive)
- over 12 months
- between 3 and 6 months (inclusive)
0.18%
0.29%
any other task delegated by the Board of Directors.
http
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)
Annual Report 2017
0.27%
IX Financial Statements
282
281
1.46%
1.28%
0.72%
0.81%
0.47%
China Merchants Bank
Gross loans and advances to customers which have been overdue
with respect to either principal or interest for periods of:
2016
2017
Total
Subsidiaries
Outside Mainland China
Western region
Central region
Northeast region
Pearl River Delta and West Coast region
(ii) By overdue period
Bohai Rim region
Headquarters
By geographical segments
(i)
(G) Overdue loans and advances to customers
Annual Report 2017
IX Financial Statements
China Merchants Bank
Yangtze River Delta region
2017
2016
4,495
1,316
47,873
45,679
1,067
42
12,677
9,334
6,492
5,119
2,730
4,061
6,126
7,758
4,463
5,990
8,731
7,813
5,338
7,570
9,031
9,787
5,467
Debt securities issued
26,233
2.43
Subtotal
2,665,846
39,883
1.50
2,404,585
35,038
1.46
Deposits from retail customers
Demand
968,069
1,080,128
3,600
875,029
3,275
0.37
Time
331,547
6,846
2.06
340,089
7,687
2.26
Subtotal
1,299,616
10,446
0.37
Total deposits from customers
2.46
1,182,334
Interest income from investments
In 2017, the interest income from investments of the Group was RMB52.042 billion, up by 13.83% as compared
with the previous year, and the average yield of investments was 3.63%, up by 0.11 percentage point as compared
with the previous year.
Interest income from placements with banks and other financial institutions
In 2017, the interest income of the Group from placements with banks and other financial institutions was
RMB12.426 billion, up by 20.01% as compared with the previous year, and the average yield for placements with
banks and other financial institutions was 2.71%, up by 0.42 percentage point as compared with the previous year,
which was primarily attributable to the increase in market interest rate, driving up the yield for placements with
banks and other financial institutions.
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
3.2.4 Interest expense
In 2017, the interest expense of the Group was RMB97.153 billion, representing an increase of 20.11% as compared
with the previous year, which was primarily attributable to the increase in market interest rate, resulting in the rapid
increase in cost ratios of interbank liabilities and interbank certificates of deposits.
Interest expense on deposits from customers
In 2017, the Group's interest expense on deposits from customers was RMB50.329 billion, up by 9.41% as
compared with the previous year, which was primarily attributable to the increase in scale of deposits. Influenced by
the structural optimisation and the effective control and management of pricing, the overall average cost ratios for
deposits remained at the same level as compared with the last year.
The following table sets forth, for the periods indicated, the average balances, interest expenses and average cost
ratios for corporate and retail deposits of the Group.
2017
2016
29,089
(in millions of RMB, except for percentages)
Interest
expenses
Average
cost ratio
(%)
Average
balance
Interest
expenses
Average
cost ratio
(%)
Deposits from corporate customers
Demand
1,483,512
10,794
0.73 1,324,457
8,805
0.66
Time
Average
balance
In 2017, from the perspective of the tenor structure of loans and advances of the Company, the average balance
of short-term loans was RMB1,470.191 billion with the interest income amounting to RMB81.338 billion, and the
average yield reached 5.53%; the average balance of medium- to long-term loans was RMB1,783.211 billion with
the interest income amounting to RMB78.263 billion, and the average yield reached 4.39%. The average yield of
short-term loans was higher than that of medium- to long-term loans, which was attributable to the higher yield of
credit card overdrafts and micro-finance loans in short-term loans.
3,965,462
0.80 1,215,118
1.27 3,619,703
52,042
3.63
1,300,604
45,721
3.52
Balances with the Central Bank
566,594
8,679
1.53
557,347
8,170
1.47
Balances and placements with banks and
1,432,408
other financial institutions
12,426
2.71
451,820
10,354
2.29
Total
5,966,601
242,005
4.06
5,385,382
215,481
4.00
21
459,129
50,329
Investments
151,236
10,962
0.90
46,000
1.27
Interest expense on placements from banks and other financial institutions
In 2017, the interest expense of the Group on placements from banks and other financial institutions amounted to
RMB24.138 billion, representing an increase of 19.68% as compared with the previous year, which was primarily
attributable to the increase in the interest rate of inter-bank borrowing.
Interest expense on debt securities issued
In 2017, the interest expense on debt securities issued of the Group amounted to RMB13.436 billion, representing
an increase of 35.38% as compared with the previous year, which was primarily attributable to the increase in the
volume of debt securities issued.
3.2.5 Net interest income
In 2017, the Group's net interest income amounted to RMB144.852 billion, representing a year-on-year increase of
7.62%.
The following table sets out the average balances of assets and liabilities, interest income/interest expenses, and
average yields/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.
2017
2016
4.92
(in millions of RMB, except for percentages)
Interest
income
Average
yield (%)
Average
Interest
balance
income
Average
yield (%)
Interest-earning assets
Loans and advances
3,508,470
168,858
4.81
3,075,611
Average
balance
4.92
151,236
3,075,611
366,231
Time
25.03
20
China Merchants Bank
III Report of the Board of Directors
Annual Report 2017
3.2.2 Net operating income
In 2017, the net operating income of the Group was RMB221.037 billion, representing a year-on-year increase of
5.12%. The net interest income accounted for 65.53% of the total net operating income, the net non-interest
income accounted for 34.47% of the total net operating income, representing a year-on-year decrease of 1.52
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.
(%)
2017
2016
2015
2014
2013
Net interest income
65.53
64.01
68.01
70.38
74.30
Net fee and commission income
28.96
28.95
26.20
23.72
9.01
332,943
8.76
Subtotal
31 December 2017
Percentage of
Total non-performing loans
Total loans and advances to customers
Loss
Doubtful
Substandard
Special mention
Normal
(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.
3.4.1 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 a decrease in the
non-performing loan ratio. The allowance coverage ratio remained solid, and our risk loss endurance capability
was further improved. As at 31 December 2017, total loans and advances to customers of the Group were
RMB3,565.044 billion, representing an increase of 9.30% as compared with the end of the previous year; the
non-performing loan ratio was 1.61%, down by 0.26 percentage point from the end of the previous year; the
non-performing loan allowance coverage ratio was 262.11%, representing an increase of 82.09 percentage points
as compared with the end of the previous year; the loan allowance ratio was 4.22%, representing an increase of 0.85
percentage point as compared with the end of the previous year.
3.4 Analysis of loan quality
21.92
Annual Report 2017
China Merchants Bank
As at 31 December 2017, the shareholders' equity of the Group was RMB483.392 billion, representing an increase
of 19.84% as compared with the end of the previous year. Equity attributable to shareholders of the Bank was
RMB480.210 billion, representing an increase of 19.35% as compared with the end of the previous year. Among
which, retained profits amounted to RMB241.063 billion, representing an increase of 21.07% as compared with the
end of the previous year due to the realisation of net profit in the current year and the factor of profit distribution.
Investment revaluation reserve amounted to RMB-3.812 billion, mainly due to a decrease of valuation in the bond
market.
3.3.3 Shareholders' equity
As at 31 December 2017, the percentage of demand deposits to total deposits from customers of the Group was
62.84%, representing a decrease of 0.10 percentage point as compared with the end of the previous year. Among
which, the corporate demand deposits accounted for 58.03% of the corporate deposits, representing an increase
of 0.78 percentage point as compared with that at the end of the previous year, and the retail demand deposits
accounted for 72.64% of the retail deposits, representing a decrease of 1.44 percentage points as compared with
that at the end of the previous year.
100.00
3,802,049
100.00
4,064,345
33.79
1,284,558
32.93
1,338,522
Total deposits from customers
III Report of the Board of Directors
Other net income
5.05
6.89
balance
income
yield (%)
Corporate loans
1,650,406
65,864
3.99
1,526,315
64,829
4.25
Retail loans
1,694,059
98,386
yield (%)
5.81
82,573
6.06
Discounted bills
164,005
4,608
2.81
186,367
3,834
2.06
Loans and advances
3,508,470
168,858
4.81
1,362,929
22
income
(in millions of RMB, except for percentages)
5.72
5.81
3.71
Share of profits of associates and
joint ventures
0.46
0.15
0.07
0.09
0.07
Total
100.00
100.00
100.00
balance
100.00
3.2.3 Interest income
In 2017, the Group recorded an interest income of RMB242.005 billion, representing a year-on-year increase
of 12.31%, mainly due to the increase in assets, and increased yield of interest-earning assets brought by the
continuous optimisation of asset structure as well as improvement in risk pricing. Interest income from loans and
advances continued to be the biggest component of the interest income of the Group.
Interest income from loans and advances
In 2017, the interest income from loans and advances of the Group was RMB168.858 billion, representing a
year-on-year increase of 11.65%.
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.
2017
2016
Average
Interest
Average
Average
Interest
Average
100.00
22
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
2,118
4.15
147,786
Others(4)
1.40
5,717
12.55
409,198
1.11
5,470
13.78
491,383
Credit card loans
1.43
0.42
22.32
728,328
0.33
2,734
23.38
833,410
Residential mortgage loans
1.63
4,629
8.69
283,502
1.77
5,549
3,023
8.77
119,566
2,033
44,231
31 December 2017
Percentage
of the total
(%)
Non-
performing
loan
Non-
performing
loan ratio (1)
Loan
balance
31 December 2016
Percentage
of the total
Non-
Non-
performing
29
(4) The "Others" category consists primarily of general consumption loans, commercial housing loans, automobile loans, house decoration
loans, education loans and other personal loans secured by monetary assets.
3.67
The Company will transfer discounted bills to corporate loans for accounting purposes once overdue.
(2) Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
Note: (1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
1.87
61,121
100.00
3,261,681
1.61
57,393
100.00
3,565,044
customers
Total loans and advances to
1.70
(3)
3,591,230
312,716
1.00
5,304
11.15
363,802
1.45
5,770
11.16
397,807
Fixed asset loans
3.66
29,064
24.36
794,577
3.14
1.46
27,300
868,844
Working capital loans
2.92
45,719
48.03
1,566,570
2.50
41,522
46.67
1,663,861
Corporate Loans
loan ratio (¹)
loan
24.37
Micro-finance loans
Trade finance
4.46
15,402
47.23
1,540,594
0.89
15,871
50.08
1,785,295
Retail loans
4.74
154,517
3.25
115,888
Discounted bills (3)
159,090
3.68
6.61
215,390
2.91
6,936
6.68
238,120
Others(2)
1.78
3,433
5.91
192,801
0.95
1,516
7,918
31 December 2016
4.76
3,583,633
13,436
3.96
301,430
9,925
3.29
Borrowings from the Central Bank
305,886
9,250
3.02
177,449
4,793
2.70
Total
339,320
5,491,455
1.77 4,972,277
80,886
1.63
Net interest income
144,852
134,595
Net interest spread
2.29
2.37
2.43
2.50
Net interest margin
In 2017, the average yield of the interest-earning assets was 4.06%, while the average cost ratio of interest-bearing
liabilities was 1.77%, up by 6 basis points and 14 basis points respectively as compared with the previous year. Due
to the impact of change from business tax to value-added tax and the rise in interest rates in the liabilities market,
the increase in the average yield of the interest-earning assets was lower than the increase in the average cost ratio
of interest-bearing liabilities, resulting in slight decrease of net interest margin. In 2017, the net interest spread and
net interest margin of the Group were 2.29% and 2.43% respectively, down by 8 basis points and 7 basis points
respectively as compared with the previous year.
97,153
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 volume are measured by changes
in average balances (daily average balance), while changes in interest rate are measured by changes in the average
interest rates; the changes in interest income and interest expenses due to changes in both volume and interest rate
have been included in the amount of changes in interest income and interest expenses due to changes in volume.
Debt securities issued
20,168
Average
Interest
Average
cost ratio
Average
Average
Interest
cost ratio
(in millions of RMB, except for percentages)
balance
expenses
(%)
balance
expenses
2.31
(%)
Deposits from customers
3,965,462
50,329
1.27
3,619,703
46,000
1.27
Deposits and placements from banks and
other financial institutions
880,787
24,138
2.74
873,695
Interest-bearing liabilities
43,037
(in millions of RMB)
Net increase
(decrease)
2,011
3,511
Borrowings from the Central Bank
3,884
573
4,457
Changes in interest expense
9,966
6,301
16,267
Changes in net interest income
15,996
(5,739)
1,500
10,257
July to September 2017
October to December 2017
Annualised
Annualised
(in millions of RMB, except for percentages)
Average
balance
Interest
income
average
yield (%)
Average
balance
Interest
income
average
yield (%)
Interest-earning assets
Loans and advances
The following table sets out the average balances of assets and liabilities, interest income/interest expenses and
annualised average yields/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.
2017 compared with 2016
Increase (decrease) due to
Volume Interest rates
Debt securities issued
3,776
Assets
Loans and advances
Investments
Balances with the Central Bank
Balances and placements with banks and other
financial institutions
20,833
(3,211)
4,789
1,532
17,622
6,321
142
367
509
3,970
198
2,072
25,962
562
26,524
Changes in interest income
Liabilities
Deposits from customers
4,388
(59)
4,329
Deposits and placements from banks and other
financial institutions
194
1,874
296,477
Amount the total (%)
Percentage of
the total (%)
25
As at 31 December 2017, total loans and advances of the Group amounted to RMB3,565.044 billion, representing
an increase of 9.30% as compared with the end of the previous year; total loans and advances accounted for
56.61% of the total assets, representing an increase of 1.72 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.
3.3.1.1 Loans and advances
Including interest receivable, fixed assets, intangible assets, investment properties, deferred tax assets and other assets.
100.00
5,942,311
100.00
6,297,638
2.26
134,913
2.55
160,897
0.17
9,954
0.16
9,954
8.06
478,950
6.47
407,178
1.73
103,013
1.22
76,918
10.11
600,510
9.94
26
China Merchants Bank
III Report of the Board of Directors
Annual Report 2017
572,241
Investments classified as receivables
32.60
477,064
34.84
558,218
Held-to-maturity investments
26.59
389,138
23.91
383,101
Available-for-sale financial assets
3.82
625,728
55,972
64,796
of the current period
Financial assets at fair value through profit or loss
Percentage of
the total (%)
Amount
Percentage of
the total (%)
Amount
(in millions of RMB, except for percentages)
31 December 2016
31 December 2017
The following table sets forth the components of the investment portfolio of the Group according to accounting
classifications.
The Group's investment securities and other financial assets consist of listed and unlisted financial instruments
denominated in RMB and foreign currencies.
3.3.1.2 Investment securities and other financial assets
4.04
24.63
1,463,322
25.44
3.3 Analysis of balance sheet
Impairment losses on loans and advances were the largest component of impairment losses on assets. In 2017,
impairment losses on loans and advances were RMB60.052 billion, representing a decrease of 6.98% as compared
with the previous year, which was mainly due to the improvement in asset quality resulting in decrease of provision.
For details of the provision for impairment losses on loans, please refer to the section headed "Analysis of Loan
Quality" in this chapter.
66,159
59,926
1,699
682
507
121
(607)
(929)
64,560
60,052
2016
3.3.1 Assets
2017
- Amounts due from banks and other financial institutions
- Other assets
- Investments
- Loans and advances to customers
(in millions of RMB)
In 2017, impairment losses on assets of the Group were RMB59.926 billion, representing a year-on-year decrease of
9.42%. The following table sets forth, for the periods indicated, the principal components of impairment losses on
assets of the Group.
3.2.8Impairment losses
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
65,148
70,431
248
232
16,767
Total impairment losses
35.71
As at 31 December 2017, the total assets of the Group amounted to RMB6,297.638 billion, representing an increase
of 5.98% 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.
(in millions of RMB, except for percentages)
1,602,351
53.04
3,151,649
54.22
3,414,612
(1.85)
(110,032)
(2.39)
(150,432)
54.89
3,261,681
56.61
3,565,044
The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
Percentage of
the total (%)
Amount the total (%)
Percentage of
31 December 2016
31 December 2017
Note:
Total assets
Other assets (note)
Goodwill
Cash, precious metals and balances with Central Bank
Balances with banks and other financial institutions
Placements with banks and other financial institutions
and amounts held under resale agreement
Investment securities and other financial assets
Net loans and advances to customers
Provision for impairment losses on loans
Total loans and advances to customers
Amount
528,748
36.13
Investments in joint ventures and associates
Percentage of
the total (%)
Amount
Percentage of
Amount the total (%)
Deposits from banks and other financial institutions
Borrowings from the Central Bank
(in millions of RMB, except for percentages)
Deposits from customers
31 December 2016
31 December 2017
The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
As at 31 December 2017, the total liabilities of the Group amounted to RMB5,814.246 billion, representing an
increase of 4.97% as compared with the end of the previous year, which was primarily due to the steady growth in
deposits from customers.
3.3.2 Liabilities
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
28
4,064,345
27
3.3.1.3 Goodwill
In 2017, with the accelerated marketisation of RMB exchange rates, the central parity rate pricing mechanism was
further improved, and due to increased volatility between RMB central parity rate and transaction price, customers
had an increasing demand for 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, grasped the appropriate trading timing for exchange
rate fluctuations, actively used interest rate swap and other derivatives to hedge risks, and vigorously expanded
the foreign exchange trading for customers. As a result, the Group's foreign exchange trading for the proprietary
purpose and its customers maintained a continuous growth.
(11,152)
8,688
2,667,774
(21,857)
18,916
(68)
67
(450)
(10,634)
Liabilities
Fair value
Assets
599
8,022
1,410,276
1,257,163
335
In compliance with the PRC enterprise accounting principles, at the end of 2017, 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 year. As at 31 December 2017, 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.
(1,898)
(19,636)
(323)
69.90
68.64
2.94
162,942
2.16
125,620
Amounts sold under repurchase agreements
0.20
11,152
0.38
21,857
Derivative financial liabilities
0.43
23,576
0.46
3,802,049
26,619
4.49
248,876
4.69
272,734
Placements from banks and other financial institutions
5.96
330,108
7.13
414,838
10.03
555,607
7.55
439,118
Financial liabilities at fair value through profit or loss
18,570
322
Notional
amount
Others (note)
Policy banks
(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 2017, the Group's net debt securities classified
as receivables amounted to RMB572.241 billion, representing an increase of 8.23% as compared with the end of
the previous year, which was mainly attributable to an increase 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 3.9.1 of this report for details of the investment in non-standard debt securities of the Company.
Debt securities classified as receivables
Annual Report 2017
III Report of the Board of Directors
China Merchants Bank
As at 31 December 2017, the net value of held-to-maturity investments of the Group was RMB558.218 billion,
representing an increase of 17.01% 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. In 2017, to facilitate the replacement of local government debts, and in consideration of the
comprehensive operating requirements of the whole Bank, the increase in held-to-maturity investments by the
Group primarily focused on local government bonds. For details, please refer to Note 21(c) to the financial report
"Held-to-maturity investments".
Held-to-maturity investments
As at 31 December 2017, the net value of available-for-sale financial assets of the Group was RMB383.101
billion, representing a decrease of 1.55% 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 2017, the Chinese
economy maintained good momentum of development, and the robustness and quality of economic growth have
been improved as compare with the past. Affected by the changes in the market environment, the interest rate of
the RMB bond market rose in full swing and the credit spread was relaxed with turbulence. The Company closely
followed the market changes, proactively seized the opportunities in the medium-term spread transactions, scaled
up the duration upon the increase of interest rates, and adjusted the mix and structure of existing portfolio in a
timely manner, so as to optimise the composition of assets and liabilities. For details, please refer to Note 21(b) to
the financial report "Available-for-sale financial assets".
Available-for-sale financial assets
Official authorities (note)
Financial assets at fair value through profit or loss of the current period
The Group's financial assets at fair value through profit or loss was RMB64.796 billion for the year ended 31
December 2017, increased by 15.77% 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 the deleverage policy, favourable
macro-economic situations, expected rebound of inflation and changes of market environment, in 2017, 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".
1,463,322
100.00
1,602,351
Total investment securities and other
financial assets
0.59
8,688
1.18
18,916
Derivative financial assets
0.27
3,712
0.32
5,079
100.00
Liabilities
Commercial banks and other financial institutions
31 December
Fair value
Assets
2,249
16,345
2,073,724
1,305,784
108,927
3,488,435
Notional
amount
31 December 2016
31 December 2017
Total
Other derivatives
Currency derivatives
Interest rate derivatives
(in millions of RMB)
As at 31 December 2017, the major categories and amount of derivative financial instruments held by the Group are
indicated as in the following table. For details, please refer to Note 56(f) to the financial report "Risk Management -
Use of derivatives".
Derivative financial instruments
As at 31 December 2017, the Group had interest of RMB5.059 billion in joint ventures, representing an increase of
RMB1.429 billion or 39.37% as compared with that at the end of the previous year, which was mainly attributable
to the additional capital investment of RMB600 million made by the Group in a joint venture, Merchants Union
Consumer Finance Co., Ltd., and the increase in its interests in joint ventures in 2017. 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".
Total bond investment
Interest in joint ventures and associates
901,168
976,400
68,291
69,826
139,628
151,101
264,317
258,213
428,932
497,260
2016
2017
31 December
Note: "Official authorities" include the Ministry of Finance of the PRC, local governments and the Central Bank; "Others" mainly refer to enterprises.
4,113
4,189
560
Deposits from customers
As at 31 December 2017, total deposits from customers of the Group amounted to RMB4,064.345 billion,
representing an increase of 6.90% as compared with the end of the previous year. Deposits from customers
accounted for 69.90% of the total liabilities of the Group, being the major funding source of the Group.
The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type
and customer type.
31 December 2017
31 December 2016
(in millions of RMB, except for percentages)
Amount
Percentage of
the total (%)
Amount
Percentage of
the total (%)
Deposits from corporate customers
Demand
1,581,802
Note: Including salaries and welfare payable, taxes payable, interest payable, deferred income tax liabilities and other liabilities.
38.92
37.91
Time
1,144,021
28.15
1,076,266
28.30
Subtotal
2,725,823
67.07
2,517,491
66.21
Deposits from retail customers
Demand
1,441,225
972,291
100.00
100.00
13,424
3,991,193
1.27
12,689
3,977,824
Deposits from customers
Interest-bearing liabilities
(%)
cost ratio
Average Interest
balance expenses
average
Annualised
Annualised
average
Average Interest cost ratio
balance expenses
(%)
5,538,949
(in millions of RMB, except for percentages)
July to September 2017
III Report of the Board of Directors
(in millions of RMB, except for percentages)
5.10
275,082
4.97
Other liabilities (Note)
152,638
2.63
129,557
2.34
Total liabilities
5,814,246
October to December 2017
1.33
23.92
China Merchants Bank
Annual Report 2017
1.87
61,121
1.61
57,393
100.00
3,261,681
100.00
3,565,044
0.45
14,516
0.52
18,716
0.68
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 RMB57.393 billion, representing a decrease of 6.10% as compared with the end of the previous year.
In particular, the decrease in non-performing loans was mainly due to the decrease in substandard loans. As at the
end of the period, the proportion of substandard loans decreased by 0.26 percentage point to 0.48%. As at the
end of the period, the special mention loans amounted to RMB57.201 billion, representing a decrease of 16.00%
as compared with that at the end of the previous year, and accounting for 1.60% of the total loans, representing a
decrease of 0.49 percentage point as compared with that at the end of the previous year.
22,296
21,577
0.74
24,309
0.48
17,100
2.09
68,100
1.60
57,201
96.04
3,132,460
96.79
3,450,450
0.61
951,615
3.4.2 Distribution of loans and non-performing loans by product type
4.89
4.17
63,997
4.06 6,092,257
61,615
6,026,703
Total
3.05
3,812
495,855
2.60
2,743
417,916
financial institutions
performing
Balances and placements with banks and other
2,227
571,015
1.54
2,173
558,518
Balances with the Central Bank
3.80
13,727
1,434,157
3.70
13,662
1,466,636
Investments
1.55
Amount
Deposits and placements from banks and
916,791
14,489
11,169
14,810
12,167
60,865
64,018
Total net non-interest income
- Share of profits of associates and joint ventures
Other net operating income
- Exchange gain
- Net investment income
Net gains/(losses) from fair value changes
- Other net income
375
Other net non-interest income
(5,138)
(5,890)
Less: fees and commission expense
7,877
6,497
- Other
23,358
22,788
- Commissions on trust and fiduciary activities
4,038
3,712
- Commissions from credit commitment and loan business
13,121
Net fee and commission income
12,627
(2,511)
11,632
714
4,287
5,062
6,362
2,152
32,811
39,512
2016
2017
Total
Other general and administrative expenses
Provisions for insurance claims
Rental expenses
Amortisation charges of intangible assets
5,207
Depreciation of fixed assets and investment properties
Staff costs
(in millions of RMB)
The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
Group.
During the reporting period, staff costs of the Group increased by 20.42% as compared with the previous year.
Other general and administrative expenses increased by 10.75% as compared with the previous year. Depreciation
of fixed assets and investment properties, amortisation charges of intangible assets and rental expenses increased by
18.08%, 27.50% and 1.85% respectively as compared with the previous year. The Company has always attached
great importance to investments in research and development. In 2017, our research and development expenses
amounted to RMB4.741 billion, representing an increase of 8.74% 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.
In 2017, the Group's operating expenses amounted to RMB70.431 billion, representing an increase of 8.11% as
compared with the previous year calculated at the same statistical calibre. The cost-to-income ratio was 30.21%,
representing an increase of 2.61 percentage points as compared with the previous year calculated at the same
statistical calibre, which is mainly attributable to the following reasons. Firstly, in supporting of the strategic
implementation of the "Light-operation Bank" and "One Body with Two Wings", total investment in labour costs
was increased, so as to incentivise and retain talents. Secondly, the Company stepped up the implementation of
its innovation-driven development strategies, increased its investments in IT facilities and took its 30th anniversary
and the 15th anniversary of credit card issuing as opportunities to increase its business promotion efforts, thus
further consolidating the foundation for business development. Thirdly, the impact of change from business tax to
value-added tax on the income persisted. The Company's cost-to-income ratio was 30.28%, up by 2.77 percentage
points as compared with the previous year.
3.2.7 Operating expenses
75,675
321
998
76,185
2,511
3,653
2,857
1,934
Taxes and surcharges
other financial institutions
- Agency services fees
10,273
36,489
Net interest income
1.89
26,530
5,575,638
1.80
25,126
5,543,645
Total
3.05
2,880
374,688
3.21
37,467
2,244
Borrowings from the Central Bank
4.29
3,660
338,289
4.05
3,793
371,575
Debt securities issued
2.99
6,566
871,468
2.77
6,400
277,455
6,526
/
2.26
- Remittance and settlement fees
11,083
14,011
66,003
69,908
2016
2017
- Bank card fees
Fee and commission income
(in millions of RMB)
The following table sets forth, for the periods indicated, the principal components of net non-interest income of the
Group.
Annual Report 2017
III Report of the Board of Directors
Net interest spread
China Merchants Bank
24
23
Among the business segments, the net non-interest income from retail finance amounted to RMB37.425 billion,
representing an increase of 14.46% as compared with the previous year and accounting for 49.12% of the Group's
net non-interest income; the net non-interest income from wholesale finance amounted to RMB30.490 billion,
representing a decrease of 14.23% as compared with the previous year and accounting for 40.02% of the Group's
net non-interest income; the net non-interest income from other businesses amounted to RMB8.270 billion,
representing an increase of 11.29% as compared with the previous year and accounting for 10.86% of the Group's
net non-interest income.
Other net income amounted to RMB11.169 billion, representing a decrease of 22.91% as compared with the
previous year. Among which, net investment income was RMB5.207 billion, decreased by RMB6.425 billion or
55.24% as compared with the previous year, which was primarily attributable to the decrease in bills spread income,
the spread of spot precious metal transaction and the investment gains from available-for-sale financial assets; other
net income amounted to RMB3.653 billion, increased by RMB1.142 billion or 45.48% as compared with the previous
year, which was primarily attributable to the increase in the income from leasing business; the net gains/(losses) from
fair value changes was RMB375 million, representing an increase of RMB2.886 billion as compared with the previous
year, which was primarily attributable to the increase in bonds, spot precious metal positions and valuation gains/
(losses) of their relevant derivatives.
Net fee and commission income amounted to RMB64.018 billion, representing an increase of 5.18% as compared
with the previous year. Among which, bank card fees increased by RMB2.928 billion or 26.42% 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 RMB3.747 billion or 57.42% as compared with the previous year, which
was primarily attributable to the increase in the income of e-payment; commissions on custody and other fiduciary
activities decreased by RMB570 million or 2.44% as compared with the previous year. Among which, income from
entrusted wealth management decreased by RMB2.106 billion, custodian fee income increased by RMB562 million
and income from agency distribution of trust schemes increased by RMB267 million, as compared with the previous
year.
In 2017, the Group recorded a net non-interest income of RMB76.185 billion, representing an increase of 0.67% as
compared with the previous year. The components are as follows:
3.2.6 Net non-interest income
In the fourth quarter of 2017, the net interest margin of the Group was 2.44%, up by 4 basis points as compared
with the third quarter of 2017.
In the fourth quarter of 2017, due to the impact of the increased risk pricing, increased deposits volume and
optimised liabilities structure, the net interest spread of the Group was 2.28%, up by 2 basis points as compared
with the third quarter of 2017. The annualised average yield of the interest-earning assets was 4.17%, up by 11
basis points as compared with the third quarter of 2017 while the annualised average cost ratio of interest-bearing
liabilities was 1.89%, up by 9 basis points as compared with the third quarter of 2017.
Net interest margin
2.44
2.40
2.28
24
(%)
Loan
balance
0.68
(note)
Head Office
596,631
16.74
5,637
0.94
percentage point
loan
499,102
5,993
1.20
Yangtze River Delta
735,044
20.62
10,893
1.48
15.30
(%)
balance
(note)
Percentage
Non-
Non-
performing
Loan
of the total
performing
loan ratio
Loan
Percentage
of the total
Non-
Non-
performing
performing
loan ratio
(in millions of RMB, except for percentages)
balance
(%)
loan
674,209
31 December 2016
20.67
1.65
4.07
4,260
2.93
11,293
0.32
8,605
0.26
145,204
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%, which was on a par with that for the
previous year.
As at the end of the reporting period, the balance of repossessed assets of the Group amounted to RMB1.514
billion. After deducting the allowances for impairment losses of RMB646 million, the net repossessed assets
amounted to RMB868 million.
3.4.10 Changes in the allowances for impairment losses on loans
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 year, 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.
33
34
China Merchants Bank
III Report of the Board of Directors
3.4.9 Repossessed assets and allowances for impairment losses
North-eastern China
1.26
7,082
Bohai Rim
425,602
11.94
7,266
1.71
398,961
12.23
6,427
1.61
Pearl River Delta and West Side
of Taiwan Strait
598,374
16.78
8,674
1.45
561,539
17.21
11,134
Annual Report 2017
31 December 2017
During the reporting period, the non-performing loans and non-performing loan ratio of the Group both recorded
a decrease. The non-performing loans were reduced by RMB3.728 billion as compared with that at the end of the
previous year, and the non-performing loan ratio decreased by 0.26 percentage point as compared with that at
the end of the previous year. Among which, the non-performing loan ratios related to mining and wholesale and
retail decreased by 5.82 percentage points and 0.50 percentage point respectively, and the asset quality was further
improved. The non-performing loan ratio of the real estate industry and the information transmission, software and
information technology service industry increased by 0.22 percentage point and 1.46 percentage points, respectively,
mainly due to the impact of certain large customers. As at the end of the previous year, the non-performing loan
ratio of the above two industries was by far less than the average level of corporate loans, and their asset quality
has maintained in a good level.
China Merchants Bank
2
32
31
As at 31 December 2017, the regions where the Company incurred a large volume of non-performing loans were
Western China, Yangtze River Delta and Pearl River Delta and West Side of Taiwan Strait, where the non-performing
loan ratios of the Company decreased by 1.39 percentage points, decreased by 0.17 percentage point and increased
by 0.19 percentage point, respectively as compared with the end of the previous year. During the reporting period,
increase in non-performing loans of the Group was related primarily to the Pearl River Delta and West Side of Taiwan
Strait, North-eastern China and Bohai Rim. At the same time, due to active adjustment to the credit structure by
the Group, the percentages of the balance of loans granted to the above regions were reduced by 0.43 percentage
point, 0.14 percentage point and 0.29 percentage point, respectively, during the reporting period.
Given the differences in economic patterns and customer bases of various regions, in 2017, 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
percentage of the balance of loans extended by the Head Office of the Group recorded a relatively large increase,
while the percentages of the balance of loans extended to the Pearl River Delta and West Side of Taiwan Strait,
Western China and Bohai Rim recorded a relatively large decrease.
Note: Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
III Report of the Board of Directors
1.87
100.00
3,261,681
1.61
57,393
100.00
3,565,044
customers
61,121
Annual Report 2017
3.4.5 Distribution of loans and non-performing loans by type of guarantees
31 December 2016
(%)
balance
(in millions of RMB, except for percentages)
loan ratio
performing
Non-
performing
Non-
Percentage
of the total
Loan
loan ratio
performing
of the total
Loan
Non-
performing
Non-
Percentage
31 December 2017
Total loans and advances to
3.4.4 Distribution of loans and non-performing loans by region
0.55
7.59
1.00
Total loans and advances to
customers
3,565,044
100.00
57,393
1.61
15,402
3,261,681
61,121
1.87
Notes: (1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2) Consists primarily of agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.
In 2017, the Group continued to support the development of the real economy, constantly optimised its risk asset
portfolio, adhered to the principles of "four qualities", i.e. granting loans to quality industries, quality regions,
quality projects and quality customers, and explored the quality credit resources from new industries and new
markets such as national strategic emerging industries, modern service industries, advanced manufacturing industries
and cultural industries. The Group gave priority to strategic customers at the Head Office and its branches in credit
resource allocation, focused on serving the strategic customers at the Head Office and branches, formulated the
differential risk prevention and control strategy for key areas such as industries with overcapacity, real estate and
local government financing platforms, reduced and withdrew loans granted to customers with high risks such as
customers associated with overcapacity and high debt. The Group also optimised the allocation of credit resources
so as to maintain an overall balance among risks, revenues and costs.
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
100.00
47.23
1,540,594
0.89
247,495
0.79
2,054
7.30
260,347
2.47
748
0.93
Discounted bills
115,888
3.25
154,517
4.74
Retail loans
1,785,295
50.08
15,871
1,371
loan
The following table sets forth the changes in the allowances for impairment losses on loans and advances to
customers of the Group.
Balance at the beginning of the period
9.25
2. Net Tier 1 capital
402,869
339,976
18.50
3. Net capital
475,774
339,976
408,962
4. Risk-weighted assets
16,671
3,529,142
10.83
5. Core Tier 1 capital adequacy ratio
9.50%
9.63%
16.34
371,416
1. Net core Tier 1 capital
the weighted approach
4.81
7. Capital adequacy ratio
12.66%
12.00%
Increased by 0.66
percentage point
Note:
The "weighted approach" refers to the weighted 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.
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 12.16% and 10.30% respectively, representing an increase of 0.57
percentage point and 0.67 percentage point, respectively as compared with those at the end of the previous year.
31 December
2017
31 December
2016
Increase/decrease at
the end of the current
year as compared
with the end of the
previous year (%)
(in millions of RMB, except for percentages)
The Company
Capital adequacy ratios under
Decreased by 0.13
Overseas
percentage point
10.30%
Counterparty
Legal person
1,120,478
Group
1,120,478
1,815,526
1,815,526
2,242,428
Off-balance sheet
2,242,428
879,892
946,566
946,566
415,970
415,970
2,055,796
2,432,399
879,892
On-balance sheet
Portion not covered by the
IRB approach
Other retail
9.63%
Increased by 0.67
percentage point
7. Capital adequacy ratio
12.16%
11.59%
Increased by 0.57
percentage point
Balance of credit risk exposures
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
Type of risk exposure
Portion covered by the
IRB approach
Financial institution
Corporate
Retail
Of which: Residential mortgage exposures
Qualified revolving retail
6. Tier 1 capital adequacy ratio
(in millions of RMB)
109,508
203
(35,942)
(349)
380
Write-offs
Foreign exchange rate movements
Balance at the end of the period
150,432
(24,283)
110,032
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 of the Group amounted to RMB150.432
billion, representing an increase of RMB40.400 billion as compared with that at the end of the previous year. The
non-performing loan allowance coverage ratio was 262.11%, representing an increase of 82.09 percentage points
as compared with the end of the previous year; the loan allowance ratio was 4.22%, representing an increase of 0.85
percentage point as compared with the end of the previous year.
3.5 Analysis of capital adequacy ratio
As at 31 December 2017, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
advanced approach were 15.48% and 13.02%, respectively, representing an increase of 2.82 percentage points and
2.21 percentage points respectively as compared with those under the weighted approach.
31 December
31 December
2017
2016
Note: Represents the interest income accrued on impaired loans as a result of subsequent increases in their present value due to the passage of time.
2,893
5,519
(1,001)
Charge for the period
Release for the period
Transfer into/(out) for the period
Unwinding of discount on impaired loans (Note)
Increased by 0.72
Recovery of loans and advances to customers previously written off
2017
2016
110,032
84,842
64,450
67,188
(4,398)
(2,628)
22
(5,700)
(561)
Increase/decrease at
3.07
the end of the current
(in millions of RMB, except for percentages)
2,848,064
2,813,611
1.22
57,560
38,073
51.18
386,192
Of which: Credit risk weighted assets
Market risk weighted assets
Operational risk weighted assets
358,296
5. Risk-weighted assets (having taken into
consideration the floor requirements
during the parallel run period)
6. Core Tier 1 capital adequacy ratio
Subsidiaries
3.04
99,149
0.19
7.79
2.55
3,209,980
3,291,816
The Group
Capital adequacy ratios under
the advanced approach (1)
1. Net core Tier 1 capital
425,689
388,762
9.50
2. Net Tier 1 capital
459,782
388,780
18.26
3. Net capital
546,534
449,116
21.69
4. Risk-weighted assets (without taking into
consideration the floor requirements
during the parallel run period)
year as compared
with the end of the
previous year (%)
304,647
27,683
(note)
(%)
of RMB)
Percentage of
advanced
(under the
of net capital
Percentage
30
approach) (%)
China Merchants Bank
Annual Report 2017
In 2017, the Group developed its retail and corporate loan business in a balanced manner and constantly optimised
the loan structure. With respect to retail loans, the Group increased the granting of residential mortgage loans for
self-occupation housing and credit card loans, and steadily developed the micro-finance loan business. As a result,
the percentage of retail loans increased by 2.85 percentage points to 50.08%. As at the end of the reporting period,
the non-performing retail loan ratio was 0.89%, down by 0.11 percentage point as compared with the end of the
previous year. With respect to corporate loans, the proportion of working capital loans and fixed asset loans both
increased slightly, while the proportion of trade finance loans decreased, the non-performing loan ratio of each type
of loans showed a decreasing trend, and the asset quality was improved. As at the end of the reporting period, the
non-performing corporate loan ratio of the Group was 2.50%, representing a decrease of 0.42 percentage point as
compared with the end of the previous year.
3.4.3 Distribution of loans and non-performing loans by industry
31 December 2016
Percentage
31 December 2017
Percentage
Non-
Non-
III Report of the Board of Directors
total loans (%)
17,300
3.17
Property development
F
heating power, gas and water
0.16
1.04
5,666
0.16
1.04
5,711
Transportation, storage and postal services
Production and supply of electric power,
0.21
1.37
7,509
0.27
1.78
9,700
0.49
Non-
5,287
Loan
performing
45,719
2.92
Manufacturing
266,072
7.46
17,377
6.53
48.03
297,442
18,970
6.38
Property development
260,991
7.32
3,223
1.23
9.12
1,566,570
2.50
41,522
performing
Loan
of the total
performing
Non-
performing
(in millions of RMB, except for percentages)
balance
(%)
loan
loan ratio (¹)
balance
(%)
loan
loan ratio (1)
Corporate Loans
1,663,861
46.67
of the total
227,564
0.97
G
1.74
61,857
Total overdue loans
0.06
2,013
0.08
2,762
69,879
Overdue more than 3 years
21,580
0.73
26,093
Overdue from 1 year up to 3 years
0.74
24,280
0.47
0.66
2.14
Total loans and advances to customers
3,565,044
0.51
18,009
Percentage
of the total
(%)
Loan
amount
(%)
Loan of the total
amount
31 December 2016
31 December 2017
Percentage
Represents the restructured non-performing loans.
Note:
Of which: restructured loans overdue more than
90 days
(in millions of RMB, except for percentages)
Restructured loans (Note)
3.4.8 Restructured loans
As at the end of the reporting period, overdue loans of the Group amounted to RMB61.857 billion, down by
RMB8.022 billion from the end of the previous year and accounting for 1.74% of its total loans, representing
a decrease of 0.40 percentage point as compared with the end of the previous year. Among the overdue loans,
collateralised and pledged loans accounted for 46.55%, guaranteed loans accounted for 30.26%, while credit loans
accounted for 23.19% (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 was 1.26.
100.00
3,261,681
100.00
16,824
0.15
Overdue from 3 months up to 1 year
0.46
0.13
0.85
4,651
0.13
0.86
4,679
Transportation, storage and postal services
Manufacturing
Total
0.13
4,716
Transportation, storage and postal services
H
0.14
0.90
4,935
Wholesale and retail
0.86
70,154
12.84
1.97
16,178
Overdue within 3 months
(%)
Percentage
of the total
Loan
amount
(%)
amount
(in millions of RMB, except for percentages)
Loan of the total
Percentage
31 December 2016
31 December 2017
3.4.7 Distribution of loans by overdue term
III Report of the Board of Directors
Annual Report 2017
China Merchants Bank
As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to
RMB17.300 billion, representing 3.17% of the Group's net capital under the advanced approach. The loan balance
of the top ten single borrowers totalled RMB70.154 billion, representing 12.84% of the Group's net capital under
the advanced approach, 13.02% of the Group's net capital under the weighted approach, and 1.97% of the Group's
total loan balance, respectively.
22,006
balance
6.98
1.01
3.4.6 Loans to the top ten single borrowers
As at the end of the reporting period, collateralised and pledged loans increased by 6.29% as compared with the
end of the previous year. Guaranteed loans decreased by 2.70% as compared with the end of the previous year
while the credit loans increased by 28.08% as compared with the end of the previous year, which was mainly due to
the increase in credit card loans.
Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
Note:
1.87
61,121
100.00
Loan amount
3,261,681
57,393
100.00
3,565,044
customers
Total loans and advances to
4.74
154,517
1.61
Top ten
Industry
BCDE
49,479
1.52
8,163
16.50
Others(2)
74,581
2.09
753
1.01
80,579
as at 31
December 2017
(in millions
Transportation, storage and postal services
Wholesale and retail
Wholesale and retail
(in millions of RMB, except for percentages)
borrowers
В
A
3.25
10.68
115,888
1.73
5.11
21,416
11.75
418,769
Guaranteed loans
1.08
9,223
430,410
26.07
0.72
7,844
30.55
1,089,261
Credit loans
(note)
loan
850,482
13.20
23,009
5.35
6,865
12.20
397,959
1.33
5,202
10.95
390,222
Pledged loans
1.54
22,024
43.79
1,428,313
1.48
22,931
43.50
1,550,904
Collateralised loans
Discounted bills
2,292
4,622
43,297
3.87
196
0.14
102,469
3.14
129
0.13
137,852
Production and supply of
gas and water
Finance
Construction
128,889
3.62
854
0.66
electric power, heat,
Leasing and commercial services
4.63
10,589
Transportation, storage and
postal services
230,635
6.47
2,241
0.97
193,829
5.94
1,587
0.82
Wholesale and retail
220,907
6.20
9,121
4.13
228,751
7.01
108,669
1.21
3.33
1.00
1.75
77,492
2.38
225
0.29
Water conservancy, environment
and public utilities
1,391
44,320
254
0.57
35,243
1.08
216
0.61
Mining
1.24
2.23
79,368
software and IT service
91,579
2.57
20
0.02
80,380
2.46
41
0.05
85,370
2.39
1,470
1.72
84,673
2.60
1,671
1.97
Information transmission,
1,088
315,671
3,911,286
China Merchants Bank
Annual Report 2017
9.56
10,128
3.25
Western China
350,991
9.85
12,012
3.42
332,342
10.19
15,999
39
The Company considered that, as a result of the tightened regulation and technological development, the banking
industry in China has started to differentiate. Thanks to our relentless efforts over the past few years, our structural
adjustment has been receiving positive results, and the asset quality was also stabilised and improved. CMB has
basically become a "Light-operation Bank", and the first half of its transformation has ended successfully. Looking
forward, CMB is entering into the second half of its transformation, where the main focus is to become a "Digital
Bank". In order to achieve its principal target of "enhancing customer experience", CMB will effect a switch of
development momentum while maintaining an optimal balance between efficiency, costs and risks by applying
advanced technologies, so as to maximise the effect of "Light Management" and "Light Operation" and eventually
become a Light-operation Bank.
In 2017, in order to realise the goal of becoming a "Light-operation Bank" within a shorter time, the Company
established a "Customer Service System" and a "Customer Relationship Management System" for its wholesale
finance business while continuing to develop its retail business, in order to exercise centralised and professional
management of its strategic customers at the Head Office and branches, institutional customers, interbank customers
and small business customers. As a result, the Company greatly enhanced its professional service and was able to
pitch for mass financing projects with its low-capital occupation and knowledge-intensive professional services.
The Company proactively developed its featured businesses and constantly promoted the business model
of "One Body with Two Wings". The retail finance, known as the "One Body", rendered stable performance and
outperformed market and peers. The retail loans and net operating income respectively accounted for 53.36% of
the total loans and 51.28% of the total net operating income of the Bank, and its value contribution increased
steadily. In addition, the Company enjoyed a greater leading advantage over its peers in terms of number of the
gold card holders/Sunflower customers or above and the Diamond-class customers as well as total assets under
management (AUM) for retail customers. The corporate finance and financial institutions finance, known as the
"Two Wings", continued to grow against all the odds. The Company made significant breakthroughs in the direct
HQ-to-HQ service of the businesses from the PRC ministries, large-sized state-owned enterprises and financial
institutions, and successfully expanded its businesses associated with electronic resident health cards, occupational
annuity, bid bond for public resource trading, key universities, and tobacco, etc. With the growth in saving deposits
slowing down, corporate deposits played an important role in securing the sufficiency of liquidity of the whole Bank,
with the real-time and daily average increments both leading among other joint-stock banks. For the last three years,
the daily average corporate deposits denominated in RMB increased by more than RMB600.0 billion, with an annual
average growth rate of more than 11%. As at the end of the reporting period, the daily average balance of general
deposits from institutional customers amounted to RMB652.678 billion, representing a year-on-year increase of
12.95%. The daily average balance of general deposits from the strategic customers of our Head Office amounted
to RMB348.288 billion, representing an increase of 19.47% year-on-year.
The Company bravely faced the challenges and continued to implement its "Light-operation Bank"
strategy. Due to stricter financial regulations, commercial banks were undergoing the transformation of off-
balance sheet and witnessing the decline of non-interest income and the incorporation of newly added assets to on-
balance sheet. Therefore, a new round of competition was kicked off in the banking industry. From the short-term
perspective, the financial indicators of the Company in relation to "Light-operation Bank" were under pressure,
namely the proportion of non-interest income that declined as compared with the previous year; the higher growth
rate of risk-weighted assets than that of total assets; the cost-to-income ratio that increased as compared with the
previous year. However, from a medium- to long-term perspective, the general trend of direct financing will persist.
Leveraging on the latest Fintech, banks would be able to offer many additional light-services tools. The Company
remained determined in facilitating the strategic layout of "Light-operation Bank". Adhering to the professional
operating model of "Light Assets" and "Light Capital", the Company will proactively promote the implementation
of "Light Management" and "Light Operation" by leveraging on the cutting-edge technologies.
In 2017, the Company unremittingly promoted its strategic transformation towards "Light-operation Bank" and "One
Body with Two Wings" despite the changes in market conditions.
Continuous implementation of strategic transformation
3.8 Business development strategies
The description and data in section 3.8 and below were analysed from the
Company's perspective.
As at the end of 2017, the Group did not have any outstanding overdue debts.
3.7.2 Outstanding overdue debts
Annual Report 2017
III Report of the Board of Directors
311,713
China Merchants Bank
1.86
9.63
percentage points
13.33%
15.48%
Increased by 2.15
percentage points
11.54%
13.02%
percentage point
Increased by 1.48
11.54%
12.06%
Increased by 0.52
4.80
3,368,990
3,530,745
31,973
8. Capital adequacy ratio
7. Tier 1 capital adequacy ratio
137,171
4.21
2,987
2.18
Central China
343,343
6,394
3.7.1 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 2017, the balance of credit commitments was RMB1,407.008 billion. For details of the contingent liabilities
and commitments, please refer to "Contingent liabilities and commitments" in Note 54 to the Financial Report.
requirements
3.7 Other financial disclosures in accordance with the regulatory
6
354,073
6
353,771
Central China
1,436
3
156,670
3
157,710
North-eastern China
11,856
11
626,656
11
634,092
Pearl River Delta and West Side of Taiwan
Strait
8
5,965
8
461,735
8
465,320
634
Western China
368,485
6
100
78,963
100
5,538,949
100
5,942,311
Total
9
7,287
6
318,155
Information on leverage ratio (2)
6
Subsidiaries
52152
1,500
3
173,987
3
177,271
Overseas
(3,559)
7
373,028
382,249
Bohai Rim
9. Adjusted balance of on- and off-balance
7,309,756
31 December
2017
1. Net core Tier 1 capital
Capital adequacy ratios under
the weighted approach (Note)
(in millions of RMB, except for percentages)
The Group
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
36
35
As at 31 December 2017, the capital adequacy ratio and the Tier 1 capital adequacy ratio of the Group under the
weighted approach were 12.66% and 10.81% respectively, representing an increase of 0.66 percentage point and
0.72 percentage point, respectively as compared with those at the end of the previous year.
percentage points
Increased by 2.25
12.99%
15.24%
percentage points
Increased by 1.58
11.11%
12.69%
percentage point
Increased by 0.59
11.11%
11.70%
3.68
3,061,019
31 December
3,173,532
2016
year as compared
with the end of the
previous year (%)
10.09%
10.81%
6. Tier 1 capital adequacy ratio
percentage point
Decreased by 0.08
10.09%
10.01%
5. Core Tier 1 capital adequacy ratio
10.42
3,852,894
4,254,180
4. Risk-weighted assets
16.49
462,493
538,761
3. Net capital
18.26
388,780
459,782
2. Net Tier 1 capital
9.50
388,762
425,689
Increase/decrease at
the end of the current
7.02
338,398
59.69
1. Net core Tier 1 capital
the advanced approach
Capital adequacy ratios under
The Company
(in millions of RMB, except for percentages)
year as compared
with the end of the
previous year (%)
Increase/decrease at
the end of the current
31 December
2016
31 December
2017
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 15.24% and 12.69%, respectively, representing an increase of 3.08
percentage points and 2.39 percentage points respectively as compared with those under the weighted approach.
Since 2015, the leverage ratio shall be calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks
(Revised)" promulgated by CBRC on 12 February 2015. The leverage ratio of the Group were 6.15%, 5.83% and 6.01% respectively as at the
end of the third quarter of 2017, the end of the first half of 2017 and the end of the first quarter of 2017.
The "advanced approach" refers to the advanced measurement approach set out in the "Capital Rules for Commercial Banks (Provisional)"
issued by CBRC on 7 June 2012 (same as below). 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 2017, the Group's subsidiaries for calculating its capital adequacy ratio included Wing Lung Bank, CMB International
Capital, CMB Financial Leasing and China Merchants Fund. During the transition period when the advanced capital measurement approaches
were implemented, a commercial bank shall use the capital floor adjustment coefficients to adjust the amount of its risk-weighted assets
multiplying the sum of its minimum capital requirement and reserve capital requirement, total amount of capital deductions and the provision
for excessive loan loss which can be included into capital. The capital floor adjustment coefficients shall be 95%, 90% and 80% respectively in
the first year, the second year, and the third and subsequent years during the transition period. 2017 is the third year since implementation of
the transition period.
(2)
(1)
Notes:
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
Increased by 0.54
percentage point
5.75%
6.29%
10. Leverage ratio
8.16
6,758,093
371,416
339,976
9.25
2. Net Tier 1 capital
32,258
51,513
362,152
0.58
2,516,838
2,531,510
8. Capital adequacy ratio
7. Tier 1 capital adequacy ratio
6. Core Tier 1 capital adequacy ratio
consideration the floor requirements
during the parallel run period)
5. Risk-weighted assets (having taken into
Of which: Credit risk weighted assets
Market risk weighted assets
Operational risk weighted assets
sheet assets
during the parallel run period)
2.00
2,887,494
2,945,175
4. Risk-weighted assets (without taking into
21.60
397,649
483,546
3. Net capital
18.50
339,976
402,869
consideration the floor requirements
13
0.51
93
Amount
(in millions of RMB, except for percentages)
Total profit before tax
2016
31 December 2016
31 December 2016
Total liabilities
Total assets
100
Percentage
(%)
90,680
5,814,246
100
6,297,638
10
9,077
6
338,891
7
100
419,432
Amount
Percentage
(%)
3
1,555
2
Central China
358,334
10,312
14
760,973
Percentage
(%)
13
Yangtze River Delta
55
43,532
42
2,313,672
44
2,634,760
Head Office
768,653
2
2,071
3
period
the reporting
the reporting
General risk
value during
Distressed risk
value during
Value at the end of the period
Minimum value
Average value
Maximum value
period
Item
2
1
Unit: RMB million
No.
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 2017:
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 Company, and uses the standardised approach
to calculate the specific market risk capital of the Company as well as the general market risk capital and specific
market risk capital of the affiliated companies. As at the end of 2017, the market risk capital of the Group was
RMB4.605 billion, and its risk-weighted assets were RMB57.560 billion. Of which, the general market risk capital
calculated under the internal model approach was RMB2.683 billion, and the market risk capital calculated under
the standardised approach was RMB1.922 billion.
Market risk capital measurement
III Report of the Board of Directors
104
3
4
9
478
314
196,693
3
199,836
Total
Subsidiaries
Overseas
7
6,745
6
355,602
6
360,547
Western China
6
352,226
6
8,108
480
1,808
150,447
2
Amount
North-eastern China
29,258
102,090
48,415
108,383
45,099
100,190
5,481
9,639
103,015
4,606
90,680
221,037
78,963
210,270
Note: The Group allocated the amount of additional allowance to each business segment since 2017 and the relevant comparable figures and
financial indicators have been restated.
During the reporting period, the percentage of profit from retail finance of the Group declined slightly. Profit
before tax amounted to RMB48.415 billion, up by 7.35% from the previous year (calculated on the same statistical
calibre), accounting for 56.83% of the profit before tax of the business line; net operating income amounted to
RMB108.383 billion, up by 8.18% from the previous year, accounting for 49.03% of the operating income of the
Group, representing a year-on-year increase of 1.38 percentage points from the previous year. At the same time,
the cost-to-income ratio of retail finance business was 36.02%, representing an increase of 1.69 percentage points
(calculated on the same statistical calibre).
37
38
7,990
151,548
income
segments note
889
228
3.6 Results of operating segments
Business segments
The principal businesses of the Group include wholesale finance and retail finance. The following table summarises
the operating results of each business segment of the Group for the periods indicated.
Items
(in millions of RMB)
Wholesale finance
Retail finance
Other businesses
Total
2017
2016
Profit
before tax
by business
Profit before
segments
Net operating
income
tax by business
Net operating
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
36,784
The major outlets of the Group are located in the major economic centres 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.
13
19,659
22
Bohai Rim
492,441
8
8
12,080
745,677
13
Taiwan Strait
645,313
10
632,515
11
15,998
Geographical segments
18
Pearl River Delta and West Side of
12
484,410
Percentage
(%)
Total liabilities
761,970
31 December 2017
31 December 2017
Total profit before tax
2017
(in millions of RMB, except for percentages)
Amount
Amount
Percentage
(%)
Amount
Total assets
Head Office
2,908,217
46
2,557,785
44
15,387
17
Yangtze River Delta
Percentage
(%)
3.9 Changes in the external environment and corresponding
measures
Annual Report 2017
III Report of the Board of Directors
China Merchants Bank
42
3.9.1 Impacts of changes in operating environment and key business concerns
III Report of the Board of Directors
1.
4.
In 2017, the Chinese economy remained resilient in general, achieving an annual economic growth of 6.9%.
Fixed-asset investment stabilised with a slowdown trend, and infrastructure construction and real estate investment
became major pillars of overall investments throughout the year. Overall investment in the manufacturing
sector remained inactive but gradually stabilised as profitability in industrial enterprises improved. The growth
in consumption remained stable with a year-on-year increase of 10.2%, with the effects of structural upgrades
gradually becoming prominent. As driven by the moderate recovery in the global economy, both imports and exports
saw significant rebound from their decline in 2016. The CPI growth in aggregate slightly slowed down to 1.6% as
compared with 2016 amidst an environment with moderate inflation. As driven by various factors such as commodity
price in global markets and the domestic supply-side reforms, the PPI growth in aggregate significantly picked up
as compared with the previous year. The number of new employees in urban areas and the unemployment rate
remained stable. As the real economy remained stable, the Central Bank resolved to maintain its prudent monetary
policy while exerting more efforts to meet the demands for effective financing in the real economy. The Central
Bank also 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 maintain adequate liquidity at
a reasonable level. Stricter financial regulation had been implemented to safeguard the industry against potential
risks in economic and financial operations. The financial system was also enhanced to serve the real economy. At
the same time, fiscal policies were proactively implemented in general with ongoing optimisation of the financial
mechanisms.
2.
3.
Net interest margin
In 2017, the net interest margin of the Company was 2.50%, representing a year-on-year decrease of 5 basis points,
primarily due to the impact of change from business tax to value-added tax. If value-added tax revenue was included
in income, the net interest margin of the Company remained basically unchanged from the previous year. Overall,
due to the steady and neutral monetary policy, the upward momentum of market rates in 2017, a slowdown in
the growth of deposits and other factors, both the size and cost of the active liabilities of the Company increased,
adding pressure on the net interest margin to a certain extent. In light of the circumstances, the Company has
taken the following measures: firstly, the Company optimised its asset structure, further increased granting of loans,
especially retail loans to customers, and moderately increased the proportion of retail loans; secondly, the Company
improved the risk pricing level, and rode on the upward trend of market rates to improve the return of bills, bonds
and inter-bank assets; thirdly, efforts were made to promote the growth of deposits and optimise the deposit
structure. While maintaining stable proportion of proprietary deposits, the proportion of demand deposits remained
high, thus achieving effective cost control.
In 2018, it is expected that liquidity will maintain a tight balance. Supervision over the financial industry will continue
to be strict, while market rates will remain at a high level. In view of the above, commercial banks will face certain
challenges in managing the cost of liabilities and net interest margin. Nevertheless, factors including steady growth
in the real economy will significantly facilitate the stabilisation of net interest margin level. In 2018, the Company
will maintain reasonable asset growth so as to ensure coordinated and steady growth in assets and liabilities. The
Company will continue to optimise its asset allocation and utilise funds arising from rate cuts in inclusive finance in
a rational manner to enhance its risk pricing capability and improve the comprehensive return on assets. At the same
time, the Company will strengthen the operation and expansion of its customer bases, fully promote the steady
growth of proprietary deposits, especially low-cost settlement deposits, consolidate the cost advantages at liabilities
and maintain a reasonable level of net interest margin despite the negative impacts on the book value of net interest
margin brought by the changes in revenue structure due to the substitution of new financial accounting standards.
Net non-interest income
During the reporting period, the Company realised net non-interest income of RMB66.147 billion, representing
a year-on-year decrease of 2.49%, which accounted for 31.93% of the net operating income, representing a
year-on-year decrease of 2.31 percentage points, which was mainly due to the following reasons: firstly, as affected
by the tax policies, the amount of direct discounting of bills dropped considerably, and spread income from disposal
of bills recorded a year-on-year decrease.; secondly, as affected by the tightening of regulatory policies and impacts
of market volatility, the revenue growth of entrusted wealth management services, bond underwriting, financial
consultancy and agency distribution of funds was affected; thirdly, the objective impacts of the implementation of
policy of change from business tax to value-added tax. Under such policy, the income for 2017 showed the result of
price and tax separation upon implementation of the policy of change from business tax to value-added tax, while
such policy was not implemented during the first four months of 2016 and tax revenue was included in income.
China Merchants Bank
Annual Report 2017
42
Overview of the macroeconomic and financial outlook in 2017
During the reporting period, the Company shifted its focus back to serving our customers. It established
a customer-oriented service system through rebuilding the customer-oriented end-to-end procedures and
applying the latest financial technologies. At the customer engagement level, we focused on customers'
needs and experiences, the 020 scenario service was implemented on online platforms and physical outlets.
Meanwhile, by applying the technologies of natural language processing and deep learning, the Company
set up a robot service platform. The response rate, timeliness and efficiency of our customer services also
saw significant improvement. At the customer support level, with the use of Big Data and Artificial
Intelligence technologies, the Company set up a more efficient and intelligent service support system to
handle the service processes at the front office. On one hand, by applying Big Data and Artificial Intelligence
technologies, the Company established a "human + robot" intelligent investment model that allies with
domestic market, which enabled us to provide a wider range of customers with professional wealth
management and investment consulting services that had a low threshold but high quality. On the other
hand, a decision-making model based on Big Data and real-time risk analysis was created to realise one-stop
automated credit granting service. Our customers were served more than 400 million times during the year,
thus preliminarily realising pure digital delivery of our credit services.
40
The Company enhanced the degree of intelligence in business management with the introduction of
Big Data and Artificial Intelligence. To further integrate the customer portrait using the Big Data, based
on our internal data, the Company expanded the scope to cover the external events of 30 million enterprises,
including their records of changes in industrial and commercial registration, bidding and winning of tenders,
auctioning of land, news and information, enforcement by courts and investing & financing events, thus
enabling continuous collection and distribution of more than 250,000 pieces of information per month on
business opportunities, enhancing our ability to form an immediate perception of customers. In respect
of customer marketing, with the use of Big Data, the Company conducted digital tracking and analysis of
customer information to improve marketing accuracy. In respect of risk monitoring, the Company is trying
to introduce Artificial Intelligence and deep learning to build a knowledge map in relation to customers'
correlations, thus enabling early warning and monitoring of corporate risks.
During the reporting period, despite the slight drop in net non-interest income as compared with the previous
year, the Company benefited from the increase of commission income of credit cards and instalment income
from merchants, increase of income from Alipay, Cai Fu Tong () and other online retail business as well as
the growth of the size of custody business. Meanwhile, leveraging its distribution capability, the Company took
the initiative to seize opportunities arising in the capital market at different phases and the change in residents'
investment orientation towards hedging demands under policy guidance, thereby minimising the impacts of external
factors on wealth management business. The Company recorded fee and commission income of RMB64.398
billion, representing a year-on-year increase of 6.15%. For key projects, the Company's fee and commission income
from wealth management amounted to RMB26.106 billion, representing a year-on-year decrease of 8.41% (of
which: income from entrusted wealth management services amounted to RMB12.227 billion, down by 14.69%
year-on-year, mainly due to the Company's periodical reduction of the prices of products to benefit its customers
during the year, a decrease in the balance of off-balance sheet wealth management products, as well as the
completion of the optimization of the accrual accounting of the revenue from the entrusted wealth management
services in 2016. Income from agency distribution of insurance policies amounted to RMB5.081 billion, down by
0.55% year-on-year; income from agency distribution of funds amounted to RMB5.044 billion, down by 8.94%
year-on-year, which was mainly due to a decrease in the income from agency sales of funds for special accounts as
a result of policy adjustments and market fluctuations. Income from agency distribution of trust schemes amounted
to RMB3.605 billion, up by 8.00% year-on-year; income from agency distribution of precious metals amounted to
RMB149 million; down by 19.02% year-on-year); income from bank card fees amounted to RMB13.914 billion,
up by 28.79% year-on-year; income from remittance and settlement fees amounted to RMB10.244 billion, up by
57.62% year-on-year; custodian fee income amounted to RMB4.855 billion, up by 13.38% year-on-year.
40
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
Clear Positioning of "Digital Bank"
During the reporting period, the Company regarded Fintech transformation as the most important task in the
next three to five years. All the departments across the Bank should use their greatest efforts to build CMB into a
"Digital Bank" as an upgrade of "Light-operation Bank". Through comparing with Fintech companies, the Company
inflicted fundamental changes in both the concepts and methodologies, and accelerated the transformation of its
operating model, so as to accomplish the transformation towards "Digital Bank", with financial technologies playing
a fundamental role as the "nuclear power" for the second half of the Company's strategic transformation.
Enhancing the basic capabilities with financial technology across the Bank
1.
2.
In respect of infrastructures, the Company enhanced its IT capabilities by learning from the Fintech
companies. In order to transfer its Fintech infrastructures on the Internet, CMB increased its investments in
various fields such as mobile technology, Cloud Computing, Big Data, Artificial Intelligence, Internet Security,
and Blockchain etc. In respect of agile business development, the Company learnt from the Fintech
companies and established the dual-model IT research and development system. The Company introduced
a project-oriented system, forming a brand new mechanism integrating technology and business. It also
continued to deepen the integration of IT and business, enhance business agility, speed up its responses
to customers' demands, and enhance its ability to offer new generation of services on a continuous basis.
In respect of its innovation incubation platform, the Company set up its internal financial technology
innovation incubation platform through learning from the innovation mechanisms of the Fintech companies.
This platform offered comprehensive assistance to the incubation of financial technology innovation projects
and injected new energy and resources to innovation projects. The Company also introduced external
financial technologies and strengthened its financial technologies by establishing joint laboratories with
technology companies and colleges/universities, or introducing external resources with its Fintech innovation
project funds.
Creating an "end-to-end" customer journey to enhance customer experience
Promoting "network-based, digitised and intelligence-oriented" operation in retail financial business
The Company implemented the strategy of "mobile priority", recording more than 45 million active
users per month of our retail APPs. The Company actively pushed forward the switching from bank cards
to mobile APP for our retail services. Its mobile APPS introduced a new business mode of "outlet + APP +
scenario", thereby establishing an integrated online and offline customer management mechanism. From
offering customised services on the frontline to implementing automated and intelligent backstage operating
procedures, CMB's mobile APPS further enhanced its customers' experience in our retail services. Striving
to "become the top APP in consumer finance services", our mobile CMB Life APP continued to promote
innovation in mobile consumer finance products, and enhanced the capability in data traffic operations and
value output. By encouraging our customers to use our mobile APPS so as to increase the data traffic, the
number of active users of our two major APPS reached 45.09 million per month. 40.35% of our cardholders
have already switched to mobile banking, while 81% of transactions were carried out on our mobile
platform. As a result, the Company accumulated a large amount of traffic data, creating a strong foundation
for customer traffic management in the future. At the same time, the Company continued to explore the
business innovation of inclusive finance under the "mobile priority" strategy. As at the end of the reporting
period, Merchants Union Consumer Finance Company Limited had a total of 16,621,000 approved customers,
representing an increase of 135.93% as compared with the end of the previous year. The cumulative loans
extended amounted to RMB226.804 billion, representing an increase of 297.36% as compared with the
end of the previous year. The balance of loans at the end of the period amounted RMB46.829 billion,
representing an increase of 157.46% as compared with the end of the previous year.
41
1=1
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
The Company built an intelligence-orientated tool for risk control so as to achieve comprehensive
digitised decision making in respect of risk control. In respect of decision making on risk exposures, the
Company has built a big credit-based decision-making engine for real-time risk exposures and integrated
various information resources. With the use of various cutting-edge technologies such as Big Data and
Artificial Intelligence, the Company possessed the ability to handle queries in milliseconds and compute
billions of data streams. In respect of its anti-fraud efforts, with the use of Artificial Intelligence and other
advanced technologies, the previous rule-based model was upgraded to the real-time Big Data anti-fraud
model. Model variables have been upgraded to 3,000+ derivative characteristic variables to achieve the
capability of computing billions of data streams. The model has proved to be effective, as evidenced by a
reduction of 35% in financial losses arising from transfers and payments made by our customers.
3. Upgrading the middle and back offices of the wholesale finance segment for automated and
intelligent operation
4.
In respect of its wholesale finance business, the Company currently focuses on enhancing the level of
automation and intelligence of the operation support system in the middle and back offices through applying
financial technologies, so as to enhance business efficiency and the quality of risk control.
The Company enhanced the level of automation in business processes in the back office through
applying financial technologies. Firstly, in respect of the credit handling procedures, a middle office was
established for risk management. On the frontline, the Company relied on the "All-in-one Office" mobile
application to achieve mobile synergies between relationship managers, key personnel in charge of operation,
risk managers, loan approval officers and product managers. In the back office, the Company consolidated
and integrated the systems in the middle and back offices. With the application of different technologies
such as facial recognition, OCR (optical character recognition) and all-in-one printing & controlling machine,
the on-site operations of our frontline staff were simplified, thus improving the efficiency of service provision
processes. Secondly, in respect of the operational management, the Company took the lead in introducing
the RPA (robot process automation) technology into the domestic financial industry to improve the
automation level of operation. Based on the analysis of 188 application scenarios with the RPA technology,
three scenarios under operational management, including balance check of internal accounts, filing of RMB
accounts and online reporting of foreign exchange, were selected for trial operation. As a result, the time
spent in processing a single transaction was reduced by 65% to 95%. Subsequently, the implementation of
RPA technology will be extended to all operational procedures in the back office.
The Company built an intelligence-oriented marketing tool to support its digitised customer traffic
management. By integrating data sources from over 390 internal systems and 58 external data sources,
the Company created over 3,800 user tags for its retail customers and established a comprehensive view of
customers. On such basis, the Company built an intelligence-oriented marketing tool for active marketing
and passive marketing, offering real-time recommendations to mobile customers and relationship managers.
There were 97 recommendation tags in our mobile APP, offering 7,132 customised product portfolios and
recommendations to 130 million persons per day on average. Throughout the year, the system issued over
7,000 customer marketing lists to our relationship managers, with which the marketing events conducted by
our relationship managers rose to 1,600 times per month.
In the context of increasingly stringent regulations and high market uncertainty, the pressure on the development of
non-interest business will remain high. The Company will firmly adhere to the strategy of "Light-operation Bank" so
as to maintain its competitiveness in non-interest business. Specific measures to be implemented include: firstly, the
Company will further expand its customer base. The Company will explore a new model for customer management
through Fintech to achieve innovative breakthroughs in its customer base development strategy. Secondly, the
Company will strengthen its competitive edges in wealth management. By developing an upgraded version of
"Machine Gene Investment ("and other Fintech innovative products, the Company will constantly improve
the level of specialisation so as to provide customers with more tailored asset allocation services. At the same time,
the Company will rely on its large retail customer base and diversified product portfolio to promote the sustainable
development of consumer finance and online consumption payment and settlement business. Thirdly, the Company
will continue to strengthen its capabilities in the management and investment of quality assets. Centring on
customer management and quality assets management, the Company will proactively grasp the market development
opportunities so as to enhance the overall operating standards in businesses such as asset management, investment
banking, asset custody and transaction banking, thereby improving its comprehensive income. Fourthly, the
Company will continue to abide by the regulatory requirements by strengthening its internal control and compliance
management, preventing unregulated fee collections, and avoiding regulatory red flags during business innovation.
New policies on asset management business
7.
43
48
47
2018 is the first year for China to improve the quality and efficiency of its economic development. The banking
industry has entered a stage of differentiation. In the short run, despite the fact that commercial banks have been
facing challenges such as stricter regulation, tight monetary policy and weak momentum of economic recovery, we
will still be presented with a number of structural opportunities if we adjust our business model. In the long run,
technology will continue to bring changes to the operating environment. The technological developments including
Cloud Computing, Big Data, Artificial Intelligence and Blockchain in recent years may embrace "fruitful explosions"
in the near future. Whether commercial banks can ride on the tide to evolve or just repeat the setback of mobile
payment in other sectors completely depends on the actions to be taken in the coming three years. This section will
elaborate from the short- and long-term perspectives, respectively.
3.9.2 Outlook and counter-measures for 2018
In 2018, the Company will continue to enhance the concept of refined capital management, and promote the
application of the risk adjusted return on capital (RAROC), the economic value added (EVA) and other valuation
indicators. Tracing the progress of international capital regulatory reform, the Company will 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, preference shares and tier 2 capital bonds in
a comprehensive way.
According to the Company's capital planning, our goals for core tier 1 capital adequacy ratio, tier 1 capital adequacy
ratio and capital adequacy ratio will reach and be maintained at above 9.5%, 10.5% and 12.5% respectively at the
end of 2018. The Company will stick to the principle of fund generation and accumulation mainly from internal
resources and replenishing capital with external resources, and raising funds through various channels and various
ways. Currently, the Company does not have any share capital financing schemes but will carefully consider the
actual conditions and make proper decisions in future. In 2017, in consideration of a series of factors including
the macroeconomic conditions, the Company's capital planning and the business development trend, the Company
initiated the issuance of preference shares in the domestic and overseas markets. The issuance of 50,000,000
offshore preference shares was completed on 25 October 2017, the gross proceeds raised from the issuance
amounted to USD1 billion. The issuance of 275 million domestic preference shares was completed on 18 December
2017, the gross proceeds raised from the issuance amounted to RMB27.5 billion. After deducting the issuance
expenses, the net proceeds of the aforesaid issuances amounted to approximately RMB34.065 billion in aggregate,
which were included in the Company's other tier 1 capital. The above issuances effectively enhanced the Company's
capital adequacy ratio, and strengthened its risk prevention capability and overall competitiveness, laying a solid
capital foundation for the sustainable and healthy business development in future.
China Merchants Bank
Annual Report 2017
As at the end of 2017, the Company's risk-weighted assets under the weighted approach increased by 10.83% as
compared with the end of the previous year, and the percentage of risk-weighted assets to total assets was 65.81%.
The risk-weighted assets (taking into consideration the minimum requirements during the grace period) under the
advanced approach increased by 3.68% as compared with the end of the previous year, and the percentage of risk-
weighted assets to total assets was 53.40%, lowered by 12.41 percentage points as compared to that under the
weighted approach, indicating an effective saving in capital. The slight increase in the percentage of risk-weighted
assets to total assets was mainly because the Company proactively implemented the regulatory requirement of
deleveraging, getting off virtual and going into the real capital in 2017, leading to slower growth in inter-bank
assets and faster growth in credit assets during the year. Meanwhile, the Company proactively implemented the
concept of "Light-operation Bank", increased the investment in strategic customers and retail credit business at the
Head Office and branches, optimised resources allocation and promoted structural optimisation and adjustments.
The Company constantly promoted the implementation of the development strategies of marketisation, branding
and internationalisation for its assets securitisation business to provide extra capacity for capital saving. As at
the end of the reporting period, the Company totally issued 24 phases of credit asset-backed securities, with the
aggregate issuance volume of RMB138.192 billion, among which, 10 phases of credit asset-backed securities were
issued during the reporting period, with the aggregate issuance volume of RMB71.492 billion, fully covering all types
of assets including corporate and retail, and normal and non-performing, leading in the industry in terms of market
share, and taking the dominant position in securitisation of retail assets.
III Report of the Board of Directors
Capital management
8.
China Merchants Bank
Annual Report 2017
The 20 industries refer to coal, steel trade, coal trade, iron and steel, electrolytic aluminium, shipbuilding, glass, water transport, coking, coal chemical,
engineering machinery, photovoltaic, cement, basic chemical, nonferrous metal smelting and calendaring (excluding electrolytic aluminium), commonly
used metal ore mining, fertiliser, paper, textile and chemical fiber.
4
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.
III Report of the Board of Directors
In the short run, the situation can be concluded as "strict regulation, tight monetary policy and robust economy".
Regulation will be further strengthened. Regulatory authorities will take the prevention and management of major
risks as their top priority. They will focus on reducing the gearing ratio, especially those of zombie companies, as
well as the leverage ratio of household sector; place strict regulation on cross-over financial products and continue
to address the issue of shadow banking; clean up and regulate financial holding companies and deal with risky
banking institutions in an orderly manner; further rectify various out-of-line financial behaviours and strive to fight
against illegal fund-raising activities; and continue to curb the real estate bubble and proactively support the local
governments to clean up implicit debts. A curtain has been rung down for the huge expansion of shadow banking.
Chaotic phenomena such as idle funds and crazy leveraging have been consigned to history. Skills and resources
arising in response to regulatory arbitrage and leveraged operations have become "negative assets". The banking
industry has entered into a stage of differentiation.
The monetary policy will be neutral with a tightening bias. In view of the policy environment, as the macroeconomic
leverage ratio remains high, "deleveraging" still has a long way to go and the money supply will be further
tightened. In view of the rules of regulation and control, the monetary policy has been switching from single focus
on quantity-based instruments to dual focus on both quantity-based and price-based instruments. The slow growth
of M2 does not amount to the easing of monetary policy of the central bank. In view of the external environment,
the market widely expects that the Federal Reserve will sustain rate hikes in 2018, which will also become a crucial
factor for the rising market interest rates.
During the reporting period, the PBOC, the CBRC, the CSRC, the CIRC and the State Administration of Foreign
Exchange issued a consultation on the Guidance on Regulating the Asset Management Business of Financial
Institutions for Public Comments (Consultation Draft) (關於規範金融機構資產管理業務的指導意見(徵求意見稿))
(hereinafter referred to as the "Guidance"), addressing various issues occurred in asset management industry over
the past few years such as unregulated development, investing through multi-layer vehicles and rigid repayment.
Based on the same regulatory principle, the Guidance proposed a series of regulatory measures which targeted
to resolve the aforesaid issues. The guidance direction was in line with the development pattern of the asset
management business, while the measures met the actual needs for business development. The new regulations
will play an important role in fostering the asset management business of banks to gear back into their business
origin, regulating the development of asset management business, mitigating the risk of the asset management
business of banks, and contributing to the real economy in a better way. The final introduction of the Guidance will
be a milestone for the standardised development of the asset management business of banks across the industry.
Meanwhile, it will also bring great challenges to the transformation, development and income growth of the asset
management business of various banks.
As at 31 December 2017, the Company had 106.6323 million retail customers (including the customers of its debit
cards and credit cards), representing an increase of 17.10% as compared with the end of the previous year, among
which, the number of Sunflower-level and above customers (those with minimum daily average total assets of
RMB500,000 for each month) reached 2,126,700, representing an increase of 11.51% as compared with the end
of the previous year. The balance of total assets under management (AUM) from our retail customers amounted to
RMB6, 164.340 billion, representing an increase of 11.46% 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 RMB5,061.367 billion, representing an increase of 11.46% as compared with the end of the previous year,
and accounting for 82.11% of the balance of total assets under management from retail customers of the Bank.
The balance of deposits from retail customers amounted to RMB1,231.278 billion, representing an increase of
3.33% as compared with the end of the previous year, of which the percentage of demand deposits accounted for
75.20%. The demand deposits accounted for 77.12% of the daily average balance, representing an increase of 3.08
percentage points as compared with the previous year. According to the data released by the PBOC, the Company
ranked first among the joint stock banks in terms of the balance of retail deposits. As at the end of the reporting
period, a total of 115,785,300 All-in-one Cards in aggregate have been issued by the Company for retail customers,
up by 10.35% as compared with the end of the previous year.
Retail customers and total assets under management from retail customers
The Company has always prioritised the development of its retail finance business, and built up structural
advantages. In 2017, the Company continually consolidated its business foundation through continuous optimisation
of the management system, product system, service system, channel system and risk prevention system for its retail
finance business, increased the application of Fintech, and proactively explored new development model for retail
business. The Company has outstanding competitive edges in such core retail businesses as wealth management,
private banking, credit cards, retail loans, consumer finance and e-banking.
In 2017, the profit of the retail finance business of the Company maintained its rapid growth, with the profit before
tax amounting to RMB47.595 billion, representing an increase of 7.94% as compared with the previous year. It
accounted for 56.52% of the total profit before tax of the whole business lines of the Company. The net operating
income from the retail finance amounted to RMB106.227 billion, representing an increase of 8.48% as compared
with previous year, and accounting for 51.28% of the net operating income of the Company, among which, the net
interest income from retail finance amounted to RMB69.328 billion, representing an increase of 5.51% as compared
with the previous year and accounting for 65.26% of the net operating income from retail finance, while the net
non-interest income from retail finance amounted to RMB36.899 billion, representing an increase of 14.54% as
compared with the previous year and accounting for 34.74% of the net operating income from retail finance, and
55.78% of the net non-interest income of the Company. In 2017, the retail finance of the Company recorded a fee
income of RMB13.802 billion from bank cards, representing an increase of 28.97% as compared with the previous
year; the fee and commission income from retail wealth management was RMB18.585 billion, accounting for 51.59%
of the net fee and commission income from retail finance.
Business overview
3.10.1 Retail finance
3.10 Business operations
In order to accomplish the mission of gaining users, the Bank has to concentrate on addressing some in-depth
and fundamental issues and implement seven mid- to long-term missions: the first is to deepen transformation
and further promote service upgrading. The Company will review its products and services from the viewpoint of
customers and make innovations in its appraisal to establish a service system that marks customer experience as a
high priority. The second is to remove silos and formulate a customer-oriented business process. The Company will
rationalise and optimise its digital end-to-end process based on the "customer journey map". The third is to make
efforts to establish an automated and intelligent shared operating platform to concentrate the operational functions
scattered in various business lines, so as to cut costs, improve efficiency and upgrade towards "pan-operation"
gradually. The fourth is to construct a comprehensive risk management system to support transformation and
development, which comprises streamlining systems, establishing research systems and strengthening utilisation of
new instruments. The fifth is to achieve the "quality leapfrogging" of Digital Bank. The Bank will break down the
segregation between segments and join forces on the monthly number of active users of CMB APP and CMB Life
APP. The sixth is to focus on mitigating the issue of imbalanced and insufficient institutional development. In addition
to Beijing, Shanghai and Shenzhen, the Company also has to establish more branches with robust operations in
economically developed regions. The seventh is to improve work ethics and team building, and remodel our service
culture.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
49
49
The management of the Company believes that the environment is not suitable for "going all out and going fast"
in 2018, as "deleveraging" requires banks to be more prudent in credit extension, while "strict regulation" requires
banks to prepare for the transformation of their asset management business. Instead, by seizing the opportunity
of improving asset quality, the Company should refocus on its business origin and enforce reform. The Company
will take the following measures: the first is to further promote adjustments in asset structure. The Company will
greatly suppress its loans extended to the customers with material risks, customers with low-end overcapacity and
"zombie companies", and provide preferential supports for strategic emerging industries, modern service industry
and advanced manufacturing industries. The second is to strengthen our capabilities to sell assets. The Company will
consider more about the factors affecting selling out of the sheet when "importing assets" to improve matching
capability and push forward syndications, asset securitisation, the circulation at China Banking Wealth Management
Registration & Depository Center and other business. The third is to take multiple actions on absorbing deposits.
The Company will facilitate the growth of deposits by customer management, especially with a focus on financial
institutions business and institutional business, and put more efforts in the innovation of deposits products.
The fourth is to achieve good results in compliant operations and risk prevention. Under the current operating
environment, the Company plans to achieve a growth rate of approximately 10.30%, 11.30% and 5.20% in
proprietary loans, proprietary deposits and active liabilities in 2018, respectively.
The real economy will stabilise at a low level, and is still searching for new growth drivers. Many structural
opportunities are present but yet to support a "V-shape rebound" as a whole. In view of the three growth drivers
of GDP growth, the contribution of consumption to economic growth has been increasing. However, consumption
upgrading is a long and slow process. Fundamental changes will not happen in the short run. The growth of private
investment briefly recovered once but then fell again in 2017, reflecting the lack of willingness of the companies to
expand, and the strict restrictions on local debts imposed by the central government will continue to suppress the
growth of investment in infrastructure. Although the global economic recovery is beneficial to the boost of domestic
exports, prevailing trade protectionism, rising domestic labour costs and other factors chip away at such stimulus on
exports.
Same as above.
3
In the long run, in order to adapt to the huge changes in operating environment brought about by technologies,
commercial banks have to formulate their general development plan through detaching from the pursuit of
short-term benefits and fundamentally changing their business and management models. In 2018, focusing on
improving customer experience and leveraging the monthly number of active users of its two major APPS, namely
CMB APP and CMB Life APP, the Company will remove obstacles and concentrate its effort on the innovation and
operation of financial technology so as to strive for the "double agility" of business and technology. Recently, the
monthly number of active users of our two major APPS has exceeded 45 million (after de-duplication), taking the
lead in the banking industry. Both our technological capacity and operation philosophy are very mature.
2
In 2017, the Company relied on its efficient and sophisticated operating mechanism of asset securitisation to
continue to accelerate the process of securitisation of the non-performing assets. During the reporting period, the
Company launched three securitisation projects, for which non-performing assets with principal value in aggregate
of RMB2.856 billion were disposed of, and the nominal value of securities issued amounted to RMB650 million. The
Company holds 5% of each tranche of such securities in accordance with regulatory requirements. The remaining
securities were subscribed for by investors in the open market. 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 asset liquidity
and revenue structure.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
The balance of wealth management products is the sum of the principal, the changes in net value of net-worth products and the structured products of
customers as at the end of the reporting period.
1
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 2017, the Company disposed of non-performing loans amounting to
RMB41.358 billion, of which, RMB21.368 billion was written off in a regular way, RMB9.822 billion was cleared and
settled, RMB2.856 billion was securitised as non-performing assets, RMB222 million was transferred at discount, and
RMB7.090 billion was disposed of by restructuring, upward migration, repossession, remission and other means.
In 2017, both the amount and ratio of non-performing loan formation decreased. In general, the amount of
non-performing loan formation during the year was RMB36.537 billion, representing a decrease of RMB26.393
billion or 41.94% as compared with the previous year, and the non-performing loan formation ratio was
1.16%, representing a decrease of 1.08 percentage points as compared with the end of the previous year, and
the cumulative non-performing loan formation ratio for each quarter in 2017 declined as compared with the
corresponding period of the previous year; analysing by industry, the amount and ratio of non-performing loans
formation in the manufacturing, wholesale and retail and mining industries reduced significantly as compared
with the previous year; analysing by geographic area, the amount and ratio of non-performing loan formation in
the Yangtze River Delta, Bohai Rim and Western China where they were previously higher reduced significantly
as compared with the previous year; analysing by customer base, the amount and ratio of non-performing loan
formation in small-, medium- and large-sized enterprises also declined as compared with the previous year.
The formation and disposal of non-performing assets
The Company has always attached great importance to business origin and conducted healthy operation of asset
management in compliance with the law and regulations. The Company is of the opinion that the opportunities
brought to the development of asset management business by the Guidance outweigh the challenges arising
thereof. Upon the implementation of the Guidance and ancillary regulatory rules and regulations, the Company
will strictly implement all regulatory requirements and continue to be customer-centric, return to its business
origin, contribute to the real economy, increase the investment in human resources and Fintech, develop the core
competitiveness in investment, research and risk management, and continuously promote the healthy development
of the asset management business.
The Company highly recognised and firmly supported the Guidance. Prior to the public consultation on the
Guidance, we had already adopted a number of measures based on the development pattern of asset management
business as well as the development experience in mature overseas markets, embarking on the transformation to
net-worth product management, eliminating rigid repayment, enhancing the capabilities in the investment and
research of standardised credit assets and equity assets, lowering the financial leveraging level and implementing
other transformations in accordance with the relevant regulatory requirements. During the reporting period, the
Company continued to promote the transformation of net-worth products. Firstly, as at the end of the reporting
period, the balance of net-worth products accounted for 75.81% of that of wealth management products',
representing an increase of 2.93 percentage points as compared with the end of the previous year. Secondly,
the Company strictly regulated the non-standardised credit assets, and increased the proportion of investment in
standardised credit assets and equity assets such as bonds and stocks. As at the end of the reporting period, the
proportion of investment in standardised credit assets and equity assets increased by 12.50 percentage points as
compared with the end of the previous year. Thirdly, in accordance with the policies regarding lowering the financial
leveraging level, the Company controlled the increase in the amount of wealth management service. As at the end
of the reporting period, the balance of off-balance sheet wealth management products after deducting the balance
of on-balance sheet wealth management products and structured deposits decreased by 8.24% as compared with
the end of the previous year.
III Report of the Board of Directors
5.
China Merchants Bank
Annual Report 2017
As the scope of risk exposure of our businesses (calculated on the broad statistical calibre) was adjusted, the figures as at the end of the previous year
were adjusted accordingly, on the same calibre.
44
In addition, since the reactivation of the pilot project of debt-to-equity conversion in 2016, in accordance with the
State Council's "Guidelines for Marketisation of Debt-to-equity Conversion of Banks", the Company continued
to steadily and proactively push forward the business relating to debt-to-equity conversion, reasonably screen
customers, properly carry out feasibility analysis and prepare workable service plans.
6.
As at 31 December 2017, the non-performing loan ratio of the Company was 1.67%, representing a decrease of
0.31 percentage point as compared with the end of the previous year, while the proportion of special mention loans
in total loans was 1.66%, down by 0.49 percentage point from the end of the previous year, and the proportion of
overdue loans in total loans was 1.77%, down by 0.47 percentage point from the end of the previous year. The loan
allowance ratio was 4.44%, up by 0.89 percentage point from the end of the previous year. The allowance coverage
ratio of non-performing loans was 265.04%, representing an increase of 86.01 percentage points as compared with
the end of the previous year. The credit cost ratio was 1.88%, representing a decrease of 0.39 percentage point as
compared with the end of the previous year. The risk exposure was generally controllable.
In response to changes in external macroeconomic environment, the Company proactively strengthened the control
of its risks associated with real estate industry, local government financing platforms, the industries from which our
loans should be reduced and recovered and other key areas.
The balance of proprietary funds invested in non-standardised debt assets under the non-credit category amounted
to RMB3.000 billion, representing a decrease of 95.09% as compared with the end of the previous year. The objects
of such investments are creditor's beneficiary rights of banks and other financial institutions.
The balance of proprietary funds invested in non-standardised credit assets under the credit category amounted to
RMB551.423 billion, representing an increase of 23.41% as compared with the end of the previous year, in which
RMB206.512 billion was for corporate creditor's beneficiary rights, up by 43.40% as compared with the end of the
previous year, mainly due to the increase in demand for corporate loans during the reporting period; RMB54.696
billion was for individual creditor's beneficiary rights, down by 11.63% as compared with the end of the previous
year; and RMB290.215 billion was for beneficiary rights to discounted bank acceptance bills and commercial
acceptance bills, up by 20.47% as compared with the end of the previous year. The non-performing ratio of the
proprietary funds invested in non-standardised credit assets under the credit category was 0.57%, down by 0.27
percentage point as compared with the end of the previous year.
During the reporting period, the Company further tightened risk control in the proprietary funds invested in non-
standardised credit assets and emphasised compliance with the rules in respect of the fund 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. In accordance with the principle of substance over form, the Company
also incorporated the centralised credit management of customers and implemented risk classification according
to the risk profile of basic assets in accordance with the management requirement of penetration principle. As
at the end of the reporting period, the balance of the Company's proprietary funds invested in non-standardised
credit assets amounted to RMB554.423 billion, representing an increase of 9.15% as compared with the end of the
previous year. The assets structure as at the end of the reporting period is as follows:
The proprietary funds invested in non-standardised credit assets
For the 20 industries that we have reduced or withdrawn from such as coal, iron and steel, cement, shipbuilding,
photovoltaic and coal chemicals, the Company raised its entry threshold for customers, focused on supporting
leading enterprises in industries and regional quality enterprises closely related to people's livelihood, prioritised the
financing needs related to energy conservation and environmental protection and technological upgrading, devoted to
reducing and withdrawing from customers associated with significant risks and lower class overcapacity, especially for
customers in the process of reducing production capacity, deleveraging, and those meeting the "zombie enterprise"
standards. In addition, the Company implemented stringent quota management for industry, enhanced the monitoring
of withdrawal of risk-bearing loans and optimised risk mitigation measures. As at the end of December 2017, the
exposure of the industries that we have reduced or withdrawn from (calculated on the full statistical calibre) amounted
to RMB139.505 billion, representing a decrease of RMB48.193 billion as compared with the end of the previous year.
The non-performing loan ratio was 9.37%, down by 4.05 percentage points as compared with the end of the previous
year. The exposure of water transport, engineering machinery and glass increased as compared with the end of the
previous year, mainly due to the moderate increase in loans for quality enterprises and advanced production capacity
in the above-mentioned industries, the exposure of other 17 industries decreased as compared with the end of the
previous year.
As at the end of the reporting period, the balance of provisions for full-calibre credit assets (including proprietary
loans and proprietary funds invested in non-standardised credit assets under the credit category) amounted to
RMB150.129 billion, including the balance of loan provisions of RMB146.669 billion and the balance of provisions
for proprietary funds invested in non-standardised credit assets under the credit category of RMB3.460 billion. The
full-calibre credit assets allowance ratio was 3.89%, representing an increase of 0.64 percentage point as compared
with the end of the previous year, whereas the non-performing loan allowance coverage ratio of credit assets was
256.71%, representing an increase of 79.64 percentage points as compared with the end of the previous year.
III Report of the Board of Directors
46
46
45
In future, the Company will continue to serve the real economy and give priority to satisfying tailored financing
needs of quality enterprises for the purpose of business development. The Company will also implement the
national macro-control policies and conduct prudent and careful management as the preconditions for its business
operations. The Company will continue to maintain a relatively consistent policy with proprietary funds in terms of
credit policies, customer onboarding, industrial investment direction, due diligence, risk assessment, post-investment
management and other aspects.
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 coverage of cash flow and compliant business model", and
prioritised the allocation of its credit resources to local government financing platforms being operated under the
market-based and commercial principles, having good cash flow and complying with the policies on government
purchasing (procurement) and PPP model 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)³ amounted to RMB228.507 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 RMB39 million as compared with the beginning of the
year. Included therein was the balance of loans on balance sheet which amounted to RMB98.735 billion, representing
a decrease of RMB5.948 billion as compared with the end of the previous year, which accounted for 2.99% of the
total loans and advances granted by the Company, down by 0.48 percentage point as compared with the end of the
previous year. There was no non-performing asset for our businesses involving local government financing platforms.
In respect of real estate credit business, the Company dynamically adjusted its credit policy according to the policies on
adjustments to the real estate industry, effectively changed the business strategy of the real estate industry, and allocated
and invested assets in the directions in line with future industrial trends by focusing on house leasing, real estate asset
securitisation and real estate equity investment. Focusing on leasing cash flow, the Company selected quality house leasing
business, and primarily supported centralised projects with characteristics of high level of economic development, prime
locations in cities, well operation, steady cash flow and strong capability of value realisation. The Company 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 the full statistical calibre and strengthened the region and customer list management,
proactively adapted to the national policies on industrial adjustment and strictly implemented the requirements of national
policies to strictly control and regulate over-pricing of real estate properties at early stage, cities showing high main market
leverage ratio, real estate projects with high leverage and high financing cost; deepened strategic cooperation with the
prestigious real estate developers, thereby further raising the proportion of its strategic real estate customers and relatively
robust 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)²
amounted to RMB425.651 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 RMB74.410
billion as compared with the beginning of the year. Included therein was the balance of loans to domestic real estate
enterprises which amounted to RMB193.516 billion, representing an increase of RMB23.293 billion as compared with the
end of the previous year, which accounted for 5.85% of the total loans and advances granted by the Company, up by
0.20 percentage point as compared with the end of the previous year. Since 2017, the assets of the domestic real estate
enterprises has maintained good quality, the non-performing loan ratio was 1.46%.
China Merchants Bank
Annual Report 2017
Asset quality in key areas
Financial institution business
Under the stringent regulatory environment, the Company continued to improve its services for financial institution
customers, and adjusted its business strategies in the following areas to adapt to the market changes: Firstly,
with respect to asset and liability, the Company compressed the business on interbank assets and optimised
its interbank liability structure and supported its liquidity management of the whole Bank in accordance with
regulatory requirement. As of the end of the reporting period, the balance of interbank deposits of the Company
amounted to RMB421.251 billion. Among them, the total amount of interbank demand deposits in the areas of
fund clearing, settlement and depository service reported a balance of RMB288.635 billion, accounting for 68.52%.
The Bank maintained a leading position in terms of scale and percentage of demand deposits among the small-to
medium-sized banks in China. Secondly, with respect to interbank clearing, the Company is actively exploring
new models and optimising all services through leveraging Fintech. In December 2017, the Company successfully
settled the world's first Blockchain-based cross-border interbank RMB clearing deal, through leveraging the industry's
first open interbank clearing platform based on the Blockchain technology. At the end of the reporting period,
the bank maintained a leading edge among all small- and medium-sized banks in China in the cross-border RMB
interbank demand deposits accounts opened by the financial institutions both domestically and abroad. The Bank
was also in the leading position in terms of number of customers taking part indirectly in CIPS among all small-
and medium-sized banks in China and ranked second in the industry. Thirdly, with respect to interbank fund
management, the Company maintained an interbank fund management balance in the amount of RMB129.632
billion, a reduction by nearly 70% as compared with the end of last year. The scale of interbank fund management
continued to decrease and would continue with steady further reduction. Fourthly, with respect to depository
service, the Company's security future margin was in stable operation in the reporting period, with new third-party
depository services extended to 100 securities companies and 9,020,200 new customers secured, achieving a growth
of 16.22% as compared with the end of the previous year. In addition, the Company entered into cooperation with
85 securities companies on margin trading and short selling business, securing 354,100 new customers, achieving a
growth of 8.72% as compared with the end of the previous year. Also the Company entered into cooperation with
46 securities companies on stock options business, securing 13,800 customers at the end of the reporting period,
representing a growth of 31.43% as compared with the end of the previous year. The Company also entered into
cooperation with 105 securities companies on Bank-futures transfer, securing 94,900 customers, representing a
growth of 49.21% as compared with the end of the previous year. Fifthly, with respect to discounted bill transfer
business, the discounted bills transferred to other banks or financial institutions amounted to RMB3,121.015 billion,
with a year-on-year drop of 88.54%, due to a series of factors including the fall in bills turnover in external market,
internal business regulations, and a change in the direction of capital flow. However, the Company still maintained
a leading position in market share. Business in central bank bill rediscounting amounted to RMB89.648 billion,
with a year-on-year growth of 30.38% and maintained its leading position in the market. Sixthly, with respect to
exchanges, the Company was qualified as a depository bank and clearing and settlement bank with China Financial
Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, Shanghai Futures Exchange,
Shanghai Gold Exchange, Shanghai International Gold Exchange, Shanghai Clearing House, Shanghai Insurance
Exchange, Shanghai International Energy Exchange, China Trust Registry Corporation. In addition, the Company
was also qualified as the domestic/overseas depository bank with Shanghai International Energy Exchange, and as
a settlement bank with Shanghai Insurance Exchange and China Trust Registry Corporation during the reporting
period. Seventhly, with respect to the businesses on our "Zhao Ying Tong ()" Internet transaction
platform for industry peers, as at the end of the reporting period, the number of financial institutions signed for
our "Zhao Ying Tong ()" transaction platform for industry peers of the Company reached 1,338, the number
of accounts opened by public fund institutions reached 288, the number of customers of online interbank deposits
exceeded 100, the online business volume amounted to RMB1.36 trillion, and the online trading replacement ratio
of the platform exceeded 80%.
III Report of the Board of Directors
With respect to our Structural Financing business, the Company closely followed the changes in market trends
and exploited opportunities for deal matching and asset securitisation in facing the complicated environment of
new regulatory policies and shortfall in available funds. Efforts were made to optimise our business structure while
developing our two-way deal matching capabilities between assets and funding, so to upgrade our comprehensive
capabilities in customer service. During the year, a total amount of RMB69.09 billion was initiated in structural
financing, with a year-on-year growth of 111.32%, among which the total amount in market deal matching topped
RMB43.4 billion, representing a year-on-year growth of 228.79%.
57
China Merchants Bank
Annual Report 2017
With respect to our M&A financing business, the Company maintained its focus on the listed companies, and
enhanced its three major capabilities of project design, fund organization and deal matching in a turbulent
external M&A market environment. While strengthening and extending our traditional advantages in privatisation
sector, the Company has paid more attention to uplifting its organisational capability in M&A syndicates with
successful completion of ten major M&A financing arrangements in the amount of tens of billions of RMB yuan
while undertaking the major privatisation deals in the market. All in all, a total amount of RMB105.822 billion had
been achieved in M&A during the year, with a year-on-year growth of 30.65%, and ranked 3rd in Asia lead M&A
syndicated financing market (Source: Thomson Reuters data).
With respect to our Capital Market business, the Company emphasised support to the real economy and
technological innovation in its business development, and fully engaged in State-owned Enterprise Mixed Ownership
Reform in pilot sectors and took an active part in investment and financing business for quality enterprises in the
field of technological innovation and consumption upgrade. During the year, equity investment and financing
amounted to RMB14.747 billion, representing a year-on-year growth of 15.17%.
58
Secondly, our comprehensive risk management capabilities improved continuously. During the reporting period,
the Company strove to improve its risk management expertise on asset management, and kept on consolidating
its post-investment management of credit risks, while closely monitoring the market risks. On the other hand,
efforts were also made to strengthen the Company's liquidity management capacity on asset management business,
leveraging centralised operation and system replacement to reduce operation risks. The Company also actively
carried on the special inspection and supervision on the "Three Violations, Three Arbitrages and Four Improper Acts"
enforced by the CBRC through well-targeted control of the legal compliance risks and prevention of business legal
compliance risk while uplifting its risk management capabilities in every aspect and advancing its risk management
efforts with radical measures instead of tentative measures.
III Report of the Board of Directors
Wealth management business
The Company's personal wealth management business maintained a healthy growth, and rolled out a total of 4,660
new wealth management products, with a total sales turnover of RMB15.87 trillion, representing a year-on-year
decrease of 1.61%. As of the end of the reporting period, the total value of the Company's wealth management
products amounted to RMB2.19 trillion, with a year-on-year growth of 1.42%. According to the information of the
CBRC, the Company's wealth management products and off-balance sheet wealth management products ranked
second among the commercial banks in terms of total fund values.
During the reporting period, the wealth management business of the Company also scored a number of
achievements in terms of asset allocations, risk management, entrusted investment management and products
transformation.
Firstly, the portfolio of quality assets allocation improved steadily. Aiming to raise the return-on-risk ratio of
asset allocation, the Company strengthened its organisation of high-quality asset and investment capabilities of
standardised financial assets. With respect to bonds asset, the Company coped with fluctuation in the bonds market
more effectively by enhancing its investment strategies with research on the market and a timely adjustment to its
investment strategies and structure. As of the end of the reporting period, the wealth management funds invested
in the bond market totaled RMB1,128.269 billion, representing a year-on-year growth of 8.99%. With respect to
the credit assets, the Company gradually rolled out its asset securitisation business, stock beneficiary scheme and
credit asset circulation business at the Center for Credit Asset Registration and Circulation for the Banking Financial
Institution. With respect to the non-standardised credit assets, the Company made investments within the quota limit
in strict compliance with the regulatory guidance. As of the end of the reporting period, the total balance of wealth
management funds invested with the non-standardised credit assets amounted to RMB218.638 billion. During the
reporting period, the quality of the non-standardised credit assets remained stable due to the implementation of
stringent asset entry criteria and risk management measures. With respect to the equity assets, "Tou Rong Tong",
which focused on the needs of high-quality listed companies and their related parties for financing, margin financing
and investments, reported a stable growth. Our investment business in the secondary stock trading market, by
working with the top investment firms in the market, also reported a steady growth in business volume and return,
and improvement in investment management.
Thirdly, efforts are continuously made to strengthen the Company's entrusted investment management. The
Company adhered to the principle of "independent investment first, entrusted investment second" in expanding
its bond entrusted investment business. During the reporting period, in response to the changes in the financial
regulatory policies and the continuous adjustment in the bond market, the Company, in light of the investment
performance of partner institutions and the demand for financial portfolio allocation, focused on adjusting the
structure of bond entrusted investment and strengthening risk management. On the one hand, the Company
adjusted the entrusted investment share and selected the best institutions to strengthen cooperation with, based
on their performance in terms of return on and risk in investment. On the other hand, the Group continued to
consolidate the foundation for entrusted investment risk management with cooperative institutions and base assets
at the core to exercise strict penetrating management of base assets and guarantee a steady development of its
entrusted investment business. As of the end of the reporting period, the leverage of the Company's entrusted
bonds investment was 120.30%, with the risks generally remaining manageable.
Fourthly, the Company continued to promote the transformation of its products by focusing on net worth only.
During the reporting period, in compliance with the regulatory guidance, all the newly launched products were
rolled-out as net worth-focused products. Net worth-focused products such as "Ju Yi Sheng Jin (±)", 5-year
Sunflower interest increment products and enhanced stock index wealth management products were introduced
one after another, which ensured the return of our assets management business to its roots by passing the proceeds
and risks of the products to the clients to foster a matured investment attitude of sharing both the gains and risks.
As of the end of the reporting period, the balance of our net worth-focused products amounted to RMB1,662.95
billion, representing a year-on-year increase of 5.50%, accounted for 75.81% of the balance of wealth management
products, representing a year-on-year increase of 2.93 percentage points.
The balance of wealth management products is the sum of the principal, profit and loss on changes in net value of net-worth products and the structured
products of customers as at the end of the reporting period.
With respect to our bonds underwriting business, under the environment of rising market interest rates, the
Company strengthened its market analysis capability and maintained good investor relations, and sought
to implement major national strategies through the launch of a series of products such as a successful
lead-underwriting of Bonds for coordinated development of the Beijing-Tianjin-Hebei region, first non-financial
enterprises Panda Bonds for One Belt One Road, first Green Panda Bonds, first Green ABN, first Bonds Connect
for local enterprise and Bonds for Poverty Alleviation. During the year, the total value of Lead bonds Underwriting
amounted to RMB283.727 billion, ranking second in non-policy financial bonds market, and fifth in the medium
term notes market (as per ranking by WIND public data)
5
China Merchants Bank
Annual Report 2017
In 2017, the Company enhanced its core competitiveness in asset organization and explored new organizational
models while optimising its business system construction by carefully analysing the needs of its strategic customers
at both the headquarters and the branch level. The Company also earnestly pursued the development strategy of
"Light-operation Bank" against all odds and managed to achieve an increase in the total non-interest income of
investment bank business by 19.22% year-on-year. Initial results are seen with the integration of investment banking
and commercial banking with further elevation of its market brand reputation.
The main purpose of the Company's syndicated loan business is to enhance inter-bank cooperation and information
sharing and spread the risks associated with large-amount loans. As at 31 December 2017, the balance of syndicated
loans amounted to RMB144.700 billion, up by 4.76% as compared with the end of the previous year.
With respect to its offshore businesses, the Company fully enhanced the identification of its customers, revisited
its customers regularly, and deepened cooperation with its key customers by offering the comprehensive service
solutions such as settlements, wealth management and financing, thereby realising a steady business growth. As at
31 December 2017, the balance of deposits from offshore customers amounted to USD20.045 billion, representing
an increase of 24.41% as compared with the end of the previous year. The balance of loans granted to offshore
customers amounted to USD14.206 billion, representing an increase of 25.64% as compared with the end of the
previous year. The asset quality remained satisfactory with a non-performing loan ratio of 0.16%, without new
non-performing and overdue loans formation in the year. The offshore international settlements amounted to
USD309.016 billion, representing a year-on-year increase of 7.49%, without occurrence of any operational risk
losses. Net non-interest income amounted to USD108 million.
Since the underlying data is subject to adjustment or elimination as a result of change in classification of certain
enterprises after they have grown larger in scale at the beginning of the year, the calibre of our large-, medium- and
small-sized enterprises business at the beginning of the year was adjusted as compared to the end of the previous
year. As at the end of the reporting period, the balance of the Company's loans granted to domestic large-sized
enterprises amounted to RMB1,005.862 billion, representing an increase of 8.54% (calculated on the Bank's
calibre) as compared with the beginning of the year, accounting for 76.28% of our total loans granted to domestic
enterprises, up by 1.74 percentage points as compared with the beginning of the year with a non-performing loan
ratio of 2.36%, down by 0.72 percentage point as compared with the beginning of the year; the balance of the
Company's loans granted to domestic medium-sized enterprises amounted to RMB155.688 billion, representing a
decrease of 11.75% (calculated on the Bank's calibre) as compared with the beginning of the year, accounting for
11.81% of our total loans granted to domestic enterprises, down by 2.38 percentage points as compared with the
beginning of the year with a non-performing loan ratio of 7.07%, up by 1.09 percentage points as compared with
the beginning of the year, mainly due to a decrease in the business scale; and the balance of the Company's loans
granted to domestic small-sized enterprises amounted to RMB156.974 billion, representing an increase of 12.08%
(calculated on the Bank's calibre) as compared with the beginning of the year, accounting for 11.91% of our total
loans granted to domestic enterprises, up by 0.64 percentage point as compared with the beginning of the year with
a non-performing loan ratio of 2.89%, down by 0.91 percentage point as compared with the beginning of the year.
The floating range of the weighted average interest rate of the Company's loans granted to small-sized enterprises
was 14.52% for the whole year.
China Merchants Bank
In 2017, the Company further optimised the industry 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 2017, the balance of
credit loans to strategic emerging industries was RMB78.321 billion, representing an increase of RMB19.638 billion as
compared with the end of the previous year, and accounting for 5.48% of the total corporate loans of the Company;
and the balance of green credit loans was RMB157.103 billion, representing an increase of RMB13.439 billion as
compared with the end of the previous year and accounting for 11.00% 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 governments' financing vehicles, please refer to Section 3.9.1 of this report.
The Company made effort to foster the sustainable small enterprise business development model highlighted with
its own characteristics by focusing on its customer bases (Qian Ying Zhan Yi (F), supply chain and traditional
enterprises with stable businesses) and its product lines (Gao Xin Dai (), supply chain loans and collateralised
loans) and enhancing its professional operation team by setting up the small enterprise loan approval centre under
the Head Office. The Company also took various measures to establish the full-process small enterprise risk control
model, including the thorough inspection on the implementation of all standard procedures before loan extension,
the cross-verification of external data, professional approval during loan extension, centralised loan extension and
the centralised and digitalised management after loan extension.
"Qian Ying Zhan Yi (FR)" is a strategic brand of the Company to serve the emerging small- and medium-sized
innovative technology enterprises. The Company continued to explore for target customers through a carefully-compiled
list. During the reporting period, the Company continued to step up its effort to expand the customer base under "Qian
Ying Zhan Yi (F)", and to innovate finance products specific for technology enterprises by launching "Gao Xin
Dai ()" and other products. Meanwhile, the Company proactively initiated the innovation of investment and loan
linking business, and worked closely with external investment institutions, so as to provide diversified investment and loan
linking services to enterprises registered under "Qian Ying Zhan Yi (F)". As at 31 December 2017, the Company
had a total of 22,011 registered customers under "Qian Ying Zhan Yi (F)", representing an increase of 3,762
registered customers on the basis of customer base adjustment at the beginning of the year. During the reporting period,
a total of 118 companies in the "Qian Ying Zhan Yi (F)" customer base had successfully launched their IPO in
Mainland China and each of them opened a special account with the Company for their IPO proceeds. Total amounts of
proceeds under our custody reached RMB14.642 billion. The total amount of the credit lines granted to such customers as
at the end of the reporting period amounted to RMB75.110 billion with the balance of loans granted to such customers
amounting to RMB30.340 billion. The non-performing ratio was 0.15%.
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
Discounted bills
In 2017, affected by the external value-added tax policy, the business volume of the bills market recorded a
year-on-year decrease. The business volume of the directly discounted bills amounted to RMB783.124 billion during
the reporting period, maintaining its leading position in the industry. As at 31 December 2017, the balance of
discounted bills amounted to RMB113.678 billion, representing a decrease of 24.95% as compared with the end of
the previous year.
Corporate customer deposits
During the reporting period, the Company focused on the hierarchical and intensive operation of customer bases
for its corporate banking, refocused on its business origin, and centred on the two competitive product lines of
transaction banking and investment banking to serve its customers and enhanced the overall contribution and
stickiness of its customers, thereby realising a steady growth in corporate deposits. As at 31 December 2017, the
balance of corporate customer deposits amounted to RMB2,658.746 billion, representing an increase of 8.48%
as compared with the end of the previous year; the daily average balance amounted to RMB2,599.915 billion,
representing an increase of 11.28% as compared with the previous year; among which, the demand deposits
accounted for 56.23% of total deposits from our corporate customers. In 2017, the average cost ratio of deposits
from corporate customers was 1.51%, up by 0.03 percentage point as compared with the previous year. The cost of
deposits from corporate customers was under effective control despite the rapid rise of market prices.
Transaction banking business and offshore banking business
With respect to its 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 cross-sales of other corporate and retail products.
As of 31 December 2017, the Company had a total of 1,396,000 customers using its cash management service,
representing an increase of 25.74% as compared with the end of the previous year. Thanks to its continuous efforts
to consolidate the "C+ Cash Settlement Solution" brand, the Company recorded 261,100 newly opened accounts
and 810,800 newly issued "All-in-one Cards for Company (2)". The annual amount of transactions
through mobile checks amounted to RMB1.05 trillion. The basic cash management business experienced a healthy
growth. The Company continued to advance the innovation and promotion of "C+ Account - portfolio deposits",
Cross-border Cash Pool, Virtual Cash Pool, Multi-level Cash Pool and other products, launched the Mobile Customer
Application for Cross-bank Solution for Cash Management ("CBS") and continued to repeatedly optimise the
cross-bank cash management products.
With respect to its cash management service, the Company continued to upgrade its cash management cloud
service to launch the CBS6.0 Cash Management Cloud, repeatedly optimised the Solution for CBS Mobile Cash
Management, and effectively strengthened the marketing of various key projects serving large-sized conglomerates,
administrative institutions and multinational corporations, thus realising a rapid growth in the CBS business. The
number of our group customers using such service and companies under management reached 1,514 and 40,800,
respectively, with an annual transaction amount of RMB7.92 trillion.
With respect to its supply chain finance, the Company relied on Fintech to put into practice the integration of
investment banking and commercial banking and offered its customers the industrial supply chain comprehensive
service solution integrated with the business ideology of "financing + wisdom pooling + Fintech application".
The "wisdom pooling" is a capability to offer financial services to real industrial chains, including a package of
services such as design of commercial models, arrangement for transaction structure, operation and management of
assets and integration of external resources. The "Fintech application" means that the Company exerts its Fintech
application advantage to provide its customers with the Fintech-based financial IT infrastructure. With the tightened
classification standards for core enterprises and upstream and downstream customers, as at the end of the period,
the number of the Company's core customers with existing financial assets in supply chains and the upstream
and downstream customers with existing assets were 949 and 9,450, representing an increase of 142.71% and
70.12% as compared with the beginning of the year, respectively. The balance of supply chain finance amounted to
RMB185.301 billion, representing an increase of 91.31% as compared with the end of the previous year.
55
56
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
With respect to its trade finance, in order to better serve real economy, the Company proactively adjusted the
investment proportion of international and domestic trade finance assets, and furthered the assortment and
extended utilisation of the integrated products for domestic and foreign trade, making an investment of USD7.415
billion in the onshore financing for international trade. The domestic guarantees amounting to RMB62.108 billion
were issued, representing a year-on-year increase of 71.70%. The Company proactively explored the opportunities
of cooperation with strategic customers in the domestic factoring business, and posted RMB174.584 billion in
its business volume for the whole year, representing a year-on-year increase of 251.05%. The Company focused
on developing the innovative products with strong demand such as "Engineering Guarantee (1)", "Export
Pool Finance ()", "Making Payments on Behalf of Customers for Imports & Exports ()" and
"Negotiation of Domestic Letters of Credit Without Recourse" by deepening the Fintech application and captialising
on the innovation of technologies and concepts. The Company attached great importance to both risk control and
asset quality, and realised a decrease in both the non-performing balance and increment of trade finance.
With respect to its cross-border finance, the Company made full use of the comprehensive service system covering
"local and foreign currencies, domestic and international trade, offshore and onshore banking, investment banking
and commercial banking (*· · £)", proactively promoted the cooperation in the
joint operation of domestic branches and overseas platforms, and offered its customers the comprehensive service
solutions. As at the end of the reporting period, the number of the Company's cross-border finance customers
reached 67,277, representing an increase of 10.08% as compared with the end of the previous year. During the
reporting period, the onshore international settlements of the Company amounted to USD203.951 billion. Our
cross-border payment business snatched a market share of 2.83%, ranking second among the national small- and
medium-sized banks. The foreign exchange settlements amounted to USD130.275 billion, with a market share of
3.83%, ranking second among the national small- and medium-sized banks. The cross-border finance amounted to
RMB23.995 billion, representing a year-on-year increase of 263.51%.
Investment banking business
III Report of the Board of Directors
Credit cards
Asset custody business
51
In 2017, the Company proactively grasped market opportunities, and strived to promote the balanced development
in quality, efficiency and scale of retail loan business on the premise of effective control of risks associated with
retail loans. As at 31 December 2017, the total retail loans of the Company amounted to RMB1,764.296 billion,
representing an increase of 16.02% as compared with the end of the previous year and accounting for 53.36% of
the total loans and advances to customers, up by 2.91 percentage point as compared with the end of the previous
year. Total amount of the Company's retail loans (excluding credit card loans) reached RMB1,273.117 billion,
representing an increase of 14.51% as compared with the end of the previous year, accounting for 38.51% of total
loans and advances to customers of the Company, representing an increase of 1.63 percentage points as compared
with the end of the previous year.
During the reporting period, leveraging on its excellent services and innovations in Fintech, the Company
received various awards for its credit card business, including the "Best Experience of Mobile Social Media", a
technological innovation award awarded by The Asia Banker and the "Top Brand in China Brand Index - Credit
Card Category" awarded by Chnbrand, a Chinese brand rating and brand advisory institution. The Company also
received the "Most Favoured Credit Card by Multimillionaires" awarded by Hurun Rich List for 13 consecutively
times, and received the "Best Customer Service Center in China" awarded by CCCS for the 13th time.
Retail loans
During the reporting period, by effectively promoting the application of Fintech, the Company built a smart customer
acquisition system covering all processes, and fully enhanced the efficiency of customer acquisition. By focusing
on mobile Fintech innovations, the Company took "building the best consumer finance APP" as its core objective
and fully enhanced the operational capability of CMB Life APP. For details, please refer to the section headed
"Distribution Channels". By utilising customer persona profile, intelligent speech interaction, biometrics verification,
human-computer fusion and other technologies, the Company established the three-segment customer system of
"fans
cardholders", continued to explore the service values and deepened the transformation of
service models. By launching the newly upgraded intelligent credit limit service system "Quan Jing Zhi E (
)", the Company built up a one-stop independent credit processing platform for its credit products and led the
new trend of digital credit services. The Company vigorously developed innovative consumption finance products
to enhance its competitiveness under the new market environment, and through the development and launch of
"E-Smart-Loan" (e), the first smart recommendation engine for consumer credit products in the industry, and
through over 10 million times of Cloud Computing per day, the Company was able to recommend the "tailored"
credit products for its customers at real time basis. The Company proactively cooperated with Internet enterprises
in respect of card products, proactively explored innovative IP business model, and launched a number of popular
co-branded credit cards such as the Arena of Valor Joint-brand Card (E). In celebration of the 15th
anniversary of the issuance of credit cards, the Company carried out vigorous brand promotion, among which, the
microfilm named "Tomato Scrambled Eggs" ("") for credit cards specially designed for Chinese
students studying abroad successfully became a phenomenon-level brand marketing case and its page views reached
100 million times. During the reporting period, the total credit card transaction volume of the Company maintained
its leading position in the industry, while the overseas market transaction volume of the Company also maintained
its leading position for ten consecutive years. Credit card business achieved balanced development in quality,
efficiency, scale and service. Confronted with the competition and challenges from its peers and Internet enterprises,
by leveraging on strengths such as more sophisticated risk control system and larger financial database, the credit
card business of the Company provided smart consumer credit solutions for its customers. And adhering to the
win-win cooperation with third-party payment enterprises, the Company created a more intelligent and user-friendly
payment environment for its customers together with these enterprises, and continuously forged its competitive
edge in brand, operation and technology.
-
subscribers
-
As at the end of the reporting period, the Company had issued an aggregate of 100.2272 million credit cards, with
62.4568 million active cards, representing an increase of 37.27% as compared with the end of the previous year, and
there were 46.9460 million active credit-card users, representing an increase of 25.86% as compared with the end
of the previous year. The Company continued to improve the efficiency of customer acquisition and management.
The credit card transaction of the Company in 2017 amounted to RMB2,969.992 billion, representing an increase of
30.56% as compared with the previous year, and the average transaction of each active card per month amounted
to RMB4,630.51. The balance of credit card loans was RMB491.238 billion, representing an increase of 20.10% as
compared with the end of the previous year. The percentage of the revolving balances of credit cards was 21.86%.
In 2017, interest income from credit cards amounted to RMB39.538 billion, representing an increase of 22.44%
as compared with the previous year. Benefiting from the increase of credit card fees resulting from increased
transaction volume, non-interest income from credit cards amounted to RMB14.913 billion, representing an increase
of 31.75% as compared with the previous year. As at the end of the reporting period, the non-performing loan ratio
of credit cards business was 1.11%, representing a decrease of 0.29 percentage point as compared with the end of
the previous year. The business risk exposure was controllable in general.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
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 and their family businesses with all-round professional and
private services covering investment, taxation, legal affairs, M&A, financing and clearing. In 2017, the Company
started to build a five-dimensional customer acquisition system, so as to continually enrich its source of customers;
further enriched its product portfolio, made innovations in product management processes and models; the
establishment of overseas business system has achieved initial success, and an integrated domestic and overseas
private banking service platform was formed. The Company continuously enriched the contents of private banking,
coordinated the assets and liabilities of the families including financial assets, corporate equities, fixed assets and
loan liabilities using the "Three Circles Model", identified the best plans for asset allocation, and established a highly
efficient financial planning system. The Company also redefined family wealth, and successfully completed the first
family charter trust and charity trust business of the Bank, which achieved a substantive breakthrough in the spiritual
heritage of family wealth.
As at 31 December 2017, the Company had 67,417 private banking customers (retail customers of the Company
with minimum total daily average assets of RMB10 million per month), representing an increase of 13.19% as
compared with the end of the previous year; total assets under management from private banking customers
amounted to RMB1,905.267 billion, representing an increase of 14.81% as compared with the end of the previous
year; total assets per account amounted to RMB28.2609 million, representing an increase of 1.43% 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 61 private banking centers and 67 wealth management centers in 58
domestic cities and 6 overseas cities.
Private banking
During the reporting period, adhering to its "customer-centric" concept, the wealth management business of
our Company enjoyed strong support from our professional market research team, which conducted independent
research on the macro-economy as well as the development trend of the financial market, regularly provided the
opinions on the market, the medium- to long-term investment strategies and the allocation strategies for large
asset categories, strengthened the comprehensive service capability of its teams and continuously enhanced the
capability of value creation for customers. The "Five-star Choice" fund of the Company took the lead to build a
perfect after-sale service system for customers, and with its advantage of "less volatility and steady growth" in the
performance since its launch, the "Machine Gene Investment ()" has become the largest domestic smart
investment advisory product. In future, by utilising Artificial Intelligence such as OCR (Optical Character Recognition),
NLP (Natural Language Processing), KG (Knowledge Graph) and other Fintech technologies, the Company will
upgrade the smart professional wealth management service system, make innovative breakthroughs in terms of
funds and insurance, and vigorously enhance customer service experience and service efficiency, so as to further
strengthen the core competitiveness of its wealth management business.
In 2017, the Company recorded RMB9, 178.368 billion in sales of personal wealth management products,
representing an increase of 19.91% as compared with the previous year; RMB705.510 billion in the agency
distribution of open-ended funds, representing an increase of 42.47% as compared with the previous year, of which
the sales of monetary fund increased significantly; RMB224.844 billion in agency distribution of trust schemes,
representing an increase of 70.08% as compared with the previous year; and RMB85.071 billion in premiums from
agency distribution of insurance policies, representing a decrease of 44.22% as compared with the previous year. In
2017, the Company recorded a fee and commission income from retail wealth management business of RMB18.585
billion, representing an increase of 0.19% as compared with the previous year, among which, income from agency
distribution of insurance policies amounted to RMB5.079 billion, income from entrusted wealth management
amounted to RMB5.056 billion, income from agency distribution of funds amounted to RMB5.044 billion and
income from agency distribution of trust schemes amounted to RMB3.257 billion. For the reasons for changes in
fee and commission income from wealth management, please refer to the analysis of net non-interest income under
Section 3.9.1 of this report.
Wealth management
In 2017, in a market environment where complicated and volatile situations overlap with relentless challenges, the
Company adhered to the development strategy of "Light-operation Bank", "focused on advantages and extended
the depth", returned to the fundamentals of business and customers, increased its investment in Fintech, and
maintained its development in mobile technology, Big Data, Artificial Intelligence and other fields of infrastructure.
The Company also strengthened its service management, enhanced the capability of allocation of sophisticated
products and analysis of Big Data associated with retail customers, and fully boosted the development of financial
service platform, business management refinement and precise marketing towards customers, so as to further
consolidate its retail customer base, and achieve a steady growth of its retail customer base and assets under
management (AUM).
III Report of the Board of Directors
China Merchants Bank
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As at the end of the reporting period, total corporate loans of the Company amounted to RMB1,428.350 billion,
representing an increase of 6.41% as compared with the end of the previous year and accounting for 43.20% of
total loans and advances to customers. Among them, the balance of the medium- to long-term loans to domestic
enterprises amounted to RMB583.854 billion, accounting for 44.28% of the total loans to domestic enterprises, and
representing an increase of 1.60 percentage points as compared with the end of the previous year. The non-performing
loan ratio of our corporate loans was 2.76%, a decrease of 0.54 percentage point as compared with the end of the
previous year. In 2017, the floating range of weighted average interest rates of newly granted corporate loans in
RMB was 3.28%. As at the end of the reporting period, the exposed weighted average default rate of the domestic
non-defaulting corporate customers was 1.11%, a decrease of 0.60 percentage point from the end of the previous
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As to business development, in 2017, the Company developed its residential housing loan business in a steady
manner in accordance with the requirements of the State policies and regulations and in support of the residents'
reasonable needs for their own homes, and accelerated the development of micro finance loans at the same time,
in order to support the real economy, in particular the development of small- and micro-sized enterprises, so as
to promote the further optimisation of asset structure of retail loans and to realise the healthy development of
retail loans business. As at the end of the reporting period, the Company recorded a balance of residential housing
loans of RMB825.783 billion, representing an increase of 14.64% as compared with the end of the previous year
with its percentage of the increment in retail loans (excluding credit cards) down by 41.05 percentage points as
compared with the end of the previous year. The balance of micro-finance loans amounted to RMB310.969 billion
(calculated on the Bank's statistical calibre), representing an increase of 10.41% as compared with the end of the
previous year with its percentage of the increment in retail loans (excluding credit cards) up by 30.86 percentage
points as compared with the end of the previous year, which has returned to the path of healthy growth. The
floating percentage of the weighted average interest rate of micro-finance loans newly granted (weighted at actual
amounts, same as below) during the reporting period was 40.90%. The balance of consumption loans amounted
to RMB91.370 billion, up by 42.57% as compared with the end of the previous year with its percentage of the
increment in retail loans (excluding credit cards) up by 10.93 percentage points as compared with the end of the
previous year. The floating percentage of the weighted average interest rate of consumption loans newly granted
during the reporting period was 55.71%. As at the end of the reporting period, the Company had 2,733,700 retail
customers, representing an increase of 47.38% as compared with the end of the previous year.
In 2017, the asset custody business of the Company continued to grow steadily. As of the end of the reporting
period, the balance of entrusted assets was RMB11.97 trillion, representing a year-on-year growth of 17.70%.
The annualized custodian fee income was RMB4.855 billion, representing a year-on-year increase of 13.38%.
The Company ranked second in the domestic custody industry in terms of both the balance of entrusted assets
and custodian fee income. During the reporting period, the Company actively implemented its business strategy
of leading the development of custodian services with finance and technology. The Company led the industry in
launching the first custodian Big Data platform in China and pioneered the full-cycle management of custodian
products. The Company continued to optimise the functions and business processes of the custodian systems,
and maintained a leading edge in custodian technology with wide recognition from the industry. Furthermore,
the Company's professional value-added services continued to win the acclaim from custodian clients while the
amount of overseas assets under custody grew rapidly. These efforts succeeded in capturing awards from domestic
and overseas financial media and capital market professional service agencies, and as a result achieving growing
influence in the custodian business market. Next, the Company would continue to introduce new functions into the
custody system as per the requirements of new regulations on asset management and control, continuously upgrade
its capabilities to provide professional services, and adjust the structure of custody business in a timely manner for
the purpose of promoting a sustained and steady development of its asset custody business.
Financial markets business
In 2017, facing the growing complexity of the global economy, uncertainty in the capital market and impact of
domestic economic restructuring on the financial market continued to intensify. There was increasing fluctuation in
the bond market, while the yield in the bond market rose sharply. Turmoil in the foreign exchange market led to a
clear downward trend in the U.S. dollar and sharp appreciation of RMB. By adjusting the position structure, reducing
high-risky bonds, and vigorously carrying out innovative business and implementing other strategies to actively
hedge and smooth out the market volatility, the Company has achieved good returns.
In respect of RMB investment: The Company took the initiative to grasp the trend of the RMB interest rate market
and scientifically formulated investment plans through in-depth study of the domestic monetary policies and
macroeconomic situation. Firstly, the Company dynamically adjusted the duration strategy according to the market
trend, and flexibly selected the tenure according to the curve shape. Secondly, the Company exploited the market
volatility to actively adjust our position structure and improve the portfolio return according to the changes in the
relative value of different bonds. As at the end of the reporting period, the balance of RMB bond portfolio of the
Company was RMB904.678 billion, with a portfolio duration of 3.80 years and a yield of 3.69%.
In respect of foreign currency investment: The Company formulated rational investment plans through close tracking
of the monetary policies of the major countries and logical judgment of the international economic situation and
market trends. Firstly, the Company maintained a prudent investment strategy and limited the duration of new
investments while flexibly adjusting portfolio positions to manage interest rate risks through sensible judgment on
interest rates and credit spreads. Secondly, the Company actively participated in the spread transactions of credit
bonds and range trading operation to realise interest spread gains. As at the end of the reporting period, the
balance of the foreign currency investment portfolio of the Company amounted to USD8.791 billion, with a portfolio
duration of 1.13 years and a portfolio yield of 2.53%.
In 2017, the trading volume of RMB exchange rate swaps reached RMB5,029.595 billion, representing a year-on-year
increase of 34.07%; the trading volume of RMB-denominated options of the Company (including proprietary
trading and trading on behalf of customers) had reached RMB730.985 billion; the trading volume of institutional
customer derivatives had reached RMB633.027 billion, representing an increase of 50.21% as compared with the
previous year; the income from institutional customer derivatives trading amounted to RMB653 million, representing
a year-on-year increase of 3.32%; and the income from precious metals business amounted to RMB377 million,
representing a year-on-year increase of 50.20%. 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.
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Though its efforts in recent years, the Company has fully implemented the centralised operation of strategic
customers, clarified its hierarchical operation plan for institutional customers, interbank customers and small
enterprise customers, and preliminarily established the corporate customer service system featuring hierarchical
management, professional level and focused operation. The establishment of the customer service system has laid a
solid foundation for the development of the Company's various businesses in 2017 and its long-term development.
With regards to its basic customer base, the customer base of the Company continued to expand rapidly. As
at the end of the reporting period, the total number of corporate depositors was 1,573,300, up by 21.48% as
compared with the end of the previous year; the number of newly acquired corporate depositors in the year was
364,700, contributing daily average deposits of RMB104.593 billion. Both the number of newly opened accounts
and the deposit contribution recorded a new high. With regards to its strategic customers, during the reporting
period, the Company continued to put into practice the business thought on the integration of investment banking
and commercial banking in respect of its strategic customers under the Head Office, significantly improving the
professional capability and responsive speed of serving the strategic customers under the Head Office, and provided
its customers with the cross-line and cross-region comprehensive solutions through the differentiated, personalised
and innovative products and services. As at the end of the reporting period, the number of the strategic customers
under the Head Office was 166, increasing by 31 or 22.96% as compared with the end of the previous year, and the
balance of general loans amounted to RMB275.627 billion, increasing by 14.08% as compared with the end of the
previous year. For the strategic customers at the branch level, the Company has established the branch-level strategic
customer management system, and put in place the operation mechanism, team management, assessment and
motivation, process and resource matching. The Company has completed the centralised review of the operation plan
of 44 branches of the whole Bank and conducted an examination on the strategic customers at the branch level. The
number of strategic customers at the branch level reached 2,897, representing an increase of 21.64% as compared
with the end of the previous year. With regards to its small enterprise customer base, the Company offered
services to the small enterprise customer base holding loans from the Company through the centralised operation of
customers of standardised products, the professional operation of customers of non-standardised products and the
featured operation of key customers under "Qian Ying Zhan Yi (F)". As at the end of the reporting period,
the number of small enterprise customers reached 1,454,700, representing an increase of 23.08% as compared with
that at the beginning of the year. With regards to its institutional customer base, the Company carried out the
thorough operation of the customer bases of fiscal, utility, social organisation and tobacco categories through the
"Head Office-to-Head office" direct operation and lead operation. The number of institutional customers increased
by 8.96% to 24,400 as compared with the end of the previous year. With regards to its interbank customer
base, the Company has established the institutional customer service system comprising mainly of centralised
operation and intensive operation through reverting to its business origin and regulating business development, and
promoted the development of its basic businesses and online businesses such as liabilities, settlement, clearing and
custody. As at the end of the reporting period, the number of the interbank cross-border RMB accounts opened
by banks and other financial institutions with the Company reached 228, ranking first among national small- and
medium-sized banks. The number of customers linked to the RMB Cross-border Interbank Payment System (CIPS) as
an indirect participant through the Bank reached 124, ranking first among national small- and medium-sized banks
and second in the industry. With regards to its offshore customer base, the Company conducted due diligence
including the re-identification of offshore customers in accordance with the regulatory requirements and restricted
the use of accounts for unidentifiable or suspectable customers. As at the end of the reporting period, the number
of offshore customers reached 30,274, representing a decrease of 13.39% as compared with the end of the previous
year. Meanwhile, the Company further optimised the services for its core customers. As at the end of the reporting
period, the number of high-net-worth customers reached 2,574, representing an increase of 46.25% as compared
with the end of the previous year.
Wholesale customers
During the reporting period, the Company achieved profit before tax from wholesale finance of RMB36.618 billion,
accounting for 43.48% of profit before tax for the business lines of the Company. The net operating income from
wholesale finance of the Company was RMB101.911 billion, representing an increase of 2.65% as compared with
the previous year, and accounting for 49.19% of the net operating income of the Company, including net interest
income from wholesale finance of RMB72.727 billion, representing an increase of 10.34% as compared with the
previous year, and accounting for 71.36% of the net operating income of wholesale finance; net non-interest
income of wholesale finance amounted to RMB29.184 billion, representing a decrease of 12.54% as compared with
the previous year and accounting for 28.64% of the net operating income of wholesale finance, and 44.12% of net
non-interest income of the Company.
Business overview
3.10.2 Wholesale finance
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
In response to the risk of "joint debts", while confronting the consumer credit market with potential but burdened
with too many participating entities and significant joint debts, the Company continued to enhance its capabilities
to prevent multiple credit granting and credit fraud, and pictured, verified and restored the real balance sheet
status of the customers in a multi-dimensional manner, so as to return to the identification of the real solvency of
the customers. In respect of customer group selection, the Company focused on the customer groups with "data",
who had clear and reliable information such as assets and payroll in the Company, and had better credit record and
stable repayment capability based on their historical data. In respect of data, the Company integrated its internal
and external data sources and formed a unified view of risks associated with its customers. In respect of application
of strategies, the Company made good use of Fintech technologies, reproduced customers' incomes, and improved
verification measures in order to prevent significant mismatch between the incomes and liabilities of customers.
As to financial innovation, through continuous efforts, the results of financial innovation and transformation of the
Company were widely recognised both at home and abroad. The retail housing loan "Cloud Mortgage" received
the "2017 Best Mortgage and Housing Loan Product in Pan Asia Pacific Region" awarded by The Asian Banker,
the "Centralised Approval Plant for Retail Loans" of the retail loan business of the Company received the "Top Ten
Innovation Awards for Financial Products" jointly awarded by the Chinese Banker Magazine, the Financial Product
Center of the Institute of Finance and Banking of Chinese Academy of Social Sciences and Internet Economic
Research Institute of Central University of Finance and Economics, and demonstrated the leading advantage of the
Company in retail loan business once again.
As to the quality of assets, benefiting from the stable and positive external economic environment, the Company
continued to optimise its policies for retail loans and enhance its risk management capabilities. As a result, the
quality of retail loan assets continued to improve. As at the end of 2017, the balance of the special mention retail
loans of the Company amounted to RMB22.342 billion, representing an increase of 8.56% as compared with the
end of the previous year, and its proportion of retail loans recorded a decrease of 0.08 percentage point as compared
with the end of the previous year. Balance of non-performing retail loans amounted to RMB15.865 billion with a
non-performing loan ratio of 0.90%, down by 0.11 percentage point as compared with the end of the previous
year, among which, the non-performing ratio of micro-finance loans was 1.78%, up by 0.14 percentage point as
compared with the end of the previous year mainly due to a slowdown in the disposal of the non-performing loans;
the non-performing ratio of consumption loans was 1.16%, down by 0.45 percentage point as compared with the
end of the previous year. Excluding credit cards, the mortgage and pledged loans accounted for 79.42% of the new
non-performing retail loans of the Company in 2017, with a mortgage and pledge rate of 51.25%. Given that a vast
majority of such new non-performing retail loans were fully secured by collaterals, the final loss was not substantial.
As to risk management, the Company is committed to establishing a full-chain risk management system covering all
processes i.e. pre-lending, lending and post-lending. During the reporting period, the Company vigorously developed
Fintech technologies in a continuous manner, gradually expanded the scope of information collection, further
enlarged the strategy system to cover all processes, continuously optimised various risk models, and iterated various
systems in an orderly manner. The Company proactively strengthened team management, enhanced the professional
level of its teams and the capability of quantitative analysis, and applied technological innovation in each aspect
of risk management, so as to establish a standardised, systematic, data-based and modelised comprehensive risk
management system.
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The Company continued to promote lean development and agile pilot projects and completed 5,573 projects
during the reporting period. Emphasising mobile priority and data priority, the Company released CMB APP
6.0, so as to consolidate a "outlet + APP + scenario" model, and to enriching the content within this life-cycle;
Marketing-oriented transformation is realised in visual counters; the enterprise online banking service was upgraded
as U-Bank X, to provide an open and intelligent online banking service. Promoting end-to-end application of data,
as well as greatly enhancing the storage capacity of data warehouse and Big Data platform, and timeliness in data
processing and application, the Company also facilitated the development of consumer finance and was among the
first group of institutions connected to the payment and clearing platform of the non-bank payment institutions
network by launching such new products and services as the China UnionPay Cardless Quick Pay, China UnionPay
QuickPass with QR Code, the new Flash Loan platform and scenario-based credit card consumer credit products.
The launch of its next-generation financial market business system (Murex) has significantly enhanced its transaction
banking service capability; with the development of its big credit platform, the Company aimed to establish a
full-flow risk management system. The Company also actively facilitated the planning and development of its
overseas branch system as it completed its overseas credit risk management system, overseas customers relations
management system, overseas edition of Internet banking for companies and operating risk management system,
facilitated the development of overseas private banking system, and completed and launched the core system in its
Sydney Branch.
Besides, the Company attached great importance to optimising its IT structure and development of infrastructure,
strengthening systematic management for maintenance of system operation, advancing the construction of the
distributed database and enhancing its service capability for system operation and maintenance, with its information
system well-prepared and handling the transaction peaks with ease during the reporting period, such as the "Double
11 (11 November)". The Company also consolidated its software engineering capability, aiming to establish a
dual-mode lean R&D system through the software process management system CMMI3 level re-evaluation. The
Company also increased its efforts in attracting and fostering hi-tech talents. With the Chengdu Software Center
commencing operation, business development of the entire Bank is now supported by three software centers in
Shenzhen, Hangzhou and Chengdu and two data centers in Shenzhen and Shanghai.
3.10.5 Overseas businesses
Hong Kong Branch
Established in 2002, our 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 solutions), settlement and asset custody, and engages in interbank transaction of
funds, bonds and foreign exchange trading, and conducts funds clearing and asset transfer with financial institutions
customers. 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".
In 2017, our Hong Kong Branch exploited Hong Kong's advantages as a "bridge-head" for China's foreign
trade as well as an international financial center, and took a firm hold of the market opportunities arising from
Chinese enterprises "going global" and the "One Belt, One Road" initiative to constantly promote cross-border
business coordination, proactively developed the local market and expand its market share. Meanwhile, it further
strengthened risk compliance and internal basis management, constantly improved and innovated its product and
service systems and strove to explore the asset operation model. As a result, all its businesses achieved healthy
development. In 2017, the Private Wealth Management (Hong Kong) Center of China Merchants Bank commenced
operation, offering a more diversified, more professional and better financial services to high net-worth customers.
During the reporting period, the Hong Kong Branch realised a net operating income of HK$2.919 billion and a profit
before tax of HK$2.154 billion.
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 in 1991. As an integral part of the internationalisation
of the Company's operations, the New York Branch is located in a global financial center, being committed to
establishing a cross-border financial platform characterised by mutual coordination between China and the U.S.,
so as to offer diversified and all-round banking services for the companies and high-net-worth private banking
customers in China and the U.S..
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
In 2017, the New York Branch consolidated its resources to expand its cross-border M&A business by changing
itself as situations change, deepening business transformation and proactively implementing the "light-operation,
professional operation and investment banking" strategy, and proactively developed local businesses in the US, asset
management, project financing, private banking and financial market. As a result, various businesses saw substantial
progress in product innovation and customer accumulation, laying a solid foundation for the subsequent business
transformation of the New York Branch. During the reporting period, our New York Branch realised a net operating
income of USD104 million and a profit before tax of USD50,514,700.
Singapore Branch
Established in 2013, our Singapore Branch is positioned as a significant cross-border financial platform in Southeast
Asia, striving to provide the premium cross-border financial services to the 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, Reits
syndicated loans, Cross-border Trade Express and global financing.
In 2017, while facing the adverse external environment of market depression and increasingly intensive competition,
the Singapore Branch adhered to the strategy of developing cross-border finance and local businesses simultaneously,
grasped market opportunities to proactively develop emerging businesses such as M&A financing and real estate
trust financing, and served strategic customers from domestic branches of the Company to go global and participate
in the infrastructure construction of those countries involved in the "One Belt, One Road" initiative, realising steady
growth in various businesses. During the reporting period, our Singapore Branch realised a net operating income of
USD15,797,500.
Luxembourg 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 global 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 2017, the Luxembourg Branch adapted itself to changes in the relevant policies, exploited market opportunities
such as M&A financing, and achieved steady business growth by improving operation efficiency and strengthening
its cooperation with other banks and financial institutions at home and abroad. During the reporting period, our
Luxembourg Branch realised a net operating income of €9,581,600.
As at 31 December 2017, the total assets of Wing Lung Group amounted to HK$298.767 billion, representing an
increase of 11.62% as compared with the end of previous year. Total equity attributable to shareholders amounted
to HK$33.133 billion, representing an increase of 13.11% as compared with the end of the previous year. Total
loans and advances to customers (including trade bills) amounted to HK$156.248 billion, representing an increase of
8.32% as compared with the end of the previous year. Deposits from customers amounted to HK$210.964 billion,
representing an increase of 14.50% as compared with the end of the previous year. The loan-to-deposit ratio was
69.69%, down by 3.32 percentage points as compared with the end of the previous year. As at 31 December 2017,
the common equity Tier-1 capital ratio of Wing Lung Group was 12.25%, its Tier-1 capital ratio was 14.44%, its
total capital ratio was 18.23% and its average liquidity coverage ratio for the fourth quarter was 150.24%, all above
regulatory requirements.
In 2017, profit attributable to the shareholders of Wing Lung Group was HK$3.858 billion, representing an
increase of 10.34% as compared with the previous year. It recorded a net interest income of HK$3.638 billion in
2017, representing an increase of 5.50% as compared with the previous year. The net interest margin was 1.40%,
down by 10 basis points as compared with the previous year. The net non-interest income was HK$2.222 billion,
representing a decrease of 11.92% as compared with the previous year. The cost-to-income ratio for 2017 was
33.33%, representing an increase of 0.22 percentage point as compared with the previous year. The non-performing
loan ratio (including trade bills) was 0.54%.
Founded in 1933, Wing Lung Bank has a registered capital of HK$1.161 billion as at 31 December 2017, 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 a total of 34 banking offices in Hong Kong, 4 branches and sub-branches
in Mainland China, one branch in Macau, and three overseas branches, located respectively in Los Angeles and San
Francisco, the United States and the Cayman Islands. As at 31 December 2017, the total number of employees of
Wing Lung Group is 1,836.
3.10.6 Wing lung group
In 2017, on the basis of compliant operation, the Sydney Branch endeavored to promote various business
developments, successfully made a "good start" in business development, and proactively established a steady and
sustainable development model with its own characteristics. During the reporting period, the Sydney Branch realised
a net operating income of AUD2,852,600.
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Established in 2017, the Sydney Branch of the Company is the first branch approved to be established in Australia
among all the PRC joint-stock commercial banks. Relying on the economic and trade exchanges between China and
Australia, it proactively participates in the extensive cooperation between the two countries in the fields of energy,
minerals, trade and infrastructure development, facilitates the cooperation between the enterprises of the two
countries, proactively serves and promotes the economic exchange and development of the two countries, and offers
its customers the diversified financial products and services such as cross-border corporate finance, funds clearing,
financial market, trade finance and cash management. The establishment of the Sydney Branch further expanded
and improved the Company's global presence, forming a global service network across four continents: Asia, Europe,
America and Australia.
In 2017, the London Branch adhered to the development philosophy of "compliant operation, strict risk control,
people-oriented and healthy development", focused on serving the Chinese enterprises "going global" and
proactively penetrated into local markets. As a result, it has successfully established itself in London, an international
financial center, posted satisfactory operating results and made profit in the second year of its establishment. During
the reporting period, the London Branch realised a net operating income of USD12,593,100.
Sydney Branch
Established in 2016, the London Branch of the Company is the first branch approved to be established in the
United Kingdom among all the PRC joint-stock commercial banks and also the first branch established in the United
Kingdom directly by a bank in Mainland China since the founding of the PRC. It mainly focuses on corporate
banking business and provides customers with diversified corporate banking products and services, such as deposits,
loans (including bilateral loans, syndicated loans, trade finance and cross-border M&A financing), settlement and
asset custody. It also engages in interbank transaction of funds, bonds and foreign exchange trading, and conducts
funds clearing and asset transfer with other financial institutions.
London Branch
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CMB Life APP:
During the reporting period, the Company putting the development mobile service as its priority and continued to
create and upgrade the CMB APP-based mobile financial services platform by launching CMB APP 6.0 to achieve
significant progress in intelligent wealth management, providing specialty customer products that include wealth
management channels, smart service, "Flash Loan" and "Wealth Check-up", thus building up a smart personal
financial assistant that fosters new breakthroughs in terms of smart service, connectivity and interaction, that would
enhance core competencies in a more institutionalised retail regime.
The personal mobile banking business of the Company maintained a rapid growth in 2017 with a more active
mobile banking user population, and had amassed 3.228 billion logins to its mobile banking application during the
reporting period, making it the most dynamic e-channel of the Company. As at 31 December 2017, the total number
of CMB APP users in aggregate was 55,793,400, with 40,571,400 annual active users and 26,186,700 monthly
active users, and an average monthly login of 12.77 per user, and closer bond was forged between CMB APP and its
users. Meanwhile, the CMB APP transaction volume has been increasing rapidly, with 1.032 billion APP transactions
and a total transaction amount of RMB17.87 trillion in 2017, up by 40.41% and 47.69% respectively, as compared
with the corresponding period of the previous year. Among all these transactions, a total of 26,457,600 transactions
belong to wealth management transactions originated by 3,227,700 wealth management customers, representing
a year-on-year increase of 132.32% and accounting for 61.70% of the Bank's total number of wealth management
transactions and a total wealth management sales value of RMB4.43 trillion, representing a year-on-year increase of
90.13%, and comprised 43.17% of the overall Bank's wealth management sales. China Merchants Bank made great
headways in its mobilisation, and CMB APP has become an important front of retail operations.
CMB APP:
Major retail e-banking channels
The Company values highly the development, improvement and integration of e-banking channels, which serve to
effectively relieve pressure on physical outlets of the Company. As of the end of the reporting period, the Company's
replacement rate of comprehensive service counter through the retail electronic channel was 98.24%; the rate of
rerouting customers from the service counters to visual counters was 74.96%; and the Company's replacement rate
of transaction settlement through the whole-sale electronic channel was 93.78%.
In 2017, the Company had successfully launched the 6.0 version of its CMB Life APP to satisfy demands on the
consumption value chain over all scenarios and entire life-cycle with the whole range of its e-series loan products,
coupled with Fintech solutions such as the intelligent recommendation engine "e-Zhi Dai(e)" to hasten
advancement in mobile consumer financial products innovation, and to enhance traffic flow and value output in
order to achieve inclusive and intelligent consumer financial products. During the reporting period, users operation
on top of CMB Life APP had seen major upgrade through effective utilisation of Fintech to develop a credit card
customers' operational regime that facilitates new financial services, ease of payment and effective risk control and
service guideline. As at the end of the reporting period, the total number of users on the CMB Life APP platform
reached 47.4379 million. Total number of active users comprises 45.0105 million per annum, and 27.3257 million
per month.
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 certain large- and medium-sized
cities in other regions. As at 31 December 2017, the Company had 137 branches, 1,681 sub-branches, one
dedicated branch-level operation center (credit card center), one representative office, 3,340 self-service centers,
11,382 self-service machines (including 1,610 automatic teller machines and 9,772 deposit-taking and cash
withdrawal machines) and 12,936 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 and a
branch in Sydney, Australia.
The Company provides products and services via multiple distribution channels. Our distribution channels mainly
consist of physical distribution channels and e-banking channels.
3.10.3 Distribution channels
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Physical distribution channels
For detailed financial information on Wing Lung Group, please refer to the 2017 Annual Report of Wing Lung Bank,
which is published on the website of Wing Lung Bank (www.winglungbank.com).
China Merchants Bank
Annual Report 2017
During the reporting period, the Company further clarified its positioning as a Digital Bank and implemented a
upgrading plan to enhance its foundational Fintech capabilities; our investment in Cloud Computing, Big Data,
Artificial Intelligence, mobile technology, Blockchain, API and network security was further amplified to consolidate
our technical support capabilities through upgrade of infrastructure; The Company launched the Xili Cloud Data
Center, distributed data warehouse creative lab and the RPA Center of Excellence (Process automation through
Robots), finished the construction of Blakchain service platform, and improved customers experience and optimised
efficiencies of internal process through technological means.
3.10.4 IT and R&D
As at 31 December 2017, the number of the Company's enterprise mobile banking users reached 401,600,
representing a growth of 73.85% as compared with the end of the previous year; the number of yearly active
customers was 224,600; the number of transactions was 17.8950 million, a year-on-year growth of 204.17%; the
amount of transactions reached RMB1,051.968 billion, a year-on-year growth of 243.53%.
Corporate Mobile Banking APP:
As at 31 December 2017, as per favourable effect of the launch of U-Bank X on the growth of foundational
customer groups, online corporate banking customers of the Company had reached 1.3794 million, a year-on-year
growth of 25.89%; the number of yearly active customers was 1.0877 million, a year-on-year growth of 25.20%,
and the number of monthly active customers was 705,900, a year-on-year growth of 15.57%; total number of
transactions reach 384,900,000, a year-on-year growth of 71.73%; Total value of transactions reach RMB113.16
trillion, a year-on-year growth of 10.75%
During the reporting period, the Company innovated and launched U-Bank X, the tenth generation online corporate
banking platform, making full use of new technologies in the Fintech field to create open and intelligent Internet
services, omni-channel and scenario-based payment and settlement products. In addition, the Company took the
lead in the application of Blockchain technology to reshape global cash management, innovatively supported
enterprises to build their industrial Internet ecosystem with Big Data, and launched various featured products and
services including smart "Little U" robot, mobile payment and forward mobile check.
III Report of the Board of Directors
Online Corporate Banking:
In 2017, the Company continued to facilitate the maintenance of gold card and Sunflower customer base for its
direct banking, serving 1,450,000 gold card and Sunflower customers, with the cost of customer maintenance
effectively reduced. The Company also actively supported the quality micro-finance customers, with 73,400
micro-finance loans renewed, totalling RMB26.027 billion, with a retention rate of 85.17%.
In 2017, the Company constantly improved the service capability and customer experience for its direct banking. As
a result, the online interactive services accounted for 68.68%; the manual telephone access ratio reached 97.81%;
the percentage of manual telephone responses within 20 seconds reached 95.45%; and the satisfaction ratio of its
telephone customer service reached 99.68%. Our visual counters received an average of 2,345,000 incoming calls
per month, with the highest number of single day transactions exceeding 140,000, showing high replacement effect
of in-branch non-cash transactions.
The direct banking service provided by the Company provides instant, comprehensive, prompt and professional
services to customers by ways of telephone, audio, online and visual media to meet their needs.
Direct banking:
The Company launched the "China Merchants Bank" WeChat Official Account which integrates product functions
with current hot issues to facilitate marketing. Product content is enhanced in different facets to increase the brand's
popularity among young customer groups so as to help CMB establish itself as an innovative and energetic brand. In
2017, the "China Merchants Bank" WeChat Official Account had accumulated 12,187,800 followers.
Concurrently, the company has constructed a full-fledged credit card customer services management platform,
that features a three-tier "fans-association-card holding" customer growth model, to transform customer service
from being labour-intensive to technology-intensive, and from being a passive service provider towards being a
value-creator. As of the end of the reporting period, fans congregated on third-party credit card channels(including
WeChat, Alipay service window and official QQ account) had exceeded 100 million, paving the way for a three-tier
"service, branding and marketing" smart service regime.
Smart WeChat Customer Service:
Major wholesale e-banking channels
69
3.10.7 CMB financial leasing
As at 31 December 2017, the total assets of CMB Financial Leasing amounted to RMB155.415 billion, and its net
assets amounted to RMB15.582 billion. In 2017, CMB Financial Leasing achieved a net profit of RMB1.959 billion.
(2)
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 book, and are comprised of around 110 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 unfavorable market scenarios designed on the characteristics of
investment portfolios. Among which, the extreme interest rate scenario may move up to 300bp and cover
the unfavorable conditions of extreme market. Major interest rate sensibility indicator reflects the duration
of bonds and the change in the market value of bonds and interest rate derivatives when an interest rate
fluctuates unfavorably 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 book 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.
In 2017, the RMB interest rates obviously fluctuated upward. In the first quarter, affected by financial
regulation, the Central Bank's raising of medium-term lending facility rate and repurchase bidding rate,
economic and financial data and other factors, the bond market continued to head down from the end of
2016. In the second quarter, affected by a series of the regulatory policies for deleveraging, the short-term
interest rates rose sharply and the yield curve showed a flattening trend. In the third quarter, the bond
market kept fluctuating. In the fourth quarter, affected by the dual effect of the monetary policy and the
financial regulatory policy, the bond market once again saw significant adjustments, with the 10-year
treasury bond yield hitting a new high since October 2014. In 2017, as the bond market generally fluctuated
downward, the Company adopted a defensive strategy to timely shorten portfolio duration and dynamically
adjust product types and investment directions in respect of its RMB bond portfolio for trading book, so as to
keep the interest rate risk for trading book within the target range.
Banking book
The Company mainly adopts the re-pricing gap analysis, duration analysis, benchmark-correlated analysis,
scenario simulation and other methods to measure and analyse the 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-correlated 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 a number of 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 in history, the most possible changes in interest rates in
the 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 2017, the benchmark interest rate of deposit and loan of the Central Bank remained unchanged, with the
rise in market interest rate fluctuations. The Company closely monitored the change of external interest rate
environment and conducted in-depth analysis and forecast on the market interest rate development through
macro-modeling while making timely adjustment to the strategy and strength of the proactive management
of interest rate risks and optimising the structure of assets and liabilities, as a result of which the results of
stress test showed that the various indicators stayed within the limits and early warning values, and the bank
account-related interest rate risks were confined at a relatively low level.
67
68
China Merchants Bank
Annual Report 2017
2.
In November 2017, the CBRC issued the Guidelines on the Management of Interest Rate Risk of Bank Book
of Commercial Banks (Revised Consultation Draft). After analysing the differences between each newly added
item, the Company has generally satisfied the regulatory requirements in measurement, system and model,
only appropriate supplements and improvements for existing policies and systems with reference to the
revised consultation draft would be required subsequently.
Exchange rate risk management
(1)
(2)
Trading book
The Company uses the risk indicators such as risk exposure indicator, market risk value indicator (VaR,
covering risk factors such as foreign exchange rate related to the trading book business), 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, Vega 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 of the Board of Directors, and delegated the Market Risk Management
Department to perform daily monitoring and on-going reporting.
In early 2017, the irreversible depreciation of RMB was expected to be more obvious, but RMB actually
appreciated, the market expectation on RMB exchange rate started to change since the second quarter,
RMB appreciated intensely, and soared to 6.44 against USD in August, hitting the new peak in recent two
years. The continuous decrease of implied volatility of USD against RMB options also reflected the changes in
market expectation and the supply-demand relationship. Against such a background, the Company exerted
proper control over the exposure of the proprietary foreign exchange business, especially the directional
exchange rate exposure, to snatch profits through trading on behalf of customers and spread transactions.
Banking book
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 actual historical extreme fluctuations, 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 stress test is the Company's internal management indicator - the domestic calibre
Liquidity coverage ratio is an external regulatory indicator - the legal person calibre
In 2017, under the background of financial deleverage and US interest hike, the central bank maintained a neutral
monetary policy and accurate adjustments which focused on safeguarding the master valves of money, so as to
maintain overall stable market liquidity. The liquidity of the Company was basically in line with that of the market,
and overall liquidity was relatively stable due to steady growth in deposits from customers and the progressive
investment of assets. As at 31 December 2017, the Company's liquidity coverage ratio was 101.76%6, representing
11.76 percentage points higher than the minimum requirement of CBRC. Stress tests' 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. 15% (2016: 15%) of the total RMB deposits and 5% (2016: 5%) of the total foreign currency
deposits 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.
3.11.5 Liquidity risk management
During the reporting period, in order to prevent loss arising from systematic operational risk and material operational
risk, the Company further improved its operational risk management. Firstly, the Company fully implemented
special governance on low-risk businesses. Starting with the processes, regulations, personnel and systems, the
Company completed the risk screening for 34 products in 8 major categories of business. Focusing on issues
found in key control processes, the Company refined and solidified its management requirements, encouraged its
employees across the Bank to earnestly understand the specific operational practices, so as to guard the bottom line
of risks. Secondly, the Company continued to conduct risk assessment for key businesses and explored operational
process monitoring. Thirdly, the Company strengthened its monitoring of personnel risks. The Company conducted
assessment on abnormal behaviours of 14 key positions, investigated and verified the employees with abnormal
behaviour of violation in a timely manner, and carried out continuous monitoring of personnel risks using off-site
monitoring models. The Company also monitored the resignations, the number of juniors and manpower allocation
in key positions, and gave risk alerts to institutions with relatively high proportions of resignation and the number
of juniors. Fourthly, the Company fully strengthened its IT risk management, promoted the establishment of
business continuity management system, and identify the lists of latest important businesses and important systems
of the Head Office. Fifthly, the Company strengthened the management of outsourcing-related risk. The Company
rectified the problems found during the inspections in a timely manner. The Company also conducted comprehensive
review on newly added outsourced products and items, and carried out on-site assessment on the departments of
implementation of part of the outsourced projects, so as to improve the control measures for outsourcing-related
risks. Sixthly, the Company strengthened the management of risks related to compliance in credit investigation.
The Company improved the establishment of compliance management system and appraisal and assessment system
in relation to credit investigation, and alerted the whole Bank to pay attention to the compliance risks related to
credit investigation from multiple aspects. By promoting the technological innovation in credit investigation system,
the Company continued to improve the quality of data submitted, compliance in credit inquiry and risk monitoring
of the Company. The Company also organised on-site inspections on compliance of credit investigation across
the Bank, so as to rectify the problems found in a timely manner. Seventhly, the Company further optimised the
fundamental platform for operational risk management. The Company initiated the migration of historical data, so
as to enhance the efficiency of operational risk management system. It also developed the English version of system,
so as to enhance the operational risk management of overseas branches, and completed the system establishment
for subsidiaries.
Trading book
Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, incompetent
personnel or IT systems, or external events.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
7
6
Please refer to Note 56 "Risk Management" of the financial report for more details of the market risk
management of the Company.
In 2017, the Company paid close attention to exchange rate movements, strengthened the analysis of
the U.S. macro-economy to grasp the latest international economic conditions, and further optimised the
measurement of the exchange rate risk of bank book. As a result, 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. Subsequently, the Company will continue to monitor international
economic development and 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 and to
prevent the two-way fluctuations of exchange rate.
3.11.4 Operational risk management
(1)
1.
Interest rate risk management
In 2017, against the backdrop of complicated and volatile economic environment at home and abroad and the
increasing risk in bank operations, the Company continued to improve its overall risk management system and
proactively overcome and prevent all kinds of risk.
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 determining the most significant bank-wide risk management policies on risk
preferences, strategies, policies and authorisations approved by the Board of Directors.
3.11 Risk management
As at 31 December 2017, the total assets of CIGNA & CMB Life Insurance amounted to RMB35.942 billion, and
its net assets amounted to RMB4.790 billion. In 2017, CIGNA & CMB Life Insurance realised a premium income of
RMB12.814 billion, and a net profit of RMB666 million.
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), with a registered
capital of RMB2.8 billion and 3,098 employees. 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.
3.10.10 CIGNA & CMB Life Insurance
3.11.1 Credit risk management
As at 31 December 2017, the total assets of China Merchants Fund amounted to RMB6.648 billion, and its net
assets amounted to RMB3.976 billion. The total size of the asset management business (including China Merchants
Fund and its subsidiaries China Merchants Wealth Management Co., Ltd. (¥ÌÂÌϤ¬®) and China
Merchants Asset Management (Hong Kong) Co., Ltd. (H (TE) ARA)) amounted to RMB995.165
billion. In 2017, China Merchants Fund realised a net operating profit of RMB2.747 billion, and a net profit of
RMB803 million.
3.10.9 China Merchants Fund
As at 31 December 2017, the total assets of CMB International Capital amounted to HK$16.426 billion, and its net
assets amounted to HK$7.053 billion. In 2017, CMB International Capital recorded a net profit of HK$582 million.
Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong, with a
registered capital of HK$4.129 billion and 356 employees. Currently, the business scope of CMB International Capital
and its subsidiaries mainly covers investment banking, asset management, wealth management, stock trading and
structured finance. As at the end of 2017, CMB International Capital had a market share of 6.29% in terms of IPO
underwriting in Hong Kong, representing an increase of 1.02 percentage points as compared with the end of the
previous year.
3.10.8 CMB International Capital
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
Established on 27 December 2002, China Merchants Fund had a registered capital of RMB1.31 billion and 355
employees (excluding those of its subsidiaries). As at the end of the reporting period, the Company had 55% of
equity interests in China Merchants Fund. The business scope of China Merchants Fund covers fund establishment,
fund management and other operations approved by the CSRC.
CMB Financial Leasing is one of the five pilot bank-affiliated financial leasing firms approved by the State Council.
It was established and wholly owned by the Company with a registered capital of RMB6.0 billion and 257
employees in March 2008 upon approval from China Banking Regulatory Commission. Since its inception, CMB
Financial Leasing has adhered to its operation and development goal of "internationalisation, professionalisation
and differentiation", focused closely on real economy to proactively develop various leasing products and launched
the financial solutions for the eight sectors of energy, equipment manufacturing, aviation, shipping, energy saving
and environmental protection, health industry, public utilities and culture, and leasing. 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 a full range of financial leasing services such as capital and
commodity finance, asset management and financial advisory. As at the end of 2017, balance of the Company's
leasing assets exceeded RMB150.0 billion, ranking firmly among the first tier in the financial leasing industry.
In 2017, the Company kept abreast of the macroeconomic and financial development and adhered to its
management philosophy of "Quality Goes First Based on Compliance and Risk Control (AHAR · ª§*A ·
65
The Company's market risk arises from trading book and banking book, and the interest rate risk and exchange rate
risk are the major market risks facing the Company.
3.11.3 Market risk management
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
The Company has incorporated country risk management into its overall risk management system. In accordance
with relevant regulatory requirements, the Company dynamically monitored the change in its country risk profile,
used its sovereign rating model to set limit on its country risk with reference to external rating results, and evaluated
its country risk and made provisions on a quarterly basis. As at 31 December 2017, 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, the country risk will
not have material effect on our operations.
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.
)" while conducting overall planning, making breakthroughs in key areas and steadily advancing the
transformation of its risk management from seeking "temporary treatments" to imposing "final solutions", aiming
to establish itself as a "leading risk management bank".
3.11.2 Country risk management
Firstly, improving and completing the concentrated risk management mechanism while fortifying
the comprehensive risk management mechanism. The Company has been improving its risk management
organisation structure and enhancing its risk management specialty and independence while optimising the risk
preference conveyance and management mechanism, fortifying the identification, assessment and management
mechanism of major risks of China Merchants Bank; strengthening cross-risk management, standardising product
innovation activities, reinforcing the principle of "penetration", strictly controlling the selection of counterparties
and cooperative institutions, thereby further strengthening the overall risk management. Secondly, keeping up the
optimisation of the asset portfolio configuration while steadily making adjustment to its asset structure.
While adhering to its asset portfolio configuration objectives, the Company has been making dynamic adjustment
to its regional credit policy and actively supporting the national major strategies and key projects. Through strict
implementation of the customer list management at the Head Office and its branches for strategic customers and
industrial customers which should be compressed and expelled and adopting a differential management strategy, the
Company has been constantly consolidating its customer base. Thirdly, strengthening the control of asset quality
and risk screening and follow-up in the key areas while enhancing the sensitivity and perspectiveness of
risk identification. The Company conducted careful screening of risks in respect of major corporate customers,
adjusted the list of customers subject to early warning and specified control measures for each and every customer.
Attaching importance to overdue loans and tightening its control on them, the Company optimised loan structure.
It has also established a risk quick reporting mechanism for timely reporting of new large non-performing assets,
risks and major emergencies. Fourthly, optimising the portfolio of non-performing assets while improving
the management of non-performing assets. The Company has been continuously promoting the securitized
disposal of non-performing assets, strengthening clearing and collection of non-performing assets in cash while
actively promoting the write-off of non-performing assets, prudently promoting the healthy restructuring of risky
customers and continuously improving its non-performing assets management capacity with multiple approaches.
Fifthly, consolidating the management foundation while comprehensively promoting the whole-process
credit optimisation. By sorting out and optimising such key processes as pre-loan investigation, credit approval,
credit implementation, credit withdrawal and post-credit management, the Company has reconstructed its credit
process management system and completed the supporting system revision and authorisation adjustment, thus
reinforcing the whole-process of risk management and control. Sixthly, actively deepening the application of
Fintech and upgrading the professional techniques on risk management. The Company explored the use of
new technologies to drive the credit process and improve the automation, process, specialisation and concentration
of its credit operation while promoting project development and optimisation such as risk rating and early warning
models and setting up the expected loss and provision models under IFRS 9, thus further enhancing the practicability
and accuracy of the Company's quantified risk management tools.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
66
99
95
During the reporting period, the Company's non-performing loans have been further reduced and asset quality has
been effectively controlled through the above-mentioned measures. For more information about the Company's
credit risk management, please refer to Note 56 "Risk Management" in the Financial Statements.
E-banking channels
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 of Directors 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.
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.
financial
Total cash
dividends
(inclusive of
tax, in millions
of RMB)
millions of RMB)
17,402
57,696
18,663
62,081
21,185
70,150
statements (%)
30.16
30.06
30.20
The proposal of profit appropriation for 2017 is subject to consideration and approval at the 2017 Annual General Meeting of the Company.
3.12.3 The formulation and implementation of the Company's cash dividend policies
1.
As specified in the Articles of Association of China Merchants Bank Co., Ltd., the profit appropriation policies
of the ordinary shares of the Company are:
(1)
profit appropriation of the Company shall focus on reasonable returns on investment of the investors,
and such policies shall maintain continuity and stability;
(2)
ल
(4)
the consolidated
(5)
to net profit
attributable to
shareholders in
the year (in
Further announcement(s) will be made by the Company at appropriate times to shareholders who are entitled to
participate in the Company's 2017 Annual General Meeting and those who are entitled to receive the final dividends
for 2017, and other related information on the closing date for registration, the period for closure of register of
members and information relating to the profit distribution plan. The Company expects that the distribution of final
dividends to the H Shareholders will be completed by 26 August 2018.
3.12.2 Profit appropriation for the last three years
Year
2015
2016
2017 Note
Note:
Number of
bonus shares
Cash dividend
for every share for every share
held (No. of
shares)
held (RMB,
inclusive of tax)
0.69
0.74
0.84
Number of
shares issued on
capitalisation of
surplus reserve
for every share
held (No. of
shares)
Net profit
attributable to
shareholders in
the consolidated
financial
statements for
Proportion of
cash bonus
Annual Report 2017
(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 to shareholders of ordinary shares each year in principle shall not be less than 30% of the
net profit after taxation attributable to shareholders of ordinary shares 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;
4.2 Financial highlights
Details are set out in Chapter II Summary of Accounting Data and Financial Indicators of this annual report.
4.3 Shareholders' equity
For details of changes in shareholders' equity of the Company, please refer to the "Consolidated Statement of
Changes in Shareholders' Equity" in the financial report of the Company.
4.4 Fixed assets
Changes in fixed assets of the Company as at 31 December 2017 are set out in Note 25 to the financial statements
in this annual report.
4.5 Purchase, sale or repurchase of listed securities of the Company
Neither the Company nor its subsidiaries had purchased, sold or repurchased any of the Company's listed securities
during the reporting period.
4.6 Pre-emptive rights
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.
4.7 Retirement and welfare
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.
4.8 Principal customers
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.
China Merchants Bank
Annual Report 2017
IV Important Events
4.9 Interests and short positions of Directors, Supervisors and chief
executives under Hong Kong laws and regulations
As at 31 December 2017, 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:
Name
Class
Position of shares
Long/short
position
Jin Qingjun
Supervisor A Share
The Company is engaged in banking and related financial services.
(7)
4.1 Principal business activities
Annual Report 2017
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;
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 profit appropriation plan in the form of shares and implement the same
upon consideration and approval at a general meeting, provided that the abovementioned cash profit
appropriation requirements are satisfied;
the Company shall pay cash dividends and other amounts to holders of domestic shares listed
domestically 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;
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 disclose the implementation progress of the cash dividend policy and other
relevant matters in its periodic reports in accordance with the applicable requirements.
China Merchants Bank
Annual Report 2017
2.
III Report of the Board of Directors
During the reporting period, the profit appropriation plan of the Company for 2016 was implemented in
strict accordance with the relevant provisions of the Articles of Association of China Merchants Bank Co.,
Ltd.. It was 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
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 2017 will
also be implemented in strict accordance with the relevant provisions of the Articles of Association of China
Merchants Bank Co., Ltd.. It will be considered and approved by the 22nd meeting of the Tenth Session of
the Board of Directors of the Company, and submitted for consideration and approval at the 2017 Annual
General Meeting. The Independent Directors of the Company have expressed their independent opinions on
the profit appropriation plans for 2016 and 2017 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.
3.13 Requirements of the Environmental, Social and Governance
Reporting Guide
During the reporting period, adhering to the social responsibility principle of "Gain from society and contribute
to society", the Company actively made contribution and fulfilled its social responsibilities on precise poverty
alleviation, green loans, support to SMEs, protection of consumers' interests, public welfare and employee care. For
more details, please refer to the "Corporate Social Responsibility Report of China Merchants Bank for 2017", which
is available on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company. The
relevant disclosures are in compliance with the requirements of the Environmental, Social and Governance Reporting
Guide issued by the Hong Kong Stock Exchange.
3.14 Compliance with relevant laws and regulations
So far as the Board of Directors is aware, during the reporting period, 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.
3.15 Management contracts
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.
3.16 Permitted indemnity provision
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.
By order of the Board of Directors
Li Jianhong
Chairman of the Board of Directors
23 March 2018
73
74
China Merchants Bank
IV Important Events
Important Events
III Report of the Board of Directors
China Merchants Bank
72
4.16.3 Confirmation from the Independent Non-Executive Directors and auditors
As at 31 December 2017, the amount of the continuing connected transactions between the Company and Anbang
Insurance Group was RMB843 million.
The annual caps for the continuing connected transactions between the Company and Anbang Insurance Group for
the year of 2017 were 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.
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.
As at the end of the reporting period, Anbang Property & Casualty Insurance Company Ltd. is one of the Company's
substantial shareholders. 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 a connected person of the Company.
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 Insurance Group
Annual Report 2017
IV Important Events
China Merchants Bank
78
77
As at 31 December 2017, the amount of the continuing connected transactions between the Company and CM
Securities Group was RMB207 million.
The annual cap for the continuing connected transactions between the Company and CM Securities Group for
2017 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.
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.
At the end of reporting period, China Merchants Group Ltd. 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 Ltd. 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 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.
CM Securities Group
As at 31 December 2017, the amount of the continuing connected transactions between the Company and CMFM
Group was RMB1.406 billion.
The annual cap for the continuing connected transactions between the Company and CMFM Group for 2017
was RMB2.5 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.
On 13 December 2016, the Company entered into a Service Cooperation Agreement with CMFM for a term
commencing on 1 January 2017 and expiring on 31 December 2019. 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.
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.
The fund distribution agency services between the Company and CMFM Group constituted continuing connected
transactions of the Company under the Hong Kong Listing Rules.
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:
CMFM Group
(1)
(3)
4.21 Use of funds by related parties
During the reporting period, there was no event in respect of fund entrusting beyond our normal business.
4.20 Significant event in respect of fund entrusting
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 2017, the
balance of the irrevocable guarantees of China Merchants Bank was RMB252.867 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 2017 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.
Significant guarantees
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.
Significant events in respect of holding in custody, contracting, hiring or
leasing of assets
4.19 Material contracts and their performance
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 2017, the number of pending litigation and arbitration
cases in which the Company was involved totalled 253 with a total amount of principal and interest of approximately
RMB1.184 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.
4.18 Material litigations and arbitrations
Annual Report 2017
IV Important Events
China Merchants Bank
The Company's material transactions with related parties are set out in Note 57 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.
4.17 Material transactions with related parties
(4) the transactions were conducted in accordance with the terms of relevant agreements.
the transactions were entered into on normal commercial terms or better terms; and
the terms of the transactions are fair and reasonable, and are in the interest of the Company and its
shareholders as a whole;
the transactions were entered into in the ordinary and usual course of business of the Company;
(2)
On 13 December 2016, 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 2017, 2018 and 2019
would be RMB2.5 billion, RMB3.8 billion and RMB5.8 billion, respectively. 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, respectively.
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 RMB1.2 billion to RMB1.5 billion. Further details
were disclosed in the Announcements on Continuing Connected Transactions issued by the Company on 28 April
2015, 16 June 2015, 24 August 2016 and 13 December 2016 respectively.
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.
4.16.2 Non-exempt continuing connected transactions
0.00026
0.00032
65,800
issued
ordinary
shares (%)
Percentage
of total
Percentage of
the relevant
class of shares
in issue (%)
Please refer to Note 56 "Risk Management" of the financial report for more details of the liquidity risk management
of the Company.
3.11.6 Reputational risk management
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.
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, the Company revised the Administrative Measures on Public Relations and Public
Opinions of China Merchants Bank, clarified the duties of each department under the Head Office, each branch
and subsidiary, standardised the classification criteria of public opinions, optimised the procedures in responding to
public opinions, and further improved the management system of reputational risk management. By strengthening
proactive management of reputational risk and specifically enhancing business risk inspection, monitoring and
pre-warning of public opinions, the Company effectively mitigated hidden serial reputational risks, and improved the
efficiency in responding to public opinions. The Company also improved the appraisal mechanism for reputational
risk, and cultivated a reputational risk management culture with all employees' participation.
3.11.7 Compliance risk 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 of Directors to supervise the compliance risk management. The
Compliance Management Committee of the Head Office is the supreme organisation to manage compliance risk of
the whole company under the senior management. The Company has established a comprehensive and effective
compliance risk management system, optimised the organisational 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.
China Merchants Bank
Annual Report 2017
III Report of the Board of Directors
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. Through the full implementation of
strategic transformation and deployment, the Company studied and promoted the implementation of various
internal compliance management measures, and further established a long-term mechanism to improve its internal
compliance management. The Company formulated and carried out Guiding Opinions for 2017 Internal Control
and Compliance Work of the Bank to implement the management concept and working requirements of the
Head Office throughout the whole Bank; completed series of special rectification works assigned by the CBRC
in a timely manner and following the exact steps, and submitted the relevant reports on time; strengthened the
understanding of polices and the circulation and delivery of new regulations, 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; in combination with the structural reform, promoted the implementation of "permanent
solution" for internal compliance management, accelerated the standardisation of legal compliance management;
actively promoted compliance training with various levels, carried out compliance information-sharing in a timely
manner, continuously created a good compliance environment; continuously enhanced the management efficiency of
supervision and inspection and rectification of issues to ensure the effectiveness and seriousness of internal control
and compliance.
3.11.8 Anti-money laundering management
The Company has established a relatively sound anti-money laundering internal control system. The Company has
formulated a full set of anti-money laundering management system based on the requirements of relevant laws
and regulations on anti-money laundering and according to its own actual conditions. It has also developed and
launched a comparatively sound anti-money laundering system and established a dedicated anti-money laundering
team to carry out anti-money laundering compliance management, anti-money laundering list screening and the
monitoring of suspicious transactions.
In 2017, the Company proactively responded to the requirements of the CPC Central Committee and the State
Council on improving the regulatory system and mechanism of anti-money laundering, anti-terrorism financing and
anti-tax evasion and speeding up the building of an anti-money laundering team, improving anti-money laundering
system in accordance with international standards and building a global leading anti-money laundering system and
other work. Meanwhile, the Company accelerated its "risk elimination", conducted in-depth inspection on sanctions
compliance and risks associated with cross-border money laundering, so as to enhance the management and
control of customers and businesses with high risk. The Company fully implemented the Administrative Measures on
Large-amount Transactions and Suspicious Transactions of Financial Institutions (PBOC Order [2016] No. 3) and other
new regulatory policies, improved the reporting system of suspicious transactions base on reasonable suspicion,
and implemented the follow-up risk control measures for suspicious transactions reported. The Company also
strengthened the identity recognition of non-residents, and improved the due diligence procedures of customers, so
as to further enhance the management and control of anti-money laundering of the Company.
3.12 Profit appropriation
3.12.1 The profit appropriation plan for 2017
10% of the audited net profit of the Company for 2017 of RMB64.510 billion, equivalent to RMB6.451 billion,
was allocated to the statutory surplus reserve, while 1.5% of the total balance of the risk assets, equivalent to
RMB2.760 billion, was appropriated to the general reserve. 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 RMB0.84 (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 2017, 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 2017
Annual General Meeting of the Company.
71
4.10 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.
4.11 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.
Annual Report 2017
IV Important Events
China Merchants Bank
On 18 August 2017, the Company, CM Securities and CMFM entered into a capital increase agreement to CMFM,
pursuant to which the Company and CM Securities agreed to increase their capital contribution in CMFM by
RMB605 million and RMB495 million respectively. Upon completion of the capital increase, the Company and CM
Securities will continue to hold 55% and 45% equity interest in CMFM, respectively. Therefore, CMFM will continue
to be a subsidiary of the Company. For details, please refer to the announcement in relation to the connected
transaction of the Company dated 18 August 2017.
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 connected
transactions/continuing connected transactions within the meanings of Hong Kong Listing Rules, and shall comply
with the requirements of non-exempt connected transactions/continuing connected transactions set by the Hong
Kong Stock Exchange.
4.16.1 Overview of connected transactions
4.16 Significant connected transactions
According to the "Resolutions Regarding the Plan for the Non-public Issuance of Offshore Preference Shares of
the Company" considered and approved by the Company at the 2016 Annual General Meeting, the First Class
Meeting of the Shareholders of A Shares for 2017 and the First Class Meeting of the Shareholders of H Shares for
2017 on 26 May 2017, COSCO Shipping Financial Holdings Co., Limited, as a related legal person of the Company,
undertook not to participate in the price inquiry exercise regarding the dividend yield of offshore preference shares,
and accepted the dividend yield determined by the Company and the lead underwriter through the price inquiry
exercise or by the other ways approved by the CSRC. In October 2017, the Company completed the issuance of
offshore preference shares, including 3,500,000 preference shares subscribed by COSCO Shipping Financial Holdings
Co., Limited. During the issuance of offshore preference shares, COSCO Shipping Financial Holdings Co., Limited did
not violate the above undertakings.
)) and China Ocean Shipping (Group) Company (now renamed as China Ocean Shipping Company Limited)
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). So far as the Company is
aware, as at the date of the report, the above shareholders had not violated the aforesaid undertakings.
According to the relevant requirements of China Securities Regulatory Commission, the Company considered and
approved the "Resolution Regarding the Dilution of Current Returns by the Non-public Issuance of Preference
Shares and the Remedial Measures" at its 2016 Annual General Meeting on 26 May 2017, and formulated the
remedial measures in respect of the dilution of current returns of the holders of ordinary shares which may be
caused by the non-public issuance of preference shares. The measures include adhering to the business strategies
of "Light-operation Bank" and "One Body with Two Wings", creating differentiated competitive advantages,
strengthening the awareness of capital constraints and return on capital, striving to reduce capital consumption,
improving the efficiency of capital utilisation, strengthening the management of asset quality, and maintaining a
stable return policy for the holders of ordinary shares. Meanwhile, the Directors and senior management of the Bank
also undertook to earnestly implement the remedial measures. So far as the Company was aware, as at the date
of this report, neither the Company nor its Directors and senior management had breached any of the aforesaid
undertakings.
In the course of the rights issue of A shares and H shares in 2013, each of China Merchants Group Ltd., China
Merchants Steam Navigation Co., Ltd. (now renamed as China Merchants Steam Navigation Co., Ltd. (
4.15 Undertakings made by the Company, Directors, Supervisors,
senior management and other connected persons
79
Annual Report 2017
China Merchants Bank
76
75
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.
4.14 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.
Supervisors, or senior management
4.13 Disciplinary actions imposed on the Company, Directors,
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).
Supervisors
4.12 Contractual rights and service contracts of Directors and
IV Important Events
Capacity
Beneficial
Long position Owner
No. of shares
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 strengthened the exploration of
proprietary deposits, and promoted the steady increase of its core liabilities. Secondly, the Company optimised its
asset structure, adjusted the progress of granting of corporate loans, so as to realise the steady operation of loans.
Thirdly, the Company strengthened its management of active liability taking by flexibly conducting short-, medium-
and long-term active liability taking according to its own liquidity profile and market interest rate trend, including
proactively participating in the medium-term lending facility from and the operation in the open market launched
by the Central Bank, and launched the issuance of financial debts as the appropriate opportunities arose. Fourthly,
the Company enhanced its research and judgment in macro-economy, through macro analysis, quantitative modeling
and dynamic measurement and calculation, the Company carried out proactive risk management, and proactively
laid down investment and financing strategies, in an attempt to improve capital utilisation efficiency. Fifthly, the
Company enhanced the monitoring and management of the treasurer's fund gap, established financing capability
assessment mechanism, and further lengthened the monitoring period of fund gap for the whole Bank. Sixthly, 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.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2017
70
In December 2017, the CBRC issued the Administrative Measures on Liquidity Risk of Commercial Banks (Revised
Consultation Draft). After analysing the differences between each item, the Company has generally satisfied the
regulatory requirements in management policies, measurement and monitoring, only further supplements and
improvements for existing liquidity risk management system with reference to the revised consultation draft would
be required subsequently.
1.89
Interest of controlled
corporation
477,903,500
3
Beneficial owner
Long
China Merchants Union H
(BVI) Limited
1.89
10.41
3
477,903,500
Interest of controlled
corporation
Company Limited
Long
H
Verise Holdings
10.41
477,903,500
Pagoda Tree Investment
3
moratorium
41,752,802
9
COSCO Shipping (Guangzhou) Co.,
Ltd.
State-owned
legal person
696,450,214
Long
2.76
subject to trading
moratorium
10
450,164,945
(1)
Notes:
1.89
10.41
A Shares not
CNIC Corporation Limited H
3
10.41
Beneficial owner
Short
0.92
5.08
2
233,082,143
76,752,887
Approved lending agent
Long
15,265
Trustee
Long
129,408,680
Investment manager
Long
1,854,603 2
0.04
0.01
1.78
subject to trading
477,903,500
Interest of controlled
corporation
Company Limited
Long
H
Compass Investment
1.89
(中國華馨投資有限公司)
10.41
3
477,903,500
Interest of controlled
corporation
Company Limited
Long
H
1.89
person
A Shares not
3.41
18.02
H Shares
4,883,146
2
China Merchants Steam Navigation
Co., Ltd.
State-owned
3,289,470,337
13.04
A Shares not
legal person
subject to trading
3.20
moratorium
3
Anbang Property & Casualty
Domestic legal 2,704,596,216
10.72
4,544,009,532
A Shares not
HKSCC Nominees Ltd.
The reporting moratorium
period (share) (share)
100.00
As at the end of the reporting period, the Company had a total of 227,732 shareholders, including 192,451 holders
of A Shares and 35,281 holders of H Shares. Neither the holders of A Shares nor the holders of H Shares are subject
to trading moratorium.
As at the end of the previous month prior to the disclosure date of the annual report (namely 28 February 2018),
the Company had a total of 243,306 shareholders, including 208,861 holders of A Shares and 34,445 holders of H
Shares. They are not subject to trading moratorium.
Based on the publicly available information and so far as the Company's Directors were aware, as at 31 December
2017, the Company had met the public float requirement of the Hong Kong Listing Rules.
81
82
32
China Merchants Bank
Annual Report 2017
V Changes in Shares and Information on Shareholders
5.2 Top ten shareholders and top ten holders of ordinary shares
whose shareholdings are not subject to trading moratorium
Serial No. Name of shareholder
Type of
shareholder
Shares held at
the end of the
period (share)
Percentage
of total
share
capital (%)
Changes in
Number
of shares
subject to
trading
Type of shares
1
26,905,311
Insurance Company Ltd.
- traditional products
4.55
A Shares not
legal person
subject to trading
moratorium
China Merchants Finance Investment State-owned
Holdings Co. Ltd.
7
Shenzhen Chu Yuan Investment and State-owned
Development Company Ltd.
944,013,171
3.74
A Shares not
legal person
subject to trading
moratorium
8
China Securities Finance Corporation Domestic legal
Limited
861,063,980
1,147,377,415
person
Shenzhen Yan Qing Investment and State-owned
Development Company Ltd.
subject to trading
subject to trading
moratorium
4
China Ocean Shipping Company
Limited
State-owned
1,574,729,111
6.24
A Shares not
legal person
subject to trading
moratorium
5
6
1,258,542,349
4.99
A Shares not
legal person
moratorium
Beneficial owner
JPMorgan Chase & Co.
H
0.28
58,147,140 1
Beneficial owner
Long
A
Best Winner Investment
13.50
0.23
16.51
55,196,540
3,405,129,475
Others
Long
1
2,202,555,520
Interest of controlled
corporation
Long
1
Co., Ltd.
Limited
Long
Interest of controlled
corporation
Long
Company Ltd.
Development
Investment and
1
1,258,542,349
H
Beneficial owner
A
Shenzhen Yan Qing
1.30
7.16
1
328,776,923
Beneficial owner
Long
Investment Holdings
1,147,377,415
Beneficial owner
3,289,470,337
Beneficial owner
Long
A
China Merchants Steam
corporation
3.20
Navigation Co., Ltd.
17.57
806,680,423
Interest of controlled
Long
H
26.78
32.73
6,752,746,952
1
Long
Interest of controlled
3,408,080,075
Long
A
China Merchants Finance
corporation
17.57
1
806,680,423
Interest of controlled
Long
H
26.78
32.73
55,196,540 1
6,752,746,952
Others
Long
corporation
1
944,013,171
Long
1
10.68
of total
class of
Name of Substantial
Shareholder
Class of
shares
Long/short
position
shares in
of the relevant
issued
ordinary
China Merchants
A
Long
Group Ltd.
Interest of controlled
corporation
No. of shares
6,697,550,412
Notes
Capacity
issue (%)
Percentage
As at 31 December 2017, 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 (In the report, any discrepancies between the total shown and the sum of the amounts listed
are due to rounding):
25,219,845,601
issued
ordinary
shares (%)
legal person
A Shares not
subject to trading
moratorium
China Communications Construction State-owned
Company Limited
Shares
pledged
or frozen
(share)
Percentage
Notes: (1)
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 Co., 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. China Ocean Shipping Company Limited 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 do not hold the shares of the Company through credit securities accounts.
China Merchants Bank
Annual Report 2017
V Changes in Shares and Information on Shareholders
5.3 Substantial shareholders' and other persons' interests and short
positions in shares and underlying shares under Hong Kong laws
and regulations
(2)
shares (%)
1
Long
1,574,729,111
Beneficial owner
Long
A
China Ocean Shipping
- traditional products
Company Ltd.
7.63
Casualty Insurance
13.11
2,704,596,216
Beneficial owner
Long
A
Anbang Property &
8.73
10.72
6.24
Company Limited
83
issue (%)
Notes
No. of shares
Capacity
shares in
Long/short
position
shares
Shareholder
Class of
Name of Substantial
of total
Percentage
of the relevant
class of
Percentage
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2017
84
2,202,555,520
100.00
3.
Total shares
Nil
38.55
106,000,000
106,000,000
Domestic preference
shares
person
Corporation
2
State-owned legal
1
frozen
Shares
pledged or
Number of
shares subject
to trading
moratorium
(%)
(share)
period (share)
China Mobile Communications
Type of shares
CCB Trust Co., Ltd.
30,000,000
shares
China National Tobacco
(中銀資產管理有限公司)
Nil
9.09
25,000,000
25,000,000
State-owned legal Domestic preference
Domestic preference
BOC Asset Management Co., Ltd.
3
shares
person
Nil
10.91
30,000,000
Others
shareholding
Percentage of
Shares held
at the end
of the period
Number of
shares subject
Percentage of
Shares held
at the end
of the period
(share)
the reporting
period (share)
50,000,000
Type of shares
Offshore preference
shares
Type of
shareholder
Overseas legal
person
The Bank of New York Depository
(Nominees) Limited
shareholding
1
Changes in
As at the end of the reporting period, the Company had a total of 13 shareholders of preference shares (or
nominees), including 1 shareholder of offshore preference shares (or nominees), and 12 shareholders of domestic
preference shares. As at the end of the previous month (namely 28 February 2018) preceding the date for disclosure
of the annual report, the Company had a total of 13 shareholders of preference shares (or nominees), including 1
shareholder of offshore preference shares (or nominees), and 12 shareholders of domestic preference shares.
As at the end of the reporting period, the shareholdings of top ten shareholders of offshore preference shares (or
nominees) were as follows:
5.6.2 Number of shareholders of preference shares and their shareholdings
Annual Report 2017
V Changes in Shares and Information on Shareholders
China Merchants Bank
For further information, please refer to the relevant announcement(s) published by the Company on the websites of
Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company, respectively.
Serial No. Name of shareholder
to trading
Shares
pledged or
(%)
the reporting
Type of
shareholder
Name of shareholder
No.
Serial
Changes in
As at the end of the reporting period, the shareholdings of top ten shareholders of domestic preference shares (or
nominees) were as follows:
(4) "Percentage of shareholding" represents the percentage of the number of offshore preference shares held by shareholders of preference
shares to the total number of offshore preference shares.
(3) The Company is not aware of any affiliated relationship or action in concert among the above shareholders of preference shares and the
top ten shareholders of ordinary shares.
(2) As the issuance is an offshore non-public issuance, the information listed in the register of shareholders of preference shares is the
information of the nominee of the placees.
(1) The shareholdings of shareholders of preference shares are calculated based on the information listed in the register of shareholders of
preference shares maintained by the Company.
Note:
Unknown
100
50,000,000
frozen
moratorium
State-owned legal Domestic preference
1" (Zhao Yin You 1) and stock code of 360028, and the number of shares listed were 275 million. The total
proceeds raised from the issuance of the domestic preference shares amounted to RMB27,500,000,000. After
deduction of the expenses relating to the issuance, the net proceeds raised from the issuance of the domestic
preference shares amounted to RMB27,467,750,000, would be fully used to replenish the Company's Additional Tier
1 Capital.
20,000,000
7.27
Nil
1.82
5,000,000
5,000,000
State-owned legal Domestic preference
shares
person
Province) Company
Changjiang Pension Insurance
China National Tobacco (Liaoning
3.64
10,000,000
10,000,000
Nil
5.45
15,000,000
15,000,000
Nil
shares
State-owned legal Domestic preference
shares
State-owned legal Domestic preference
shares
10
State-owned legal Domestic preference
person
shares
89
(3) "Percentage of shareholding" represents the percentage of the number of domestic preference shares held by shareholders of preference
shares to the total number of domestic preference shares.
(2) China National Tobacco (Henan Province) Company, China National Tobacco (Sichuan Province) Company, China National Tobacco (Anhui
Province) Company and China National Tobacco (Liaoning Province) Company are wholly-owned subsidiaries of China National Tobacco
Corporation. Save for the above, the Company is not aware of any affiliated relationship or party acting in concert among the above
shareholders of preference shares or between the above shareholders of preference shares and the top ten shareholders of ordinary
shares.
(1) The shareholdings of preference shareholders are calculated based on the information listed in the register of shareholders of preference
shares maintained by the Company.
Notes:
shares
person
Co., Ltd.
Nil
5,000,000
5,000,000
China Resources SZITIC Trust Co., Ltd. State-owned legal Domestic preference
Nil
1.82
5,000,000
5,000,000
1.82
person
China Construction Bank Corporation,
Guangdong Branch
9
China Everbright Bank Company
6
shares
Insurance Company of China, Ltd.
Nil
7.27
20,000,000
Others
20,000,000
Others
Ping An Property & Casualty
4
shares
person
(Henan Province) Company
Nil
Domestic preference
Domestic preference
19,000,000
19,000,000
person
(Anhui Province) Company
China National Tobacco
7
person
(Sichuan Province) Company
Nil
445
5.45
15,000,000
15,000,000
State-owned legal Domestic preference
China National Tobacco
shares
Limited
Nil
6.91
20,000,000
25,219,845,601
Pursuant to the approvals by Yin Jian Fu [2017] No. 249 issued by the CBRC and Zheng Jian Xu Ke [2017] No. 2198
issued by the CSRC, the Company issued 275 million domestic preference shares by way of private placement on
22 December 2017. The domestic preference shares have a par value of RMB100 each, and were issued at nominal
value. The dividend rate of the domestic preference shares shall be adjustable by stage and shall be adjusted every
five years from the end of the payment date. For the dividend rate adjustment period, the dividends shall be paid at
the same agreed dividend rate. The dividend rate at the time of the issuance was 4.81%, which was determined by
the Board of Directors through book-building process in accordance with the market conditions at the time of the
issuance, the actual situation of the Company, investors' needs and other factors, as authorised by the shareholders'
general meeting (which authorisation can be further delegated). Pursuant to the approval by Shang Zheng Han
[2018] No. 42 issued by Shanghai Stock Exchange, the domestic preference shares were listed and traded on the
integrated business platform of Shanghai Stock Exchange on 12 January 2018, with the stock abbreviation of "
USD20
1,814,000 H shares (long position) and 211,008 H shares (short position)
3,002,000 H shares (long position) and 106,500 H shares (short position)
1,515,520 H shares (long position) and 330,445 H shares (short position)
1,089,650 H shares (short position)
The entire interests and short positions of JPMorgan Chase & Co. in the Company included a lending pool of 76,752,887 H shares. Besides,
6,331,520 H shares (long position) and 1,737,603 H shares (short position) were held through derivatives as follows:
JPMorgan Chase & Co. was deemed to hold interests in a total of 233,082,143 H shares (long position) and 1,854,603 H shares (short
position) in the Company by virtue of its control over a number of corporations which were directly or indirectly wholly-owned by JPMorgan
Chase & Co..
Details of China Merchants Group Ltd. and its subsidiaries' interests in the Company are listed on section "5.4.1 Information on the Company's
largest shareholder and its parent company" of this report.
(3)
(2)
-through physically settled listed derivatives
-through cash settled listed derivatives
-through physically settled unlisted derivatives
-through cash settled unlisted derivatives
For the convening of its 2017 Annual General Meeting, the Company will make further announcement.
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. 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 2017.
4.23 Review of annual results
The financial statements of the Group for 2017 prepared under the PRC Generally Accepted Accounting Principles
and the internal control of the Group as at the year end of 2017 were audited by Deloitte Touche Tohmatsu Certified
Public Accountants LLP, and the financial statements for 2017 prepared under International Financial Reporting
Standards were audited by Deloitte Touche Tohmatsu Certified Public Accountants. The total audit fees (including
fees for the audit on the financial statements of our overseas branches, subsidiaries and their respective subsidiaries)
amounted to approximately RMB 17.3036 million, among which the audit fees for internal control was approximately
RMB1.2350 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.
According to the resolutions passed at the 2016 Annual General Meeting, the Company engaged Deloitte Touche
Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company for 2017 and Deloitte
Touche Tohmatsu as the international accounting firm of the Company for 2017. These two certified public
accountants have been engaged as auditors of the Company since 2016.
4.22 Appointment of accounting firms
IV Important Events
China Merchants Bank
Annual Report 2017
4.24 Annual general meeting
80
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:
(3.2)
The Company did not have any controlling shareholder and de facto controller. As at the end of the reporting
period, the equity relationship among the Company, its largest shareholder and the parent company of its
largest shareholder is illustrated as follows:
China Merchants Group Ltd. directly holds 100% equity of China Merchants Steam Navigation Company Ltd.
and is the parent company of the Company's largest shareholder, with a registered capital of RMB14.1425
billion. Its legal representative is 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. It 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 transportation (harbour, highway, shipping, logistics, ocean engineering, and
trade), finance (bank, securities, funds and insurance) and real estate (industrial zone development and real
estate development).
2.
5.4.1 Information on the Company's largest shareholder and its parent company
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. Its legal representative is 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.
1.
5.4 Information on substantial shareholders
Annual Report 2017
(3.1)
V Changes in Shares and Information on Shareholders
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 2017 as recorded in the register
required to be kept by the Company pursuant to Section 336 of the SFO.
The 477,903,500 H shares referred to in (3) and (3.1) to (3.3) represented the same shares.
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.
Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited. Therefore, CNIC Corporation Limited was deemed
to hold the 477,903,500 H shares in the Company which Verise Holdings Company Limited was deemed to hold.
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.
(3.4)
(3.3)
China Merchants Bank
4.25 Explanation on changes in significant accounting policies
For changes in accounting policies of the Company during the reporting period, please refer to Note 2(b) "Changes
in accounting policies" in the Financial Statements.
4.26 Publication of annual report
100.00
25,219,845,601
100.00
(1) Ordinary shares in RMB (A
Shares)
20,628,944,429
81.80
20,628,944,429
25,219,845,601
81.80
Shares)
4,590,901,172
18.20
4,590,901,172
18.20
(4) Others
55,196,540 1
(2) Foreign shares listed domestically
(3) Foreign shares listed overseas (H
Shares not subject to trading
moratorium
2.
Shares subject to trading
moratorium
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, Hong Kong Stock Exchange and the Company.
China Merchants Bank
V Changes in Shares and Information on Shareholders
Annual Report 2017
Changes in Shares and
Information on Shareholders
5.1 Changes in ordinary shares of the Company during the reporting
period
31 December 2016
No. of shares
Percentage
(%)
Changes in the
No. of shares
during the
reporting period
No. of shares
31 December 2017
No. of shares
Percentage
(%)
1.
China Merchants Group Ltd.)
50,000,000 Shares
100%
Steam Navigation Co., Ltd.
87
The Company had not issued internal staff shares.
For the issuance of other bonds of the Company and its subsidiaries, please refer to Note 37 "Debt Securities
Issued" of the financial report.
During the reporting period, the Company did not have corporate bonds listed on the stock exchange by way of
public issuance.
For details of the issuance and listing of preference shares of the Company, please refer to section 5.6 of this report.
During the reporting period, the Company did not issue new ordinary shares.
5.5 Issuance and listing of security
88
Hebei Port Group Co., Ltd.. As at the end of the reporting period, Hebei Port Group Co., Ltd. held 1.20% of
the shares of the Company and was a shareholder which has appointed supervisors in Company. There was
no pledge of the shares of the Company. Hebei Port Group Co., Ltd. was established on 28 August 2002 with
a registered capital of RMB8 billion. The legal representative is Cao Ziyu and the de facto controller is the
State-owned Assets Supervision and Administration Commission of the People's Government of Hebei Province.
SAIC Motor Corporation Limited. As at the end of the reporting period, SAIC Motor Corporation Limited held
1.71% of the shares of the Company and was a shareholder which has appointed supervisors in Company.
There was no pledge of the shares of the Company. SAIC Motor Corporation Limited has a registered capital
of RMB11.683 billion, and its legal representative is Chen Hong. As at the end of the reporting period,
Shanghai Automotive Industry Corporation (Group) held 71.24% of the shares of SAIC Motor Corporation
Limited, and therefore is the controlling shareholder of SAIC Motor Corporation Limited, and its de facto
controller is the State-owned Assets Supervision and Administration Commission of Shanghai City. Shanghai
Automotive Industry Corporation (Group) was established on 1 March 1996 with a registered capital of
RMB21.599 billion, and its legal representative is Chen Hong.
3.
2.
1.
5.4.3 Other substantial shareholders under the regulatory calibre
Annual Report 2017
V Changes in Shares and Information on Shareholders
China Merchants Bank
China Communications Construction Company Limited. As at the end of the reporting period, China
Communications Construction Company Limited held 1.78% of the shares of the Company and was a
shareholder which has appointed supervisors in the Company. China Communications Construction Company
Limited was established on 8 October 2006 with a registered capital of RMB16.174 billion, and its legal
representative is Liu Qitao. As at the end of the reporting period, China Communications Construction Group
(Limited) held 63.84% of the equity of China Communications Construction Company Limited, and therefore
is the controlling shareholder of China Communications Construction Company Limited, its ultimate de
facto controller is the State-owned Assets Supervision and Administration Commission of the State Council.
China Communications Construction Group (Limited) was established on 8 December 2005 with a registered
capital of RMB5.855 billion, and its legal representative is Liu Qitao. As at the end of the reporting period,
through its subsidiaries, namely China Communications Construction Company Limited, CCCC Shanghai
Dredging Co., Ltd., CCCC Guangzhou Dredging Co., Ltd., CCCC Fourth Harbor Engineering Co. Ltd., Zhen
Hua (Shenzhen) Engineering Co., Ltd. and CCCC Third Harbor Consultants Co. Ltd., China Communications
Construction Group (Limited) held in aggregate 2.27% of the shares of the Company, and there was no
pledge of the shares of the Company.
China COSCO Shipping Corporation Limited. As at the end of the reporting period, China COSCO Shipping
Corporation Limited held 100% equity interests in China Ocean Shipping Company Limited and is its controlling
shareholder. Its ultimate de facto controller is State-owned Assets Supervision and Administration Commission of
the State Council. China COSCO Shipping Corporation Limited was established in February 2016, with a registered
capital of RMB11.0 billion. Its legal representative is Xu Lirong. As at the end of the reporting period, China COSCO
Shipping Corporation Limited in aggregate held 9.97% shares in the Company through China Ocean Shipping
Company Limited, COSCO Shipping Financial Holdings Co., Limited, COSCO Shipping (Guangzhou) Co., Ltd.,
Guangzhou Haining Maritime Technology Consulting Co., Ltd. (RADAR2Ā]), COSCO Shipping
(Shanghai) Co., Ltd. (and Shenzhen Sanding Oil Transport Trading Co., Ltd. (=
HARRA), all being its subsidiaries. It did not pledge any of its shares in the Company.
China Merchants Bank
Annual Report 2017
USD1,000,000,000
4.40%
Number of
shares issued
Proceeds
raised per share
Total
amount issued
Dividend
yield
04614
V Changes in Shares and Information on Shareholders
dollar
Stock code
preference shares
Type of offshore
Pursuant to the approvals by Yin Jian Fu [2017] No. 249 issued by the CBRC and Zheng Jian Xu Ke [2017] No. 1838
issued by the CSRC, the Company issued non-cumulative perpetual offshore preference shares on 25 October 2017
(for details, please refer to the table below). The offshore preference shares of the issuance were listed on the Hong
Kong Stock Exchange on 26 October 2017. The offshore preference shares have a par value of RMB100 each and
were issued fully paid in U.S. dollars so that the total issuance price of the offshore preference shares was USD20
each. The offshore preference shares have no maturity date and were issued in registered form. The qualified placees
shall not been less than six, but subject to a maximum limit of 200 qualified placees. The offshore preference
shares were offered to professional institutional investors only. The gross proceeds from the offering of the offshore
preference shares was USD1 billion, after deduction of the expenses relating to the issuance, would be fully used to
replenish the Company's Additional Tier 1 Capital.
In order to ensure the sustainable and steady development of the Company's business and further enhance the
capability of risk prevention and overall competitiveness, the Board of Directors of the Company passed a resolution
on 24 March 2017, which resolved to issue preference shares in both domestic and overseas markets. The proceeds
from the issuance, less issuance expenses, were used to replenish additional tier 1 capital. The above resolution
was considered and passed at the 2016 annual general meeting of the Company, the first class meeting of the
shareholders of A shares for 2017 and the first class meeting of the shareholders of H shares in 2017 on 26 May
2017.
5.6.1 Issuance and listing of preference shares in the past three years
5.6 Preference shares
Preference Shares in U.S.
China Ocean Shipping Company Limited. As at the end of the reporting period, China Ocean Shipping
Company Limited held 6.24% shares in the Company. China Ocean Shipping (Group) Company (the
predecessor of China Ocean Shipping Company Limited) was established on 22 October 1983, with a
registered capital of RMB16.191 billion. Its legal representative is Xu Lirong. The scope of its businesses
includes: international shipping; ancillary business in international maritime transportation; acceptance
of space booking, voyage charter and time charter from cargo owners at home and abroad; leasing,
construction, trading and maintenance of vessels and containers and manufacture of related facilities; ship
escrowing business; provision of ship materials, spare parts and communications services relating to shipping
business at home and abroad; management of enterprises engaging in vessel and cargo agency business and
seafarer assignment business.
Anbang Property & Casualty Insurance Company Ltd.. As at the end of the reporting period, Anbang Property
& Casualty Insurance Company Ltd. in aggregate held 11.63% shares (including its 0.91% H shares) in the
Company, and it did not pledge any of its shares in the Company. Anbang Property & Casualty Insurance
Company Ltd. was established on 31 December 2011, with a registered capital of RMB37.0 billion. Its legal
representative is Ye Jing. The scope of its businesses includes: property and casualty insurance; liability
insurance; credit and guarantee insurance; short-term health insurance and accidental injury insurance;
reinsurance of the above-mentioned insurances; the insurance fund application business permitted under the
PRC laws and regulations; and other businesses approved by China Insurance Regulatory Commission.
Anbang Insurance Group Co., Ltd.. As at the end of the reporting period, Anbang Insurance Group Co., Ltd. held
97.56% equity interests in Anbang Property & Casualty Insurance Company Ltd. and was its controlling shareholder.
Anbang Insurance Group Co., Ltd. was established on 15 October 2004, with a registered capital of RMB61.9 billion.
The scope of its businesses includes: establishment of insurance enterprises; supervision and management of various
domestic and international businesses of the companies invested and controlled by Anbang Insurance Group Co., Ltd.;
the investment businesses permitted under the PRC laws and regulations; the insurance businesses permitted under the
PRC laws and regulations; and other businesses approved by China Insurance Regulatory Commission. On 23 February
2018, the Company noted that "the Announcement of the China Insurance Regulatory Commission regarding the
implementation of the Takeover of Anbang Insurance Group Co., Ltd." was uploaded to the official website of the
China Insurance Regulatory Commission. At the same time, the Company received a written notice from Anbang
Insurance Group Co., Ltd., which stated: "Currently, Anbang Insurance Group Co., Ltd. and its subordinate bodies
are in stable operation, with sufficient cash reserves, there are no recent plans to reduce the shareholding in your
company".
2.
China Merchants China
Direct Investments Limited
49%
Shenzhen Yan Qing Investment
and Development Company Ltd.
27.59%
51%
Best Winner
Investment Limited
100%
50%
China Merchants International
Finance Company Limited
1.89%
China Merchants
Union (BVI) Limited
50%
China Merchants Finance
Investment Holdings Co. Ltd.
100%
China Merchants Holdings (Hong Kong) Company Limited
100%
100%
50%
100%
Shenzhen Chu Yuan Investment
1.
5.4.2 Information on other shareholders holding more than 5% shares of the
Company
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2017
86
85
On 24 February 2017, China Merchants Group Ltd. and China Merchants Steam Navigation Company Ltd. entered
into the relevant agreement, pursuant to which, China Merchants Group Ltd. transferred its 90% equity interests in
China Merchants Finance Investment Holdings Co., Ltd., 49% equity interests in Shenzhen Yan Qing Investment and
Development Company Limited and 10.55% equity interests in China Merchants Holdings (Hong Kong) Company
Limited to China Merchants Steam Navigation Company Ltd. at nil consideration. Those changes in the relevant
shareholdings had been completed. For the relevant information, please refer to the relevant announcements issued
by the Company on 24 February and 2 August 2017, respectively.
As at 31 December 2017, 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. It did not pledge any of
its shares in the Company. (In this report, any discrepancies between the total shown and the sum of the amounts
listed are due to rounding.)
China Merchants Bank Co., Ltd.
0.22%
3.74%
4.55%
13.04%
1.53%
4.99%
China Merchants Industry
Development (Shenzhen) Limited
and Development Company Ltd.
China Merchants
Others
Annual Report 2018
Tian Huiyu
President
4.
5.
6.
7.
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.
The 40th meeting of the Tenth Session of the Board of Directors of the Company was held at its Shekou Training
Center on 22 March 2019. The meeting was presided by Li Jianhong, Chairman of the Board of Directors. 16 out of
16 eligible Directors attended the meeting in person. 8 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.".
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu (both being auditors of the
Company) have separately reviewed the 2018 annual financial report prepared in accordance with the PRC Generally
Accepted Accounting Principles and International Accounting Standards, and issued standard auditing reports with
unqualified opinions.
Unless otherwise stated, all monetary sums stated in this annual report are expressed in RMB.
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.
Proposal of profit appropriation: it was proposed that 10% of the audited net profit of the Company for 2018
of RMB75.232 billion, equivalent to RMB7.523 billion, will be allocated to the statutory surplus reserve, while
1.5% of the total amount of the risk assets, equivalent to RMB6.028 billion, will be 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 will declare a cash dividend of RMB0.94 (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 profit appropriations amount in HKD would be calculated
based on the average benchmark rate for RMB to HKD published by the People's Bank of China for the previous
week (including the day of the general meeting) before the date of the general meeting. The retained profits will be
carried forward to the next year. In 2018, 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 2018 Annual General Meeting
of the Company.
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.
China Merchants Bank
Annual Report 2018
Definitions
Definitions/Significant Risk Warning
The Company, the Bank, CMB or China Merchants Bank:
China Merchants Bank Co., Ltd.
The Group:
China Merchants Bank Co., Ltd. and its subsidiaries
CBIRC:
2.
1.
Important Notice
Annual Report 2018
74
3.14 Compliance with Relevant Laws and Regulations
74
3.15 Management Contracts
74
3.16 Permitted Indemnity Provision
75
IV Important Events
83
China Banking and Insurance Regulatory Commission
95
VI Directors, Supervisors, Senior Management, Employees and Organisational Structure
110
VII Corporate Governance
128
VIII Report of the Board of Supervisors
129
IX Financial Statements
China Merchants Bank
Important Notice
V Changes in Shares and Information on Shareholders
CSRC:
China Securities Regulatory Commission
Hong Kong Stock Exchange or SEHK:
Model Code for Securities Transactions by Directors of
Listed Issuers of Hong Kong Stock Exchange
Significant Risk Warning
The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures.
Please refer to Chapter III for the details in relation to risk management.
3
4
China Merchants Bank
Chairman's Statement
Annual Report 2018
Chairman's Statement
Model Code:
The year 2018 marked the 40th anniversary of China's reform and opening up. CMB was a brainchild of the reform and
opening-up policy and has emerged strong in the historical development trend. Amid the changes and challenges in the
internal and external business environment, CMB has maintained its strategic resolve, laid solid foundation and achieved
outstanding results with its excellent business performance in regaining its past glory.
The innovation-driven development strategy was further promoted. In 2018, the Board of Directors decided to
increase the allocation to our new Financial Technology Innovation Project Fund from "1% of the pre-tax profit of the
previous year" to "1% of the operating income of the previous year", and enhanced the efforts in promoting the strategic
plan for "building the best commercial bank in China with innovation-driven development, leading retail banking and
distinguished features". Adhering to the mindset of "error tolerance and win-win", CMB promoted business agility by
means of technology agility and quickened its pace of innovation. CMB established a technology-empowered Fintech
innovation incubation platform, put in place an independent teamwork operation system and supported various innovation
projects. It also drove forward staff composition change, and increased the talent bench in technology and data science,
thereby making various breakthroughs in infrastructure and capacity building of Fintech such as artificial intelligence,
big data, blockchain and cloud computing. The atmosphere of innovation in CMB became more zealous; the efficiency
of innovation continued to increase; the layout of scenarios and ecology was further enriched; the perception of the
technological innovation frontier became more acute.
We actively fulfilled social responsibilities and created values for various sectors of the society. In 2018, PB ratio
of A Shares and H Shares of CMB continued to rank first among the major listed banks in mainland China, and continued
to create value for shareholders and investors through steady growth in profits and dividends. At the same time, CMB
fully supported people's needs for a better life and actively supported the national strategic emerging industries and the
real economy. By fully leveraging the advantages of Fintech, CMB offered more intelligent and more inclusive financial
services with more scenarios for customers and users. CMB adhered to the "people-oriented" concept, safeguarded the
legitimate rights and interests of employees, and provided diversified channels for their professional development. Through
enhancing their capability and quality and setting a stage to showcase their talents, we helped employees to develop
and excel themselves, so as to realise mutual growth for both employees and CMB. In this regard, CMB was selected as
one of the top 30 employers of the year in China by Zhaopin Limited. CMB adhered to the notion of "helping the poor
heartily and helping the really poor", invested a large amount of our resources in the poverty alleviation campaign, and
approved financial targeted poverty alleviation loans totalling RMB20.85 billion in 2018. In addition, CMB has been actively
advocating and exploring poverty alleviation through industrial development so that poverty-stricken counties would be in a
better position to lift themselves out of poverty and generate income. It can be seen that CMB has deployed both physical
and mental resources for the fight against poverty.
Good corporate governance provides important backing for CMB to achieve the above performances. Facing the
complicated changes in the internal and external situation, the Board of Directors has always upheld the prudent operation
principles of "ensuring assets quality, efficiency first, putting risks under control and maintaining proper scale", and
abided by the market-oriented systems and mechanisms. Through such forward-looking measures as strategic directing,
assessment and guidance as well as resource allocation incentives, CMB took initiative to regulate business expansion, fully
exposed non-performing assets, removed the blind spots and flaws in risk management, promoted the innovation-driven
development strategy, and continued to increase investment in Fintech at the same time. All members of the Board of
Directors have been fully dedicated to their jobs, leveraged their professional expertise and rich experience to predict the
market and industry development trend, carried out specialised researches, effectively performed the duties of Directors,
and effectively ensured the efficient operation and scientific decision-making process of the Board of Directors.
M
Li Jianhong
Chairman
6
China Merchants Bank
Annual Report 2018
Chairman's Statement
Both the customer base and profits reached a new level. As at the end of 2018, the number of retail customers of
CMB reached 125 million. The total number of monthly active users (MAU) of CMB APP and CMB Life APP exceeded
81 million and the number of corporate customers exceeded 1.8 million. With the expansion of customer base, CMB
continued to build a customer service ecosystem, enhanced customer experience, and realised "double-digit growth" in net
operating income and net profit, with net profit exceeding RMB80 billion. The average return on equity (ROAE) attributable
to ordinary shareholders of the Bank continued to increase, while assets and liabilities maintained a steady growth. At
the same time, CMB actively optimised the customer structure and asset structure, strengthened risk management, and
continued to realise the decrease in both non-performing loan ratio and balance of non-performing loans.
3.13 Requirements of the Environmental, Social and Governance Reporting Guide
(Chapter 571 of the Laws of Hong Kong)
SFO:
The Stock Exchange of Hong Kong Limited
Hong Kong Listing Rules:
The Rules Governing the Listing of Securities on the SEHK
CMB Wing Lung Bank:
CMB Wing Lung Bank Limited
CMB Wing Lung Group:
CMB Wing Lung Bank and its subsidiaries
CMB Financial Leasing or CMBFL:
CMB Financial Leasing Co., Ltd.
Securities and Futures Ordinance
CMB International Capital or CMBIC:
China Merchants Fund Management Co., Ltd.
CIGNA & CMB Life Insurance:
CIGNA & CMB Life Insurance Co., Ltd.
CM Securities:
China Merchants Securities Co., Ltd.
Deloitte Touche Tohmatsu Certified Public
Accountants LLP:
Deloitte Touche Tohmatsu Certified Public Accountants LLP
(Special General Partnership)
CMB International Capital Holdings Corporation Limited
China Merchants Fund or CMFM:
74
3.
72
Facing the era of change, CMB has constantly made changes in tandem with variation of time and situation, whereas
the only thing remained unchanged is "we are here just for you". The well-known brand slogan of "we are here just for
you" reflects the original "customer-centric" mindset and philosophy of CMB. In 2019, with the strong support from
varies sectors of the society, CMB will continue to forge ahead in regaining its past glory, use technology to drive the
transformation of business model to make new breakthroughs for the cause of reform and opening up, so as to honour the
70th anniversary of the founding of the nation with remarkable achievements.
CMB will always keep to the market-based incentive mechanism. To achieve technology-driven development, we must
have sufficient talents for scientific and technological innovation. The competition for talents rests on the competitiveness
of mechanisms. CMB will draw on the advantages of market-oriented talent management mechanism in a market-based
approach, maximise the attraction and incentive for best talents, continuously optimise remuneration incentives and ensure
the adequacy of incentives, so as to secure adequate talent supply for CMB to develop into a Fintech bank offering the best
customer experience.
CMB will continue to improve the supporting system driven by science and technology. In terms of strategy, we will
further assert the leading role of science and technology; in terms of organisation, we will further build a fittingly agile
organisation; in terms of capabilities, we will further strengthen the infrastructure and capabilities of Fintech; in terms of
system, we will further improve our systems and mechanisms to satisfy the needs of scientific and technological innovation;
in terms of culture, we will further develop an open culture that promotes technological innovation.
CMB will continue to increase investment in Fintech as a long-term strategy. Through constant investment in Fintech,
we will continue to foster enthusiasm for innovation, drive breakthroughs in technological innovation, promote business
model innovation through technological innovation, and promote a shift from a business model with capital as its core asset
to one with technology and talent as its core asset, so as to pursue incessant improvement in the level of financial services
and customer experience.
How to respond to the changes? By adhering to long-term strategies, seizing present opportunities, focusing on
technology-driven development and embracing changes, we will stay sensitive in identifying changes, do our best to
adapt to changes, and proactively pursue changes. Particularly, we will grasp the great opportunities associated with the
ever-expanding application of Fintech, and focus on science and technology-driven development in order to reconstruct
the operating model of CMB. Technology-driven development is not only to improve efficiency and reduce costs through
the application of technology, but more importantly, to reshape the business model of the Bank through Fintech, so as to
enable CMB to develop into a Fintech bank offering the best customer experience.
"Change" is the keynote of the modern era. Looking into the future, the scope, speed and intensity of the major
changes we face are unprecedented. Firstly, there have been changes in economic situation. We saw changes in what
was a generally stable economic performance, some of which caused concern. Downward pressure on the economy has
continued to mount; the growth of household consumption has slowed down; the growth of effective investment has
been weakened; the trade friction between China and the United States has brought great uncertainties; macro risks have
intensified. Secondly, there have been changes in the financial market. Long accumulated financial risks keep emerging;
the financial supply side structural reform has commenced; the strict regulatory control has placed higher demand on
compliance management of banks. Thirdly, there have been changes in customer needs. With the substantial penetration of
mobile Internet, customers have been requesting better service efficiency and experience, and competition among financial
institutions and non-financial institutions has increasingly intensified.
M 招商銀行
CHINA MERCHANTS BANK
CHINA MERCHANTS BANK CO., LTD.
(a joint stock company incorporated in the
People's Republic of China with limited liability)
H Share Stock Code: 03968
Preference Share Stock Code: 04614
2018 Annual Report
China Merchants Bank Co., Ltd.
We are here
you
無
BUY
BANK
2009
ர
China Merchants Bank
Annual Report 2018
Contents
Contents
1
2
Just for
Chairman
22 March 2019
China Merchants Bank
Annual Report 2018
Transforming from customers to users, we will redefine the objects of banking services and business mindset. We will
expand our service boundaries, jump out of the customer base system with bank accounts as the core, extend our customer
base system to class II and III accounts as well as APP users who do not bind their bank accounts, and make efforts to build the
Internet funnel-shaped user system. Guided by user experience, we will continue to enhance the operating concept with MAU
(monthly active users) as the North Star Metric, so as to drive the digital transformation of the whole Bank in all aspects, from
business development to organisational system, management methods, service models, and further to mindsets, concepts, culture
and values.
The general trend of change is irreversible. We have to switch our track without hesitation, and move towards "the 3.0 mode"
at full speed. Customers and technologies are our two core themes for the future. We are well aware that in the era of mobile
Internet, technology dominates business models; big data determines customer service capabilities; business logic has changed
from "small and beautiful" to "big and beautiful." We can only bear the high cost of investment and high risk of technology and
form a sufficient amount of valuable data with a large enough number of customers. Therefore, we will re-examine all aspects of
the operation and management of the bank by focusing on customer experience and leveraging on Fintech, and fully commence
the digital transformation.
As the exploration furthered, our understandings also became clearer. In the new era, science and technology is the fundamental
driving force of the supply-side financial reform. In the foreseeable future, Fintech can carry out digital transformation, intelligent
upgrade and modular splitting for all businesses, operations and management of traditional banks. The stage 3.0 of banks with
features of digitalisation, intelligence and openness is coming. It will completely change the existing models in service, marketing,
risk control, and operation of commercial banks, expand the service boundaries, and ultimately change the growth curves of
banks.
The history will eventually become the past, and we must charge ahead fast towards the future. The trend of technological
change is pushing the Chinese banking industry into development stage 3.0 of winning by a new business model. Since 2017,
based on our previous exploration, we have further promoted the supply-side financial reform and duly formulated the goal of
transformation to build the best customer experience bank with Fintech as the driving engine, and started the journey to explore
the new business model.
Fortunately, CMB has not forgotten its initial intention of reform and has always adhered to its forward-looking strategies,
allowing it to stay ahead of its peers in the banking reform. We took the lead to initiate the transformation of retail banking
more than a decade ago. Since 2014, we have vigorously implemented the strategies of "Light-operation Bank" and "One
Body with Two Wings". We have discarded the emphasis on asset scale, and unswervingly promoted structural adjustment.
The Company has basically built up a professional customer service system and decisively switched the focus of competition
from scale to quality and structure, hence, allowing it to benefit from business transformation. The transformation of CMB was
essentially a reform and service upgrade driven by the needs of customers and supply side.
In the era of significant changes, what is the future direction for the banking industry? Looking back at the history, we realised
that the Chinese banking industry has experienced two stages of development. First, there was stage 1.0 of winning by size: in the
golden age of rapid economic growth, deposits determined assets and size, and size in turn determined income and profit. Banks
used to be highly dependent on the power of capital which led to the uncoordinated expansion of both balance sheet and sources
of finance. Business models back then had low variety and were extensively managed, and the profitability and market competitions
were highly homogenised. After the economy entered the "new normal" phase, the Chinese banking industry has entered into
development stage 2.0 of winning by structure and quality: the profitability and market values of banks have since no longer entirely
depended on asset size, whereas asset quality and income structure played more important roles. Customer and asset structure
determined the quality of bank assets, and further affected profits. Internal capital generation capacity was gradually formed.
Development of banks was gradually driven by the professional competence in customer service, thereby embarking on a path of
intensive development and internal quality building, and commencing differentiated competitions.
Changes have tacitly occurred. In the past decade, traditional financial institutions have witnessed the whole process of how Fintech
redefined retail business. From payment to deposit, loan and wealth management, the capital market intermediary and information
intermediary functions of traditional banks were significantly impacted, and a bank's role as credit intermediary is also under threat.
As social development deepens from the consumer Internet to the industrial Internet, it also urged Fintech to redefine corporate
finance and asset management.
Whether we like it or not, technological revolution will lead to exponential growth in productivity outright, and subsequently reshape
production methods and business models. The banking industry is itself a heritage of a few hundred years and has experienced
many times of changes, economic cycles, trade conflicts and regulatory policies, but its business model remained unchanged. The
age of electricity and the age of information have only provided banks with more efficient channels and tools. However, the new
round of technological revolution may fundamentally revamp the business model of banks.
President's Statement
President's Statement
China Merchants Bank
8
7
Starting from 2018, for statistics purpose, the count of MAU makes reference to the number of users who open the Company's CMB APP
instead of log in the APP and the figure of the same period of the previous year has been adjusted accordingly.
1
Today, we are profoundly aware that the determinant of the changing industry comes from technology. With the rapid development
of technologies such as mobile Internet and artificial intelligence, the new possibilities are opened up by cutting-edge technologies
such as quantum communication and biotechnology. The Fourth Industrial Revolution has been commenced. Following the age of
steam, the age of electricity and the age of information, mankind has entered into the age of intelligence.
At present, the world is confronted with the "most significant changes of the century". The global economic and trade patterns as
well as production specialisation of industry value chains are undergoing restructuring. The relations among major countries and the
international competitive landscape are being reshuffled, bringing extensive and profound effects to the market environment. As a
player in a pro-cyclical industry, commercial banks have to face the very real challenges and impacts in operation and development.
Nevertheless, we are not afraid, as we believe that no matter what challenges are brought by these great changes, remaining
unchanged are the nature of the banking industry as a service industry, tenet that customer is the trigger point of business activities,
and the primary purpose of financial services to serve the real economy and improve people's well-being. Throughout the global
history, it is not surprising that fallen or disappeared companies were often indulged in commercial opportunism, whereas those
humble enterprises that stayed focused and embraced the customer-centric principle could become more competitive and stay
ahead despite adversities.
3.12 Profit Appropriation
The achievements of CMB are made possible by people from all walks of life. We are extremely grateful for this new era and
remember the social responsibilities that we have committed to all the time. We sincerely developed inclusive finance, capitalised on
the power of science and technology to serve the well-being of people, and benefitted more people with more affordable financial
services. We carried out in-depth targeted poverty alleviation to support the development of two state-level poverty-stricken
counties, namely Yongren County and Wuding County in Yunnan through education, industrial development and cultural
development for the past two decades.
As many a little makes a mickle, in 2018, the digital banking transformation moved forward in a progressive manner, from products
to systems, and from businesses to organisational culture. We firmly adhered to the strategy of "mobile priority", and significantly
improved the capabilities of platform empowerment, digital operation and providing digital services; we expedited the internal
establishment and outward expansion of scenarios, and stepped up the construction of an ecological customer service system; we
increased investment in technology infrastructure so as to promote business agility by means of technology agility. In addition, we
accelerated the application of Fintech so that every part and parcel benefits from the power of technology; and we promoted the
penetration of Internet culture so that the Internet mindset and values oriented by customer experience are tacitly cultivated across
the whole Bank. Accelerating the digital transformation is our mighty stronghold in finding our True North.
In 2018, the retail business broke the three "100 million" marks, i.e. the total number of depositors and retail customers reached
100 million and 125 million, up by 17% and 18% respectively as compared with the previous year, and the total number of CMB
APP and CMB Life APP users reached 148 million, representing an increase of 43%, of which monthly active users (MAU) exceeded
81 million, representing an increase of 47%¹. The number of corporate customers exceeded 1.80 million, representing an increase
of 18%. The number of newly acquired corporate depositors exceeded 400,000. The accelerated expansion of customer base is our
greatest source of confidence to keep abreast with time.
The driving forces behind the business performance are our continuous dedication to customer service, our belief in the Fintech
transformation, and our commitment to fulfilling our social responsibilities.
In 2018, despite the tough market conditions, CMB overcame the effects of cyclical factors and achieved remarkable results. During
the year, the Bank realised net operating income and net profit attributable to shareholders of the Bank of RMB248.444 billion
and RMB80.560 billion, a year-on-year increase of 12.40% and 14.84%, respectively. Our asset quality was stable and continued
to improve, while the balance of non-performing loans and the non-performing loan ratio, as well as the amount and ratio of
non-performing loan formation all declined.
President's Statement
President's Statement
Important Notice
3
2018 was a year of tribute to the reform and opening up. Inheriting our innate "Shekou Gene", we reviewed the original mindset
of "creating a real commercial bank for China" proposed by Mr. Yuan Geng, the founding Chairman. To commemorate the past
is for the commencement of a new history. As the first commercial bank in China to promote financial reform from outside the
system, at the new starting point of the new era, it is our inevitable historical mission to continue to explore the paths for the
transformation of Chinese banking industry, promote supply-side financial reform with our own high-quality development, and
better serve the needs of the real economy and improve the well-being of people.
3
37
3.5 Analysis of Capital Adequacy Ratio
40
3.6 Results of Operating Segments
41
3.7 Other Financial Disclosures under the Regulatory Requirements
3.4 Analysis of Loan Quality
3.8 Implementation of Business Development Strategies
3.9 Changes in External Environment and Corresponding Measures
50
3.10 Business Operation
66
Definitions
3.11 Risk Management
43
30
41
26
4
Significant Risk Warning
3.3 Analysis of Balance Sheet
7
President's Statement
I Company Information
16
12
19
III Report of the Board of Directors
19
3.1 Analysis of Overall Operation
19
3.2 Analysis of Income Statement
Il Summary of Accounting Data and Financial Indicators
Chairman's Statement
(5.2.10) BlackRock Asset Management (Schweiz) AG held 33,000 H shares (long position) in the Company.
(6)
BlackRock Holdco 6, LLC was indirectly held as to 90% by BlackRock, Inc.. BlackRock Holdco 6, LLC held its interests in the Company
through its direct or indirect wholly-owned companies as follows:
(5.3.1)
BlackRock Fund Advisors held 120,019,888 H shares (long position) in the Company.
(5.2.9) BlackRock Life Limited held 6,301,655 H shares (long position) in the Company.
(5.3.2)
BlackRock Institutional Trust Company, National Association held 56,848,976 H shares (long position) and 264,000 H shares
(short position) in the Company.
Changes in
Type of
shareholders
Serial No. Name of shareholders
Percentage of
Number of
shares subject
Shares held
at the end
1972.4
Citigroup Inc. was deemed to hold a total of 271,099,470 H shares (long position) and 2,122,841 H shares (short position) in the Company by
virtue of its control over a number of companies.
The equity interests and short positions of Citigroup Inc. in the Company included a lending pool of 240,423,406 H shares. Besides, 9,195,772
H shares (long position) and 1,279,258 H shares (short position) were held through derivatives as follows:
BlackRock Fund Managers Limited held 9,288,613 H shares (long position) in the Company.
500,000 H shares (long position) and 500,000 H shares (short position)
734,272 H shares (long position) and 292,758 H shares (short position)
7,961,500 H shares (long position) and 486,500 H shares (short position)
the reporting
(5.2.8)
BlackRock Investment Management (Australia) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
1,168,000 H shares (long position) in the Company.
BlackRock Investment Management (UK) Limited held 15,043,907 H shares (long position) in the Company.
(5.1)
(5.2)
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:
(5.1.1) BlackRock Japan Co., Ltd. (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 2,850,418 H shares (long
position) in the Company.
(5.1.2)
(5.1.3)
(5.1.4)
BlackRock Asset Management Canada Limited held 577,000 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..
-through physically settled listed derivatives
-through physically settled unlisted derivatives
-through cash settled unlisted derivatives
BlackRock Asset Management North Asia Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
2,769,070 H shares (long position) in the Company.
(5.2.7) BlackRock Asset Management Deutschland AG held 241,731 H shares (long position) in the Company.
(5.1.5) BlackRock (Singapore) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 692,000 H shares (long
position) in the Company.
(5.2.1) BlackRock (Netherlands) B.V. held 560,500 H shares (long position) in the Company.
(5.2.2)
BlackRock Advisors (UK) Limited held 242,500 H shares (long position) in the Company.
(5.2.3) BlackRock International Limited held 772,498 H shares (long position) in the Company.
(5.3)
(5.2.4)
BlackRock Asset Management Ireland Limited held 28,798,784 H shares (long position) in the Company.
(5.2.5)
(5.2.6)
BLACKROCK (Luxembourg) S.A. held 10,720,292 H shares (long position) and 18,000 H shares (short position) in the
Company.
BlackRock Group Limited was held as to 90% by BR Jersey International Holdings L.P. (referred to in (5.1)). BlackRock Group Limited
held its interests in the Company through its direct or indirect wholly-owned companies as follows:
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 2018 as recorded in the register
required to be kept by the Company pursuant to Section 336 of the SFO.
5.6.2 Number of shareholders of preference shares and their shareholdings
92
(share)
50,000,000
(%)
to trading
moratorium
(share)
Shares
pledged or
100
frozen (share)
Unknown
person
As at the end of the reporting period, the shareholdings of the Company's top ten shareholders of domestic
preference shares (or their nominees) were as follows:
Annual Report 2018
V Changes in Shares and Information on Shareholders
Percentage of
shareholdings
China Merchants Bank
The Company is not aware of any affiliated relationship or action in concert among the above shareholders of preference shares and
the top ten shareholders of ordinary shares.
As the issuance is an offshore non-public issuance, the information listed in the register of shareholders of preference shares is the
information on the nominees of the placees.
The shareholdings of shareholders of preference shares are calculated based on the information listed in the register of shareholders
of preference shares maintained by the Company.
(4)
(3)
(2)
(1)
Notes:
shares
BlackRock, Inc. was deemed to hold a total of 263,574,754 H shares (long position) and 318,000 H shares (short position) in the Company (of
which 1,562,500 H shares (long position) and 204,000 H shares (short position) were held through cash settled unlisted derivatives) by virtue
of its control over a number of companies, which were all indirectly wholly-owned by BlackRock, Inc. except for the following:
"Percentage of shareholdings" represents the percentage of the number of offshore preference shares held by shareholders of
preference shares to the total number of offshore preference shares.
91
Number of
shares subject
Changes in
the reporting
period (share)
22
China Merchants Bank
V Changes in Shares and Information on Shareholders
Annual Report 2018
5.5 Issuance and listing of securities
During the reporting period, the Company did not issue new ordinary shares.
For details of the issuance and listing of preference shares of the Company, please refer to section 5.6 of this report.
During the reporting period, the Company did not have any corporate bonds listed on a stock exchange by way of
public issuance.
For the issuance of other bonds of the Company and its subsidiaries, please refer to Note 44 to the financial
statements.
The Company did not issue any internal staff shares.
5.6 Preference shares
Shares held
at the end
of the period
5.6.1 Issuance and listing of preference shares
Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 275,000,000
domestic preference shares on 22 December 2017. The domestic preference shares of the issuance have been listed
and traded on the integrated business platform of Shanghai Stock Exchange since 12 January 2018 (abbreviated
name of shares: "Zhao Yin You 1 (1)"; stock code: 360028; number of listed shares: 275,000,000). The total
proceeds from the issuance of the domestic preference shares amounted to RMB27.5 billion. The net proceeds of
RMB27,467,750,000, after deduction of the expenses relating to the issuance, has fully been used to replenish the
Company's additional Tier 1 Capital.
For details, please refer to the relevant announcement(s) published by the Company on the websites of Shanghai
Stock Exchange, Hong Kong Stock Exchange and the Company, respectively.
As at the end of the reporting period, the Company had a total of 13 shareholders of preference shares (or their
nominees), including 1 shareholder of offshore preference shares (or its nominee) and 12 shareholders of domestic
preference shares.
As at the end of the previous month (namely 28 February 2019) preceding the date for disclosure of this report, the
Company had a total of 13 shareholders of preference shares (or nominees), including 1 shareholder of offshore
preference shares (or nominees), and 12 shareholders of domestic preference shares.
As at the end of the reporting period, the shareholdings of the Company's top ten shareholders of offshore
preference shares (or their nominees) were as follows:
Type of
Serial No. Name of shareholder
1
The Bank of New York Depository
(Nominees) Limited
shareholder
Type of shares
Overseas legal Offshore preference
Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 50,000,000
non-cumulative perpetual offshore preference shares on 25 October 2017. The offshore preference shares of the
issuance were listed on Hong Kong Stock Exchange on 26 October 2017 (abbreviated name of shares: "CMB
17USDPREF"; stock code: 04614; number of listed shares: 50,000,000). The total proceeds from the issuance of the
offshore preference shares amounted to USD1.0 billion and, after deduction of the expenses relating to the issuance,
has fully been used to replenish the Company's additional Tier 1 Capital.
(5)
Non-Executive Director
China Merchants Bank
Annual Report 2018
Interest of controlled
corporation
477,903,500
4
10.41
1.89
China Merchants Union (BVI)
H
Long
Beneficial owner
477,903,500
4
10.41
1.89
Limited
BlackRock, Inc.
H
Long
Interest of controlled
263,574,754
5
5.74
Limited
Long
H
Verise Holdings Company
shareholdings
06
90
(4)
China Merchants Bank
Annual Report 2018
V Changes in Shares and Information on Shareholders
Percentage
of the
relevant class
Percentage
of total
1.05
Name of Substantial
of shares in
issued
ordinary
Shareholder
shares
position
Capacity
No. of shares
Notes
issue (%)
shares (%)
Class of Long/short
V Changes in Shares and Information on Shareholders
corporation
Interest of controlled
0.01
Notes:
(1)
(2)
(3)
For details of China Merchants Group Ltd. and its subsidiaries' interests in the Company, please refer to section 5.3 "Information on the
Company's largest shareholder".
Anbang Insurance Group Co., Ltd. was deemed to hold interests in a total of 2,704,596,216 A shares (long position) and 229,498,500
H shares (long position) in the Company by virtue of its control over Anbang Life, Anbang Insurance and Hexie Health.
JPMorgan Chase & Co. was deemed to hold interests in a total of 231,052,446 H shares (long position) and 2,037,902 H shares (short
position) in the Company by virtue of its control over a number of corporations.
The equity interests and short positions of JPMorgan Chase & Co. in the Company included a lending pool of 78,690,591 H shares. Besides,
5,890,835 H shares (long position) and 2,037,902 H shares (short position) were held through derivatives as follows:
1,982,835 H shares (long position) and 403,000 H shares (short position)
1,372,450 H shares (short position)
1,118,000 H shares (long position) and 262,452 H shares (short position)
2,790,000 H shares (long position)
-through physically settled listed derivatives
-through cash settled listed derivatives
-through physically settled unlisted derivatives
-through cash settled unlisted derivatives
Pagoda Tree Investment Company Limited was deemed to hold interests in the 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:
(4.1)
(4.2)
(4.3)
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 the 477,903,500 H shares in the Company held by China Merchants Union (BVI) Limited by virtue of
holding the 50% interest in China Merchants Union (BVI) Limited.
Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited. Therefore, CNIC Corporation Limited was deemed
to hold the 477,903,500 H shares in the Company which Verise Holdings Company Limited was deemed to hold.
Compass Investment Company Limited (referred to in (4)) 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 the 98.9% interest in CNIC Corporation Limited.
(4.4)
The 477,903,500 H shares referred to in (4) and (4.1) to (4.3) represented the same shares.
0.05
1.07
5.91
6
318,000
5
0.01
0.00
corporation
Citigroup Inc.
H
Long
Person having a security
4,500
Short
interest in shares
Interest of controlled
30,671,564
corporation
Long
Approved lending agent
240,423,406
Short
Interest of controlled
corporation
271,099,470
2,122,841 6
66
Long
to trading
moratorium
of the period
Type of shares
Former Independent Non-Executive Director
1955.6
Female
Pan Yingli
2011.7-2018.11
Former Independent Non-Executive Director
1949.5
2011.11-2018.11
Male
2014.11-2018.1
Former Non-Executive Director
No
1959.5
Male
Li Xiaopeng
2015.11-2018.1
Wong Kwai Lam
Former Vice Chairman
50.00
Fu Junyuan
2008.12-2019.2
Former Vice President
1960.7
Male
Zhu Qi
126.32
50,000
50.00
2016.6-2018.7
1964.3
Male
Male
2015.9-2019.2
Former Shareholder Supervisor
1961.5
Male
Former Employee Supervisor
No
341.54
85,000
Vice President
No
344.99
80,000
2014.7-present
Secretary of the Party Discipline Committee
1963.2
2015.1-2019.6
Xiong Liangjun Male
344.99
80,000
2013.12-2019.6
Vice President
1965.8
Male
Liu Jianjun
No
Wang Liang
Male
1965.12
2017.4-present
Member of the CPC Committee
1962.12
Male
Shi Shunhua
No
344.99
80,000
2017.4-present
Member of the CPC Committee
1962.10
Wang Jianzhong Male
2016.11-2019.6
Secretary of Board of Directors
No
342.99
80,000
Zhao Ju
Male
1964.11
Former Vice President
6.4 Current positions held by Directors and Supervisors in the
shareholders' companies
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
98
Mr. Jin Qingjun, External Supervisor of the Company, concurrently serves as a Director of Shenzhen Kondarl
(Group) Co., Ltd., and ceased to serve as a Director of Konka Group Co., Ltd..
Ms. Su Min, Non-Executive Director of the Company, ceased to serve as a Director of China Merchants
Innovative Investment Management Co., Ltd. and a Supervisor of China Merchants Capital Investments Co.,
Ltd..
Mr. Zhang Jian, Non-Executive Director of the Company, serves as the Chief Digital Officer of China
Merchants Group Ltd., and concurrently serves as a Director of China Merchants Innovative Investment
Management Co., Ltd., a Director of China Merchants Innovative Investment (International) Co. Ltd. (
À¯N\X(IA) ĦRA¬), a Director of China Merchants Innovative Investment General Partner
(International) Co. Ltd. (Û¥£¤#ÐÂ%(IA) ĦRA), the Chairman of the Board of Directors
of China Merchants China Direct Investments Limited, the Vice Chairman of China Merchants Capital
Investments Co., Ltd. and a Director of China Merchants RenHe Life Insurance Company Limited, and ceased
to serve as a Director of China Merchants Ping An AMC.
Name of Company
Mr. Hong Xiaoyuan, Non-Executive Director of the Company, ceased to concurrently serve as the Chairman
of China Merchants China Direct Investments Limited and the Vice Chairman of China Merchants Capital
Investments Co., Ltd..
Mr. Fu Gangfeng, Non-Executive Director of the Company, serves as the Vice Chairman of the Company and
concurrently serves as the Chairman of China Merchants Port Group Co., Ltd. and the Chairman of the Board
of Supervisors of China Merchants RenHe Life Insurance Company Limited.
6.
5.
4.
3.
2.
1.
Ms. Sun Yueying, Non-Executive Director of the Company, ceased to serve as the Chief Accountant of China
COSCO Shipping Corporation Limited and the Chairman of COSCO Finance Co., Ltd..
Title
Chairman
Name
Li Jianhong
Assistant General Manager
Chief Accountant
COSCO Shipping Financial Holdings Co., Limited
China Communications Construction Co., Ltd.
China Merchants Group Ltd.
Su Min
China Merchants Group Ltd.
Zhang Jian
China Merchants Group Ltd.
China Merchants Group Ltd.
Zhou Song
Hong Xiaoyuan
Chief Accountant
China COSCO Shipping Corporation Limited
Sun Yueying
Director and General Manager
China Merchants Group Ltd.
Fu Gangfeng
China Merchants Group Ltd.
6.3 Changes of information of Directors and Supervisors
period
For details of the above-mentioned matters, please refer to the relevant announcements published by the Company
on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
Mr. Xu Lizhong, a former Employee Supervisor, tendered his resignation letter to the Board of Supervisors of the
Company in July 2018 due to other work commitments. According to the resolutions passed at Worker's Congress of
the Company held on 18 July 2018, Mr. Wang Wanqing was newly elected as an Employee Supervisor of the Tenth
Session of the Board of Supervisors of the Company and Mr. Xu Lizhong ceased to be the Employee Supervisor of
the Company. In February 2019, Mr. Fu Junyuan resigned as a Shareholder Supervisor of the Company due to his
work engagements.
Notes:
No
No
Yes
No
No
을을 물을 을 을 을
(1)
174.77
Shares
pledged or
2012.6-2018.7
Former Executive Assistant President
1958.5
Male
Lian Bolin
2015.2-2019.2
70,000
(2)
(3)
(4)
In January 2018, Mr. Li Xiaopeng resigned as the Vice Chairman and Non-Executive Director of the Company due
to a change of work. In July 2018, the appointment of Mr. Fu Gangfeng as the Vice Chairman was approved by
the CBIRC. In October 2018, the appointment of Mr. Zhou Song as the Director was approved by the CBIRC. In
November 2018, the appointment of Mr. Li Menggang and Mr. Liu Qiao as the Independent Non-Executive Directors
was approved by the CBIRC. Mr. Wong Kwai Lam and Ms. Pan Yingli ceased to serve as Independent Non-Executive
Directors of the Company.
6.2 Appointment and resignation of Directors, Supervisors and senior
management
97
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
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.
(8)
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.
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 remunerations of other staff will be disclosed separately upon
confirmation of payment.
The remunerations 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 remunerations from CMB WLB, a subsidiary of the Company. Mr. Zhao Ju received his remunerations from China
Merchants International Finance Company Limited, a subsidiary of the Company.
There was a change in the shareholdings of Mr. Tian Huiyu, Mr. Li Hao, Mr. Liu Yuan, Mr. Wang Wanging, Ms. Huang Dan, Mr. Tang Zhihong,
Mr. Liu Jianjun, Mr. Xiong Liangjun, Mr. Wang Liang, Mr. Wang Jianzhong, Mr. Shi Shunhua, Mr. Xu Lizhong and Mr. Lian Bolin during the
reporting period, which was due to an increase in their respective shareholdings. The spouse of Mr. Zhou Song held 23,282 A Shares in the
Company.
As the term of office of Mr. Pan Chengwei expired in July 2018, the Company is in the process of selecting the candidate for a new
independent director to take up the position of Mr. Pan Chengwei. Pursuant to the relevant requirements of the "Guiding Opinions on
Establishing the Independent Director System in Listed Companies" ( (HELIA£ÙƒÙ‡‡ƒ£), not less than one
third of the total numbers of directors shall be independent directors in a listed company. Therefore, Mr. Pan Chengwei will continue to fulfill
his duties until the new independent director takes office.
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.
(7)
(6)
(5)
In July 2018, Mr. Lian Bolin ceased to be the Executive Assistant President of the Company due to the age limit. In
February 2019, Mr. Zhu Qi and Mr. Zhao Ju resigned as the Executive Vice President of the Company due to other
business commitment. In February 2019, the Board of Directors of the Company appointed Mr. Wang Jianzhong
and Mr. Shi Shunhua as the Executive Vice President of the Company, and their qualifications as the Executive Vice
President are subject to the approval by the CBIRC.
thousand)
(share)
(share)
4.17
4.17
50.00
50.00
50.00
50.00
2014.8-2019.6
90,000
1962.1
Liu Yuan
Chairman of Board of Supervisors,
2018.11-2019.6
Independent Non-Executive Director
1970.5
Male
Liu Qiao
Male
386.99
24 4 4 4 4 2 2 2 2 2 2 2
No
2016.6-2019.6
Shareholder Supervisor
1962.10
Male
Wen Jianguo
Employee Supervisor
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
2018.11-2019.6
Wu Heng
Independent Non-Executive Director
Male
Male
Wang Daxiong
2014.9-2019.6
Non-Executive Director
Female 1968.2
Su Min
2016.11-2019.6
1960.12
Non-Executive Director
Male
Zhang Jian
2007.6-2019.6
Non-Executive Director
1963.3
Hong Xiaoyuan Male
2018.10-2019.6
1964.10
Non-Executive Director
2016.11-2019.6
Leung Kam
Li Menggang
2017.2-2019.6
Independent Non-Executive Director
1953.6
Wong See Hong Male
2015.1-2019.6
Independent Non-Executive Director
Male 1962.9
Zhao Jun
2012.7 (note 2)
Independent Non-Executive Director
2015.1-2019.6
Independent Non-Executive Director
1952.1
1946.2
Pan Chengwei Male
Chung, Antony
Male
1967.4
Director of the Executive Committee of the China
Merchants Financial Group/Platform
Male
Shareholder Supervisor
reporting
at the
beginning
Shareholding
Shareholding
at the
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
of the
96
No
No
No
z z z z zZÁÁ
341.54
80,000
2006.5-2019.6
No
end of
period
Date of Birth
Term of office
Title
(Y/M)
Gender
Name
during the
reporting
the Company
related
parties of
from the
received
remunerations
the Company
during the
having
Aggregate
pre-tax
remunerations
received from
Whether
(RMB ten
the period
period
Vice President
1976.8
1960.3
Tang Zhihong
External Supervisor
1956.6
Male
Ding Huiping
40.00
65,800
65,800
2016.6-2019.6
2014.10-2019.6
1957.8
Male
Jin Qingjun
Yes
Yes
No
2016.6-2019.6
External Supervisor
40.00
Han Zirong
Male
224.45
45,000
2015.3-2019.6
Employee Supervisor
1966.6
Female
Huang Dan
176.23
60,000
2018.7-2019.6
Employee Supervisor
1964.9
Wang Wanging Male
40.00
2016.6-2019.6
External Supervisor
1963.7
Male
Chief Digital Officer
Xu Lizhong
of the China Merchants Financial Group/Platform
General Manager of China Merchants Finance Holdings
Chairman
Executive Director and Chief Financial Officer
reporting
of the
end of
Date of Birth
period
the period
Name
Gender
(Y/M)
Title
Term of office
(share)
(share)
(RMB ten
thousand)
Aggregate
pre-tax
remunerations
during the
period
having
received
remunerations
from the
related
parties of
the Company
during the
reporting
period
Chairman
at the
2014.8-2019.6
Shareholding
the Company
"Percentage of shareholdings" represents the percentage of the number of domestic preference shares held by shareholders of
preference shares to the total number of domestic preference shares.
5.6.3 Dividend distribution of preference shares
In accordance with the relevant requirements under the "Resolution Regarding the Plan for the Non-public
Issuance of Offshore Preference Shares of the Company", which was considered and approved at the 2016 annual
general meeting, the first class meeting of the shareholders of A Shares for 2017 and the first class meeting of
the shareholders of H Shares for 2017, the Company fully paid the dividends for offshore preference shares on 25
October 2018, which was in compliance with the relevant distribution conditions and distribution procedures.
The dividends for offshore preference shares of the Company are paid once a year in cash. The offshore preference
shares adopt non-cumulative dividend payment method. After the dividends are distributed to the offshore
preference shareholders in accordance with the agreed dividend rate, these shareholders will not participate in
the remaining profit distribution with the ordinary shareholders. Pursuant to the relevant terms of the offshore
preference shares, the dividend rate per annum of the offshore preference shares is 4.40% (excluding tax, i.e., the
actual dividend yield to be received by the holders of the preference shares is 4.40%). According to relevant laws
and regulations, the Company shall withhold an income tax at a rate of 10% when distributing the dividends for the
offshore preference shares to the offshore non-resident enterprises. According to the terms and conditions of the
offshore preference shares, the Company is responsible to pay relevant income tax. Total amount of the proceeds
from the issuance of the Company's offshore preference shares was USD1 billion, the total amount of dividends for
the offshore preference shares is USD48,888,888.89, comprising of USD44,000,000.00 which was actually paid to
the holders of the offshore preference shares, and the withholding tax amounted to USD4,888,888.89.
93
94
China Merchants Bank
Annual Report 2018
V Changes in Shares and Information on Shareholders
In accordance with the relevant requirements under the "Resolution Regarding the Plan for the Non-public Issuance
of Domestic Preference Shares of the Company", which was considered and approved at the 2016 annual general
meeting, the first class meeting of the shareholders of A Shares for 2017 and the first class meeting of the
shareholders of H Shares for 2017, the Company fully paid the dividends for domestic preference shares on 18
December 2018, which was in compliance with the relevant distribution conditions and distribution procedures.
The dividends for domestic preference shares of the Company are paid once a year in cash. The domestic preference
shares adopt non-cumulative dividend payment method. After the dividends are distributed to the domestic
preference shareholders in accordance with the agreed dividend rate, these shareholders will not participate in
the remaining profit distribution with the ordinary shareholders. Pursuant to the terms of dividends payment for
domestic preference shares, based on the dividend rate of 4.81% for domestic preference shares, the dividends per
preference share paid were RMB4.81 (including tax), and based on 275 million of domestic preference in issue, the
total amount of the dividends paid was RMB1,322.75 million (including tax).
For the details of dividend distribution for domestic and offshore preference shares, please refer to the relevant
announcements published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Stock
Exchange and the Company on 10 December 2018 and 15 October 2018, respectively.
5.6.4 Repurchase or conversion of preference shares
During the reporting period, there had been no repurchase and conversion of preference shares.
5.6.5 Restored voting rights of preference shares
During the reporting period, the voting rights of the Company's domestic and offshore preference shares in issue
had not been restored.
5.6.6 Accounting policies for preference shares and the reason of
adoption
The Company made accounting judgments over its preference shares then issued and outstanding in accordance
with the requirements of the relevant accounting principles, including the "International Financial Reporting
Standard 9-Financial Instruments" and the "International Financial Reporting Standard 7-Financial Instruments:
Disclosures" promulgated by International Accounting Standards Board. As the preference shares issued and
outstanding of the Company carry no obligation to deliver cash and cash equivalents, nor have they any contractual
obligations to deliver a variable number of its own equity instruments for settlement, they were therefore measured
as equity instruments.
China Merchants Bank
Annual Report 2018
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
95
Directors, Supervisors, Senior Management,
Employees, and Organisational Structure
6.1 Directors, Supervisors and senior management
Whether
received from
Shareholding
at the
beginning
Li Jianhong
Male
1956.5
Male
1959.3
2007.6-2019.6 (note 1)
100,000
428.99
Vice President and Chief Financial Officer
Zhou Song
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 serves as the Director of China Merchants Holdings (Hong Kong) Company Limited and the
Assistant General Manager of China Merchants Group Ltd., the Director (Executive) of the Executive Committee of
the China Merchants Financial Group/Platform and the Chairman and CEO of China Merchants Finance Holdings
Company Limited. He concurrently serves as the Chairman of China Merchants Finance Investment Holdings Co.,
Ltd., Shenzhen CMB Qianhai Financial Assets Exchange Centre Co., Ltd. (H£ÌᶤÈÌ9+Ù¤®^=),
China Merchants United Development Company Limited and China Merchants Innovative Investment Management
Co., Ltd., and the Director of China Merchants RenHe Life Insurance Co,. Ltd.. He served as the Chairman of
China Merchants China Direct Investments Limited (a company listed on Hong Kong Stock Exchange), and the Vice
Chairman of China Merchants Capital Investments Co., Ltd..
Mr. Zhou Song is a Non-Executive Director of the Company. He obtained a master's degree of World Economics
in Wuhan University. Mr. Zhou is the Chief Accountant of China Merchants Group Ltd., the Chairman of China
Merchants Capital Investment Co., Ltd, the Chairman of Shenzhen China Merchants Ping An Asset Management
Co., Ltd. (ÒRÀ¥ÌÂÌ®ŒÃ) and the Chairman of China Merchants Finance Co., Ltd. (
BODYMOR). He was the Deputy General Manager of the Planning and Finance Department of the Head
Office of China Merchants Bank, the Vice President at Wuhan Branch, the Deputy General Manager (in charge of
work) and General Manager of the Planning and Finance Department of the Head Office, the Employee Supervisor
of China Merchants Bank, the Business Director and General Manager of the Assets and Liabilities Management
Department of the Head Office, the President of Interbank Financial Department, the General Manager of the
Assets Management Department of the Head Office and the Business Director of the Head Office, the President of
Investment Banking and Financial Market Department, the General Manager of the Assets Management Department
of the Head Office and the Business Director of the Head Office.
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 concurrently serves as the Chairman of CMFM and the Vice Chairman of Shenzhen CMB Qianhai
Financial Asset Exchange Co., Ltd. (Þ£££È`¯+), the Vice Chairman of CMB Wing
Lung Bank, 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.
A) and the Chairman of COSCO Finance Co., Ltd..
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 Chairman of COSCO SHIPPING Development Co., Ltd. (a company listed on Hong Kong Stock
Exchange and Shanghai Stock Exchange) and the Chairman of COSCO SHIPPING Finance Company Limited (+
D¶¶¶ƒÂ®¤). She was the Chief Accountant of China COSCO Shipping Corporation Limited (+
Mr. Tian Huiyu is an Executive Director, President and Chief Executive Officer of the Company. He obtained a
bachelor's degree in Infrastructure Finance and Credit from Shanghai University of Finance and Economics and a
master's degree in Public Administration from Columbia University. He is a senior economist. He is concurrently
the Chairman of CMB Wing Lung Bank, the Chairman of CMBIC, 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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
99
99
Mr. Fu Gangfeng is the Vice Chairman and 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 Director and General Manager of China Merchants Group Ltd.. He concurrently serves as the
Chairman of China Merchants Port Group Company Limited (¯€¯±ª®) (a company listed on
Shenzhen Stock Exchange) and the Executive Director and Chairman of the Board of Directors of China Merchants
Port Holdings Company Limited (a company listed on Hong Kong Stock Exchange), and the Chairman of the Board
of Supervisors of China Merchants RenHe Life Insurance Co., Ltd.. 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., the General Manager of
the Finance Division of China Merchants Group Ltd. and the Chief Financial Officer and Chief Accountant of China
Merchants Group Ltd. and the Vice Chairman of China Merchants Shekou Industrial Zone Holdings Co., Ltd. (
蛇口工業區控股股份有限公司).
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 and is a senior economist. He is the Chairman of China Merchants Group Ltd. and concurrently
serves as the Chairman of China Merchants RenHe Life Insurance Co., Ltd.. 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 Port Holdings Company Limited (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.
Directors
6.5 Biography of Directors, Supervisors and senior management and
information of their concurrent posts
From July 2009 up to now
From May 2015 up to now
Deputy Director of the Executive Committee
of the China Merchants Financial Group/Platform
Deputy Director of the Executive Committee
Li Hao
Executive Director, First Executive
Yes
2001.4-2019.6
Yes
Non-Executive Director
2014.7-2019.6
Vice Chairman
2018.7-2019.6
Fu Gangfeng
Male
1966.12
Yes
Non-Executive Director
2010.8-2019.6
China National Tobacco (Henan Province) Company, China National Tobacco (Sichuan Province) Company, China National Tobacco
(Anhui Province) Company and China National Tobacco (Liaoning Province) Company are all wholly-owned subsidiaries of China
National Tobacco Corporation. Save for the above, the Company is not aware of any affiliated relationship or action in concert
among the above shareholders of preference shares or between the above shareholders of preference shares and the Company's top
ten shareholders of ordinary shares.
Executive Director
Tian Huiyu
Male
1965.12
110,000
468.99
President and Chief Executive Officer
2013.9-2019.6
Sun Yueying
Female
1958.6
Non-Executive Director
2013.8-2019.6
The shareholdings of preference shareholders are calculated based on the information listed in the register of shareholders of
preference shares maintained by the Company.
No
(2)
State-owned legal Domestic preference
30,000,000
10.91
person
shares
3
BOC Asset Management Co., Ltd.
Others
Domestic preference
25,000,000
9.09
(中銀資產管理有限公司)
shares
China National Tobacco
State-owned legal Domestic preference
20,000,000
7.27
(Henan Province) Company
person
shares
4
Ping An Property & Casualty
Others
CCB Trust Co., Ltd.
Domestic preference
2
person
Wang Daxiong
Fu Junyuan
Wen Jianguo
Wu Heng
Hebei Port Group Co., Ltd.
SAIC Motor Corporation Limited
Director and Chief Accountant
Deputy General Manager of Finance Department
(3)
From July 2014 up to now
From February 2018 up to now
From January 2016 to August 2018
From October 2018 up to now
From September 2011 up to now
From June 2018 up to now
From January 2019 up to now
From June 2018 up to now
From June 2018 up to now
From September 2015 up to now
From May 2016 up to now
From September 2006 to
September 2018
period (share)
(share)
(%)
(share)
frozen (share)
1
China Mobile Communications
Group Co., Ltd.
State-owned legal
Domestic preference
106,000,000
38.55
shares
20,000,000
Term of Office
Insurance Company of China, Ltd.
10,000,000
3.64
Corporation, Guangdong Branch
person
shares
10
China National Tobacco
(Liaoning Province) Company
Changjiang Pension Insurance
Co., Ltd.
(1)
State-owned legal Domestic preference
shares
5,000,000
State-owned legal Domestic preference
1.82
State-owned legal Domestic preference
shares
5,000,000
1.82
China Resources SZITIC Trust
Co., Ltd.
State-owned legal Domestic preference
5,000,000
1.82
person
shares
Notes:
7.27
person
China Construction Bank
person
shares
shares
9
China Everbright Bank
Others
Domestic preference
19,000,000
6.91
Company Limited
shares
China National Tobacco
State-owned legal Domestic preference
15,000,000
5.45
(Sichuan Province) Company
person
6
shares
7
China National Tobacco
person
State-owned legal Domestic preference
15,000,000
5.45
(Anhui Province) Company
Wenzhou Branch
35,551
101,645
325000
13
544
30,839
Nantong Branch
111 Gongnong Road, Nantong
741
18
1-3/F, Block 2, 4, 5, Hongshengjin Garden, Wuqiao
Avenue, Lucheng District, Wenzhou
Bohai Rim
1,805
28
Hangzhou Branch
23 Hangda Road, Hangzhou
310007
74
2,671
155,715
Ningbo Branch
342 Min'an East Road, Ningbo
1,313
315042
1,174
64,344
Suzhou Branch
Wuxi Branch
36 Wansheng Street, Industrial Park, Suzhou
215028
29
6-107, 6-108 1st Financial Street, Binhu District,
Wuxi
214001
31
Beijing Representative
Office
Beijing Branch
13 537
100045
255 Guangdong Road and 9 Qianjin Road, Hexi
District, Tianjin
300201
24
99
4,853
304,705
1,586
45,937
44
1,790
78,227
Jinan Branch
7 Gongqingtuan Road, Jinan
250012
59
Tianjin Branch
26/F, Building 3, No.1 Yuetan South Street, Xicheng
District, Beijing
159,709
66 Zhujiang Road, Economic & Technological
Development Area, Yantai
226007
65,742
23,139
19
156 Fuxingmen Nei Dajie, Xicheng District, Beijing
100031
Qingdao Branch
65 Hai'er Road, Laoshan District, Qingdao
266103
49
Shijiazhuang Branch
Tangshan Branch
14,069
541
19
264006
Yantai Branch
2,894
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 organizational
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".
210005
CMB Research Institute
Legal Compliance Department
Inspection Department
Audit Department
Information Technology Department
Operation Management Department
Asset Security Department
7088 Shennan Boulevard, Shenzhen
686 Lai'an Road, Pudong New District, Shanghai
Credit Card Center
Head Office
million)
Staff
branches
Postal code
Business address
Operational Risk Management Department#
Name of branches
Market Risk Management Department#
Pre-warning Center#
172 Zhonghua Street South, Shijiazhuang
45 Beixin Road West, Lubei District, Tangshan
*independent secondary department
Note #secondary department
Banking Department
Representative Offices (Beijing, Shanghai,
United States of America, London, Taipei)
Administration Department
Labor Union of the Head Office
Training Center
Anti-money Laundering Management Center#
Security Department#
Data Center#
Testing Center#
Research and Development Center#
Operation Center#
Special Assets Operating Center#
Loan Approval Center#
80
Regions
Head Office
No. of
Yangtze River Delta
Shanghai Branch
1088 Lujiazui Ring Road, Pudong New District,
Shanghai
200120
96
4,834
183,406
Shanghai Pilot Free Trade
Zone Branch
6 Jilong Road, Waigaoqiao Bonded Area, Pudong
New District, Shanghai
200131
1 43
23,260
Nanjing Branch
199 Lushan Road, Jianye District, Nanjing
547,567
(RMB
6,327
201201
No. of
assets
Volume of
The following table sets forth the branches and representative offices as at the end of the reporting period:
During the reporting period, the Company continued to push forward expansion of its branch network. The Company
was approved to establish Sanya Branch (second-level), and Zhoushan Branch (second-level) in Zhejiang Pilot Free
Trade Zone.
6.8 Branches and representative offices
107
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
The Company has formulated a categorised professional staff training system covering all its staff, and established
the college education for medium-to-long term cultivation of talents, and short-term training and diversified
education, aiming at promptly improving its staff's competence. 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 and education programs.
Staff education and training program
518040
1
4,804
2,646,099
1
050000
3,223
063000
Total
38
6,362
8,424
15,584
2 42
29
1
1,822
45
18/F, 20 Fenchurch Street, London, UK
L39, GPT, 1 Farrer Place, Sydney, NSW
London Branch
Sydney Branch
Other assignments
43
1
L-2449
20 Boulevard Royal, L-2449 Luxembourg
2
1
1
74,590
China Merchants Bank
Strategic Customers Department
Finance
General Office of Corporate
Procurement Management Department#
Financial Accounting Department
Investment Management Department#
Assets and Liabilities Management Department
the Protection of Customer Interests#
6,347,615
Strategic Planning and Implementation Department
General Office
Office of Board of Supervisors
Office of the Board of Directors
6.9 The Company's organisational structure:
Supervision and Management Center for
Annual Report 2018
109
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Human Resources Department
Institutional Customers Department
333, Section 1, Jilong Road, Xinyi District, Taipei
1
50
250
1
12 Harcourt Road, Central, Hong Kong
Hong Kong Branch
Outside Mainland
China
10,450
265
155,201
10
4 Xinning Road, Chengxi District, Xining
Xining Branch
12,873
404
16
750001
138 Beijingzhong Road, Jinfeng District, Yinchuan
Yinchuan Branch
810000
Taipei Representative
Office
Luxembourg Branch
USA Representative Office
New York, U.S.A
1
13,081
50
1
048616
1 Raffles Place, Tower 2, #32-61, Singapore
18/F, 20 Fenchurch Street, London, UK
London Representative
Office
Singapore Branch
23rd Floor, 535 Madison Avenue,
41,750
1
10022
New York, U.S.A
23rd Floor,535 Madison Avenue,
New York Branch
1
1
10022
131
18,892
Financial Institutions Department
Transaction Banking Department
China Merchants Bank
Annual Report 2018
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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 is a Deputy General Manager of Finance Affairs Department of SAIC Motor Corporation Limited,
and General Manager of SAIC Motor Financial Holding Management Co., Ltd.. He consecutively 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 consecutively served as
a Division Head, Assistant to Executive Controller and concurrently a 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, and
concurrently serving as a Director and General Manager of Huayu Automotive Systems (Shanghai) Co., Ltd. (
()) during the period from May 2014 to May 2015.
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. He is concurrently the senior partner of King & Wood
Mallesons, Beijing and a part-time professor at the School of Law in both China University of Political Science and
Law and 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), Bank
of Tianjin Co., Ltd. (a company listed on Hong Kong Stock Exchange), Guotai Junan Securities Co., Ltd. (a company
listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), CSG Holding Co., Ltd. (a company listed on
Shenzhen Stock Exchange), Times China Holdings Limited (a company listed on Hong Kong Stock Exchange), Zhong
Fa Zhan Holdings Limited (a company listed on Hong Kong Stock Exchange), Shenzhen Asiantime International
Construction Co., Ltd. (a company listed on Shenzhen Stock Exchange), Invesco Great Wall Fund Management
Company Limited as well as a director of Shenzhen Kondarl (Group) Co., Ltd. (a company listed on Shenzhen Stock
Exchange). He once served as an Independent Director of China International Marine Containers (Group) Co., Ltd. (a
company listed on Hong Kong Stock Exchange and Shenzhen Stock Exchange), New China Asset Management Co.,
Ltd., Xi'an Dagang Road Machinery Co., Ltd. (a company listed on Shenzhen Stock Exchange), Tianjin Changrong
Print and Packing Equipment Co., Ltd. (a company listed on Shenzhen Stock Exchange) and Gemdale Corporation
(a company listed on Shanghai Stock Exchange) as well as a Director of Konka Group Co., Ltd. (a company listed on
Shenzhen Stock Exchange).
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), 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), China International Marine Containers (Group) Ltd. (a company
listed on Hong Kong Stock Exchange and Shenzhen Stock Exchange) and China Merchants Securities Co., Ltd. (a
company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange). He 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 a partner of Shu Lun Pan Hong
Kong CPA Limited, and has concurrently been an External Supervisor of Bank of Chengdu Corporation Limited (a
company listed on Shanghai Stock Exchange) and an Independent Director of 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 Director in Accounting Firm of Shenzhen Audit
Bureau (†). He served as a managing partner of Shenzhen Finance Accounting Firm (
D) from October 1997 to October 2008. He served as a senior partner of Daxin Certified Public
Accountants from October 2008 to October 2012.
103
104
Mr. Wen Jianguo is a Shareholder Supervisor, a university graduate and an accountant. He is a Director and Chief
Accountant of Hebei Port Group Co., Ltd. (¯) and concurrently 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 served as a Shareholder Supervisor of the
Company from June 2010 to May 2013.
China Merchants Bank
Annual Report 2018
Mr. Wang Wanqing is an Employee Supervisor of the Company. Mr. Wang obtained a bachelor's degree in Chinese
Language & Literature from Anhui University. Mr. Wang currently serves as the Business Director of the Head Office
and the General Manager of the Audit Department of the Company. He is concurrently the executive member of
the China Institute of Internal Audit. Mr. Wang started his career in Anhui University in July 1986. He worked in
the General Office in Anhui Province from November 1991 to February 2001. From February 2001 to April 2007, he
successively served as the Head, Assistant President and Vice President of the Hefei Branch of the Company. From
April 2007 to August 2012, he served as the General Manager of the Human Resources Department at the Head
Office of the Company and the Deputy Director of the Labour Union. From September 2012 to March 2014, he
served as the Business Director of the Head Office of the Company, the General Manager of the Human Resources
Department and the Deputy Director of the Labour Union. He has been an Employee Supervisor of the Company
since July 2018.
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 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 the Company 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 the Company from April 2005 to December 2014. She has been an
Employee Supervisor of the Company since March 2015.
Senior management
Mr. Tian Huiyu, please refer to Mr. Tian Huiyu's biography under the paragraph headed "Directors" above.
Mr. Liu Yuan, please refer to Mr. Liu Yuan's biography under the paragraph headed "Supervisors" above.
Mr. Li Hao, please refer to Mr. Li Hao's biography under the paragraph headed "Directors" above.
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. He concurrently serves as a Director of Asian Financial
Cooperation Association.
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 Director of the Credit Card Center of the Company, the Chairman of CIGNA
& CMB Life Insurance and a Director of China UnionPay Co., Ltd. and a member of Visa Asia Pacific Senior Advisory
Council.
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.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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 concurrently, 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.
Company since August 2014.
Mr. Liu Yuan is the Chairman of the Board of Supervisors of the Company and an Employee Supervisor. Mr. Liu
obtained a bachelor's degree in Global Economy from Renmin University of China and is a senior economist. 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 (ξ**NEA). 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 (¤†¬Î¯) of State Administration of Foreign
Exchange from October 1991 to February 1994. He held the positions of Secretary of the General Office (
100
China Merchants Bank
Annual Report 2018
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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 Chief Digital Officer of China
Merchants Group Ltd., General Manager of Finance Department, the Deputy Director (Executive) of the Executive
Committee of the China Merchants Financial Group/Platform and the Deputy General Manager of China Merchants
Finance Holdings Co., Ltd.. He concurrently serves as a Director of China Merchants RenHe Life Insurance Company
Limited, a Director of China Merchants Innovative Investment Management Co., Ltd., a Director of China Merchants
Innovative Investment (International) Co., Ltd. ( (IX) ĦRA), a Director of China Merchants
Innovation Investment General Partnership (International) Co., Ltd. (ĦRX#ŒAB (IA) ĦRA¬]), a
Director of Shi Jin Shi Credit Service Co., Ltd. (¯¯®2), a Director of Siyuanhe Equity Investment
Management Co., Ltd. (£#£ŒÎ£OR), a Director of Shenzhen CMB Qianhai Financial Asset
Exchange Co., Ltd., the Chairman of China Merchants Financial Technology Co., Ltd. (2), the
Chairman of the Board of Directors of China Merchants China Direct Investments Limited and the Vice Chairman
of China Merchants Capital Investments Co., Ltd.. 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), Business Director and General Manager of the Corporate Banking
Department at the Head Office of China Merchants Bank, 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, and a Director of China
Merchants Insurance Holdings Co., Ltd. (RĦRA) and China Merchants Ping An Asset Management
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. She is
the Deputy Director (Executive) of the Executive Committee of the China Merchants Financial Group/Platform and
the General Manager of China Merchants Finance Holdings Co., Limited. She concurrently serves as a Director
of China Merchants Securities Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock
Exchange). She successively served as the Deputy Director of Property Office of the State-owned Assets Supervision
and Administration Commission of Anhui Province, a Director of Huishang Bank, 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 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). She served as a Director of China Merchants Innovation Investment Management Co., Ltd. (
Â¥¤¤¥£ÁR) and a Supervisor of China Merchants Capital Investments Co., Ltd..
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. He is a senior accountant. He is the Chairman of COSCO Shipping Financial Holdings Co.,
Ltd, the Executive Director and Chief Executive Officer of COSCO SHIPPING Development Co., Ltd. (a company
listed on Hong Kong Stock Exchange and Shanghai Stock Exchange). He concurrently serves as a Director of China
Merchants Securities Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange), the
Chairman of COSCOSHIPPING Capital Insurance Co., Ltd. (ÉRAR) and a Vice Chairman
of New China COSCO Financial Holdings Limited (R2). 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.
China Merchants Bank
Annual Report 2018
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
), researcher of the regulatory office I of the banking division (í), head of the regulatory
office III of the banking regulatory division II (£ƒ¯¯¯¯) and head of the regulatory office VII of the
banking regulatory division II (í¬K¥=¬K¥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 (‹ƒ£=±1) of the CBRC,
director of CBRC Shanxi Bureau, director of CBRC Shenzhen Bureau, head of the Banking-related Case Audit Bureau
(£1¯**1*) of the CBRC and head of the Banking-related Consumer Protection Bureau (Rí¯☀☀⠀¾
) of the CBRC from July 2003 to July 2014. He has been the Chairman of the Board of Supervisors of the
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. He also attended Harvard Business School's
Program for Management Development and Advanced Management Program. He is the Chairman and Chief
Executive Officer of Nan Fung Group, the Chairman and co-founder of New Frontier, and the Chairman of two
charitable organizations, Heifer - Hong Kong and "Food Angel". 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.
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. (ê¤å¤¬), EC World Asset Management Private Limited and an
Independent Director of Tahoe Life Insurance Company Limited. He previously served as the Deputy Chief Executive
of BOCHK, head of ABN AMRO Bank for the Southeast Asia region, Managing Director and President for the
Southeast Asia region, and the head of the Financial Market Department in Asia (P), 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 (
坡總理辦公室公務員學院), Client Consulting Commission of Thomson Reuters (Thomson Reuters客戶諮詢委員會) and
Financial Management Commission of the Hong Kong Administration Society (€£?@!¾¢¤§Ãª).
101
102
China Merchants Bank
Annual Report 2018
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Li Menggang is an Independent Non-Executive Director of the Company. He obtained a Ph.D. in Economics and
a double post-doctoral degree in Transportation and Communication Engineering and Theoretical Economics from
Beijing Jiaotong University. He has been serving as a professor and doctoral supervisor at Beijing Jiaotong University,
the Joint Dean of the National Academy of Economic Security (NAES) of Beijing Jiaotong University, the Director of
Beijing Laboratory of National Economic Security Pre-Warning Project, the Chief Expert of Major Bidding Projects of
the National Social Science Fund, the Project Review Expert of the National Social Science Fund, the Chairman of the
Professional Committee of the Logistics Informatization and Industrial Security System of the Institute of Electrical
and Electronics Engineers (IEEE) and a special economic analyst of Xinhua News Agency. He concurrently serves
as the Vice President and the Deputy Director of the Expert Committee of China Human Resource Development
Association, the Deputy Director of the Independent Board Committee of China Association for Public Companies,
an Independent Director of Daqin Railway Co., Ltd. (a company listed on Shanghai Stock Exchange) and Hunan
Copote Science & Technology Co., Ltd. (a company listed on Shanghai Stock Exchange). He served as an Independent
Director of Sichuan Golden Summit (Group) Joint-stock Co., Ltd. (a company listed on Shanghai Stock Exchange) and
an Independent Non-Executive Director of Yuxing InfoTech Investment Holdings Limited (a company listed on Hong
Kong Stock Exchange).
Mr. Liu Qiao is an Independent Non-Executive Director of the Company. He obtained a bachelor of science degree in
Economics and Mathematics from Renmin University of China, a master's degree in Economics from the Institute of
Finance of People's Bank of China and a Ph.D. in Economics from University of California, Los Angeles in the United
States and is a distinguished professor () of Changjiang Scholars Program. He has been serving as the Dean
at the Guanghua School of Management of Peking University, professor of Finance and Economics and doctoral
supervisor. He is also a member of the 17th Session of the Public Offering Review Committee of the CSRC and the
expert panel of the Shenzhen Stock Exchange; an advisor of the post-doctoral stations of the CSRC, the Shenzhen
Stock Exchange, the China Financial Futures Exchange and China Minsheng Banking Corp., Ltd. etc., the Vice
Chairman of the China Enterprise Reform and Development Society (+), an Independent
Non-Executive Director of CSC Financial Co., Ltd. (a company listed on Hong Kong Stock Exchange), an Independent
Non-Executive Director of ZH International Holdings Limited (a company listed on Hong Kong Stock Exchange) and
an Independent Director of Beijing Capital Co., Ltd. (a company listed on Shanghai Stock Exchange). Mr. Liu served
as an assistant professor at School of Economics and Finance of the University of Hong Kong, a consultant of the
Asia-Pacific Corporate Finance & Strategy Practice of McKinsey & Company and an assistant professor and associate
professor (with tenure) at the Faculty of Business and Economics of the University of Hong Kong.
Supervisors
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 an Independent
Non-Executive Director of China International Marine Containers (Group) Co., Ltd. (a company listed on Hong
Kong Stock Exchange and the Shenzhen Stock Exchange). 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
COSCOHK 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.
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, a master's degree in Financial Management from the School of Management of Yale
University, and an EMBA in PBC School of Finance of Tsinghua University. Mr. Zhao is currently the Chairman of
Beijing Fellow Partners Investment Management Ltd.. He concurrently serves as the Independent Non-Executive
Director of Bright Scholar Education Holdings Limited (a company listed on New York Stock Exchange) and the
Independent Non-Executive Director of Sichuan Xunyou Network Technology Co., Ltd. (||EBSOB
A), a company listed on the Shenzhen Stock Exchange. He was a Managing Partner of DT Capital Partners, the
Managing Director and the Chief Representative in China of ChinaVest, Ltd..
Small Enterprises Finance Department
China Merchants Bank
Annual Report 2018
Mr. Wang Jianzhong is a member of the CPC Committee of the Company. He obtained a bachelor's degree in
Accounting from Dongbei University of Finance and Economics and is an assistant economist. Mr. Wang joined
the Company in November 1991 and successively served as the General Manager of Changsha Branch, the Deputy
General Manager of Corporate Banking Department of the Head Office, the General Manager of Foshan Branch, the
General Manager of Wuhan Branch, the Business Director of General Office of Corporate Finance Group of the Head
Office and the General Manager of Beijing Branch of the Company since October 2002. He serves as a Member of
the CPC Committee of the Company and has concurrently served as the General Manager of Beijing Branch of the
Company since April 2017.
Wealth Management Department
Bills Business Department*
Asset Custody Department
Asset Management Department
Financial Market Department
(General Office of Retail Finance
Investment Banking Department
Offshore Finance Center
Private Banking Department
China Merchants Bank
Branches
Head Office
Banking and Financial Markets
General Office of Investment
Bills Center#
Loan Approval Center#
Pension Finance Department#
Project Management Department#
Sub-branches
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Retail Credit Business Department
(Inclusive Finance Service Center)
Network Operation Service Center#
Mr. Shi Shunhua is a member of the CPC Committee of the Company. He obtained an MBA degree from China
Europe International Business School and is a senior economist. Mr. Shi joined the Company in November 1996
and successively served as the Assistant General Manager and the Deputy General Manager of Shanghai Branch
of the Company, the General Manager of Suzhou Branch, the General Manager of Shanghai Branch and the
Business Director of General Office of Corporate Finance Group of the Head Office since May 2003. He has served
as a Member of the CPC Committee of the Company since April 2017. He is concurrently the Business Director of
General Office of Corporate Finance Group of the Head Office of the Company.
Joint company secretaries
Mr. Wang Liang, please refer to his biography in "Senior management" above.
Mrs. Seng Sze Ka Mee, Natalia, the Company's Joint Company Secretary, holds a master's degree in Business
Administration (Executive) from City University of Hong Kong, a Chartered Secretary. She is the Vice Chairman of
Tricor Hong Kong and Offshore, and Member of Tricor China Management Committee (hereafter collectively referred
to as "Tricor"). She leads the strategic development and management of Tricor's operations across Hong Kong,
China and Offshore markets. Her professional practice area covers business advisory, corporate governance, fiduciary
services and regulatory compliance for private and public listed companies and non-profit organisations. Mrs.
Seng is a Past President (2007-2009) and an incumbent Council Member of The Hong Kong Institute of Chartered
Secretaries (HKICS), a Fellow of The Taxation Institute of Hong Kong (TIHK) and The Hong Kong Institute of Directors
(HKIOD) and a Council Member of The Hong Kong Committee for UNICEF. She has been appointed by government
as a member of the Standing Committee on Company Law Reform (SCCLR) for a period of two consecutive terms
(February 2016 January 2020), and has represented HKICS as a member of an Advisory Group on the Rewrite of
the Companies Ordinance. She was also appointed by government as a lay member to the Council of the Hong
Kong Institute of Certified Public Accountants (HKICPA) (December 2013 – November 2015).
-
105
106
China Merchants Bank
Annual Report 2018
Credit Card Center
(Consumer Finance Center)
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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."; and offers remuneration to Employee Supervisors in
accordance with the policies on remuneration of employees of the Company. All of the Directors and Supervisors
nominated by shareholders of the Company do not receive any remuneration from the Company.
The Board of Directors of the Company evaluates the performance of the senior management through the "Policies
on Remunerations of Senior Management of China Merchants Bank Co., Ltd." and the "Assessment Standards
of the H-Share Appreciation Rights Incentive Scheme for the Senior Management". According to the "Policies on
Evaluation of Performance of Directors by the Board of Supervisors" and the "Policies on Evaluation of Performance
of Supervisors by the Board of Supervisors", the Board of Supervisors evaluates the annual duty performance of
the Directors and Supervisors through monitoring their duty performance in the ordinary course, reviewing and
evaluating 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 "Duty Performance
Self-Evaluation Questionnaire" completed by each Director and Supervisor and work summaries, and then reports
the same to the general meeting and regulatory authorities. According to the "Policies on Evaluation of Duty
Performance of Senior Management by the Board of Supervisors (Trial)", the Board of Supervisors evaluates the
annual duty performance of senior management through monitoring their duty performance in the ordinary
course and accessing to their duty performance information (including but not limited to, major speeches, major
meeting minutes and the evaluation of the duty performance of senior management by the Board of Directors),
duty performance interviews and work reports, and then reports the same to the General Meeting and regulatory
authorities.
6.7 Information about employees
As at the end of the reporting period, the Company had 74,590 employees (including dispatched employees). The
classification of our employees by profession is: 30,625 employees in retail finance, 16,056 employees in corporate
finance, 13,884 employees in operation management, 7,547 employees in general management, 3,895 employees
in risk management, 2,003 employees in research and development, and 580 employees in administrative and
logistical support. The classification of our employees by educational background is: 14,461 employees with master's
degree and above, 52,280 employees with bachelor's degree, 6,887 employees with junior college degree, and 962
employees with technical secondary school degrees or below.
During the reporting period, there was no change in the personnel including the Company's core technical team and
key technical staff who may have significant influence on the Company's core competitiveness.
Credit Approval Department
Risk Management Department
Overseas Divisions#
6.6 Evaluation and incentive system for Directors, Supervisors and
senior management
455
18
550001
12 Shiyiwei Road, Heping District, Shenyang
17 Renmin Road, Zhongshan District, Dalian
Shenyang Branch
Dalian Branch
Harbin Branch
Changchun Branch
North-eastern China
million)
Staff
branches
Postal code
Business address
110003
Name of branches
(RMB
No. of
No. of
assets
Volume of
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2018
108
Regions
District, Foshan
116001
150010
518 Jianshe Avenue, Wuhan
Wuhan Branch
Central China
24,002
700
42,258
1,086
32,330
3 Zhongyang Avenue, Daoli District, Harbin
1,267
45,778
1,655
60
629
29
130022
9999 Renmin Avenue, Nanguan District, Changchun
38
38
430022
42,354
31
350014
316 Jiangbingzhong Boulevard Road, Fuzhou
354,375
5,185
115
518001
2016 Shennan Boulevard, Futian District, Shenzhen
133,909
32
2,746
510623
5 Huasui Road, Tianhe District, Guangzhou
Guangzhou Branch
Shenzhen Branch
Fuzhou Branch
Xiamen Branch
Quanzhou Branch
Pearl River Delta and
West Side of
Taiwan Strait
227
14,240
444
37
80
937
1,148
18 Lingshiguan Road, Siming District, Xiamen
528200
12 Denghu Road East, Guicheng Street, Nanhai
38,623
909
28
523000
200 Hongfu Road, Nancheng District, Dongguan
Dongguan Branch
Foshan Branch
56,350
Fengze Street, Quanzhou
485
18
362000
Huangxing Building, No. 301, the middle section of
52,904
990
31
361012
17,683
105
2,695
126,424
16
830006
2 Huanghe Road, Urumchi
Urumchi Branch
72,429
1,656
47
401121
771
88 Xingguang Road, New North District, Chongqing
61,466
1,859
64
710075
27,073
906
28
730030
Chongqing Branch
9 Qingyang Road, Chengguan District, Lanzhou
1 Gaoxin No.2 Road, Xi'an
23,650
1 Chongren Street Wuhua District, Kunming
284 Zhonghua Road North, Yunyan District, Guiyang
Guiyang Branch
23,120
522
21
530022
Staff remuneration policy
Nanning Branch
Kunming Branch
21,576
21
010098
9 Chilechuan Avenue, Saihan District, Huhhot
Hohhot Branch
53,047
1,278
46
650021
625
Lanzhou Branch
Xi'an Branch
55,573
1,617
47,610
1,281
42
230001
169 Funan Road, Hefei
Hefei Branch
41,785
1,466
Zhengzhou Branch
43
766 Wuyi Avenue, Changsha
Changsha Branch
72,518
1,509
56
330008
468 Dieshan Road, Donghu District, Nanchang
Nanchang Branch
410005
96 Nongye Road East, Zhengzhou
450018
42
52
610000
No. 1, the 3rd section of Renmin Road South,
Wuhou District, Chengdu
Chengdu Branch
Western China
11,353
288
10
570125
Complex Building C, Haian Yihao, 1 Shimao Road
North, Haikou
Haikou Branch
28,919
878
28
030012
265 Nan Zhong Huan Road, Xiaodian District,
Taiyuan
Taiyuan Branch
60,472
1,280
13
92-1 Minzu Avenue, Nanning
1/2
Before the convening of the annual meeting of the Board of Directors, the Audit Committee reviewed
the Company's Annual Report for 2018 and agreed to submit the same to the Board of Directors for
consideration and approval. Moreover, the Audit Committee reviewed and submitted to the Board of
Directors the conclusion report prepared by the auditors in charge of annual audit in respect of the audit
work of the Company in 2018.
Li Jianhong
18/18
7/7
3/3
Fu Gangfeng
18/18
7/7
Non-Executive Directors
5/5
18/18
2/2
6/6
Zhou Song
5/5
1/1
Hong Xiaoyuan
Sun Yueying
18/18
Meeting
Protection
Committee
Special committees under the Board of Directors
Related Party
Transactions
Management
Risk and
and Consumer
Remuneration
119
Capital
Shareholders'
and Appraisal
Committee
Nomination
Committee
Actual times of attendance/Required times of attendance (2)
Management
Audit
Committee
Committee
Rights
2/2
6/6
Zhang Jian
7/7
3/3
Li Hao
18/18
6/6
4/4
2/2
18/18
នន
Leung Kam Chung, Antony
17/18
2/2
5/6
2/2
Pan Chengwei
18/18
Independent Non-Executive Directors
Tian Huiyu
Executive Directors
2/2
17/18
6/6
Su Min
18/18
6/6
4/4
Wang Daxiong
18/18
6/6
៩ ន ន ន នននន
0/2
2/2
2/2
1/1
2/2
2/2
2/2
Strategy
Committee
Board of
Directors (1)
Directors
The following table sets forth the records of attendance of each Director at the meetings convened by the Board of
Directors and the special committees under the Board of Directors and at the shareholders' general meetings held in
2018.
Nanjing Audit
Division
Shenyang Audit
Division
Audit Department
Supervisory Committee
Assets and Liabilities Management Committee
Risk and Compliance Management Committee)
Shenzhen Audit
Division
IT Management Committee
Business Continuity and Emergency Committee)
Xi'an Audit
Division
Wuhan Audit
Division
Chengdu Audit
Division
Fuzhou Audit
Division
Fintech Committee
Beijing Audit
Division
Shanghai Audit
Division
Executive Office of
President
Related Party Transactions Management and
Consumer Rights Protection Committee
110
China Merchants Bank
VII Corporate Governance
Annual Report 2018
Corporate Governance
7.1 Corporate governance structure:
Strategy Committee
Shareholders' General Meeting
Nomination Committee
Nomination Committee
Board of Directors
Board of Supervisors
Remuneration and Appraisal
Committee
Risk and Capital Management Committee
Audit Committee
Office of the Board of
Directors
Office of Board of
Supervisors
China Merchants Bank
Annual Report 2018
3/3
VII Corporate Governance
During the reporting period, the Company convened a total of 59 important meetings at which 258 proposals were
reviewed and 44 reports were delivered. Among the 59 meetings, there were 2 shareholders' general meetings (19
proposals were reviewed), 18 meetings of the Board of Directors (95 proposals were reviewed and 16 reports were
delivered), 7 meetings of the Board of Supervisors (31 proposals were reviewed and 10 reports were delivered), 28
meetings of the special committees under the Board of Directors (108 proposals were reviewed and 17 reports were
delivered), 3 meetings of the special committees under the Board of Supervisors (5 proposals were reviewed) and 1
meeting of Non-Executive Directors (1 report was delivered). In addition, 3 special researches were organised by the
Board of Directors, and 4 by the Board of Supervisors.
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.
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.
7.4.3 Responsibilities of Directors
During the reporting period, all Directors of the Company cautiously, earnestly and diligently exercised their rights
under the articles of association of the Company and the domestic and overseas regulatory rules, 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 96%.
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 such
as the preliminary profit appropriation plan, nomination and election of directors, changes in accounting policies,
engagement of accounting firms, related party transactions and external guarantees. In addition, for the relevant
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.
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 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 CBIRC, 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.
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).
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.
114
China Merchants Bank
VII Corporate Governance
Annual Report 2018
7.4.4 Chairman of the Board of Directors and the President
The position of the Chairman of the Board of Directors and the President of the Company has 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, 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. In order to allow the Board of Directors to discuss all major and
relevant matters in time, the Chairman and senior management worked together to ensure that the Directors duly
receive appropriate, complete and reliable information for their reference 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.
7.4.5 Attendance of Directors at relevant meetings
113
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 commencing
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.
7.4.2 Appointment, re-election and removal of Directors
VII Corporate Governance
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 the CSRC's regulatory documents
governing the corporate governance of listed companies.
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 honors, mainly including the "Best Board of Directors Award" and the "Most Innovative Board Secretary
Award" in the selection of the "Gold Round Table Award" by the Board of Directors; the "Gold Award for Annual
Reports Worldwide" selected by League of American Communications Professionals LLC, the highest level of "A" in
the annual evaluation of information disclosures by Shanghai Stock Exchange; the awards of "Best Investor Relations
Management Company", the "Best Corporate Governance" and the "Best Analyst Open Day" for the Asian listed
banks selected by Institutional Investor of U.S., and the "Best IR Companies Listed in Hong Kong" hosted firstly by
the New Fortune magazine.
7.3 Information about general meetings
During the reporting period, the Company convened 2 shareholders' general meetings, namely the 2017 Annual
General Meeting on 27 June 2018 and the 2018 First Extraordinary General Meeting on 7 November 2018.
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.
111
112
China Merchants Bank
VII Corporate Governance
Annual Report 2018
7.4 Board of Directors
The Board of Directors is an independent policy-making body of the Company, responsible for executing resolutions
passed by the general meetings; formulating 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 adopts a system in which the President assumes full
responsibility under the leadership of the Board of Directors. The 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.
The Board of Directors of the Company facilitates scientific and reasonable decision-making through the
establishment of a diversified directorship structure, and continues to improve the decision-making and operational
efficiency through promoting the effective operation of special committees. The Board of Directors focuses on key
issues, directions, and strategies, and continues to strengthen the development philosophy to seek balance, health
and sustainability. The Board of Directors ensures the Company to achieve dynamic and balanced development
in quality, efficiency and scale through effective management of its strategy, risks, capital, remuneration, internal
control and connected transactions, etc., thus providing a solid basis for the Company to enhance its operation and
management capabilities.
7.4.1 Composition of the Board of Directors
At present, the Board of Directors of the Company has sixteen members, including eight Non-Executive Directors,
two Executive Directors, and six Independent Non-Executive Directors. All the eight Non-Executive Directors are from
large state-owned enterprises where they hold key positions such as the Chairman of the Board of Directors, General
Manager, Deputy General Manager or Chief Financial Officer. They have extensive experience in management,
finance and accounting fields. Both Executive Directors have been engaged in financial management for a long time
with extensive professional experience. Among the six Independent Non-Executive Directors, there are renowned
experts in accounting and finance and financial experts and investment bankers with international vision, and they
all have extensive knowledge of the development of domestic and overseas banking industry. The two Independent
Non-Executive Directors from Hong Kong are proficient in international accounting standards and the requirements
of Hong Kong capital market. The Board of Directors of the Company has two 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.
The Company values the diversity of the members of the Board of Directors, and 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 regularly and put forward proposals in
respect of any intended changes to the Board of Directors in line with the strategies of the Company.
The list of Directors of the Company is set out in Chapter VI 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.
China Merchants Bank
Annual Report 2018
7.2 Overview of corporate governance
6/6
General
18/18
The Independent Non-Executive Directors reviewed the continuing connected transactions of the Company
and made confirmations as required by the Hong Kong Listing Rules.
115
116
China Merchants Bank
VII Corporate Governance
Annual Report 2018
7.5 Special committees under the Board of Directors
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 Transactions Management and Consumer Rights Protection Committee.
In 2018, all the 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 28 meetings to
study and review 125 significant issues, including strategic implementation and assessment, profit appropriation,
annual financial budget and final account, remuneration and appraisal, capital management plan, comprehensive risk
management, internal control and external investments, and reported their audit opinions and advices to the Board
of Directors by submitting meeting minutes and holding on-site meetings, hence fully playing its role in assisting the
Board of Directors to make scientific decisions.
The composition and duties of the six special committees under the Board of Directors of the Company as well as
their work in 2018 are summarized as follows:
7.5.1 Strategy Committee
The Strategy Committee consists of Non-Executive Directors and Executive Directors. The members of the Strategy
Committee are Li Jianhong (Chairman) (a Non-Executive Director), Fu Gangfeng (a Non-Executive Director) and
Tian Huiyu (an Executive Director). The Strategy Committee is mainly responsible for formulating the operation and
management goals and the medium-to-long term development strategies of the Company, as well as supervising
and examinating its annual operation plan and investment plan.
Main authorities and duties:
1.
Formulate the operational goals and medium-to-long term development strategies of the Company, and
make an overall assessment on strategic risks;
2.
Consider material investment and financing plans and make proposals to the Board of Directors;
3.
Main authorities and duties:
The majority of members of the Nomination Committee are Independent Non-Executive Directors, and the committee
was chaired by an Independent Non-Executive Director. The members of the Nomination Committee include Pan
Chengwei (Chairman), Zhao Jun and Liu Qiao (all being Independent Non-Executive Directors), Li Jianhong (a
Non-Executive Director) and Tian Huiyu (an Executive Director). The Nomination Committee is mainly responsible
for formulating the procedures and standards for election of the Directors and senior management, conducting
preliminary verification on the qualification for appointment of the Directors and senior management and making
proposals to the Board of Directors.
7.5.2 Nomination Committee
VII Corporate Governance
China Merchants Bank
Annual Report 2018
In 2018, the Strategy Committee studied and reviewed the "Annual Strategy Implementation and Appraisal Report of
China Merchants Bank in 2017", strengthened the predictability of guiding strategies, ensured the implementation
of strategies through process supervision, maintained strategic continuity through unswerving execution, and
assisted the Board of Directors to steadily promote the achievement of the development vision "to build itself into
the best commercial bank in China featuring innovation-driven development, the retail banking-prioritised business
strategy and distinctive advantages". In order to strengthen the integrated operation of the Company and reinforce
the capital base of its branches, the Strategy Committee also considered various significant investments including the
establishment of a legal entity operating as a direct sales bank by way of joint venture, the establishment of an asset
management company, and the increase of investment in Merchants Union Consumer Finance Company Limited.
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 about such
meetings.
In 2018, the Strategy Committee focused on reviewing various proposals including the Fintech special report, the
adjustment in the amount of provision for the fund of Fintech innovation projects and the projects winning the
financial innovation award, increased the amount of provision for the fund of Fintech innovation projects from 1%
of the Company's pre-tax profit to 1% of its operating income, and assisted the Board of Directors to effectively
promote the implementation of the "Digital Bank" strategy.
6.
Make recommendations and proposals on the important issues for discussion and determination by the Board
of Directors.
5.
Evaluate and monitor the implementation of the Board resolutions; and
4.
Supervise and review the implementation of the annual operation and investment plans;
Any other task delegated by the Board of Directors.
1.
Prior to the annual audit conducted by the accounting firm in charge of annual audit, the Independent
Non-Executive Directors discussed with the certified public accountants in charge of annual audit 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 accounting firm in charge of annual audit, the Independent
Non-Executive Directors discussed with the certified public accountants in charge of annual audit in respect
of major matters and prepared their written opinions.
The Independent Non-Executive Directors listened to the reports on the operation of the Company in 2018.
The Independent Non-Executive Directors believed that the reports had fully and objectively reflected the
operation of the Company in 2018 as well as the progress of significant matters. They recognised and were
satisfied with the work performed and the results achieved in 2018.
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Notes: (1)
During the reporting period, the Board of Directors of the Company held a total of 18 meetings, and the special committees under the
Board of Directors held a total of 28 meetings.
(2)
Actual number of attendance does not include attendance by proxy.
(3)
Li Jianhong, the Chairman of the Board of Directors, did not attend the general meeting due to his other business engagements.
China Merchants Bank
VII Corporate Governance
6.
5.
4.
3.
2.
1.
The Independent Non-Executive Directors reviewed the work plan for preparing the annual report and the
unaudited financial statements of the Company.
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:
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 the
relevant requirements of the CBIRC, 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 the 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 the Hong Kong Listing Rules. Therefore, the Company is of the opinion
that all the Independent Non-Executive Directors have complied with the requirement of independence set out in
the 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 Transactions Management and Consumer Rights
Protection 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 the meetings held by the Board of Directors and
its various special committees, actively expressing their opinions and suggestions and attending to the interests
and requests of minority shareholders. For details of the attendance of Independent Non-Executive Directors at the
meetings convened by the Board of Directors and its special committees, please refer to "Attendance of Directors at
relevant meetings" in this report.
7.4.7 Performance of duties by Independent Non-Executive Directors
The Company has also established the guidelines for the relevant employees' dealings in the Company's securities,
which are no less exacting than the Model Code. The Company is not aware of any non-compliance with the
aforesaid guidelines by the 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 specific enquiry of all the Directors and Supervisors, the Company confirmed that they had complied
with the aforesaid Model Code during the reporting period.
7.4.6 Securities transactions of Directors, Supervisors and relevant employees
Annual Report 2018
During the reporting period, the Independent Non-Executive Directors of the Company expressed their independent
opinions on significant matters such as the preliminary profit appropriation plan, nomination and election of
directors, changes in accounting policies, engagement of accounting firms, related party transactions and external
guarantees. They made no objection to the resolutions of the Board of Directors and others of the Company in the
year.
1/1
2.
4.
Arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
and
Any other task delegated by the Board of Directors.
In 2018, the Risk and Capital Management Committee adhered to the operating philosophy of dynamic and
balanced development based on "quality, efficiency and size" and prudent risk management concepts. In response
to the trend of changes in complicated external situations and internal operation management, the Risk and Capital
Management Committee assisted the Board of Directors to focus on and prevent liquidity risk, credit risk, compliance
risk and asset management risk and, on the premise of fully exposing risks, improved quality and efficiency,
consolidated the asset quality foundation, enhanced the Company's comprehensive competitiveness, and fully
implemented the strategic requirements of the Board of Directors to "outrunning the market and outperforming the
peers".
The Risk and Capital Management Committee studied and considered various resolutions on the comprehensive risk
reports, the risk preference implementation reports and the comprehensive risk consolidated management plans
for various quarters to strengthen the predictability of risk management mechanism, consistently implemented the
"Substance over Form" concept in various works regarding the risk exposure management of the Company and
constantly improved the construction of the risk management system. Also, the Risk and Capital Management
Committee reviewed various resolutions on the annual business continuity management work report, the annual
anti-money laundering work report, the stress test report, the verification policy implementation report and the
outsourcing management report, effectively monitored the risk management work and assisted the Board of
Directors to further enhance its risk management capability.
China Merchants Bank
Annual Report 2018
VII Corporate Governance
7.5.5 Audit Committee
The majority of members of the Audit Committee are Independent Non-Executive Directors, and the committee
was chaired by an Independent Non-Executive Director. The members of the Audit Committee are Wong See Hong
(Chairman), Pan Chengwei and Li Menggang (all being Independent Non-Executive Directors), Zhou Song and
Wang Daxiong (both being Non-Executive Directors). None of the above persons has ever served as a partner of
the incumbent auditors of the Company. The Audit Committee is mainly responsible for examining the accounting
policies and financial position of the Company; and is responsible for the annual audit work of the Company,
proposing the appointment or replacement of external auditors and examining the status of the internal audit and
internal control of the Company.
Main authorities and duties:
1.
2.
Propose the appointment or replacement of external auditors;
Monitor the internal audit system of the Company and its implementation, and evaluate the work procedures
and work effectiveness of the internal audit department;
Zhao Jun
Coordinate the communications between internal auditors and external auditors;
4.
5.
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 report on the operation of the Company for
2018. The Audit Committee exchanged opinions on the significant matters and 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 on the above issues.
Before the auditors commenced their annual audit, the Audit Committee considered and discussed the
accounting firm's audit plan for 2018 and the unaudited financial statements of the Company.
3.
2.
1.
According to the "Work Procedures on Annual Reports for Audit Committee under the Board of Directors" adopted
by the Company, the Audit Committee under the Board of Directors of the Company performed the following duties
in preparing and reviewing the annual report for 2018:
6.
In 2018, based on the quarterly regular meeting system, the Audit Committee took the regular reports and internal
and external audit reports as the starting point, supervised and verified the truthfulness, accuracy and timeliness
of information set out in the financial statements. The Company obtained the findings of internal audits in a
timely manner and strengthened the rectification of and the accountability for the problems found in bank-wide
self-examination and concerned by relevant regulators so as to practically consolidate the third defense line, and
promoted an effective communication mechanism between internal and external audits by constantly enhancing
the communication and contact with internal auditors and external auditors. Moreover, the Audit Committee also
reviewed various resolutions on the change of accounting policies and the appraisal of internal control, gave full play
to the important role of monitoring operating management, disclosing risks and issues and improving management
levels, and effectively discharged relevant functions.
8.
7.
Review and supervise the mechanism for the Company's employees to whistle blow any misconduct in respect
of financial statements, internal control or otherwise, so as to ensure that the Company always handles the
whistle blowing issues in a fair and independent manner and takes appropriate actions;
Examine the internal control system of the Company, and put forward the advices to improve the internal
control of the Company;
Audit the financial information of the Company and disclosure of such information, and is responsible for
the annual audit work of the Company, including issue of a conclusive report on the truthfulness, accuracy,
completeness and timeliness of the information contained in the audited financial statements, and submit the
same to the Board of Directors for consideration;
6.
Examine the accounting policies, financial reporting procedures and financial position of the Company; and
Any other task delegated by the Board of Directors.
3.
5.
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 changes to the Board of Directors
to implement the strategies of the Company according to the Company's business operation, asset scale and
shareholding structure of the Company;
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;
Conduct preliminary examination on the candidates for Directors and senior management and make
recommendations to the Board of Directors; and
5.
Any other task delegated by the Board of Directors.
In 2018, the Nomination Committee reviewed and approved the Resolution in relation to the "Addition of Mr. Zhou
Song as Non-Executive Director", the Resolution in relation to the "Addition of Mr. Li Menggang as Independent
Non-Executive Director", the Resolution in relation to the "Addition of Mr. Liu Qiao as Independent Non-Executive
Director" and the Resolution in relation to the "Addition of Mr. Luo Sheng as Non-Executive Director".
7.5.3 Remuneration and Appraisal Committee
The majority of members of the Remuneration and Appraisal Committee were Independent Non-Executive Directors,
and the committee was chaired by an Independent Non-Executive Director. The members of the Remuneration and
Appraisal Committee currently include Li Menggang (Chairman), Leung Kam Chung, Antony, Liu Qiao (all being
Independent Non-Executive Directors) and Sun Yueying and Hong Xiaoyuan (both being Non-Executive Directors).
The Remuneration and Appraisal Committee is responsible mainly for reviewing the remuneration management
system and policies of the Company, formulating the remuneration package for directors and senior management,
making proposals to the Board of Directors and supervising the implementation of proposals.
Main authorities and duties:
1.
2.
Study the standards for assessment of Directors and senior management and make assessment and put
forward proposals depending on the actual conditions of the Company;
Study and review the remuneration policies and proposals in respect of Directors and senior management of
the Company, make recommendations to the Board of Directors and supervise the implementation of such
proposals;
3.
Review the systems and policies for remuneration management of the whole Bank; and
4.
Any other task delegated by the Board of Directors.
Perform relevant duties under the advanced capital measurement method pursuant to the authorisation given
by the Board of Directors;
Make regular assessment on the risk policies, management status, risk-withstanding ability and capital status
of the Company;
Supervise the status of risk control by the senior management of the Company 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.
Submit proposals on perfecting the management of risks and capital of the Company;
Main authorities and duties:
7.5.4 Risk and Capital Management Committee
VII Corporate Governance
China Merchants Bank
Annual Report 2018
118
117
In 2018, the Remuneration and Appraisal Committee fully considered the current macroeconomic situation, the
development trend of the banking industry and the development trend of the Company, reviewed and approved the
"Resolution on Staff Costs of China Merchants Bank", and further improved the incentive and restrictive mechanism.
Pursuant to the provisions of the H Share Appreciation Rights Scheme, the Remuneration and Appraisal Committee
conducted validity appraisal and price adjustment in respect of the appreciation rights granted, which ensured the
continuous implementation of the medium-to-long term incentive mechanism of the Company.
The members of the Risk and Capital Management Committee are Hong Xiaoyuan (Chairman), Sun Yueying, Zhang
Jian, Su Min (all being Non-Executive Directors), Li Hao (an Executive Director) and Leung Kam Chung, Antony
(an Independent Non-Executive Director). The Risk and Capital Management Committee is mainly responsible for
supervising the status of risk control by the senior management of the Company in relation to major risks, making
regular assessment on the risk policies, risk-withstanding ability and capital management status of the Company and
submitting proposals on perfecting the management of risks and capital of the Company.
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3.
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4/4
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ཟུཟུཐཱ་
་ ཌཱུ➢ང➢
3/3
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3/3
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Wong Kwai Lam (resigned)
2/2
Liu Qiao
2/2
Li Menggang
6/6
17/18
Wong See Hong
Pan Yingli (resigned)
1.
VII Corporate Governance
Main authorities and duties:
7.5.6 Related Party Transactions Management and Consumer Rights Protection Committee
The majority of members of the Related Party Transactions Management and Consumer Rights Protection Committee
are Independent Non-Executive Directors, and the committee was chaired by an Independent Non-Executive
Director. The members of the Related Party Transactions Management and Consumer Rights Protection 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). The Related Party Transactions Management and
Consumer Rights Protection Committee is mainly responsible for inspection, supervision and review of related party
transactions of the Company and protection of the legitimate rights and interests of consumers.
2.
4.
Review the compliance of the Company with the Code of Corporate Governance and the disclosures in the
Report of Corporate Governance; and
Formulate, evaluate and supervise the Code of Conduct and the Compliance Handbook applicable to the
Directors and employees of the Company;
Evaluate and supervise the policies and practices of the Company for compliance with laws and regulatory
requirements;
Evaluate and supervise the trainings and the improvement of professional competence of Directors and senior
management;
6.
5.
4.
3.
2.
1.
During the reporting period, the Board of Directors has performed the following duties on corporate governance:
Formulate and evaluate the policies and practices on corporate governance of the Company and make certain
amendments as it deems necessary, so as to ensure the validity of those policies and practices;
7.6 Corporate governance functions
In 2018, the Related Party Transactions Management and Consumer Rights Protection Committee reviewed the
fairness of the related party transactions, assisted the Board of Directors to ensure the legitimacy and compliance
of related party transactions, carried out relevant responsibilities of consumer right protection in accordance with
the regulatory requirements, reviewed and approved various resolutions on, among others, the 2017 Annual
Related Party Transaction Report and the List of Related Parties in 2018, reviewed the related party transactions
of the Company with China Merchants Group Ltd., China Communications Construction Group (Limited), Anbang
Life, Merchants Union Consumer Finance Company Limited, CMB Financial Leasing and Bank of Tianjin Co., Ltd.,
and reviewed the caps for the connected transactions with Anbang Insurance Group Co., Ltd. and CM Securities.
The functions of consumer right protection were added into the functions of the Committee, and the name of the
Committee was changed accordingly, and the Committee reviewed the report on the relevant rules and regulations
of consumer rights protection.
Any other task delegated by the Board of Directors.
Supervise and evaluate the comprehensiveness, timeliness and effectiveness of the consumer rights protection
work of the Company, the duty performance of senior management in the protection of consumer rights,
and the information disclosure of consumer rights protection work;
Review the strategies, policies and objectives of the consumer rights protection work of the Company;
Regularly listen to the report on the implementation of the consumer rights protection work of the Company
and the relevant resolution, and make recommendations to the Board of Directors in respect of the relevant
work;
Review the administrative measures on related party transactions of the Company, and monitor the
establishment and improvement of the related party transaction management system of the Company;
Review the announcements on related party transactions of the Company;
Inspect, supervise and review the major related party transactions and continuing related party transactions,
and control the risks associated with related party transactions;
Identify related parties of the Company pursuant to relevant laws and regulations;
8.
7.
6.
5.
3.
China Merchants Bank
Annual Report 2018
Annual Report 2018
Independent opinions on relevant matters from the Board of Supervisors:
284
135
130
(See Annexures)
Unaudited supplementary financial information
Financial statements and notes thereto
Independent Auditor's Report
Financial Statements
Annual Report 2018
IX Financial Statements
China Merchants Bank
22 March 2019
Chairman of the Board of Supervisors
Liu Yuan
120
By Order of the Board of Supervisors
Internal control
The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to the
general meeting in 2018, and concluded that the Board of Directors had duly implemented relevant resolutions passed at
the general meeting(s).
Implementation of resolutions passed at the general meeting(s)
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.
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
During the reporting period, the use of proceeds of the Company was consistent with such usages as committed in the
Prospectus of the Company.
Use of proceeds
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu have audited the financial
statements for 2018 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
statements 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.
Lawful operation
Manage, control, monitor and assess the risks of the Company and evaluate the internal control status of the
Company. The Board of Directors is of the opinion that the risk management and internal control systems of
the Company are effective.
The Board of Supervisors had reviewed the "Report on Assessment of Internal Control of China Merchants Bank Co.,
Ltd. for 2018", and concurred with the Board of Directors' representations regarding the completeness, reasonableness,
effectiveness and implementation of the internal control system of the Company.
China Merchants Bank
Annual Report 2018
VII Corporate Governance
7.7 Board of Supervisors
During the reporting period, the Company amended the Articles of Association. For details, please refer to the
announcement, shareholders' circular and the documents of shareholders' general meetings of the Company
published on 3 May 2018, 9 June 2018 and 8 October 2018, respectively.
7.13 Major amendments to the Articles of Association of the Company
Shareholders are entitled to review the information on 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 of the Company upon the submission of written documents certifying the class and quantity
of shares of the Company held by the shareholders, the identity of whom has been verified by the Company.
Making inquiries to the Board of Directors
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 the extraordinary board meeting within ten (10) days upon
receiving such proposal.
Convening of extraordinary board 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 working days after receiving the proposal.
Making proposals at the shareholders' general meeting
125
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.
7.12 Shareholders' rights
The Company's well-regulated operation and outstanding information disclosure practice met with recognition from
the regulatory authorities, and received Grade A (the highest grade) in the annual appraisal of information disclosure
of listed companies organised by the SSE.
During the reporting period, by dispatching the notices regularly and clarifying the scope and quantitative standards
for circulation of the significant sensitive information, the Company effectively enhanced the accuracy and timeliness
of its reporting of sensitive information, which resulted in the smooth operation of the information disclosure
contact mechanism. The Company also put great efforts on the management of information disclosure and insider
dealing, enhanced its employees' awareness of compliance, increased their vigilance against insider information
leakage and insider dealing, which effectively reduced risks in information disclosure.
VII Corporate Governance
China Merchants Bank
Annual Report 2018
During the reporting period, the Company disclosed the material information in a true, accurate, complete, timely
and fair manner in strict accordance with the requirements of relevant information disclosure laws and regulations,
and released over 340 disclosure documents on Shanghai Stock Exchange and Hong Kong Stock Exchange,
including periodic reports and temporary announcements, corporate governance documents, shareholders' circulars,
etc., which have an aggregate of over 2.6 million words. While fulfilling its statutory obligations for information
disclosure, the Company further improved the initiative and transparency of information disclosure. By timely
releasing its annual and interim reports, the Company aimed to guide the market expectations in a reasonable
manner. The Company has adhered to the guideline of "investor-oriented" disclosure, and made proactive disclosure
of the hot issues of investors' interest and the distinctive information about the banking industry in combination
with the macroeconomic and financial situation, so as to help the investors to obtain a thorough understanding of
the Company's business models, competitive edges and risk status, which met with the recognition of the capital
market. During the reporting period, the Company did not make any mistakes in respect of information disclosure.
During the reporting period, the Company formulated the "Regulations on the Preparation and Review of Periodic
Reports and Performance Presentation Materials" in consideration of the regulatory requirements and daily work
practices, which imposed further regulation and constriction on the division of responsibilities and work processes
for the preparation and review of its periodic reports and results presentation materials.
The Company's information disclosure is based on good corporate governance practice, sound internal control,
and an effective information disclosure system, which ensures that our investors can obtain information in a timely,
accurate and equal manner.
Information disclosure
Convening of extraordinary general meeting
Our investor relations management efforts again met with the recognition of the capital market. In the votes for
the "Gold Medal Board Secretary" held by the domestic "New Fortune ( ( )" magazine, Mr. Wang Liang,
our Deputy President and Secretary of the Board of Directors, attended the selection campaign for the first time
and secured the seventh place in all industries and the first place in the banking industry. Also, the Company won
the first "Best IR Company Listed in Hong Kong" award presented by the New Fortune. In the votes held by the
"Institutional Investor", a US magazine, the Company won the "Respectable Company in Asia" award in 2018, and
secured the second place of the "Company with Best Investor Relations Management" among the Asian listed banks
and the third place of the "Best Analyst Open Day".
126
VII Corporate Governance
VIII Report of the Board of Supervisors
China Merchants Bank
128
127
In 2018, the Company focused on risk prevention and control, with audit transformation as the main theme,
ongoing audit as the starting point and audit rectification as the driving force, closely focused on key areas, key risks
and key points, and continuously expanded the extent and scope of audit supervision. We also put more resources in
building the audit information platform, further strengthened off-site audit, shifted our focus from post-supervision
to pre-warning and warning, identified the potential problems in a timely manner, prompted the risk in a timely
manner, proposed prevention and control measures in a timely manner, strictly carried out audit rectification through
various measures, and promoted the continuous improvement of the mechanisms, processes and systems across the
Bank, so as to ensure the high-quality development of the Bank.
The Company has an independent and vertical internal audit management system. The Board of Directors shall
assume the ultimate responsibility for the independence and effectiveness of internal audit, being responsible
for reviewing and approving the constitutional documents of internal audit, establishing the audit organisation
system, formulating the medium-to-long term audit plan and annual audit plan, appointing the head officer of the
audit department, providing necessary support to carry out independent internal audit work, and assessing the
independence and effectiveness of internal audit work. The Board of Directors has an Audit Committee, which is
responsible for reviewing important systems and reports such as the constitutional documents of internal audit,
approving the medium-to-long term audit plan and the annual audit plan, and guiding, assessing and evaluating
the internal audit work. The Head Office has an Audit Department which consists of nine audit divisions, which are
under the guidance of the Board of Supervisors and senior management, and shall undertake the specific internal
audit duties. In June 2018, the Company implemented an organisational restructuring of the Audit Department
and added a virtual "direct division" to the headquarters of the Audit Department under the Head Office, so as to
strengthen the audit on the departments under the Head Office, overseas institutions and anti-money laundering
work; nine specialised teams were established to strengthen the off-site audit work such as "research, analysis,
organisation and guidance" and enhanced the support and management of the inspection teams of audit divisions.
In each audit division, five professionally mixed audit teams were established, including a new ongoing audit team,
to strengthen the ongoing audit and rectification following-up of regional branches and institutions.
7.17 Internal audit
Annual Report 2018
China Merchants Bank
VII Corporate Governance
During the reporting period, the Company organised evaluation campaigns regarding internal control during the
year 2018 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 "Report of Assessment on
Internal Control of China Merchants Bank Co., Ltd. in 2018", and the "Auditors' Report on Internal Control" issued
by Deloitte Touche Tohmatsu Certified Public Accountants LLP with standard unqualified opinions.
During the reporting period, according to the unified arrangements of the CBIRC, the Company has conscientiously
organised and made further efforts to rectify the market disorders in the banking industry throughout the Bank,
conducted comprehensive assessment on the effectiveness and implementation of a series of special rectification
works of "Three Violations, Three Arbitrages, Four Improprieties and Ten Problems" carried out in 2017, fully carried
out self-examination and self-correction by focusing on the "major issues to rectify the market disorders in the
banking industry in 2018" proposed by the CBIRC, and implemented comprehensive rectification work in respect
of system improvement, culture promotion activities, system construction, processes optimisation, business training,
supervision and inspection, etc., continued to strengthen compliance on internal control and risk management,
returning to the origins of the business of serving the real economy. In accordance with the relevant provisions of
the "Guidelines for the Management of Practitioners in Banking and Financial Institutions", in 2018, the Company
revised and improved the "Management Measures on Employees' Behavior of China Merchants Bank", further
improved the governance structure and responsibility system of employees' behavior management, and established
a employees' behavior management system with characteristics of clear responsibilities, complete process, division
of work and cooperation, and joint management. Faced with the "new normal" of strict regulations and severe
punishment, the Company further improved the education on compliance and case warning trainings for its
employees during the reporting period; in addition to the normalisation of investigation on employees' abnormal
behaviors, carried out special rectification on major harmful violations such as "employees' investment and
shareholding in credit granting enterprises", "employees' financial dealings with P2P platforms", "employees using
customers' insider information for personal interests" and other harmful violations, identifying and eliminating
all kinds of potential risks in a timely manner; further increased the efforts in applying employees' behavior
management tools such as keeping a list of employee violation points and a list of names of violating employees,
strengthening non-compliance accountability and conducting due diligence investigation on termination of
employment, and earnestly implemented the strict management requirements with a view to ensuring the compliant
operation and healthy development of various businesses.
7.16 Internal control
During the reporting period, except as disclosed, 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).
7.15 Compliance with the Corporate Governance Code
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 2018 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
might have a significant adverse effect on the Company's ability of sustainable operation.
7.14 Statement made by the Directors about their responsibility for
the financial statements
Annual Report 2018
China Merchants Bank
manner.
During the reporting period, the Company rolled out a global road show for its annual results, held two performance
presentations and analysts' meetings, one media press, and one seminar for the investor analysts. Chairman Li
Jianhong and President Tian Huiyu attached great importance to investor relations management, and attended the
2017 performance presentation for investor analysts and press conference for the announcement of our annual
results, and answered the questions from the investors, analysts and news media. Following the release of our
2017 annual results, President Tian Huiyu and other senior management led three road show teams to roll out
global road shows in Hong Kong, the United States, Europe, Japan, Singapore and Australia, including visits to
116 key institutions, communicating with them adequately and intensively on the Company's financial technology
transformation, business development, advantages and characteristics as well as strategic visions; A total of 373
institutional investors, analysts and 55 media reporters attended our 2017 annual results presentation and press
conference, setting a record since the Company was listed in 2002. A total of 343 domestic and foreign institutional
investors and analyst attended the Company's 2017 interim results phone presentation; we visited 21 important
A-share institutional investors in Beijing, Shanghai, Guangzhou and Shenzhen, and conducted in-depth exchanges
with 281 investment research directors, fund managers and researchers. In addition, the Company arranged for
and received 103 visits and telephone surveys by 230 domestic and foreign institutional investors, investment banks
and brokerage analysts throughout the year, attended the investor conferences held by 39 domestic and foreign
investment banks and securities brokers, and conducted 156 one-to-one or one-to-many discussions with a total of
1,151 Institutional investors; we also answered hundreds of phone calls from the investors and processed hundreds
of messages from investors on the Company's official website, investors' mailbox, and SSE E-interaction. The above
measures satisfied the needs of our investors and analysts to communicate with the Company in an effective
VII Corporate Governance
The Nomination Committee and the Supervisory Committee are established under the Board of Supervisors, each
consisting of four Supervisors, and those committees were chaired by an External Supervisor.
7.7.4 Operation of the special committees under the Board of Supervisors
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.
VII Corporate Governance
China Merchants Bank
122
121
During the reporting period, the Board of Supervisors of the Company had no objection to each of the supervisory
matters.
The Nomination Committee under the Board of Supervisors
During the reporting period, all the three 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 at branch level on a collective or separate basis, proactively familiarising themselves with the
operation and management of the Company, and giving opinions or suggestions on significant matters. During the
adjournment of the meetings 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 respect of the problems found in a timely manner, thereby playing an active role in assisting
the Board of Supervisors in performing their supervisory duties.
During the reporting period, the Board of Supervisors convened a total of seven meetings, of which three were
on-site meetings and four were meetings convened and voted by correspondence. 31 proposals regarding business
operations, financial activities, internal control, risk management, consolidated statement management, related
party transactions, corporate governance, evaluation of the duty performance of the Directors and Supervisors
and resignation audit on the senior management were considered, ten special reports involving disposal of
non-performing assets, the prevention and control of crimes, consumer rights protection, assessment on strategic
implementation and internal audit were reviewed at those meetings.
7.7.3 Duty performance of the Board of Supervisors during the reporting period
The Board of Supervisors performs its supervisory duties primarily by: holding regular meetings of Board of
Supervisors 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 opinion exchanges and discussions, carrying out special investigations and surveys at
domestic and overseas branches of the Company on a collective or separate basis and having talks with Directors
and the senior management over their duty performance in the year, communicating with external auditors regularly,
etc. By doing so, the Board of Supervisors comprehensively monitors the operation and management status, risk
management status and internal control status of the Company as well as duty performance of the Directors and
the senior management, and puts forward the constructive and targeted operation and management advice and
supervision opinions.
7.7.2 How the Board of Supervisors performs its supervisory duties
A Nomination Committee and a Supervisory Committee are established under the Board of Supervisors.
The Board of Supervisors of the Company consists of nine members, including three Shareholder Supervisors,
three Employee Supervisors and three External Supervisors. The proportion of Employee Supervisors and External
Supervisors in the members of the Board of Supervisors each meets the regulatory requirements. The three
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 three
Employee Supervisors have long participated in banking operation and administration, and thus accumulated rich
professional experience in finance; and the three 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.
7.7.1 Composition of the Board of Supervisors
The Board of Supervisors is a supervisory body of the Company and is accountable to the general meetings, and
oversees the strategic management, financial activities, internal control, risk management, legal operation, corporate
governance, the duty performance of the Board of Directors and senior management with an aim to protect the
legitimate rights and interests of the Company, its shareholders, employees, creditors and other stakeholders.
In 2018, the Company convened a total of two shareholders' general meetings and three on-site board meetings.
Supervisors attended the general meetings and were present at all the on-site board meetings, and supervised the
legal compliance of convening the shareholders' general meetings and the Board meetings, voting procedures, the
Directors' attendance at those meetings, issue of opinions and voting details.
As at the end of the reporting period, 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 their
members, 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 are scientific and
reasonable.
In 2018, the Nomination Committee under the Board of Supervisors convened one meeting where proposals
regarding the evaluation report on duty performance of the Board of Directors and its members in 2017, the
evaluation report on duty performance of the Board of Supervisors and its members in 2017, the evaluation report
on duty performance of the senior management and its members in 2017 were considered.
The Supervisory Committee under the Board of Supervisors
China Merchants Bank
Annual Report 2018
124
123
In 2018, the Company remained investor-oriented, focused on its fundamentals and movements in the market, and
maintained effective communication with its investors and analysts at home and abroad in a positive, innovative
and professional manner and conveyed the Company's development strategy, operating results, business highlights
and investment value efficiently, accurately, comprehensively and objectively to its investors in a variety of forms,
while constantly enhancing the investor experience and the capital market's understanding of the Company's
differentiated features, and enhancing the Company's good market image of professionalism, openness and
transparency. Notwithstanding the significant fluctuations in the capital market throughout the year, the valuation
of the Company's A+H Shares remained at the forefront in the domestic banking industry, with its market value
maintaining the fifth place among the domestic banks.
Investor relations
7.11 Communication with shareholders
During the reporting period, the Company had no internal cases that inflict huge losses, or external cases or
incidents of theft or robbery, or material safety issues.
7.10 Misconduct reporting and monitoring
During the reporting period, Mr. Wang Liang and Mrs. Sang Size Ka Me, Natalia both attended the relevant
professional trainings for not less than 15 hours in compliance with the requirements of Rule 3.29 of Hong Kong
Listing Rules.
Mr. Wang Liang, Secretary of the Board of Directors of the Company, and Mrs. Sang Size Ka Me, Natalia of TRICOR
Services Limited, an external services provider, are 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.
7.9 Company secretary under Hong Kong Listing Rules
During the reporting period, the Directors of the Company participated in relevant trainings or researches according
to the requirements on duty performance, the contents of which include corporate governance, policies and
regulations and banking operation and management. The above trainings or researches helped improve the duty
performance of the Directors, ensure that the Directors were fully aware of the information required for duty
performance, and continued to make contributions to the Board of Directors of the Company based on the actual
situation of the Company. If necessary, the Company would assist the Directors to participate in appropriate trainings
and researches and make reimbursements for relevant expenses.
During the reporting period, the Board of Supervisors strengthened on-site research and subsequent supervision
based on budget assessments, and effectively improved its capability to coordinate and solve difficulties and
problems, aiming to "build itself into the bank with best customer experience". The Board of Supervisors organised
a total of four collective surveys throughout the year, including three domestic surveys and one overseas survey,
involving 13 branches. Through such researches and surveys, the Board of Supervisors came up with high-quality
opinions and suggestions on the circumstances faced by the surveyed branches, particularly the direction of their
strategic development, risk control and prudent management, leveraging the momentum of financial technology
transformation, improvement of customer experience, management of second-level branches, compliance and risk
control of our overseas branches, care for our employees and enhancement of their satisfaction, etc., and formed
a complete supervision process for collecting problems and appeals, sorting out and integrating supervision-related
matters, communicating with the relevant authorities for timely feedback and finally solving the problems. In
addition, the Board of Supervisors renovated the carrier of supervision by launching the "Core Requirements on
the Work of the Board of Supervisors", which focused on the core and key aspects of supervision, and regularly
circulated the concerns and movements of the Board of Supervisors among the directors, Supervisors and senior
management, giving full play to its role in strengthening supervision on duty performance in support of our business
development.
VII Corporate Governance
China Merchants Bank
Annual Report 2018
During the reporting period, the Board of Directors of the Company organised three investigations/surveys/visits for
the Directors, which involved visits to the Head Office, branches and sub-branches to get familiar with their business
operations, the implementation of the strategies of "Light-operation Bank" and the work reports in respect of the
development of key businesses, risk management and internal control and compliance, while providing professional
guidance to the branches.
During the reporting period, the Board of Directors and the Board of Supervisors of the Company organised seven
investigations/surveys, through which the duty performance, decision-making and effectiveness of supervision of our
Directors and Supervisors continued to improve.
7.8 Trainings and investigations/surveys conducted by Directors and
Supervisors during the reporting period
As at the end of the reporting period, the members of the Supervisory Committee of the Tenth Session of the
Board of Supervisors were Jin Qingjun (Chairman), Wu Heng, Han Zirong and Wang Wanqing. 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 Company and conduct
relevant examinations; to supervise the adoption by the Board of Directors of prudent business philosophy and value
standards and its formulation of suitable development strategies in line with the actual situations of the Company;
to conduct supervision and assessment on the important financial decisions of the Board of Directors and the senior
management 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
their duty performance; to formulate the specific plans for reviewing the operation decisions, internal control and
risk management of the Company under the authorisation of the Board of Supervisors when necessary; to formulate
the plans for conducting resignation audit on Directors, President and other senior management when necessary.
In 2018, the Supervisory Committee under the Board of Supervisors convened a total of two meetings where the
work plan of the Board of Supervisors in 2018 and the audit opinions on resignation of senior management 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 under the Board of Directors. They also reviewed the consideration and discussion on the financial
decisions, risk management, internal control management and capital management of the Company, supervised the
duty performance of the Directors, offered comments and suggestions on some issues and made monitoring records.
129
Annual Report 2018
Report of the Board of Supervisors
Equity shareholders of the Bank
(3,812)
5,532
49
67,523
67,523
48
34,065
34,065
47
34,065
34,065
25,220
25,220
46
40
50
5,814,246
63
51
480,210
540,118
(843)
1,130
54
21,185
23,707
53(b)
219,878
250,654
70,921
78,542
52
46,159
53,682
(86)
79,896
69,318
6,202,124
45
489
China Merchants Bank
IX Financial Statements
Annual Report 2018
Consolidated Statement of Financial Position
At 31 December 2018
(Expressed in millions of Renminbi unless otherwise stated)
Notes
2018
2017
(Restated)
Assets
Cash
Precious metals
Balances with central bank
15,814
282
62,458
89,654
N/A
1,070
1,211
32
296,477
424,926
44
450
3,487
5,665
N/A
5,607
42
26,701
20,411
41
8,020
43
3,182
2,329
2,012
21,185
210,608
70,921
(86) 46,159
(1,444)
34,065 67,523
25,220
(6,902)
(6,902)
(9,270)
2,368
3
2,012 483,392
1,170
(843) 480,210
(843) 473,308
1,170
2,012 476,490
6,976
(12)
9,094
1,973
149
6,972
195 80,819
64
21,185
80,560
317 67,115
(12)
1,973 66,810
2,522
40,046
7,621
149 7,523
80,560
16,412
70,921 219,878
capital
Annual Report 2018
IX Financial Statements
China Merchants Bank
Company Chop
Tian Huiyu
Director
Li Jianhong
Director
Approved and authorised for issue by the Board of Directors on 22 March 2019.
The notes form part of these consolidated financial statements.
Total equity and liabilities
6,297,638
483,392
543,605
6,745,729
1,170
1,158
63(a)
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
(Expressed in millions of Renminbi unless otherwise stated)
At 31 December 2017
Subtotal
reserve
profits appropriations
reserve
reserve reserve reserve
(3,812) (86) 46,159
debt controlling
profit Exchange
interest Total
Perpetual Non-
Regulatory
general Retained
Non-controlling interests
Total equity attributable to equity shareholders of the Bank
Investment
Share equity Capital revaluation Hedging Surplus
capital instruments reserve
25,220 34,065 67,523
Notes
Other
2018
Adjustments of application of accounting
Proposed
6,638
9,309
18
Borrowing from central bank
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
Financial liabilities at fair value through profit or loss
Derivative financial liabilities
Amounts sold under repurchase agreements
Deposits from customers
Interest payable
Salaries and welfare payable
Tax payable
Contract liabilities
Provision
Debt securities issued
Deferred tax liabilities
Other liabilities
Total liabilities
Equity
Share capital
Liabilities
Annual Report 2018
IX Financial Statements
China Merchants Bank
Other assets
Total assets
The notes form part of these consolidated financial statements.
31
9,954
9,954
32
Other equity instruments
58,374
33
32,568
23,248
6,745,729
6,297,638
137
138
50,120
Deferred tax assets
- Preference shares
Investment revaluation reserve
203,950
272,734
36
44,144
26,619
61(f)
36,570
21,857
37
78,141
125,620
38
4,427,566
4,064,345
39
35
439,118
470,826
34
Hedging reserve
Surplus reserve
Regulatory general reserve
Retained profits
Proposed profit appropriations
Exchange reserve
Total equity attributable to shareholders of the Bank
Capital reserve
Non-controlling interests
- Perpetual debt capital
Total equity
Notes
2018
2017
(Restated)
405,314
414,838
- Non-controlling interest
35 9,117
Goodwill
9,150
N/A
28,726
Investments at fair value through profit or loss
24(a)
330,302
64,796
Derivative financial assets
61(f)
34,220
18,916
Debt investments at amortised cost
24(b)
916,012
N/A
Debt investments at fair value through other
23
Interest receivable
3,414,612
3,749,949
477,568
600,007
Balances with banks and other financial institutions
19
100,160
76,918
Placements with banks and other financial institutions
comprehensive income
20
154,628
Amounts held under resale agreements
21
199,386
252,550
Loans and advances to customers
22
313,411
7,255
24(c)
N/A
Property and equipment
Intangible assets
26
8,622
5,183
27
249
20
28
2,061
1,612
29
56,206
49,812
30
Investment properties
Interest in associates
Interest in joint ventures
572,241
Equity investments designated at fair value through
other comprehensive income
24(d)
4,015
N/A
Available-for-sale financial assets
24(e)
421,070
N/A
Held-to-maturity investments
24(f)
N/A
558,218
Debt securities classified as receivables
24(g)
N/A
383,101
6,972
149
80,560
Operating profit before impairment losses
(70,431)
(81,110)
10
Operating expenses
220,039
247,135
Operating income
N/A
(350)
- Disposal of financial instruments at amortised cost
11,169
20,271
9
Other net income
166,025
149,608
Expected credit losses
14
106,497
3
37
27
995
1,272
26
64,018
Income tax
Share of profits of associates
Share of profits of joint ventures
(4)
(8)
Impairment losses on other assets
(59,922)
(60,829)
Profit before taxation
90,680
66,480
(5,890)
For the year ended 31 December 2018
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Statement of Profit or Loss
Annual Report 2018
IX Financial Statements
China Merchants Bank
22 March 2019
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
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.
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.
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.
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.
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.
Conclude on the appropriateness of the directors of the Bank's 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 appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors of the Bank.
Notes
2018
2017
Interest income
(6,566)
Fee and commission expense
69,908
73,046
8
144,852
160,384
Net fee and commission income
(97,153)
7
242,005
270,911
6
Fee and commission income
Net interest income
Interest expense
(110,527)
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.
15
(20,042)
1,995
(67)
149
(5,369)
N/A
N/A
496
Fair value gain on equity instruments measured at fair value
through other comprehensive income
Items that will not be reclassified to profit or loss
of foreign operations
Cash flow hedge: net movement in hedging reserve
Exchange difference on translation of financial statements
reserve
Available-for-sale financial assets: net movement in fair value
comprehensive income
instruments measured at fair value through other
(2,359)
332
N/A
Remeasurement of defined benefit liability
Attributable to:
62,947
89,936
(7,692)
1
23
9,094
Total comprehensive income for the year
Net changes in expected credit losses of debt
Non-controlling interests
Attributable to:
(7,691)
9,117
16
Other comprehensive income for the year, net of tax
60
(62)
Equity shareholders of the Bank
(25,678)
N/A
Fair value gain on debt instruments measured at fair value
through other comprehensive income
259
70,150
80,560
70,638
80,819
The notes form part of these consolidated financial statements.
2.78
3.13
17
Basic and diluted (RMB)
Earnings per share
Non-controlling interests
Equity shareholders of the Bank
Attributable to:
Profit for the year
488
135
136
China Merchants Bank
44
(36)
26
comprehensive income
Items that may be reclassified subsequently to profit or loss
Equity-accounted investees share of other
after tax and reclassification adjustments
Other comprehensive income for the year
6,243
Profit for the year
80,819
2018
Notes
For the year ended 31 December 2018
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Annual Report 2018
IX Financial Statements
2017
70,638
Non-controlling interests
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.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
(64)
(64)
(4) (21,189)
(21,185)
(21,185)
1
(7,621)
7,621
(7,523)
(4) (22,912)
(64)
(22,844)
2,522
(40,510)
7,621
69
(23,707)
23,707
(1,659)
1,158
1,130 540,118
23,707
78,542 250,654
63 53,682
5,532
34,065 67,523
7,523
25,220
(4)
4
at FVTOCI
of equity Instruments designated
(e) Transfers within equity upon disposal
(1,659)
(1,659)
At 31 December 2018
2,329 543,605
(34)
125
(i) Non-controlling shareholders'
(c) Capital contribution from equity holders
Total comprehensive income for the year
(b) Other comprehensive income for the year 16
(a) Net profit for the year
Changes in equity for the year
At 1 January 2018
policy changes
91
91
230 89,936
350
52
89,654
1,973
contribution to non-wholly
owned subsidiaries
(ii) Decrease in non-controlling interests
(d) Profit appropriations
125
(vi) Dividends paid for preference shares
(v) Proposed dividends for the year 2018
63
instruments
(iv) Distribution to perpetual capital
year 2017
(34)
for the
52
general reserve
(ii) Appropriations to regulatory
7,523
51
surplus reserve
(i) Appropriations to statutory
(iii) Dividends declared and paid
о
The notes form part of these consolidated financial statements.
130
With the support of our internal valuation specialists, we
performed independent valuations, on a sample basis, of
level 2 and level 3 financial instruments and compared our
valuations with the Group's valuations.
We assessed the level 1 fair values, on a sample basis, by
comparing the fair values applied by the Group with publicly
available market data.
We evaluated the valuation techniques, inputs and
assumptions through comparison with the valuation
techniques commonly used in the markets, validation
of observable inputs using external market data, and
comparison with valuation outcomes obtained from various
pricing sources.
Our procedures in relation to the valuation of the fair value
of financial instruments included understanding and testing
the design and operating effectiveness of key internal
controls over the determination of valuation model and
valuation of the financial instrument at fair value.
How our audit addressed the key audit matter
As describe in note 4(1), the consolidation of structured
entities is determined based on the control. Control is
achieved when the investor has power over the investee,
the investor is exposed, or has rights, to variable returns
from its involvement with the investee; and the investor
has the ability to use its power to affect its returns. 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 interests that it holds in the
structured entities.
The structured entities include the wealth management
products, asset management schemes, mutual funds,
etc. as disclosed in note 65 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 consolidation of
structured entities or not significantly affects most of the
accounts in the consolidated financial statements.
Consolidation of Structured Entities
Significant estimates applied in fair value of financial
instruments and the disclosure of fair value are set out
in notes 5(5) and 61(g) to the consolidated financial
statements.
As at December 31, 2018, as set out in note 61(g) the
Group's financial assets and financial liabilities at fair
value totalled RMB958,339 million and RMB80,670 million
respectively, accounting for 14% and 1% of total assets
and liabilities of the Group respectively.
We identified the valuation of financial instruments as a
key audit matter due to the materiality of the balances
and the complexity involved in valuing certain financial
instruments, of which significant judgement and estimation
are required in determining the valuation technique and
the inputs used in the valuation models.
The valuation of the Group's financial instruments,
measured at fair value, is based on a combination of
market data and valuation models which require a
considerable number of inputs. Most of these inputs are
obtained from readily available data, in particular for
level 1 and level 2 financial instruments, the valuation
techniques for which use quoted market prices and
observable inputs, respectively. Where observable data
is not readily available, as in the case of level 3 financial
instruments, estimates are required to determine the
unobservable inputs, which involve significant management
judgement.
Valuation of financial instruments
Key audit matter
Our procedures in relation to consolidation of structured
entities included understanding and testing the design and
operating effectiveness of key controls over the management
process in determining the consolidation scope for interests
in structured entities as well as understanding the purpose
for setting up the structured entities.
We also evaluated management judgement in whether
has control in the 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
structured entities 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.
China Merchants Bank
Annual Report 2018
IX Financial Statements
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements (continued)
DTTHK(A)(19)100046
IX Financial Statements
China Merchants Bank
Annual Report 2018
134
133
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.
Key Audit Matters (continued)
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
In preparing the consolidated financial statements, the directors of the Bank 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 of the Bank 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 of the Bank 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.
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.
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)(19)100046
Those charged with governance are responsible for overseeing the Group's financial reporting process.
139
DTTHK(A)(19)100046
IX Financial Statements
Key Audit Matters
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.
Basis for Opinion
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 2018, 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.
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 135 to 283, which comprise the consolidated statement of
financial position as at 31 December 2018, 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 flow
statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
Opinion
The notes form part of these consolidated financial statements.
DTTHK(A)(19)100046
(A joint stock company incorporated in the People's Republic of China with limited liability)
To the shareholders of China Merchants Bank Co., Ltd.
Deloitte
Independent Auditor's Report
Annual Report 2018
IX Financial Statements
China Merchants Bank
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.
China Merchants Bank
IX Financial Statements
Annual Report 2018
China Merchants Bank
132
131
With the support of our internal modelling specialist,
we assessed the reasonableness of the key definitions,
parameters and assumptions used in the ECL model. This
included assessing stage allocation, probability of default,
loss given default, exposure at default and forward-looking
information. We selected samples to conduct credit reviews
in order to assess whether the SICR and impairment events
were occurred and were appropriately recognized without
delay. In addition, we tested the input data samples of the
ECL model to evaluate the completeness and accuracy of the
data input. We also tested the calculation of the ECL model
on a sample basis. For the loans and advances at amortised
cost and debt investments at amortised cost at stage 3,
we selected samples to test the reasonableness of future
cash flows estimated by the Group, including the expected
recoverable amount of collateral, to assess whether there
were significant misstatements in the loss allowance.
We assessed whether the ECL model applied by the
Group has covered all the exposures that should be taken
into consideration. In respect of different portfolios of
loans and advances to customers at amortised cost and
debt investments at amortised cost, we involved our
internal modelling specialist to assist us in assessing the
appropriateness of the Group's methodology of ECL
model. We reviewed relevant documents and evaluated the
applicability and appropriateness of the ECL model.
We understood management's process and tested the
design and operating effectiveness of key controls across the
processes relevant to the ECL of the Group. These controls
included the validation and review of the ECL model; the
controls over the model data input, including manual
controls and automatic controls; the automatic controls over
the ECL model calculation process; the controls over the
identification of SICR indicators and impairment evidence.
Our procedures in relation to the expected credit loss
allowance of loans and advances to customers at amortised
cost and debt investments at amortised cost included:
Annual Report 2018
How our audit addressed the key audit matter
Key judgements and estimates in respect of the
measurement of ECLs include: the criteria selected to
identify a significant increase in credit risk (SICR) are highly
judgemental; the identification of credit impairment events
is a key area of judgement; significant judgments are
required to the determination of inputs used in the ECL
model, as well as the determination of the forward-looking
information.
As at 31 December 2018, as set out in note 22, the Group
reported loans and advances to customers at amortised
cost of RMB3,764,074 million and RMB191,895 million
of relevant expected credit loss allowance. While as set
out in note 24(b), the Group reported debt investments at
amortised cost of RMB924,138 million and related credit
loss allowance of RMB8, 126 million.
We identified expected credit loss allowance of loans
and advances to customers at amortised cost and debt
investments at amortised cost as a key audit matter
due to the materiality of the balances of these financial
instruments. The expected credit loss (ECL) model was
applied by the Group to estimate ECLs since 1 January
2018, which involves significant management judgement
and estimates.
Expected credit loss allowance of loans and advances
to customers at amortised cost and debt investments
at amortised cost
Key audit matter
Key Audit Matters (continued)
DTTHK(A)(19)100046
Principal accounting policies, accounting estimates and
judgement applied in determining the loss allowance of
loans and advances to customers at amortised cost and
debt investments at amortised cost are set out in notes
4(5) and 5(4) to the consolidated financial statements.
德勤
36,501
8,475
40(a)
The principal activities of the Bank and its subsidiaries (the "Group") are providing corporate and personal banking
services, conducting treasury business, providing asset management and other financial services.
2.
Basis of preparation of consolidated financial statements
Statement of compliance and basis of preparation
(1)
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.
(2) Basis of measurement
Unless otherwise stated, the consolidated financial statements are presented in Renminbi ("RMB"), which is the
Group's functional and presentation currency, rounded to the nearest million.
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.
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 Share-based Payment, leasing transactions that are within the scope
of IAS 17 Lease, and measurements that have some similarities to fair value but are not fair value, such as net
realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.
143
144
China Merchants Bank
Annual Report 2018
2.
IX Financial Statements
Basis of preparation of consolidated financial statements (continued)
(2) Basis of measurement (continued)
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:
(2) Principal activities
As at 31 December 2018, apart from the Head Office, the Bank had 51 branches in the Mainland China, Hong
Kong, New York, Singapore, Sydney and Luxembourg. In addition, the Bank has four representative offices in Beijing,
London, New York and Taipei.
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").
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.
Cash flows from operating activities include:
Interest received
Interest paid
The notes form part of these consolidated financial statements.
214,843
188,045
95,349
83,869
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
China Merchants Bank
Annual Report 2018
Notes to the Financial Consolidated Statements
For the year ended December 31, 2018
(Expressed in millions of Renminbi unless otherwise stated)
1.
(1)
Organisation and principal activities
Organisation
IX Financial Statements
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 3 inputs are unobservable inputs for the asset or liability.
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.
IX Financial Statements
Annual Report 2018
3. Application of new and amendments to IFRSS (continued)
New and revised IFRSS effective in the current period applied by the Group
(continued)
(1)
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments (continued)
China Merchants Bank
(1.1) Impacts from classification and measurement
Balances with banks and other financial institutions
IAS 39
Remeasurement: ECL
IFRS 9
Placements with banks and other financial
IAS 39
IFRS 9
The directors of the Bank reviewed and assessed the Group's financial assets as at 1 January 2018 based on
the facts and circumstances that existed at that date. Changes in classification and measurement (including
impairment) on the Group's financial assets and the impacts thereof are detailed below:
Accounting policies resulting from application of IFRS 9 are disclosed in note 4(5).
In the current year, the Group has applied IFRS 9 Financial Instruments and the related consequential
amendments to other IFRSS. IFRS 9 introduces new requirements for 1) the classification and measurement of
financial assets and financial liabilities, 2) expected credit losses ("ECL") for financial assets, contract assets,
leases receivable, loan commitments and financial guarantee contracts, and 3) general hedge accounting.
The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9. i.e. applied the
classification and measurement requirements (including impairment) retrospectively to instruments that have
not been derecognised as at 1 January 2018 (date of initial application) and has not applied the requirements
to instruments that have already been derecognised as at 1 January 2018. The difference between carrying
amounts as at 31 December 2017 and the carrying amounts as at 1 January 2018 are recognized in the
opening retained profits and investment revaluation reserve, without restating comparative information.
Accordingly, certain comparative information may not be comparable in these consolidated financial
statements.
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments
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.
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 5.
3. Application of new and amendments to IFRSS
New and revised IFRSS effective in the current period applied by the Group
IFRS 9
IFRS 15
IFRIC 22
Amendments to IFRS 2
Amendments to IFRS 4
Amendments to IAS 40
Amendments to IAS 28
Financial Instruments
Revenue from Contracts with Customers and the related Amendments
Foreign Currency Transactions and Advance Consideration
Classification and Measurement of Share-based Payment Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Transfers of Investment Property
As part of the annual Improvements to IFRS standards 2014-2016 Cycle
The new and amendments to IFRSS have been applied in accordance with the relevant transition provisions in the
respective standards and amendments which results in changes in accounting policies, amounts reported and/or
disclosures as described below.
(1)
460,425
543,683
56(a)
(4,219)
142
China Merchants Bank
IX Financial Statements
Annual Report 2018
Note
2018
2017
141
Financing activities
73,029
52,449
Proceeds from the issue of negotiable interbank certificates
of deposits
407,328
559,795
Proceeds from the issue of certificates of deposits
Proceeds from the issue of debt securities
The notes form part of these consolidated financial statements.
(84,471)
1,785
19,718
(923,275)
980,939
803,283
Investments and net gains received from investments
48,692
52,205
Payment for the purchase of subsidiaries, associates, joint venture
(2,154)
(606)
Payment for the purchase of properties and equipment and other assets
Proceeds from the disposal of properties and equipment and other assets
(17,492)
(16,336)
2,173
Proceeds from the disposal of subsidiaries, associates, joint venture
Proceeds from other investing activities
9
191
67
Net cash generated from(used in) investing activities
32,300
31 December
19,086
1,170
(22,912)
(18,692)
(11,813)
(14,483)
(431)
Net cash generated from financing activities
Cash and cash equivalents as at 1 January
Effect of foreign exchange rate changes
Payment for other financing activities
Cash and cash equivalents as at 31 December
22,663
Net increase/decrease in cash and cash equivalents
78,330
(67,468)
460,425
532,112
4,928
94,333
Interest paid on financing activities
Dividends paid
(32)
Proceeds from the issue of preferred shares
34,065
Proceeds from non-controlling shareholders
125
495
Proceeds from other financing activities
2,921
Repayment of issued debt securities
(15,590)
Repayment of negotiable interbank certificates of deposits
(342,201)
(30,186)
(569,088)
Repayment of certificates of deposit
(28,389)
(11,916)
Payment for acquiring additional non-controlling equity
(34)
Proceeds from the issue of perpetual debt capital
1 January
2017
Reclassification Remeasurement
From Available-for-sale financial assets
900
From Held-to-maturity investments (note (vi))
558,218
From Debt securities classified as receivables (note (v))
365,044
Remeasurement: ECL
IAS 39
Remeasurement: from fair value to amortised cost
IFRS 9
921,494
China Merchants Bank
IX Financial Statements
Annual Report 2018
3. Application of new and amendments to IFRSS (continued)
New and revised IFRSS effective in the current period applied by the Group
(2,670)
2
Debt investments at amortised cost
2,925
1,177
Transfer to Debt investments at amortised cost (note (v))
IFRS 9
572,241
(205,657)
(1,540)
(365,044)
Debt investments at FVTOCI
IAS 39
From Available-for-sale financial assets (note (iv))
From Debt securities classified as receivables
Remeasurement: from amortised cost to fair value
IFRS 9
331,498
1,540
342
333,380
Equity investments designated at FVTOCI
IAS 39
From Available-for-sale financial assets
From other assets
Remeasurement: from cost to fair value
IFRS 9
1,648
100
(continued)
Transfer to Debt investments at FVTOCI
(1)
(1.1) Impacts from classification and measurement (continued)
IAS 39
23,372
Transfer to Equity investments designated at FVTOCI
(100)
IFRS 9
23,272
Deferred tax assets
Other assets
IAS 39
Remeasurement
IFRS 9
2,211
52,331
Provision
IAS 39
Remeasurement: ECL
50,120
9,326
17
28,180
Interest receivable
Remeasurement: ECL
IAS 39
IFRS 9
Precious metals
IAS 39
Remeasurement: ECL (note (vii))
IFRS 9
IAS 39
IFRS 9
31 December
1 January
2017 Reclassification Remeasurement
2018
28,726
9,309
(546)
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments (continued)
(994,234)
Transfer to Investments at FVTPL (note (iii))
Debt securities classified as receivables
Transfer to loans and advances to customers at
FVTOCI (note (i))
(136,918)
Remeasurement: ECL
(923)
IFRS 9
3,276,771
3,414,612
Loans and advances to customers at FVTOCI
From loans and advances to customers at amortised
cost (note (i))
136,918
Remeasurement: from amortised cost to fair value
(note (i))
(90)
IFRS 9
136,828
Investments at FVTPL
IAS 39
IAS 39
Loans and advances to customers at amortised cost
251,940
2018
76,918
(22)
76,896
institutions
IAS 39
Remeasurement: ECL
IFRS 9
154,628
(49)
154,579
Amounts held under resale agreements
IAS 39
Remeasurement: ECL
IFRS 9
252,550
(610)
IAS 39
IAS 39
From available-for-sale financial assets (note (ii))
(note (iii))
1 January
2018
Available-for-sale financial assets
IAS 39
Transfer to Investments at FVTPL (note (ii))
Transfer to Debt investments at FVTOCI (note (iv))
Transfer to Equity investments designated at FVTOCI
Transfer to Debt investments at amortised cost
IFRS 9
Reclassification Remeasurement
383,101
(1,648)
(900)
Held-to-maturity investments
IAS 39
558,218
Transfer to Debt investments at amortised cost (note (vi))
IFRS 9
(558,218)
(49,055)
(331,498)
2017
31 December
IFRS 9
IFRS 9
64,796
49,055
205,657
(917)
318,591
145
146
China Merchants Bank
IX Financial Statements
Annual Report 2018
3. Application of new and amendments to IFRSS (continued)
New and revised IFRSS effective in the current period applied by the Group
(continued)
(1)
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments (continued)
(1.1) Impacts from classification and measurement (continued)
IAS 39
From debt securities classified as receivables (note (iii))
Remeasurement: from amortised cost to fair value
Proceeds from the disposal of investments
Payment for the purchase of investments
Investing activities
Remeasurement
IAS 39
Retained profits
(1,444)
IFRS 9
2,368
Remeasurement
IFRS 9
(3,812)
Investment revaluation reserve
5,274
4,824
140
China Merchants Bank
Annual Report 2018
At 1 January 2017
Changes in equity for the year
IAS 39
219,878
(9,270)
210,608
(v)
(iv)
(iii)
(ii)
(i)
Notes:
(1.1) Impacts from classification and measurement (continued)
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments (continued)
(1)
(continued)
New and revised IFRSS effective in the current period applied by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
148
147
(a) Net profit for the year
(vi)
IX Financial Statements
Total equity attributable to equity shareholders of the Bank
capital interests Total
25,220
67,523
1,454
(19) 39,708
67,838 180,447
18,663
Subtotal
1,516 402,350
34,065
(5,266)
(67) 6,451
3,083 39,431
2,522
(2,359)
77,860
1,012 403,362
reserve
appropriations
reserve profits
Other
Investment
Regulatory
Proposed
Share
equity Capital
revaluation Hedging Surplus
general Retained
profit Exchange
Non-controlling interests
Perpetual Non-
debt controlling
Notes
capital
instruments
reserve
reserve reserve reserve
2017
1,170
Loans and advances to customers at amortised cost of RMB136,918 million were reclassified to loans and advances to customers at
FVTOCI, as these loans and advances to customers are held within a business model whose objective is achieved by both collecting
contractual cash flows and selling of these assets and the contractual cash flows of these loans are solely payments of principal
and interest on the principal amount outstanding. Related fair value losses of RMB90 million was adjusted to loans and advances to
customers at FVTOCI and revaluation reserve as at 1 January 2018.
Debt securities classified as receivables of RMB205,657 million were reclassified to investments at FVTPL upon the application of IFRS
9 because the contractual cash flows did not represent solely payments of principal and interest on the principal amount outstanding.
The related fair value losses of RMB917 million was adjusted to investments at FVTPL and retained profits as at 1 January 2018.
Available-for-sale investments of RMB331,498 million were reclassified to debt instruments at FVTOCI, as these investments are held
within a business model whose objective is achieved by both collecting contractual cash flows and selling of these assets and the
contractual cash flows of these investments are solely payments of principal and interest on the principal amount outstanding.
446
610
49
22
4,824
2,670
923
546
opening retained profits
(93)
(4,302)
(531)
4,395
455
15
(15)
Amounts remeasured through
(17)
Amounts remeasured through
investment revaluation
reserve
149
The Group applies the hedge accounting requirements of IFRS 9 prospectively. At the date of the initial
application, hedging relationships that qualified for hedge accounting in accordance with IAS 39 are regarded
as continuing hedging relationship if all qualifying criteria under IFRS 9 are met, after taking into account any
rebalancing of the hedging relationship on transition. Consistent with prior periods, the Group has continued
to designate several interest rate swap contracts as the hedging instrument for all of its hedging relationships
involving interest rate risk. As such, the adoption of the hedge accounting requirements of IFRS 9 had not
resulted in adjustments to comparative figures.
(1.3) Impacts from Hedge accounting
5
559
1,364
184
138
13
4,824
7,065
1,445
180
151,340
At 1 January 2018
990
165
Reclassification
Available-for-sale investments of RMB49,055 million were reclassified to investments at FVTPL. This is because the cash flows of these
investments did not represent solely payments of principal and interest on the principal amount outstanding.
22
135
Loans and
advances to
customers at
amortised cost
Placements
with banks
All loss allowances for financial assets, leases receivable, loan commitments and financial guarantee contracts
etc. as at 31 December 2017 reconciled to the opening loss allowances as at 1 January 2018 are as follows:
As at 1 January 2018, the directors of the Bank reviewed and assessed the Group's existing financial
assets, leases receivable, loan commitments and financial guarantee contracts etc. for impairment using
reasonable and supportable information that is available without undue cost or effort in accordance with the
requirements of IFRS 9.
(1.2) Impacts from ECL
Impacts and changes in accounting policies of application on IFRS 9 Financial Instruments and the
related amendments (continued)
(1)
Loans and
advances to
customers at
FVTOCI
New and revised IFRSS effective in the current period applied by the Group
(continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
The Group recognised a loss allowance for ECL on precious metals lease which are subject to impairment under IFRS 9.
(vii)
Bonds previously classified as held-to-maturity investments were reclassified and measured at amortised cost upon application of IFRS
9. The Group intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of payments
of principal and interest on the principal amount outstanding.
Debt securities classified as receivables of RMB365,044 million were reclassified and measured at amortised cost upon application
of IFRS 9. The Group intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of
payments of principal and interest on the principal amount outstanding.
3. Application of new and amendments to IFRSS (continued)
Debt
instruments
at FVTOCI
Debt
investments
Financial
guarantee
116
93
4,302
531
150,432
- IAS 39
At 31 December 2017
metals
Interest Precious
receivable
and Amounts held
other financial under resale
institutions agreements
classified as Held-to-maturity other financial
receivables investments institutions
financial assets
commitment
Balances with
banks and
Debt securities
contracts
and credit Available-for-sale
at amortised
cost
754
450
1,000 80,030
70,150
- Depreciation of properties and equipment and investment properties
5,270
5,062
- Amortisation of other assets
1,005
724
- Net gain on debt securities and equity investments
(561)
(200)
- Interest income on investments
- Interest expense on issued debt securities
- Share of profits of associates
- Share of profits of joint ventures
- Net gains on disposal of properties and equipment
Changes in:
Balances with central bank
(729)
(307)
- Unwind of discount
(126)
IX Financial Statements
Annual Report 2018
Consolidated Cash Flow Statement
For the year ended 31 December 2018
(Expressed in millions of Renminbi unless otherwise stated)
2018
2017
Cash flows from operating activities
Profit before tax
Adjustments for:
106,497
90,680
- Impairment losses on loans and advances
59,252
60,052
- Impairment losses on investments and other assets
1,585
Loans and advances to customers
China Merchants Bank
Other assets
(48,267)
30,597
Borrowing from central bank
(14,693)
84,730
Other liabilities
(48,130)
20,833
(21,311)
Cash generated from operating activities before tax
25,174
Income tax paid
(39,589)
(30,834)
Net cash used in operating activities
(35,721)
(5,660)
3,868
Balances and placements with banks and other financial institutions with
original maturity over 3 months
(129,953)
(87,461)
(52,042)
14,530
13,436
(37)
(1,272)
(995)
(196)
(127)
91,162
(25,205)
(375,451)
(322,105)
(14,437)
(11,390)
336,329
262,296
Deposits and placements from banks and other financial institutions
Deposits from customers
70,150
Note: (i) China Merchants Fund Management Co., Ltd. cancelled the dividends distribution scheme of the year 2016 in 2017.
The notes form part of these consolidated financial statements.
1,170
contribution to non-wholly
owned subsidiaries
25(iv)
(ii) Decrease in non-controlling interests
(ii) Capital injection from preference
shareholders
47
(i) Non-controlling shareholders'
34,065
instruments
(d) Profit appropriations
(i) Appropriations to statutory
surplus reserve
51
(ii) Appropriations to regulatory
general reserve
52
(iv) Issuance of perpetual capital
(c) Capital contribution from equity holders
Total comprehensive income for the year
(b) Other comprehensive income for the year 16
29
459 70,638
(5,266) (67)
(2,359)
(7,692)
1 (7,691)
(5,266)
(67)
70,150
(2,359)
62,458
29
460 62,947
34,065
34,065
1,170
463 35,698
(ii) Dividends declared and paid
2,012 483,392
for the year 2016 (note(i))
495
77 (18,586)
(iv) Distribution to perpetual capital
instruments
(29)
(29)
(v) Proposed dividends for the year 2017
(21,185)
1
21,185
25,220
34,065 67,523
(3,812)
(86) 46,159
70,921 219,878
21,185
(843) 480,210
At 31 December 2017
(18,663)
(18,663)
.
(32)
(32)
34,065
34,065
1,170
1,170
6,451
3,083
(30,719)
2,522
(18,663)
(29)
77 (18,615)
6,451
(6,451)
3,083 (3,083)
.
495
IFRS 9
2,012
Non-controlling interests
21,857
Derivative financial liabilities
26,619
272,734
- 439,118
26,619
through profit or loss
Financial liabilities at fair value
272,734
financial institutions
Placements from banks and other
439,118
financial institutions
Deposits from banks and other
414,838 3 - - 414,838
Borrowing from central bank
1 January
2018
IFRS 15
IFRS 9
2017
31 December
Amounts sold under repurchase
agreements
125,620
Deposits from customers
296,477
Debt securities issued
5,274
4,824
450
Provision
4,244
4,244
Contract liabilities
26,701
Liabilities
26,701
8,020
8,020
Salaries and welfare payable
36,501
36,501
Interest payable
4,064,345
125,620
21,857
4,064,345
Tax payable
Impacts opening consolidated statement of financial position arising from the application of all new
standards, amendments (continued)
(3)
New and revised IFRSS effective in the current period applied by the Group
(continued)
20
Deferred tax assets
Goodwill
Intangible assets
Property and equipment
Investment properties
Interests in associates
5,183
5,183
Interests in joint ventures
20
(572,241)
Debt securities classified as receivables
(558,218)
558,218
Held-to-maturity investments
(383,101)
Note: (i) Effective for business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual
period beginning on or after 1 January 2020.
Note (i)
The above new and amendments to IFRSS have been effective for the year beginning on or after 1 January 2019,
and have not been used in advance in the consolidated financial statements of this year. Except for the new and
amendments to IFRSS mentioned below, the Group anticipates that the application of all other new and amendments
to IFRSS will have no material impact on the consolidated financial statements in the foreseeable future.
153
154
572,241
296,477
1,612
49,812
3. Application of new and amendments to IFRSS (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
152
151
6,295,560
(2,078)
6,297,638
Total assets
1,612
23,148
23,248
Other assets
52,331
2,211
50,120
9,954
9,954
7,255
7,255
49,812
(100)
Deferred tax liabilities
1,070
1,070
1 January 2019
on or after
period beginning
Effective for annual
IFRS 16
Standards and amendments that are not yet effective and have not been
adopted by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Leases
6,295,560
6,297,638
476,490
(6,902)
483,392
Total equity and liabilities
Total equity
1,170
1,170
- Perpetual debt capital
2,012
(2,078)
- Non-controlling interests
Amendments to IFRS 9
1 January 2019
1 January 2020
Amendments to IAS 1
and IAS 8
Amendments to IFRS 3
Amendments to IFRS 10
and IAS 28
Definition of Material
Definition of a Business
Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
1 January 2021
Insurance Contracts
IFRS 17
Prepayment Features with Negative Compensation
1 January 2019
Amendments to IFRSS
1 January 2019
Long-term Interests in Associates and Joint Ventures
Amendments to IAS 28
1 January 2019
Plan Amendment, Curtailment or Settlement
Amendments to IAS 19
1 January 2019
Uncertainty over Income Tax Treatments
IFRIC 23
Annual Improvements to IFRS standards 2015-2017 Cycle
China Merchants Bank
3,182
473,308
Investment revaluation reserve
67,523
67,523
Capital reserve
34,065
34,065
Including: Preference shares
34,065
34,065
Other equity instruments
(3,812)
25,220
Share capital
5,819,070
4,824
5,814,246
75,652
(4,244)
79,896
Equity
Total liabilities
Other liabilities
25,220
3,182
2,368
Hedging reserve
(6,902)
480,210
shareholders of the Bank
Total equity attributable to equity
(843)
(843)
Exchange reserve
21,185
21,185
Proposed profit appropriations
(1,444)
210,608
219,878
Retained profits
70,921
70,921
Regulatory general reserve
46,159
46,159
Surplus reserve
(86)
(86)
(9,270)
IX Financial Statements
a date to be determined
3. Application of new and amendments to IFRSS (continued)
other comprehensive income
Debt investments at fair value through
921,494
921,494
Debt investments at amortised cost
18,916
18,916
Derivative financial assets
318,591
253,795
333,380
64,796
Investments at fair value through
28,180
(546)
28,726
Interest receivable
3,413,599
(1,013)
3,414,612
Loans and advances to customers
251,940
profit or loss
(610)
333,380
at fair value through other
2,925
it is a derivative that is not designated and effective as a hedging instrument.
In addition, the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria
Annual Report 2018
China Merchants Bank
IX Financial Statements
Annual Report 2018
4. Principal accounting policies (continued)
(5) Financial instruments (continued)
Classification and measurement of financial assets (continued)
Equity investments designated
Amortised cost and interest income
Debt instruments and loans and advances to customers classified as at FVTOCI
Subsequent changes in the carrying amounts for debt instruments and loans and advances to customers classified
as at FVTOCI as a result of interest income calculated using the effective interest method, foreign exchange gains
and losses are recognised in profit or loss. All other changes in the carrying amount of debt instruments and loan
and advances to customers are recognised in OCI and accumulated under the heading of investment revaluation
reserve. Impairment losses are recognised in profit or loss with corresponding adjustment to OCI without reducing
the carrying amounts of debt instruments and loan and advances to customers. The amounts that are recognised
in profit or loss are the same as the amounts that would have been recognised in profit or loss if debt instruments
and loan and advances to customers had been measured at amortised cost. When debt instruments and loan
and advances to customers are derecognised, the cumulative gains or losses previously recognised in investment
revaluation reserve are reclassified to profit or loss.
Equity instruments designated as at FVTOCI
At the date of initial application/initial recognition, the Group may make an irrevocable election (on an
instrument-by-instrument basis) to designate investments in equity instruments which are not held for trading as
at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised
in OCI and accumulated in the investment revaluation reserve; and are not subject to impairment assessment. The
cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be
transferred to retained profits.
Dividends from these investments in equity instruments are recognised in profit or loss when the Group's right
to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the
investment. Dividends are included in the "other net income" line item in profit or loss.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as
FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting
period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss
includes any dividend or interest earned on the financial asset and is included in the "other net income" line item.
159
2,925
comprehensive income
Interest income is recognised using the effective interest method for financial assets measured subsequently at
amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Interest income is calculated
by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets
that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired,
interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from
the next reporting period. If the credit risk on the credit impaired financial instrument improves so that the financial
asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross
carrying amount of the financial asset from the beginning of the reporting period following the determination that
the asset is no longer credit impaired.
Available-for-sale financial assets
252,550
154,579
Impacts opening consolidated statement of financial position arising from the application of all new
standards, amendments
(3)
(continued)
New and revised IFRSS effective in the current period applied by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Except as described above, the application of other amendments to IFRSS in the current year has had no
material effect on the amounts reported and/or disclosures set out in these consolidated financial statements.
The accounting policies resulting from application of IFRS 15 are disclosed in notes 4(14).
As a result of the changes in the Group's accounting policies as described above, the opening consolidated
statement of financial position had to be adjusted. The following table show the adjustments recognised for
each individual line item.
As at 31 December 2018, if the statement of financial position was presented without application of IFRS
15, contract liabilities amounting to RMB5,607 million upon application of IFRS 15 would be presented and
included in other liabilities.
The Group has applied IFRS 15 for the first time in the current annual period. IFRS 15 superseded IAS 18
Revenue and the related interpretations. In accordance with the transition provisions in IFRS 15, the Group
has elected to apply the Standard retrospectively only to contracts that are not completed at 1 January 2018
and has used the practical expedient for all contract modifications that occurred before the date of initial
application. Accordingly, certain comparative information may not be comparable as comparative information
was prepared under IAS 18 and the related interpretations.
Impacts and changes in accounting policies of application on IFRS 15
(2)
(continued)
New and revised IFRSS effective in the current period applied by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
150
There is no significant impact on retained profits on initial application of IFRS 15. At 1 January 2018,
total deferred income RMB4,244 million were reclassified from other liabilities to contract liabilities upon
application of IFRS 15.
Amounts held under resale agreements
31 December
2017
IFRS 9
(49)
154,628
other financial institutions
Placements with banks and
76,896
(22)
76,918
other financial institutions
Balances with banks and
600,007
1 January
600,007
9,326
17
9,309
Precious metals
16,412
16,412
Cash
Assets
2018
IFRS 15
Balances with central bank
383,101
as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
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 acquiree's identifiable net assets.
The choice of measurement basis is made on a transaction-by-transaction basis.
155
156
China Merchants Bank
IX Financial Statements
Annual Report 2018
4.
Principal accounting policies (continued)
(2) Joint ventures
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.
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.
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.
whether any party within the joint arrangement cannot control the relevant activities of the joint ventures;
whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
parties sharing control.
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
ventures.
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.
•
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.
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 ceases to have joint control over a joint venture and no significant impact occurs, 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 4(5)).
China Merchants Bank
When judge whether there is a joint control, the Group usually considers the following cases:
IX Financial Statements
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
Standards and amendments that are not yet effective and have not been
adopted by the Group (continued)
IFRS 16 Leases
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 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a
customer. In addition, IFRS 16 requires sales and leaseback transactions to be determined based on the requirements
of IFRS 15 as to whether the transfer of the relevant asset should be accounted as a sale. Distinctions of operating
leases and finance leases are removed for lessee accounting, and are 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.
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 IAS 17. Under 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.
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.
As at 31 December 2018, the Group has non-cancellable operating lease commitments of RMB14,548 million as
disclosed in note 59(c). Under IFRS 16, 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.
The application of new requirements may result in changes in measurement, presentation and disclosure as indicated
above. The Group elected the practical expedient to apply IFRS 16 to contracts that were previously identified as
leases applying IAS 17 and IFRIC-Int 4 Determining whether an Arrangement contains a Lease and not apply this
standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC-Int 4.
Therefore, the Group will not reassess whether the contracts are, or contain a lease which already existed prior to
the date of initial application.
In addition, the Group also elected to use the following practical expedients when applying this Standard
retrospectively in accordance with IFRS 16 to leases previously classified as operating leases applying IAS 17:
Applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
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.
Exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application.
Furthermore, the Group elected the modified retrospective approach for the application of IFRS 16 as lessee and
recognised the cumulative effect of initial application to opening retained profits without restating comparative
information. Based on the assessment by the Group, the adoption of IFRS 16 would not have a material impact on
retained earnings of the Group at 1 January 2019.
China Merchants Bank
Annual Report 2018
IX Financial Statements
4.
Principal accounting policies
(1) Subsidiaries and non-controlling interests and business combination
Financial statements include financial statements of the Bank and its subsidiaries. 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.
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 in 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.
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 4(5)) or, when appropriate, the cost on initial recognition of an investment
in a joint venture (see Note 4(2)) or, an associate (see Note 4(3)).
Using hindsight, such as in determining the lease term if the contract contains options to extend or terminate
the lease.
Annual Report 2018
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 4(4)
and 4(11)).
(3) Associates
Initial recognition
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.
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.
At initial recognition, financial assets and financial liabilities are initially measured at fair value except for trade
receivables arising from contracts with customers which are initially measured in accordance with IFRS 15 since
1 January 2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to
or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
4. Principal accounting policies (continued)
Classification and measurement of financial assets
The Group classifies its financial assets into the following measurement categories at initial recognition: financial
assets at amortised cost; financial assets fair value through other comprehensive income; and financial assets at fair
value through profit or loss.
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
•
the financial asset is held within a business model whose objective is to collect contractual cash flows; and
Financial instruments
•
Debt instruments that meet the following conditions are subsequently measured at fair value through other
comprehensive income ("FVTOCI"):
•
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair value through profit or loss ("FVTPL"), except that at
the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present
subsequent changes in fair value of an equity investment, which is not held for trading, in other comprehensive
income ("OCI").
A financial asset is classified as held for trading if:
•
it has been acquired principally for the purpose of selling in the near term; or
•
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding ("SPPI").
(5)
The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability
and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
Annual Report 2018
Associate is an entity in which the Group has significant influence, but not control, or joint control, including
participation in the financial and operating policy decisions.
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.
When judging whether there is a significant influence, the Group usually considers the following cases:
representation on the Board of Directors or equivalent governing body of the investee;
participation in policy-making processes;
4. Principal accounting policies (continued)
material transactions between the entity and its investee.
Investments in associates are 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 4(4)
and 4(11)).
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 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 4(5)).
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.
Goodwill represents the excess of
IX Financial Statements
China Merchants Bank
(4) Goodwill
157
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.
158
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
based on the fair value of net assets acquired in the acquiree and the fair value of the Group's previously
held equity interest in the acquiree; over
Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated
to each cash-generating unit ("CGU") or groups of CGUs, that is expected to benefit from the synergies of the
combination and is tested annually for impairment (see Note 4(11)).
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.
(11) Impairment on tangible, intangible assets other than impairment under ECL
model (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.
(12) Precious metals
(13) Financial guarantee issued, provisions and contingent liabilities
4. Principal accounting policies (continued)
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. The provision of financial guarantees
issued is confirmed in the statement of financial position in accordance with note 4 (5).
Other provisions and contingent liabilities
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 highly 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.
169
Financial guarantees issued
Annual Report 2018
Property, equipment and investment property leased out under operating leases are depreciated in accordance with
the depreciation policies described in Note 4(6) and if impaired, impairment losses are provided for in accordance
with the accounting policy described in Note 4(11). 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.
China Merchants Bank
Resale and repurchase agreements
Specific items (continued)
Financial instruments (continued)
(5)
4. Principal accounting policies (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Banks represent other banks approved by the People's Bank of China ("PBOC") and other authorities. Other financial
institutions represent finance companies, insurance companies, investment trust companies and leasing companies
which are registered with and under the supervision of the China Banking and Insurance Regulatory Commission
(the "CBIRC") and securities firms and investment fund companies, etc. which are registered with and under the
supervision of other regulatory authorities. Balances and placements with banks and other financial institutions are
accounted for as loans and receivables.
Balances and placements with banks and other financial institutions
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".
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.
Specific items
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.
Derivatives that do not qualify for hedge accounting
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk
management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio
of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged
item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses
to hedge that quantity of hedged item.
there is an economic relationship between the hedged item and the hedging instrument;
•
.
For hedge effectiveness assessment, the Group considers whether the hedging instrument is effective in offsetting
changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging
relationships meet all of the following hedge effectiveness requirements:
The Group has elected to adopt the new general hedge accounting in IFRS 9. This requires the Group to ensure that
hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more
qualitative and forward-looking approach to assessing hedge effectiveness.
Cash equivalents
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).
Investments
Equity investments are accounted for as financial assets at fair value through profit or loss or equity investments
designated at fair value through other comprehensive income. Debt investments are classified as financial assets at
fair value through profit or loss, debt investments at amortised cost, debt investments at fair value through other
comprehensive income in accordance with the entity's business model, contractual cash flow characteristics and the
fair value option.
(!!)
(i) 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
A financial instrument is an equity instrument if, and only if, both conditions (i) and (ii) below are met:
Perpetual debt capitals: At initial recognition, the Group classifies the perpetual debt capitals 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.
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.
Equity instruments
Specific items (continued)
Financial instruments (continued)
(5)
4. Principal accounting policies (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
164
163
Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 are not
separated. The entire hybrid contract is classified and subsequently measured in its entirety as either amortised cost
or fair value as appropriate. Derivatives embedded in non-derivative host contracts that are not financial assets within
the scope of IFRS 9 are treated as separate derivatives when they meet the definition of a derivative, their risks and
characteristics are not closely related to those of the host contracts and the host contracts are not measured at
FVTPL. 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 hedging relationship. Separated embedded derivatives are
presented in the statement of financial position together with the host contract.
Embedded derivatives
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.
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.
Derivative financial instruments
Loans and advances to customers are classified as loans and advances customers at fair value through profit or loss
(loans and advances customers at FVTPL), loans and advances customers at amortised cost, loans and advances
customers at fair value through other comprehensive income (loans and advances customers at FVTOCI) in
accordance with the entity's business model, contractual cash flow characteristics and the fair value option.
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.
Loans and advances to customers
Hedge effectiveness testing
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 hedging reserve. Any gain or
loss relating to an ineffective portion is recognised immediately in the consolidated statement of profit or loss.
For cash flow hedge of a recognised asset or liability, the associated cumulative gain or loss is reclassified from
hedging reserve 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 hedging reserve 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 is immediately reclassified to the consolidated statement of
profit or loss.
Cash flow hedge
Hedge accounting (continued)
IX Financial Statements
China Merchants Bank
IX Financial Statements
the cash flows that the Group expects to receive if the loan is drawn down.
if the holder of the loan commitments draws down the loan, and
For undrawn loan commitments, ECL is the present value of the difference between the contractual cash flows that
are due to the Group:
For a financial guarantee contract, the Group is required to make payments only in the event of a default by the
debtor in accordance with the terms of the instrument that is guaranteed. Accordingly, the expected losses is the
present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that
the Group expects to receive from the holder, the debtor or any other party.
For a lease receivable, the cash flows used for determining the ECL is consistent with the cash flows used in
measuring the lease receivable in accordance with IAS 17 Leases.
Generally, ECL is estimated as the difference between all contractual cash flows that are due to the Group in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective
interest rate determined at initial recognition.
ECL is measured based on the probability of default, loss given default and the exposure at default. Measurement of
ECL are detailed in Note 61(a).
Measurement and recognition of ECL
In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on
the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both
quantitative and qualitative information that is reasonable and supportable, including historical experience and
forward-looking information that is available without undue cost or effort. The assessment of whether the credit risk
has increased significantly are detailed in Note 61(a).
Significant increase in credit risk
For the above financial instruments that apply the IFRS 9 Impairment Model of Financial Instruments, an assessment
of whether credit risk has increased significantly since initial recognition is performed at each reporting period by the
Group to determine whether to recognize lifetime ECL. When the credit risk of these financial instruments does not
increase significantly after the initial recognition, the Group makes provision for credit losses according 12-month
ECL; in the event of a significant increase in credit risk, the group makes provision for the credit losses in accordance
with the ECL for the entire duration.
The Group assesses the ECL of financial assets with forward-looking information. 12-month ECL ("12m ECL")
represents the portion of lifetime ECL that is expected to result from default events that are possible within 12
months after the reporting date. In contrast, lifetime ECL represents the ECL that will result from all possible default
events over the expected life of the relevant instrument. Assessment are done based on the factors that are specific
to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date
as well as the forecast of future conditions.
The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under IFRS 9
(including financial assets at amortised cost, debt instruments assets at fair value through other comprehensive
income), leases receivable, loan commitments and financial guarantee contracts etc. The amount of ECL is updated
at each reporting date to reflect changes in credit risk since initial recognition.
Impairment under ECL model
(5) Financial instruments (continued)
4. Principal accounting policies (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
160
Annual Report 2018
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.
4. Principal accounting policies (continued)
Classification and measurement of financial liabilities
Financial instruments (continued)
Principal accounting policies (continued)
(5)
4.
Annual Report 2018
IX Financial Statements
China Merchants Bank
162
161
The Group designates certain derivatives as hedging instruments for cash flow hedge. The Group documents
the relationship between the hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking the hedge, at the inception of a hedging relationship,. The Group also requires
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.
Hedge accounting
Financial liabilities including borrowing from central bank, deposits from banks and other financial institutions,
placements from banks and other financial institutions, amounts sold under repurchase agreements, deposits from
customers are subsequently measured at amortised cost, using the effective interest method.
Financial liabilities at amortised cost
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the grouping is provided internally on that basis.
such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial
recognition if:
it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective
hedging instrument.
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
it has been acquired principally for the purpose of repurchasing it in the near term; or
A financial liability is classified as held for trading if:
Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading or (ii) it is designated as
at FVTPL.
Financial liabilities at FVTPL
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
(5) Financial instruments (continued)
Perpetual debt capitals issued that should be classified as equity instruments are recognised in equity based on
the actual amount received. Any distribution of interests during the instruments' duration is treated as profit
appropriation. When the perpetual debt capitals are redeemed, the redemption price is charged to equity.
For investments in debt instruments and loans and advances to customers that are measured at FVTOCI, the loss
allowance is recognised in OCI and accumulated in the investment revaluation reserve without reducing the carrying
amounts of these financial assets. The loss allowance for loan commitments and financial guarantee contracts is
recognised in profit or loss and accumulated in provision. The loss allowance for other financial assets which are
subject to impairment under IFRS 9 is recognised in profit or loss through a loss allowance account.
The Group classifies preference shares issued as an equity instrument. Fees, commissions and other transaction costs
of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as profit
distribution at the time of declaration.
(9) Finance and operating lease
Core deposit
28 years
Both the periods and method of amortisation are reviewed annually.
Software and Others
2~20 years
30~50 years
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 the end of reporting period.
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 4(11)). 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.
Classification
Intangible assets
4. Principal accounting policies (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2018
Repossessed assets of equity instruments are detailed in note 4 (5).
Repossessed assets except equity instrument are measured at fair value at the date of exchange. They are not
depreciated or amortised. Impairment losses on subsequent remeasurement are recognised in the consolidated
statement of profit or loss.
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 except the equity instrument are reported in "other assets".
(7) 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.
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.
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.
(8)
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.
Finance leases
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 4(5).
Preference shares: At initial recognition, the Group classifies the preference shares 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.
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).
Calculation of recoverable amount
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.
The carrying amount of tangible and intangible assets other than impairment under ECL model is reviewed
periodically in order to assess whether the recoverable amount has declined below the carrying amount, including
property and equipment, intangible assets, investment properties, interest in joint ventures, interest in associates,
good will and other non-current assets. 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.
(11) Impairment on tangible, intangible assets other than impairment under ECL
model
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.
Insurance contract liabilities
Premiums from long-term life insurance contracts are recognized as revenue when due from policy holders.
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 income recognition
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.
(10) Insurance contracts
Principal accounting policies (continued)
4.
Annual Report 2018
IX Financial Statements
China Merchants Bank
168
167
Assets leased out under operating leases
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 in under operating leases
Operating leases
the estimated useful lives
3 years
Insurance contracts classification
3 years
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 assets.
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:
As part of its operational activities, the Group securities financial assets, generally through the sale of these
assets to structured entities which 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).
When a securitisation of financial assets does not qualify for derecognition, the relevant financial assets are
not derecognised, and the consideration collected from third parties are recorded as a financial liability.
When the securitisation results in derecognisation or partial derecognisation of financial assets, the Group
allocates the carrying amount of the transferred financial assets between the financial assets derecognised
and the retained interests based on their relative fair values at the date of the transfer. Gains or losses on
securitisation, which is the difference between the consideration received and the allocated carrying amount
of the financial assets derecognised, are recorded in "other net income". The retained interests continue to
be recognised on the same basis before the securitisation.
Securitisation
(b)
Derecognition of financial instruments (continued)
(5) Financial instruments (continued)
4. Principal accounting policies (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
The Group writes off a financial asset when there is information indicating that the counterparty is in severe
financial difficulty and there is no realistic prospect of recovery. A write-off constitutes a derecognition event.
Any subsequent recoveries are recognised in profit or loss.
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.
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 Group has transferred its rights to receive cash flows from the asset; or
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)
3-5 years
Derecognition of financial instruments
(c)
Sales of assets on condition of repurchase
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.
(d)
20 years
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.
20 years
Leasehold improvements (self-owned property)
Leasehold improvements (leasing property)
Motor vehicles and others
Investment properties
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:
Land and buildings
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.
Property, equipment, investment property and depreciation
(6)
Computer equipment
4.
Principal accounting policies (continued)
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis
or realize the asset and settle the liability simultaneously.
165
166
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.
IX Financial Statements
Annual Report 2018
Financial liabilities
China Merchants Bank
13,436
Fee and commission income
110,527
14,530
97,153
8.
Interest expense on financial liabilities measured at amortised cost
14,011
2017
Bank cards fees
16,727
Remittance and settlement fees
12,723
Debt securities issued
10,267
9,209
Agency services fees
2018
6,091
10,982
Amounts sold under repurchase agreements
For the year ended 31 December 2018, included in the above is interest income of RMB307 million accrued on impaired loans (2017: RMB561
million) and nil for impaired debt securities investments (2017: nil), and RMB9,462 million on loans and advances to customers at fair value
through other comprehensive income (for the year ended 31 December 2017: not applicable).
7.
242,005
12,287
Interest expense
2018
2017
Deposits from customers
3,568
Borrowing from central bank
50,329
9,250
Deposits from banks and other financial institutions
12,166
13,606
Placements from banks and other financial institutions
7,294
4,441
61,987
Commissions from credit commitment and lending business
52
6,372
400
precious metals
(764)
167
Investment income
11,327
4,911
- financial instruments at FVTPL
- derivatives instruments
9,734
- disposal of financial instruments at amortised cost
(350)
N/A
- disposal of debt instruments at FVTOCI
1,816
270,911
N/A
- of which: gain on disposal of bills
1,138
6,807
104
- financial instruments at fair value through profit or loss
Commissions on trust and fiduciary activities
23,351
25,245
Others
3,171
2,784
Total
73,046
1,803
69,908
IX Financial Statements
9.
Other net income
2018
2017
Profit/(loss) from fair value change
1,091
671
China Merchants Bank
Annual Report 2018
N/A
Loans and advances to customers
Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
employees.
and fair value through other comprehensive income.
Interest income on financial assets measured at amortised cost
- Debt investments at amortised cost
- Debt investments at FVTOCI
Investments
Amounts held under resale agreements
Placements with banks and other financial institutions
Balances with banks and other financial institutions
Balances with central bank
- Discounted bills
- Retail loans
- Corporate loans
6. Interest income
Annual Report 2018
IX Financial Statements
China Merchants Bank
178
Note:
2018
2017
73,954
N/A
1,742
12,256
52,042
48,267
5,136
7,531
6,019
177
8,802
1,980
8,679
7,961
4,608
8,718
98,386
113,698
65,864
1,271
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.
(7) Impairment of goodwill
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.
De-recognition of financial assets transferred
In its normal course of business, the Group transfers its financial assets through various types of transactions
including regular way sales and transfers, securitization, financial assets sold under repurchase agreements. The
Group applies significant judgement in assessing whether it has transferred these financial assets which qualify for a
full de-recognition.
Where the Group enters into structured transactions by which it transfers financial assets to structured entities, the
Group analyzes whether the substance of the relationship between the Group and these structured entities indicates
that it controls these structured entities to determine whether the Group needs to consolidate these structured
entities. This will determine whether the following de-recognition analysis should be conducted at the consolidated
level or at the entity level from which the financial assets are transferred.
The Group analyzes the contractual rights and obligations in connection with such transfers to determine whether
the de-recognition criteria are met based on the following considerations:
whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer
qualifies for the "pass through" of those cash flows to independent third parties.
the extent to which the associated risks and rewards of ownership of the financial assets are transferred.
Significant judgment is applied in the Group's estimation with regard to the cash flows before and after
the transfers and other factors that effect the outcomes of Group's assessment on the extent that risks and
rewards are transferred.
175
176
(3)
China Merchants Bank
Annual Report 2018
5. Significant accounting estimates and judgements (continued)
(4) Impairment under ECL model
Significant increase of credit risk: ECL are measured as an allowance equal to 12-month ECL for stage 1
assets, or lifetime ECL assets for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk
has increased significantly since initial recognition. In assessing whether the credit risk of an asset has
significantly increased the Group takes into account qualitative and quantitative reasonable and supportable
forward looking information. Refer to note 61(a) for more details.
Establishing groups of assets with similar credit risk characteristics: When ECLs are measured on a collective
basis, the financial instruments are grouped on the basis of shared risk characteristics. Refer to Note 61(a) for
details of the characteristics considered in this judgement. The Group monitors the appropriateness of the
credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required
in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the
assets. This may result in new portfolios being created or assets moving to an existing portfolio that better
reflects the similar credit risk characteristics of that group of assets. Assets move from 12-month to lifetime
ECLs when there is a significant increase in credit risk, but it can also occur within portfolios that continue
to be measured on the same basis of 12-month or lifetime ECLS but the amount of ECL changes because the
credit risk of the portfolios differ.
Models and assumptions used: The Group uses various models and assumptions in measuring fair value
of financial assets as well as in estimating ECL. Judgement is applied in identifying the most appropriate
model for each type of asset, as well as for determining the assumptions used in these models, including
assumptions that relate to key drivers of credit risk. See Note 61(a) for more details on ECL and Note 61(g)
for more details on fair value measurement.
Forward-looking information: When measuring ECL the Group uses reasonable and supportable forward
looking information, which is based on assumptions for the future movement of different economic drivers
and how these drivers will affect each other. Refer to Note 61(a) for more details.
Probability of Default ("PD"): PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood
of default over a given time horizon, the calculation of which includes historical data, assumptions and
expectations of future conditions. Refer to Note 61(a) for more details.
Loss Given Default ("LGD"): LGD is an estimate of the loss arising on default. It is based on the difference
between the contractual cash flows due and those that the lender would expect to receive, taking into
account cash flows from collateral and integral credit enhancements. Refer to Note 61(a) for more details.
IX Financial Statements
36,011
Business model assessment: Classification and measurement of financial assets depends on the results of the SPPI
and the business model test. The Group determines the business model at a level that reflects how groups of
financial assets are managed together to achieve a particular business objective. This assessment includes judgement
reflecting all relevant evidence including how the performance of the assets is evaluated and their performance
measured, the risks that affect the performance of the assets and how these are managed and how the managers
of the assets are compensated. The Group monitors financial assets measured at amortised cost or FVTOCI that
are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons
are consistent with the objective of the business for which the asset was held. Monitoring is part of the Group's
continuous assessment of whether the business model for which the remaining financial assets are held continues to
be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective
change to the classification of those assets.
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 interests that it holds in the structured entities.
(6) Income taxes
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.
(5) Fair value of financial instruments
5. Significant accounting estimates and judgements (continued)
Annual Report 2018
(20) Fiduciary activities
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. The Group only charges a relevant
commission.
(21) Dividends or profit distributions
Classification of financial assets
Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
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.
China Merchants Bank
IX Financial Statements
Annual Report 2018
5.
Significant accounting estimates and judgements (continued)
(1) Control over structured entity
(2)
5. Significant accounting estimates and judgements
N/A
Post employment benefits
154
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 of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and liabilities are not
discounted.
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.
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.
(15) Taxation
Principal accounting policies (continued)
4.
Annual Report 2018
IX Financial Statements
China Merchants Bank
172
171
A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group
has received consideration (or an amount of consideration is due) from the customer.
A contract asset represents the Group's right to consideration in exchange for goods or services that the Group has
transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with IFRS 9. In
contrast, a receivable represents the Group's unconditional right to consideration, i.e. only the passage of time is
required before payment of that consideration is due.
When another party is involved in providing goods or services to a customer, the Group determines whether the
nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a
principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).
The Group is an agent if its performance obligation is to arrange for the provision of the specified goods or service
by another party. In this case, the Group does not control the specified goods or service provided by another
party before that goods or service is transferred to the customer. When the Group acts as an agent, it recognises
revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the
specified goods or services to be provided by the other party.
The customer has accepted the services.
The customer has the significant risks and rewards of ownership of the service;
•
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.
The Group shall recognise a deferred tax liability for all taxable temporary differences associated with investments in
subsidiaries, and associates, and interests in joint ventures, except to the extent that both of the following conditions
are satisfied: the parent, investor, joint venturer or joint operator is able to control the timing of the reversal of the
temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.
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
(ii)
Auditors' remuneration amounted to RMB30 million for the year ended 31 December 2018(2017: RMB20 million), which was included in other
general and administrative expenses.
179
On the disposal of a foreign operation, all of the exchange differences accumulated in exchange reserve in respect
of that operation attributable to the owners of the Bank are reclassified to profit or loss.
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 exchange reserve (and attributed to non-controlling interests as appropriate).
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
(16) Foreign currencies translations (continued)
Principal accounting policies (continued)
The Group has transferred physical possession of the service;
IX Financial Statements
China Merchants Bank
Annual Report 2018
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.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
Exchange differences on transactions entered into in order to the effective portion of the hedge certain foreign
currency risks;
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.
(16) Foreign currencies translations
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.
the same taxable entity; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation
authority on either:
4.
•
The Group has a present right to payment for the services;
•
Fee and commission 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.
Premium income
Income derived from operating leases is recognised in the consolidated statement of profit or loss using the
straight-line method over the lease term.
Rental income
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.
Dividend income from listed investments is recognised when the underlying investment is declared ex-dividend.
Dividend income
Under IFRS 15, the Group 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.
Interest income and expense for all financial instruments except for those classified as at FVTPL are recognised in
"Interest income" and "Interest expense" in the profit or loss account using the effective interest method. Interest
on financial instruments measured as at FVTPL is included within the fair value movement during the period, which
is recognized in "Other net income".
Revenue is the inflow of economic benefits that the Group has formed in its daily activities that will result in an
increase in shareholders' equity and have nothing to do with the capital invested by shareholders.
(14) Income recognition
Principal accounting policies (continued)
4.
Annual Report 2018
IX Financial Statements
China Merchants Bank
170
Net Interest income
IX Financial Statements
A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series
of distinct goods or services that are substantially the same. For contracts that contain more than one performance
obligations, the Group allocates the transaction price to each performance obligation on a relative stand-alone
selling price basis, except for the allocation of discounts and variable consideration.
For contracts that contain variable consideration, the Group estimates the amount of consideration to which it will
be entitled using either (a) the expected value method or (b) the most likely amount, depending on which method
better predicts the amount of consideration to which the Group will be entitled.
If a performance obligation is not satisfied over time, it is satisfied at a point in time. To determine the point in time
at which a customer obtains control of a promised service, the following indicators of the transfer of control should
also be considered; these include, but are not limited to:
If the revenue is recognised over time, the Group recognizes revenue in accordance with the progress towards
complete satisfaction of a performance obligation. The progress towards complete satisfaction of a performance
obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements
of the value of the goods or services transferred to the customer to date relative to the remaining goods or services
promised under the contract, that best depict the Group's performance in transferring control of goods or services.
Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or
service.
the Group's performance does not create an asset with an alternative use to the Group and the Group has an
enforceable right to payment for performance completed to date.
•
the Group's performance creates and enhances an asset that the customer controls as the Group performs; or
•
the customer simultaneously receives and consumes the benefits provided by the Group's performance as the
Group performs;
The stand-alone selling price of the distinct goods or service underlying each performance obligation is determined
at contract inception. It represents the price at which the Group would sell a promised goods or service separately
to a customer. If a stand-alone selling price is not directly observable, the Group estimates it using appropriate
techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of
consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services
to the customer.
•
At the end of each reporting period, the Group updates the estimated transaction price (including updating its
assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances
present at the end of the reporting period and the changes in circumstances during the reporting period.
The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly
probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty
associated with the variable consideration is subsequently resolved.
Fee and commission income (continued)
(14) Income recognition (continued)
4. Principal accounting policies (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Control is transferred over time and revenue is recognised over time by reference to the progress towards complete
satisfaction of the relevant performance obligation if one of the following criteria is met:
- dividend income from equity investments designated at FVTOCI
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.
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 consideration is given to any
applicable minimum funding requirements.
334
320
426
451
20,271
11,169
10. Operating expenses
Staff costs
2018
2017
- Salaries and bonuses (note (i))
33,077
28,286
-
- Social insurance and corporate supplemental insurance
Others
5,777
4,696
2,882
3,555
3,202
3,889
N/A
- available-for-sale financial assets
N/A
836
- gain on disposal of bills
N/A
2,903
- others
7,171
(27)
Exchange gain
Other income
- rental income
- insurance income
Others
Total
3,538
1,934
34
6,530
Subtotal
46,025
Notes:
(i)
Performance bonus is included in the salaries and bonuses, the details of which are disclosed in Note 40(a).
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. 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.
(19) Segmental reporting
For the purposes of these consolidated financial statements, parties are considered to be related to the Group if
the Group has the ability, directly, indirectly or jointly, 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.
(18) Related parties
4. Principal accounting policies (continued)
70,431
Annual Report 2018
China Merchants Bank
174
173
The fair value of the H share appreciation rights is using Black-Scholes model, taking into account the terms and
condition upon which the H share appreciation rights were granted.
The Group offers H share appreciation rights to its employee, namely H Share Appreciation Rights Scheme for the Senior
Management ("the Scheme"), the Scheme is settle by cash. 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.
Share-based payment
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.
IX Financial Statements
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.
81,110
18,570
39,512
Business tax and surcharges
2,132
2,152
Property, equipment and investment properties depreciation
5,270
5,062
Intangible assets amortization
Total
983
Rental expenses
4,242
4,189
Charge for insurance claims
244
232
Other general and administrative expenses (note (ii))
22,214
714
China Merchants Bank
(17) Employee benefits
Salaries and staff welfare
Subtotal
400
400
400
4,746
491
500
500
500
500
500
9,367
4,117
417
2,953
2,159
400
400
400
384
3,337
281
2,440
in kind
RMB'000
Discretionary
and benefits
Directors'
fees
RMB'000
Salaries,
allowances
2017
Guo Xuemeng (iv)
Directors and Supervisors
Former Executive, Non-Executive
11. Directors' and Supervisors' emoluments (continued)
IX Financial Statements
Annual Report 2018
China Merchants Bank
The independent Non-Executive Directors' and Supervisors' emoluments shown above were for their services as
directors or Supervisors of the Bank.
14,640
1,156
417
4,255
500
500
500
Zhang Jian
Su Min
Hong Xiaoyuan
Fu Gangfeng
Li Xiaopeng
Li Jianhong
Non-Executive Directors
The Executive Directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
9,967
1,147
4,746
546
5,221
601
8,820
4,200
4,620
Wang Daxiong
Subtotal
The Non-Executive Directors' emoluments shown above were for their services as directors of the Bank.
Independent Non-Executive
500
500
| | |│5
| | | |
Subtotal
Wong See Hong (iii)
Huang Dan
Jin Qingjun
Ding Huiping
Han Zirong
Xu Lizhong
Retirement
scheme
bonuses contributions
RMB'000
Wu Heng
Fu Junyuan
Liu Yuan
Zhao Jun
Pan Yingli
Pan Chengwei
Wong Kwai Lam
Liang Jinsong
Directors and Supervisors
Wen Jianguo
Total
RMB'000 RMB'000
(i)
2018
The number of the five highest paid individuals whose emoluments fell within the following bands is set out below:
33,750
3,736
520
23,200
Total
30,014
22,680
Contributions to defined contribution retirement schemes
Discretionary bonuses (Note 11)
Salaries and other emoluments
2017
RMB'000
2018
RMB'000
Of the five individuals with the highest emoluments for the year ended 31 December 2018, 3 (2017: 3) are Directors
or Supervisors of the Bank whose emoluments are included in Note 11 above. The aggregate of the emoluments in
respect of the five individuals during the year is as follows:
12. Individuals with highest emoluments
IX Financial Statements
China Merchants Bank
Annual Report 2018
2017
HKD
3,500,001 -4,000,000
4,000,001 - 4,500,000
the Group outstanding during the year
Maximum aggregate amount of relevant loans made by
50
47
Aggregate amount of relevant loans made by the Group
outstanding at year end
2017
2018
Loans to Directors, Supervisors and executive officers of the Group are as follows:
184
13. Loans to Directors, Supervisors and executive officers
6,000,001 -6,500,000
1
T5 T2-
1
1
1
3
5,000,001 -5,500,000
5,500,001 -6,000,000
4,500,001 - 5,000,000
During the year ended 31 December 2018, the five highest paid individuals include six persons in total as three
of them are with the same emoluments and being the forth highest paid individuals. During the year ended 31
December 2017, the five highest paid individuals include eight persons in total as two of them are with the same
emoluments and being the second highest paid individuals and four of them are with the same emoluments and
being the fifth highest paid individuals.
RMB'000
During the year ended 31 December 2018, 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 2018, there was no arrangement under which a director or a Supervisor waived
or agreed to waive any remuneration.
1
2018
During the reporting period, Wong See Hong was approved by the China Banking and Insurance Regulatory Commission in February 2017.
In February 2017, Guo Xuemeng resigned as the Bank's independent Non-Executive Director.
(iv)
(iii)
As at 31 December 2017, the Group has offered 10 phases of H share appreciation rights scheme to its senior management ("the Scheme").
Details of the Scheme are set out in Note 40(a)(iii).
(ii)
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.
(i)
Notes:
24,607
2,303
18,187
4,117
Total
The former executive, Non-Executive Directors' and Supervisors' emoluments shown above were for their services as
Directors or Supervisors of the Bank.
Subtotal
183
The number of the Directors and Supervisors whose emoluments are within the following bands is set out below:
HKD
0 - 500,000
500,001 – 1,000,000
25
5,500,001 – 6,000,000
6,000,001 -6,500,000
Total
55 |-|-||27
2017
1
1
1
64--|-7-
25
1
16
5,000,001 - 5,500,000
4,500,001 – 5,000,000
4,000,001 – 4,500,000
3,500,001 -4,000,000
3,000,001 -3,500,000
2,000,001 -2,500,000
2,500,001 -3,000,000
1,000,001 – 1,500,000
1,500,001-2,000,000
1
Total
Retirement
scheme
contributions
RMB'000
bonuses
RMB'000
39
1,762
2,245
11,161
-222
The independent Non-Executive Directors' and Supervisors' emoluments shown above were for their services as
Directors or Supervisors of the Bank.
China Merchants Bank
Annual Report 2018
IX Financial Statements
11. Directors' and Supervisors' emoluments (continued)
Former Executive, Non-Executive
Directors and Supervisors
Li Xiaopeng (vi)
Wong Kwai Lam (vii)
Pan Yingli (vii)
Xu Lizhong (v)
2018
400
400
400
7,655
Liu Qiao (iii)
22
Liu Yuan
Fu Junyuan (iv)
Wen Jianguo
Wu Heng
Jin Qingjun
Ding Huiping
Salaries,
allowances
Han Zirong
Huang Dan
Subtotal
400
400
400
1,723
2,152
3,284
Wang Wanqing (v)
42
Directors'
Discretionary
4,284
17,675
445
22,404
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.
(ii)
During the reporting period, the appointment qualification of Mr.Zhou Song was approved by the China Banking and Insurance Regulatory
Commission in October 2018.
(iii)
(iv)
(v)
During the reporting period, the appointment qualification of Mr. Li Menggang and Liu Qiao were approved by the China Banking and
Insurance Regulatory Commission in November 2018.
Mr. Fu Junyuan resigned as a shareholder Supervisor of the Bank and a member of the Nomination Committee of the Board of Supervisors for
work reasons, effective since February 28, 2019.
In July 2018, Mr. Xu Lizhong, the former employee Supervisor, submitted his resignation to the Supervisory Committee of the Bank for work
reasons. According to the results of the employee representative meeting held on July 18, 2018, Mr. Wang Wanqing was newly elected as
the employee Supervisor of the tenth session of the Supervisory Committee of the Bank, and Mr. Xu Lizhong no longer served as employee
Supervisor of the Bank.
In January 2018, Mr. Li Xiaopeng resigned as the Bank's vice chairman and Non-Executive Director.
(vi)
(vii)
In November 2018, Mr. Wong Kwai Lam and Mrs. Pan Yingli resigned as the Bank's independent Non-Executive Director.
(i)
Notes:
Total
The former executive, Non-Executive Directors' and Supervisors' emoluments shown above were for their services as
Directors or Supervisors of the Bank.
Retirement
scheme
fees
in kind
RMB'000
RMB'000
bonuses
RMB'000
contributions
RMB'000
Total
and benefits
RMB'000
1,000
1,200
1,200
500
500
63
1,263
63
2,263
500
500
54
Li Menggang (iii)
Wong See Hong
Annual Report 2018
11. 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
Salaries,
allowances
and benefits
2018
Retirement
Discretionary
in kind
RMB'000
bonuses
RMB'000
scheme
contributions
IX Financial Statements
China Merchants Bank
180
(viii)
RMB'000
in kind
Discretionary
and benefits
Directors'
fees
RMB'000
Salaries,
allowances
2017
Subtotal
Total
Li Hao
Executive directors
11. Directors' and Supervisors' emoluments (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
182
181
As at 31 December 2018, the Group has offered 10 phases of H share appreciation rights scheme to its senior management ("the Scheme").
Details of the Scheme are set out in Note 40(a)(iii).
Tian Huiyu
500
RMB'000
(i)
T
500
500
500
500
42
42
42
3,780
90
3,870
Directors and Supervisors
Liang Jinsong
Pan Chengwei
500
500
Zhao Jun
500
Independent Non-Executive
The Non-Executive Directors' emoluments shown above were for their services as directors of the Bank.
Subtotal
Wang Daxiong
4,620
4,200
8,820
70
4,690
90
4,290
160
RMB'000
8,980
Non-Executive Directors
Li Jianhong
Sun Yueying
Fu Gangfeng
Zhou Song (ii)
Hong Xiaoyuan
Su Min
Zhang Jian
The Executive Directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
57
Sun Yueying
IX Financial Statements
Reclassification adjustments for amounts transferred to profit or loss:
(4,868)
N/A
Changes in fair value recognised during the year
Available-for-sale financial assets
N/A
332
Net movement in the equity investment revaluation reserve during the
year recognised in other comprehensive income
N/A
332
Changes in fair value recognised during the year
Equity instruments measured at fair value through other
comprehensive income
N/A
496
Net movement in the debt instrument revaluation reserve during the
year recognised in other comprehensive income
(171)
(116)
- On disposal
N/A
(501)
Net movement in the investment reserve during the year recognised
in other comprehensive income
Annual Report 2018
IX Financial Statements
China Merchants Bank
188
187
(67)
149
Net movement in the hedging reserve during the year recognised
in other comprehensive income
99,851
21
- Realised losses
to profit or loss
(88)
106
Effective portion of changes in fair value of hedging instruments
Reclassification adjustment for realised loss transferred
Cash flow hedge
(5,369)
N/A
43
17. Earnings per share
76,918
Balance as at the end of last year
496
Changes in expected credit losses in financial assets at FVTOCI
Changes in expected credit losses recognised during the year
Reclassification adjustments for amounts transferred to profit or loss
N/A
6,243
Net movement in the debt instrument revaluation reserve during the
year recognised in other comprehensive income
N/A
(1,816)
N/A
8,059
Reserve changes in debt instruments at FVTOCI
Changes in fair value recognised during the year
Reclassification adjustments for amounts transferred to profit or loss
On disposal
2017
2018
Movements relating to components of other comprehensive income are as
follows:
(b)
16. Other comprehensive income (continued)
Annual Report 2018
IX Financial Statements
N/A
(133)
189
China Merchants Bank
Adjustments under IFRS 9
Balance as at the beginning of the year
Charge/(release) for the year (note 14)
Exchange difference
Balance as at the end of the year
2018
2017
116
(b) Movements of allowances for impairment losses are as follows:
196
N/A
138
196
43
(80)
(10)
171
116
22
China Merchants Bank
The calculation of basic earnings per share for the years 2018 and 2017 is based on the net profit attributable
to ordinary 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 potential ordinary shares outstanding during the years
2018 and 2017.
Less: Net profit attributable to preference shareholders of the Bank
Net profit attributable to ordinary shareholders of the Bank
Weighted average number of shares in issue (in million)
99,851
(116)
(171)
77,034
2017
Total
Subtotal
- Other financial institutions
- Banks
Less: Impairment allowances
Total
- Other financial institutions
Subtotal
- Banks
Balances outside Mainland China
Subtotal
- Other financial institutions
- Banks
76,918
309
N/A
100,160
77,034
100,022
24,999
36,967
62
106
24,937
36,861
Balances in Mainland China
52,035
2,942
2,833
49,093
60,222
2017
2018
76,918
(38)
63,055
Net profit attributable to equity shareholders of the Bank
(a) Analysed by nature of counterparties
Interest receivable
18. Balances with central bank
The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur
as at 31 December 2018 and 2017. Therefore the conversion feature of preference shares has no effect on the diluted earnings per share calculation.
The Bank issued non-cumulative preference shares in year 2017. For the purpose of calculating basic earnings per share for the year ended 31 December
2018 and 2017, dividends on non-cumulative preference shares declared in respect of the year should be deducted from the amounts attributable to
equity shareholders of the Bank.
2.78
3.13
25,220
25,220
70,150
78,901
(1,659)
70,150
80,560
2017
2018
Note:
to equity shareholders of the Bank (in RMB)
Basic and diluted earnings per share attributable
Statutory deposit reserve (note (i))
Surplus deposit reserve (note (ii))
Fiscal deposits
Interest receivable
Subtotal
2018
100,022
Impairment losses (a)(b)
Principal (a)
19. Balances with banks and other financial institutions
IX Financial Statements
China Merchants Bank
Annual Report 2018
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 11% and 5% for eligible RMB
deposits and foreign currency deposits respectively as at 31 December 2018 (2017: 15% and 5% for eligible RMB deposits and foreign
currency deposits respectively). Eligible deposits include deposits from government authorities and other organizations, 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.
Total
(ii)
Notes:
600,007
477,568
1,486
N/A
68,012
2017
530,509
2018
438,777
36,488
2,056
247
Total
(i)
(7,691)
(116)
(9,486)
185
186
China Merchants Bank
IX Financial Statements
Annual Report 2018
16. Other comprehensive income
(a) Tax effects relating to each component of other comprehensive income
Items that may be reclassified to
profit or loss
- Fair value gain on debt instruments
measured at fair value through
other comprehensive income
Net changes in expected credit
losses of debt
instruments measured at fair
value through other
comprehensive income
2018
amount
Before-tax
amount
2017
Tax benefit/
(expense)
Net-of-tax
amount
Before-tax Tax benefit/ Net-of-tax
Taxation for overseas operations is charged at the applicable rates of tax prevailing in relevant jurisdictions.
amount
(iii)
(ii)
2018
2017
106,497
26,624
90,680
22,670
1,574
(5,917)
811
(5,235)
(210)
3,570
(358)
1,970
37
25,678
184
20,042
Note:
(i)
The applicable income tax rate for the Group's operations in Mainland China is 25% during 2018 (2017: 25%).
The applicable income tax rate in Hong Kong is 8.25% on assessable profits up to HKD2,000,000; and 16.5% on any part of assessable profits
over HKD2,000,000 during 2018 (2017: 16.5%).
(expense)
8,494
(2,251)
(31)
149
(89)
22
subsequently to profit or loss
1,795
(67)
- Equity-accounted investees-share
of other comprehensive income
- Exchange difference on translation
(36)
(36)
44
44
Items that will not be reclassified
(2,359)
(2,359)
1,995
180
hedge reserve
- Net movement in cash flow
(5,369)
6,243
N/A
N/A
N/A
490
6
496
N/A
Income tax expense
N/A
- Net movement in fair value
reserve of available-for-sale
financial assets
N/A
N/A
N/A
(7,154)
1,785
N/A
- Other
- Transfer out of prior deferred tax assets
in other jurisdictions
Loans and advances to customers (Note 22(c))
59,252
60,052
Amounts due from banks and other financial institutions
(368)
121
Investments
- Debt investments at amortised cost (Note 24(b))
787
N/A
- Debt investments at FVTOCI (Note 24(c))
- Available-for-sale financial assets
- Held-to-maturity investments (Note 24(f))
- Debt securities classified as receivables (Note 24(g))
Expected credit losses relating to financial guarantees and
loan commitments
Others
389
2017
2018
14. Expected credit losses
value through other
comprehensive income
9,117
(2,371)
11,488
Other comprehensive income
60
(12)
72
(62)
N/A
12
N/A
N/A
N/A
332
Annual Report 2018
(107)
439
- Remeasurement of defined
benefit scheme redesigned
through reserve
(74)
1,995
N/A
N/A
1,017
216
35,849
1,129
149
33,977
instruments measured at fair
37,127
(8,299)
25,678
(17,085)
20,042
(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% (2017: 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
- Fair value gain on equity
32,744
2017
2018
Total
8
N/A
(886)
374
N/A
395
682
Total
(55)
60,829
15. Income tax
(a) Income tax in the consolidated statement of profit or loss represents:
Current income tax expense
- Mainland China
- Hong Kong
- Overseas
Subtotal
Deferred taxation
59,922
of financial statements of foreign
operations
2.29
0.67
15,532
144,852
160,384
Net interest income
Changes
2017
2018
(in millions of RMB)
In 2018, the Group realised a profit before tax of RMB106.497 billion, representing a year-on-year increase of
17.44%. The effective income tax rate was 24.11%, representing a year-on-year increase of 2.01 percentage points.
The following table sets out the changes in major income/loss items of the Group in 2018.
3.2.1 Financial highlights
3.2 Analysis of income statement
The non-performing loans decreased and the allowance coverage ratio remained solid. As at the end of the reporting
period, the Group had total non-performing loans of RMB53.605 billion, representing a decrease of RMB3.788
billion as compared with the end of the previous year. The non-performing loan ratio was 1.36%, down by 0.25
percentage point as compared with the end of the previous year. The non-performing loan allowance coverage ratio
was 358.18%, representing an increase of 96.07 percentage points as compared with the end of the previous year.
The scale of assets and liabilities expanded steadily. As at the end of the reporting period, the Group's total assets
amounted to RMB6,745.729 billion, representing an increase of 7.12% as compared with the end of the previous
year. The total loans and advances to customers amounted to RMB3,933.034 billion, representing an increase
of 10.32% as compared with the end of the previous year. Total liabilities amounted to RMB6,202.124 billion,
representing an increase of 6.67% as compared with the end of the previous year. Total deposits from customers
amounted to RMB4,400.674 billion, representing an increase of 8.28% as compared with the end of the previous
year.
Earnings increased steadily. In 2018, the Group realised a net profit attributable to shareholders of the Bank of
RMB80.560 billion, representing a year-on-year increase of 14.84%; the net interest income was RMB160.384 billion,
representing a year-on-year increase of 10.72%; the net non-interest income was RMB88.060 billion, representing a
year-on-year increase of 15.59%, up by 3.67% year-on-year after eliminating the impact of implementing the new
financial instrument standard². The return on average asset (ROAA) and return on average equity (ROAE) attributable
to ordinary shareholders of the Bank were 1.24% and 16.57%, up by 0.09 percentage point and 0.03 percentage
point from the previous year, respectively.
In 2018, the Group continued to implement its strategic direction of "Light-operation Bank" and the strategic
positioning of "One Body with Two Wings" by carrying out various businesses in a proactive and sound manner.
Our overall operation continued to improve and the dynamic and balanced development of "Quality, Efficiency and
Scale" was achieved, which were reflected mainly in the following aspects:
Report of the Board of Directors
Annual Report 2018
12.62
13.02
11.54
10.83
10.44
Capital adequacy ratio under the advanced
Net fee and commission income
approach
15.48
13.33
12.57
12.38
China Merchants Bank
III Report of the Board of Directors
15.68
66,480
64,018
2,462
(25,678)
(4)
90,680
(20,042)
(4)
15,817
(5,636)
Net profit
Income tax
80,819
10,181
Net profit attributable to shareholders of the Bank
80,560
70,150
10,410
2
70,638
advanced approach
106,497
(8)
Other net income
20,271
11,169
9,102
Operating expenses
(81,110)
Profit before tax
(70,431)
Share of profits of associates and joint ventures
Expected credit losses
1,309
(60,829)
998
(59,922)
311
(907)
Impairment losses on other assets
(10,679)
Tier 1 capital adequacy ratio under the
10.44
10.83
14.31
12.47
(in millions of RMB)
Year end
Share capital
Total shareholders' equity
15.95
Total liabilities
Deposits from customers
4,400,674
Total assets
6,745,729
Total loans and advances to customers
3,933,034
25,220
543,605
6,202,124
25,220
25,220
483,392 403,362
5,814,246 5,538,949
4,064,345 3,802,049
6,297,638 5,942,311
3,565,044 3,261,681
17.69
shareholders of the Bank
Basic earnings attributable to ordinary
shareholders of the Bank
3.13
2.78
2.46
2.22
20.07
Diluted earnings attributable to ordinary
3.13
2.78
2.46
2.29
2.22
Year-end net assets attributable to ordinary
shareholders of the Bank
0.69
25,220
361,758
5,113,220
3,571,698
(%)
27.60
27.55
30.42
Non-performing loan ratio
1.36
1.61
30.21
1.87
1.11
Core Tier 1 capital adequacy ratio under
the advanced approach
11.78
12.06
11.54
1.68
25,220
315,060
4,416,769
3,304,438
5,474,978 4,731,829
2,824,286 2,513,919
31.04
19.28
Key Financial Ratios
Return on average assets attributable to
shareholders of the Bank
1.24
1.15
1.09
Cost-to-income ratio
1.13
Return on average equity attributable to
ordinary shareholders of the Bank
16.57
16.54
16.27
17.09
1.28
3.1 Analysis of overall operation
210,270
0.84
64.56
- Net interest income
As percentage of net operating income
percentage point
Increased by 0.14
2.43
2.57
Net interest margin
percentage point
Increased by 0.15
2.29
2.44
Net interest spread
percentage point
to ordinary shareholders of the Bank
percentage point
Increased by 0.03
16.54
65.53
16.57
Decreased by 0.97
- Net non-interest income
31 December
31 December
Equity to total assets
Capital adequacy ratio(2)
Tier 1 capital adequacy ratio
Core Tier 1 capital adequacy ratio
Capital adequacy indicators under the
advanced approach
(%)
percentage point
Increased by 0.83
30.21
31.04
Cost-to-income ratio(1)
percentage point
Increased by 0.97
34.47
35.44
percentage point
Return on average equity attributable
to shareholders of the Bank
Increased by 0.09
6.67
5,814,246
6,202,124
10.32
3,565,044
3,933,034
7.12
6,297,638
6,745,729
+/(-)%
Changes
31 December
2017
31 December
2018
of which: total deposits from customers (3)
Total equity attributable to shareholders of the Bank
Total liabilities
of which: total loans and advances to customers (3)
The new financial instrument standard refer to IFRS 9 "Financial Instruments". Before the implementation of the standard, some of the financial
instruments were measured at amortised cost or measured at fair value through other comprehensive income. After the implementation, the
measurement attributes and accounting methods are adjusted to be measured at fair value through profit or loss. The impact on the data of revenue
will be: fair value changes of the current period will affect the net non-interest income and the net operating income; the presentation of investment
income will be changed from the interest income to the non-interest income, affecting the net interest income and net non-interest income structure,
but will not affect the total net operating income.
4,400,674
4,064,345
8.28
540,118
1.15
1.24
Changes
2017
2018
Return on average assets attributable
Profitability indicators
(%)
2018
2.2 Financial ratios
China Merchants Bank
Annual Report 2018
In accordance with the "Notice on the Revision and Issuance of the Format of the Financial Statements of the Financial Enterprise for 2018"
(Cai Kuai [2018] No. 36) (《關於修訂印發2018年度金融企業財務報表格式的通知》(財會〔2018〕36號)) issued by the Ministry of Finance,
the interest on financial instruments accrued based on the effective interest rate method shall be included in the balance of the relevant
financial instruments, and shall be reflected in the relevant items of the financial reports, and the "interest receivable" or "interest payable"
item shall no longer be listed separately. The balance of "interest receivable" or "interest payable" listed in the "other assets" or "other
liabilities" item is only the interest receivable or payable where the relevant financial instruments have expired but the interest has not
yet been received or paid at the balance sheet date. The comparable figures for the corresponding period of 2017 may not be adjusted.
Since the 2018 annual report, the Group has adjusted the financial statements and its accompanying notes in accordance with the above
requirements. Unless otherwise stated, the balances of the relevant items herein and set out below do not include the above interest on
financial instruments accrued based on the effective interest method.
The Bank issued non-cumulative preference shares in 2017, and paid dividends on the preference shares during the year. Therefore, when
calculating basic earnings per share, return on average equity and net assets per share, dividends on the preference shares were deducted
from "net profit attributable to shareholders of the Bank", while the preference shares were deducted from both the "average equity"
and the "net assets".
(3)
(2)
Notes: (1) 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.
12.48
480,210
Il Summary of Accounting Data and Financial Indicators
2017
Changes over
2017 year-end
11.78
Impairment losses
61,413
67,957
65,148
70,431
81,110
Operating expenses
166,525
202,302
221,037
248,444
2014
2015
2016
2017
2018
Net operating income
60,837
59,926
66,159
59,266
0.94
Dividend (tax inclusive)
Per Share
(RMB)
55,911
57,696
62,081
70,150
Results for the year
80,560
Net profit attributable to shareholders
73,431
75,079
78,963
90,680
106,497
Profit before tax
31,681
of the Bank
0.74
(in millions of RMB)
Il Summary of Accounting Data and Financial Indicators
1.36
Non-performing loan ratio
Asset quality indicators
percentage point
Increased by 0.38
7.68
8.06
percentage point
Increased by 0.20
15.48
15.68
percentage point
percentage point
Decreased by 0.40
13.02
12.62
Decreased by 0.28
12.06
1.61
Decreased by 0.25
Allowance coverage ratio of non-performing loans (3)
358.18
China Merchants Bank
Annual Report 2018
18
17
(4) Allowance ratio of loans = allowances for impairment losses/total loans and advances to customers.
Allowance coverage ratio of non-performing loans = allowances for impairment losses/balance of non-performing loans.
(3)
As at the end of the reporting period, the Group's capital adequacy ratio, Tier 1 capital adequacy ratio and Core Tier 1 capital adequacy
ratio under the weighted approach were 13.06%, 11.04% and 10.31% respectively.
Cost-to-income ratio = operating expenses/net operating income. The numerator does not include taxes and surcharges, provisions for
insurance claims and the depreciation charges on fixed assets under operating lease and investment properties.
2.3 Five-year financial summary
percentage point
Notes: (1)
Increased by 0.66
4.22
4.88
Allowance ratio of loans (4)
percentage points
percentage point
Increased by 96.07
262.11
(2)
19
221,037
2.78
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 active response
to the challenge from the deceleration of economic growth. Thirdly, the Company will promote digitalisation in a
comprehensive manner to build a digitalised CMB and achieve sustainable 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.
13
14
China Merchants Bank
Annual Report 2018
I Company Information
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
operation and management level.
Build a strong strategic supporting system. Firstly, the Company will gradually adopt the lean and agile development
models to realise the "dual-model developments" of IT projects, and vigorously enhance its technology-based
capability. Secondly, the Company will put emphasis on both management and services, 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 and address both symptomatic and fundamental problems, 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 complete flattened,
intensive and professional organisational structure for the future. Seventhly, the Company will promote the reform
of operation system and process restructuring, 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 reinforce cultural branding of CMB and cultivate the driving force for sustainable development.
Investment Value and Core Competitiveness:
Well-developed and refined strategic management. Adhering to the strategy-driven development, the
Company's strategic management has become increasingly well-developed. It has given full play to its comparative
advantages and management potential amidst the crucial period of technological progress, industrial restructuring
and deepening of financial markets. The Company attains proper strategic positioning and vigorously carries out
structural adjustment for business development, customers, channels and products in an effort to promote the
dynamic and balanced development of "Quality, Efficiency and Scale", thus navigating a differentiated development
path with outstanding performance.
Accelerating innovation and changes in corporate culture. With the "Shekou gene" inherited from the reform
and opening up, the Company formulated a business philosophy of "we are here just for you", held onto its core
values of "service, innovation and prudence", adhered to the distinct corporate culture that strived for excellence
and accelerated innovation and changes in the course of its business development.
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, equipping retail business
with significant competitive edges and wholesale business with distinctive features, and
enhancing the coordination among business lines.
Fully empowered Fintech. The Company endeavoured to build itself into a "Digital Bank", and used Fintech
as the locomotive to provide "nuclear power" for its transformation and development, so as to fully empower
its business development. Through benchmarking with Fintech companies, the Company will build up the overall
infrastructure for the Company's financial science and technology, establish an ecological system for the business of
the Company with an open mindset and a long-term perspective, and transform the business management model
with the concepts and methods of Fintech so as to strengthen the capability of science and technology, promote the
integration of technology with business and promote business agility based on agile technology.
Well-structured layout of business plans. Leveraging on its own endowment of resources, the Company
established a clear strategic positioning of "One Body with Two Wings" through its focus on business and
customers, built a professional system of "Investment Bank - Asset Management - Wealth Management", thereby
creating a large number of leading and distinctive businesses and forming the layout of business plans with a
coherent structure and stronger capability to withstand cyclical risks.
Distinctive wholesale finance. The Company actively builds a market-leading wholesale finance business with
distinctive features and leverages on its professional advantages to provide its clients with customized and integrated
financial services. New growth engines such as investment banking, transaction banking, asset custody, asset
management, bills and financial markets have been growing continuously and professional service capabilities have
been affirmed and recognized by the market and customers.
Scientific and efficient management system. Based on the principle of serving customers and boosting business
development, the Company successfully established 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.
Continuous improvement of the organizational system. In accordance with the direction of "professionalism,
delayering and intensification", the Company creates an efficient light management structure, establishes an end-to-end
customer service process and builds organizational models with distinctive features, such as setting up business divisions
in the branch level. The professionalization level and the efficiency of operation and management have been improving
and the speed to respond to customer needs and market changes has been picking up.
Industry-leading quality service. The Company developed a unique service model ever since it was founded.
Through its long-term practice, it has established its service concept of "we are here just for you". We attach
importance to the customer service experience, proactively promote service upgrading, and always keep its service
quality ahead. "Good service" has been the tag for the Company to attract customers and expand market.
Excellent professional personnel. The Company has cultivated and created a high-quality talent team through a
people-oriented culture and a market-based talent incentive mechanism. The senior management team has extensive
experience and is well settled down. The overall quality of staff and their professional skills are industry-leading. We
proactively embrace competition in Fintech by expanding the investment and recruitment of Fintech talents.
China Merchants Bank
I Company Information
Annual Report 2018
1.4 Honors and Awards
Advantageous retail finance. The retail business of the Company set an early lead in the industry and formed an
inward development system in terms of customer base, channels, products and brands. At the same time, through
vigorous promotion of inclusive and intensive growth and enhancement of refined management, key factors
including the proportion of net operating income, profit contribution and the proportion of high-end customers are
among the best in the industry. The Company enjoys a leading advantage in its retail finance.
Closely adhering to the transformation objective of building a "Light-operation Bank",
realising balanced development among "quality, efficiency 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.
Building the "Best Commercial Bank in China" with innovation-driven development,
leading retail banking and distinguished features.
Development Strategies:
Hong Kong:
website of SEHK (www.hkex.com.hk)
website of the Company (www.cmbchina.com)
Place for maintenance of annual reports: Office of the Board of Directors of the Company
1.1.11 Sponsor for Domestic Preference Shares:
UBS Securities Co., Ltd.
Office Address: 12th and 15th Floor, Yinglan International Financial Center, No. 7 Financial Street, Xicheng
District, Beijing
Sponsor Representatives: Liu Wencheng, Luo Yong
China Merchants Securities Co., Ltd.
Office Address: No. 111, Fuhua 1st Road, Futian Street Committee, Futian District, Shenzhen
Sponsor Representatives: Wang Yuting, Wei Jinyang
Continuous Supervision Period: 12 January 2018 to 31 December 2019
1.2 Corporate business overview
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 major economic centres 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 sections headed "Distribution
Channels" and "Branches and Representative Offices". As at the end of the reporting period, the Company has
1,783 domestic and overseas correspondent banks in 106 countries (including China) and regions. The Company was
listed on Shanghai Stock Exchange in April 2002 and on the SEHK in September 2006.
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,
CMB APP and CMB Life APP, CMB Corporate APP, transaction banking services and offshore business services, global
cash management as well as trade financing, asset management, asset custody, investment banking and other
services, have been widely recognised by consumers in China.
In 2018, the Company took the initiative to adapt to the changes in the external and internal environment, used
Fintech as the locomotive to provide "nuclear power", and endeavored to develop itself into the bank that offers the
best customer experience. Over the past year, the Company has made remarkable results in business development,
further consolidated its customer base and steadily improved its customer service capabilities. In 2019, the Company
will closely center on the two critical points of customers and technologies to deepen the strategic transformation
and promote the formation of new business models. For details, please refer to the sections headed "Chairman's
Statement" and "President's Statement".
1.3 Development strategies, investment value and core
competitiveness
Development vision:
Strategic objective:
Strategic positioning:
In 2018, the Company received a number of honors and awards from organisations both at home and abroad,
including:
The "Report on the Survey of Preferred Brand Names of Chinese Multimillionaires of 2018" was officially
released by Hurun Rich List in January 2018 and the credit card business of the Company received the "Most
Favoured Credit Card by Multimillionaires" in Hurun Rich List for 14 consecutive years.
In the "Top 500 World Banks" released by The Banker, a UK magazine in February 2018, the Company
ranked 11th worldwide with a brand value of USD16.673 billion, up by 1 place from the previous year. In
July, in The Banker's list of "Top 1,000 World Banks 2018", the Company ranked 20th, up by 3 places from
the previous year.
In February 2018, in the "2018 Global Best Private Banking and Wealth Management Institutions Awards
Ceremony" staged by Euromoney, the Company received the "Best Private Bank in China" for the eighth
time.
106,497
90,680
17.44
Net profit attributable to shareholders of the Bank
80,560
70,150
14.84
Per Share (RMB)
Basic earnings attributable to ordinary shareholders of the Bank(2)
Diluted earnings attributable to ordinary shareholders of the Bank
Year-end net assets attributable to ordinary shareholders
of the Bank
Volume Indicators
2018
Total assets
(in millions of RMB, excluding percentages)
13.45
17.69
20.07
12.59
2017
3.13
12.59
2.78
Profit before tax
3.13
12.40
Net operating income (1)
In March 2018, in the "2018 International Excellence in Retail Financial Services Awards Ceremony"
organised by The Asian Banker, the Company was named the "Best Retail Bank in the Asia Pacific Region".
In May, in the "2018 Future Finance Summit & Industry Achievement Awards Ceremony" organised by The
Asian Banker, the Company was named the "Best Innovation Center for Financial Institutions in China" and
the "Best Custodian Bank in China".
In June 2018, in the selection campaign for the "2018 Finance Innovation Award in China" organised
by The Banker in China, the Company won the "Best Financial Innovation Award". The corporate wealth
management business of the Company was awarded "Top 10 Wealth Management Innovation Award", and
its private banking business won the "Top 10 Family Trust Management Innovation Award". "Zhao Ying Tong
()" Internet Transaction Platform for Industry Peers" products won the "Top 10 Financial Technology
Product Innovation Award" and "CMB APP 6.0" products won the "Top 10 Financial Product Innovation
Award", respectively.
In July 2018, The Company was awarded the "2017 Best Socially Responsible Financial Institution in China's
Banking Industry" at the "Conference for Publication of the Corporate Social Responsibility Reports of the
PRC Banking Industry for 2017 and Commendation on Social Responsibility Practices" by China Banking
Association.
In July 2018, the list of Fortune China 500 was released, with the Company ranking 38th. The Company was
included in the list of Fortune Global 500 for 7 consecutive years, ranking 213th, up by 3 places from the
previous year.
In September 2018, in the "Awards of Excellence in Corporate and Investment Banking in China 2018"
organised by Asiamoney, the Company won the "Best Finance Institutions and Investment Banking Business
in China" award. In December, the Company was awarded "China's Leaders in Fintech: Best National
Commercial Bank" in 2018 by Asiamoney.
In November 2018, in the "2018 China Human Capital International Management Forum and China's Best
Employer Awards Ceremony" hosted by Zhilian Zhaopin, the Company received two awards, namely the
"2018 Best Employer of China" and "2018 Employer with the Most Female Attention of China".
In November 2018, the Company was once again included in Component of SynTao Green Finance-Caixin
ESG (Environmental, Social and Corporate Governance) 50 Index by Caixin Magazine.
15
16
China Merchants Bank
Il Summary of Accounting Data and Financial Indicators
Annual Report 2018
Summary of Accounting Data
and Financial Indicators
2.1 Key accounting data and financial indicators
Operating Results
Changes
(in millions of RMB, excluding percentages)
2018
2017
+/(-)%
248,444
1.1.10 Newspapers and Websites Designated for Information Disclosure:
Mainland China: "China Securities Journal", "Securities Times", "Shanghai Securities News"
website of Shanghai Stock Exchange (www.sse.com.cn)
website of the Company (www.cmbchina.com)
I Company Information
1.1.4 Mailing Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
1.1.3 Registered and Office Address:
Joint Company Secretaries: Wang Liang, Seng Sze Ka Mee Natalia (FCIS, FCS (PE), FHKIOD, FTIHK)
Securities Representative: Huo Jianjun
Secretary of the Board of Directors: Wang Liang
Authorised Representatives: Tian Huiyu, Li Hao
1.1.2 Legal Representative: Li Jianhong
1.1.1 Registered Company Name in Chinese: RESĦRA (Abbreviated Name in Chinese: ÀRͯ)
Registered Company Name in English: China Merchants Bank Co., Ltd.
1.1 Company Profile
Company Information
Annual Report 2018
I Company Information
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Postcode: 518040
China Merchants Bank
Chairman of the Board of Supervisors
Liu Yuan
22 March 2019
Annual Report 2018
China Merchants Bank Co., Ltd.
No product is appropriate for both bullish and bearish markets, but services can. We are here just for you, and we will provide
uninterrupted customised services for you at all time. 32 years ago, CMB was established because of China's reform and opening
up. Today, the best way to pay tribute to the great cause of reform and opening up is to promote the supply-side financial reform
and initiate the business model transformation with the self-revolution spirit and a more open attitude. Let us take the lead in
exploring the stage 3.0 of the banking industry and continue the legend of CMB.
Transforming from centralisation to openness, we will redefine the technology base and corporate culture of the Bank.
Technology provides the fundamental support for commercial banks. We are benchmarking Fintech companies to establish an
open IT architecture and comprehensively enhance the research, development and application of technology-based capabilities.
The foundation of Fintech is culture. We will build a fault-tolerant mechanism, support creative innovation, encourage young
people to take charge, tolerate non-mainstream ideas, and strive to change the traditional bureaucracy culture in banks, so that
CMB will have a lighter and simpler organisational structure.
Transforming from trading mindset to customer journey, we will redefine banking service logic and customer
experience. Trading mindset is from the business perception, whereas service journey is from the customer's perception. To
become a bank offering the best customer experience, we must think from the customer's perspective, understanding and
changing the product logics, service methods and interaction designs of the Bank in all processes. As such, we have attached
great importance to user experience, established user experience monitoring system for both retail finance and corporate finance,
perceived the customer experience in real time, given feedback and made improvement in a timely manner. We will build a
powerful digital business center, and strive to empower the online customer service platform and front-line customer managers in
an intelligent way to fundamentally enhance customer experience.
Transforming from bank cards to APPS, we will redefine the boundaries of banking services. With the shift of customer
behaviors and habits, APPS have become the main platforms for banks to interact with customers. 24 years ago, in responding
to the needs of customers, CMB innovatively launched "All-in-one Card", and took the lead in eliminating bankbooks; in 2018,
we once again led the trend, took the lead in realising comprehensive card-free operation in the outlets, and launched the
"eliminating bank cards" campaign. Under the macro environment of the era, only by changing with our users, can we keep
abreast with time, even if it means painful reforms and self-revolution. We are fully aware that a bank card is just a product,
but APP is a platform that integrates the whole ecological system. Currently, 27% and 44% of the traffic of CMB APP and CMB
Life APP come from non-financial services respectively. Both internal and external scenarios have achieved initial results. Our
two major APPs have 15 internal scenarios, each of which has more than 10 million MAUS, and we have initially set up a user
ecosystem covering subways, buses, parking lots and other convenience travel scenarios. It's just the beginning.
President's Statement
China Merchants Bank
Annual Report 2018
10
12
Tel: +86 755 8319 8888
President
E-mail: cmb@cmbchina.com
Fax: +86 755 8319 5109
China Merchants Bank
The Bank of New York Mellon SA/NV, Luxembourg Branch
Registrar for Domestic Preference Shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Registrar and Transfer Agent for Offshore Preference Shares:
1.1.9 Registrar for A Shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Share Register and Transfer Office as to H Shares: Computershare Hong Kong Investor Services Ltd.
Shops 1712-1716, 17/F, Hopewell Center, 183 Queen's Road East, Wanchai, Hong Kong
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
Office Address: 30th Floor, Bund Center, 222 Yan'an Road East, Shanghai, China
Certified Public Accountants for Signature: Zeng Hao, Zhu Wei
Domestic Auditor: Deloitte Touche Tohmatsu Certified Public Accountants LLP
Abbreviated Name of Shares: CMB 17USDPREF
Stock Code: 04614
Offshore Preference Shares: SEHK
1.1.7
Changes
+/(-)%
Domestic Preference Shares: Shanghai Stock Exchange
Website: www.cmbchina.com
Abbreviated Name of Shares: Zhao Yin You 1 (1)
Stock Code: 360028
Hotline for complaints on customer service: 95555-7
1.1.5 Principal Place of Business in Hong Kong:
21st Floor, Bank of America Tower, 12 Harcourt Road, Hong Kong
1.1.6 Share Listing:
Hotline for consumer rights protection: +86 755 8307 7333
Abbreviated Name of A Shares: CMB
Stock Code: 600036
H Shares: SEHK
Abbreviated Name of H Shares: CM BANK
Stock Code: 03968
A Shares: Shanghai Stock Exchange
Residential mortgage
175,078
2,289
2018
177,367
Micro-finance loans
Credit cards
Retail loans and advances
31 December 2017
Discounted bills
Corporate loans and advances
1,663,861
115,888
3,563,492
3,563,492
(191,772)
(47,277)
(38,517)
Subtotal
6,334
(191,772)
3,504,733
-Stage 1
(12-month
-Stage 2
(Lifetime
ECL- not
credit-
-Stage 3
(Lifetime
ECL-credit
ECL)
impaired)
impaired)
3,610,711
90,942
53,611
Total
3,755,264
(105,978)
(38,517)
(47,277)
(105,978)
at amortised cost
Net loans and advances to customers
Loans and advances to customers at FVTOCI
Loss allowances of loans and advances to
customers at FVTOCI
52,425
Loans and advances measured at amortised cost
Less: Loss allowances of loans and advances to
customers at amortised cost
248,815
Analyzed by ECL
Construction
123,768
124,094
Leasing and commercial services
121,900
138,773
205,884
157,984
Others
Subtotal
Gross loans and advances to customers
Less: Impairment allowances
- Individually assessed
- Collectively assessed
Subtotal
Net loans and advances to customers
1,779,749
833,410
491,383
84,475
74,804
Financial concerns
61,963
Residential mortgage
115,888
149,766
Discounted bills
1,443,496
1,545,073
Corporate loans and advances subtotal
56,721
59,021
312,716
Others
35,349
Mining
61,920
55,890
Water, environment and public utilities management
67,964
60,703
Telecommunications, software and IT services
46,276
39,136
921,500
147,786
3,565,044
(41)
(228)
No loss allowance is recognised in the consolidated statement of financial position for loans and advances to
customers at FVTOCI as the carrying amount is at fair value.
(b) Analysis of loans and advances to customers
(i)
Analysed by industry sector and category:
Operation in the Mainland China
2018
2017
Property development
Manufacturing
Transportation, storage and postal services
Wholesale and retail
Production and supply of electric power,
heating power, gas and water
262,323
188,822
255,683
251,979
(187)
177,367
149,766
27,601
(33,931)
(116,501)
(150,432)
3,414,612
China Merchants Bank
IX Financial Statements
Annual Report 2018
22. Loans and advances to customers (continued)
(a) Loans and advances to customers (continued)
1,785,295
(ii)
Corporate loans and advances
Discount bills
Loans and advances to customers at FVTOCI
Loss allowances
· Stage 1 (12-month ECL)
- Stage 2 (Lifetime ECL- not credit-impaired)
- Stage 3 (Lifetime ECL- credit impaired)
Subtotal
31 December 2018
Loans and advances to customers at FVTOCI
825,797
Credit cards
575,299
Credit cards
7,260
Residential mortgage
228,856
Corporate loans and advances subtotal
17,882
Others
419
26
Water, environment and public utilities management
13,444
2,001
Leasing and commercial services
4,211
2,196
Mining
1,937
5,635
Construction
Micro-finance loans
Others
Retail loans and advances subtotal
Gross loans and advances to customers
(ii)
(b) Analysis of loans and advances to customers (continued)
22. Loans and advances to customers (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
241,305
250,552
20,940
7,065
21,696
12,720
1,747
1,525
7,613
204
17,743
220,365
191
As at 31 December 2018, over 90% of the Group's loans and advances to customers were conducted in the People's Republic of China
(31 December 2017: over 90%).
In 2018, the Group divided industry sector and category according to the newly revised "Industrial Classification for National Economic
Activities" (GB/T 4754-2017) standards issued by the General Administration of Quality Supervision, Inspection and Quarantine of the People's
Republic of China and the Standardization Administration of the People's Republic of China and has restated the corresponding comparative
figures.
Notes:
11,376
7,889
heating power, gas and water
Production and supply of electric power,
(b)
Loans and advances to customers (continued)
22.
IX Financial Statements
China Merchants Bank
Annual Report 2018
194
193
3,323,739
3,682,482
Analysis of loans and advances to customers (continued)
Gross loans and advances to customers
1,987,643
Retail loans and advances subtotal
136,410
141,835
Others
310,969
349,009
Micro-finance loans
491,179
1,764,355
204,322
(i)
Operation outside Mainland China
11,371
9,309
Telecommunications, software and IT services
13,934
12,505
Wholesale and retail
14,221
26,860
Manufacturing
Analysed by industry sector and category: (continued)
25,613
Transportation, storage and postal services
47,198
52,174
63,209
54,167
Financial concerns
Property development
2017
2018
38,212
3,755,264
22
1,745,925
2017
2018
Balance as at the end of the year
Exchange difference
Charge for the year (note 14)
Balance as at the beginning of the year
Adjustments under IFRS 9
Balance as at the end of last year
Movements of allowances for impairment losses are as follows:
(c)
154,628
135
312,154
36,202
116,526
102,493
1,229
208,432
2017
2018
154,628
312,154
(135)
(405)
(37)
(225)
1,900
16
49
N/A
199,386
N/A
205
252,550
199,181
(754)
253,304
199,918
(737)
2017
2018
Total
Interest receivable
Subtotal
Impairment losses (a)(d)
Principal(a)
21. Amounts held under resale agreements
Annual Report 2018
IX Financial Statements
China Merchants Bank
135
405
3
218
16
184
(98)
(180)
154,763
312,559
Total
Subtotal
- Other financial institutions
- Banks
Less: Impairment allowances
Total
Subtotal
- Banks
Placements outside Mainland China
Subtotal
- Other financial institutions
- Banks
Placements in Mainland China
(a) Analysed by nature of counterparties
Total
Interest receivable
Subtotal
2018
312,559
Impairment losses (a)(c)
Principal (a)
20. Placements with banks and other financial institutions
Annual Report 2018
IX Financial Statements
China Merchants Bank
190
(187)
252,550
(b) Analysed by residual maturity
- Within one month (inclusive)
27,918
76,798
27,918
76,798
126,845
235,761
52,747
136,274
74,098
99,487
2017
2018
154,628
313,411
N/A
1,257
154,628
312,154
(135)
(405)
154,763
2017
Total
- Over one year
- Between one month and one year (inclusive)
Maturing
(a) Analysed by nature of counterparties
2018
2017
(191,772)
(123)
loss allowances of loans and advances to customers at amortised cost (i)
loss allowances of Interest receivable
3,565,044
3,764,074
Subtotal
3,565,044
N/A
3,755,264
8,810
Gross loans and advances to customers at amortised cost (i)
Interest receivable
31 December 2018 31 December 2017
(a) Loans and advances to customers
22. Loans and advances to customers
Annual Report 2018
IX Financial Statements
China Merchants Bank
192
191
754
737
2
82
(629)
672
1,364
N/A
610
(150,432)
672
N/A
(191,895)
Net loans and advances to customers at amortised cost
Subtotal
- Stage 3 (Lifetime ECL- credit impaired)
- Stage 2 (Lifetime ECL- not credit-impaired)
- Stage 1 (12-month ECL)
Less: loss allowances
Gross loans and advances to customers at amortised cost
Retail loans and advances
Corporate loans and advances
31 December 2018
Loans and advances to customers at amortised cost
(i)
3,414,612
3,749,949
N/A
403
Total
Loans and advances to customers at FVTPL
N/A
177,367
Loans and advances to customers at FVTOCI (ii)
3,414,612
3,572,179
Loans and advances to customers at amortised cost
(150,432)
Subtotal
2,009,339
754
2018
2018
(b) Analysed by residual maturity
252,550
199,181
Total
(754)
(737)
(95)
(508)
(659)
(229)
Subtotal
- Other financial institutions
Less: Impairment allowances
Banks
253,304
199,918
Subtotal
220,939
152,125
- Other financial institutions
32,365
47,793
- Banks
Amounts held under resale agreements in Mainland China
2017
2017
Maturing
198,183
Balance as at the end of the year
Exchange difference
(Release)/charge for the year (note 14)
Balance as at the beginning of the year
Adjustments under IFRS 9
Balance as at the end of last year
(d) Movements of allowances for impairment losses are as follows:
252,550
199,181
1,048
6,443
245,059
188,429
10,752
2017
2018
Total
Asset management schemes
Bills
Bonds
(c) Analysed by assets types
252,550
199,181
249,563
2,987
998
- Between one month and one year (inclusive)
Total
- Within one month (inclusive)
(41)
119
Impairment
allowances
Subtotal
9,381
13,184
(ii)
Financial assets designated at fair value through profit or loss
55,415
314,459
(i)
Investments measured at FVTPL
2017
2018
327,643
Notes
(a)
1,597,272
1,705,619
Total
572,241
N/A
24(g)
558,218
N/A
24(f)
383,101
Financial assets at fair value through profit or loss
N/A
64,796
2,659
111
Equity investments
5,083
47,605
Other debt securities
36,085
17,362
Bonds issued by commercial banks and other financial institutions
1,317
9,091
Bonds issued by policy banks
Interest receivable
12,286
Government bonds
Bonds
2017
2018
Financial assets held for trading
Investments measured at FVTPL
(i)
64,796
330,302
Total
N/A
20,917
24(e)
N/A
4,015
197
As at 31 December 2018, the interests accrued on financial instruments of the Group are included in the carrying
amounts of the corresponding financial assets.
28,726
3,397
10,240
15,089
2017
Total
Others
Loans and advances to customers
Debt securities
198
23. Interest receivable
130,913
leases receivable
Net investment in finance
(2,674)
N/A
N/A
N/A
- Collectively assessed
(426)
N/A
N/A
122,183
China Merchants Bank
IX Financial Statements
Annual Report 2018
24(d)
Equity investments designated at FVTOCI
N/A
421,070
24(c)
Debt securities classified as receivables
Available-for-sale financial assets
Debt investments at FVTOCI
Held-to-maturity investments
N/A
916,012
24(b)
Debt investments at amortised cost
18,916
34,220
61(f)
Derivative financial assets
64,796
330,302
24(a)
Financial assets at fair value through profit or loss
2017
2018
Notes
24. Investments
32
Investments in funds
2,089
401
Classification
9,381
13,184
Total
4,714
3,684
1,576
7,190
Bonds issued by commercial banks and other financial institutions
Other debt securities
2,571
2,310
Listed inside mainland China
Bonds issued by policy banks
Government bonds
2017
2018
Financial assets designated at fair value through profit or loss
(ii)
17,278
173,988
387
24,303
3
1,060
520
Listed outside mainland China
160
5,372
(228)
199
916,012
(8,126)
(46)
(8,080)
924,138
12,790
911,348
2018
Total
Subtotal
Impairment losses of interest receivable
Impairment losses of principal (i)(ii)(iii)
Subtotal
Interest receivable
Debt investments at amortised cost (i)(ii)
Debt investments at amortised cost
(b)
The amounts of changes in the fair value of these investments that are attributable to changes in credit risk are
considered not significant during the years ended 31 December 2018 and 2017 and as at 31 December 2018 and
2017.
Unlisted
4,099
4,762
520
7,652
14,765
N/A
1,450
2,338
2
84
Unlisted
Listed outside mainland China
Listed inside mainland China
Investments in equity, funds, precious metal contracts and others
9,086
1,082
Unlisted
9,848
8,514
121
Listed outside mainland China
85,379
Listed inside mainland China
Bonds
55,415
98,503
Total
1,217
Others
211
111
Long position in precious metal contracts
35,837
271
3,323
371
22,352
2018
Investments in equity, funds, wealth management products and others
Unlisted
Unlisted
Non-standard assets -Bills
Unlisted
Listed inside Mainland China
Bonds
Total
Others
Wealth management products
Investments in funds
Equity investments
Non-standard assets -Bills
Other debt securities
Bonds issued by commercial banks and other financial institutions
Bonds
Other investments measured at FVTPL
Investments measured at FVTPL (continued)
(i)
(a) Financial assets at fair value through profit or loss (continued)
24. Investments (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
173,988
- Individually assessed
215,956
N/A
Recovery of loans and advances written off
(307)
(307)
Unwinding of discount on allowance
(26,197)
(26,197)
Write-offs
(76,946)
(19,723)
(17,646)
(39,577)
7,453
Release for the year (Note 14)
29,779
28,151
78,220
Charge for the year (Note 14)
Impairment losses for the year
7,186
(6,341)
(845)
- Stage 3
(327)
1,951
136,150
7,453
Exchange difference
152
110,032
29,230
10,108
70,694
Balance as at the beginning of the year
Total
assessed
assessed
assessed
Which are
individually
Which are
collectively
collectively
advances
which are
Impairment allowances for
impaired loans and advances
2017
for loans and
Impairment
allowances
191,772
47,277
38,517
105,978
Balance as at the end of the year
279
78
49
(1,624)
Impairment losses for the year
- Stage 2
(1,462)
7,589
2,082
3,404,941
Net loans and advances
(150,432)
3,565,044
41,520
(33,931)
(13,784)
(102,717)
Less: allowance
15,866
3,414,612
3,507,658
Total
assessed
assessed
assessed
Which are
individually
Which are
collectively
Impairment allowances for
impaired loans and advances
2017
advances
which are
collectively
N/A
for loans and
Loans and advances
195
196
IX Financial Statements
1,545
- Stage 1
Transfer to
Total
151,340
49,418
33,815
68,107
Balance as at the beginning of the year
impaired)
impaired)
ECL)
ECL-credit
credit-
(12-month
-Stage 3
(Lifetime
ECL- not
-Stage 1
-Stage 2
(Lifetime
2018
Reconciliation of allowance for expected credit loss measured at amortised cost:
Movements of allowance for impairment losses
(i)
(c)
22. Loans and advances to customers (continued)
Annual Report 2018
(83)
Charge for the year (Note 14)
China Merchants Bank
9,955
65,776
(11,092)
76,868
72,389
(11,777)
84,166
(inclusive)
Over 1 year but within 5 years
32,079
(5,093)
37,172
Over 5 years
33,824
37,900
Within 1 year (inclusive)
receivable
income
leases
finance
Present
value of
minimum
Unearned
Total
minimum
leases
receivable
receivable
leases
(4,076)
35,053
(6,603)
28,450
(847)
N/A
33,240
- Stage 3 (Lifetime ECL
-credit impaired)
N/A
N/A
N/A
(492)
not credit-impaired)
- Stage 2 (Lifetime ECL-
N/A
N/A
N/A
(2,411)
Stage 1 (12-month ECL)
Less: Impairment allowances
(20,972)
146,255
134,663
(22,456)
157,119
Subtotal
27,428
(4,787)
32,215
finance
income
receivable
125,283
Present
value of
minimum
5,519
3,195
(137)
(212)
2,324
Exchange difference
written off
Recoveries of loans and advances previously
(561)
(560)
(1)
Unwinding of discount
(349)
22
(15,682)
(8,601)
Write-offs
(4,398)
(3,392)
(1)
(1,005)
leases
21,255
64,450
Release for the year (Note 14)
Transfer
Balance as at the end of the year
(24,283)
228
minimum
Unearned
2017
2018
The table below provides an analysis of finance lease receivable for leases of equipment in which the Group is the
lessor:
(d) Finance leases receivable
48
180
180
Balance as at the end of the year
Charge for the year (note 14)
Balance as at the beginning of the year
102,717
Adjustments under IFRS 9
13,784
33,931
150,432
China Merchants Bank
Annual Report 2018
Total
22. Loans and advances to customers (continued)
IX Financial Statements
(c)
Movements of allowance for impairment losses (continued)
(ii) Reconciliation of allowance for impairment losses measured at FVTOCI:
2018
Balance as at the end of last year
253,422
Analyzed by ECL :
2018
-Stage 1
(12-month
-Stage 2
(Lifetime ECL-
(ii)
666,092
Others
not credit-
ECL)
impaired)
ECL- credit
impaired)
3,089
Debt investments at amortised cost
906,347
960
-Stage 3
(Lifetime
3,490
Listed inside Mainland China
3,000
538
Subtotal
4,041
Less: loss allowances
Total
Stage 1 (12-month ECL)
Stage 2 (Lifetime ECL- not credit-impaired)
Stage 3 (Lifetime ECL- credit impaired)
651,347
Bonds
Fair value for the listed bonds
Non-standard assets
911,348
(3,582)
(517)
(3,981)
903,268
Unlisted
Listed outside Mainland China
Unlisted
Total
911,348
ECL-credit
at amortised cost
impaired)
impaired)
Balance as at the beginning of the year
4,461
49
2,555
Total
7,065
Transfer to:
ECL)
- Stage 1
- Stage 3
24
(17)
(7)
(42)
Creditor's beneficiary rights to other commercial banks
(3)
6
- Stage 2
not credit-
(12-month
-Stage 3
(Lifetime
(3,582)
Net debt investments at amortised cost
902,765
(517)
443
(3,981)
(8,080)
60
903,268
China Merchants Bank
IX Financial Statements
Annual Report 2018
24. Investments (continued)
(b) Debt investments at amortised cost (continued)
(iii)
Movements of allowances for impairment losses
-Stage 2
-Stage 1
(Lifetime ECL-
2018
Less: Loss allowances of debt investments
206,229
Balance as at the beginning of the year
43,655
25. Particulars of principal subsidiaries of the bank
IX Financial Statements
China Merchants Bank
Annual Report 2018
4,302
(988)
(2,227)
Balance as at the end of the year
Write-off for the year
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 4(1) and have been included in the scope of the consolidated financial statements of the Group.
Release for the year(note 14)
Charge for the year(note 14)
6,176
2017
Movements of allowances for impairment losses are as follows:
38
576,505
Outside mainland China
Inside mainland China
1,341
572,241
Name of company
Particulars of the
issued and paid
Limited company
100% Finance lease
(9)
RMB6,000
Shanghai
CMB Financial Leasing Company
Limited (note (ii))
Tian Huiyu
Limited company
Place of
incorporation
and operation
100% Financial advisory
services
Hong Kong
CMB International Capital Holdings
Corporation Limited (note (i))
(in millions)
Legal
representative
Economic
nature
Bank Principal activities
up capital
% of
ownership
held by the
HKD4,129
Classification
Total
(4,302)
IX Financial Statements
Annual Report 2018
24. Investments (continued)
(b) Debt investments at amortised cost (continued)
(i)
Debt investments at amortised cost by type:
2018
Bonds
China Merchants Bank
Government bonds
Bonds issued by policy banks
219,275
Bonds issued by commercial banks and other financial institutions
29,602
Other debt securities
8,942
Non-standard assets
Bills
400,107
200
24. Investments (continued)
(g) Debt securities classified as receivables
Less: impairment allowances
576,543
Subtotal
3,000
Creditor's beneficiary rights to other commercial banks
1,962
Wealth management products
290,215
261,213
Loans and advances to customers
Bills
Non-standard assets
9,817
Other debt securities
9,428
Bonds issued by commercial banks and other financial institutions
908
Government bonds
Bonds
2017
Loans and advances to customers
51
46,547
(3)
383,101
231,466
44,195
58,123
1,905
1,057
46,886
China Merchants Bank
Annual Report 2018
(531)
IX Financial Statements
(e)
Available-for-sale financial assets (continued)
Movements of allowances for impairment losses are as follows:
2017
Balance as at the beginning of the year
645
Charge for the year
24
24. Investments (continued)
Releases for the year
383,632
Listed inside mainland China
Listed outside mainland China
Unlisted
Government bonds
153,426
Bonds issued by policy banks
51,715
Bonds issued by commercial banks and other financial institutions
78,940
Other debt securities
49,703
Investments in equity and funds
Listed inside mainland China
Listed outside mainland China
Unlisted
Subtotal
Equity investments
3,301
Investments in funds
Subtotal
Less: impairment allowances
Total
Classification
Bonds
333,784
2017
Write-offs
Balance as at the end of the year
Balance as at the end of the year
2017
330,120
202,610
25,072
509
558,311
(93)
558,218
Exchange difference
554,936
714
542,523
2017
90
93
203
204
Shi Shunhua
China Merchants Bank
2,661
Exchange difference
Charge for the year(note 14)
Movements of allowances for impairment losses are as follows:
(75)
(35)
(28)
531
(f)
Held-to-maturity investments
Government bonds
Bonds issued by policy banks
Balance as at the beginning of the year
Bonds issued by commercial banks and other financial institutions
Subtotal
Less: impairment allowances
Total
Classification
Listed inside mainland China
Listed outside mainland China
Unlisted
Fair value of listed debt securities
Other debt securities
(e) Available-for-sale financial assets
During the year ended 31 December 2018, the fair value of the equity investment designated at the date of
derecognition was RMB17 million, the cumulative loss on disposal was RMB4 million which was transferred from
investment revaluation reserve to retained profits on disposal.
2,539
Debt investments at FVTOCI(i)
Interest receivable
Total
Impairment losses of debt investments at FVTOCI (ii)
Impairment losses of interest receivable
Total
2018
414,691
6,379
421,070
(c) Debt investments at FVTOCI
(1,897)
(1,912)
No loss allowances are recognised in the consolidated statement of financial position for debt investments at FVTOCI
as the carrying amount is at fair value.
(i)
Debt investments at FVTOCI by type :
2018
Government bonds
220,078
Bonds issued by policy banks
(15)
60,365
8,080
517
Charge for the year
- Charge for the year (note 14)
907
507
1,707
- Release for the year (note 14)
(1,797)
(19)
3,981
Recoveries of debt previously written off
3,121
(2,334)
192
Exchange difference
32
4
36
Balance as at the end of the year
3,582
(518)
192
Bonds issued by commercial banks and other financial institutions
Other debt securities
98,428
35,820
(d)
Equity investments designated at FVTOCI
Repossessed equity instruments
Others
Total
Listed inside Mainland China
2018
1,445
Balance as at the end of the year
1,445
63
1,897
2018
220
3,795
4,015
66
1,410
Listed outside Mainland China
Unlisted
389
Exchange difference
Charge for the year (note 14)
Balance as at the beginning of the year
Total
Classification
414,691
Listed inside Mainland China
Listed outside Mainland China
Unlisted
292,347
50,486
71,858
201
202
China Merchants Bank
IX Financial Statements
Annual Report 2018
24. Investments (continued)
(c) Debt investments at FVTOCI (continued)
Movements of allowances for impairment losses
(ii)
Balance as at the end of last year
Adjustments under IFRS 9
35
CMB Wing Lung Bank Limited
(note (iii))
666
HKD1,161
The following list contains the information of associates, which are unlisted corporate entities and are not
individually material to the Group:
3
20
249
37
Share of profits for the year
Total
2
18
2018
249
Share of net assets
2017
2018
27. Interest in associates
Annual Report 2018
IX Financial Statements
China Merchants Bank
208
Goodwill
207
Others
2017
2018
28. Investment properties
Annual Report 2018
IX Financial Statements
China Merchants Bank
3
8
4,837
37
Group's effective interest
83
4,837
comprehensive
income
comprehensive
income
Profit or loss
Total
Other
Group's effective interest
Others
37
2017
92
81
4
406
595
595
2,082
2,320
21,170
23,490
192
Group's effective interest
8
812
1,189
1,189
4,163
4,641
42,339
46,980
383
11
Summarised financial information of the joint ventures that are not individually material to the Group:
Others
451
53
398
114
(23)
940
(111)
1,051
137
2018
income
Total
comprehensive
income
Profit or loss
Other
Group's effective interest
Others
2017
Group's effective interest
comprehensive
Cost:
At 1 January
2,855
1,781
1,781
2018
Level 3
Level 2
Level 1
as at 31
December
Fair Value
2,864
Total
Held in Mainland China
The fair value hierarchy of Investment properties of the Group are listed as below:
358
530
2
2
140
251
Held overseas
Total
2,864
4,645
Annual Report 2018
209
In estimating the fair value of the properties, the highest and best use of the properties is their current use.
3,721
3,721
Total
2,688
2,688
4,645
Held overseas
2017
Level 3
1,033
Held in Mainland China
Level 2
Level 1
31 December
as at
Fair Value
1,033
1 year to 5 years (inclusive)
Over 5 years
216
277
134
Depreciation
1,183
Hong Kong
At 1 January
Accumulated depreciation:
2,855
3,488
147
At 31 December
95
Exchange difference
(12)
Disposals
109
550
Transfers in/(out)
2,884
(138)
Transfers in/(out)
17
(27)
Within 1 year (inclusive)
2017
2018
1,701
1,612
1,612
2,061
1,243
1,427
(60)
45
(12)
Investment properties of the Group mainly represent the leased properties of WLB and the portion of the Bank's
properties in Qingdao, Hefei, Huhehaote, Guangzhou and Ningbo that have been leased out under operating leases
or are available for lease. The fair value of the Group's investment properties are assessed by the independent
appraiser A.G.Wilkinson & Associates, and the fair value is determined by the method of capitalization of net rental
income. There has been no change to the valuation methodology during the year. As at 31 December 2018, the fair
value of these properties was RMB4,645 million (2017: RMB3,721 million). The Group's total future minimum lease
payments under non-cancellable operating leases are receivables as follows:
As at 31 December 2018, no impairment was considered necessary for investment properties by the management of
the Group (2017: nil).
At 1 January
Net book value:
At 31 December
At 31 December
Exchange difference
Disposals
MUCFC
2017
1,243
391
Shenzhen
Limited company
Merchants Union Consumer Finance
Company Limited. (note(ii))
Life insurance business
50.00%
50.00%
RMB2,800,000
196
RMB3,868,964
Shenzhen
CIGNA &CMB Life Insurance Company
Limited (note(i))
of the Bank subsidiaries Principal activity
interest
of the
ownership
effective
incorporation Particulars of issued
and operation and paid up capital
(in thousands)
Form of business
structure
Limited company
Name of joint ventures
50.00%
25.85% Consumer finance
Revenue Profit or loss
Equity
Assets Liabilities
and
Cash Depreciation
and cash
Total
Other
comprehensive comprehensive
(i)
24.15%
Summarised financial information of the joint ventures which are individually material to the Group is as below:
CIGNA & CMB Life
Annual Report 2018
IX Financial Statements
China Merchants Bank
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"). CBIRC has approved the operation of MUCFC on 3 March
2015. WLB and CUNC hold 50.00% equity interests in MUCFC respectively and share the risks, profits and losses based on the above
proportion of their shareholding. In December 2017, the Group made an additional capital contribution of RMB600 million in CUNC, and
other shareholders of CUNC injected capital proportionally. The capital of CUNC increased to RMB2,859 million, and the Bank's shareholding
percentage is 15%, WLB's shareholding percentage is 35%, and the Group's shareholding percentage remains unchanged. In December
2018, the Group made an additional capital contribution of RMB1,000 million in CUNC, and the other shareholder of CUNC injected capital
proportionally. The Bank's shareholding percentage is 24.15%, WLB's shareholding percentage is 25.85%, and the Group's shareholding
percentage remains unchanged.
The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Company Limited ("CIGNA & CMB Life"), and Life Insurance Company
of North America ("INA") holds the other 50.00% equity interests in 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 shareholding. The
Bank's investment in CIGNA & CMB Life is accounted as an investment in a joint venture.
(ii)
(i)
Notes:
26. Interest in joint ventures (continued)
ownership
of
Group's
CMB Wing Lung Bank Limited ("WLB"), formerly known as Wing Lung Bank Limited. On 30 September 2008, the Bank acquired a 53.12%
equity interests in WLB. WLB became a wholly owned subsidiary of the bank 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 CBIRC 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)
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
shareholding 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. In December 2017, the Bank made an additional capital contribution of RMB605 million in CMFM,
and other shareholders of CMFM also make capital contribution of RMB495 million proportionally. The capital of CMFM increased to RMB1,310
million, and the Bank's shareholding percentage remains unchanged.
Notes:
Limited company
55% Asset management
RMB1,310
Shenzhen
China Merchants Fund Management
Co., Ltd. (note (iv))
Tian Huiyu
Limited company
100% Banking
Li Hao
205
206
China Merchants Bank
Place of
of
Percentage
Percentage
44
(36)
5,183
995
1,272
8,622
(Restated)
2017
2018
Details of the Group's interest in major joint ventures are as follows:
Share of other comprehensive (expense) income for the year
Share of profits for the year
Share of net assets
26. Interest in joint ventures
Annual Report 2018
IX Financial Statements
income
income
IX Financial Statements
Income tax
MUCFC:
Total
comprehensive
Cash
and cash
Depreciation
and
Assets
Liabilities
(ii)
Equity
income
equivalents
amortisation
Income tax
2018
MUCFC
74,748
66,855
Revenue Profit or loss
116
188
38
equivalents amortisation
4,790
13,935
Group's effective interest
17,971
15,576
2,395
6,968
63
66
33
3332
732
945
31
75
352
473
16
7,893
6,956
319
1,253
496
(13)
509
8,325
2,891
19,775
22,666
Group's effective interest
28
303
1,020
(25)
1,045
5,783
39,549
45,332
2018
CIGNA & CMB Life
1,253
152
81
16,649
14
Group's effective interest
245
37,374
10
3,946
3,478
626
626
1,137
33,428
2,273
31,152
35,942
CIGNA & CMB Life
2017
23
123
15
2017
2018
(b) Financial liabilities designated at fair value through profit or loss
11,389
18,962
64
15,230
11,325
2017
2018
26,619
44,144
N/A
25,138
44
1,090
17,872
Total
- Precious metal contracts with other banks
- Others
15,230
As at 31 December 2018 and 2017, the difference between the fair values of the Group's financial liabilities
designated at fair value through profit or loss and the contractual payable at maturity is not significant. The amounts
of changes in the fair value that are attributable to changes in credit risk of these liabilities are not significant during
the years ended 31 December 2018 and 2017 and as at 31 December 2018 and 2017.
25,138
2017
11,389
4,239
9,977
3,185
2,619
118
2,879
7,688
9,663
- Debt securities issued
Outside Mainland China
- Certificates of deposit issued
In Mainland China
2018
18,962
72,769
Short selling securities
81,876
48,311
2017
2018
272,734
N/A
272,734
2017
2018
202,974
976
203,950
Total
Subtotal
- Other financial institutions
- Banks
217
Subtotal
Outside Mainland China
122,305
88,862
130,187
211,167
61,565
Precious metal relevant financial liabilities
Financial liabilities held for trading
(a)
Total
Financial liabilities designated at fair value through profit or loss(b)
Interest payable
Financial liabilities held for trading(a)
36. Financial liabilities at fair value through profit or loss
Total
Annual Report 2018
China Merchants Bank
272,734
202,974
61,567
72,787
2
18
IX Financial Statements
218
Subtotal
IX Financial Statements
1,562,953
366,231
503,030
972,291
1,059,923
2,725,823
2,837,721
1,144,021
1,022,294
1,581,802
1,815,427
2017
2018
4,064,345
4,427,566
N/A
4,064,345
4,400,674
26,892
2017
2018
Total
Subtotal
- Time deposits
- Demand deposits
Retail customers
Subtotal
- Time deposits
Demand deposits
Corporate customers
1,338,522
(a) Analysed by nature of counterparties
4,400,674
(b) Customer deposits including deposits for guarantees are as follows:
219
As at 31 December 2018, the interests accrued on financial instruments of the Group are included in the carrying
amounts of the corresponding financial liabilities.
36,501
34,681
1,820
2017
Total
Customer deposits and others
Issued debt securities
39. Interest payable
189,935
163,962
20,417
19,054
44,429
46,107
19,035
12,974
27,931
20,908
78,123
64,919
2017
2018
Total
Others
Deposit for letters of guarantee
Guarantee for issuing letters of credit
Guarantee for acceptance bills
Guarantee for loans
4,064,345
Total
Interest payable
Principal (a)
120,423
70,260
5,468
114,955
69,089
1,171
2017
2018
125,620
78,141
N/A
125,620
78,029
112
2017
2018
(b) Analysed by assets type
Total
- Other financial institutions
- Banks
Outside Mainland China
Subtotal
- Other financial institutions
- Banks
In Mainland China
(a) Analysed by nature of counterparties
Total
Interest payable
Principal (a) (b)
37. Amounts sold under repurchase agreements
Annual Report 2018
7,769
5,162
35
7,769
38. Deposits from customers
Annual Report 2018
IX Financial Statements
China Merchants Bank
125,620
78,029
40,049
7,853
Discounted bills
85,571
70,176
Subtotal
928
1,917
China Merchants Bank
- Other debt securities
5,469
- Bonds issued by commercial banks and other financial institutions
48,273
21,399
- Bonds issued by policy banks
31,900
41,391
- PRC government bonds
Debt securities
2017
2018
125,620
78,029
5,197
4,470
Total
- Other financial institutions
Exchange difference
10,652
1,095
4,923
4,634
Additions
At 1 January 2018
Cost:
Total
3,224
Core deposits
Software
Land
use rights
30. Intangible assets
Annual Report 2018
IX Financial Statements
China Merchants Bank
(c) As at 31 December 2018, the Group has no significant unused property and equipment (2017: nil).
(b) As at 31 December 2018, the process of obtaining the registration license for the Group's properties with an aggregate net carrying value of
RMB2,066 million (2017: RMB4,080 million) was still in progress.
and others
1,398
4,622
Transfers
426
13,558
1,162
6,322
6,074
At 31 December 2018
Amortisation:
At 1 January 2018
Additions (Note 10)
Transfers/disposals
Exchange difference
At 31 December 2018
77
67
5
5
Exchange difference
(8)
(4)
(4)
Disposals
(1,785)
(1,785)
(a) As at 31 December 2018, the Group considered that there is no impairment loss on property and equipment (2017: nil).
2,613
43,857
18,145
(16)
(25)
(106)
Exchange difference
(847)
(400)
(6)
(392)
(80)
(49)
14
(13)
27
Reclassification and transfers
4,915
703
1,118
656
Disposals
(2)
(229)
At 31 December 2017
2,585
2,357
3,797
15,550
At 1 January 2017
49,812
1,128
24,473
2,524
2,492
2,482
16,713
At 31 December 2017
Net book value:
27,347
5,288
1,947
4,305
7,673
1,423
1,280
358
237
Transfers/disposals
714
40
536
138
Additions (Note 10)
2,743
344
(1)
2,108
At 1 January 2017
Amortisation:
10,652
1,095
4,923
4,634
At 31 December 2017
(99)
291
(29)
(30)
Exchange difference
834
1,778
1,302
At 1 January 2017
7,255
737
2,310
4,208
At 31 December 2017
Net book value:
3,397
358
2,613
426
At 31 December 2017
(30)
(26)
(2)
(2)
(83)
3,397
(3)
49
735
3,003
5,412
At 31 December 2018
Net book value:
4,408
427
3,319
9,150
662
29
3
1
(5)
(3)
983
40
706
33
At 1 January 2018
4,208
2,310
(30)
79
4,045
1,070
2,975
6,657
1,178
3,886
1,593
Transfers/disposals
Exchange difference
At 1 January 2017
Additions
Cost:
Total
Core deposits
Software and
Others
use rights
Land
7,255
737
(13)
1,158
Depreciation
23,494
7,673
8,134
At 1 January 2018
Accumulated depreciation:
87,787
6,369
33,904
7,669
4,305
12,276
25,923
At 31 December 2018
1,401
12
1,141
14
54
180
1,646
1,947
5,288
27,347
94
Exchange difference
(1,032)
(487)
(256)
(18)
(252)
(19)
Disposals
(17)
(17)
Reclassification and transfers
5,136
537
1,459
576
1,344
1,220
Depreciation
(3,006)
24
(490)
(19)
At 1 January 2018
Cost:
Total
others
equipment
Motor
vehicles and
professional
Leasehold
equipment improvements
24,847
in progress
Construction
Land and
buildings
Aircrafts,
vessels and
29. Property and equipment
Annual Report 2018
IX Financial Statements
China Merchants Bank
210
Computer
2,482
10,165
6,829
(252)
(151)
Disposals
(550)
109
(1,641)
982
Reclassification and transfers
12,783
431
8,437
736
2,309
805
65
Additions
77,159
6,416
26,420
(2,094)
6
19
4
(411)
(7)
(403)
(91)
Disposals
(223)
13
197
(912)
(4)
2,402
Reclassification and transfers
12,305
410
8,399
402
1,465
1,516
(2,831)
Exchange difference
(231)
(60)
4,987
909
3,684
6,810
7,104
At 1 January 2017
Accumulated depreciation:
77,159
6,416
26,420
6,829
10,165
2,482
24,847
At 31 December 2017
(1,362)
(6)
(1,033)
(32)
113
Additions
67,351
6,410
16,713
At 1 January 2018
56,206
1,027
30,735
2,800
3,487
1,646
16,511
At 31 December 2018
Net book value:
31,581
5,342
3,169
4,869
8,789
9,412
At 31 December 2018
147
2,482
3,914
2,492
24,473
19,054
6,269
9,167
3,797
22,654
At 1 January 2017
Cost:
Total
and others
professional Motor vehicles
equipment
equipment improvements
Leasehold
Computer
Construction
in progress
Land and
buildings
vessels and
Aircrafts,
49,812
1,128
2,524
211
8,134
China Merchants Bank
1,308
1,857
57
55
8
(5)
41,647
1,795
44
3,884
1,751
543
1,260
1,764
13,518
30,113
(288)
2,625
(443)
17,085
354
49,050
No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group
is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the
foreseeable future.
Guarantee deposits
868
597
Repossessed assets (note (a))
1,109
1,117
Prepaid lease payments
N/A
2,888
Interest receivable
7,818
9,344
Amounts pending for settlement
2017
(Restated)
2018
33. Other assets
Annual Report 2018
IX Financial Statements
China Merchants Bank
85
794
28,134
Others
At 31 December 2018
(26)
(31)
N/A
5
Exchange difference
(2,371)
(19)
51,718
N/A
comprehensive Income
Recognised in other
8,299
21
762
N/A
(297)
(6)
(2,352)
(1,437)
1,911
N/A
welfare payable
assets
Salary and
Available-for-
sale financial
Financial
instruments at
FVTPL
other assets
customers and
on loans and
advances to
Impairment
allowances
Note:
At 31 December 2017
Exchange difference
Income
Recognised in other comprehensive
Recognised in profit or loss
At 1 January 2017
57,163
325
4,646
Total
607
Recoverable from reinsurers
209
212
- Banks
Outside Mainland China
Subtotal
- Other financial institutions
- Banks
In Mainland China
2017
Subtotal
2018
439,118
470,826
N/A
1,818
439,118
2017
Total
Interest payable
(a) Analysed by nature of counterparties
Total
108,732
72,324
In Mainland China
- Banks
(a) Analysed by nature of counterparties
Total
Interest payable
Principal (a)
35. Placements from banks and other financial institutions
439,118
469,008
7,196
9,929
11
32
7,185
9,897
431,922
459,079
359,598
350,347
2018
469,008
Principal(a)
34. Deposits from banks and other financial institutions
IX Financial Statements
Others
Residential properties
(a) Repossessed assets
9,388
23,248
32,568
Total
15,060
Others
109
31
- Defined benefit plan (Note 40(b))
Post-employment benefits
88
112
Premium receivables
3,054
2,416
Prepayment for lease improvement and other miscellaneous items
207
Total
7,819
Less: impairment allowances
2018
China Merchants Bank
Annual Report 2018
216
215
The Group plans to dispose of the repossessed assets by auction, bid or transfer.
(ii)
In 2018, the Group has disposed of repossessed assets with a total cost of RMB143 million (2017: RMB73 million).
(i)
Note:
868
597
(646)
(188)
1,514
785
488
18
1,026
767
2017
Net repossessed assets
Recognised in profit or loss
Other financial institutions
354
(taxable)
Deductible/
Deductible/
(taxable)
temporary
difference
2017
2018
49,050
(1,070)
(1,211)
57,163
temporary
50,120
2017
2018
Impairment allowances on loans and
Deferred tax assets
(a) Analysed by nature of deferred tax assets and liabilities
The components of deferred tax assets/liabilities are as follows:
Net amount
Deferred tax liabilities
Deferred tax assets
58,374
Deferred tax
difference
Deferred tax
N/A
N/A
Available-for-sale financial assets
1,857
7,428
1,940
7,758
Financial assets at FVTPL
N/A
N/A
(1,475)
(5,899)
Financial assets at FVTOCI
41,616
166,590
51,684
206,932
and other assets
advances to customers at amortised cost
32. Deferred tax assets, deferred tax liabilities
Annual Report 2018
IX Financial Statements
China Merchants Bank
Addition in Release in the
the year
As at 1
January 2018
1 January
2018 & 31
January
2018 & 31
As at 31
Net value at
Impairment
(iii)
(ii)
(i)
Notes:
Total
(note (iii))
Zhaoyin Internet
WLB (note (i))
CMFM (note (ii))
31. Goodwill
Annual Report 2018
IX Financial Statements
51,261
December
5,381
December
year
In assessing impairment of goodwill, the Group assumed that the terminal growth rate is comparable to the forecast
long-term economic growth rate issued by authoritative institutions. A pre-tax discount rate of 12% and 14% (2017:
9% and 12%) 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.
Impairment test for CGU containing goodwill
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. The details about WLB are set out in Note 25.
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. The details about CMFM are set out in Note 25.
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 RMB3 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.
9,954
(579)
10,533
1
1
1
10,533
355
9,598
(579)
10,177
355
10,177
355
2018
2018
2018
December
1,344
loss at 1
18,582
at FVTPL
at FVTOCI
assets
Salary and
welfare
for-sale
financial
Financial
instruments
Financial
instruments
and other
assets
Available-
on loans and
advances at
amortised
Impairment
allowances
(b) Movements of deferred tax are as follows:
32. Deferred tax assets, deferred tax liabilities (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
214
cost to
customers
payable
Others
Total
3,884
Salary and welfare payable
2,208
921
43,894
At 1 January 2018
2,211
N/A
351
921
2,247
Adjustments under IFRS 9
49,050
354
3,884
1,308
1,857
41,647
At 31 December 2017
213
(1,070)
(1,308)
6,413
189
34
207
and other assets
advances to customers at amortised cost
Deferred tax liabilities
15,535
Total
31
50,120
58,374
234,353
1,419
1,579
6,980
Others
3,884
4,646
201,347
Financial assets at FVTOCI
Impairment allowances on loans and
244
(1,211)
(8,189)
Total
(1,065)
(1,254)
(8,524)
Others
(36)
(124)
(6,932)
N/A
38
N/A
N/A
N/A
Financial assets at FVTPL
(6,867)
(116)
(29)
Available-for-sale financial assets
36 months
4.20
RMB18,000
17,979
5
17,984
Medium term note
36 months
3M Libor+0.825
5,496
USD800
22 May 2017
4
286
Fixed rate bond
12 Jun 2017
5,206
4
Fixed rate bond
the year
amortisation
fluctuation
Fixed rate bond
balance
(RMB in
(RMB in
36 months
(RMB in
(RMB in
(in million)
million)
million)
million)
million)
million)
(RMB in
36 months
Term to
maturity
4.30
Annual interest rate
(%)
Fixed rate bond (note (i))
60 months
26 Jun 2013
5.08
RMB1,000
Issuance
Beginning
Issue during
Nominal value balance the year
(in million) (RMB in million) (RMB in million)
996
amortisation
Exchange rate
fluctuation
Repayment for
the period
Ending
balance
balance
(RMB in million) (RMB in million) (RMB in million) (RMB in million)
premium
14 Sep 2017
17 Aug 2018
Date of
Discount or
RMB12,000
11,985
5
11,990
3.95
RMB30,000
29,966
Debt type
(2)
Total
35,170
29,966
12
286
65,434
As at the end of the reporting period, long-term debt securities issued by CMBFLC were as follows:
29,964
Nominal value
120 months
Date of issuance
the year
balance
(RMB in
(RMB in
(RMB in
(RMB in
(RMB in
(%)
(in million)
million)
million)
million)
million)
million)
Fixed to floating rate notes
fluctuation
amortisation
balance
Nominal value
(109)
19,996
(1,000)
(7,000)
42,971
Total
As at the end of the reporting period, subordinated note issued by WLB was as follows:
6 Nov 2012
Discount or
Term to
maturity
Beginning
premium
Exchange rate Repayment for
Ending
Date of issuance
Annual interest rate
Debt type
3.50 (for the first 5 years);
USD200
1,293
160
(1,320)
2,743
T represents the 5 years US Treasury rate.
China Merchants Bank
Annual Report 2018
IX Financial Statements
44. Debt securities issued (continued)
10
(b) Long-term debt securities issued
Discount or
Debt type
Term to
maturity
Beginning
Issue during
premium Exchange rate
Ending
As at the end of reporting period, long-term debt securities issued by the Bank were as follows:
Annual interest rate
3,893
notes are not called by
the Bank)
9
18
(1,320)
T*+2.80 (from 6 year
onwards, if the notes
are not called by the
Bank)
Total
Fixed to floating rate notes 120 months 22 Nov 2017
USD400
2,600
1
142
2,743
T*+1.75% (from 6
year onwards, if the
3.75 (for the first 5 years);
Fixed rate bond (note (i))
1,560
24 Jul 2013
240
210
210
150
Wang Liang
52
818
240
210
210
158
Liu Jian Jun
75
1,155
330
810
Xu Shi Qing
150
180
Phase VIII
Phase V Phase VI Phase VII
2017
2,065
5,869
1,590
1,410
300
1,021
96
660
240
210
210
Xiong Liang Jun
Total
330
192
300
225
947
(in
(in
Phase V Phase VI Phase VII Phase VIII
(in
(in
(in
(in
(in
(in
Total
Phase X
Phase IX
2018
The number of share appreciation rights granted to members of senior management:
(4)
30,084
Exercised
(in
thousands) thousands) thousands) thousands) thousands) thousands) thousands) thousands)
Tang Zhi Hong
956
240
210
210
158
92
46
Li Hao
991
300
270
240
180
100
50
Tian Hui Yu
1,140
(in
(in
(in
-
(200)
Fixed rate bond (note (ii))
36 months
11 Mar 2016
3.27
RMB3,800
200
3,795
3,798
Leased asset backed securities
74.5 months
5 May 2016
2.98/3.09/R-1.35**
RMB4,110
253
3
-
RMB200
7 Dec 2015
4.98
RMB1,000
996
4
(1,000)
Fixed rate bond
60 months
3.75
11 Aug 2014
USD500
3,268
2
161
3,431
Fixed rate bond
36 months
3.25
60 months
(253)
36 months
100
50
Li Hao
1,269
614
307
307
180
Ma Wei Hua
(in
(in
(in
Exercised
Total
Phase X
Phase IX
(in
thousands) thousands) thousands) thousands) thousands) thousands) thousands) thousands)
Fixed rate bond (note (iii)
240
300
29 Nov 2016
2.63
300
300
Tian Hui Yu
947
956
270
240
210
158
92
46
Tang Zhi Hong
991
1,140
210
19,993
the Bank)
19,996
The movements in the fair value of the Plan assets during the year are as follows:
2018
2017
Fair value of the Plan assets at 1 January
394
373
Interest income
7
6
Expected return on the Plan assets other than interest profit or losses
Actual benefits paid
(46)
72
(18)
(28)
Exchange difference
285
326
Actual obligation at 31 December
(23)
10
11
Interest cost
5
5
Actual benefits paid
(18)
20
(28)
10
3
Actuarial profit or losses due to financial assumption changes
11
Actuarial gain or losses due to demographic assumption changes
Exchange difference
7
16
Actuarial profit or losses due to liability experience
(29)
Fair value of the Plan assets at 31 December
357
60.6
267
67.8
63
17.6
64
16.2
216
78
63
16.0
357
100.0
394
100.0
Deposit with the Bank included in the amount of the Plan assets was RMB56 million(2017: Nil).
21.8
Current service cost
%
%
394
225
226
China Merchants Bank
Annual Report 2018
IX Financial Statements
40. Staff welfare scheme (continued)
(b)
Amount
Post-employment benefits – defined benefit plan (continued)
Equities
Bonds
Cash
Total
2018
2017
Amount
The major categories of the Plan assets are as follows:
The principal actuarial assumptions adopted in the valuation are as follows:
320
Present value of obligation at 1 January
150
180
330
Xiong Liang Jun
Total
210
210
240
660
403
499
1,209
1,740
1,590
1,800
37
683
210
180
(iii) Other long-term employee benefits (continued)
Liu Jian Jun
Wang Liang
Lian Bo Lin
Xu Shi Qing
158
210
210
240
7,241
818
150
210
210
240
810
113
180
52
3,296
Note: In 2018, senior management had exercised 0.75 million shares of appreciation rights and the weighted average exercise price is HKD11.33.
(2017: HKD13.43).
(b)
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 2018.
There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2018 and 2017.
The amounts recognised in the consolidated statement of profit or loss are as follows:
Current service cost
Net interest income
Net expense for the year included in retirement benefit costs
2018
(10)
109
2
2017
(11)
(10)
The actual loss on the Plan assets for the year ended 31 December 2018 was RMB39 million (2017: actual profit
RMB78 million).
The movements in the defined benefit obligation during the year are as follows:
2018
2017
(8)
285
31
(326)
Post-employment benefits - defined benefit plan
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.
The latest actuarial valuation of the Plan was performed in accordance with IAS 19 issued by the IASB as at 12
February 2019 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 110% (2017: 138%).
China Merchants Bank
Annual Report 2018
IX Financial Statements
40. Staff welfare scheme (continued)
(b)
(285)
Post-employment benefits – defined benefit plan (continued)
2018
2017
Fair value of the Plan assets
357
394
Present value of the funded defined benefit obligation
Net asset recognised in the statement of financial position
The amounts recognised in the statement of financial position as at 31 December 2018 are analysed as follows:
Discount rate
- Defined benefit scheme
- Defined benefit pension scheme
Beginning
Issue during
premium Repayment for
Ending
Date of issuance
Annual interest rate
Nominal value
balance
the year
amortisation
the year
balance
(RMB in
(RMB in
(RMB in
Term to
maturity
Debt type
Discount or
As at the end of the reporting period, subordinated notes issued by the Bank were as follows:
26,724
20,935
Interest payable
2,599
N/A
Total
424,926
(RMB in
296,477
228
China Merchants Bank
IX Financial Statements
Annual Report 2018
Subordinated notes issued
44. Debt securities issued (continued)
(a)
227
(RMB in
(in million)
million)
11,689
4
11,693
Fixed rate bond
120 months
18 Apr 2014
6.40
RMB11,700
RMB11,300
(4)
11,285
Fixed rate bond
120 months
15 Nov 2018
4.65
RMB20,000
11,289
Certificates of deposit issued
5.20
180 months
million)
million)
million)
million)
Fixed rate bond
180 months 4 Sep 2008
5.90 (for the first ten
28 Dec 2012
RMB7,000
(106)
(7,000)
years); 8.90 (from 11
year onwards, if the
notes are not called by
300
Fixed rate bond
7,106
178,189
245,406
Negotiable interbank certificates of deposit
16,229
21,841
3,137
3,831
1,045
1,029
20,411
2017
26,701
IX Financial Statements
Annual Report 2018
42. Contract liabilities
Credit card points
Others deferred fee and commission income
Total
43. Provision
China Merchants Bank
2018
2018
Others
Long-term average rate of salary increase for the Plan
Pension increase rate for the defined benefit pension plan
2018
2017
%
%
1.9
Total
1.7
1.3
5.0
4.3
As at 31 December 2017 and 2018, there is no significant change of the amount in the liabilities of the retirement
benefit plan due to the above mentioned actuarial assumptions.
41. Tax payable
Corporate income tax
Value added tax
1.8
(3)
4,799
808
2018
Expected credit loss provision
2,934
1,221
410
Total
4,565
44. Debt securities issued
Notes
impaired)
2018
Subordinated notes issued
45,714
33,977
Long-term debt securities issued
(b)
104,483
63,376
2017
5,607
impaired)
ECL-credit
2017
Expected credit loss provision
4,565
N/A
Other estimated liabilities
Total
1,100
(12-month ECL)
450
450
Expected credit loss provision as for loan commitments and financial guarantee contracts follows:
2018
-Stage 2
(Lifetime ECL-
-Stage 3
(Lifetime
-Stage 1
not credit-
5,665
(a) Salaries and welfare payable (continued)
330
Annual Report 2018
3
2,186
RMB4,930
4.3/4.5/4.73
21 Feb 2017
31 months
Leased asset backed securities
6,157
288
7
5,862
USD900
3.25
29 Nov 2016
60 months
Fixed rate bond (note (iii)
2,056
4
1,956
USD300
1,230
1,286
(1,035)
1,867
Total
7,756
39,473
(38,932)
8,297
(1,483)
China Merchants Bank
706
36 months
2
1,995
RMB2,000
4.60
3 Aug 2017
36 months
Fixed rate bond
2,496
2
2,494
RMB2,500
4.89
20 Jul 2017
36 months
Fixed rate bond (note (v))
1,497
1
1,496
RMB1,500
4.80
5 Jul 2017
36 months
Fixed rate bond (note (iv))
3,992
4
3,988
RMB4,000
4.50
15 Mar 2017
Fixed rate bond
1,997
IX Financial Statements
40. Staff welfare scheme (continued)
23
(22)
3
5
67
(68)
4
147
2,085
(2,061)
171
1,546
1,093
(1,023)
1,616
6,319
32,691
(31,254)
7,756
(ii) Post-employment benefits-defined contribution plans
2018
Beginning
balance
Charge
for the year
Payment/
Transfers
in the year
Ending
balance
Basic retirement security
Supplementary pension
61
149
42
Annual Report 2018
(1,752)
3 25
(a) Salaries and welfare payable (continued)
(i) Short-term employee benefits (continued)
Salary and bonus
Welfare expense
Social insurance
- Medical insurance
- Injury insurance
- Maternity insurance
Housing reserve
Labour union and employee
education expenses
Total
1,616
2017
40. Staff welfare scheme (continued)
Beginning
balance
Charge
for the year
transfers
Ending
in the year
balance
4,554
24,295
(22,991)
5,858
62
3,337
(3,337)
62
1,791
education expenses
Labour union and employee
198
Annual Report 2018
40. Staff welfare scheme
(a) Salaries and welfare payable
(i)
2018
Payment/
Beginning
Short-term employee benefits (i)
balance
7,756
Charge
for the year
Transfers
in the year
Ending
balance
39,473
(38,932)
8,297
Post-employment benefits
defined
contribution plans (ii)
228
Other long-term employee benefits(iii)
36
3,543
30
(3,642)
129
(17)
49
Total
8,020
IX Financial Statements
43,046
China Merchants Bank
Fixed rate bond (note (vi))
229
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 minus a spread of 1.35%. The benchmark interest rate published by PBOC is 4.75% during both
the year ended 31 December 2018 and 2017.
38,097
(3,936)
545
40
11,963
29,485
Total
3.989
3,988
3,989
1
3,988
RMB4,000
RMB4,000
4.50
16 Jul 2018
36 months
4.80
9 May 2018
36 months
Fixed rate bond (note (vii))
Fixed rate bond
3,989
2
3,987
RMB4,000
5.24
14 Mar 2018
36 months
220
(42,591)
8,475
2017
transfers
Ending
in the year
balance
30,126
(29,872)
6,112
3,534
(3,523)
73
- Medical insurance
42
2,108
(2,112)
38
- Injury insurance
3
29
(28)
4
- Maternity insurance
4
81
(80)
5
Housing reserve
171
2,309
(2,282)
Charge
for the year
Beginning
balance
5,858
62
Social insurance
Welfare expense
Payment/
Beginning
balance
Charge
for the year
Transfers
Ending
in the year
balance
Short-term employee benefits (i)
Post-employment benefits - defined
contribution plans (ii)
6,319
32,691
(31,254)
7,756
684
2,134
2,791
228
Other long-term employee benefits(iii)
Total
45
46
(55)
36
7,048
35,528
(34,556)
8,020
Short-term employee benefits
2018
Payment/
Salary and bonus
(3,247)
(2,130)
Payment/
1,356
Phase X
Phase IX
Phase VIII
Phase VII
Phase VI
Phase V
2018
The fair value of services received in return for share appreciation rights granted are measured by reference to the
fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted
is measured based on the Black-Scholes model. The contractual lives of the rights are used as an input of the model.
Fair value of share appreciation rights and assumptions
(3)
Other long-term employee benefits (continued)
(iii)
(a) Salaries and welfare payable (continued)
40. Staff welfare scheme (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2018
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.
Fair value at measurement date (in RMB)
16.06
15.04
14.51
Expected volatility
27.59
17.05
18.48
11.33
11.26
10.70
Exercise price (in HKD)
The share appreciation rights outstanding at 31 December 2018 had a weighted average exercise price of HKD19.00
(2017: HKD19.32) and a weighted average remaining contractual life of 7.10 years (2017: 7.81 years).
29.15
29.15
29.15
29.15
29.15
Share price (in HKD)
7.20
10.70
10.19
29.15
32.46%
0.53
0.96
(HKD)
exercise price
Number
of share
Weighted
average
2017
2018
Exercisable at the end of the year
65
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding as at the beginning of the year
Share appreciation rights granted on 4 May 2012 (Phase V)
Share appreciation rights granted on 22 May 2013 (Phase VI)
Share appreciation rights granted on 7 Jul 2014 (Phase VII)
Share appreciation rights granted on 22 Jul 2015 (Phase VIII)
Share appreciation rights granted on 24 Aug 2016 (Phase IX)
Share appreciation rights granted on 25 Aug 2017 (Phase X)
The number and weighted average exercise prices of share appreciation rights are as follows:
10 years
3 years after the grant date
1.580
10 years
appreciation average exercise
rights
(in million)
price
(HKD)
Weighted Number of share
appreciation
rights
(in million)
19.32
14.13
7.24
19.32
5.86
19.00
(2.70)
14.26
(1.30)
12.05
16.06
13.43
(0.08)
12.34
1.80
28.60
11.44
15.81
7.24
(3.30)
3 years after the grant date
32.46%
32.46%
4.33
Share appreciation rights life (year)
25.68%
25.68%
25.68%
25.68%
25.68%
25.68%
Expected volatility
28.60
18.06
19.49
12.34
12.28
11.71
Exercise price (in HKD)
30.55
Expected dividends rate
4.29%
5.42
4.29%
6.50
IX Financial Statements
China Merchants Bank
224
223
Share appreciation rights 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 appreciation rights granted.
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining
life of the share appreciation rights) 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.
1.43%
1.43%
30.55
4.29%
9.67
8.67
7.58
4.29%
1.43%
1.43%
1.43%
1.43%
Risk-free interest rate
4.29%
4.29%
32.46%
30.55
30.55
Risk-free interest rate
3.39%
3.39%
3.39%
3.39%
3.39%
3.39%
Expected dividends rate
8.67
7.67
6.58
5.50
4.42
3.33
Share appreciation rights life (year)
32.46%
32.46%
1.43%
1.43%
1.43%
1.43%
30.55
Share price (in HKD)
4.06
6.98
6.71
10.51
11.14
12.19
30.55
Fair value at measurement date (in RMB)
Phase IX
Phase VIII
Phase VII
Phase VI
Phase V
2017
1.43%
1.43%
Phase X
1.410
Outstanding at the end of the year
3 years after the grant date
Payment/
Transfers
in the year
Charge
for the year
Beginning
balance
2018
Cash settled share-based transactions
Cash settled share-based transactions
(iii) Other long-term employee benefits
(a) Salaries and welfare payable (continued)
40. Staff welfare scheme (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
222
221
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 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 2018, the Group's contributions to the schemes are determined by local governments and vary at a range
of 12% to 20% (2017: 12% to 20%) of the staff salaries.
Defined contribution pension schemes
228
(3,247)
Ending
balance
36
30
(17)
Number of
unexercised share
appreciation rights
10 years
(2)
All share appreciation rights shall be settled in cash. The terms and conditions of the scheme are listed below:
As at 31 December 2018, the Group has offered 10 phases of H share Appreciation Rights Scheme to its senior
management ("the Scheme"). The share appreciation rights of the Scheme vest after 2 years or 3 years from the
grant date and are then exercisable within a period of 7 years or 8 years. Each of the share appreciation right is
linked to one H-share.
(1)
36
(55)
46
2,791
45
in the year
for the year
Ending
Transfers
Charge
Beginning
balance
Payment/
2017
49
balance
684
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 2018, the Group's annual contributions to this plan are determined based
on 0% to 8.33% of the staff salaries and bonuses (2017: 0% to 8.33%).
18
(50)
53
18
Total
43
(1,462)
at the end of 2018
(in millions)
Contract period of
share appreciation
Exercise conditions
21
rights
3 years after the grant date
10 years
0.192
3 years after the grant date
10 years
1.020
3 years after the grant date
10 years
1.560
0.096
Total
Unemployment insurance
3,543
(50)
(1,312)
61
228
(1,885)
1,884
851
56
12
Ending
balance
in the year
Unemployment insurance
Charge
for the year
balance
62
610
Supplementary pension
Basic retirement security
Beginning
2017
129
(3,642)
Payment/
Transfers
149
2,522
(6,451)
6,451
(18,663)
2,760
2,760
6,451
34,065
34,065
At 31 December 2017
Proposed dividends for the year 2017
(30,396)
(2,760)
(4,093)
(18,663)
(6,659)
(5,154)
(22,912)
(34,725)
Non-cash changes:
Accrued interest
5,933
5,933
of deposit
issued
Dividend declared
22,912
22,912
8,588
56
(47)
8,597
Fair value adjustments
Foreign exchange
Discount or premium amortisation
At 1 January 2018
178,189
24,120
Interest/dividend paid
(386,611)
(431)
(15,590)
(28,389)
(342,201)
Repayment
515,578
2,921
73,029
32,300
407,328
Proceeds from the issue
Cash changes:
305,747
Total
Interest Dividend financial
payable payable liabilities
1,820
26
Other
Debt
securities
issued
101,592
At 31 December 2018
(18,663)
10
389
(a) Analysis of the balances of cash and cash equivalents (with original maturity
within 3 months):
56. Notes to consolidated cash flow statements
Annual Report 2018
IX Financial Statements
China Merchants Bank
236
235
461,274
Cash and balances with central bank
(78)
192,431
69,790
46,159
(86)
76,681
25,220
21,185
(21,185)
21,185
Balance with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Debt securities investments
Total
403
of deposit
interbank Certificates
certificates
Negotiable
The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those which cash flows were classified in the Group's
consolidated statement of cash flows as cash flows from financing activities
(b) Reconciliation of liabilities arising from financing activities
460,425
5,323
14,615
543,683
249,992
191,923
61,872
200,326
58,814
84,517
84,424
52,302
2017
2018
4
34,065
Investment revaluation reserve
general reserve
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 4(5).
51. Surplus reserve
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.
At 1 January
Statutory surplus reserve
At 31 December
2018
2017
46,159
39,708
7,523
6,451
53,682
46,159
52. Regulatory general reserve
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. The Bank and the Group's financial
services subsidiaries in Mainland China have complied with the requirements as of 31 December 2018.
At 1 January
67,838
70,921
2017
2018
- cash dividend: RMBO.94 per shares (2017: RMB0.84 per shares)
Total
Dividends
50. Hedging reserve
Regulatory general reserve
(b) Proposed profit appropriations
Dividends in 2017, approved and to be declared RMB0.84 per shares
Dividends in 2016, approved and to be declared RMBO.74 per shares
(a) Dividends approved/declared by shareholders
53. Profit appropriations
At 31 December
Statutory surplus reserve
Statutory surplus reserve
7,621
IX Financial Statements
(3,812)
3,182
- Equity attributed to non-controlling holders of ordinary shares
2,329
2,012
- Equity attributed to non-controlling holders of
other equity instrument (note 63)
1,158
1,170
48. Capital reserve
The capital reserve primarily represents share premium of the Bank. The capital reserve can be used to issue shares
with the shareholders' approval.
At 1 January and 31 December
49. Investment revaluation reserve
2018
67,523
2018
2017
Debt instruments measured at fair value through other
comprehensive income: investment revaluation reserve
3,688
5,532
Total
(3,897)
N/A
(6)
(42)
China Merchants Bank
Annual Report 2018
Equity-accounted investees share of other comprehensive income
Available-for-sale financial assets: investment revaluation reserve
29
Remeasurement of defined benefit liability
N/A
1,857
Fair value gain on equity instruments measured at fair value through
other comprehensive income
N/A
91
3,487
3,083
70,921
15,724
6,573
9,243
474,380
583,692
68,501
43,189
299,981
165,511
199,555
252,464
3,471,874
3,159,655
N/A
27,216
Financial assets at fair value through profit or loss
315,000
N/A
3,465
other comprehensive income
Equity investments designated at fair value through
N/A
380,971
14,997
Debt investments at fair value through other comprehensive income
915,410
Debt investments at amortised cost
17,691
33,582
Derivative financial assets
57,902
N/A
78,542
Interest receivable
Amounts held under resale agreements
2018
21,185
2017
18,663
2018
2017
7,523
6,451
7,621
3,083
23,707
21,185
38,851
30,719
2018 dividends profit appropriation is proposed in accordance with the resolution passed at the meeting of the
Board of Directors held on 22 March 2019 and will be submitted to the 2018 annual general meeting for approval.
54. Exchange reserve
The exchange reserve comprises all foreign exchange differences arising from the translation of the consolidated
financial statements of operations outside Mainland China.
233
Placements with banks and other financial institutions
Balances with banks and other financial institutions
Balances with central bank
Precious metals
Cash
Assets
Loans and advances to customers
2017
bank's reserves
55. The bank's statement of financial position and changes in the
Annual Report 2018
IX Financial Statements
China Merchants Bank
234
2018
Equity attributed to non-controlling interests
34,065
34,065
premium Repayment for
amortisation
the year
(RMB in million) (RMB in million)
Exchange rate
fluctuation Ending balance
(RMB in million) (RMB in million)
53
2,060
2,007
53
2,060
45. Other liabilities
Clearing and settlement accounts
Salary risk allowances (note)
Insurance liabilities
Payment and collection account
Cheques and remittances returned
2018
2017
Total
Others
79,896
41,757
44
70
41,223
69,318
Issue during
the year
1,394
1,711
1,832
13,000
16,000
21,990
7,661
2,532
Note:
Beginning
balance
3.72
230
China Merchants Bank
IX Financial Statements
Annual Report 2018
44. Debt securities issued (continued)
(b)
Long-term debt securities (continued)
Note:
(i)
The Bank holds financial bonds issued by CMBFLC amounted to 0 as of 31 December 2018 (31 December 2017: RMB382 million).
(ii)
The Bank holds financial bonds issued by CMBFLC amounted to 0 as of 31 December 2018(31 December 2017: RMB200 million).
(iii)
The Bank holds financial bonds issued by CMBIL amounted to USD30 million as of 31 December 2018(31 December 2017: USD30 million).
(iv)
(v)
The Bank holds financial bonds issued by CMBIL amounted to RMB300 million as of 31 December 2018(31 December 2017: RMB300 million).
The Bank holds financial bonds issued by CMBIL amounted to RMB200 million as of 31 December 2018(31 December 2017: RMB200 million).
9 Jul 2018
36 months
Fixed rate bond
Total
Annual interest rate
(%)
Date of issuance
maturity
Nominal value
(in million) (RMB in million) (RMB in million)
USD300
2,007
Debt type
Discount or
As at the end of the reporting period, long-term debt securities issued by CMBI were as follows:
The Bank holds financial bonds issued by CMBIL amounted to RMB140 million as of 31 December 2018.
(vii)
The Bank holds financial bonds issued by CMBIL amounted to RMB260 million as of 31 December 2018.
(vi)
Term to
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.
China Merchants Bank
Annual Report 2018
IX Financial Statements
(ii)
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Offshore Preference Shares
in the aggregate par value of USD 1,000 million on 25 October 2017. Each Offshore Preference Share has a par value of USD20 and 50 million
Offshore Preference Shares were issued in total. The initial dividend rate is 4.40% and is subsequently subject to reset per agreement, but not
exceed 16.68%. Dividends on the Offshore Preference Shares shall be paid out by cash, which shall be priced and announced in RMB. Save for
such dividend at the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution
of the remaining profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative.
The Bank shall be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event
that the Bank cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders
of Ordinary Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of
full dividend payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will
not distribute the dividends that be cancelled in prior years to preference shares holders.
The Offshore Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBIRC, all or part of the Offshore Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Domestic Preference
Shares in the aggregate par value of RMB27,500 million on 18 December 2017. Each Domestic Preference Share has a par value of RMB100
and 275 million Domestic Preference Shares were issued in total. The initial dividend rate is 4.81% and is subsequently subject to reset per
agreement, but shall not exceed 16.68%. Dividends on the Domestic Preference Shares shall be paid out by cash. Save for such dividend at
the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution of the remaining
profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative. The Bank shall
be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event that the Bank
cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders of Ordinary
Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of full dividend
payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will not distribute
the dividends that be cancelled in prior years to preference shares holders.
231
232
China Merchants Bank
IX Financial Statements
Annual Report 2018
47. Preference shares (continued)
(a)
Preference Shares (continued)
(!!)
(continued)
The Domestic Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBIRC, all or part of the Domestic Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
The domestic and offshore preference shares have conditions of events triggering mandatory conversion as follows:
(1)
- Equity attributed to other equity holders of the bank
446,145
506,053
480,210
540,118
- Equity attributed to ordinary shareholders of the bank
(i)
Equity attributed to shareholders of the bank
2018
At 31 December
(b) Relative Information Attributed to Equity Instrument Holders
Upon the occurrence of a Tier-2 Capital Trigger Event, the Bank shall have the right to convert, without the approval of the holders
of Preference Shares, all of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value of
the Preference Shares. A Tier-2 Capital Trigger Event means the earlier of the following events: 1) the China Banking and Insurance
Regulatory Commission (the "CBIRC") having concluded that without a conversion or write-off, the Bank would become non-viable,
and 2) the relevant authorities having concluded that without a public sector injection of capital or equivalent support, the Bank
would become non-viable.
Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event, that is, the Core Tier-1 Capital Adequacy Ratio drops
to 5.125% or below, the Bank shall have the right to convert, without the approval of the holders of Preference Shares, part or all
of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value of the Preference Shares in
order to restore the Core Tier- 1 Capital Adequacy Ratio of the Bank to above 5.125%. In case of partial conversion, the Preference
Shares shall be converted on a pro rata basis and on identical conditions.
(2)
At 31 December
2017
34,065
325
34,065
(a) Preference Shares
47. Preference shares
At 1 January 2018 and at 31 December 2018
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
Capital
20,629
- H-Shares
- A-Shares
2018 and 2017
No. of shares
(in million)
Listed shares
By type of share:
46. Share capital
Total
Available-for-sale financial assets
No. of shares
(in million)
25,220
25,220
325
27,468
275
6,597
50
6,597
27,468
Amount
275
Issuance of Offshore Preference Shares in 2017 (note (i))
Issuance of Domestic Preference Shares in 2017 (note (ii))
Total
Amount
31 December 2017
No.
(millions of
shares)
Amount
(millions
of shares)
31 December 2018
No.
50
Dividends paid for the year 2016
N/A
Held-to-maturity investments
7,143
59
233
7,435
7,143
59
75,232
233 82,667
7,523
6,028
(38,917)
2,522
(22,844)
7,523
(7,523)
general reserve
6,028
76,681
34,065
25,220
At 31 December 2018
(1,659)
(1,659)
Appropriations to regulatory
Dividends paid for preference shares
(23,707)
Proposed dividends for the year 2018
(21,185)
(21,185)
Dividends paid for the year 2017
(6,028)
23,707
5,540
surplus reserve
Profit appropriations
2,490
(9,124)
(6,634)
At 1 January 2018
25,220
34,065
76,681
(1,603)
(86)
46,159
69,790
183,307
21,185
(78)
454,640
Changes in equity for the year
7,143
for the year
Total comprehensive income
for the year
Other comprehensive income
75,232
75,232
Appropriations to statutory
Net profit for the year
233
2,522
36,315
6,028
7,523
59
59,823
accounting policy changes
(27) 53,682
219,622
34,065
(5,299)
(67)
6,451
2,760
34,114
2,522
(78)
74,468
Net profit for the year
64,510
64,510
Other comprehensive income
for the year
Total comprehensive income
for the year
Capital injection from
Appropriations to regulatory
surplus reserve
59,066
(78)
64,510
(5,444)
Changes in equity for 2017:
(78)
(5,299)
(67)
(5,299)
Appropriations to statutory
Profit appropriations
preference shareholders
(67)
75,818
386,806
158,317
23,707
155
514,463
Other
Investment
Regulatory
Proposed
Share
equity
Capital
revaluation Hedging
Surplus
general
Retained
profit Exchange
capital
instruments reserve
67,030
39,708
(19)
1,206
76,681
25,220
18,663
At 1 January 2017
appropriations reserve
profits
reserve
reserve
reserve
reserve
Total
Adjustments of application of
461,274
(78)
421,251
116,072
189,825
40,175
26,437
Derivative financial liabilities
35,795
21,194
Amounts sold under repurchase agreements
77,064
125,585
Deposits from customers
4,237,430
3,890,024
Interest payable
N/A
34,398
450
5,638
N/A
5,607
25,942
19,512
452,305
Other liabilities
Provision
Contract liabilities
Tax payable
6,245
6,697
Salaries and welfare payable
Debt securities issued
375,625
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
Financial liabilities at fair value through profit or loss
405,314
Debt securities classified as receivables
Investments in subsidiaries
Interest in joint ventures
Investment properties
Property and equipment
Intangible assets
Deferred tax assets
Other assets
N/A
557,942
N/A
570,175
43,901
43,901
4,797
3,095
1,262
Borrowing from central bank
5,943,375
6,347,615
Liabilities
Total assets
15,550
414,838
25,174
56,866
6,354
8,157
23,145
23,169
621
48,734
260,560
55,918
65,352
6,347,615
(78)
461,274
5,943,375
China Merchants Bank
Annual Report 2018
IX Financial Statements
55. The bank's statement of financial position and changes in the
bank's reserves (continued)
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 reserves are as
follows.
Other
Share
equity
Investment
Capital revaluation
Hedging
Surplus
Regulatory
general
Retained
Proposed
profit Exchange
capital instruments
21,185
192,431
69,790
46,159
(4,093) (86)
76,681
Total equity and liabilities
34,065
At 31 December 2017
profits appropriations reserve Subtotal
reserve
reserve reserve
reserve
reserve
25,220
514,463
Total equity
155
161
76,681
76,681
Capital reserve
34,065
34,065
5,540
Other equity instruments - Preference Shares
25,220
Share capital
Equity
5,482,101
5,833,152
Total liabilities
25,220
341,571
(4,093)
(27)
Exchange reserve
21,185
23,707
Proposed profit appropriations
192,431
219,622
Hedging reserve
Retained profits
75,818
Regulatory general reserve
46,159
53,682
Surplus reserve
(86)
69,790
245,406
Upon the occurrence of the above mandatory conversion events, the Bank shall report to the CBIRC for review and determination and shall
fulfill the relevant information disclosure obligations of the Securities Law, the CSRC and Hong Kong's laws and regulations such as making
provisional reports or announcements in accordance with relevant regulatory requirements.
1,186
Reportable segment profit before
(65,369)
(75,840)
(2,643)
(2,354)
(37,863)
(43,803)
(24,863)
(29,683)
- Others
(5,062)
(5,270)
(1,152)
(1,488)
(2,368)
(2,255)
(1,542)
(1,527)
- Depreciation
impairment losses
78,085
76,610
79,785
998
1,309
998
1,309
joint ventures
Share of profit of associates and
(59,926)
(60,837)
(363)
Operating expenses
(1,144)
(21,522)
(39,826)
(38,171)
losses on other assets
Expected credit losses and impairment
149,608
166,025
4,846
68,152
(19,737)
220,039
247,135
8,641
144,852
160,384
1,369
747
70,958
82,618
72,525
77,019
Net interest income
Net fee and commission income
(25,368)
(18,716)
(17,681)
44,084
52,553
Internal net interest income/(expense)
144,852
160,384
26,737
35,619
(34,872)
Reportable segment profit before tax
20,095
42,700
11,997
108,383
125,843
103,015
109,295
Operating income
11,169
20,271
3,515
23,871
7,565
525
6,619
12,181
Other net income
64,018
66,480
3,757
3,685
36,390
1,035
39,914
36,784
58,263
Other unallocated assets
Deferred tax assets
Intangible assets
Goodwill
Total assets for reportable segments
Assets
Total profit before income tax for reportable segments
Total operating income for reportable segments
For the year ended 31 December
Consolidated total assets
(b) Reconciliations of reportable segment revenue, profit or loss, assets, liabilities
and other material items
Annual Report 2018
IX Financial Statements
China Merchants Bank
(i) Capital expenditure represents the amount incurred for acquiring long-term segment assets.
Note:
5,203
8,871
5,203
8,871
57. Operating segments (continued)
Interest in associates and joint ventures
Liabilities
Other unallocated liabilities
239
5,814,246
6,202,124
67,931
26,701
20,411
50,151
5,719,614
6,131,562
6,297,638
Total liabilities for reportable segments
Tax payable
6,745,729
4,674
58,374
6,232,200
6,671,992
9,954
735
31 December 2018 31 December 2017
220,039
90,680
2017
2018
247,135
106,497
Consolidated total liabilities
9,954
737
50,120
4,627
89,674
5,719,614
901,122
Total
Other business
financial business
financial business
Retail
Wholesale
16,350
17,405
8,926
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
9,256
4,858
2,930
3,291
Capital expenditure (note(i))
90,680
106,497
5,481
8,320
48,415
4,494
6,131,562
2018
2018
1,007,225
6,232,200
6,671,992
1,592,575
1,794,697
2,045,530 1,814,963
1,598,208 1,359,453
2,824,662
3,459,039
3,526,129
2,831,765
2017
Reportable segment liabilities
(Restated)
(Restated)
(Restated)
2017
2018
2017
1,246
29,343
2018
2017
Reportable segment assets
100,299
8,155
24,466
2018
2017
2017
2018
2017
2018
2017
External net interest income
24,120
178,189
At 31 December 2017
(2,402)
(1,247)
Total
(1,148)
Foreign exchange
2
(11)
8,418
(666)
(29)
13
Fair value adjustments
9,113
Discount or premium amortisation
(77)
18,692
18,692
(77)
Dividend cancelled
(7)
Other business
financial business
financial business
28,441
305,747
26
1,820
101,592
(c) Significant non-cash transactions
There are no significant non-cash transactions during the year.
China Merchants Bank
Annual Report 2018
IX Financial Statements
57. Operating segments
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.
(1) Wholesale 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.
(2) Retail finance business
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.
(3) Other Business
Other business includes: property leasing and businesses operated by subsidiaries other than WLB, and associates
and joint ventures. None of these segments meets any of the quantitative thresholds so far for segments division.
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.
As listed in Note (4), the accounting policies of the operating segments are the same as the Group's accounting
policies. Operating segment income represents income generated from external customers, inter-segment
transactions are offset. No customer contributed 10% or more to the Group's revenue for 2018 and 2017. Internal
transactions are conducted at fair value.
237
238
China Merchants Bank
IX Financial Statements
Annual Report 2018
57. Operating segments (continued)
(a)
Segment results, assets and liabilities
Wholesale
Retail
Dividend declared
5,018
2018
Accrued interest
18,114
188,248
At 1 January 2017
Total
Dividend
payable
Interest
payable
Debt
securities
issued
issued
of deposit
of deposit
Certificates
Negotiable
interbank
certificates
2,593
440,427
2,879
26
2,599
5,018
81,253
1,413
160,174
289,131
103
(33,175)
(18,692)
(4,611)
(9,872)
Interest/dividend paid
(30,186)
(11,916)
(611,190)
Repayment
Non-cash changes:
631,330
52,449
19,086
559,795
Proceeds from the issue
Cash changes:
(569,088)
Non-financial guarantees
Of which: Financial guarantees
142,937
288
3
143,228
91,436
67,242
354
91,872
Irrevocable letters of credit
66,198
1,038
6
235,100
Bills of acceptances
82
357
ECL)
234,373
480,140
Contractual amount
586,182
The transactions under repurchase agreements are conducted under terms that are usual and customary to standard
lending and securities borrowing and lending activities.
59. Contingent Liabilities and Commitments
(a) Credit commitments
At any given time the Group has outstanding commitments to extend credit. These commitments take the form of
approved loans and credit card limits.
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.
370
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.
2018
-Stage 1
(12-month
-Stage 2
(Lifetime
ECL- not
credit-
impaired)
-Stage 3
(Lifetime
ECL-
credit
impaired)
Total
Irrevocable guarantees
Irrevocable guarantees
Contractual amount
234,681
2017
12
IX Financial Statements
China Merchants Bank
242
241
1,556,484
468
12,181
1,543,835
74,923
5
74,918
Total
Others
845,502
81
8,497
75,946
Annual Report 2018
59. Contingent Liabilities and Commitments (continued)
(a) Credit commitments (continued)
As at 31 December 2018, the Group's irrevocable letters of credit includes sight letters of credit of RMB8,679
million, usance letters of credit of RMB5,640 million, other commitments of RMB52,923 million.
236,827
Irrevocable loan commitments
96,741
137
12
96,890
- with an original maturity within 1 year (inclusive)
42,790
2,134
54
42,856
- with an original maturity over 1 year
53,951
83
54,034
Credit card commitments
836,924
(b)
12
109,757
Subtotal
409,092
Bohai Rim region
3,129,174
777,607
526,143
2,908,217
761,970
492,441 513,813
2,739,929 2,557,785
34,056
29,628
12,017
15,387
91,577
76,680
759,258
745,677
2,948
2,849
24,040
Yangtze River Delta region
19,659
Headquarter
2017
"Overseas" refers to overseas branches in Hong Kong, New York, Singapore, Luxembourg, London, Sydney
and representative offices in London, New York, and Taipei; and
"Subsidiaries" refers to subsidiaries wholly owned or controlled by the Group, including WLB, CMBICHC,
CMBFLC, CMFM, etc.
Total assets
Total liabilities
Non-current assets
Profit before tax
For the year For the year
ended ended
Operating income
For the year For the year
ended ended
Geographical information
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2018
2017
2017
2018
2018
2018
2017
2018
2017
(Restated)
"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;
34,386
484,410
19,279
15,998
31,936
29,758
151,548 146,060
150,447
1,125
1,162
(1,320)
1,555
6,349
6,610
352,226
2,524
2,573
2,074
32,517
2,137
679,961
2,015
2,131
16,383
12,080
26,946
25,116
Pearl River Delta and
West Coast region
Northeast region
Central region
Western region
Overseas
Subsidiaries
465,295 419,432
693,830 645,313
144,367
389,081 358,334 380,025
380,152 360,547 371,913
240,080 199,836 234,741 196,693
376,424 338,891
632,515
- Other assets
Total
Of which: Financial guarantees
"Bohai Rim region" refers to branches and representative offices in Beijing municipality, Tianjin municipality,
Shandong province and Hebei province;
Amounts sold under repurchase agreements
414,838
405,314
Borrowing from central bank
2017
2018
The following assets have been pledged as collateral for liabilities under repurchase arrangements:
58. Assets Pledged as Security
Annual Report 2018
IX Financial Statements
China Merchants Bank
Non-current assets include interests in joint ventures, interests in associates, property and equipment, investment properties, intangible assets,
goodwill, etc.
Note:
220,039
90,680 247,135
78,141
106,497
125,620
540,458
N/A
- Held-to-maturity investments
95,828
N/A
- Available-for-sale financial assets
N/A
71,196
- Debt investments at fair value through other comprehensive income
N/A
280,262
- Debt investments at amortised cost
5,316
18,925
- Financial assets at fair value through profit or loss
Assets pledged
483,455
"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;
"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
Jiangxi province, Shanxi province and Hainan province;
73,836
6,745,729 6,297,638 6,202,124 5,814,246
355,602
15,181
16,925
8,108
11,930
240
China Merchants Bank
IX Financial Statements
Annual Report 2018
57. 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, Sydney 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.;
"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
province;
2,389
86,242
2,490
6,745
Total
14,763
17,240
9,077
10,337
30,764
38,903
3,399
4,285
2,071
3,041
165
145
16,015
17,491
10,790
Non-financial guarantees
IX Financial Statements
Of which: Sight letters of credit
Groupings based on shared risk characteristics
The Group divides the primary business into credit card business, retail business, wholesale business. According to
the type of business, the Group divides the retail business into housing mortgage loans, consumer loans, etc. The
Group divides the wholesale business into different types according to the scale.
(vi)
Irrevocable letters of credit
The Group's maximum exposure to credit risk without taking account of any collateral held or other credit
enhancements is the carrying amount of the relevant financial assets (including derivatives) as disclosed in the
consolidated statement of financial position and the contract amount of the off balance sheet items disclosed in
Note 59(a). At 31 December 2018, the amount of the Group's maximum credit risk exposure is RMB10,371,303
million (2017: RMB9,597,033 million).
(vii) Renegotiated loans and advances to customers
The carrying amount of loans and advances that were impaired and the terms been renegotiated was RMB22,766
million as at 31 December 2018 (31 December 2017: RMB18,009 million).
247
248
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(a) Credit risk (continued)
(viii) Credit quality of debt investments
At the end of the reporting period, the analysis of the credit quality of debt investments by designated external
credit assessment institution, Standard & Poor's, is as follows:
Impaired gross amount of debt investments
Impairment allowances
Subtotal
Neither overdue nor impaired
AAA
AA- to AA+
A- to A+
2018
2017
(v)
During the reporting period, the Group did not make any changes to the predicted technology and important
assumptions.
The Group uses forward-looking information that is available without undue cost or effort, and predict the
macroeconomic assumptions. External information includes macroeconomic data, forecast information issued by
government or regulatory agencies, for example, GDP, fixed asset investment, total social consumption, etc. The
Group assigns different scenarios to different possibilities.
According to the different risk characteristics of assets, the Group divides assets into different asset groups, identifies
macro indicators related to credit risks, and establishes regression models.
(i)
Internal credit risk rating
(ii)
The Group classifies credit risk based on probability of default. The Group classifies credit risk into 25 grades. The
internal credit risk rating is based on the predicted default risk. Internal credit risk ratings are based on qualitative
and quantitative factors. For customers of wholesale business include net profit growth rate, sales growth rate,
industry, etc. For customers of retail business include maturity, ageing, mortgage rate, etc.
Significant increase in credit risk
As describe in Note 4, the Group recognises lifetime ECL if there are significant increases in credit risk.
In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of a default occurring on the financial instrument and other items as at the reporting date with the risk of a default
occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group
considers an actual or expected significant deterioration in the financial instrument's internal credit risk rating (Note
61(a)(i)), as well as internal warning signal, the result of 5-tier classification and overdue information. The Group
regularly reviews whether the evaluation criteria are applicable to the current situation.
For wholesale business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; the internal credit risk rating
of the customer has met the standard of downgrading; the early warning signal of the customer has reached a
certain level; or the customer has other significant risk signals identified by the Group etc.
For retail business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; or the customer has other
significant risk signals identified by the Group etc.
For credit card business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; the customer has early credit
risk warning signals; or the customer has other significant risk signals identified by the Group etc.
A debt instrument is determined to have low credit risk if i) it has a low risk of default, ii) the borrower has a strong
capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and
business conditions in the longer term may not necessarily reduce the ability of the borrower to fulfil its contractual
cash flow obligations.
For loan commitments and financial guarantee contracts, the date that the Group becomes a party to the irrevocable
commitment is considered to be the date of initial recognition for the purposes of assessing the financial instrument
for impairment.
968
The Group considers that a debt instrument has been credit impaired when its 5-tier loan classification is
substandard, doubtful or loss or is more than 90 days overdue.
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(a) Credit risk (continued)
(iii)
Measurement of ECL
The key inputs used for measuring ECL are:
probability of default (PD): is an estimate of the likelihood of default over 12 months or lifetime horizon;
loss given default (LGD): is the proportion of the loss arising on default to the exposure at default;
exposure at default (EAD): is the risk exposure on a debt instrument.
These figures are generally derived from internally developed statistical models and other historical data and they are
adjusted to reflect forward-looking information.
(iv)
Incorporation of forward-looking information
China Merchants Bank
(a) Credit risk (continued)
1,083
(802)
(b)
Market risk
2018
2017
20,618
13,460
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.
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(i) Foreign exchange risk
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, the board of Supervisors, 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
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.
(2)
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 audit department is responsible for auditing. 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.
The Group continued to strengthen bank account exchange rate risk monitoring and authorization
management of quota limit to ensure that risks are controlled within a reasonable range.
249
enhancements held against - Loans and advances to customers
Estimate of the fair value of collateral and other credit
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
513
281
295,565
189,250
70,199
38,110
597,066
517,664
Lower than A-
Unrated
Impairment allowances
27,649
(455)
23,417
206,881
(3,575)
(480)
Subtotal
Total
Note:
1,200,923
974,842
1,201,436
975,123
Bonds issued by the governments, central banks and policy banks held by the Group amounted to RMB932,143 million (2017: RMB755,473
million) are included.
(ix)
214,019
61. Risk management (continued)
Maximum exposure
IX Financial Statements
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 CBIRC.
The amount within the scope approved by the CBIRC 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.
Capital commitments
Authorised capital commitments were as follows:
- Contracted for
- Authorised but not contracted for
Total
2018
2017
1,885
6,325
394
2,279
740
7,065
China Merchants Bank
Annual Report 2018
59. Contingent Liabilities and Commitments (continued)
(c)
Operating lease commitments
Total future minimum lease payments under non-cancellable operating leases of properties are payable as follows:
2018
2017
Within 1 year (inclusive)
3,874
3,701
2017
355,050
2018
373,397
Credit risk weighted amounts of contingent liabilities and commitments
Apart from the irrevocable loan commitments, the Group had loan commitments of RMB2,236,875 million at 31
December 2018 (31 December 2017: RMB2,042,851 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.
Usance letters of credit
Other payment commitments (note)
Bills of acceptances
Irrevocable loan commitments
- with an original maturity within 1 year (inclusive)
- with an original maturity over 1 year
Credit card commitments
Others
Total
Note: Other payment commitments refers to the Group as the acceptor of letters of credit payment commitments.
251,683
161,407
8,933
90,276
9,658
6,586
54,480
245,007
80,469
1,908
78,561
Annual Report 2018
68,227
1,407,008
Irrevocable loan commitments include credit limits granted to offshore customers by overseas branches, subsidiaries
and onshore and offshore syndicated loans etc.
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.
70,724
8,925
690,898
1,845
(b) Wealth management services
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 bonds, funds, 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.
At the end of the reporting period, funds received from customers under unconsolidated non-principal-guaranteed
wealth management services were as follows:
Funds received from customers under wealth management services
2018
1,851,964
2017
1,730,847
Notes:
In current period, funds received from customers under wealth management services are the funds received from customers under
unconsolidated non-principal-guaranteed wealth management services, and has restated the corresponding comparative figures.
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management
(489,351)
(a) Credit risk
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.
With respect to the credit risk management of corporate financial business, the Group formulates credit policy
guideline, and enhances credit acceptance and exit policies for corporate and institutional clients, and implements
limit control measures to improve the quality of credit exposure.
With respect to the credit risk management of retail financial 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.
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.
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 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.
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.
Analysis of loans and advances by industry and loan portfolio are stated in Note 22.
245
246
China Merchants Bank
1,741
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.
(417,263)
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.
417,263
14,548
2017
489,351
14,471
1 year to 5 years (inclusive)
Over 5 years
Total
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.
(d) Outstanding litigations
At 31 December 2018, the Group was a defendant in certain outstanding litigations with gross claims of RMB515
million (2017: RMB728 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.
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 issued by the MOF and the PBOC. The
redemption price may be different from the fair value of similar instruments traded at the redemption date.
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:
Redemption obligations
2018
25,568
2017
25,182
The Group expects that the amount of redemption before the maturity date of these government bonds through the
Group will not be material.
243
(e) Redemption obligations
China Merchants Bank
Entrusted funds
244
Entrusted loans
At the end of the reporting period, the entrusted assets and liabilities were as follows:
The Group's entrusted lending business refers to activities where principals such as government departments,
business entities and individuals provide capital for loan advances through 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.
Entrusted lending business
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.
(a)
60. Transactions on Behalf of Customers
Annual Report 2018
IX Financial Statements
2018
27,644
Deposits from customers
1,150,156 1,225,600 342,929 305,526
4,400,674 4,523,601 3,072,330
197,112
220,813 251,698
Amounts due to banks and
344,251
other financial institutions
470,186
1,612
504,660
3,914
Financial liabilities at fair value
Non-derivative financial liabilities
through profit or loss
6,526
23,043
Total
1,723,091
44,100
4,017
4,017
Other assets
70,949
70,824
6,566,024 7,588,712 151,283 1,084,121
24,066
6,397
6,963
11,143
3,003
200
19,177
512,002 1,568,469
2,038,928
487,775
45,108
61,853
5,765
1,970
Total
6,134,485 6,366,184 3,472,356
599,868
528,405
1,095,986
1,863
604,134
Gross loan commitments
942,392 942,392
Note:
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
259
4,015
3,582
7,224
17,487
9,085
1,999
5,320
10,279
213
Debt securities issued
422,327
454,141
23,224
68,511 224,268
88,801
49,337
Other liabilities
117,228 117,734
35,565
44,540
21,532
comprehensive income
Others
- Equity investments designated
3 months
1 year
but within
but within
After
on demand
1 month
3 months
1 year
5 years
5 years
1 month
but within
Indefinite
Total
Cash and balances with central
bank (note (i))
31,621
461,514
493,135
Amounts due from banks and
other financial institutions
81,344
410,287
31,664
Overdue
Within
Repayable
After
Actual changes in the Group's net interest income and equity resulting from increase or decrease in interest
rates may differ from the results of this sensitivity analysis.
255
256
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(c)
Liquidity risk
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.
at fair value through other
The Group is prudent in managing the risk, which better suits its current development stage. Basically, the Group's
existing liquidity risk management policies and systems meet regulatory requirements and its own management
needs.
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.
The Group measures, monitors and identifies liquidity risk by short-term reserves as well as duration structures and
contingencies. It monitors the limit indicators closely at fixed intervals. Specifically, the Group 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.
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 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 Group draws up liquidity contingency plans and conducts liquidity contingency
drills to prepare for liquidity crises.
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(c)
Liquidity risk (continued)
Analysis of the Group's assets and liabilities by residual maturity is as follows:
2018
After
After
85,447
1,230
1,214
611,186
other comprehensive income
434
21,042
16,391
74,532
204,145
97,770
377
414,691
- Equity investments designated at
fair value through other
comprehensive income
Other assets (note (iv))
4,015
4,015
23,800
6,524
7,010
11,418
3,053
200
164,600
216,605
Total assets
Amounts due to banks and
- Debt investments at fair value through
3,174
903,268
240,250
Loans and advances to customers
414,154
275,758
1,097,315
964,517
970,623
18,895
3,741,262
Investments (note (ii))
- Financial assets at fair value through
profit or loss (including derivatives)
3,045
191,652
62,960
33,898
42,361
25,549
1,827
275
361,567
- Debt investments at amortised cost
9,809
75,329
106,912
467,555
3,413
140,244
(3,152)
(3,544)
Investments (including derivatives)
1,597,272
354,103
289,976
566,062
363,422
23,709
Other assets
185,239
185,239
Total assets
52,913
6,297,638
778,808
416,335
228,712
Liabilities
Amounts due to banks and
other financial institutions
1,252,310
908,925
329,543
7,628
3,457
2,823,575 2,050,208
210,845
1,669,795
1,481,059
Over
Over
Non-
3 months
1 year
Over
interest
to 1 year
to 5 years
5 years
bearing
Assets
Cash and balances with central bank
616,419
600,007
16,412
Amounts due from banks and
other financial institutions
484,096
388,406
90,437
1,901
3,352
Loans and advances to customers (note (i))
3,414,612
2,757
Deposits from customers
4,064,345
3,056,891
(1,286,083)
1,071,770
300,150
376,452
21,103
Note:
(i)
(ii)
For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2018 and
31 December 2017, net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the
principals or interests were overdue.
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
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 2018 and 31 December 2017.
2018
2017
Change in interest
rates (in basis points)
Change in interest
rates (in basis points)
25
(25)
25
(25)
(Decrease)/increase in annualised
net interest income
(1,966)
1,966
(2,010)
2,010
(Decrease)/increase in equity
207,609
3,756
39,883
152,473
588,581
404,127
3,354
11,392
Financial liabilities at fair value through
profit or loss (including derivatives)
48,476
83
3,823
3,195
388
40,987
Debt securities issued
296,477
143,759
Other liabilities
152,638
Total liabilities
Asset-liability gap
5,814,246
483,392
4,109,658
56,327
164
978,438
63,707
32,684
1
478,658
1,053,468
469,112
1,409,522
33,083
161,336
119,267
40,287
100
1,268
572,241
Other assets
15,299
18,040
3,048
216,900
2,793
505
137,166
7,096
185,239
Total assets
143,532
909,814 378,025
1,415,820
1,494,604
1,256,972
676,623
1,292
receivables
- Debt securities classified as
558,218
Investments (note (ii))
- Financial assets at fair value through
profit or loss (including derivatives)
5,298
14,697
42,895
18,354
1,592
876
83,712
- Available-for-sale financial assets
8,337
18,304
68,573
166,935
116,255
4,277
420
383,101
-Held-to-maturity investments
3,418
6,444
31,217
306,655
210,484
22,248 6,297,638
Amounts due to banks and
other financial Institutions
296,528
296,477
Other liabilities
Total liabilities
(Short)/long position
Notes:
(i)
77,230
38,461
8,274
12,795
8,725
1,199
5,954
152,638
2,935,171
860,639 640,654
1,004,784
323,615
43,310
6,073
5,814,246
(2,791,639)
49,175 (262,629) 411,036
1,170,989
1,213,662 670,550
32,684
3,414,612
64,695
91,414
403,330
182,894
340,645
23,509
5,404
Deposits from customers (note (iii))
2,554,598
364,232
350,167
570,414
221,560
3,374
1,252,310
4,064,345
Financial liabilities at fair value through
profit or loss (including derivatives)
6,815
6,119
7,905
21,743
5,126
649
119
48,476
Debt securities issued
48,497
59,187
13,464
887,849
880,201
9,530
213
80,491
Debt securities issued
13,343
68,339
194,051
101,780
44,814
422,327
Other liabilities (note (iv))
65,131
45,029
9,438
19,273
5,517
766
3,322
148,476
Total liabilities
(Short)/long position
3,438,172
558,761
516,618
1,051,229
17,200
568,746
16,859
13,725
1,682,861
1,334,392
633,170
22,960
6,745,729
other financial Institutions
328,999
269,494
184,328
334,596
25,383
5,744
1,612
1,150,156
Deposits from customers (note (iii))
3,029,478
217,170
246,113
486,450
418,866
2,597
4,400,674
Financial liabilities at fair value through
profit or loss (including derivatives)
14,564
8,400
or less
(include
overdue)
63,451
6,202,124
1 month
3 months
1 year
5 years
5 years
Indefinite
Overdue
Total
Cash and balances with central
bank (note (i))
84,424
531,995
616,419
Amounts due from banks and
other financial institutions
43,809
299,502
33,898
102,778
1,900
2,209
484,096
Loans and advances to customers
358,319 268,551
1,006,228
After
5,147
but within
but within
(3,297,928)
494,707
(47,506)
358,293
1,114,115
1,270,941
628,023
22,960
543,605
257
258
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(c) Liquidity risk (continued)
2017
After
After
After
1 month
3 months
1 year
Repayable
on demand
Within
but within
22,248
Total
2017
415
(20,583)
26,918
15,733
31,692
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(i)
9,404
Foreign exchange risk (continued)
(2)
Assets and liabilities by original currency are shown as follows: (continued)
2017
Equivalent in RMB million
Original
currency in million
RMB
USD
HKD
Others
Total
USD
Banking book (continued)
3,500
(650)
364
27,788
(252)
21,175
Net off-balance sheet position:
Credit commitments (note(ii)
1,384,833
119,708
28,089
23,854 1,556,484
17,435
32,036
Derivatives:
- forward purchased
-forward sold
- net currency option position
Total
(88,309)
515,342 586,568
(542,869) (543,114)
(60,782) 64,568
108,022
52,220
25,454 1,179,584
85,433
59,557
(24,796)
(45,387) (1,156,166)
(79,104)
(28,280)
HKD
Assets
Cash and balances with central bank
Amounts due from banks and
569,550
135,223
33,360
16,960
(304) 185,239
5,121
20,355
Total
5,588,413
429,224
216,064
63,937 6,297,638
65,912
259,319
Liabilities
Amounts due to central bank, banks and
other financial institutions
1,141,054
103,011
5,660
Deposits from customers
3,542,432
336,471
149,594
2,585
35,848
1,252,310
Other assets
543,605
29,556
10,349 1,597,272
27,997
16,665
2,207
616,419
4,299
20,001
other financial institutions
355,030
99,931
12,419
16,716 484,096
15,346
14,905
Loans and advances to customers
3,036,190
198,058
145,395
34,969
3,414,612
30,415
174,502
Investments (including derivatives)
1,492,420
69,878
24,625
10,731
15,819
17,493
(1,738)
other financial institutions
414,598 166,478
18,866
11,244
611,186
24,247
21,517
Loans and advances to customers
3,377,558
191,839
130,064
5,338
41,801 3,741,262
148,339
Investments (including derivatives)
1,574,122
73,659
23,497
12,263 1,683,541
10,729
26,798
Other assets (note(i))
158,173
43,612
27,941
2,660
493,135
1,880
250
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(i)
Foreign exchange risk (continued)
(2)
Banking book (continued)
Assets and liabilities by original currency are shown as follows:
2018
Equivalent in RMB million
Original
currency in million
RMB
USD
HKD
Total
USD
HKD
Assets
Cash and balances with central bank
Amounts due from banks and
468,309
18,266
4,680
12,925
1,895 216,605
6,353
14,741
Debt securities issued
373,113
38,382
7,923
2,909
422,327
5,590
9,036
Other liabilities (note(i))
131,311
7,313
5,671
4,181
148,476
1,065
6,466
Total
5,483,475
495,592 171,467
51,590
6,202,124
72,182
195,558
Net position
509,285
2,240
18,565
4,244
13
Total
5,992,760
493,854
190,032
69,083 6,745,729
71,930
216,733
Liabilities
Amounts due to central bank, banks and
other financial institutions
1,025,703
Deposits from customers
3,903,972
103,989 13,116
316,770 142,793
7,348
37,139 4,400,674
1,150,156
15,146
14,959
46,137
162,857
Financial liabilities at fair value through
profit or loss (including derivatives)
49,376
29,138
1,964
80,491
6,794
4,064,345
51,670
268
1,214
6,412
Loans and advances to customers (note (i))
3,741,262
1,665,384
1,846,122
170,453
59,303
Investments (including derivatives)
1,683,541
84,679
439,396
665,013
360,022
45,656
Other assets (note (ii))
216,605
216,605
Total assets
6,745,729
3,100,714
2,104,255
835,734
173,454
518,613
611,186
other financial institutions
61. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book (continued)
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.
2018
Total
3 months
or less
(include
overdue)
Over
Over
Non-
3 months
to 1 year
1 year
to 5 years
Over
5 years
interest
bearing
Assets
Cash and balances with central bank
493,135
477,321
15,814
Amounts due from banks and
420,539
284,487
Liabilities
Amounts due to banks and
148,476
19
148,457
Total liabilities
Asset-liability gap
6,202,124
4,366,105
1,011,939
539,398
52,307
232,375
543,605 (1,265,391)
1,092,316
296,336
368,232
52,112
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book (continued)
Other liabilities (note (ii))
Annual Report 2018
44,814
197,850
other financial institutions
1,150,156
802,236
327,266
10,792
4,683
5,179
Deposits from customers
4,400,674
3,485,761
484,156
417,315
2,597
10,845
Financial liabilities at fair value through
profit or loss (including derivatives)
80,491
206
2,667
9,511
213
67,894
Debt securities issued
422,327
77,883
101,780
IX Financial Statements
China Merchants Bank
254
503,578 170,606
45,458
42,229 5,814,246
21,708 483,392
77,331
204,760
(11,419) 54,559
Net off-balance sheet position:
Credit commitments (note(ii)
1,207,229
133,144
35,740
30,895 1,407,008
20,447
42,896
Derivatives:
-forward purchased
- forward sold
- net currency option position
Total
(166,860)
396,668 519,657 37,360 17,382 971,067 79,800
(462,581) (409,541) (37,628) (37,210) (946,960) (62,890)
(100,947) (80,313) (185) (3,399) (184,844) (12,333)
29,803
(453) (23,227) (160,737)
44,839
(45,161)
(222)
4,577
(544)
(74,354)
Note:
5,097,833
490,580
Total
179,540
Financial liabilities at fair value through
profit or loss (including derivatives)
23,935
22,750
1,791
48,476
3,493
2,151
Debt securities issued
255,686
33,038
6,930
823
296,477
5,073
8,317
Other liabilities
134,726
8,308
6,631
2,973
152,638
1,276
7,958
Net position
3 months
(i)
(ii)
364
(364)
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.
(ii)
Interest rate risk
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.
(1)
Trading book
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 is responsible for execution of the management of
interest rate risk under the trading book.
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.
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.
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book
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. The audit department is responsible for
auditing.
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. 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 Group conducts stress test on interest rate risk of banking book on
a monthly basis. The results of stress test for 2018 showed that the interest rate risk of banking book of the
Company was generally stable with various indicators staying within the set limits.
The Group has formulated the principles for risk control at different interest rate risk levels. Based on the
risk measurement and monitoring results, the Group 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.
The Group 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.
253
(177)
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
177
(364)
Credit commitments generally expire before they are drawn, therefore the above net position does not represent the future cash
outflows.
251
252
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(b) Market risk (continued)
(i)
Foreign exchange risk (continued)
(2)
Banking book (continued)
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 2018 and 31 December 2017.
2018
2017
Change in foreign currency
exchange rate (in basis points)
Change in foreign currency
exchange rate (in basis points)
(100)
100
(100)
100
Increase/decrease) in annualised net profit
177
(177)
364
Increase/decrease) in annualised equity
483,392
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, the board of Supervisors, senior management, designated committees and relevant
departments to ensure the effectiveness of the 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 board of Supervisors shall be responsible for the
supervision and evaluation of the performance of the Board of Directors and senior management in the liquidity
risk management and report to the general meeting of shareholders. 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 Group's liquidity risk
management.
For balances with central bank, the amount with an indefinite maturity represents statutory deposit reserve and fiscal balances maintained with
the PBOC.
42,522
99,309
3,567
1,214
Loans and advances to customers
3,741,262
4,485,884
429,359
305,185
1,224,946
1,225,783
1,281,883
18,728
Investments
- Financial assets at fair value
through profit or loss
327,643
340,529
3,045
425,647
188,738
92,117
611,186
Repayable
on demand
Within
1 month
but within
1 month
3 months
3 months
but within
1 year
After
1 year
but within
After
5 years
5 years
Indefinite
Overdue
Non-derivative financial assets
Cash and balances with central bank
493,135
493,135
31,621
Amounts due from banks and
other financial institutions
664,376
59,383
461,514
34,099
Total
amount
Carrying
After
After
2018
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.
Liquidity risk (continued)
(c)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
(iv)
(iii)
The deposits from customers that are repayable on demand include 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.
23,145
510
112,052
(ii)
83,448
232,981
29,990
1,853
276
- Debt investments at
amortised cost
1,059,887
11,876
79,543 126,478
539,495
903,268
3,529
- Debt investments at fair value
through other comprehensive
income
414,691
469,935
434
18,406
298,966
22,104
6,864
339
9,358
conjunction with financial
(2)
Derivatives managed in
instruments designated
at fair value through
2,103
118
52
Subtotal
Interest rate derivatives
Cash flow hedge derivatives
(437)
440
116,624
112,343
1,359
2,922
profit or loss
(198)
198
1,442
Interest rate swaps
Interest rate derivatives
2,164
624
343
264
263
There was no ineffective portion of cash flow hedge during the year ended 31 December 2018 and 2017.
(36,570)
34,220
(62)
115
8,848
5,325
2,899
Interest rate swaps
624
12
2,782
618
Foreign exchange swaps
Currency derivatives
629
(62)
103
6,066
4,707
735
Subtotal
Total
13,748
481
11,172
15,292
886,259
690,344
Subtotal
(7,903)
2,766
444,355
5,377
253,869
185,109
1,603,067
Options
China Merchants Bank
1,064,084
9,767
604,153
450,164
Foreign exchange swaps
(867)
1,104
94,628
11,172
148
(12,551)
618
17,618
Other derivatives
Bond Forwards
(1)
4
707
137
570
Credit default swap
(69)
69
303
11
(21,321)
171
Commodity trading
(169)
57,086
55,926
1,160
Equity options written
169
57,086
55,926
1,160
Equity options purchased
121
IX Financial Statements
185,538
61. Risk management (continued)
2,700
3,400
Interest rate swaps
Interest rate derivatives
Cash flow hedge derivatives
(323)
322
108,927
108,184
595
148
2,400
Subtotal
54,529
54,092
294
143
Equity options written
322
54,398
54,092
301
5
Equity options purchased
(323)
Other derivatives
8,500
Derivatives managed in
Subtotal
(112)
221
38,504
524
5,791
13,459
18,730
Foreign exchange swaps
Currency derivatives
(11)
(79)
52
7,433
117
4,839
2,377
100
Interest rate swaps
Interest rate derivatives
profit or loss
at fair value through
instruments designated
conjunction with financial
62
Annual Report 2018
(19,524)
1,267,280
Currency derivatives
(1,808)
2,197
2,057,791
5,682
487,858
1,254,997
309,254
Interest rate swaps
Interest rate derivatives
Liabilities
Forwards
Assets
More than
5 years
5 years
Between
1 year and
Between
3 months
and 1 year
3 months
Within
Fair value
Derivatives held for trading
Notional amounts with remaining life of
2017
(f) Use of derivatives (continued)
Total
16,124
47,939
6,273
3,652
23,598
670,344
569,686
Subtotal
(3,926)
2,234
336,949
1,793
28,237
149,618
24,254
Options
12,438
848,271
58
15,532
460,552
372,129
Foreign exchange swaps
(1,595)
1,452
82,060
3,594
(14,003)
55,071
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, additional 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
CBIRC. The Group and the Bank file required information to CBIRC half-yearly and quarterly.
Currency derivatives
572,241
as receivables
- Debt securities classified
255,456
366,084
46,113
9,825
5,176
682,646
558,218
- Held-to-maturity investments
607,691
3,613
192,057
20,020 76,330
24,266
427,401
383,101
- Available-for-sale financial assets
5,188
1,307
16,741
35,379
10,209
111,115
2,363
217,399
170,282
Amounts due to banks and
Non-derivative financial liabilities
570,585
1,603,878
1,839,188
1,560,176
411,211
938,597
150,477
6,153,979 7,074,112
Total
35,113
19,519
1,292
2,793
3,048
18,040
15,299
60,496
60,496
Other assets
1,368
49,555
133,974
505
other financial institutions
64,796 71,187
Investments
1 month
on demand
Total
amount
After
but within
but within
but within
Within
Repayable
Carrying
3 months
After
After
3 months
1 month
After
2017
(c) Liquidity risk (continued)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
260
1 year
- Financial assets at fair value
1 year
5 years
6,689
1,185,940
2,221
2,027
106,161
1,123,118 1,127,013
298,493
371,155
6,822
3,414,612 4,119,230
Loans and advances to customers
34,503
5 years
300,198
489,042
484,096
other financial institutions
Amounts due from banks and
531,995
84,424
616,419
616,419
Cash and balances with central bank
Non-derivative financial assets
Indefinite
43,932
1,252,310
1,265,833
Deposits from customers
The Group will choose appropriate hedging strategies and tools in light of the risk profile of interest rates or
exchange rates of its assets and liabilities, as well as its analyses and judgement regarding future interest rates or
exchange rate movements.
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.
Derivatives include forward, swap and option transactions undertaken by the Group in the foreign exchange and
interest rate markets.
(f) Use of derivatives
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.
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.
Since 1 January 2013, the Group has calculated its capital adequacy ratio in accordance with the CBIRC's
Administrative Measures on the Capital of Commercial Banks (Trial) and other relevant regulations. On 18 April 2014,
the CBIRC approved the Bank to adopt the advanced capital management approach. Within the scope of approval
of the CBIRC, 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 CBIRC 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.
(e) Capital management (continued)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
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.
China Merchants Bank
261
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 2018, 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, etc.
18,830
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.
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
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;
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;
The objectives of the Group's capital management are to:
(e) Capital management
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.
During the reporting period, through the strengthening of operational risk appraisal and assessment mechanisms,
stepping up the identification, evaluation and monitoring of operational risk in key areas, the Group carried out a
comprehensive special management of low-risk business. Starting with process, institution, employee and system, the
Group focused on the existing problems of critical control segment, and measured these problems by management
requirement's solidification and refinement. Meanwhile, further improvement on operational risk management
framework and methods, developing operational risk assessment mechanism and strengthening operational risk
management economic capital allocation mechanism can enhance the ability and effectiveness of operational risk's
management in the Group. Now all major indexes can meet the requirements of the Group's risk preference.
262
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.
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.
China Merchants Bank
(14,748)
15,929
4,367,289
3,323
1,922,312
636,827 1,804,827
Interest rate swaps
Liabilities
Assets
Total
More than
5 years
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 transaction volume that has not been delivered at the end of the reporting period, not representing amounts at
risk.
Between
1 year
and 5 years
Within
3 months
Fair value
Notional amounts with remaining life of
2018
Interest rate derivatives
Derivatives at fair value
through profit or loss
Use of derivatives (continued)
(f)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
Between
3 months
and 1 year
Operational risk
(d)
61. Risk management (continued)
Debt securities issued
118
388
3,237
8,464
3,697
3,939
6,815
26,658
26,619
through profit or loss
296,477
Financial liabilities at fair value
252,097
581,761
356,795
367,920
9,179
24,732
346,279
403,939 185,110
296,594
2,609,943
4,175,394
4,064,345
6,878
320,981
49,027
92,948
Annual Report 2018
IX Financial Statements
China Merchants Bank
771,367 771,367
Gross loan commitments
5,266
55,073
368,487
1,012,542
647,040
863,521
5,756,598 5,908,149 2,956,220
Total
5,148
1,244
8,824
14,013
8,490
38,696
42,868
116,847 119,283
Other liabilities
37,384
79,597
62,025
Forwards
15,836
through profit or loss
641
(g) Fair value information (continued)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
268
267
During the year there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair
value hierarchy.
48,476
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
25,224
21,857
21,857
Total
Derivative financial liabilities
15,230
3,303
11,927
118
118
23,252
Subtotal
(1)
Bloomberg's quoted prices are used for financial instruments with quoted prices in an active market.
Fair value
as at
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 below:
(3)
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(g) Fair value information (continued)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
Basis of determining the market price for recurring fair value measurements categorised within
Level 1
The fair value of certificates of deposit issued is measured by using the comprehensive valuations issued by
Bloomberg.
The fair value of loans and advances to customers at FVTOCI in Mainland China is measured based on the
transaction interest rate of rediscounted bills announced by Shanghai Commercial Paper Exchange; the Group
uses 10-day average of the transaction interest rate as the basis for calculating the value of discounted
bills. The fair value of loans and advances to customers at FVTOCI outside Mainland China is measured by
discounted cash flow approach. The discount rates used are determined by factors such as credit rating of
the loan customer provided by S&P, Moody's or Fitch, customer industry, term to maturity of the loan, loan
currency and the issuer credit spread.
Dealing price of the investment fund derived from the net asset values of the investment funds with reference
to observable quoted price in market is used as the basis of determining the market price for recurring fair
value.
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 currency denominated swap yield curve as at the end
of 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 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 currency bonds without quoted prices in an active market, is measured by using the
comprehensive valuations issued by Bloomberg, etc.
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.
Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurement categorised within Level 2
(2)
The fair value of non-standard bills at FVTPL in Mainland China is measured based on the transaction interest
rate of rediscounted bills announced by Shanghai Commercial Paper Exchange; the Group uses 10-day
average of the transaction interest rate as the basis for calculating the value of discounted bills.
31 December
- Others
4,239
372,983
91,664
383,101
2,166
304,581
76,354
Subtotal
46,547
161
2,166
44,481
- Investments in funds
3,225
2,005
162
1,058
333,329
259,938
73,391
– Equity investments
1,905
4,239
466,813
Liabilities
- Debt securities issued
3,185
3,185
- Certificates of deposit issued
7,688
7,688
- Precious metal contracts with other banks
through profit or loss
Financial liabilities designated at fair value
Total
11,389
11,325
Subtotal
64
64
- Short selling securities
11,325
11,325
- Precious metal relevant financial liabilities
Financial liabilities held for trading
64
- Debt securities
2018
Unobservable input
Book net assets, liquidity discount
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
Liquidity discount
Risk-adjusted discount rate,
Risk-adjusted discount rate,
Liquidity discount
Risk-adjusted discount rate,
Liquidity discount
Fair value
as at
Risk-adjusted discount rate,
2,514
Financial liabilities designated
at FVTPL
Discounted cash flow
approach
41
Investments designated at FVTPL
cash flow
Discounted cash flow
approach
58
- Others
Net fund value approach
Market approach
31 December
equity investments
10,630
269
cash flow
Risk-adjusted discount rate,
Risk-adjusted discount rate,
cash flow
Transaction of near delivery rate
Liquidity discount
Unobservable input
161 Discounted cash flow
Unlisted available-for-sale
Discounted cash flow
Unlisted available-for-sale
equity investments
Unlisted available-for-sale
fund investments
equity investments
Market approach
727
Unlisted available-for-sale
approach
Market comparison
Valuation techniques
2017
779
499
Valuation techniques
15
cash flow
Risk-adjusted discount rate,
actual trading conditions-
adjusted discount rate,
cash flow
liquidity discount
Discounted cash flow
approach
customers at FVTOCI
20,684
Loans and advances to
Discounted cash flow
approach
customers at FVTPL
403
Risk-adjusted discount rate,
Loans and advances to
Net asset value
approach
at FVTOCI
1,509
Equity investments designated
at FVTOCI
Liquidity discount
Market approach
1,031
Equity investments designated
Book net assets,
- Others
actual trading conditions-
- Debt securities
Discounted cash flow
approach
1,060
- Wealth management products
cash flow
Discounted cash flow
approach
44
- Investments in funds
Market approach
292
adjusted discount rate,
cash flow
- Investments in funds
Discounted cash flow
approach
5
- Equity investments
Market approach
1,373
– Equity investments
cash flow
Discounted cash flow
approach
746
cash flow
Available-for-sale financial assets
Investments measured at FVTPL
18,916
- Equity investments
111
111
- Long position in precious metal contracts
119,665
746
108,682
10,237
Debt securities
125
Investments measured at FVTPL
Total
Level 3
Level 2
Level 1
2018
Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
The table below analyses financial instruments without interests, measured at fair value at the end of the reporting
period, by the level in the fair value hierarchy:
(ii)
(g) Fair value information (continued)
61. Risk management (continued)
Assets
Annual Report 2018
- Investments in funds
58
14,514
- Debt securities
Investments designated at FVTPL
314,459
3,593
298,389
12,477
Subtotal
173,988
1,220
73
2,004
1,147
173,988
- Non-standard assets -Bills
1,060
1,060
- Wealth management products
16,854
336
1,561
1,378
- Others
4,940
IX Financial Statements
266
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:
2018
(21,857)
2017
1,190
7,728
8,357
4,236
3,467
17,606
18,836
29,842
31,850
272
China Merchants Bank
18,916
(123)
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.
The Group recognises transfers between levels of the fair value hierarchy in which they occur.
Level 3 inputs: inputs that are unobservable for 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 1 inputs: unadjusted quoted prices in active markets that are observable at the measurement date for
identical assets or liabilities;
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:
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.
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 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.
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.
Total
Financial instruments at fair value
(g) Fair value information
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
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 CBIRC, covering default risk weighted assets of counterparties and credit valuation adjustment risk weighted
assets. The amount within the scope approved by CBIRC 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.
45,937
18,916
273
(i)
8,203
265
13,184
4,886
4,495
9,381
Derivative financial assets
Level 1
2017
(g) Fair value information (continued)
61. Risk management (continued)
IX Financial Statements
- Debt securities
China Merchants Bank
Annual Report 2018
2,514
39,554
38,602
36,570
36,570
25,138
2,514
2,984
19,640
80,670
2,879
through profit or loss
55,415
Level 3
Level 2
41
Total
Assets
Financial assets held for trading
Debt securities
10,181
44,590
Financial assets designated at fair value
- Long position in precious metal contracts
211
32
54,771
211
32
- Investments in funds
401
401
Subtotal
10,424
44,991
- Equity investments
2,514
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
Total
- Precious metal relevant financial liabilities
Financial liabilities held for trading
Liabilities
958,339
27,261
833,635
97,443
Total
4,015
177,367
20,684
2,540
365
Equity investments designated at FVTOCI
156,683
Loans and advances to customers at FVTOCI
34,220
403
414,691
336,140
78,551
Debt investments at FVTOCI
403
Loans and advances to customers at FVTPL
34,220
Derivative financial assets
17,872
17,872
1,475
1,090
Derivative financial liabilities
- Short selling securities
Subtotal
- Others
9,977
9,977
- Debt securities issued
2,619
- Certificates of deposit issued
9,663
9,663
- Precious metal contracts with other banks
2,619
18,962
18,962
Subtotal
1,090
Financial liabilities designated at FVTPL
Company name
regulations, etc.
Company
of the
Proportion
273
Proportion
of the
Bank held
(a) Material connected person information (continued)
No. of
Shares of
274
China Merchants Bank
IX Financial Statements
Annual Report 2018
Registered
location
62. Material related-party transactions (continued)
the Bank
Issued and
fully paid capital
Business
held by the
RMB37,000
million
416,196,445
1.65%
Property damage insurance,
Shareholder
Joint stock limited
company
and investment business
permitted by national laws and
Insurance Co., Ltd.
Anbang Property & Casualty Shenzhen
Legal form
with the Bank
the Bank
Company
Company
The
relationship
held by
by the
liability insurance, credit
holding investment enterprises,
materials supply and
various domestic and
Shareholder
Invest and set up industries,
4.55%
RMB600 million 1,147,377,415
Shenzhen
China Merchants Finance
marketing business, etc.
materials supply and
Development Co., Ltd.
domestic commerce,
Investment and
Xu Xin
Limited company
Limited company
Shareholder
3.74%
RMB600 million 944,013,171
Shenzhen
Shenzhen Chu Yuan
marketing business, etc.
materials supply and
Co., Ltd.
domestic commerce,
Investment Development
Xu Xin
Limited company
insurance and guarantee
Shareholder
Invest and set up industries,
Hong Xiaoyuan
Investment Holdings
Co., Ltd.
domestic commerce,
He Xiaofeng
Shareholder's parent Joint stock limited
company
company
insurance companies,
supervising and managing
Investing and establishing
11.63%
(note (iii))
RMB61,900 million 2,934,094,716
Anbang Insurance Group Beijing
Co., Ltd
enterprise management
consulting and investment
consulting, etc.
Wang Xiaoding
Limited company
Shareholder
Invest and set up industries,
0.22%
USD10 million 55,196,540
Shenzhen
China Merchants Industry
Development (Shenzhen)
Limited
Limited company
Shareholder
1.89%
USD0.06 million 477,903,500
China Merchants Union (BVI) British Virgin
Limited
Islands
Joint stock limited
company
Shareholder
1.53%
USD0.05 million 386,924,063
British Virgin
Islands
Co., Ltd.
Best Winner Investment
marketing business, etc.
international businesses of
Legal
representative
He Xiaofeng
Financial Holdings
insurance and accident
Shenzhen Tri-Dynas Oil &
Shipping Co., Ltd.
Company name
Company
of the
Proportion
Proportion
of the
Bank held
the Bank
No. of
Shares of
(a) Material connected person information (continued)
62. Material related-party transactions (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2018
Co., Ltd.
Registered
location
Shenzhen
etc.
Limited company
Shareholder
Leasing business, financing
54,721,930 0.22%
HKD500 million
Hong Kong
China COSCO Shipping
Zhao Bangtao
Limited company
Shareholder
Shipping business, leasing
business, ship repairing and
building etc.
0.30%
75,617,340
business, insurance business
Issued and
fully paid capital
held by the
by the
Invest and set up industries,
company
parent
construction
Liu Qitao
Limited company
Shareholder's
General contraction for
2.27%
(note(vi))
Construction Group LTD
RMB5,855 million 571,845,625
Beijing
China Communications
business etc.
Legal
representative
Ren Zhaoping
leasing business, shipping
business, shipping agency,
Legal form
Limited company
Ship purchasing and marketing Shareholder
with the Bank
The
relationship
0.04%
10,121,823
RMB299 million
Business
the Bank
Company
Company
held by
RMB1,399 million
Shanghai
China COSCO Shipping
(Shanghai) Co., Ltd.
Co., Ltd.
(note(iv))
9.97%
RMB11,000 2,515,193,034
million
Beijing
China COSCO Shipping
Corporation Limited.
government, etc.
business entrusted by the
and health insurance
Gu Hongmei
Joint stock limited
company
Shareholder
medical security policy,
currency health insurance
business, accidental
injury insurance business,
supporting the national
Various RMB and foreign
4.99%
RMB13,900 1,258,949,171
million
Hexie Health Insurance Chengdu
Co.,Ltd
services, etc.
other personal insurance
company
accident insurance, and
He Xiaofeng
Joint stock limited
Life insurance, health insurance, Shareholder
4.99%
RMB30,790 1,258,949,100
million
Beijing
Anbang Life Insurance
Co.,Ltd
insurance, etc.
import and export of goods
insurance, short-term health
and technology, etc.
Limited company
Huang Biao
Limited company
Shareholder
Business services
0.41%
103,552,616
RMB2 million
Guangzhou Haining Maritime Guangzhou
Technology Service
Shou Jian
Limited company
Shareholder
Shipping business
2.76%
RMB3.191 million 696,450,214
Guangzhou
China COSCO Shipping
(Guangzhou) Co., Ltd.
trading ships, etc.
leasing, constructing and
time charter, voyage charter,
shipping space booking,
Xu Lirong
Limited company
Shareholder
Transportation business,
6.24%
RMB16,191 1,574,729,111
million
Beijing
China Ocean Shipping
Co., Ltd.
Xu Lirong
International shipping business, Shareholder's
parent
company
RMB600 million 1,258,542,349 4.99%
(4)
Shenzhen Yan Qing
or loss
Financial
liabilities
at fair value
through profit
2)
Valuation of financial instruments with significant unobservable inputs (continued)
1)
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 below: (continued)
(3)
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(g) Fair value information (continued)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
China Communications
(4)
statement of profit or loss for
assets held at the end of the
reporting period
included in the consolidated
Total unrealised gains and losses
At 31 December 2017
Exchange difference
maturity
Disposals and settlement on
Purchases
- In other comprehensive income
- In profit or loss
Liabilities
At 1 January 2018
In profit or loss
Issues
Fair value information (continued)
(g)
61. Risk management (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
272
271
During the year ended 31 December 2018, 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
3)
During the year ended 31 December 2018, there were no significant transfers between different levels
for financial instruments which are measured at fair value on an on-going basis.
Profit or loss
Transfers between level 1 and level 2 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
level 1 and level 2 are deemed
At 31 December 2017
Disposals and settlement on maturity
Issues
In profit or loss
At 1 January 2017
251
Total unrealised gains and losses included in the consolidated statement of
profit or loss for liabilities held at the end of the reporting period
2,514
At 31 December 2018
Disposals and settlement on maturity
2,263
251
Total unrealised gains and losses included in the consolidated statement of
profit or loss for liabilities held at the end of the reporting period
(iii)
At 1 January 2017
2,166
20,684
403
3,634
At 31 December 2018
(317)
N/A
(27)
10
(300)
Exchange difference
(28,332)
N/A
(25,983)
(2,349)
Disposals or settlement on maturity
279
N/A
279
Transfer to Level 3
35,678
N/A
101
112
N/A
86
2,540
N/A
27,261
Total unrealised gains and losses
2,166
(68)
(68)
(1,186)
(1,186)
| | |
1,618
1,618
(67)
(67)
(4)
(4)
Assets
1,873
Total
assets
securities financial assets
Available- for-
sale financial
Derivative
assets-debt
Tradable
financial
381
N/A
5
376
included in the consolidated
statement of profit or loss for
assets held at the end of the
reporting period
1,873
Financial assets and financial liabilities that are not measured at fair value
(1)
Financial Assets
Proportion
Proportion
of the
Bank held
the Bank
Shares of
No. of
The Bank's main shareholders and its parent company and the Bank's subsidiaries.
Material connected person information
(a)
62. Material related-party transactions
IX Financial Statements
China Merchants Bank
Annual Report 2018
97,169
97,169
97,353
Total
63,224
63,224
63,376
Long-term debt securities issued
33,945
33,945
33,977
Subordinated notes issued
Level 3
Level 2
of the
Company
The
Company name
shareholder
Li Jianhong
Limited company
The largest
Transportation, building and
repair, procurement, supply
chain management and
distribution, shipping agency
services, etc.
RMB7,000 million 3,289,470,337 13.04% (note
Beijing
China Merchants Steam
Navigation Co., Ltd.
(CMSNCL)
Legal
representative
Li Jianhong
with the Bank
The largest
Legal form
Limited company
parent company
Level 1
shareholder's
warehousing and storage,
leasing, manufacturing
(i)(viii))
Transportation, shipping agency,
the Bank Business
Company Company
7,559,427,375 29.97% (note
relationship
held by
by the
held by the
Issued and
fully paid capital
RMB16,700 million
China Merchants Group (CMG) Beijing
Registered
location
building and facility, repair and
contracting, sales operating
management service, etc.
Fair value
amount
Carrying
N/A
N/A
N/A
N/A
N/A
257,476
Level 2 Level 3
Level 1
value
amount
Level 3
Level 2
Held-to-maturity investments
Fair
Fair
value Level 1
925,363 4,777 663,110
903,268
Debt investments at amortised cost
amount
Carrying
2017
2018
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.
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 :
Debt investments at amortised cost 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 24(b) and 24(f).
Except for loans and advances and held-to-maturity investments, most of the financial assets will mature
within 1 year, and their carrying value approximate their fair value. Loans and advances are stated at
amortised costs less allowances for impairment loss (Note 22). Loans and advances are mostly priced at
floating rates close to the PBOC rates and repriced at market rates at least annually, 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 is close to the fair value.
The Group's financial assets 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.
Carrying
Shenzhen
N/A
N/A
2017
150,903
150,903
150,197
104,712
104,712
104,483
Long-term debt securities issued
Total
46,191
46,191
45,714
Subordinated notes issued
N/A
Level 3
Level 1
Fair value
Carrying
amount
2018
Financial liabilities mainly include deposits from customers, amounts due to banks and other financial
institutions, sold under repurchase agreements, 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:
Financial Liabilities
(2)
2,967 539,697
542,664
558,218
N/A
N/A
Level 2
Beijing
Material connected person information (continued)
RMB16,175
million
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 below (continued)
1)
Valuation of financial instruments with significant unobservable inputs
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:
Financial
assets at fair
value through
Assets
profit or loss
Loans and
advances to
customers
at FVTPL
Loans and
advances to
Equity
investments
Available-
for-sale
customers
designated
financial
at FVTOCI
at FVTOCI
assets
Total
At 31 December 2017
2,166
2,166
Adjustments under IFRS 9
2,171
14,909
(3)
Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(ii)
Fair value information (continued)
934
200
27,601
13,880
16,144
30
5,898
360
11
267
43
Interest expense
971
2,380
274
1,360
905
Other net income
55
13
279
270
China Merchants Bank
IX Financial Statements
Annual Report 2018
61. Risk management (continued)
(g)
Net fee and commission income
5,848
(2,166)
At 1 January 2018
62. Material related-party transactions (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
278
277
There were no credit impaired loans and advances granted to related parties during the year.
4.75% to 4.90%
0.35%
1.10% to 2.75%
4.75% to 4.90%
0.35%
1.10% to 2.75%
Time deposits
Demand deposits
Medium to long-term loans
2017
4.35%
2018
4.35%
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:
Transaction terms and conditions
55.00
115,500,000
605,000,000
720,500,000 55.00
100.00
1,160,950,575
3,289,470,337 13.04 4,129,000,000 100.00 6,000,000,000 100.00
At 31 December 2017
100.00
1,160,950,575
(c)
Shareholders and their related companies
The Bank's largest shareholder CMG holds 29.97% (2017: 29.97%) shares of the Bank through its subsidiaries as at
31 December 2018 (among them 13.04% shares is held by CMSNCL (2017: 13.04%)). The Group's transactions and
balances with CMSNCL and its related companies are disclosed as follows:
2018
2,171
14,909
2,380
19,460
Profit or loss
- In profit or loss
376
5
N/A
381
- In other comprehensive income
26
17,294
Purchases
388
Interest income
- Factoring
- Bills of acceptances
- Irrevocable letters of credit
- Irrevocable guarantees
Off-balance sheet:
- Deposits from customers
- Investments
- Loans and advances to customers
On-balance sheet:
2017
3,457
100.00
22,306
- Factoring
- Investments
- Deposits from customers
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
2018
2017
13,489
6,955
3,549
1,063
32,269
25,327
5,017
673
97
- Bills of acceptances
2,056
- Factoring
1,628
Interest income
672
536
Interest expense
470
- Loans and advances to customers
On-balance sheet:
(d) Companies controlled by or be significantly influenced by or appointed
common directors, senior management and/or Supervisors of the Bank other
than those under Note 62(c) above
34
Interest expense
Net fee and commission income
Operating expenses
Other net income
12,151
11,122
4,526
5,109
59,156
53,686
1,868
1,489
634
434
146
36
161
718
707
728
758
398
404
(47)
(31)
3
91
Interest income
Net fee and commission income
700
902
9,500
2,700
8,701
8,700
11
37
17
16
1,123
31,732
928
10
11
1
2018
2017
On-balance sheet:
- Loans and advances to customers
- Investments
- Deposits from customers
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
- Bills of acceptances
1,696
2,665
2,748
2017
Operating expenses
(1,436)
(1,178)
Other net income
(87)
22
China Merchants Bank
IX Financial Statements
Annual Report 2018
62. Material related-party transactions (continued)
(e) Associates and joint ventures other than those under Note 62(c) above
(f)
562
On-balance sheet:
- Deposits from customers
-
- Placements
Off-balance sheet:
- Irrevocable guarantees
Interest income
Interest expense
Net fee and commission income
Operating expenses
Other net income
Other shareholders holding more than 5% shares
2018
- Loans and advances to customers
6,000,000,000
100.00
13.04 4,129,000,000
Notes:
Material connected person information (continued)
(a)
62. Material related-party transactions (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
276
275
Management Co., Ltd.
(CMFM)
Li Hao
Limited company
Subsidiary
55% Asset Management
RMB1,310 million
Shenzhen
China Merchants Fund
Limited (WLB)
Tian Huiyu
Limited company
Subsidiary
100% Banking
HKD1,161 million
Hong Kong
CMB Wing Lung Bank
(i)
CMG holds 29.97% of the Bank (2017: 29.97%) through its subsidiaries.
(ii)
(iii)
China Merchants Finance Investment Holdings Co., Ltd.
RMB600,000,000
RMB600,000,000
Development Company Ltd.
RMB600,000,000
RMB600,000,000
Shenzhen Yan Qing Investment Development Co., Ltd.
Shenzhen Chu Yuan Investment and
RMB5,900,000,000
RMB7,000,000,000
RMB13,750,000,000
2017
RMB 16,700,000,000
Company Limited
(CMBFLC)
CMSNCL
The information of registered capital of the related parties as at 31 December 2018 and 2017 is as below:
Name of related party
2018
The sum of the direct ratio of CMG's shareholdings in the Bank and the above-mentioned relevant numbers may differ slightly in the mantissa
due to rounding.
Shanghai Automotive Industry Corporation (Group) ("Shanghai Automotive Industry Group") holds 1.23% of the bank through its subsidiary
(SAIC Motor Corporation Limited) (2017 1.71%).
China Communications Construction Group LTD ("China Communications Construction Group") holds 2.27% of the bank through its
subsidiaries (2017: 2.27%).
(viii)
(vii)
(vi)
Hebei Port Group Company Ltd. directly holds 1.21% of the Bank (2017: 1.21%).
(v)
China COSCO Shipping Corporation Ltd. holds 9.97% of the Bank (2017: 9.97%) through its subsidiaries.
(iv)
As the largest shareholder, CMSNCL who is the subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2018 (2017: 13.04%).
Anbang Insurance Group Company Ltd. ("AIGC") holds 11.63% of the Bank (2017:11.63%) through its subsidiary.
CMG
RMB600,000,000
Shi Shunhua
Subsidiary
RMB11,683
million
Shanghai
SAIC Motor Corporation
Limited
consulting service
company
domestic trade business,
parent
asset management business,
Chen Hong
Limited company
Production and sale of vehicles, Shareholder's
1.23%
(note(vii))
310,125,822
RMB21,599
million
Shanghai Automotive Industry Shanghai
Corporation (Group)
business
investment and management
service, imports and exports,
repair, technical consulting
Liu Qitao
Joint stock limited
company
Shareholder
General contraction for
construction, leasing and
1.78%
450,164,945
310,125,822
1.23%
Production and sale of vehicles, Shareholder
Joint stock limited
100% Finance lease
RMB6,000 million
Shanghai
CMB Financial Leasing
Limited (CMBICHC)
Holdings Corporation
Tian Huiyu
Limited company
Subsidiary
100% Financial advisory services
HKD4,129 million
CMB International Capital Hong Kong
Limited company
business etc.
maintenance business,
port leasing and
Cao Ziyu
Limited company
Shareholder
Port construction and
investment management,
1.21%
(note(v))
Hebei Port Group Co., Ltd. Qin Huangdao RMB8,000 million 305,434,127
and exports
company
consulting service, imports
Chen Hong
handling and warehousing
RMB600,000,000
Best Winner Investment Ltd.
China Merchants Union (BVI)Ltd.
%
CMFM
WLB
HKD
%
RMB
%
CMBFLC
CMBICHC
HKD
%
RMB
CMSNCL
The subsidiaries held by the Bank
The Bank held by the
largest shareholder
(b)
The change of proportion of the Bank held by the largest shareholder and the portion of the subsidiaries
held by the Bank
(a)
62. Material related-party transactions (continued)
Annual Report 2018
IX Financial Statements
China Merchants Bank
RMB1,310,000,000
RMB1,310,000,000
HKD1,160,950,575
HKD1,160,950,575
RMB6,000,000,000
At 1 January 2018
Change
3,289,470,337
13.04 4,129,000,000 100.00
6,000,000,000 100.00 1,160,950,575 100.00
3,289,470,337
At 1 January 2017
Change
%
RMB
%
HKD
%
RMB
%
CMFM
WLB
CMBFLC
RMB6,000,000,000
CMBICHC
HKD
RMB
CMSNCL
The subsidiaries held by the Bank
The Bank held by the
largest shareholder
55.00
720,500,000
6,000,000,000 100.00 1,160,950,575 100.00
4,129,000,000 100.00
3,289,470,337 13.04
At 31 December 2018
%
RMB
720,500,000 55.00
%
HKD4,129,000,000
HKD4,129,000,000
CMFM
China COSCO Shipping (Guangzhou) Co., Ltd.
RMB16,191,351,300
RMB16,191,351,300
China Ocean Shipping Co., Ltd.
RMB11,000,000,000
RMB11,000,000,000
China COSCO Shipping Corporation Limited.
RMB30,790,000,000
RMB30,790,000,000
Anbang Life Insurance Co.,Ltd
RMB8,900,000,000
RMB13,900,000,000
Guangzhou Haining Maritime Technology Service Co., Ltd.
Hexie Health Insurance Co.,Ltd
RMB37,000,000,000
Anbang Property & Casualty Insurance Co., Ltd.
RMB61,900,000,000
RMB61,900,000,000
Anbang Insurance Group Co., Ltd
USD10,000,000
USD60,000
USD10,000,000
(Shenzhen) Co., Ltd.
China Merchants Industry Development
USD50,000
USD50,000
USD60,000
RMB37,000,000,000
Construction Co., Ltd
China COSCO Shipping (Shanghai) Co., Ltd.
RMB3,191,200,000
WLB
CMBFLC
CMBICHC
RMB8,000,000,000
RMB8,000,000,000
Hebei Port Group Co., Ltd.
RMB11,683,461,365
RMB11,683,461,365
RMB21,599,175,737
RMB21,599,175,737
Shanghai Automotive Industry Corporation (Group)
SAIC Motor Corporation Limited
RMB16,174,735,425
RMB1,398,941,000
RMB16,174,735,425
RMB5,855,423,830
RMB5,855,423,830
RMB299,020,000
RMB299,020,000
Shenzhen Tri-Dynas Oil & Shipping Co., Ltd.
China Communications Construction Group LTD
HKD500,000,000
HKD500,000,000
China COSCO Shipping Financial Holdings Co., Ltd.
RMB3,191,200,000
RMB1,398,941,000
RMB2,000,000
RMB2,000,000
China Communications Construction Co., Ltd
8རྗ
280
(2,292)
52,145
52,134
- Cash outflows arising from secured debt
instruments funding
- Committed credit facilities and
committed liquidity facilities
898,776
49,820
743,527
42,699
Other contractual lending obligations
34,114
34,114
19,230
19,230
Other contingent funding obligations
4,376,071
76,864
2,668,869
318,937
318,937
contracts and other transactions arising
from related collateral requirements
- Cash outflows arising from derivative
411,011
1,636,910
406,679
- Non-business relations deposits
(including all the counterparties)
1,199,128
616,297
1,192,084
18,562
647,894
unsecured funding
15,738
15,738
63,258
- Secured funding
13,954
42,401
Additional requirements, of which:
- Liabilities and obligations arising from
Total cash outflows
1,678,144
1,424,424
Adjusted value
TOTAL HQLA
TOTAL NET CASH OUTFLOWS
LCR (%))
Note:
(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.
745,738
Adjusted value
596,666
585,613
144.41%
101.90%
287
288
China Merchants Bank
IX Financial Statements
Annual Report 2018
516,412
1,649,778
838,811
Total cash inflows
Cash inflows
Secured lending transactions (including
reverse repurchase agreements and
securities borrowed)
241,925
241,902
175,291
175,291
1,161,732
Cash inflows from fully honoured payments
617,257
868,522
611,834
Other cash inflows
303,041
302,573
53,418
51,686
902,066
correspondent banks operations)
- Business relations deposits (excluding
Unsecured wholesale funding, of which:
42,964
49,351
Gross SFT assets (with no recognition of netting),
after adjusting for sale accounting transactions
199,386
252,550
Less: Netted amounts of cash payables and
cash receivables of gross SFT assets
Total derivative exposures
Counterparty credit risk exposure for SFT assets
34,953
28,849
Total securities financing transaction exposures
234,339
281,399
Off-balance sheet exposure at gross notional amount
1,964,539
1,754,836
Agent transaction exposures
Less: Adjustments for conversion to credit equivalent amounts
Less: Adjusted effective notional deductions for written credit derivatives
954
(18,792)
Balance of adjusted on-balance sheet assets
(excluding derivatives and SFTs)
6,480,720
6,001,076
Replacement cost associated with all derivatives transactions
(net of eligible cash variation margin)
with all derivatives transactions
1,515
17,420
Add-on amounts for potential future exposure associated
24,590
29,748
Gross-up for derivatives collateral provided where deducted
from the balance sheet assets
Less: Deductions of receivables assets for cash variation margin
provided in derivatives transactions
Less: Exempted central counterparty leg of client-cleared trade exposures
Effective notional amount of written credit derivatives
18,088
(D) Currency concentrations other than RMB
(910,508)
Balance of adjusted off-balance sheet assets
Quarter ended 31 December 2018
Unweighted
Weighted
amount
Unweighted
amount
Weighted
amount
(Average value) (Average value)
(Average value)
(Average value)
745,738
596,666
amount
Stable deposits
17,946
322,474
16,124
- Less stable deposits
1,234,633
123,463
1,154,427
115,443
358,911
(776,906)
Retail deposits and small business funding,
of which:
Total high quality liquid assets (HQLA)
1,054,031
977,930
Net tier-1 capital
516,433
459,782
Balance of adjusted on-balance sheet and off-balance sheet assets
7,812,054
7,309,756
Cash outflows
Leverage ratio
6.29%
China Merchants Bank
IX Financial Statements
Annual Report 2018
(C) Liquidity coverage ratio
In accordance with CBIRC's Administrative Measures on Liquidity Coverage Ratio of Commercial Banks effective on
31 December 2015, the Group's liquidity coverage ratio and relevant components were as follows. The basis used
herein may differ from those adopted in Hong Kong or other countries. For the quarter ended 31 December 2018,
the Group's liquidity coverage ratio was as follows:
Quarter ended 31 December 2017
High quality liquid assets
6.61%
2018
USD
HKD
26,210
20,720
143,855
190,785
Europe
18,219
732
17,117
- of which attributed to Hong Kong
36,068
43,707
18,407
57,912
120,026
Total
222,475
47,131
298,231
North and South America
567,837
233,721
22,016
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.
2018
Banks
and other
Public
financial
sector
institutions
entities
162,613
Others
Foreign currencies transactions in
Mainland China
111,457
5,976
60,589
178,022
Asia Pacific excluding Mainland China
49,092
Total
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.
2017
and other
20,810
- of which attributed to Hong Kong
216,915
149,651
35,942
31,322
Asia Pacific excluding Mainland China
179,172
35,912
73,302
96,112
Mainland China
Foreign currencies transactions in
Total
Others
entities
institutions
China Merchants Bank
9,758
Banks
139,530
Europe
Public
financial
sector
289
467,489
263,272
49,620
154,597
196,252
Total
34,515
1,863
11,553
North and South America
23,471
5,804
2,057
15,610
47,931
(21,795)
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.
IX Financial Statements
669,524
Net option position
(4,703)
(107)
511
(4,299)
Net long position
22,728
98,857
11,219
Net structural position
8,208
32,039
547
40,794
2017
USD
HKD
31,655
Others
18,007
682,512
Others
Total
(in millions of RMB)
Non-structural position
Spot assets
Spot liabilities
Forward purchased
Forward written
464,106
552,660
34,567
576,049
453,891
21,100
78,093
553,084
569,876
15,866
96,770
77,376
(E) International claims
Total
Non-structural position
(190)
117
(4,399)
Net long position
Net structural position
19,826
9,447
1,621
(4,326)
30,894
31,898
522
40,661
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.
China Merchants Bank
Annual Report 2018
8,241
(in millions of RMB)
Net option position
74,085
Spot assets
417,418
55,164
75,178
547,760
Spot liabilities
463,514
37,867
511,853
59,902
Forward purchased
484,274
16,083
60,313
560,670
Forward written
414,026
23,742
561,283
Less: Asset amounts deducted in determining Basel III Tier 1 capital
63,258
6,502,515
Carrying amount
Financial
assets at fair
value through
Debt
investments
at amortised
Debt
investments
Maximum
profit or loss
31 December 2018
cost
Total
exposure
Asset management schemes
96,204
151,481
247,685
247,685
Trust beneficiary rights
at FVTOCI
82,457
The Group holds interests 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
income from managing assets on behalf of investors and are financed through the issue of notes to investors.
The following table sets out an analysis of the carrying amounts of interests held by the Group as at 31 December
2018 and 31 December 2017 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 2018 and 31 December 2017 in which assets are
recognised relating to the Group's interests in structured entities sponsored by third parties:
(a)
(12)
1,158
There is no maturity of the instruments and the payments of distribution can be cancelled at the discretion of the
issuers. Cancelled interest is not cumulative. There is no obligation of contract that deliver the cash payment to
other parties. WLB declared and paid distributions at 5.2% set on the contract items of perpetual debt capital in
2018.
64. Transfers of financial assets
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.
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, during the year 2018 the Group has transferred the ownership of the loans amounted
to RMB45,071 million (2017: RMB73,698 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 recognised as financial liabilities.
As at 31 December 2018, the carrying amount of such transferred but not derecognised finance leases receivable
amounted to RMB1,415 million (31 December 2017: RMB3,668 million) and correspondently the carrying amount of
recognised financial liabilities is RMB706 million (31 December 2017: RMB2,439 million).
Interest in the structured entities sponsored by third party institutions
Transactions of credit assets
Repurchase transactions and securities lending transactions
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.
281
282
China Merchants Bank
IX Financial Statements
Annual Report 2018
65. Interests in unconsolidated structured entities
During the year 2018, the Group has transferred credit assets to third party institutions directly amounted to
RMB79,544 million (2017: RMB46,338 million); RMB77,607 million of these transferred credit assets are transferred
to structured entities (2017: RMB45,817 million). The Group carried out an assessment based on the criteria as
detailed in Note 4(5), and concluded that these transferred assets qualified for full de-recognition.
(64)
82,457
Asset backed securities
resale
agreements
assets held
for trading
financial
assets
Held-to-
maturity
investments
Debt
securities
classified as
Maximum
for-sale
receivables
exposure
Asset management schemes
Asset backed securities
Investment in funds
Total
Wealth management products
Trust beneficiary rights
1,048
Total
82,457
Financial
Available-
1,469
855
1,214
3,538
3,538
Investment in funds
16,854
16,854
held under
16,854
114,527
234,793
1,214
350,534
350,534
31 December 2017
Carrying amount
Amounts
Total
1,048
(64)
64
- Deposits from customers
Off-balance sheet
- Irrevocable guarantees
- Bills of acceptances
Interest income
Interest expense
Net fee and commission
Operating expenses
7,973
Other net income
1,036
2,835
3,433
3,256
573
91
699
413
All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the
consolidated financial statements.
800
12,859
1,330
IX Financial Statements
Annual Report 2018
62. Material related-party transactions (continued)
(g) Subsidiaries
On-balance sheet
2018
2017
- Balances with banks and other financial institutions
- Deposits from banks and other financial institutions
2,545
- Placements with banks and other financial institutions
25,689
25,782
- Loans and advances to customers
3,237
2,196
- Investments
1,142
1,078
64
1,419
1,596
12
Annuity scheme
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
2018 and 31 December 2017.
China Merchants Bank
Annual Report 2018
IX Financial Statements
63. Non-controlling interests
6,019,868
Non-controlling interests represent the interests that the Group does not hold in the 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.
Perpetual debt capital
The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note
40(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 4(17); 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.
The perpetual debt capital is issued by the bank's subsidiary, WLB, on 27 April 2017, with the aggregate nominal
amount is USD170 million as follows:
Distributions in 2018
Paid in 2018
Exchange difference
At 31 December 2018
Principal
1,170
Distributions/Paid
(12)
1,158
Total
1,170
At 1 January 2018
13
(i)
82,228
1
16
(h)
Key management personnel
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.
Salaries and other emoluments
Discretionary bonuses (Note 11(i))
Share-based payment
99,594
Contributions to defined contribution retirement schemes
2018
RMB'000
2017
RMB'000
51,472
47,557
29,444
46,494
1,312
5,543
Total
446,603
(a)
447,651
2,166
Total tier-2 capital
125,448
86,752
Regulatory deductions from core tier-2 capital
Net tier-2 capital
Net capital
Total risk-weighted assets
55
125,448
641,881
4,092,890
546,534
3,530,745
Notes:
(i)
:
Others represent exchange reserve of foreign currency consolidated financial statements under CBIRC's Administrative Measures on the Capital
of Commercial Banks (Trial).
(ii) :
86,752
The Group's additional tier-1 capital includes qualifying portion of non-controlling interests, preferred shares and etc.
Qualifying portion of non-controlling interests
82,393
444,481
Regulatory deductions from core tier-1 capital
21,795
18,792
Net core tier-1 capital
482,340
425,689
Additional tier-1 capital (note (ii))
54,586
34,093
Net tier-1 capital
516,433
459,782
Tier-2 capital:
Qualifying portion of tier-2 capital instruments and their premium
43,000
30,000
Surplus provision for loans impairment
34,093
504,135
China Merchants Bank
Annual Report 2018
977,930
(21,795)
(18,792)
Balance of adjusted on-balance sheet and off-balance sheet assets
7,812,054
7,309,756
285
286
1,054,031
China Merchants Bank
Annual Report 2018
(B)
Leverage ratio (continued)
Leverage ratio, net tier-1 capital, on-balance sheet and off-balance sheet exposures and other information:
2018
2017
On-balance sheet items (excluding derivatives and
securities financing transactions (SFT))
447,651
IX Financial Statements
IX Financial Statements
Other adjustments
28,849
(A) Capital adequacy ratio (continued)
In 2018, in accordance with the advanced capital management approach approved by CBIRC in April 2014, the Bank
calculated core tier-1 capital adequacy ratio is 11.39%, tier-1 capital adequacy ratio is 12.25%, capital adequacy
ratio is 15.52%, net capital is RMB573,466 million and total risk-weighted assets is RMB3,694,893 million.
In 2018, 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 10.31%, tier-1 capital adequacy ratio is 11.04%, capital adequacy ratio is 13.06%, net capital is
RMB611,025 million and total risk-weighted assets is RMB4,677,967 million.
(B) Leverage ratio
In accordance with the CBIRC'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 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
but outside the scope of regulatory consolidation
Adjustments for fiduciary assets
Adjustment for off-balance sheet items
Adjustments for derivative financial instruments
2018
6,745,729
2017
6,297,638
(9,608)
(6,304)
8,744
30,435
34,953
Adjustment for securities financing transactions
Total core tier-1 capital
In 2018, 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 9.82%, tier-1 capital adequacy ratio is 10.55%, capital adequacy ratio is 12.66%, net capital is
RMB542,610 million and total risk-weighted assets is RMB4,286,653 million.
6,858
As at 31 December 2018, the amount of the unconsolidated asset management schemes, which are sponsored by
the Group, is RMB271,239 million (31 December 2017: RMB264,591 million).
China Merchants Bank
IX Financial Statements
Annual Report 2018
65. Interests in unconsolidated structured entities (continued)
(b) Interest in the unconsolidated structured entities sponsored by the Group
(continued)
As at 31 December 2018, 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 RMB87,903 million (31 December 2017: RMB201,641 million) and RMB60,591
million (31 December 2017: RMB9,013 million) respectively. The above transactions were made in accordance with
normal business terms and conditions.
During year ended 31 December 2018, the amount of fee and commission income received from such category
of non-principal-guaranteed wealth management products by the Group is RMB8,972 million (2017: RMB14,000
million).
As at 31 December 2018, the amount of the unconsolidated mutual funds, which are sponsored by the Group, is
RMB382,772 million (31 December 2017: RMB392,292 million).
During the year ended 31 December 2018, the amount of management fee income received from the unconsolidated
mutual funds by the Group is RMB1,448 million (2017: RMB1,533 million).
The total amount of non-principal-guaranteed wealth management products issued by the Group after 1 January
2018 with a maturity date before 31 December 2018 was RMB3,008,657 million (2017: RMB3,289,090 million).
66. Non-adjusting events after the reporting period
On 11 March 2019, the Bank redeemed its subordinated debt of RMB3,800 million issued on 11 March 2016.
Up to the date of approval of the financial report, the Group has no other material events that require disclosure in
or adjustments of the financial report after 31 December 2018.
67. Comparative figures
During the year ended 31 December 2018, the Group divided industry sector and category according to the newly
revised "Industrial Classification for National Economic Activities" (GB/T 4754-2017) standards issued by the
General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China and the
Standardization Administration of the People's Republic of China in note 22(b) and has restated the corresponding
comparative figures.
During the year ended 31 December 2018, the Group reclassified the profit or loss related to precious metal to from
"investment income" to "Profit (loss) from fair value change" in the note 9, and has restated the corresponding
comparative figures.
During the year ended 31 December 2018, funds received from customers under wealth management services
in note 60(b) are the funds received from customers under unconsolidated non-principal-guaranteed wealth
management services, and has restated the corresponding comparative figures.
During the year ended 31 December 2018, the Group reclassified the joint venture Hong Kong Life Insurance Limited
from assets held for sale under other assets to investment in the joint ventures due to the termination of the sale
transaction, and has restated the corresponding comparative figures.
During the year ended 31 December 2018, the amount of management fee income received from the unconsolidated
asset management schemes by the Group is RMB762 million (2017: RMB1,027 million).
During the year ended 31 December 2018, in note 8, the Group reclassified finance lease fee reclassified from
"Others" to "Commissions from credit commitment and lending business", reclassified cross-border financing
business services fee from "Remittance and settlement fees" to "Commissions from credit commitment and lending
business", reclassified subsidiary fund management fee from "Agency services fees" and "Others" to "Commissions
on trust and fiduciary activities". The comparative figures has restated respectively.
As at 31 December 2018, the amount of the unconsolidated non-principal-guaranteed wealth management
products, which are sponsored by the Group, is RMB2,052,183 million (31 December 2017: RMB2,177,856 million).
The maximum exposures held by the Group in the subordinated tranches of assets backed securities, investments
in funds, the wealth management products, asset management schemes, trust beneficiary rights, senior tranches of
assets backed securities are the carrying amount 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.
93,993
93,993
(817)
93,993
401
3,437
21,051
563
4,427
(b) Interest in the unconsolidated structured entities sponsored by the Group
8,427
21,452
21,452
401
24,488
563
545,023
571,523
571,523
8,427
283
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 income 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.
China Merchants Bank
25,220
25,220
Qualifying portion of capital reserve
67,149
63,272
Surplus reserves
46,131
Regulatory general reserve
Qualifying portion of share capital
78,543
Retained profits
272,510
239,560
Qualifying portion of non-controlling interests
284
207
208
Others (note (i))
70,907
15.48%
53,648
13.02%
(Expressed in millions of Renminbi unless otherwise stated)
15.68%
IX Financial Statements
(A) Capital adequacy ratio
The Group's capital adequacy ratio was prepared solely in accordance with the CBIRC'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 CBIRC in April 2014, the Group
calculated core tier-1 capital adequacy ratio, tier-1 capital adequacy ratio and capital adequacy ratio as follows:
Unaudited Supplementary Financial Information
Tier-1 capital adequacy ratio
Capital adequacy ratio
Core tier-1 capital adequacy ratio
Components of capital base
12.62%
12.06%
11.78%
2017
Annual Report 2018
Core tier-1 capital:
2018
54.22
Investment securities and other financial assets(2)
Cash, precious metals and balances with the
1,602,475
1,714,490
25.45
3,414,612
central bank
500,020
7.41
25.42
76,918
9.94
Balances with banks and other financial institutions
100,160
1.48
1.22
Placements with banks and other financial
Other assets(3)
Goodwill
55.59
institutions and amounts held under resale
agreements
625,728
3,749,949
31 December 2018
(2.39)
Annual Report 2018
3.3 Analysis of balance sheet
Total assets
III Report of the Board of Directors
3.3.1 Assets
As at the end of the reporting period, the total assets of the Group amounted to RMB6,745.729 billion, up by 7.12%
from the end of the previous year, which was mainly attributable to the increase in loans and advances to customers
and bond investments of the Group.
To maintain the figures comparable, the financial instruments in section "3.3.1 Assets" were still analysed on the
statistical calibre excluding interest receivable, except for the table "components of the total assets of the Group",
in which interest receivable calculated using the effective interest method was included as required by the Ministry
of Finance.
The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
31 December 2017
(in millions of RMB, except for percentages)
Net loans and advances to customers
Percentage of
Amount the total (%)
Percentage of
the total (%)
Total loans and advances to customers
3,941,844
58.43
3,565,044
56.61
Allowances for impairment losses on loans (1)
(191,895)
(2.84)
(150,432)
Amount
512,797
132,849
407,178
(in millions of RMB, except for percentages)
Investments at fair value through profit or loss
- Bond investments
Amount
Percentage of
the total (%)
Amount
Percentage of
the total (%)
327,643
19.36
64,796
31 December 2017
4.04
64,152
4.00
- Non-standardised credit asset investments
- Others(1)
173,988
10.28
20,806
1.23
0.04
China Merchants Bank
644
7.85
31 December 2018
The following table sets forth the components of investment securities and other financial assets of the Group by
line items.
The Group's investment securities and other financial assets consist of listed and unlisted financial instruments
denominated in RMB and foreign currencies.
6.47
9,954
0.15
9,954
0.16
158,359
2.35
160,773
2.54
6,745,729
100.00
6,297,638
100.00
Notes: (1) The "allowances for impairment losses on loans" as at the end of the year include the allowances for impairment losses on loans and
advances to customers measured at amortised cost and the allowances for impairment losses on interest receivable from loans and
advances to customers measured at amortised cost. The allowances for impairment losses of RMB228 million were not deducted from the
carrying values of the loans and advances to customers measured at fair value through other comprehensive income. For details, please
refer to Note 22 to the financial statements.
(2)
During the reporting period, the Group reclassified the joint venture, Hong Kong Life Insurance Limited, from "assets held for sale" under
"Other assets" to "Investments in joint ventures" due to the termination of the sale transaction, and adjusted the comparative figures of
the previous year accordingly. For details, please refer to Notes 26 and 67 to the financial statements.
(3) Including fixed assets, intangible assets, investment properties, deferred tax assets and other assets.
3.3.1.1 Loans and advances to customers
As at the end of the reporting period, total loans and advances to customers of the Group amounted to
RMB3,933.034 billion, representing an increase of 10.32% as compared with the end of the previous year; total
loans and advances to customers accounted for 58.30% of the total assets, representing an increase of 1.69
percentage points as compared with the end of the previous year. For details of the loans and advances to customers
of the Group, please refer to the section headed "Analysis of Loan Quality" in this chapter.
China Merchants Bank
III Report of the Board of Directors
Annual Report 2018
3.3.1.2 Investment securities and other financial assets
7.60
26
(6,566)
Expected credit losses of loans and advances to customers were the largest component of expected credit losses. In
2018, expected credit losses of loans and advances to customers of the Group were RMB59.252 billion, representing
a year-on-year decrease of 1.33%. For details of the allowances for impairment losses on loans, please refer to the
section headed "Analysis of Loan Quality" in this chapter.
66,480
64,018
21,580
12,167
20,271
11,169
1,091
671
11,327
4,911
Other net operating income
3,538
4,315
3,653
- Share of profits of associates and joint ventures
Total net non-interest income
1,309
998
88,060
76,185
During the period, the Group adjusted the statistical calibre of the breakdown items of the fee and commission income, the fee related to financial
leasing was adjusted from "others" to "commissions from credit commitment and loan business"; part of the fee related to cross-border financing
business was adjusted from "settlement and clearing fees" to "commissions from credit commitment and loan business"; the fund management fee
income of the subsidiaries was adjusted from "agency service fees" and "others" to "commissions on trust and fiduciary activities", and corresponding
adjustments were made to the comparative figures of the previous year.
Since the beginning of the period, the Group has included the profit and loss of the precious metals transaction as a whole under the "net gains
from fair value changes". The "net gains from fair value changes" and "net investment income" of the Income Statement were adjusted for the
corresponding period of 2017.
1,934
China Merchants Bank
Annual Report 2018
- Exchange gain
Net gains from fair value changes
14,011
Derivative financial assets
- Settlement and clearing fees
10,267
9,209
- Agency service fees
12,723
12,287
- Commissions from credit commitment and loan business
6,807
- Net investment income
6,372
23,351
25,245
- Others
3,171
2,784
Less: fees and commission expense
(5,890)
Net fee and commission income
Other net non-interest income
- Other net income
- Commissions on trust and fiduciary activities
III Report of the Board of Directors
3.2.7 Operating expenses
In 2018, the Group's operating expenses amounted to RMB81.110 billion, representing an increase of 15.16% as
compared with the previous year. Among which, staff costs of the Group increased by 16.48% as compared with
the previous year. Other general and administrative expenses increased by 19.62% as compared with the previous
year. The cost-to-income ratio was 31.04%, representing an increase of 0.83 percentage point as compared with
the previous year. The increase in operating expenses was primarily attributable to the following reasons. The Group
increased its efforts to further support financial technology innovation, enhanced technology-based capability, and
increased the investment of IT infrastructure and human resources for research and development. At the same time,
in order to improve the brand image and service level of outlets, the Group focused on upgrading the hardware and
software of digital outlets. In addition, by focusing on the strategic development direction of monthly active users
(MAU), the Company increased the resources invested in online customer acquisition and operation. The Company's
cost-to-income ratio was 31.23%, up by 0.95 percentage point as compared with the previous year.
In 2018, the expected credit losses of the Group were RMB60.829 billion, representing a year-on-year increase of
1.51%.
The following table sets forth, for the periods indicated, the principal components of expected credit losses of the
Group.
(in millions of RMB)
2018
2017
Loans and advances to customers
59,252
60,052
Investments
1,176
3.2.8 Expected credit losses
(933)
(368)
121
Expected credit losses relating to financial guarantees and loan commitments
Other assets
374
N/A
395
682
Total expected credit losses
60,829
59,922
Amounts due from banks and other financial institutions
70,431
232
244
81,110
The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
Group.
(in millions of RMB)
Staff costs
Taxes and surcharges
Depreciation of fixed assets and investment properties
Amortisation of intangible assets
Rental expenses
Other general and administrative expenses
Allowances for insurance claims
Total
2018
2017
46,025
39,512
2,132
2,152
5,270
5,062
983
714
4,242
22,214
4,189
18,570
25
34,220
1.78
18,916
98,389
69,826
Total Bond investments
1,205,466
976,400
Note:
"Official authorities" include the Ministry of Finance of the PRC, local governments and the central bank etc.; "Others" mainly refer to
enterprises.
China Merchants Bank
Annual Report 2018
III Report of the Board of Directors
Investments in joint ventures and associates
151,101
As at the end of the reporting period, the net investments in joint ventures and associates of the Group were
RMB8.871 billion, representing an increase of 70.50% as compared with the end of the previous year, which was
mainly due to an increase in the investments in its joint ventures. As at the end of the reporting period, the balance
of allowances for impairment losses on investments in joint ventures and associates of the Group was zero. For
details, please refer to Notes 26 and 27 to the financial statements.
In compliance with the PRC enterprise accounting principles, at the end of 2018, the Group conducted an
impairment test on the goodwill arising from the acquisition of CMB WLB, China Merchants Fund and other
companies and determined that provision for impairment was not necessary for the current year. As at the end of
the reporting period, the Group had a balance of allowances for impairment losses on goodwill of RMB579 million
and the carrying value of goodwill was RMB9.954 billion.
3.3.2 Liabilities
As at the end of the reporting period, the total liabilities of the Group amounted to RMB6,202.124 billion,
representing an increase of 6.67% as compared with the end of the previous year, which was primarily attributable
to the steady growth in deposits from customers.
To maintain the figures comparable, the financial instruments in section "3.3.2 Liabilities" were still analysed on the
statistical calibre excluding interest payable, except for the table "components of the total liabilities of the Group"
in which interest payable calculated using the effective interest method was included as required by the Ministry of
Finance.
The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
31 December 2018
31 December 2017
(in millions of RMB, except for percentages)
Deposits from customers
Deposits from banks and other financial institutions
Borrowings from the central bank
3.3.1.3 Goodwill
Percentage of
Amount the total (%)
174,934
258,213
(323)
18,916
(21,857)
In 2018, the RMB exchange rate was pegged to a basket of currencies, and its volatility was fully affected by the
supply and demand of the foreign exchange market. At the same time, the bilateral volatility of the RMB exchange
rate intensified, resulting in customers' higher willingness to use derivative products to avoid exchange rate risks.
The Group continued to leverage on the professional advantages of derivative transactions in the financial market,
vigorously expanded its derivative trading business, and actively used derivative instruments such as interest rate
swaps to hedge risks. As a result, the number of customers served and the scale of transactions continued to rise.
The above table shows the nominal value and fair value of the Group's derivatives by their remaining maturity on
each balance sheet date. The nominal value refers only to the amounts of the transactions that have not yet been
due or completed on the balance sheet date, and does not represent the value at risk.
Debt investments at fair value through other comprehensive income
As at the end of the reporting period, the balance of debt investments at fair value through other comprehensive
income of the Group amounted to RMB414.691 billion. Such investments were made mainly to cater to the need
of the Group to improve business performance. During the reporting period, affected by changes in the market
environment, the interest rate of the RMB bond market saw a general decline, and credit default events increased
accordingly. The Group closely monitored market changes, grasped the opportunities arising from market trends,
appropriately lengthened the duration of the RMB currency portfolio, timely adjusted the structure of the existing
portfolio, focused on increasing treasury bonds, local bonds and other interest rate-related assets with a higher
allocation value, optimised the asset allocation structure and effectively avoided credit risks. For details, please refer
to Note 24(c) to the financial statements.
Equity investments designated at fair value through other comprehensive income
As at the end of the reporting period, the balance of equity investments designated at fair value through other
comprehensive income of the Group amounted to RMB4.015 billion. Such investments were mainly non-trading
equity investments held by the Group in the investees where the Group had no control, joint control or significant
influence. For details, please refer to Note 24(d) to the financial statements.
Debt instrument investments measured at amortised cost
As at the end of the reporting period, the balance of the Group's debt investments measured at amortised cost
amounted to RMB903.268 billion. Among them, the bond investments were made mainly in the bonds issued by
the PRC government and policy banks. 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. For details, please refer to
Note 24(b) to the financial statements.
Commercial banks and other financial institutions
The composition of the Group's total bond investments classified by the issuing entities
31 December
(in millions of RMB)
2018
2017
Official authorities (note)
641,102
497,260
Policy banks
Others (note)
291,041
31 December
Amount
Percentage of
the total (%)
4,427,566
78,141
1.26
125,620
2.16
Debt securities issued
424,926
6.85
296,477
5.10
Others (note)
Amounts sold under repurchase agreements
110,687
2.63
Total liabilities
6,202,124
100.00
5,814,246
100.00
Note:
Including salaries and welfare payable, taxes payable, deferred income tax liabilities and other liabilities.
29
16,727
152,638
0.38
21,857
0.59
71.39
4,064,345
69.90
470,826
7.59
439,118
7.55
405,314
6.54
414,838
7.13
Placements from banks and other financial institutions
203,950
3.29
272,734
4.69
Financial liabilities at fair value through profit or loss
44,144
0.71
26,619
0.46
Derivative financial liabilities
36,570
322
(437) 108,927
(36,570) 3,488,435
440
34,220
116,624
6,105,186
N/A
- Others
538
0.03
N/A
N/A
Less: allowances for impairment losses
(8,080)
(0.48)
N/A
N/A
N/A
N/A
N/A
383,101
23.91
Held-to-maturity investments
N/A
N/A
558,218
34.84
Investments classified as receivables
Available-for-sale financial assets
14.94
252,884
- Non-standardised credit asset investments
1.18
Debt investments at fair value through other
comprehensive income
414,691
24.50
N/A
N/A
Equity investments designated at fair value
through other comprehensive income
4,015
0.24
N/A
N/A
Debt investments at amortised cost
903,268
53.36
N/A
N/A
- Bond investments
657,926
38.87
N/A
N/A
N/A
2.02
N/A
35.71
Other derivatives
Total
31 December 2018
31 December 2017
Notional
Notional
amount
Fair value
amount
Fair value
Currency derivatives
Assets
Assets
Liabilities
4,382,713
16,150
1,605,849
17,630
(14,812) 2,073,724
(21,321) 1,305,784
2,249
16,345
(1,898)
(19,636)
Liabilities
Interest rate derivatives
(in millions of RMB)
As at the end of the reporting period, the major categories and amount of derivative financial instruments held by
the Group are indicated in the following table. For details, please refer to Note 61(f) to the financial statements.
Investments in joint ventures and associates (2)
8,871
0.52
5,203
0.32
Total investment securities and other
financial assets (2)
1,692,708
100.00
1,602,475
100.00
Note:
(1)
(2)
Including equity investments, investments in funds, wealth management products, long position in precious metal contracts and others.
During the year, the Group reclassified the joint-venture, Hong Kong Life Insurance Limited, from "assets held for sale" under "Other assets"
to "Investments in joint ventures" due to the termination of the sale transaction, and adjusted the comparative figures of the previous year
accordingly.
Investments at fair value through profit or loss
As at the end of the reporting period, the Group's investments at fair value through profit or loss amounted to
RMB327.643 billion. The main categories were bond investments and non-standardised credit asset investments.
Bond investments were made mainly to cater to the need of the Group to grasp the trading opportunities in the
bond market to increase investment income. In 2018, affected by trade frictions between China and the United
States, coupled with the slowdown in macro-economy growth, interest rates in the bond market fell notably, and the
overall income of trading account increased substantially. By strengthening market research and adopting a radical
trading strategy that matches the market situation, the Group has drastically and rapidly lengthened the duration
of trading account and continuously increased the scale of investment while at the same time actively conducting
range trading using long-term interest rate bonds and interest rate derivatives as well as further improving portfolio
revenue. Non-standardised credit asset investments were mainly non-standardised bill investments. For details, please
refer to Note 24(a) to the financial statements.
27
28
China Merchants Bank
III Report of the Board of Directors
Annual Report 2018
Derivative financial instruments
572,241
- Bank card fees
income
73,046
3,600
0.37
Time
438,373
11,771
2.69
331,547
6,846
2.06
Subtotal
1,468,291
968,069
15,180
10,446
0.80
Total
4,269,523
61,987
1.45 3,965,462
50,329
1.27
Interest expense on deposits and placements from banks and other financial institutions
In 2018, the interest expense of the Group on deposits and placements from banks and other financial institutions
amounted to RMB23.028 billion, representing a year-on-year decrease of 4.60%, which was primarily due to the
fact that the Group continued to optimise the liability structure, and the proportion of high cost liabilities was
maintained at a reasonably controllable level.
Interest expense on debt securities issued
In 2018, the interest expense on debt securities issued of the Group amounted to RMB14.530 billion, representing a
year-on-year increase of 8.14%, which was primarily attributable to the higher cost ratio of debt securities issued.
1.03 1,299,616
0.33
3,409
1,029,918
expense
(%)
Deposits from corporate customers
Demand
1,559,171
12,641
0.81 1,483,512
10,794
0.73
Time
1,242,061
34,166
2.75
1,182,334
29,089
2.46
Subtotal
2,801,232
46,807
1.67
2,665,846
39,883
1.50
Deposits from retail customers
Demand
3.2.5 Net interest income
Average
cost ratio
In 2018, the Group's net interest income amounted to RMB160.384 billion, representing a year-on-year increase of
10.72%, or 15.10% after eliminating the impact of implementing the new financial instrument standard.
2018
other financial institutions
630,169
18,313
Total
6,244,967 270,911
2.91 459,129
4.34 5,966,601
12,426
2.71
242,005
4.06
21
Balances and placements with banks and
22
China Merchants Bank
Annual Report 2018
III Report of the Board of Directors
Average
Average
Average
Interest
cost ratio
Average
Interest
cost ratio
(in millions of RMB, except for percentages)
22
1.53
8,679
3.63
2017
(in millions of RMB, except for percentages)
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Interest-earning assets
Loans and advances to customers
3,825,123
196,370
5.13
Investments
1,278,915
48,267
3.77
Balances with the central bank
510,760
7,961
1.56
3,508,470
1,432,408
566,594
168,858
4.81
52,042
The following table sets out the average balances of assets and liabilities, interest income/interest expense, and
average yield/cost ratio 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.
balance
Interest
Average
cost ratio
(%)
5.72
5.81
Share of profits of associates and
joint ventures
0.52
0.46
0.15
0.07
0.09
Total
100.00
6.89
100.00
100.00
100.00
3.2.3 Interest income
In 2018, the Group recorded an interest income of RMB270.911 billion, representing a year-on-year increase of
11.94%, or 14.57% after eliminating the impact of implementing the new financial instrument standard, mainly due
to the increase in interest-earning assets, and increased yield of interest-earning assets brought by the continuous
optimisation of asset structure as well as improvement in risk pricing. Interest income from loans and advances to
customers continued to be the biggest component of the interest income of the Group.
Interest income from loans and advances to customers
In 2018, the interest income from loans and advances to customers of the Group was RMB196.370 billion,
representing a year-on-year increase of 16.29%.
The following table sets forth, for the periods indicated, the average balances, interest income and average yields of
different types of loans and advances to customers of the Group.
2018
2017
Average
Interest
100.00
5.05
8.16
Other net income
20
China Merchants Bank
69,908
Annual Report 2018
3.2.2 Net operating income
In 2018, the net operating income of the Group was RMB248.444 billion, representing an increase of 12.40% as
compared with the previous year. The net interest income accounted for 64.56% of the net operating income, the
net non-interest income accounted for 35.44% of the net operating income, representing a year-on-year increase of
0.97 percentage point.
The following table sets out the percentages of the components of the net operating income of the Group in the
recent five years.
(%)
2018
2017
2016
2015
2014
Net interest income
64.56
65.53
64.01
68.01
70.38
Net fee and commission income
26.76
28.96
28.95
26.20
23.72
Average
Average
balance
Average
Average
196,370
5.13
3,508,470
168,858
4.81
In 2018, from the perspective of the maturity structure of loans and advances to customers of the Company, the
average balance of short-term loans was RMB1,602.721 billion with the interest income amounting to RMB95.849
billion, and the average yield reached 5.98%; the average balance of medium-to-long term loans was RMB1,944.671
billion with the interest income amounting to RMB89.575 billion, and the average yield reached 4.61%. The average
yield of short-term loans was higher than that of medium-to-long term loans, which was attributable to the higher
yield of credit card overdrafts and micro-finance loans in short-term loans.
Interest income from investments
In 2018, the interest income from investments of the Group was RMB48.267 billion, representing a year-on-year
decrease of 7.25%, which was mainly attributable to the impact of implementing the new financial instrument
standard. The accounting measurement of certain financial assets was adjusted to be measured at fair value through
profit or loss, and the presentation of relevant income was changed from the interest income to the non-interest
income. The average yield of investments was 3.77%, up by 0.14 percentage point as compared with the previous
year.
Interest income from balances and placements with banks and other financial institutions
In 2018, the interest income of the Group from balances and placements with banks and other financial institutions
was RMB18.313 billion, representing a year-on-year increase of 47.38%, and the average yield of balances and
placements with banks and other financial institutions was 2.91%, representing a year-on-year increase of 0.20
percentage point, which was primarily attributable to the significant improvement in liquidity. The Group moderately
increased the allocation of assets with banks and other financial institutions, and enhanced the structure of assets to
improve the yields on placements with banks and other financial institutions.
China Merchants Bank
Annual Report 2018
2.81
III Report of the Board of Directors
In 2018, the interest expense of the Group was RMB110.527 billion, representing a year-on-year increase of 13.77%,
which was primarily attributable to the increase in the scale of interest-bearing liabilities and the rigid increase in the
cost ratio of liabilities from customers that have pushed up the interest expense of the Group.
Interest expense on deposits from customers
In 2018, the Group's interest expense on deposits from customers was RMB61.987 billion, up by 23.16% as
compared with the previous year. In addition to various impacts including the increase in the scale of deposits, it was
also affected by intensified interbank competition and the demand for higher return on deposits from customers,
resulting in an increase in the cost ratio of deposits.
The following table sets forth, for the periods indicated, the average balances, interest expenses and average cost
ratios for the deposits from corporate and retail customers of the Group.
2018
2017
Average
Interest
(in millions of RMB, except for percentages)
balance
expense
3.2.4 Interest expense
4,608
164,005
4.47
(in millions of RMB, except for percentages)
balance
income
yield (%)
balance
income
yield (%)
Corporate loans
1,743,614
73,954
4.24
1,650,406
65,864
3.99
Retail loans
1,886,389
113,698
6.03
1,694,059
98,386
5.81
Discounted bills
Loans and advances to customers
195,120
3,825,123
8,718
Interest
expense
III Report of the Board of Directors
expense
690,285
4,392
2.52
654,649
4,977
3.02
Total
6,394,164
69,169
4.29
6,337,546
financial institutions
70,567
July to September 2018
October to December 2018
(in millions of RMB, except for percentages)
Average
balance
Annualised
average
Interest cost ratio
expense
(%)
Annualised
average
Average
balance
Interest
cost ratio
expense
(%)
4.42
Balances and placements with banks and other
1.57
1,925
(in millions of RMB, except for percentages)
Interest-earning assets
balance
income
yield (%)
balance
yield (%)
Loans and advances to customers
3,910,859
50,603
5.13
3,920,319
51,661
5.23
Investments
1,280,918
12,165
3.77
1,275,105
12,004
3.73
Balances with the central bank
512,102
2,009
1.56
487,473
Interest-bearing liabilities
average
Deposits from customers
16,081
Net interest income
40,960
42,412
/
Net interest spread
2.40
2.54
2.52
2.66
Net interest margin
Facing the rising pressure on debt costs, the Group continued to optimise its asset and liability structure and improve
its risk pricing management level. In the fourth quarter of 2018, the net interest margin of the Group was 2.66%,
up by 12 basis points as compared with the third quarter of 2018, and its net interest spread was 2.52%, up by 12
basis points as compared with the third quarter of 2018. The annualised average yield of the interest-earning assets
was 4.42%, up by 13 basis points as compared with the third quarter of 2018 while the annualised average cost
ratio of interest-bearing liabilities was 1.90%, up by 1 basis point as compared with the third quarter of 2018.
23
1.90
24
III Report of the Board of Directors
Annual Report 2018
3.2.6 Net non-interest income
In 2018, the Group recorded a net non-interest income of RMB88.060 billion, up by 15.59% from the previous year,
or up by 3.67% year-on-year after eliminating the impact of implementing the new financial instrument standard.
The components are as follows:
Net fee and commission income amounted to RMB66.480 billion, representing an increase of 3.85% as compared
with the previous year. Among the fee and commission income, income from bank card fees increased by
RMB2.716 billion or 19.38% as compared with the previous year, which was primarily attributable to the increase in
intermediary business income from credit cards; income from settlement and clearing fees³ increased by RMB1.058
billion or 11.49% as compared with the previous year calculated on the same statistical calibre, which was primarily
attributable to the increase in income from e-payment; income from agency services fees increased by RMB436
million or 3.55% as compared with the previous year calculated on the same statistical calibre, which was primarily
attributable to the increase in income from agency distribution of funds. The commissions from credit commitment
and loan business increased by RMB435 million or 6.83% as compared with the previous year calculated on the
same statistical calibre, which was mainly attributable to the increase in the fee income from financial leasing and
the fee income from the domestic factoring business; commissions on trust and fiduciary activities decreased by
RMB1.894 billion or 7.50% as compared with the previous year calculated on the same statistical calibre, which
were mainly affected by factors such as the New Regulation on Asset Management, the decline in social financing
demand and the lowered interest rate. The high-yield assets of wealth management investment decreased while
the liability-side interest rates were less flexible. The asset management VAT policy was implemented, resulting a
decrease in the fee income from entrusted wealth management services.
Other net non-interest income amounted to RMB21.580 billion, representing an increase of 77.37% as compared
with the previous year. Among which, net investment income 4 amounted to RMB11.327 billion, representing an
increase of RMB6.416 billion or 130.65% as compared with the previous year calculated on the same statistical
calibre, and net gains from fair value changes amounted to RMB1.091 billion, representing an increase of RMB420
million or 62.59% as compared with the previous year calculated on the same statistical calibre. Both increases
were primarily attributable to the impact of implementing the new financial instrument standard. Other net income
amounted to RMB4.315 billion, representing an increase of RMB662 million or 18.12% as compared with the
previous year, which was primarily attributable to the increase in the income from operating leasing business.
Among the business segments, the net non-interest income from retail finance amounted to RMB43.225 billion,
representing an increase of 15.50% as compared with the previous year and accounting for 49.09% of the Group's
net non-interest income; the net non-interest income from wholesale finance amounted to RMB32.276 billion,
representing an increase of 5.86% as compared with the previous year and accounting for 36.65% of the Group's
net non-interest income; the net non-interest income from other businesses amounted to RMB12.559 billion,
representing an increase of 51.86% as compared with the previous year and accounting for 14.26% of the Group's
net non-interest income.
The following table sets forth, for the periods indicated, the principal components of net non-interest income of the
Group.
(in millions of RMB)
Fee and commission income
2017
(%) balance
China Merchants Bank
28,155
5,890,720
1.89
1.48 4,360,202
16,239
1.48
Deposits and placements from banks
and other financial institutions
899,692
5,549
Debt securities issued
351,024
3,810
Borrowings from the central bank
345,820
2,769
2.45
4.31
3.18 344,161
797,923
5,041
2.51
388,434
4,109
4.20
2,766
3.19
Total
5,915,737
28,209
4,319,201
Interest
2018
average
Average
3.02
Total
5,820,808
110,527
1.90 5,491,455
97,153
1.77
Net interest income
1
160,384
305,886
144,852
Net interest spread
Net interest margin
2.44
2.57
2.29
2.43
In 2018, the average yield of the interest-earning assets of the Group was 4.34%, while the average cost ratio
of interest-bearing liabilities was 1.90%, representing a year-on-year increase of 28 basis points and 13 basis
points respectively. The net interest spread was 2.44%, while the net interest margin was 2.57%, representing a
year-on-year increase of 15 basis points and 14 basis points respectively.
The following table sets forth, for the periods indicated, the breakdown of changes in interest income and interest
expense due to changes in volumes and interest rates of the Group. Changes in volume are measured by changes
in average balances (daily average balance), while changes in interest rate are measured by changes in the average
interest rate; the changes in interest income and interest expense due to changes in both volume and interest rate
have been included in the amount of changes in interest income and interest expense due to changes in volume.
2018 compared with 2017
Increase (decrease) due to
(in millions of RMB)
Interest-earning assets
Loans and advances to customers
/
3.15
10,982
348,093
Interest-bearing liabilities
(%)
Deposits from customers
4,269,523
61,987
1.45
3,965,462
50,329
1.27
Deposits and placements from banks and
other financial institutions
863,041
23,028
2.67
880,787
24,138
2.74
Debt securities issued
340,151
14,530
4.27
339,320
13,436
3.96
Borrowings from the central bank
Volume
Interest rate
9,250
11,256
35
1,059
1,094
Borrowings from the central bank
1,332
400
1,732
Changes in interest expense
5,308
8,066
13,374
Debt securities issued
Changes in net interest income
6,276
15,532
China Merchants Bank
Annual Report 2018
III Report of the Board of Directors
The following table sets out the average balances of assets and liabilities, interest income/interest expense and
annualised average yield/cost ratio 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.
July to September 2018
October to December 2018
Annualised
Annualised
16,256
Interest
9,256
(1,110)
Average
(474)
(636)
Investments
2,018
Net increase
(decrease)
27,512
(3,775)
Balances with the central bank
(870)
152
(718)
Balances and placements with banks and other
financial institutions
4,971
(5,793)
5,887
Deposits and placements from banks and other
financial institutions
11,658
7,243
916
4,415
Interest-bearing liabilities
28,906
14,342
14,564
Changes in interest income
Deposits from customers
Total
As a percentage of total gross loans and advances:
-
- between 3 and 6 months (inclusive)
6,570
- over 12 months
Total
7,057
9,390
- between 6 and 12 months (inclusive)
- over 12 months
2018
- between 3 and 6 months (inclusive)
with respect to either principal or interest for periods of:
Gross loans and advances to customers which have been overdue
2017
45,679
42,272
1,067
962
42
10,254
248
- between 6 and 12 months (inclusive)
25,825
China Merchants Bank
42,272
: (0755) 8319 8888
(0755) 8319 5555
Postcode 518040
2017
2018
Provision of overdue loans and advances for which impairment losses
are individually assessed
Value of collateral 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)
28,855
Annual Report 2018
294
293
1.28%
1.08%
0.81%
0.66%
0.29%
0.24%
0.18%
0.18%
45,679
IX Financial Statements
9,334
3,614
12,595
5,119
China Merchants Bank
11,273
assessed impairment
allowance
Collectively
Individually
assessed impairment
allowance
Impaired loans
and advances
As at 31 December 2018, for corporate loans and advances measured at amortised cost, the fair value of collateral
held against impaired loans and advances is RMB 6,868 million (31 December 2017: RMB 5,404 million).
16,701
5,467
2,734
3,869
9,787
IX Financial Statements
Overdue loans
and advances
Residential mortgage
2017
6,044
2,054
435
12,895
4,213
7,655
-Stage 3
(Lifetime ECL-
credit impaired)
-Stage 2
-Stage 1 (Lifetime ECL-
(12-month ECL) not credit-impaired)
Impaired loans
and advances
2,610
6,394
Residential mortgage
Credit card
Credit card
Annual Report 2018
(G) Overdue loans and advances to customers
(i)
4,003
4,061
3,922
7,758
6,020
5,990
7,798
7,813
7,834
4,495
6,025
2017
2018
(ii) By overdue period
Total
Subsidiaries
Outside Mainland China
Western region
Central region
Northeast region
Pearl River Delta and West Coast region
Bohai Rim region
Yangtze River Delta region
Headquarters
By geographical segments
5,460
: China Merchants Bank Tower, No 7088,
Shennan Boulevard, Shenzhen, China
to supervise and review the implementation of the annual operational and investment plans;
Fax
18,009
0.51%
Less:
- rescheduled loans and advances overdue
more than 90 days
16,218
0.41%
11,293
0.32%
Rescheduled loans and advances overdue
less than 90 days
6,548
0.58%
0.17%
0.19%
Note: Represents the restructured non-performing loans.
The amount of the Group's rescheduled loans and advances to financial institutions as at 31 December 2018 was 1
million (2017: 1 million).
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 2018 and 31 December 2017, 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
IX Financial Statements
Annual Report 2018
(J) Corporate governance
Board committees
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.
6,716
(i)
and advances
and advances
32,978
Overdue loans
and advances
34,185
19,137
13,239
N/A
28,088
The amount of the Group's overdue loans and advances to financial institutions as at 31 December 2018 was RMB1
million (2017: RMB1 million).
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.
Amount
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.
The collateral of the Group included cash deposit, shares, land use right, property, motor vehicles and other equipment, etc. The fair value
of collateral 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.
(H) Rescheduled loans and advances to customers
(I)
2018
2017
Rescheduled loans and advances to
customers (Note)
22,766
% of
total loans
% of
total loans
Amount
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.
Strategy Committee
Main authorities and duties of the Strategy Committee are:
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 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;
to make regular assessment on the risk policies, management status, risk-withstanding ability and
capital status of the Bank;
to perform relevant duties under the advanced capital measurement method pursuant to the
authorisation given by the Board of Directors;
to submit proposals on perfecting the management of risks and capital of the Bank;
to arrange and instruct risk prevention works in accordance with the authorisation of the Board of
Directors; and
any other task delegated by the Board of Directors.
(v)
(vi)
Remuneration and Appraisal Committee
Main authorities and duties of the Remuneration and Appraisal Committee are:
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 Risk and Capital Management Committee are:
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;
any other task delegated by the Board of Directors.
Nomination Committee
Main authorities and duties of the Nomination Committee are:
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;
to study the standards and procedures for selection of directors and senior management, and make
recommendations to the Board of Directors;
to conduct extensive searches for qualified candidates for directors and senior management;
to conduct preliminary examination on the candidates for directors and senior management and make
recommendations to the Board of Directors; and
any other task delegated by the Board of Directors.
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to review the regulations and policies in respect of remuneration of the Bank; and
(iv) Risk and Capital Management Committee
Board committees (continued)
(J) Corporate governance (continued)
to consider material investment and financing plans and make proposals to the Board of Directors;
to evaluate and monitor the implementation of Board resolutions; and
to make recommendations and proposals on important issues for discussion and determination by the
Board of Directors.
(ii)
Audit Committee
Main authorities and duties of the Audit Committee are:
to propose the appointment or replacement of external auditors;
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;
to coordinate the communication between internal auditors and external auditors;
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;
to examine the internal control system of the Bank, and make recommendations for improvement in
the internal control of the Bank;
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
any other task delegated by the Board of Directors.
(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 the announcements on related party transactions of the Bank.
295
296
China Merchants Bank
IX Financial Statements
Annual Report 2018
://www.cmbchina.com
2018
2017
industry sector (continued)
28
121,900
22223 123388 265
3,682,482
Gross loans and advances to customers
1,987,643
Retail loans and advances subtotal
141,835
349,009
575,299
Others
123,768
Micro-finance loans
100
921,500
Residential mortgage
100
149,766
Discounted bills
1,545,073
Corporate loans and advances subtotal
59,021
Others
35,349
Credit cards
Mining
28
40
IX Financial Statements
Annual Report 2018
China Merchants Bank
70
94
38
35 673 788 2265
3,323,739
1,764,355
66
136,410
74,804
54
100
115,888
825,797
491,179
310,969
92
1,443,496
39,136
56,721
44
61,920
61
67,964
33
46,276
100
55,890
public utilities management
Water, environment and
262,323
Property development
other security
Amount
other security
Amount
collateral or
collateral or
covered by
covered by
% of gross
loans and
advances
56
advances
% of gross
2017
2018
Operation in Mainland China
industry sector
(F) Further analysis on loans and advances to customers analysed by
Annual Report 2018
IX Financial Statements
China Merchants Bank
290
11,494
loans and
188,822
62
Manufacturing
60,703
Telecommunications, software and IT services
61,963
Financial concerns
84,475
Construction
124,094
Leasing and commercial services
138,773
heating power, gas and water
Production and supply of electric power,
42
205,884
37
157,984
Wholesale and retail
35
204,322
34
248,815
Transportation, storage and postal services
33
251,979
31
255,683
(F) Further analysis on loans and advances to customers analysed by
industry sector (continued)
When the amount of loans and advances to customers for an industry/variety accounts for 10% or above of the total
amount of loans and advances to customers, the amount of overdue loans, impaired loans and credit impairment
allowances in each expected credit loss stage are disclosed as follows:
Operation outside Mainland China
% of gross
419
7
73
13,934
89
81
1,937
97
89
4,211
25
17
49
16
6228 28 282
21,696
Retail loans and advances subtotal
1,525
12,720
Others
Micro-finance loans
100
7,260
191
Credit cards
Residential mortgage
7,065
228,856
72
17,743
220,365
(F) Further analysis on loans and advances to customers analysed by
IX Financial Statements
China Merchants Bank
Annual Report 2018
292
291
61
241,305
57
250,552
Gross loans and advances to customers
90
54
20,940
83
11,376
88
98
1,747
99
204
100
7,613
58
67
92
Corporate loans and advances subtotal
17,882
Others
65
38,212
Transportation, storage and postal services
40
47,198
36
52,174
Financial concerns
58
63,209
66
14,221
54,167
other security
Amount
other security
Amount
collateral or
collateral or
covered by
advances
covered by
% of gross
loans and
advances
loans and
Property development
58
Manufacturing
26,860
26
public utilities management
Water, environment and
2,001
Leasing and commercial services
2,196
Mining
5,635
Construction
7,889
heating power, gas and water
Production and supply of electric power,
35
13,444
68
9,309
Telecommunications, software and IT services
90
25,613
51
12,505
Wholesale and retail
44
11,371
45
2018
9,277
31 December 2018
China Merchants Bank
0.08
2,762
0.17
6,695
Overdue more than 3 years
0.73
26,093
0.49
19,130
Overdue from 1 year up to 3 years
0.47
16,824
0.42
Total overdue loans
16,447
0.46
16,178
0.50
19,731
Overdue within 3 months
Percentage
of total
loans (%)
Loan
balance
loans (%)
balance
(in millions of RMB, except for percentages)
of total
Loan
Percentage
Overdue from 3 months up to 1 year
31 December 2017
Total loans and advances to customers
1.58
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
36
35
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 0.58%, up by 0.07 percentage point as compared
with the end of the previous year.
Represents the restructured non-performing loans.
Note:
0.32
11,293
0.41
16,218
Of which: restructured loans overdue more than
90 days
0.51
62,003
3,933,034
Percentage
of total
loans (%)
31 December 2017
31 December 2018
Percentage
of total
loans (%)
0.58
22,766
Restructured loans (note)
Loan
balance
(in millions of RMB, except for percentages)
3.4.8 Restructured loans
As at the end of the reporting period, overdue loans of the Group amounted to RMB62.003 billion, up by RMB146
million from the end of the previous year and accounting for 1.58% of its total loans, representing a decrease of
0.16 percentage point as compared with the end of the previous year. Among the overdue loans, collateralised and
pledged loans accounted for 42.23%; guaranteed loans accounted for 31.40%; credit loans accounted for 26.37%
(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 was 1.27.
100.00
3,565,044
100.00
1.74
61,857
Loan
balance
18,009
31 December 2018
3.4.7 Distribution of loans by overdue term
III Report of the Board of Directors
12,150
14,650
24,100
2018 approach) (%) total loans (%)
advanced Percentage of
(under the
Percentage
of net capital
31 December
as at
Loan balance
Information transmission, software and IT service
Transportation, storage and postal services
Property development
8,664
Total
H
G
F
E
Transportation, storage and postal services
Finance
Production and supply of electric power,
heat, gas and water
Property development
Transportation, storage and postal services
Manufacturing
Industry
ABCD
В
(in millions of RMB)
Top ten
borrowers
Property development
3.75
2.28
11
Annual Report 2018
China Merchants Bank
As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to
RMB24.100 billion, representing 3.75% of the Group's net capital under the advanced approach. The loan balance
of the top ten single borrowers totalled RMB101.744 billion, representing 15.85% of the Group's net capital under
the advanced approach, 16.65% of the Group's net capital under the weighted approach, and 2.59% of the Group's
total loan balance, respectively.
6,669
6,873
8,316
2.59
15.85
101,744
0.15
0.89
0.15
0.93
5,993
5,680
0.17
1.04
0.18
1.07
0.21
1.30
0.22
1.35
0.22
1.35
0.31
1.89
0.37
0.61
8,649
3.4.9 Repossessed assets and impairment allowances
3.4.6 Loans to the top ten single borrowers
As at the end of the reporting period, the balance of repossessed assets (other than financial instruments) of
the Group amounted to RMB785 million. After deducting the impairment allowances of RMB188 million, the
net carrying value amounted to RMB597 million. The balance of repossessed financial instruments amounted to
RMB1,079 million.
The Group adopted the new financial instrument standard to make adequate allowances for credit risk losses by
using the expected credit loss model and the risk quantification parameters such as the probability of customer
defaults and the loss ratio of defaults, after taking into consideration the adjustments in macro perspectiveness.
The following table sets forth the changes in the allowances for impairment losses on loans and advances of the
Group.
Increased by 0.32
6.87
7,309,756
6.29%
7,812,054
6.61%
Adjusted balance of on- and off-balance sheet assets
Leverage ratio
Information on leverage ratio (2)
Capital adequacy ratio
percentage point
Decreased by 0.40
13.02%
12.62%
Decreased by 0.28
15.92
3,530,745
12.06%
15.68%
4,092,890
11.78%
Core Tier 1 capital adequacy ratio
floor requirements during the parallel run period)
Risk-weighted assets (taking into consideration the
6.65
386,192
411,882
Operational risk weighted assets
14.50
57,560
65,906
7.18
2,848,064
3,052,636
Tier 1 capital adequacy ratio
7.25
15.48%
Notes: (1)
483,546
573,466
Net capital
12.31
402,869
452,449
Net Tier 1 capital
13.35
371,416
420,996
Net core Tier 1 capital
the advanced approach
year as compared
with the end of the
previous year (%)
percentage point
Increased by 0.20
percentage point
Increase/decrease at
the end of the current
31 December
31 December
2018
Capital adequacy ratios under
(in millions of RMB, except for percentages)
The Company
As at the end of the reporting period, the capital adequacy ratio, the Tier 1 capital adequacy ratio and the core
Tier 1 capital adequacy ratio of the Company under the advanced approach were 15.52%, 12.25% and 11.39%,
respectively, representing an increase of 2.86 percentage points, 1.70 percentage points and 1.57 percentage points
respectively as compared with those under the weighted approach.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
38
37
Since 2015, the leverage ratio shall be calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks
(Revised)" promulgated by the CBRC on 12 February 2015. The leverage ratio of the Group was 6.56%, 6.25% and 6.52% respectively as
at the end of the third quarter of 2018, the end of the first half of 2018 and the end of the first quarter of 2018.
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). 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 the end of the reporting period, the Group's subsidiaries for calculating its capital adequacy ratio included
CMB Wing Lung Bank, CMB International Capital, CMB Financial Leasing and China Merchants Fund. During the parallel run period when
the advanced approach for capital measurement is implemented, a commercial bank shall use the capital floor adjustment coefficients
to adjust the amount of its risk-weighted assets multiplying the sum of its minimum capital required and reserve capital required, total
amount of capital deductions and the allowances for excessive loan loss which can be included into capital. The capital floor adjustment
coefficients shall be 95%, 90% and 80% respectively in the first year, the second year, and the third and subsequent years during the
parallel run period. 2018 is the fourth year since the implementation of the parallel run period.
percentage point
(2)
2017
3,291,816
3,530,424
the floor requirements during the parallel run period)
Of which: Credit risk weighted assets
Market risk weighted assets
Balance at the end of the period
Foreign exchange rate movements
Write-offs/disposal
7,453
Recovery of loans and advances previously written off
(561)
(307)
Unwinding of discount on impaired loans and advances (note)
22
Transfer into/(out) for the period
(4,398)
(76,946)
Release for the period
(26,197)
279
192,000
64,450
Charge for the period
110,032
151,520
Balance as at the beginning of the year
N/A
1,088
instrument standard
Adjustment at the beginning of the period under the new financial
2017
110,032
150,432
Balance as at the end of the previous year
2018
(in millions of RMB)
136,198
5,519
(24,283)
(349)
150,432
Risk-weighted assets (without taking into consideration
17.45
546,534
641,881
Net capital
12.32
459,782
516,433
13.31
425,689
482,340
Net Tier 1 capital
Net core Tier 1 capital
the advanced approach (1)
Capital adequacy ratios under
(in millions of RMB, except for percentages)
The Group
year as compared
with the end of the
previous year (%)
Increase/decrease at
the end of the current
31 December
2017
31 December
2018
For details of the reasons for the decrease in the Tier 1 capital adequacy ratio and the core Tier 1 capital adequacy
ratio under the advanced approach, please refer to section 3.9.1 headed "Capital management".
As at the end of the reporting period, the capital adequacy ratio, the Tier 1 capital adequacy ratio and the core
Tier 1 capital adequacy ratio of the Group under the advanced approach were 15.68%, 12.62% and 11.78%,
respectively, representing an increase of 2.62 percentage points, 1.58 percentage points and 1.47 percentage points
respectively as compared with those under the weighted approach.
3.5 Analysis of capital adequacy ratio
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
The Group continued to adopt a stable and prudent policy in respect of making allowances. As at the end of the
reporting period, the balance of allowances for impairment losses on loans of the Group amounted to RMB192.000
billion, representing an increase of RMB41.568 billion as compared with the end of the previous year. The
non-performing loan allowance coverage ratio was 358.18%, representing an increase of 96.07 percentage points
as compared with the end of the previous year; the loan allowance ratio was 4.88%, representing an increase of 0.66
percentage point as compared with the end of the previous year.
Represents the interest income accrued on impaired loans as a result of the increase in their present value due to the passage of time.
Note:
3.4.10 Changes in the allowances for impairment losses on loans
18.60
As at the end of the reporting period, collateralised and pledged loans increased by 4.14% as compared with the
end of the previous year. Guaranteed loans increased by 5.36% as compared with the end of the previous year, and
the credit loans increased by 21.23% as compared with the end of the previous year while there was an increase of
0.02 percentage point in the non-performing ratio of credit loans and decreases in the non-performing ratio of all
other guaranteed loans as compared with the end of the previous year.
Note:
10,334
20.18
793,637
Yangtze River Delta
0.94
5,637
16.74
596,631
1.01
6,567
16.53
650,128
Head Office
1.30
(%)(note)
total (%)
balance
(%)(note)
loan
loan ratio
performing
of the
Loan
loan ratio
performing
of the
total (%)
balance
(in millions of RMB, except for percentages)
loan
Loan
735,044
10,893
4,260
4.07
145,204
3.82
5,583
3.72
146,198
North-eastern China
1.45
8,674
16.78
598,374
1.05
20.62
7,009
667,011
Side of Taiwan Strait
Pearl River Delta and West
1.71
7,266
11.94
425,602
1.73
8,708
12.80
503,588
Bohai Rim
1.48
16.96
Non-
performing
Non-
Percentage
Retail loans
3.25
115,888
3.81
149,766
Discounted bills
1.01
751
2.08
74,464
0.89
685
1.96
2,009,339
76,903
10.66
4,622
1.22
43,347
8.04
3,019
0.95
37,545
Mining
0.30
184
1.74
62,339
Others(2)
51.09
15,847
0.79
Non-
performing
Non-
Percentage
31 December 2017
1.42
3.4.4 Distribution of loans and non-performing loans by region
During the reporting period, due to the formation of non-performing loans in certain large-sized enterprises
with overcapacity, the non-performing loan ratio related to leasing and commercial services, water conservancy,
environment and public utilities and manufacturing industries increased by 0.32, 0.23 and 0.09 percentage point
respectively, as compared with the beginning of the year, while there was a decrease in the non-performing loan
ratio of all other industries as compared with the beginning of the year.
In 2018, the Group followed the key national strategic plans, continued to support the development of the real
economy, constantly optimised its asset portfolio and actively invested resources in national pillar industries such
as emerging technological industries, modern service industries and advanced manufacturing industries. The Group
formulated the differentiated prevention and control strategy for key areas such as industries from which our loans
should be reduced and recovered, the real estate industry and local government financing platforms. The Group
focused on reducing and withdrawing loans granted to customers with high risks such as customers associated with
overcapacity, high debt level and high leveraging level. The Group also continued to optimise the allocation of credit
resources portfolio.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
In 2018, the Group classified the industries and adjusted the figures at the beginning of the year on the same statistical calibre based
on the revised National Standard of the Industrial Classification for National Economic Activities (GB/T 4754-2017) issued by the General
Administration of Quality Supervision, Inspection and Quarantine of the PRC and the Standardisation Administration of the PRC.
(3)
Consists primarily of agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.
(2)
Notes: (1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
1.61
57,393
100.00
3,565,044
1.36
53,605
100.00
3,933,034
customers
Total loans and advances to
0.89
15,871
50.08
1,785,295
2.93
Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
Central China
9.77
Collateralised loans
5.11
21,416
11.75
418,769
4.61
20,332
11.22
441,212
Guaranteed loans
0.72
7,844
30.55
1,653,517
1,089,261
9,752
33.57
1,320,545
Credit loans
(%)(note)
loan
loan ratio
performing
of the
total (%)
balance
(%)(nate)
loan
total (%)
0.74
balance
42.04
1.26
1.61
57,393
100.00
3,565,044
1.36
53,605
100.00
3,933,034
customers
Total loans and advances to
3.25
115,888
3.81
20,769
149,766
1.33
5,202
10.95
390,222
0.75
2,752
9.36
367,994
Pledged loans
1.48
22,931
43.50
1,550,904
Discounted bills
(in millions of RMB, except for percentages)
Loan
loan ratio
1,968
7.23
284,366
Subsidiaries
0.19
203
3.07
109,508
0.37
456
3.13
123,337
Overseas
0.69
3.42
9.85
350,991
2.09
7,975
9.68
380,675
Western China
1.86
6,394
9.63
343,343
1.30
5,005
12,012
260,347
7.30
2,054
performing
of the
Loan
Non-
performing
Non-
Percentage
Non-
performing
Non-
Percentage
31 December 2017
31 December 2018
3.4.5 Distribution of loans and non-performing loans by type of guarantees
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
34
33
Given the differences in economic patterns and customer bases of various regions, the Group implemented
differentiated risk 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
percentage of the balance of loans extended to the Bohai Rim by the Group showed a relatively fast increase, while
the percentages of the balance of loans extended by the Head Office to the Yangtze River Delta, North-eastern
China, Western China and subsidiaries recorded decreases. The regions where the Company incurred a large volume
of non-performing loans were Yangtze River Delta, Bohai Rim and Western China, where the non-performing loan
ratios of the Company decreased by 0.18 percentage point, increased by 0.02 percentage point and decreased
by 1.33 percentage points, respectively as compared with the end of the previous year. Among which, the
non-performing loan ratio of the Company in the Bohai Rim increased due to the impact of certain large customers.
Note: Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
1.61
57,393
100.00
3,565,044
1.36
53,605
100.00
3,933,034
customers
Total loans and advances to
0.79
384,094
Risk-weighted assets (without taking into
consideration the floor requirements
during the parallel run period)
Others(2)
261,655
6.65
4,528
1.73
238,120
6.68
6,936
2.91
Discounted bills (3)
149,766
3.81
115,888
0.95
3.25
2,009,339
51.09
15,847
0.79
1,785,295
50.08
15,871
0.89
Micro-finance loans
350,534
8.91
4,682
1.34
Retail loans
312,716
1,516
159,090
2.13
1,663,861
46.67
41,522
2.50
Working capital loans
884,660
22.49
25,698
2.90
868,844
24.37
27,300
4.46
3.14
470,521
11.97
5,067
1.08
397,807
11.16
5,770
1.45
Trade finance
157,093
3.99
2,465
1.57
Fixed asset loans
8.77
5,549
1.77
3,565,044
100.00
57,393
1.61
Notes: (1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2) Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
(3)
The Company will transfer discounted bills to corporate loans for accounting purposes once overdue.
(4)
The "Others" category consists primarily of general consumption loans, commercial housing loans, automobile loans, house decoration
loans, education loans and other personal loans secured by monetary assets.
31
32
32
1.36
China Merchants Bank
Annual Report 2018
In 2018, the Group actively expanded its retail credit business. The proportion of retail loans increased; asset quality
was optimised; the amount and ratio of non-performing loans both decreased. The Group steadily developed the
businesses of residential mortgage loans for self-occupation housing and micro-finance loans in order to support
private economy, and steadily granted credit card loans. As a result, the percentage of retail loans at the end of the
period increased by 1.01 percentage points to 51.09%. As at the end of the reporting period, the non-performing
retail loans amounted to RMB15.847 billion, down by RMB24.00 million as compared with the end of the previous
year, and the non-performing retail loan ratio was 0.79%, down by 0.10 percentage point as compared with the
end of the previous year. Among which, the non-performing credit card loan ratio was 1.11%, remaining at the
same level as compared with the end of the previous year.
With respect to corporate loans, the Group more vigorously granted medium-to-long term fixed asset loans in 2018.
As at the end of the reporting period, fixed asset loans accounted for 11.97%, up by 0.81 percentage point as
compared with the end of the previous year. As at the end of the reporting period, the non-performing corporate
loan ratio of the Group was 2.13%, representing a decrease of 0.37 percentage point as compared with the end of
the previous year. Among them, the amount and ratio of non-performing working capital loans, fixed-asset loans
and other corporate loans all decreased. Due to the decrease in the scale of trade financing and the non-performing
loan formation of certain large customers, as at the end of the reporting period, the non-performing loan ratio of
trade financing was 1.57%, representing an increase of 0.62 percentage point as compared with the end of the
previous year.
3.4.3 Distribution of loans and non-performing loans by industry
31 December 2018
31 December 2017
Percentage
Non-
Non-
performing
of the total
performing
loan ratio
Loan
Percentage
of the total
III Report of the Board of Directors
53,605
100.00
3,933,034
Residential mortgage loans
928,760
23.62
2,610
0.28
833,410
23.38
2,734
0.33
Credit card loans
575,490
14.63
6,392
1.11
491,383
13.78
5,470
1.11
Others(4)
154,555
3.93
2,163
1.40
147,786
4.15
2,118
1.43
Total loans and advances to
customers
37,758
Non-
45.10
Corporate loans
972,291
23.92
Time
503,030
11.43
366,231
9.01
Subtotal
Total deposits from customers
1,562,953
35.52
1,338,522
32.93
24.09
4,400,674
4,064,345
100.00
As at the end of the reporting period, the percentage of demand deposits to total deposits from customers of the
Group was 65.34%, representing an increase of 2.50 percentage points as compared with the end of the previous
year. Among which, the corporate demand deposits accounted for 63.97% of the corporate deposits, representing
an increase of 5.94 percentage points as compared with the end of the previous year, and the retail demand deposits
accounted for 67.82% of the retail deposits, representing a decrease of 4.82 percentage points as compared with
the end of the previous year.
3.3.3 Shareholders' equity
As at the end of the reporting period, the shareholders' equity of the Group was RMB543.605 billion, representing
an increase of 12.46% as compared with the end of the previous year. Among which, retained profits amounted to
RMB274.361 billion, representing an increase of 13.81% as compared with the end of the previous year, which was
due to the realisation of net profit and the factor of profit distribution in the year. Investment revaluation reserve
amounted to RMB5.532 billion, representing an increase of RMB9.344 billion as compared with the end of the
previous year, which was mainly due to an increase in the valuation of bonds.
3.4 Analysis of loan quality
During the reporting period, the Group saw a steady growth in the volume of credit assets, and a continued
optimisation in asset quality with a decrease in both balance and proportion of non-performing loans. The allowance
coverage ratio remained solid, and our risk loss endurance capability was further improved. As at the end of the
reporting period, the balance of non-performing loans of the Group amounted to RMB53.605 billion, representing
a decrease of RMB3.788 billion as compared with the end of the previous year; the non-performing loan ratio was
1.36%, down by 0.25 percentage point from the end of the previous year; the non-performing loan allowance
coverage ratio was 358.18%, representing an increase of 96.07 percentage points as compared with the end of the
previous year; the loan allowance ratio was 4.88%, representing an increase of 0.66 percentage point as compared
with the end of the previous year.
China Merchants Bank
III Report of the Board of Directors
Annual Report 2018
3.4.1 Distribution of loans by 5-tier loan classification
The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.
31 December 2018
100.00
31 December 2017
1,059,923
Deposits from retail customers
III Report of the Board of Directors
Annual Report 2018
Deposits from customers
As at the end of the reporting period, total deposits from customers of the Group amounted to RMB4,400.674
billion, representing an increase of 8.28% as compared with the end of the previous year. Deposits from customers,
accounting for 70.95% of the total liabilities of the Group, was the major funding source of the Group.
The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type
and customer type.
31 December 2018
31 December 2017
(in millions of RMB, except for percentages)
Amount
Percentage of
the total (%)
Amount
Percentage of
the total (%)
Deposits from corporate customers
Demand
Demand
41.25
1,581,802
38.92
Time
1,022,294
23.23
1,144,021
28.15
Subtotal
2,837,721
64.48
2,725,823
67.07
1,815,427
(in millions of RMB, except for percentages)
Amount
Percentage of
the total (%)
53,605
1.36
57,393
1.61
Under the 5-tier loan classification system, non-performing loans of the Group are divided into substandard loans,
doubtful loans and loss loans. During the reporting period, the 5-tier loan classification system of the Group was
further optimised, the amount and ratio of non-performing loans both decreased. The proportion of special mention
loans decreased, accounting for 1.51% of the total loans as at the end of the reporting period, and representing a
decrease of 0.09 percentage point as compared with the end of the previous year. The proportion of substandard
loans and loss loans both decreased by 0.14 percentage point, as compared with the end of the previous year.
3.4.2 Distribution of loans and non-performing loans by product type
31 December 2018
31 December 2017
Loan
Percentage
of the
Non-
Non-
performing
performing
100.00
loan ratio
(in millions of RMB, except for percentages)
balance
total (%)
loan
(%) (1)
balance
Percentage
of the
total (%)
Non-
Non-
performing
performing
loan ratio
loan
(%) (1)
Loan
3,565,044
100.00
3,933,034
Percentage of
Amount the total (%)
Normal
Special mention
Substandard
Doubtful
3,820,100
97.13
3,450,450
96.79
59,329
1.51
57,201
1.60
13,526
0.34
17,100
0.48
25,041
0.64
21,577
0.61
Loss
Total loans and advances to customers
Total non-performing loans
15,038
0.38
18,716
0.52
1,773,929
Non-
performing
performing
loan ratio
402,869
452,449
Net Tier 1 capital
13.35
371,416
420,996
Net core Tier 1 capital
the weighted approach
Capital adequacy ratios under
The Company
(in millions of RMB, except for percentages)
year as compared
with the end of the
previous year (%)
Increase/decrease at
the end of the current
12.31
31 December
2017
As at the end of the reporting period, the capital adequacy ratio, the Tier 1 capital adequacy ratio and the core
Tier 1 capital adequacy ratio of the Company under the weighted approach were 12.66%, 10.55% and 9.82%
respectively, representing an increase of 0.50 percentage point, 0.25 percentage point and 0.32 percentage point,
respectively as compared with those at the end of the previous year.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
The "weighted approach" refers to the weighted 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.
Note:
percentage point
Increased by 0.40
12.66%
13.06%
Capital adequacy ratio
percentage point
percentage point
Increased by 0.23
10.81%
31 December
2018
11.04%
Net capital
475,774
Of which: Residential mortgage exposures
Qualified revolving retail
Retail
Corporate
by the IRB approach
Financial institution
Type of risk exposure
(in millions of RMB)
Portion covered
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:
Balance of credit risk exposures
percentage point
Increased by 0.50
12.16%
12.66%
542,610
Capital adequacy ratio
percentage point
Increased by 0.25
10.30%
10.55%
Tier 1 capital adequacy ratio
Increased by 0.32
9.50%
9.82%
Core Tier 1 capital adequacy ratio
9.60
3,911,286
4,286,653
Risk-weighted assets
14.05
percentage point
Tier 1 capital adequacy ratio
Increased by 0.30
10.01%
Decreased by 0.44
12.69%
12.25%
Tier 1 capital adequacy ratio
percentage point
Decreased by 0.31
16.43
3,173,532
11.70%
11.39%
Core Tier 1 capital adequacy ratio
3,694,893
floor requirements during the parallel run period)
Risk-weighted assets (taking into consideration the
percentage point
5.96
383,754
Operational risk weighted assets
17.00
51,513
60,272
Market risk weighted assets
6.58
2,531,510
2,698,166
Of which: Credit risk weighted assets
6.69
2,945,175
3,142,192
362,152
15.52%
15.24%
Capital adequacy ratio
10.31%
Core Tier 1 capital adequacy ratio
9.96
4,254,180
4,677,967
Risk-weighted assets
13.41
538,761
611,025
Net capital
12.32
459,782
516,433
Net Tier 1 capital
13.31
425,689
482,340
Net core Tier 1 capital
year as compared
with the end of the
previous year (%)
Increase/decrease at
the end of the current
31 December
2017
2018
31 December
the weighted approach (note)
Capital adequacy ratios under
The Group
(in millions of RMB, except for percentages)
As at the end of the reporting period, the capital adequacy ratio, the Tier 1 capital adequacy ratio and the core
Tier 1 capital adequacy ratio of the Group under the weighted approach were 13.06%, 11.04% and 10.31%
respectively, representing an increase of 0.40 percentage point, 0.23 percentage point and 0.30 percentage point,
respectively as compared with those at the end of the previous year.
Increased by 0.28
percentage point
Other retail
Portion not covered
by the IRB approach
On-balance sheet
Off-balance sheet
Counterparty
Legal person
6.45
2,241
0.97
Manufacturing
282,543
7.18
18,760
6.64
266,200
7.47
17,447
6.55
Wholesale and retail
229,935
170,489
6,867
4.03
219,818
6.17
9,101
4.14
Production and supply of
electric power, heat,
gas and water
146,662
3.73
827
0.56
4.33
0.58
1,674
7.30
(in millions of RMB, except for percentages) Loan balance
(%)
loan
(%) (1)
balance
(%)
loan
(%)(1)
Corporate loans
1,773,929
45.10
37,758
2.13
1,663,861
46.67
41,522
2.50
Property development
316,490
8.05
3,263
1.03
252,031
7.07
3,211
1.27
Transportation, storage and
postal services
287,027
128,965
30
3.62
0.72
710
1.01
79,335
2.23
1,391
1.75
Water conservancy,
environment and
public utilities
55,916
39
The Group uses mixed approaches to calculate its market risk capital. Specifically, it uses the internal model
approach to calculate the general market risk capital of the Company (excluding overseas branches), and uses the
standardised approach to calculate the general market risk capital of overseas branches and affiliated companies of
the Company as well as the specific market risk capital of the Company and its affiliated companies. As at the end
of the reporting period, the market risk capital of the Group was RMB5.272 billion, and market risk-weighted assets
were RMB65.906 billion. Of which, the general market risk capital calculated under the internal model approach was
RMB3.805 billion, and the market risk capital calculated under the standardised approach was RMB1.467 billion.
Measurement of market risk capital
70
46,676
2,489,129
429,738
429,738
2,062,279
94,872
45,204
1,144,335
1,144,335
967,481
967,481
2,541,554
2,541,554
1,863,316
1,863,316
Group
1,322,393
1,322,393
106,485
1.78
70,012
software and IT service
Leasing and commercial
services
126,095
3.21
576
0.46
137,212
3.85
196
0.14
Finance
114,137
2.90
3
0.00
93,474
2.62
1
0.00
Construction
90,110
2.29
1,080
1.20
76,741
2.15
1,452
1.89
Information transmission,
925
0.53
294
248,444
3.7 Other financial disclosures under the regulatory requirements
3.7.1 Balance of off-balance sheet items that may have a material effect on the
financial position and operating results and the related information
100
90,680
100
5,814,246
100
822720
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. Among which, the credit commitment is the
primary component. As at the end of the reporting period, the balance of credit commitments of the Group was
RMB1,556.484 billion. For details of the contingent liabilities and commitments, please refer to Note 59 to the
financial statements.
9,077
338,891
7
419,432
6,297,638
Total
Subsidiaries
2,071
3
6
As at the end of the reporting period, the Group did not have any outstanding overdue debts.
The following content and data starting from Section 3.8 are analysed from the
perspective of the Company.
3.8 Implementation of business development strategies
Fintech has promoted the improvement of risk management. Retail finance monitored more than 4,000
variables through multiple dimensions such as customer equipment, environment, and counterparty, achieving
millisecond-level risk decision-making and billion-level data computing capabilities to prevent fraud risks.
During the reporting period, approximately 2 billion retail financial transactions were covered. Wholesale
finance built a risk big data platform, integrated 15 types of external data and customer transaction data
of the Company within 3 years, and the Company has established a customer relationship map and an
intelligent pre-warning system. Among them, the intelligent pre-warning system for corporate customers
has been launched for 9 months, and the accuracy of pre-warning identification of risk-associated corporate
customers was 73.05%. The online bond approval process was continuously optimised, 80% of the bond
credit rating model of the Company was processed automatically online, and the timeliness of the approval
process was 30% higher than the offline process.
The application of Fintech was accelerated in wholesale finance, and the ecological perspective of
customer operations was actively explored. With the forward-looking layout of the industry Internet, the
Company explored industrial Internet in advance to carry out supply chain innovation and pilot application.
The Company participated in the construction of the trade finance Blockchain platform of Guangdong-Hong
Kong-Macao Greater Bay Area led by the central bank, and launched the first interbank multi-level accounts
receivable transfer financing business. Being the only cooperation bank for the industrial Internet Phase I
project of leading enterprises in petrochemical industry, the Company provided a comprehensive "Cloud Bill
()" B2B account solution for its e-commerce platform. Working closely with leading enterprises in the
construction industry, the Company has built a blockchain-based industrial Internet cooperation platform,
focusing on the centralised procurement supply chain finance service for the member companies of a group.
The corporate customer "aggregated collection" business was innovated, while the industrial scenarios
were expanded in various fields such as highway, medical treatment, education and automobile. There was
an increase of 28,300 corporate merchants with an annual transaction amount of RMB39.903 billion. The
construction of a digital business platform was promoted, while CMB Enterprise APP was launched. In less
than half a year, the number of customers and monthly active customers of CMB Enterprise APP reached
533,900 and 205,500, respectively; and the number of online corporate banking customers and monthly
active customers reached 1,688,900 and 823,400, respectively, with the trend of digital service system for
corporate customers becoming more significant. During the reporting period, the online bills discounted
business amounted to RMB205.88 billion; the number of customers of online bills discounted business
reached 9,110, of which small and medium-sized enterprises accounted for 88.44%, and the digitalised
inclusive finance services capability continued to improve. The number of visits by the account manager
to the mobile corporate customer relationship management system increased to 1.53 million times in a
single month, representing an increase of 53% as compared with the end of the previous year, and the
management efficiency and service capabilities for corporate customers increased significantly.
The increase in retail MAU accelerated, and digital transformation entered into a new era. During
the reporting period, the number of monthly active users (MAU) of our two major APPs, namely "CMB
APP" and "CMB Life APP", reached 81,046,700, representing an increase of 47.24% 5 as compared with the
end of the previous year. These two major APPs had 27.11% and 44.21% of the traffic from non-financial
services, respectively. The special areas in cities with branch operation had enthusiastic atmosphere, and
41 branches and 335 outlets have established online stores. The scenario expansion focused on vertical
segments such as travel, meal ticket and movie ticket, mall, school and medical treatment, covering urban
public transportation, subways, parking lots and other scenarios. The construction of the digital platform
was gradually deepened. The two major APPs became the main platforms for customer operations. The
percentage of debit card customers acquired through online channels reached 17.89%, while the percentage
of credit card customers acquired through data reached 61.21%. In order to optimise internal organisational
structure and improve service quality and efficiency, the Company has established a network operation
service center at the Head Office to carry out customer digital operation. As at the end of the reporting
period, the network operation service center directly operated 3.86 million online retail customers, with the
AUM of the directly-operated customers increasing by 17.84% year on year, which is 7.49 percentage points
higher than the growth rate of the AUM of the total retail customers. By generating 1,726 user portraits for
retail customers, the Company increased the number of applications by marketed customers by 6.56 times,
the successful marketing ratio reached 17.42%, and the personalised recommendation of "customised for
different people" was initially commenced.
3.
2.
1.
The Company continued to increase its technology development expenses. During the reporting period, the
information technology expenses amounted to RMB6.502 billion, representing a year-on-year increase of 35.17%,
the proportion of information technology expenses to the Company's net operating income of the year was 2.78%,
up by 0.46 percentage point as compared with the previous year. The number of Fintech project applications totalled
931, of which 304 projects have been launched and put in use, and obvious achievements have been made in the
construction of "Digital Bank".
Obvious achievements have been made in the construction of "Digital Bank".
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
42
42
41
The "One Body with Two Wings" strategy was implemented on solid foundation. In 2018, the customer base
of the Company expanded at a faster pace and its business foundation was further reinforced. For the customers of
retail finance, known as the "One Body", the cumulative numbers of users of our two major APPS, namely "CMB APP"
and "CMB Life APP", reached 148 million, and the total number of our retail customers reached 125 million, bringing
the total number of customers to a new level. Among them, the number of new users of the "Sunflower and Gold
Card Holder Customer Group" exceeded 1 million for the first time, making a record high. Diamond-class customer
group and its AUM (assets under management) maintained a steady growth; credit card transaction amount reached
RMB3.79 trillion. The Company ranked first in terms of private banking and credit card business, the advantage
over its peers continued to expand. The business foundation of the "Two Wings" was further solidified. The total
number of corporate customers exceeded 1.8 million. The number of newly acquired corporate depositors in the year
exceeded 400,000 which contributed daily average deposits of RMB161.482 billion. Daily average balance of RMB
deposits from institutional customers increased by RMB71.562 billion as compared with the previous year, representing
a year-on-year increase of 10.22%, therefore becoming the primary stable source of low-cost liabilities. With its
outstanding achievement of ranking first in both selections, the institutional business of the Company won the bid
for the two qualifications of the direct payment agency bank of the central government and the authorised payment
agency bank of the central government. The market share of full-process financial services for local governments'
special bonds accounted for more than 50%. The balance of wealth management products and asset custody business
remained stable, both ranking second in the industry. Meanwhile, financial markets, bills, bond underwriting and other
businesses of the Company continued to enjoy a leading position in the industry.
The "Light-operation Bank" strategy was implemented with remarkable results. Under the backdrop of stricter
financial regulation, the general decline in income from the intermediary business and the concentrated investment
of newly added assets in the on-balance sheet items, the Company unremittingly promoted the "Light-operation
Bank" strategy, and the compound growth rate of the net profit of the Company was 4.69 percentage points higher
than growth rate of risk-weighted assets under the weighted approach in the past two years. Leveraging on the
application of Fintech, the Company will further promote the "Light-operation Bank" strategy, make the "Light
Assets" even lighter, realise the operating model of "Light Management" and "Light Operation", and create a "Light
Culture" environment with more Internet elements.
In 2018, despite the complicated internal and external situations, the Company maintained its strategic
concentration, further promoted the strategic transformation of "Light-operation Bank" and "One Body with Two
Wings", determinedly used Fintech as the "nuclear power", and endeavored to develop itself into the bank that
offers the best customer experience.
Continuous implementation of strategic transformation
196,693
5
3
Overseas
13
12,080
8
484,410
8
492,441
Bohai Rim
Pearl River Delta and West Side of
22
13
745,677
12
761,970
Yangtze River Delta
17
15,387
19,659
Taiwan Strait
645,313
10
6,745
8,108
1,555
15,998
9366
355,602
352,226
150,447
11
632,515
9260
360,547
Western China
358,334
Central China
151,548
North-eastern China
199,836
Since 2018, the statistical standards of the monthly active users of CMB APP of the Company have been changed from the number of users login the
APP to the number of users open the APP, and the data for the previous year has been adjusted accordingly.
China Merchants Bank
Annual Report 2018
4.
III Report of the Board of Directors
8
8.
China Merchants Bank
Annual Report 2018
48
47
The broad statistical calibre of risk associated businesses has been changed, and the figures at the beginning of the year has been adjusted with the
same calibre.
For the 16 industries that we have reduced or withdrawn from such as coal, iron and steel, shipbuilding,
photovoltaic and coal chemicals, the Company implemented the strategy of customer classification management,
raised its entry threshold for customers, focused on supporting leading enterprises in industries and regional quality
enterprises with core competitive advantages in the industry, prioritised the green credit financing needs related to
energy conservation and emission reduction and technological upgrading of enterprises, devoted to reducing and
withdrawing from customers associated with significant risks and low-end overcapacity, especially for customers in
the process of reducing production capacity, deleveraging, and those meeting the "zombie enterprise" standards. In
addition, the Company implemented stringent financing quota management and control requirements for industries,
and actively optimised and adjusted the asset structure and customer structure through total amount control,
elimination of the inferior and selection of the superior. As at the end of the reporting period, the financial exposure
of the industries that we have reduced or withdrawn from (calculated on the full statistical calibre) amounted to
RMB130.004 billion, representing a decrease of RMB21.740 billion as compared with the beginning of the year.
Among them, the exposure of nonferrous metal smelting and calendaring and glass increased slightly as compared
with the beginning of the year, and the exposure of other industries were reduced. The non-performing loan ratio
was 9.55%, down by 0.54 percentage point as compared with the beginning of the year. The non-performing loan
ratio of 7 industries, namely iron and steel, steel trade, basic chemical, engineering machinery, nonferrous metal
smelting and calendaring, shipbuilding and metal ore mining increased as compared with the beginning of the
year, the non-performing ratio of other industries decreased as compared with the beginning of the year mainly
due to the exposure of risk associated with certain large customers and decline in business balances. Thanks to
the continuous risk control over the past few years, there saw a significant decline in the financial exposure of the
industries that the Company has reduced or withdrawn from. It is expected that the risks in those areas will be
generally controllable in 2019.
In 2018, the Company implemented the newly revised National Economic Industry Classification (GB/T 4754-2017) standard issued by the General
Administration of Quality Supervision, Inspection and Quarantine and the National Standards Committee to classify the industries and adjust the figures
at the beginning of the year with the same statistical calibre. The broad statistical calibre of risk associated businesses has been changed, and the figures
at the beginning of the year has been adjusted with the same calibre.
6
In respect of local government financing platform business, the Company followed the State's policy requirements
to standardise local government debts management, effectively strengthened the control and management of
compliance risks and credit risks, followed the requirements of internal and external policies and systems, conducted
related businesses in a legal and compliant manner. Through further strengthening quota management on full
statistical calibres, the Company prioritised the allocation of its credit resources to local government financing
platforms being operated under the market-based and commercial principles, with good cash flow and complying
with relevant national policies, and strengthened post-lending management and monitoring. 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 RMB280.985 billion (including businesses such as actual and contingent
credit, bond investments, proprietary investments and fund investments of wealth management products),
representing a decrease of RMB5.412 billion as compared with the beginning of the year. Included therein was the
balance of loans on balance sheet which amounted to RMB102.386 billion, representing an increase of RMB3.651
billion as compared with the end of the previous year, and accounted for 2.80% of the total loans and advances
granted by the Company, down by 0.19 percentage point as compared with the end of the previous year. There was
no non-performing asset for our businesses involving local government financing platforms. Against the backdrop
that the national fiscal and financial policies remains stable, it is expected that the quality of the Company's assets
granted to local government financing platforms will remain stable in 2019.
In respect of real estate credit business, by adhering to the basic principles of "controlling total amount, focusing
on customers, focusing on regions, adjusting structure, and implementing strict management", the Company
actively responded to national policies and dynamically adjusted its internal credit policy to allocate and invest its
assets in the industrial development direction of house leasing, real estate asset securitisation and real estate equity
investment according to the real estate control policies and the development status of the industry. The Company
strengthened quota management of real estate industry, continuously optimised the classification management by
cities and customers, and focused on the economically vibrant cities and strategic customers of the Head Office
and branches. The Company strictly controlled the proportion of financing in the cities with constant record of
high property price and high property inventory, strictly controlled the financing for the development of commercial
properties, real estate projects with high leverage and high financing cost, strictly implemented the closed
management requirements for real estate loans, and continuously optimised the asset 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) 6 amounted to RMB484.547 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 RMB38.080 billion as compared with the beginning of the year. Included therein was
the balance of loans to domestic real estate enterprises which amounted to RMB245.121 billion, representing an
increase of RMB60.565 billion as compared with the beginning of the year, and were mainly granted to the quality
strategic customers while putting a strict curb on the grant of any incremental loans to those customers not in the
strategic customer list. Balance of such loans accounted for 6.71% of the total loans and advances granted by the
Company, up by 1.13 percentage points as compared with the beginning of the year. As at the end of the reporting
period, the assets in the domestic real estate enterprises were of better quality with a non-performing loan ratio of
1.09%, down by 0.43 percentage point as compared with the beginning of the year. In 2019, it is expected that the
risks associated with real estate industry are mainly concentrated in third- and fourth-tier cities with slow destocking,
as well as some small and medium-sized real estate enterprises with high leverage. The Company has timely adjusted
the credit management and control policies. It is expected that without significant changes in macro environment
and industrial policies, the asset quality of the Company in the real estate sector will remain relatively stable.
In response to changes in external macroeconomic environment, the Company proactively strengthened the control
of its risks associated with real estate industry, local government financing platforms, the industries from which our
loans should be reduced and recovered and other key areas.
Asset quality in key areas
7.
III Report of the Board of Directors
7
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 of the CBIRC. The capital buffer was sufficient.
As at the end of the reporting period, the percentage of the Company's risk-weighted assets under the weighted
approach to total assets was 67.53%; the percentage of risk-weighted assets (having taken into consideration
the floor requirements during the parallel run period) under the advanced approach to total assets was 58.21%,
lowered by 9.32 percentage points as compared to that under the weighted approach, indicating an effective
saving in capital. The risk-adjusted return on capital (RAROC) before tax under the advanced approach was 27.56%,
significantly higher than the cost of capital.
Notwithstanding the unfavorable factors, China's economic growth will remain resilient in 2019. The demand for
infrastructure investment is expected to rebound from the bottom. With the completion of the investigation into
local governments' hidden debts and the clarification of local governments' borrowing rules, financing channels
such as local governments' special bonds and PPP are expected to be more efficient. In respect of the investment
in the manufacturing sector, those high energy-consuming projects such as mining, metallurgy and petrochemical
projects will undergo a much slower growth, while investment in those high-tech projects such as equipment and
information are expected to increase much faster; the investment in household decoration and building materials
will remain at a high level. Domestic consumption is expected to be boosted with further tax cuts. Benefiting from
its complete production categories and industrial chain, China's export is expected to maintain its resilience, which
gains time and space for the mitigation of trade friction. The Producer Price Index (PPI) of industrial producers may
decline significantly due to the drop in bulk commodity prices, while the Consumer Price Index (CPI) is expected to
maintain a mild inflation pattern. In 2019, the appreciation of the US dollar may be diminished, which will help ease
the pressure on the depreciation of RMB. With the Chinese economy maintaining its stable growth, the pressure of
depreciation of RMB in the long term is expected to be insignificant.
Looking into 2019, the global geopolitical risks will be accumulating amid the populist gloom. Global trade activities
is slowing down, which will hinder the global economic growth. With the impact of the US fiscal stimulus gradually
fading out, the global economy will slow down in a synchronised manner. Affected by this, the global liquidity
contraction will tend to ease. Domestically, the economy will face greater downward pressure on its growth.
The dual pressure of short-term decelerating growth and long-term structural contradiction has overlapped, and
the adverse effect of trade friction may gradually emerge. On the one hand, traditional growth drivers such as
infrastructure investment and property development are obviously weaker than their historical performance, and the
trade surplus may be narrowed. On the other hand, the driving force for domestic consumption is weakening, the
efforts in cultivating new industries appear inefficient, the improvement in total factor productivity is limited, and
new economic growth drivers are still to be cultivated.
3.9.2 Outlook and countermeasures for 2019
On the other hand, the Company will strengthen the construction of a digital data platform at middle office,
reinforce the digital operation capability for billion-level customers through more intelligent and efficient network
management tools and methods, and improve the quality and efficiency of the whole process of customer
operations. Firstly, by leveraging on the two major APPS, the Company will create a digital service platform to
improve its digital operation by carrying out intelligent data application marketing, risk control, customer service
and operation with the help of Fintech. Secondly, the Company will enhance Fintech infrastructure construction by
focusing on "cloud + API + Blockchain" and "Data + Al", so as to establish an open and intelligent Internet business
ecosystem and service system. Thirdly, the Company will carry out digital process reengineering based on "customer
journey map" to examine and rebuild the entire process of the services of the Company from a customer's
perspective, so as to realise the best balance of customer experience, business efficiency, risk control and operating
costs.
On the one hand, the Company will enhance its customer acquisition capability and user conversion capability, carry
out traffic management by focusing on the construction of effective core scenarios, and establish the channel for
user-to-customer conversion. Firstly, by adhering to the strategy of "promoting the two APPS at the same time", the
Company will build an Internet customer acquisition system with large traffic, full customer base and high efficiency
to promote a rapid traffic growth. Secondly, by focusing on the scenario construction to cater for basic daily
needs of users, such as travel, medical care and education, the Company will offer its financial service capabilities
through the "Cloud + API (application programming interface)" model, so as to strengthen customer loyalty and
product penetration ratio. Thirdly, through constant improvement in wealth management scenarios and consumer
finance scenarios, the Company will promote the connection between traffic growth and traffic conversion in an
orderly manner, explore the new model for value realisation of closed-loop traffic management and fully exploit the
potential value of customers.
In 2019, the Company will continue to use MAU as the North Star Metric and implement the "mobile priority"
development strategy. By focusing on building the capability of acquiring mass customers at low cost and the
capacity of digital operation, the Company will fully exploit the potential value of customers and technology, so as
to forge the new growth engines for the future.
Advancement in monthly active users (MAU)
According to the Company's capital planning during the period from 2019 to 2021, our goals for core Tier 1 capital
adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio will reach and be maintained at above 9.5%,
10.5% and 12.5%, respectively. Despite the consecutive promulgation of the New Regulation on Asset Management
and the "Guidelines on Improving the Supervision of Systemically Important Financial Institutions (
24±1##ET)", the capital adequacy ratio of the Company is expected to achieve its goals. The
Company will stick to the following principles in capital supplement: fund generation and accumulation are mainly
from internal resources, with capital replenishment through external resources as additional assistance; fund-raising
is achieved through various channels and ways. Currently, the Company does not have any share capital financing
schemes. The Company will continue to enhance the concept of refined capital management, and promote the
application of the risk adjusted return on capital (RAROC), the economic value added (EVA) and other valuation
indicators. By closely following the progress of international capital regulatory reform, the Company will 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 various capital tools in a comprehensive way.
In 2018, by considering a series of factors such as macroeconomic trends, the capital planning objectives of
the Company, business development, and redemption arrangement of existing Tier 2 capital instruments in a
comprehensive manner, the Company completed the issuance of domestic Tier 2 capital bonds on 19 November
2018. The RMB20 billion capital raised effectively replenished Tier 2 capital and increased the capital adequacy ratio
of the Company.
III Report of the Board of Directors
9.
China Merchants Bank
Annual Report 2018
49
49
The 16 industries refer to coal, coal chemical, coal trade, iron and steel, steel trade, basic chemical, commonly used metal ore mining, nonferrous metal
smelting and calendaring, shipbuilding, glass, water transport, textile and chemical fiber, photovoltaic, fertiliser, engineering machinery and machine
tool.
The Company adhered to the development strategies of marketisation, branding and internationalisation, and
constantly promoted the innovation and development of assets securitisation business to provide extra capacity for
capital saving. As at the end of the reporting period, the Company totally issued 32 phases of credit asset-backed
securities, with the aggregate issuance volume of RMB179.206 billion, leading in the industry in terms of types of
assets and market share.
As at the end of the reporting period, the growth rate of risk-weighted assets (without taking into consideration
the floor requirements during the parallel run period) under the advanced approach of the Company was only
6.69%, lower than the growth rate of risk-weighted assets under the weighted approach of 9.60%, which was
mainly attributable to the Company's continuous promotion of the strategy of "Light Capital", resulting in further
optimisation in the business structure. The growth rate of risk-weighted assets (having taken into consideration the
floor requirements during the parallel run period) under the advanced approach was 16.43%, significantly higher
than the growth rate of the risk-weighted assets under the weighted approach, which was mainly due to the
impact of regulatory measurement rules requiring more risk-weighted assets to be added back under the advanced
approach. According to the regulatory minimum capital calculation rules, the risk-weighted assets added back from
the minimum capital under the advanced approach are positively related to their over-allowances. As the Company
has adhered to a more prudent and sound risk management strategy, the allowances in 2018 were more adequate
and the over-allowances calculated into the Tier 2 capital under the advanced approach increased correspondingly.
Therefore, the risk-weighted assets added back from the minimum capital increased by RMB324.3 billion as
compared with the previous year, thereby accelerating the growth in the risk-weighted assets under the advanced
approach (taking into consideration the floor requirements during the parallel run period). As at the end of the
reporting period, the capital adequacy ratio of the Company under the advanced approach increased as compared
with the end of the previous year while the Tier 1 capital adequacy ratio and core Tier 1 capital adequacy ratio
declined as compared with the end of the previous year, mainly due to an increase in the over-allowances which may
be included into the Tier 2 capital. The growth rate of net capital was higher than the growth rate of risk-weighted
assets (having taken into consideration the floor requirements during the parallel run period) while the increases
in net Tier 1 capital and net core Tier 1 capital compared with the end of the previous year were lower than the
growth rate of risk-weighted assets (having taken into consideration the floor requirements during the parallel run
period).
China Merchants Bank
Annual Report 2018
In 2019, there are still many uncertainties in the macro environment at home and abroad. The reduction and
recovery of loans granted to the existing customers with high risks become increasingly difficult, and the downturn
of asset prices has made the disposal of non-performing assets more difficult, therefore the asset quality control
of the Company will face greater challenges. The Company will continue to promote the optimisation of industry
and customer base structure, formulate more accurate credit access standards, apply Fintech to improve the risk
pre-warning system, accelerate the disposal of risk assets through multi-channels, and strive to stabilise asset quality.
In addition, since the reactivation of the pilot project of debt-to-equity conversion in 2016, in accordance with
the State Council's "Guidelines for Marketisation of Debt-to-equity Conversion of Banks", the Company carefully
selected qualified debt-to-equity conversion subjects, reasonably formulated debt-to-equity conversion plans, and
actively and steadily promoted the implementation of the debt-to-equity conversion projects.
During the reporting period, the Company continued to strengthen the disposal of non-performing loans, and used
a number of methods to manage risk assets. In 2018, the Company disposed of non-performing loans amounting to
RMB39.064 billion, of which RMB20.202 billion was written off in a normal way, RMB11.072 billion was cleared and
settled, RMB4.334 billion was securitised as non-performing assets, RMB1.349 billion was transferred at discount,
and RMB2.107 billion was disposed of by restructuring, upward migration, repossession, remission and other means.
In 2018, the Company relied on its efficient and sophisticated operating mechanism of asset securitisation to
continue to accelerate the process of securitisation of the non-performing assets. During the reporting period, the
Company launched three securitisation projects, for which non-performing assets with principal value in aggregate
of RMB4.334 billion were disposed of, and the nominal value of securities issued amounted to RMB740 million. The
Company holds 5% of each tranche of such securities in accordance with regulatory requirements. The remaining
securities were subscribed for by investors in the open market. 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 assets and liabilities structure, and improvement on asset liquidity and revenue
structure.
In 2019, affected by various factors such as the continuing deceleration of the macro economy, the complicated
and volatile international situation and the transformation of asset management, the growth of net non-interest
income of the Company will face greater pressure. The Company will firmly adhere to the "Light-operation Bank"
strategy, return to the origin of customer service, reinforce the basic management of the intermediary business, and
actively explore potential customers and businesses to increase income, so as to promote the growth of non-interest
business. Specific measures to be implemented include: firstly, the Company will consolidate its advantages in retail
business, by adhering to the customer-centric concept and the mission of value creation for customers, the Company
will enhance its investment management capabilities, and establish an intelligent product and service system with
the concept of asset allocation, so as to promote the sustainable growth of wealth management business. By further
promoting retail digital transformation, focusing on key areas, and strengthening scenario expansion, the Company
will promote the rapid growth of MAU, strengthen its own customer acquisition capacity, and tamp solid foundation
for the growth of retail non-interest income business. Secondly, the Company will improve the customer service
system, achieve in-depth customer base operations through comprehensive financial services, and optimise the
business structure. Starting from the basic settlement, the Company will realise the recovery in the growth of trade
finance; and by seizing the market opportunities of the bill business and grasping the structural opportunities of
the custody business, the Company will realise the steady growth of non-interest income from wholesale business.
Thirdly, the Company will adhere to the compliance bottom line, strengthen its internal control and compliance
management, regulate fee collections, and promote the Company's non-interest business to further return to its
origin and standardise its operation.
III Report of the Board of Directors
4.
3.
China Merchants Bank
Annual Report 2018
44
43
During the reporting period, the Company realised net non-interest income of RMB77.936 billion, up by 17.82%
year-on-year, which accounted for 33.33% of the Company's net operating income, up by 1.40 percentage points
year-on-year. The increase in net non-interest income was mainly due to: firstly, the impact of implementing the new
financial instrument standard; secondly, benefiting from the growth in wealth of residents, the income from wealth
management businesses such as agency funds and agency trust schemes increased gradually; thirdly, in line with
the development trend of consumer finance, income from credit card business achieved steady growth; fourthly, the
increase in bond valuations and exchange gains and losses driven by market yields and exchange rate fluctuations.
During the reporting period, confronting the tightened regulatory policies, transformation of asset management,
and the returning of wealth management to the fundamentals of businesses, the Company proactively seized the
opportunities in the capital market at the beginning of the year and leveraged on the channel advantages to achieve
recovery in the growth of agency funds. Meanwhile, driven by the increase of commission income of credit cards
and instalment income from merchants, the Company recorded fee and commission income of RMB67.53 billion,
representing a year-on-year increase of 4.86%. For key projects, the Company's fee and commission income from
wealth management amounted to RMB25.147 billion, representing a year-on-year decrease of 3.67% (of which:
income from entrusted wealth management services amounted to RMB7.642 billion, down by 37.50% year-on-year.
Income from agency distribution of funds amounted to RMB6.668 billion, up by 32.20% year-on-year, which was
mainly due to the recovery in the demand for agency distribution of funds, and the sales of funds recording a
substantial year-on-year increase during the reporting period thanks to the Company's advantages in customer
groups, channels and services. Income from agency distribution of trust schemes amounted to RMB5.988 billion,
up by 66.10% year-on-year. Income from agency distribution of insurance policies amounted to RMB4.746 billion,
down by 6.59% year-on-year, mainly due to the impact of insurance regulatory policies and the significant shrinkage
of major single premium products sold in the bancassurance market. Income from agency distribution of precious
metals amounted to RMB103 million); income from bank card fees amounted to RMB16.624 billion, up by 19.48%
year-on-year; income from settlement and clearing fees amounted to RMB10.241 billion, up by 11.56% year-on-year
calculated on the same statistical calibre; custodian fee income amounted to RMB4.439 billion, down by 8.57%
year-on-year. Please refer to section 3.2.6 for an analysis of the changes in the Group's net non-interest income.
Net non-interest income
In 2019, the economic operation will remain under pressure, and the effective financing demand, especially that
of enterprises, will generally remain weak. At the same time, the central bank will maintain market liquidity at a
reasonably adequate level, and the market interest rates will still have room to drop further. Commercial banks will
still face some pressure to effectively increase its interest-earning assets and stabilise its yields, and the risk-free
margins of enterprises and residents will remain high, resulting in further increase in deposit costs. Therefore, the net
interest margin of the Company will also face some narrowing pressure. The Company will persistently adhere to the
"Light-operation Bank" strategy, make pre-judgments over the situation and policies, strengthen the predictability
and flexibility in assets and liabilities management, further optimise the asset and liability structure and improve the
risk-pricing management capabilities, striving to maintain its net interest margin at an optimal level.
In 2018, the Company's net interest margin was 2.64%, up by 14 basis points year-on-year, mainly due to the
impact of monetary policies and the adjustment of its business strategy, including 1) the central bank lowered the
deposit reserve ratio 4 times in 2018, resulting in a gradual decline in the proportion of the Company's deposits in
the central bank to its interest-earning assets and an increase in the proportion of its proprietary loans and other
assets with higher yield accordingly; 2) the Company continued to optimise its asset-liability structure. On the
asset side, the Company prioritised its support to the investments in high-yield assets, and on the liability side, the
Company actively promoted the growth of proprietary deposits, and replaced its high-cost liabilities at the right time
which is in sync with market interest rate changes on the premise of liquidity safety; 3) the Company continued to
improve its risk pricing capability.
2.
1.
3.9 Changes in external environment and corresponding measures
3.9.1 Impacts of changes in operating environment and key business concerns
Net interest margin
There was steady progress in the development of the Company into the bank that offers the best customer
experience. The two major retail APPS have established a quantifiable user experience monitoring system and a
rigorous feedback mechanism. A dedicated user experience team and a corporate Fintech experience center have
been established for the wholesale business line. The new outlets 3.0 was debuted to present new digital experience
for customers.
We enjoy an industry-leading capability in basic technologies. The Company preliminarily established a
hybrid cloud-based infrastructure to accelerate the construction of cloud computing and a distributed trading
platform, so that the total number of X86 servers installed was 2.71 times of that at the end of the previous
year. One-third of the applications have been uploaded to cloud, and the process capacity of the distributed
platform reached 32,000 per second, ranking top in the industry. Total capacity of data pool continued
to expand. Data imported into the pool increased by 53.91% from the previous year. The Company has
established a big data processing platform, strove to integrate all types of data and, by taking the customer-
centric approach, integrated customer data through a nine-dimensional assessment to create 17,000 data
items and establish the uniform customer profile on an ongoing basis. As a result, the Company has not only
realised data intercommunication between credit cards and debit cards, but also connected the corporate
customers and retail customers across different business lines. The Company has realised the integration
and innovation of technology and businesses through agile development in 53 business areas, and the demand
response speed has been greatly improved.
III Report of the Board of Directors
Proprietary deposits
44
Since 2018, on the one hand, with the gradual slowdown in the general demand, the pressure on economic
fundamentals has gradually emerged, and the growth rate of effective financing demand of enterprises and
residents has declined. On the other hand, the financial deleveraging effect since 2017 still exists, and the deposit
derivation channels of financial institutions have also showed a certain degree of contraction. Under the influence
of the above factors, the growth rate of deposits of financial institutions was generally slower than that of loans,
and the loan-to-deposit ratio showed an overall upward trend. As of the end of the reporting period, the Company's
total loans and advances increased by 10.45% as compared with the end of the previous year, the deposits from
customers increased by 8.26%, and the domestic time-point loan-to-deposit ratio was up by 1.3 percentage points
as compared with the previous year. At the same time, however, the Company seized the opportunity of loosening
market liquidity from the second quarter of 2018 to replace some high-cost liabilities with the active liabilities with
relatively lower costs which, while supporting the growth of loans, also maintained the stable operation of liabilities,
effectively relieving the upward pressure on the liability costs.
Investment of corporate loans
As at the end of the reporting period, the non-performing loan ratio of the Company was 1.41%, representing a
decrease of 0.26 percentage point as compared with the end of the previous year, while the proportion of special
mention loans in total loans was 1.56%, down by 0.10 percentage point from the end of the previous year; the
proportion of overdue loans in total loans was 1.65%, down by 0.12 percentage point from the end of the previous
year. The loan allowance ratio was 5.14%, up by 0.70 percentage point from the end of the previous year. The
allowance coverage ratio of non-performing loans was 363.21%, representing an increase of 98.17 percentage
points as compared with the end of the previous year. The credit cost ratio was 1.68%, representing a decrease of
0.20 percentage point as compared with the end of the previous year. The risk exposure was generally controllable.
During the reporting period, both the ratio and amount of non-performing loan formation of the Company
decreased. In general, the new formation of non-performing loans in 2018 amounted to RMB35.278 billion,
representing a decrease of RMB1.259 billion or 3.45% as compared with the previous year, and the non-performing
loan formation ratio was 1.01%, representing a decrease of 0.15 percentage point as compared with the previous
year. Analysing by business segment, the amount and ratio of non-performing loan formation decreased in both
corporate and retail loan businesses (excluding credit cards); analysing by geographic area, the amount and ratio of
non-performing loan formation in the Yangtze River Delta, Western China and Central China continued to decline,
while the non-performing loan formation in Northeastern Region increased; analysing by industry, both the amount
and ratio of non-performing loan formation in the manufacturing, wholesale and retail industries declined as
compared with the previous year; analysing by customer base, both the amount and ratio of non-performing loan
formation in small and medium-sized enterprises also declined as compared with the previous year; the amount of
non-performing loan formation in large-sized enterprises increased despite of a decrease in its non-performing loan
formation ratio.
6. The formation and disposal of non-performing assets
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
46
46
55
45
For further details of the Company's asset management business, please refer to section 3.10.2 "Asset Management
Business".
The Company highly recognises and firmly supports the New Regulation on Asset Management, the New Regulation
on Wealth Management and the Administrative Measures for Wealth Management Subsidiaries. The Company
believed that the duly implementation of the New Regulation on Asset Management will, on one hand, regulate
the development of asset management business, and systematically address the issues in asset management industry
accumulated during the process of rapid development. The New Regulation on Asset Management will play an
important role in fostering the asset management business of banks to return to their business origin, mitigating
the risk of the asset management business of banks, and contributing to the real economy in a better way, and
will become a milestone for the standardised development of the asset management business across the industry.
On the other hand, the asset management business of banks will gradually reduce the scale of non-qualified
wealth management products during the transition period for implementation of the New Regulation on Asset
Management, and cease to invest in non-qualified assets. Meanwhile, it also needs some time for customers
to accept net-value products, which will pose great challenges to the transformation, development and income
growth of the asset management business of various banks in the short term. The New Regulation on Wealth
Management, as the supporting implementation rules for the New Regulation on Asset Management, has the same
general requirements as the New Regulation on Asset Management, but appears more stringent in terms of the
investment target of public funds, sales management, investment negative lists, non-standard credit investments,
product grading and management of cooperative institutions. Meanwhile, it set forth the requirements on more
stringent standards, richer contents and more specific operation in the aspects of centralised registration, related
party transactions, staff management, sales management, stress test, custody of wealth management products,
information disclosure, as well as supervision and management. Generally, the impact of the New Regulation on
Wealth Management on the Company's wealth management business is expected to be limited. The main reasons
are as follows: on the one hand, following the implementation of the New Regulation on Asset Management,
the Company has been closely following its requirements and putting in place various countermeasures. Through
continuous communication with the regulatory authorities, the Company has already obtained adequate knowledge
of the main information of the New Regulation on Wealth Management. On the other hand, the arrangements for
the transition period for implementation of the New Regulation on Wealth Management are in line with those for
the New Regulation on Asset Management, and the Company may cease to apply the New Regulation on Wealth
Management after the establishment of its wealth management subsidiaries, which also objectively helps to reduce
or eliminate the impact of the New Regulation on Wealth Management on the business of the Company. The
Administrative Measures for Wealth Management Subsidiaries is a supporting system of the New Regulation
on Wealth Management, which is of great significance to put into practice the application for the establishment
of the wealth management subsidiaries of banks. During the Reporting Period, the Board of Directors of the
Company has reviewed and approved the proposal to establish its asset management subsidiary. With reference
to the requirements of the Administrative Measures for Wealth Management Subsidiaries and the "Guidelines
on Implementation of Administrative Approvals for Non-Bank Financial Institutions", the Company has formally
submitted to the CBIRC a complete set of materials for the establishment of its wealth management subsidiaries,
and is awaiting its approval. Meanwhile, the Company is also promoting various transformation works internally to
ensure a smooth transition to the wealth management subsidiary.
Subsidiaries").
During the reporting period, the People's Bank of China ("PBOC"), the CBIRC, the CSRC and the State
Administration of Foreign Exchange issued the Guidance on Regulating the Asset Management Business of Financial
Institutions (UŒÂ·¤¤¤à¥¤¤¾DHA) (hereinafter referred to as the "New Regulation on Asset
Management"). Subsequently, the CBIRC issued the Administrative Measures for Wealth Management Business of
Commercial Banks (☀KKITI»)(hereinafter referred to as the "New Regulation on Wealth
Management") and the Administrative Measures for Wealth Management Subsidiaries of Commercial Banks (
*)(hereinafter referred to as the "Administrative Measures for Wealth Management
New policies on asset management business and countermeasures
III Report of the Board of Directors
5.
China Merchants Bank
Annual Report 2018
Since the second half of 2018, due to factors such as the downturn in general macroeconomic trend, the growth
rate of corporate loans of the Company has slowed down. In 2019, the effective financing demand of enterprises
will remain at low level, and the source of quality assets is expected to further decrease. At the same time, the
monetary policy will continue to keep market liquidity at a reasonably sufficient level, and the overall market interest
rate will remain at a low level. The effect of replacing corporate loans with corporate direct financing will also be
more significant. It is expected that the growth rate of corporate loans of the Company will be slightly slower than
that in 2018. In order to overcome the above challenges, the Company will further strengthen asset allocation and
optimise asset structure. Firstly, the Company will set the reasonable growth rate of loans in light of the judgement
over macro situation. It is expected that the overall loan growth will generally remain at the same level as in 2018.
Meanwhile, by adhering to the strategic direction of "Light-operation Bank", the Company will constantly optimise
the allocation of its asset portfolio, and moderately increase investment in retail credit resources. Secondly, the
Company will strengthen the dynamic and flexible credit management mechanism, flexibly set the pace of credit
supply based on its forward-looking judgments and the changes in situation, adjust the credit asset structure in
a timely manner, and promote the steady growth of credit assets throughout the whole year. Thirdly, by focusing
on the improvement of professional capabilities, enhancing industrial research capabilities, and strengthening
specialised operation for different industries, the Company will seize the structural opportunities of shifting from old
to new growth engines, and improve its comprehensive service capabilities towards customers, so as to make further
breakthroughs in in-depth customer operations.
In 2019, the macroeconomy will continue to face the downward pressure, the growth of deposits in the financial
system is expected not to be optimistic, and the competition for deposits will remain fierce. In addition, with an
improvement in residents' investment awareness, the deposit costs will increase rigidly. Therefore, the increase in the
proprietary deposits of the Company will also face some challenges. The Company will further improve the quality of
liabilities in light of the macro operating environment. Firstly, the Company will actively promote the steady growth
in general low-cost deposits, improve customers' cohesion through product innovation, and maintain a better deposit
structure to keep deposit costs at a reasonable level. Secondly, the Company will constantly enrich the sources of
liabilities and, while maintaining the steady growth of proprietary deposits, will flexibly make arrangements for
active liabilities such as interbank certificates of deposits, so as to keep a "balance between quantity and price" of
liabilities.
2,557,785
3.7.2 Outstanding overdue debts
2,908,217
106,497
9,639
5,481
13,306
8,320
103,015
36,784
90,680
109,295
108,383
48,415
125,843
58,263
Net
operating
income
before tax
by business
segments
income
39,914
221,037
During the reporting period, the percentage of profit from retail finance of the Group increased. Profit before tax
amounted to RMB58.263 billion, up by 20.34% from the previous year, accounting for 59.34% of the profit before
tax of the business line; net operating income amounted to RMB125.843 billion, up by 16.11% from the previous
year, accounting for 50.65% of the net operating income of the Group, representing an increase of 1.62 percentage
points from the previous year. At the same time, the cost-to-income ratio of retail finance business was 35.47%,
representing a decrease of 0.55 percentage point as compared with the previous year.
Geographical segments
11
12,017
44
Percentage
(%)
Amount
Percentage
(%)
Amount
2,739,929
46
3,129,174
Head Office
Percentage
(%)
Amount
(in millions of RMB, except for percentages)
Total profit before tax
2018
Total liabilities
31 December 2018
Total assets
31 December 2018
The major outlets of the Group are located in the major economic centres 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.
segments
Net
operating
Profit
Profit
before tax
by business
the reporting
the reporting
General risk
value during
Distressed risk
value during
Value at the end of the period
Minimum value
Average value
Maximum value
Item
3
4
2
1
(in millions of RMB)
No.
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 the reporting period:
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
40
40
period
Yangtze River Delta
period
46
2017
2018
Total
Other businesses
Wholesale finance
Retail finance
(in millions of RMB)
Items
The principal businesses of the Group include retail finance and wholesale finance. The following table summarises
the operating results of each business segment of the Group for the periods indicated.
Business segments
3.6 Results of operating segments
165
889
126
668
403
2,038
1,328
777,607
253
759,258
6,202,124
100
6,745,729
Total
10
10,337
7
100
376,424
465,295
3
3,041
4
234,741
4
240,080
6
106,497
100
China Merchants Bank
12
Head Office
Percentage
(%)
Amount
(%)
Amount
(%)
Amount
(in millions of RMB, except for percentages)
Percentage
Percentage
Total profit before tax
2017
31 December 2017
Total liabilities
Total assets
Annual Report 2018
III Report of the Board of Directors
10
10,790
31 December 2017
371,913
19,279
11
679,961
10
693,830
Taiwan Strait
Pearl River Delta and West Side of
15
8
513,813
8
526,143
Bohai Rim
23
24,040
6
12
18
North-eastern China
16,383
11
6
Subsidiaries
Overseas
Western China
380,152
11,930
6
380,025
144,367
389,081
Central China
(1)
(1,320)
2
146,060
2
6
to advance the optimisation and promotion of Innovative Settlement Deposits, Virtual Cash Pool, Multi-level Cash
Pool, Global Cash Management (GCM) and other products. As at the end of the reporting period, the Company had
a total of 1,709,800 customers using its cash management service, representing an increase of 22.48% as compared
with the end of the previous year. The Company upgraded its cash management platform, enriched the product
offering, launched a special Cross-bank Solution for Cash Management for small-sized and medium-sized enterprises
(CBS mini), released unified version of the Treasury Management System (TMS) and CBS APP3.0 applicable to
financial companies, and became the first bank in the industry to launch the CBS-TT cloud platform solution for
global cash management. The Company offered its cash management services to 2,120 group customers in total, the
number of member enterprises under management reached 50,800, and the transaction amount exceeded RMB10
trillion. At the same time, the Company explored scenario operation of different demands from business customers,
and launched various products including aggregated collection (A), "Transaction Keeper ()", "Yin Fa
Tong ()", the e-payment system for aggregate tax payments with customs, "Cloud Bill ()" B2B payment
system and others.
With respect to the settlement and cash management, the Company continued to promote the system construction
of corporate account management as well as payment and settlement, optimised and upgraded basic settlement
products from the perspective of enhancing customer experience, and enlarged customers' settlement flow and
settlement activity in the Company. Thanks to its continuous efforts to consolidate the "C+ Cash Settlement
Solution" brand, the Company recorded 298,400 newly opened accounts. During the reporting period, the
Company launched "All-in-one Cards for Company ()" highlighting "integration of all functions" with
a combination of identification, account management, deposit, withdrawal and transfer of funds. As at the end of
the reporting period, the number of "All-in-one Cards for Company" customers reached 1,291,900, accounting for
69.53% of the total number of corporate customers, and the total number of accounts opened reached 2,525,700.
Focusing on the management of accounts with different tiers, accounts both onshore and offshore, as well as the
management of capital liquidity and the value-added need of strategic corporate customers, the Company continued
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
In 2018, the Company continued to optimise its asset structure. Since the underlying data is subject to adjustment
or elimination as a result of change in classification of certain enterprises after they have grown larger in scale at the
beginning of the year, the calibre of our large, medium and small-sized enterprises business at the beginning of the
year was adjusted as compared to the end of the previous year. As at the end of the reporting period, the balance
of the Company's loans granted to domestic large-sized enterprises amounted to RMB 1,166.060 billion, representing
an increase of 10.73% (calculated on the Bank's calibre) as compared with the beginning of the year, accounting
for 83.58% of our total loans granted to domestic enterprises, up by 3.71 percentage points as compared with
the beginning of the year; the non-performing loan ratio was 2.04%, down by 0.21 percentage point as compared
with the beginning of the year. The balance of the Company's loans granted to domestic medium-sized enterprises
amounted to RMB126.319 billion, representing a decrease of 13.17% (calculated on the Bank's calibre) as compared
with the beginning of the year, accounting for 9.05% of our total loans granted to domestic enterprises, down
by 1.98 percentage points as compared with the beginning of the year; the a non-performing loan ratio was
6.40%, down by 1.17 percentage points as compared with the beginning of the year. The balance of the loans
granted to domestic small-sized enterprises amounted to RMB102.771 billion, representing a decrease of 14.32%
(calculated on the Bank's calibre) as compared with the beginning of the year, accounting for 7.37% of our total
loans granted to domestic enterprises, down by 1.73 percentage points as compared with the beginning of the year;
the non-performing loan ratio was 3.54%, down by 0.24 percentage point as compared with the beginning of the
year. The floating range of the weighted average interest rate of the Company's loans newly granted to small-sized
enterprises was 16.00% for the year.
With respect to its cross-border finance, the Company focused on five major scenarios covering enterprise
cross-border procurement, sales, investment, financing and financial management, launched the comprehensive
cross-border finance services for 10 industries, and promoted the transformation of marketing model from a single
product portfolio to a comprehensive industry operation. At the same time, the Company continued to optimise
the basic international business processes and promote online services, launched SWIFT GPI system, electronic
bills system for trade in goods, etc., so as to promote paperless operation and real-time exchange of remittance
information. As at the end of the reporting period, the onshore international settlements of the Company amounted
to USD203.516 billion. The foreign exchange settlements amounted to USD134.945 billion.
Transaction banking business and offshore banking business
With respect to its offshore businesses, the Company returned to its origin of customer service, focused on
customers from the new economic sectors, and explored sales to targeted unicorns and quasi-unicorn enterprises
through a carefully compiled list; promoted business transformation and innovation, accelerated Fintech application,
improved the ability to serve customers through system building, and promoted management refinement. As at
the end of the reporting period, the balance of deposits from offshore customers of the Company amounted to
USD14.260 billion, the balance of loans granted to offshore customers amounted to USD7.924 billion, and the
non-performing loan ratio was 0.27%. During the reporting period, the international settlements amounted to
USD287.896 billion.
Investment banking business
In terms of trade finance, the Company actively promoted the "light capital" business model to optimise the business
operation process, focused on serving strategic customers' international trade financing business, strengthened the
promotion of key products such as "Making Payments on Behalf of Customers for Imports & Exports (1)",
"Engineering Guarantee (IR)" business and packaged non-recourse export factoring, and innovated on "Export
Pool Finance ()" products to promote the steady growth of international trade financing investment
through various measures. During the reporting period, the on- and off-balance sheet financing for international
trade of the Company amounted to USD18.953 billion, representing a year-on-year increase of 9.55%. At the same
time, in domestic trade financing, the Company actively optimised business processes, promoted online factoring
business and vigorously promoted featured factoring business to meet customers' deleveraging needs. Through
buyer's non-recourse factoring, joint factoring, refactoring and other products, the Company improved its market
penetration capability in the industries of pharmaceutical circulation and infrastructure. During the reporting period,
the Company's domestic factoring business amounted to RMB233.067 billion, representing a year-on-year growth of
33.50%, of which featured factoring business accounted for RMB44.565 billion.
During the reporting period, the Company focused on the segmentation- and classification-based management, as
well as the intensive management of corporate customer bases, refocused on its business origin, and centred on
the two competitive product lines of transaction banking and investment banking to serve its customers, enhancing
the overall contribution and loyalty of its customers while realising a steady growth in corporate deposits. As at
the end of the reporting period, the balance of corporate customer deposits amounted to RMB2,774.696 billion,
representing an increase of 4.36% as compared with the end of the previous year; the daily average balance
amounted to RMB2,738.819 billion, representing an increase of 5.34% as compared with the previous year; the
demand deposits accounted for 56.06% of the balance of the daily average deposits from our corporate customers.
During the reporting period, the average cost ratio of deposits from corporate customers was 1.68%, up by 0.17
percentage point year-on-year.
China Merchants Bank
Annual Report 2018
With respect to discounted bill transfer business, the discounted bills transferred to other banks or financial
institutions amounted to RMB717.649 billion, with a year-on-year decrease of 77.01% due to the implementation of
the New Regulation on Asset Management during the reporting period. Business in central bank bill rediscounting
amounted to RMB119.426 billion, with a year-on-year growth of 33.22%. The volume of both discounted bill
transfer and bill rediscounting continued to stay ahead in the industry.
During the reporting period, the Company had 66,533 customers of bill business, representing a year-on-year
increase of 53.84%, and its bills direct discounting business amounted to RMB1,025.514 billion, representing a
year-on-year increase of 30.95%, ranking second in the market in terms of business volume (data from the China
Banking Association). As at the end of the reporting period, the bill discounting balance of the Company amounted
to RMB145.633 billion, representing an increase of 28.11% from the end of the previous year.
During the reporting period, the Company's bill business, by leveraging on its Fintech advantages and system
advantages, further enhanced its market competitiveness and the customer experience through continuous product
innovation and process optimisation. Firstly, in order to make the forward-looking preparations for the forward
settlements of enterprises and the securitisation trend of short-term financing, the Company initially completed
the development of "Bills Manager", a complete bills service platform, becoming the first large and medium-sized
commercial bank in the market to provide enterprises with the non-stop comprehensive bills service. Secondly, our
product innovation efforts have produced remarkable results. Thanks to the outward expansion in the service scope
of the Bills Manager platform, the Company has become one of the first three pilot banks of the "Piao Fu Tong (
1)" product and successfully completed the first transaction in the market. In addition, it has also gained its
first-mover advantage in serving the bills settlement business of B2B e-commerce platforms, enhanced its industrial
Internet service capability and created an opportunity for the expansion of corporate customers by batch in a cost-
efficient way. The Company first launched the "Online Bills Discounting ()" service into the market based
on its online banking service platform and mobile APP platform, which sets the bills discounting business free from
the limitation of space and time and enables its customers to "get discounted at one click", thus serving the long-
tail customers of bills discounting by batch in an efficient and low-cost way and effectively improving its capability
to serve the real economy. Thirdly, the Company constantly enhanced customer experience and accelerated process
optimisation, thereby significantly enhancing its product service efficiency and continuously improving its customer
recognition.
Bill business
The main purpose of the Company's syndicated loan business is to enhance interbank cooperation and information
sharing, and to spread the risks associated with large-amount loans. As at the end of the reporting period, the
balance of syndicated loans amounted to RMB160.289 billion, up by 10.77% as compared with the end of the
previous year.
III Report of the Board of Directors
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55
"Qian Ying Zhan Yi (F)" is a strategic brand of the Company to serve the emerging small and medium-sized
innovative technology enterprises. The Company acquired target customers through continuous implementation of
the name list marketing model. During the reporting period, the Company focused on the list of two categories of
enterprises: "high-tech" and "capital market", and continued to further expand the customer base under "Qian Ying
Zhan Yi (F)". Meanwhile, the Company initiated the establishment of "Fintech Cooperation Alliance under
Qian Ying Zhan Yi (FERRÂñ½)" and provided comprehensive services to technology-based
emerging enterprises with concerted efforts of various parties so as to build a service ecosystem. Also, the Company
worked closely with external investment institutions, so as to provide diversified investment and loan linking services
to enterprises registered under "Qian Ying Zhan Yi (F)". As at the end of the reporting period, the Company
had a total of 23,607 registered customers under "Qian Ying Zhan Yi (F)", representing an increase of 1,586
registered customers on the basis of customer base adjustment at the beginning of the year. During the reporting
period, a total of 37 companies in the "Qian Ying Zhan Yi (FR)" customer base had successfully listed in
Mainland China and each of them opened a special account with the Company for their proceeds from listing.
The proportion of special accounts for proceeds from listing opened by small- and medium-sized enterprises and
companies listed on the GEM was 40%, continued to rank first in the market. The total amount of the credit lines
granted to such customers as at the end of the reporting period amounted to RMB154.013 billion with the balance
of loans granted to such customers amounting to RMB30.281 billion.
During the reporting period, the Company continued to adhere to the strategy of integrating investment banking
and commercial banking, and actively capitalised on asset structuring and asset sales as the dual engines to achieve
the steady development of investment banking business.
During the reporting period, the Company supported green industries, strategic emerging industries and the
industries with distinct regional characteristics, accelerated the construction of customer service system for new
growth engines, conducted in-depth research on 12 new growth engine industries, and formed a list of 2,174 target
customers and credit policies; grasped market opportunities brought by the policy of "infrastructure to complement
shortcomings", increased investment in high-quality medium-to-long term assets; and flexibly adjusted loans to
real estate, local government financing platforms and other industries in response to the changes in external
operating environment. As at the end of the reporting period, the balance of green loans was RMB166.033 billion,
representing an increase of RMB8.930 billion as compared with the end of the previous year, and accounting for
10.93% of the total corporate loans of the Company; the balance of loans to strategic emerging industries was
RMB87.668 billion, representing an increase of RMB9.347 billion as compared with the end of the previous year
and accounting for 5.77% 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 financing platforms, please refer to section 3.9.1.
Corporate customer deposits
With respect to its bonds underwriting business, the Company further consolidated its professional management
team and strengthened the relationship management with its bond investors to capture the market opportunities,
thus achieving record high in terms of bonds underwriting and market ranking. Meanwhile, the Company actively
responded to the call of the State by assisting state-owned enterprises to revitalise stock assets and deleverage, and
launched the first bill backed with off-balance-sheet assets for the project receivables of state-owned enterprises,
as well as the first secondary perpetual medium-term note. The Company also assisted private enterprises to resolve
their financing difficulties, launched the first special bond backed by private enterprises in the interbank market,
became the first joint-stock bank in the market to independently launch the credit risk release certificate for private
enterprises, and so on. During the reporting period, the bonds with the Company as the lead underwriter amounted
to RMB480.419 billion, representing a year-on-year growth of 69.32%, among which, its ranking in the debt
financing instrument issuance market of non-financial enterprises up by one place as compared with the previous
year, and ranking second among the lead underwriters of banks in the non-policy financial bonds market (as per the
ranking by WIND public data).
III Report of the Board of Directors
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As at the end of the reporting period, total corporate loans of the Company amounted to RMB1,518.685 billion,
representing an increase of 6.32% as compared with the end of the previous year and accounting for 41.59% of
total loans and advances to customers of the Company. Among them, the balance of the medium-to-long term loans
to domestic enterprises amounted to RMB659.680 billion, accounting for 47.28% of the total loans to domestic
enterprises, and representing an increase of 3 percentage points as compared with the end of the previous year. The
non-performing loan ratio of our corporate loans was 2.37%, representing a decrease of 0.39 percentage point as
compared with the end of the previous year. In 2018, the floating range of weighted average interest rates of newly
granted corporate loans in RMB was 6.95%. As at the end of the reporting period, the weighted average default
probability of the risk exposure of the domestic non-defaulting corporate customers was 1.00%, representing a
decrease of 0.25 percentage point from the end of the previous year.
Quasi net-value products represent products launched by the Company during the reporting period that basically meet the new net-value product
management requirements of the New Regulation on Asset Management. The Company's quasi net-value products can be transformed into net-value
products that meet the requirements of the New Regulation on Asset Management following the independent custody transformation, rectification of
maturity matching of underlying assets and investment concentration as well as adjustment of the valuation method to fair-value calculation of some
underlying assets.
12
For the analysis of the new policy on asset management business, please refer to section 3.9.1.
Fourthly, the Company constantly improved its risk management capability in asset management business according
to the requirements of the new regulation. During the reporting period, the Company revised and improved the risk
management systems of various asset management businesses, streamlined and optimised the asset management
business process, strengthened the surveillance of market risk and credit risk at asset-end and product-end, and
enhanced the independent liquidity management capability of the asset management business. By doing so, the
Company continued to lay a strong foundation for post-investment management and improved the overall risk
management capability of asset management business.
Thirdly, the Company made appropriate allocation of various types of assets, gradually adjusted the asset allocation
structure, and adhered to the purpose of serving the real economy. During the reporting period, aiming to raise
the return-on-risk ratio of asset allocation, the Company increased its resources and investment in research and
improved investment capabilities of standardised financial assets. Wealth management capital flows were directed
towards the real economy resulting in positive social benefits. With respect to bonds assets, the Company adhered
to the principle of "independent investment first, entrusted investment second" in the related investment. As at
the end of the reporting period, wealth management funds invested in the bond market totalled RMB1,257.112
billion, and the proportion of bond assets rose 7.36 percentage points as compared with the end of the previous
year. With respect to credit assets, the Company grasped the trend towards investing in standardised assets in the
market and vigorously supported standardised asset investments including asset securitisation programs. As at the
end of the reporting period, balance of investment in asset securitisation products financed by wealth management
funds amounted to RMB218.150 billion. While making non-standardised credit investments within the quota limit in
strict compliance with the regulatory guidance, the balance of wealth management funds invested in non-standard
assets of the Company amounted to RMB155.856 billion as at the end of the reporting period, and the quality of its
non-standardised credit assets remained stable. With respect to equity assets, focusing on the strategic customers
of the Company and the industrial leading companies, "Tou Rong Tong" business for listed companies was steadily
carried out which catered to the full-range demand for investment and financing during the transformation and
growth of enterprises with risk level being generally controllable.
Firstly, the Company formulated a product transformation strategy, continued to promote the innovation and
creation of wealth management products and compliance rectification, which further enriched wealth management
product lines. During the reporting period, in compliance with the regulatory policy requirements, the Company took
the following measures: first, after considering customers' risk-return preferences and the Company's strength in
investment operation, the Company developed a product transformation strategy and implementation plan during
the transition period; second, the Company reduced the wealth management products with principle guaranteed,
products with expected returns and other products that did not meet the requirements of the New Regulation on
Asset Management in a steady and orderly manner, while transferred the management functions regarding structured
deposits to the department which is responsible for managing on-balance sheet items; third, the Company, adhering
to the direction of wealth management product compliance transformation, took advantage from the Company's
accumulated experience and customer base acquired from early implementation of transformation to net-value
products, promoted the direct transition of net-worth products that meet the net-value management requirements
under the New Regulation on Asset Management into compliant net-worth products, with a focus on promoting the
transformation of existing quasi net-value products 12 into compliant net-value products, while introducing wealth
management products in compliance with the new regulations, which led to initial success in the promotion of new
products. As at the end of the reporting period, the Company's net-value products that meet the requirements of
the New Regulation on Asset Management accounted for 14.04% of the balance of wealth management products.
Secondly, the Company undertook inspection of wealth management assets and formulated special transitional
rectification plan for wealth management assets. In accordance with the requirements of the relevant provisions
of the New Regulation on Asset Management, the Company immediately initiated the inspection of wealth
management assets during the reporting period, and initially formulated and optimised the overall plan for the
transformation management during the transition period of the assets under the wealth management business. The
plan confirmed the principal transformation and rectification models adopted for the Company's existing wealth
management assets during the transition period for compliance with the new regulation, refined the progress plan
and work schedule of asset transformation, put forward a clear management plan and suggestions for new assets
acquired during the transition period, and formed the approval process and implementation procedure based on the
principle of "different policy for each customer", so as to specify the post-investment management requirements
during the duration of wealth management products.
China Merchants Bank
Annual Report 2018
The balance of wealth management products (excluding structured deposits) is the sum of customers' principal in the on- and off-balance sheet wealth
management products under management by the Company and the changes in net value of net-value products as at the end of the reporting period.
11
57
During the reporting period, the Company scored a number of achievements in terms of wealth management
product transformation, asset management business transformation, asset allocation and risk management.
Asset management business
With respect to the businesses on "Zhao Ying Tong ()" Interbank Online Service Platform, as at the end of the
reporting period, the number of financial institutions registered on our "Zhao Ying Tong ()" platform of the
Company reached 2,043 and, during the reporting period, the online business volume amounted to RMB825.179
billion, and the online trading replacement ratio of the platform exceeded 80%.
With respect to interbank clearing, as at the end of the reporting period, the number of the cross-border RMB
accounts opened by banks and other financial institutions with the Company accumulated to 232, ranking first
among all small- and medium-sized banks in China (according to the data released by the PBOC). There were 170
customers which participated indirectly in the RMB Cross-border Interbank Payment System (CIPS), ranking first
among all small- and medium-sized banks in China and second in the industry (according to the data released by the
CIPS).
With respect to its depository service, during the reporting period, the Company's security and future margin
depository service was in stable operation, with third-party depository services extended to 102 securities companies
and 9,854,300 new customers secured at the end of the reporting period, representing an increase of 9.25%
as compared with the end of the previous year. In addition, the Company entered into cooperation with 86
securities companies on margin trading and short selling business, securing 373,000 new customers at the end
of the reporting period, representing an increase of 5.34% as compared with the end of the previous year. Also,
the Company entered into cooperation with 51 securities companies on stock options business, securing 18,900
customers at the end of the reporting period, representing an increase of 36.96% as compared with the end of the
previous year.
With respect to its financial institutions asset and liability business, the Company continued to deepen the
management of financial institution customers, optimised its financial institutions deposit structure and supported
the liquidity management of the whole Bank. As of the end of the reporting period, the balance of financial
institutions deposits of the Company amounted to RMB450.706 billion, representing an increase of 6.99% as
compared with the end of the previous year. Among them, the total amount of financial institutions demand
deposits in the areas of fund clearing, settlement and depository service reported a balance of RMB327.484 billion,
representing an increase of 13.46% as compared with the end of the previous year and accounting for 72.66%
of the total amount. The Bank maintained a leading position in terms of scale and percentage of demand deposits
among the small and medium-sized banks in China.
Financial institution business
With respect to its equity capital market business, the Company actively adhered to the new regulatory policies.
Through activating the stock assets and combining with the macro themes of the State-owned Enterprise Mixed
Ownership Reform and industrial upgrading, the Company actively served the new economy and customers with
new growth engines. During the reporting period, the equity capital market business of the Company amounted to
RMB11.149 billion.
With respect to its structural financing business, the Company actively complied with the regulatory requirements
and adapted to changes in market trends, and took market deal matching business as a breakthrough. At the same
time, a market trading system "Zhao Tou Xing ()" was launched, so as to establish a non-stop, integrated and
intelligent investment and financing service platform for all processes. The Company also actively directed resources
at both the asset and capital ends, to provide high quality services on asset structuring and sales and to drive the
overall business development. During the reporting period, the Company realised structural financing of RMB13.889
billion, of which market deal matching amounted to approximately RMB70.0 billion.
With respect to its M&A financing business, on the basis of maintaining traditionally competitive businesses such
as M&A financing, the Company actively developed M&A financial consultant and syndicated distribution business,
which further enriched its M&A services. During the reporting period, despite a substantial decrease in the amount
of domestic M&A transactions as compared with the previous year, our M&A business had managed to reverse
the trend and realised M&A transaction of RMB101.718 billion. "Syndicated Loan Project for CIC International's
Acquisition of Logicor Group under Blackstone" won the "Best Syndicated Loan Project Award" in 2018 issued by
China Banking; "Syndicated Loan Project for the Privatisation of Global Logistic Properties Limited" won the "Best
Financing Project in Asia-Pacific Region" issued by Thomson Reuters.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
As at the end of the reporting period, the balance of the Company's wealth management products (excluding
structured deposits) 11 amounted to RMB1.96 trillion, representing an increase of 4.60% as compared with the end
of the previous year calculated on the same statistical calibre. According to the information of the CBIRC, as at the
end of the reporting period, the total fund values of the Company's wealth management products and off-balance
sheet wealth management products ranked second among the commercial banks.
III Report of the Board of Directors
52
China Merchants Bank
Annual Report 2018
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
51
During the reporting period, the Company enhanced the customer base operation, product design & development
and refined management with deepened Fintech application. Through subdividing customer bases, the Company
reconstructed the segmentation-based management service system in response to the changes in customers'
demand for wealth management. The Company also upgraded frontline service expertise with "Human being +
Intelligence", comprehensively solved the difficulty in selling complex products and expanded the differentiated and
leading advantages of the Company in terms of wealth management business. As the leading smart investment
advisory product in China, "Machine Gene Investment ()" has achieved a total sales volume of RMB12.233
billion, maintained its outstanding performance with "low volatility and steady growth" during the reporting period,
and effectively evaded the risks in contrast to the poor performance of capital market. While striving to secure
stable investment performance, the Company has been continuously upgrading and iterating the related functions
of Machine Gene Investment, so as to further enhance the customer experience. The Company actively responded
to the implementation of the New Regulation on Asset Management and supporting policies, and conveyed the
financial planning concept featuring scientific asset allocation through investor education to maintain a stable
amount of wealth management asset. In addition, the Company continued to improve its customer experience and
service efficiency by such technological means as artificial intelligence, big data and cloud computing. During the
reporting period, the Company launched the Sunflower Financial Planning Service System (ER 19 A 19
1) to provide household customers with a wealth management plan covering the whole life-cycle and unified
management of assets and liabilities. In light of application of Fintech and big data, the Company constantly
optimised wealth check services and offered full-asset management service to customers through online-offline
integration so as to cater to customers' need for comprehensive wealth management.
Corporate loans
Wealth management
As at the end of the reporting period, the Company had 125.4144 million retail customers (including debit and
credit card customers), representing an increase of 17.61% as compared with the end of the previous year, among
which, the number of Sunflower-level and above customers (those with minimum daily average total assets of
RMB500,000 for each month) reached 2,362,600, representing an increase of 11.09% as compared with the
end of the previous year. The balance of total assets under management from our retail customers amounted to
RMB6,802.105 billion, representing an increase of 10.35% 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 RMB5,508.235 billion, representing an increase of 8.83% as compared with the end of the previous year, and
accounting for 80.98% of the balance of total assets under management from retail customers of the Bank. As
at the end of the reporting period, the balance of deposits from retail customers of the Company amounted to
RMB1,436.675 billion, representing an increase of 16.68% as compared with the end of the previous year, of
which the percentage of demand deposits accounted for 70.56%. According to the data released by the PBOC, the
Company ranked first among the joint stock banks in terms of the balance of retail deposits as at the end of the
reporting period. As at the end of the reporting period, a total of 132,276,700 All-in-one Cards in aggregate have
been issued by the Company for retail customers, up by 14.24% as compared with the end of the previous year.
In 2018, the growth of M2 further slowed down. The leverage ratio of households gradually stabilised after 2017
and the accumulation of wealth decelerated as the households entered into the phase of repayment. The wealth
growth among mid-to-high end customers of retail finance sector was in line with the changes in the macro
environment, but the overall growth of assets under management (AUM) outperformed the market. Facing of
multiple challenges, the Company actively adjusted its operation modes. On the basis of further consolidating the
retail customer base, the Company expanded its customer availability of CMB APP and CMB Life APP and enhanced
the customer experience. In this way, the Company strived to form its core competitive advantage at the later stage
of the transformation to ensure steady increase in the retail customer base and AUM.
Retail customers and total assets under management from retail customers
In order to adapt to the rapid development of technology-based finance, the Company took the initiative for its
retail finance business to get out of the comfort zone of traditional business and formally moved towards the retail
finance 3.0 Era, so as to embrace the evolution of service ecosystem through digital transformation of its operating
organisations. In 2018, under the guidance of the "Mobile Priority ()" strategy and "MAU North Star
Metric ()", the Company constantly empowered the retail finance by enhancing the functions of the
digital platforms, which optimised the platform system, product system and service system towards a coverage of
"full-customer, full-product and full-channel", further improved the customer classification operation based on the
existing segmentation-based customer management and continually consolidated its retail customer foundation.
While maintaining the systemic competitive edges of core retail businesses such as wealth management, private
banking, credit card, retail loan, consumer finance and e-banking, the Company has vigorously marched towards the "APP
Era".
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
During the reporting period, the profit of the retail finance business of the Company maintained its rapid growth,
with the profit before tax amounting to RMB57.227 billion, representing an increase of 20.24% as compared with
the previous year. It accounted for 57.22% of the total profit before tax of the whole business lines of the Company.
The net operating income from the retail finance amounted to RMB123.253 billion, representing an increase of
16.03% as compared with previous year, and accounting for 52.71% of the net operating income of the Company.
Among the income of retail finance, the net interest income amounted to RMB80.537 billion, representing an
increase of 16.17% as compared with previous year, and accounting for 65.34% of the net operating income from
retail finance; the net non-interest income amounted to RMB42.716 billion, representing an increase of 15.76%
as compared with previous year and accounting for 34.66% of the net operating income from retail finance, and
54.81% of the net non-interest income of the Company. In 2018, the retail finance of the Company recorded a fee
income of RMB16.515 billion from bank cards, representing an increase of 19.66% as compared with previous year;
the fee and commission income from retail wealth management was RMB19.338 billion, accounting for 45.90% of
the net fee and commission income from retail finance.
Business overview
3.10.1 Retail finance
3.10 Business operation
Thirdly, we will solve both symptomatic and fundamental problems to create a risk management system
that supports high-quality development. We will prevent risks through "improving weakness", closely monitor
the risks in the key areas, carefully prevent compliance risks, and continue to strengthen basic management. We will
consolidate our risk management capabilities by focusing on the major aspects of customers and technologies. On
the one hand, we will accelerate customer structure adjustment based on industry research, build a risk management
system that supports, adapts to and serves the customer group under the new growth engine; on the other hand,
with the extensive use of financial technologies, we will constantly optimise the risk management model.
Fourthly, we will accelerate the pace of infrastructure construction to lay solid foundation for the
sustainable development of CMB. We are committed to building a leading financial technology infrastructure,
establishing a digitalised intelligent operating system, cultivating a team and culture that is compatible with the
Digital Bank, and seeking to promote the systematic and continuous establishment of the Digital Bank.
Secondly, we will focus on development of professional capacity and accelerate in cultivating the core
competitiveness of our wholesale business. We will lay stress on the development of our own professional
capabilities, and strive to achieve two major breakthroughs: quickly fitting in the rhythm of conversion from old
growth engines to the new ones, and making breakthroughs in the professional service capabilities for the new
growth engine; staying abreast of the transformation towards digitalised operation, and making breakthroughs in the
industrial Internet.
Firstly, we will adhere to the target of transformation towards retail digitalisation to create a bank with
the best customer experience. Our retail business will continue to be oriented by the monthly active users (MAU)
in order to solve the two major problems of acquiring a large number of customers at low cost and developing our
digitalised operational capabilities. We will focus on improving operational capabilities and promote the formation of
a virtuous cycle of business operation and customer acquisition.
In 2019, China's macroeconomic regulation and control will focus more on policy coordination, emphasize more
on counter-cyclical adjustment, and aim to stabilise the general demand. With the strength and effect of China's
fiscal policy being increased, and the fiscal deficit rate being adjusted to 2.8%, the cuts in both inclusive taxes and
structural taxes will be implemented simultaneously, aiming to reduce the tax burden of manufacturers and small-
and micro-sized enterprises. Under the policy guidance of "legal compliance and risk prevention", new special bonds
of local governments will reach RMB2.15 trillion, representing an increase of RMB800 billion as compared with the
year of 2018. The monetary policy will be balanced with more emphasis on unblocking the credit facility transmission
mechanism. The quantity and price approaches like deposit reserve ratio and interest rates will be applied in a timely
manner to guide financial institutions to expand credit supply, reduce loan costs, and support the real economy in
an accurate and effective manner. Market liquidity will remain reasonably abundant with a streamlined approach. On
the whole, China's economy will maintain its resilient growth in 2019, and its macroeconomic policies will be more
forward-looking, flexible, coordinated and effective. The economic and financial risks will be generally controllable.
In view of the current environment, the Company's (time-point) proprietary loans are expected to increase by
approximately 10% in 2019, with its (daily average) proprietary deposits expected to increase by 6% to 7%, and
its active liabilities will be flexibly allocated based on the actual operations of the Company. Facing the complicated
internal and external environment, the Company will maintain its strategic stability, return to the origin of customer
service, and adhere to the orientation of "Light-operation Bank" and the positioning of "One Body with Two
Wings". Adhering to its two cores, namely customers and technologies, the Company will focus on transforming
towards retail digitalisation, developing the service capacity for new growth drivers of wholesale business, building a
system that can root out the risks, and developing its basic capacity, so as to expedite the formation of new business
models.
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
50
Private banking
As at the end of the reporting period, the Company had 72,938 private banking customers (retail customers of
the Company with minimum total daily average assets of RMB10 million per month), representing an increase
of 8.19% as compared with the end of the previous year; total assets under management from private banking
customers amounted to RMB2,039.290 billion, representing an increase of 7.03% as compared with the end of the
previous year; total assets per account amounted to RMB27.9592 million. As at the end of the reporting period,
the Company has established a high-end customer service network consisting of 68 private banking centers and 64
wealth management centers in 63 domestic cities and 7 overseas cities.
In 2018, the Company recorded RMB10,713.837 billion in sales of personal wealth management products,
representing an increase of 16.73% as compared with the previous year; RMB767.858 billion in the agency
distribution of listed open-ended funds (LOF), representing an increase of 8.84% as compared with the previous
year; RMB322.306 billion in agency distribution of trust schemes, representing an increase of 43.35% as compared
with the previous year; and RMB70.453 billion in premiums from agency distribution of insurance policies,
representing a decrease of 17.18% as compared with the previous year. In 2018, the Company recorded a fee and
commission income from retail wealth management business of RMB19.338 billion, among which, income from
agency distribution of funds amounted to RMB6.650 billion, income from agency distribution of trust schemes
amounted to RMB5.741 billion, income from agency distribution of insurance policies amounted to RMB4.744
billion, and income from entrusted wealth management amounted to RMB2.104 billion. For the reasons of changes
in fee and commission income from wealth management, please refer to the analysis of net non-interest income
under section 3.9.1 of this report.
As at the end of the reporting period, the Company had issued an aggregate of 84.3044 million active credit cards,
representing an increase of 34.98% as compared with the end of the previous year, and there were 58.0293 million
active credit-card users, representing an increase of 23.61% as compared with the end of the previous year. The
Company continued to improve the efficiency of customer operation. The credit card transactions of the Company in
2018 amounted to RMB3,793.836 billion, representing an increase of 27.74% as compared with the previous year.
The balance of credit card loans was RMB575.365 billion, representing an increase of 17.13% as compared with the
previous year. The percentage of the revolving balances of credit cards was 23.42%. In 2018, interest income from
credit cards amounted to RMB45.979 billion, representing an increase of 16.29% as compared with the previous
year. Benefiting from the increased transaction volume, the non-interest income from credit cards amounted to
RMB20.722 billion, representing an increase of 38.95% as compared with the previous year. As at the end of the
reporting period, the non-performing loan ratio of the Company's credit cards was 1.11%, remaining at the same
level as compared with the end of the previous year, the risk indicators were stable and controllable as a whole.
During the reporting period, the Company actively explored and put into practice various Fintech and improved the
efficiency of customer acquisition and operation, including: constantly focusing on upgrading the service capability
of its mobile services and successfully launching Version 7.0 of CMB Life APP with essence of "creating quality life".
For further details, please refer to the section headed "Distribution Channels". The Company deepened its service
modules, such as intelligent flow redirection, intelligent flow distribution, intelligent operation and intelligent audit,
and managed to set up a customer acquisition channel connecting fans, traffic and APP users so as to push forward
the efficacy of customer acquisition driven by technology application. The Company completed the deep learning
of Al technology in respect of three intelligent channels including WeChat, QQ and CMB Life APP, in an attempt
to explore the new service model featuring "Terminal + Cloud Service" on the Internet. The Company has also
established a customer experience lab known as "VLab", so as to understand the real needs of our customers, and
inspire our product innovation. The Company constantly advanced our cooperation with generally popular fields and
the Internet enterprises in promoting our credit cards by launching a variety of co-branded credit cards, e.g. Hema
Fresh (E), Tmall Store (*), Today's Headline (B), etc.. The Company also actively explored
the commercialisation system of the fan card products by launching collectible cards with themes like Hello Kitty and
Teddy. The Company perfected the overall deployment of consumer financial products, completed the optimisation
of the second iteration of "eLoan (e)", accomplished the breakthrough and innovation of channel operation, and
expanded the regional scenarios for consumer finance, aiming to enhance our management expertise of diversified
products.
In order to better serve its customers, in 2018, the Company expanded the scope of strategic customers at the branch level horizontally and vertically,
included the group member customers, as well as upstream and downstream supply chain customers based on the 2017 customer list.
The number of strategic customers at the Head Office level is that of the group customers as the strategic customers at the Head Office level operated
by the Company in 2018.
The Company has fully implemented the centralised operation of strategic customers, and established the corporate
customer service system featuring segmentation and classification-based management, as well as professional and
dedicated operation in respect of institutional customers, small-sized enterprise customers, financial institution
customers and offshore customers. With regards to its basic customers, the customer base of the Company
continued to expand rapidly. As at the end of the reporting period, the total number of corporate depositors
was 1,858,000, up by 18.10% as compared with the end of the previous year. The number of newly acquired
corporate depositors of the Company during the reporting period was 433,500, contributing daily average deposits
of RMB161.482 billion. Both the number of newly opened accounts and the deposit contribution recorded new
high during the reporting period. With regards to its strategic customers, targeting its strategic customers under
the Head Office, the Company used Fintech technology to delve the platform ecosphere of core customers, thus
realising the in-depth operation of those customers. The Company enhanced its professional service capabilities by
strengthening research on the industry in which customers operate; and increased support for strategic customers
from emerging industry by adhering to integration of investment banking and commercial banking. As at the end
of the reporting period, the number of the strategic customers under the Head Office of the Company was 2519,
increasing by 85 as compared with the end of the previous year; the balance of daily average proprietary deposits
amounted to RMB557.234 billion, increasing by 16.86% as compared with the beginning of the year; the balance
of general loans amounted to RMB486.251 billion, increasing by 35.51% as compared with the beginning of the
year. For the strategic customers at the branch level, the Company focused on professional operation and service
upgrading. As at the end of the reporting period, the Company had 8,043 branch-level strategic customers 10. The
balance of general loans amounted to RMB285.350 billion, increasing by 13.26% as compared with the beginning
of the year. With regards to its institutional customers, the Company, by deepening the "Head Office-to-Head
Office" strategic cooperation with the national ministries and commissions, the Company continued to innovate
cooperation models and focus on fiscal, social security, public resource transactions, provident fund and other
customer groups, fully exploited the low cost "liquid funds" and "incremental funds" of its customers while making
remarkable efforts in developing the high-value scenarios and strengthening linkage with its retail business so as
to promote the rapid growth of institutional customers. As at the end of the reporting period, the Company had
30,900 institutional customers, up by 26.64% as compared with the end of the previous year, with an average
daily deposit balance of RMB771.467 billion, representing an increase of 10.22% as compared with the end of
the previous year. With regards to its small-sized enterprise customers, the Company continued to advance
the construction of a segmentation-based operation service system for small-sized enterprise customers while
focusing on three customer bases (Qian Ying Zhan Yi (F), supply chain and traditional enterprises with
stable businesses) and building diversified customer acquisition channels. The Company offered financing products
for small-sized enterprise customers based on their differentiated financing needs. The Company strengthened
the capability to offer basic financial services and efficiently meet the diversified non-financial services needs of
small-sized enterprise customers from various aspects such as optimising the account opening process, innovating
payment and settlement products, and staffing the service advisors in the lobby. As at the end of the reporting
period, the number of small-sized enterprise customers reached 1,752,000, representing an increase of 20.63% as
compared with that at the beginning of the year. With regards to its financial institution customers, the Company
persisted in improving the financial institution customer service system featuring "centralised management,
segmentation-based and intensive management", determined the list of strategic customers at the Head Office
and branches, carried out in-depth management of strategic financial institution customers based on the principle
of "different policy for each customer" and managed basic customers by integrating online and offline services.
With regards to its offshore customers, the Company's business operation targeted non-resident customers, fully
implemented the operation philosophy of "customer-centric", comprehensively carried out the segmentation-based
management of offshore strategic customers, value customers and basic customers, optimised the construction
of offshore customer service system, and broadened the acquisition channels of customers. As at the end of the
reporting period, the Company had 12,500 offshore customers.
The private banking business of the Company is based on the operating philosophy of "It's our job to build your
everlasting family fortune". In order to "foster a private bank with best customer experience (Ƒ/
)", the Company has been committed to meeting the various demands of high-net-value customers consisting
of individuals, families and enterprises. The Company continued to make asset deployment among the major
categories including fixed income, cash and currencies, equity, alternative investments and assets with guarantee
purpose for its customers and offer them professional, comprehensive and private financial services in investment,
taxation, legal affairs, M&A, financing and clearing, thus benefiting both customers and the Company. Since 2018,
due to the international situation and market fluctuations, the risk appetite of customers of private banking of the
Company has been reduced and equity asset allocation has decreased as compared with the end of the previous
year. At the same time, with the entry into the transition period of handover from the first-generation entrepreneurs
to the second generation of entrepreneurs in China, the demand for wealth protection and inheritance has become
increasingly important, which has led to an increase in assets allocation with guarantee purposes as compared
with the end of the previous year. Under the New Regulation on Asset Management, the advantage that the
private banking business of the Company has been striving to build, which was comprised of a professional system
focusing on investment advisory services, has been increasingly prominent. The Company made the forward-looking
deployment from the construction of professional team, the design of operating system to actual implementation.
At the same time, with regard to the internal management, the Company strongly supported process reconstruction,
system transformation and rule optimisation with a customer-oriented perspective in order to comprehensively
enhance the customer service experience. The Company continued to deepen the five-dimensional customer
acquisition system and by virtue of Fintech, made meaningful attempts in accurate identification of customer needs,
provision of professional financial solutions, the cultivation of professional skills of relationship managers, and the
improvement of internal operational efficiency, which promoted efficient operation. The Company continuously
enriched and consolidated the financial services and non-financial services in terms of content and scope, and
improved customer service capabilities to provide comprehensive and effective integrated solutions to customers.
Credit cards
During the reporting period, the Company achieved profit before tax from wholesale finance of RMB42.778 billion,
accounting for 42.78% of profit before tax for the business lines of the Company. The net operating income from
wholesale finance of the Company was RMB110.848 billion, representing an increase of 8.77% as compared with
the previous year, and accounting for 47.41% of the net operating income of the Company. As for the income
structure of wholesale finance business, net interest income amounted to RMB77.318 billion, representing an
increase of 6.31% as compared with the previous year, and accounting for 69.75% of the net operating income of
wholesale finance; net non-interest income of wholesale finance amounted to RMB33.530 billion, representing an
increase of 14.89% as compared with the previous year and accounting for 30.25% of the net operating income of
wholesale finance, and 43.02% of net non-interest income of the Company.
Business overview
10
9
3.10.2 Wholesale finance
Annual Report 2018
III Report of the Board of Directors
Wholesale customers
54
China Merchants Bank
China Merchants Bank
Annual Report 2018
Confronting the competition brought by the quasi-credit cards launched by the Internet giants and the challenges
from third-party payment, the Company deepened its integration with mobile Internet, strengthened its own
platform and channel construction, while forging cooperation with Internet technology enterprises with respect
to the traffic management. The Company constantly expanded its differentiated competitive edges by establishing
a comprehensive intelligent customer acquisition system, innovating the consumer credit products, refining the
platform operation management and building an intelligent risk management system. The Company launched the
first "Fast Service Bank" service system in the industry, devoted to conducting the promotion and operation of new
payment products, seized the payment portals in mobile Internet era and improved the open user system to build a
complete financial ecological platform.
Retail loans
As at the end of the reporting period, the total retail loans of the Company amounted to RMB1,987.587 billion,
representing an increase of 12.66% as compared with the end of the previous year and accounting for 54.43% of
the total loans and advances to customers, up by 1.07 percentage points as compared with the end of the previous
year. Total amount of the Company's retail loans (excluding credit card loans) reached RMB1,412.289 billion,
representing an increase of 10.93% as compared with the end of the previous year, accounting for 38.67% of total
loans and advances to customers of the Company, representing an increase of 0.16 percentage point as compared
with the end of the previous year.
III Report of the Board of Directors
resources.
As to the quality of assets, the Company stabilised the quality of retail loan assets by constantly optimising its
policies for retail loans and enhancing its risk management capabilities. As at the end of the reporting period, the
balance of the special mention retail loans of the Company amounted to RMB26.470 billion, and its proportion
of retail loans recorded a slight increase of 0.06 percentage point as compared with the end of the previous year.
The balance of non-performing retail loans amounted to RMB15.719 billion, and its non-performing loan ratio
was 0.79%, down by 0.11 percentage point as compared with the end of the previous year. Among retail non-
performing loan portfolio, the non-performing ratio of micro-finance loans was 1.34%, down by 0.44 percentage
point as compared with the end of the previous year due to an acceleration in the disposal of the non-performing
micro-finance loans; the non-performing ratio of consumption loans was 1.13%, down by 0.03 percentage point
as compared with the end of the previous year. Excluding credit cards, the mortgage and pledged loans accounted
for 75.79% of the balance of the new non-performing retail loans of the Company in 2018, with a mortgage and
pledge rate of 48.90%. Given that the vast majority of such new non-performing retail loans were fully secured by
collaterals, the final loss was not substantial.
As to risk management, driven by big data and quantitative model, based on the integration of internal and external
data resources as well as the comprehensive application of risk models, the Company enhanced the professional
level of its teams and the capability of quantitative analysis, and applied technological innovation in each aspect
of risk management, so as to establish a standardised, systematic, data-based and modelised comprehensive risk
management system. In response to the risk of "joint debts", the Company continued to enhance its capabilities
to prevent multiple credit granting and credit fraud. With Fintech application, the Company integrated its internal
and external data sources to portrait, verify and restore the real balance sheet status of the customers in a
multi-dimensional manner, so as to form a unified view of risks associated with its customers and enhance its risk
identification capability. The Company adhered to acquiring quality customers whose lion share are with stable jobs
and source of income. The Company took into consideration the application scenarios of various real consumptions
such as parking space purchase, decoration, education, etc.. The Company also established an automated
post-lending monitoring system to continuously monitor the risk of "joint debts" and got prepared in advance.
53
As to business development, the Company actively supported the real economy in accordance with the requirements
of the State policies and regulations and accelerated the development of micro-finance loans, in particular, with the
guidance of inclusive finance. The Company developed its mortgage business in a steady manner under the local real
estate control policies in the support of the residents' reasonable needs for their own homes. The Company strictly
controlled the usage of consumption loans and guided a light development path of consumption loans towards
the operation mode with online, small-value and customised features so as to realise the healthy development of
retail loans business. As at the end of the reporting period, the Company recorded a balance of residential housing
loans of RMB921.347 billion, representing an increase of 11.57% as compared with the end of the previous year.
The balance of micro-finance loans amounted to RMB348.993 billion (calculated on the Bank's statistical calibre),
representing an increase of 12.23% as compared with the end of the previous year, with its percentage in the
balance of incremental retail loans (excluding credit cards) up by 9.15 percentage points as compared with the
end of the previous year. The balance of consumption loans amounted to RMB105.433 billion, up by 15.39% as
compared with the end of the previous year. As at the end of the reporting period, the Company had 4,735,100
retail loan customers, representing an increase of 73.21% as compared with the end of the previous year. The
rapid expansion of customer base was mainly attributable to the light customer acquisition model through online
Financial markets business
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
In 2018, the trading volume of RMB bonds of the Company reached RMB6.71 trillion, representing a year-on-year
increase of 458.76%; the trading volume of RMB exchange rate swaps reached USD763.884 billion, basically
remaining the same as the previous year; the trading volume of RMB-denominated options of the Company had
reached USD158.356 billion in the interbank market, representing a year-on-year increase of 59.87%; the trading
volume of wholesale customer derivatives had reached USD179.515 billion, representing a year-on-year increase of
84.30%; the trading volume of interest rate swap business reached RMB4.83 trillion, representing a year-on-year
increase of 170.86%. According to the data from the China Foreign Exchange Trade System, the percentage of the
trading volume of RMB options of the Company ranked first in the interbank market.
With respect to RMB bond investment, the Company moderately extended the portfolio duration of RMB bonds
investment through in-depth study of domestic monetary policies and macroeconomic situation and seized the
opportunities brought by the downward trend of the RMB bond interest rate. Meanwhile, the Company actively
adjusted the position structure of banking accounts in order to improve the portfolio return and prevent the
occurrence of credit risk events. With respect to foreign currency bonds investment, in the context of the Fed's
interest rate hike, the Company appropriately shortened the portfolio duration of foreign currency bonds investment
through close tracking of the monetary policies of the major countries and based on logical judgment of the
international economic situation and market trends, so as to avoid the impact of increased interest rate of foreign
currency bond market. The Company also grasped the opportunities arising from fluctuation in the spread of credit
bonds and increased their range trading operation to effectively improve portfolio yields.
In 2018, facing the complexity and difficulties of the global economy, the Chinese economy was under downward
pressure and the interest rate of the RMB bond market fell sharply. The volatility of the foreign exchange market
intensified, with the US dollar depreciating first and then appreciating while the RMB exchange rate experiencing the
reverse trend subsequently, which made the annual fluctuation amplitude exceed 7,300 basis points and recorded
the maximum fluctuation since the 1994 exchange rate reform. By adjusting the position structure, scaling up the
duration, and vigorously carrying out innovative business and implementing other strategies to actively hedge and
smooth out the market volatility, the Company has achieved good returns.
During the reporting period, the Company put more efforts into marketing custody products such as mutual fund
under custody, insurance products and pensions. It obtained the qualification of depositary under the CBIRC's Pilot
Program of Depositary Receipts, consolidating the market position of the Company in the domestic custody industry.
Thanks to its continuous optimisation of functions of the custodian system and business processes, the Company
became the first bank in the industry to officially release the custodian Big Data platform, and was also the first to
achieve the robot process automation technology (RPA) for applications in the custody business, allowing its custody
systems to outperform its industrial peers. The Company's "Risk Management System for Custodian Big Data
Platform" was awarded the first prize in the "Golden Idea" program initiated by CBIRC. The Company implemented
whole life cycle management of custody products, effectively guarded against risks to which custody business
exposed to, and effectively fulfilled the responsibilities of custodian.
60
Asset custody business
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
60
3.10.3 Distribution channels
In 2018, with the implementation of the New Regulation on Asset Management and supporting policies, the asset
management business was directed back to its origin. As a result, the growth rate of assets under custody of the
Bank declined. As at the end of the reporting period, the balance of assets under custody of the Company was
RMB12.35 trillion, 3.17% higher compared to the end of the previous year, and continued to rank second in the
domestic custody industry (data from China Banking Association). During the reporting period, the Company realised
a custodian fee income of RMB4.439 billion, down by 8.57% year-on-year, ranking the third in the domestic custody
industry (data from China Banking Association).
The Company provides products and services via multiple distribution channels. Our distribution channels mainly
consist of physical distribution channels and e-banking channels.
In 2018, our London Branch carried on its innovative business development. It derived a considerable amount of
foreign exchange trading business on behalf of customers through asset business besides proceeding traditional
businesses such as accepting guarantees from domestic enterprise as security for loans granted to overseas entity
and accepting guarantees from overseas entity as security for loans granted to domestic enterprise, but also in
terms of new business offerings such as time deposits, mortgage loans, development loans, standby L/C re-issuance
and confident letter issuance. During the reporting period, our London Branch realised an net operating income of
USD19,290,000 and a profit before tax of USD8,950,000.
The efficiently operated distribution network of the Company is primarily located in the major economic centers
of China such as Yangtze River Delta, Pearl River Delta and Bohai Rim, and certain large- and medium-sized cities
in other regions. As at the end of the reporting period, the Company had 137 branches, 1,673 sub-branches, one
dedicated branch-level operation center (credit card center), one representative office, 3,259 self-service centers,
10,316 self-service machines (including 1,212 automatic teller machines and 9,104 deposit-taking and cash
withdrawal machines) and 12,897 visual counters in more than 130 cities of Mainland China. The Company also
has 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 and a branch in Sydney, Australia.
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, government repudiation of external indebtedness, foreign exchange
controls and currency depreciation in a country or region.
3.11.3 Country risk management
In accordance with the "Management Measures for Large-Scale Risk Exposure of Commercial Banks" (CBIRC Order
2018 No. 1) (‹¤£í¯★¤¤¥¥¥¥¥Ì£) (20181)) issued by the CBIRC, large-scale risk
exposure refers to the credit risk exposure (including various credit risk exposures in the banking book and trading
book) to a single customer or a group of related customers of a commercial bank that exceeds 2.5% of its net Tier
1 capital. The Company has incorporated large-scale risk exposure management into its overall risk management
system, and measured and dynamically monitored changes in large-scale risk exposure, so as to effectively
controlled customer concentration risks. As at the end of the reporting period, other than customers with regulatory
exemption, single non-financial institution customers, group non-financial institution customers, single financial
institution customers and group financial institution customers of the Company that reached the standards of
large-scale risk exposure were all in compliance with the regulatory requirements.
3.11.2 Management of large-scale risk exposure
During the reporting period, the Company's non-performing loans have been further reduced and asset quality has
been effectively controlled through the above-mentioned measures. For more information about the Company's
credit risk management, please refer to Note 61(a) to the financial statements.
Firstly, making steady progress in the development of a comprehensive risk management system while
improving the concentrated customer risk management mechanism. The Company has been optimising the
risk preference conveyance and management mechanism; co-ordinating overall planning and steadily promoting
the consolidated management of affiliated institutions; improving the cross-financial risk management structure
and its mechanisms, establishing various market tracking and monitoring mechanisms; standardising product
innovation management, fortifying the approval and management for counterparties and cooperative institutions;
strengthening identification of major risk as well as assessment and management mechanisms. Secondly, building
an industry research system for new growth engines while consolidating the customer base. The Company
has set up an industry research center, built an industry research system, and formulated industrial credit policies,
loan approval standards and targeted customer lists for 12 new growth engines, carried out name list management
for the strategic customers of the Head Office and branches as well as customers of industries from which our
loans should be reduced and recovered, and established a future-oriented, sustainable and health customer base.
Thirdly, fully implementing the allowance policy for expected credit loss under IFRS 9. The Company has
achieved the refined management of risk costs based on customer ratings and debt ratings, guided credit resource
allocation and customer selection with risk pricing mechanism, and gradually established a customer-centric risk
management perspective. Fourthly, consolidating the management foundation while constantly promoting
the whole-process credit optimisation. By organising special group of experts, sorting out and optimising key
processes of credit operation, the Company has reconstructed its credit process management system and completed
the supporting system revision and authorisation adjustment, thus reinforcing the whole-process of risk management
and control. Fifthly, using Fintech services to enhance the quality and efficiency of risk management. The
Company introduced Big Data and Fintech, strengthened the knowledge graph system of internal and external
data visualisation, stressed on customer risk control, enhanced capabilities of risk identification, and improved
the automation, process, specialisation and centralisation of risk management processes. Sixthly, strengthening
the control and follow up on asset quality and risk screening while preventing and controlling risks in a
perspective manner. Adhering to careful screening of risks in respect of major corporate customers, the Company
implemented the "different policy for each customer" control measures, and conducted regular inspections
to achieve "early pre-warning and early disposal". Attaching importance to overdue loans and tightening its
control on them, the Company optimised risk reporting mechanisms and strategies to enhance the sensitivity and
perspectiveness of risk identification. Seventhly, increasing the channels for disposal of non-performing assets
while accelerating the disposal of risk assets. The Company has been strengthening clearing and collection
of non-performing assets in cash while continuously promoting the write-off of non-performing assets and
securitisation of assets, proactively exploring debt-to-equity conversion, making use of a number of methods to
manage risk assets and continuously improving its non-performing assets management capability.
3.11.1 Credit risk management
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
During the reporting period, against the backdrop of complicated and volatile economic environment at home and
abroad and the increasing risk in bank operations, the Company continued to improve its overall risk management
system and proactively overcome and prevent all kinds of risk.
The Company 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 determining the most
significant bank-wide risk management policies on risk preferences, strategies, policies and authorisations approved
by the Board of Directors.
3.11 Risk management
As at the end of the reporting period, the total assets of CIGNA & CMB Life Insurance amounted to RMB45.332
billion, and its net assets amounted to RMB5.783 billion. During the reporting period, CIGNA & CMB Life Insurance
realised a premium income of RMB15.062 billion. It realised net profit of RMB1.045 billion during the reporting
period.
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), with a registered
capital of RMB2.8 billion and 3,266 employees. 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.
3.10.10 CIGNA & CMB Life Insurance
As at the end of the reporting period, the total assets of China Merchants Fund amounted to RMB6.612 billion,
and its net assets amounted to RMB4.872 billion. The total size of the asset management business (including China
Merchants Fund and its subsidiaries) amounted to RMB944.414 billion. It realised net profit of RMB894 million
during the reporting period.
Established on 27 December 2002, China Merchants Fund had a registered capital of RMB1.31 billion and 397
employees (excluding those of its subsidiaries). As at the end of the reporting period, the Company had 55% of
equity interests in China Merchants Fund. The business scope of China Merchants Fund covers fund establishment,
fund management and other operations approved by the CSRC.
3.10.9 China Merchants Fund
As at the end of the reporting period, the total assets of CMB International Capital amounted to HK$23.571 billion,
and its net assets amounted to HK$7.805 billion. It realised net profit of HK$756 million during the reporting period.
During the reporting period, CMB International Capital had a market share of approximately 5.9% in terms of IPO
underwriting in Hong Kong, ranking first (public data from Bloomberg).
Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong, with
a registered capital of HK$4.129 billion and 436 employees. At present, the business scope of CMB International
Capital and its subsidiaries mainly covers corporate finance, asset management, wealth management, stocks and
structured finance.
3.10.8 CMB International Capital
III Report of the Board of Directors
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Annual Report 2018
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99
95
65
The Company has incorporated country risk management into its overall risk management system. In accordance
with relevant regulatory requirements, the Company dynamically monitored the change in its country risk profile,
used its sovereign rating model to set limit on its country risk with reference to external rating results, and evaluated
its country risk and made allowances on a quarterly basis. As at the end of the reporting period, the assets of the
Company exposed to the country risk remained insignificant, and this indicated low country risk ratings. Moreover,
we have made adequate allowances for country risk according to the regulatory requirements. As a result, the
country risk will not have material effect on the operations of the Company.
As at the end of the reporting period, the total assets of CMB Financial Leasing amounted to RMB171.296 billion,
and its net assets amounted to RMB17.944 billion. It realised net profit of RMB2.215 billion during the reporting
period.
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China Merchants Bank
Physical distribution channels
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For more information about the Company's market risk management, please refer to Note 61(b) to the financial
statements.
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 optimisation plan as a reasonable reference for the management's decision-making. In
2018, the exchange rate fluctuation range of the RMB increased significantly. In the face of the new international
economic landscape, the Company strengthened its analysis of the macro-economy in the United States and Sino-U.
S. trade frictions, and further optimised measurement of the exchange risks. The Company had a prudent exchange
rate appetite, and the size of foreign exchange exposure was at a relatively low level. 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 requirement.
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 historical extreme fluctuations,
each scenario could simulate the impact on the Company's profit or loss. The effects of certain scenarios on the
profit or loss and its percentage to net capital as a limit indicator are incorporated into daily management. The
Company conducts back-testing and assessment on relevant model parameters on a regular basis to verify the
effectiveness of measurement models.
Banking book
Under this background, the Company mainly relied on foreign exchange trading business on behalf of customers to
obtain stable spread income, and strengthened the control of the limit indicators such as the exposure of proprietary
business, sensitivity index and stop-loss, and all exchange rate risk indicators of trading book were within the target
range.
In 2018, the US economic data recorded strong performance, and the Federal Reserve raised interest rates several
times, which constituted a strong driving force for the US Dollar index. Under the factors of Sino-US trade friction,
overseas stock market turmoil, and downturns of emerging markets, the overall fluctuation of the exchange rate
market intensified. For the whole year, the US Dollar index rose by 4.68%, and the USD RMB spot exchange rate fell
by 5.43%. The volatility of the offshore and onshore exchange rate with various durations increased, and the daily
maximum change of the USD RMB spot exchange rate reached 664bps.
The Company uses the risk indicators such as risk exposure indicator, market risk value indicator (VaR, covering
foreign exchange rate risk factors of various currencies related to the trading book business), 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. VaR includes general VaR and stress
VaR, which are both calculated using historical simulation model and adopt 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, changed volatility of foreign exchange
options. Major exchange rate sensitivity indicators are Delta, Gamma, Vega and other indicators for exchange rate
derivatives. For daily management, we set annual 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 of the Board of Directors, and delegated the Market Risk Management Department to
perform daily monitoring and on-going reporting.
Exchange rate risk management
Trading book
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
In 2018, in accordance with the Guidelines on the Management of Interest Rate Risk of Banking Book of Commercial
Banks (Revised) issued by the CBIRC, the Company has completed the comprehensive consolidation and revision
of the existing interest rate risk policy system and operating procedures for internal banking book, and has fully
satisfied the regulatory requirements in measurement methods, quantitative risk level, system building and modeling.
In 2018, the central bank cut the benchmark interest rate four times, and the market yield rate showed a high-
trend at the beginning and a low-trend at the end for the whole year. Among which, the medium-to-long term
yields reduced significantly with narrowed spreads between interest rates with different durations. The Company
closely monitored the change of external interest rate environment and conducted in-depth analysis and forecast
on the market interest rate development through macro-modeling while making flexible adjustment to the strategy
of the proactive management of interest rate risks. In terms of asset investment, the Company proactively extended
the durations of RMB bonds investments; in terms of liability management, the Company fully utilised the favorable
conditions of monetary policy to maintain "reasonably adequate", rationally arranged active liabilities, replaced
high-cost liabilities, and effectively managed the interest rate risk of the Company during the interest cut period.
The results of stress test also showed that the various indicators stayed within the limits and prewarning values, and
the banking account interest rate risks were at a relatively low level.
The Company mainly adopts the re-pricing gap analysis, duration analysis, benchmark-correlated analysis, scenario
simulation and other methods to measure and analyse the 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-correlated 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 a
number of 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 in history, and the most possible
changes in interest rates in the 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.
Banking book
The investment scope of the trading book of the Company focused on RMB bonds, especially domestic interest rate
bonds, and had strict control on credit bond investments. Under the general recovery of the domestic bond market,
the investment portfolio for trading book of the Company received good returns, and various interest rate risk
indicators were within the target range.
Since 2018, domestic economic growth momentum has weakened; GDP growth rate has declined; corporate
financing chains have tightened; credit bond defaults have increased. The international situation has become
increasingly complicated. External factors such as Sino-US trade frictions, changes in the US economy and overseas
stock markets have also increased market turbulence. Under this situation, the central bank maintained a reasonably
sufficient level of funds through targeted interest rate cut and open market operations, and the short-term market
interest rate decreased significantly. However, due to the overall downward pressure on the fundamental economy,
the long-term interest rate had a relatively small downward trend. The differentiation in credit spread further
intensified, and the medium and low rating credit spreads expanded significantly. In respect of overseas, the US
macroeconomic performance was strong. The Federal Reserve raised interest rates four times during the year, and
the yield of USD bonds showed an upward trend throughout the year.
The Company uses various risk indicators, including volume indicators, market risk value indicators (VaR, covering
interest rate risk factors of various currencies and durations 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 book, and are comprised of around 110 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 unfavorable market scenarios designed on the characteristics of investment portfolios. Among which, the
extreme interest rate scenario may move up to 300 basis points and cover the extremely unfavorable conditions
of the market. Major interest rate sensibility indicator reflects the duration of bonds and the change in the market
value of bonds and interest rate derivatives when an interest rate fluctuates unfavorably by 1 basis point. As for daily
risk management, the annual scope of authorisation and the market risk limits for the interest rate risk businesses
under the trading book 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.
Trading book
Interest rate risk management
The Company's market risk arises from trading book and banking book, and the interest rate risk and exchange rate
risk are the major market risks facing the Company.
3.11.4 Market risk management
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CMB Financial Leasing is one of the five pilot bank-affiliated financial leasing firms approved by the State Council.
It was established in March 2008 and wholly owned by the Company with a registered capital of RMB6.0
billion and 267 employees. CMB Financial Leasing has adhered to its operation and development strategy of
"internationalisation, professionalisation and differentiation", carried out its international presence of aircraft and
vessel assets, upgraded key national equipment manufacturing under the professional support, responded to the
construction of "The Belt and Road" initiative by provision of differentiated service and launched the financial
solutions for the ten sectors of aviation, shipping, urban transportation, high-end equipment, public utilities, energy
saving and environmental protection, clean energy, health culture, emerging industries and leasing. 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.
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. The Audit Department of the Company is responsible for overall
auditing of our exchange rate risk.
For detailed financial information on CMB Wing Lung Group, please refer to the 2018 annual report of CMB Wing
Lung Bank, which is published on the website of CMB Wing Lung Bank (www.cmbwinglungbank.com).
3.10.4IT and R&D
China Merchants Bank
Annual Report 2018
In August 2018, the Company launched "CMB Corporate APP", a new enterprise-level mobile service platform,
which focused on customer acquisition through flow redirection and in-depth management of SMEs. The Company
also shared the basic business innovation system with online corporate banking customers to promote the
construction of an open service platform. Since its launch, the number of customers of corporate mobile payment
and its total number of transactions have grown rapidly. As at the end of the reporting period, the number of
customers of CMB Corporate APP had reached 533,900; the number of transactions had reached 26,626,800 and
total value of transactions amounted to RMB1,693.920 billion.
CMB Corporate APP
By fully leveraging the traditional advantages of online corporate banking and continually strengthening the
construction of customer base of online corporate banking, the Company promoted initiating "online banking
service refreshment" program distinguished by "user experience reshaping". As at the end of the reporting period,
the number of online corporate banking customers of the Company had reached 1,688,900, representing an
increase of 22.44% as compared with the end of the previous year, among which the number of monthly active
customers was 823,400, representing an increase of 16.65% as compared with the end of the previous year. The
total number of online corporate banking transactions of the Company reached 346,043,200 and total value of
transactions amounted to RMB 124.09 trillion.
Online Corporate Banking
Major wholesale e-banking channels
In 2018, the Company continued to facilitate the maintenance of gold card and Sunflower customer base for its
direct banking, serving 1,920,000 gold card and Sunflower customers, with the cost of customer maintenance
effectively reduced. The Company also actively supported the quality micro-finance customers, with 56,500
micro-finance loans renewed, totalling RMB15.625 billion, with a retention rate of 82.40%.
In 2018, the Company constantly improved its service capability and customer experience. As a result, the manual
telephone access ratio reached 98.52%; the percentage of manual telephone responses within 20 seconds reached
96.61%; and the satisfaction ratio of its telephone customer service reached 99.69%. In order to keep abreast
with the trend of its customers increasingly moving to the mobile Internet, the Company actively strengthened
its network service capabilities. In 2018, the online interactive services accounted for 85.15% (referring to the
proportion of text online services in various types of remote consulting services), the text online interactive services
have become the mainstream of remote consulting services. At the same time, the Company accelerated the pace of
evolution into intelligent services, deepened the training and learning of intelligent robots, and enhanced algorithm
optimisation. In 2018, the intelligent self-services accounted for 74.71% (referring to the proportion of services
undertaken by intelligent robots in various remote consulting services). In 2018, our visual counters received an
average of 2,550,000 incoming calls per month, with the highest number of single day transactions exceeding
143,000, showing high replacement effect of in-branch non-cash transactions.
The Company provides instant, comprehensive, prompt and professional services to its customers through remote
methods such as telephone, network and video to meet their needs.
Direct banking
As at the end of the reporting period, the Company gained a total of 122 million fans through third-party credit
card channels (mainly from WeChat, Alipay service window and official QQ account). The Company continued to
develop our smart service portfolio: promoting an upgrade of Al technology-driven smart services, introducing a new
interactive form and Al core; launching the service traffic oriented decision engine, speeding up the efficiency of
two-way coordination between intelligent robots and service specialists; achieving an innovative full-service coverage
from traditional channels, third-party service channels to emerging service channels through the application of
a leading voiceprint recognition system, an audio big data analysis platform, intelligent service robots and smart
speaker service admission, so as to accelerate the formation of the APP service ecological closed loop and improve
the integrated online service experience.
The Company launched the "China Merchants Bank" WeChat Official Account as an important front for brand
marketing and promotion of product functions. By integrating with hot issues to facilitate marketing and
continuously enhancing brand penetration in young customer groups, the trust and popularity of targeting
costumers to our products and the transformation efficiency was improved. As at the end of the reporting period,
the "China Merchants Bank" WeChat Official Account had accumulated 16,544,300 followers.
Smart WeChat Customer Service
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
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During the reporting period, the Company continued to focus on upgrading mobile service capabilities with
a customer-oriented vision, CMB Life APP as the platform and technology as impetus, while focusing on
high-frequency daily consumption scenarios and creating quality life so as to lead the transformation of the credit
card industry. As at the end of the reporting period, the total number of CMB Life APP users was 70,027,300, of
which non-credit card users accounted for 24.38%. During the reporting period, the maximum number of daily
active users of CMB Life APP reached 7,944,100, the number of monthly active users was 39,538,700, among which
young customers accounted for over 70%. In terms of the number and online activity of customers, CMB Life APP
continued to outperform other credit card APPS in the banking industry. At the same time, the Company actively
explored the mobile value output model with high-contribution and high-efficiency to facilitate customer acquisition
and achieved breakthrough in operations. During the reporting period, the total number of credit card users of CMB
Life APP reached 3,844,400, and consumer financial transactions successfully completed through CMB Life APP
accounted for 49.47% of total consumer financial transactions, demonstrating further recognition of the strategic
position of CMB Life APP.
CMB Life APP for Credit Card
As at the end of the reporting period, the number of CMB APP users in aggregate was 78,270,400, with 41,508,000
monthly active users, a total number of 4.580 billion logins and the average monthly logins of 11.94 per user during
the reporting period. Meanwhile, the CMB APP transaction volume has been increasing rapidly, with 1,382 million
APP transactions and a total transaction amount of RMB30.76 trillion during the reporting period, up by 33.91%
and 72.13% respectively, as compared with the previous year. Among all these transactions, the number of wealth
management transactions originated by 5,075,000 wealth management customers using CMB APP accounted for
79.37% of the Bank's total number of wealth management transactions, and a total wealth management sales value
reached RMB6.26 trillion, representing an increase of 41.31% as compared with the previous year, and comprised
59.11% of the Bank's total wealth management sales.
During the reporting period, the Company launched CMB APP 7.0 to build a leading financial technology ecosystem
in the banking industry on the basis of "connectivity", "management" and "smart service". There were material
upgradings in income and expenditure books, city services, fund channels, community upgrades and smart services,
with up to 149 functions optimised to provide open and caring integrated financial services to nearly 80,000,000
users, making it the most dynamic e-channel of the Company.
Major retail e-banking channels
The Company values highly on the development, improvement and integration of e-banking channels, which serve to
effectively relieve pressure on physical outlets of the Company. As at the end of the reporting period, the Company's
replacement rate of comprehensive service counter through the retail electronic channel was 98.24%; the rate of
rerouting customers from the service counters to visual counters was 88.10%; and the Company's replacement rate
of transaction settlement through the whole-sale electronic channel was 92.96%.
3.10.7 CMB Financial Leasing
E-banking channels
III Report of the Board of Directors
During the reporting period, adhering to construction of the Fintech bank, the Company improved its infrastructure
capacity, enhanced its system construction and operational support, increased its efforts in Fintech talent cultivation
and recruitment, set up the Fintech college, and commenced the all-round cultivation of Fintech talents. The business
development of the entire Bank is supported by three software centers in Shenzhen, Hangzhou and Chengdu and
two data centers in Shenzhen and Shanghai.
CMB APP
3.10.5 Overseas branches
With respect to basic platform construction, the Company accelerated structural transformation through Mobile
Internet, Big Data, Cloud Computing, Artificial Intelligence, Blockchain and other cutting-edge technologies, and
enhanced the concurrent application, big data calculation, high openness and high agility of application systems.
With respect to the development of application systems, the Company launched CMB APP 7.0, CMB Life APP
7.0 during the reporting period, leading Retail 3.0 transformation reform; it launched CMB Corporate APP 5.0,
establishing the non-stop corporate service ecosystem; CBS APP 3.0 was put online, which satisfied the demand of
mobile cash management of conglomerates; CMB Huijin () APP was put online to provide an integrated
trading and information service platform for retail customers. The Company promoted the construction of Outlet
3.0 to improve the "network-based, digitised and intelligence-oriented" operation. The Company has formed a
customer-centric financial service ecosystem through building a scenario development platform with some typical
scenarios such as public transportation, parking, education and health-care and offering Fintech capabilities. With
respect to overseas support, the Head Office managed and supported the construction and improvement of the
core business systems and data warehouses of overseas branches, as well as the operation and maintenance of
IT systems, which greatly reduced the IT costs of overseas branches, enhanced the capabilities of IT systems and
effectively supported the business development of overseas branches. With respect to security and stability, the
overall operation of the system was stable in the whole year, and the availability of the core accounting system
and the backbone network kept ahead, with its system well-prepared and handling the transaction peaks with
ease during the online shopping carnival of "Double 11 (11 November)" and the system support capability greatly
improved. With respect to R&D management, the Company used technology agility to drive business agility and
launched the Lean R&D Management System V1.0, so as to promote the in-depth integration of IT and businesses
and constantly enhance its prompt response and delivery capability. With respect to "industry - university -
science" partnership, the Company propelled "industry - university - science" partnership with Stanford University,
The Wharton School, Tsinghua University, Chinese Academy of Science and Technology and Shanghai Jiaotong
University to intensify research and innovation application of cutting-edge Fintech; it also joined hands with relevant
partners to release the enterprise-level distributed database in an innovative way.
Founded in 1933, CMB Wing Lung Bank has a registered capital of HK$1.161 billion as at the end of the reporting
period, and is a wholly-owned subsidiary of the Company in Hong Kong. The principal operations of CMB Wing
Lung Bank and its subsidiaries comprise deposit-taking, lending, private banking and wealth management,
investment, securities, credit cards, NET banking, mobile banking, global cash management, syndicated loans,
corporate financing, documentary bills, leasing and hire purchase loans, foreign exchange, insurance agency,
mandatory provident fund, insurance brokerage and general insurance underwriting, property management and
trustee, nominee and asset management services. At present, CMB Wing Lung Bank has a total of 35 banking
offices in Hong Kong, four branches and sub-branches in Mainland China, one branch in Macau, and two overseas
branches, located respectively in Los Angeles and San Francisco, the United States. As at the end of the reporting
period, the total number of employees of CMB Wing Lung Group is 1,935.
In 2018, on the basis of compliant operation, the Sydney Branch endeavored to promote various business
developments, and proactively established a steady and sustainable development model with its own features.
During the reporting period, the Sydney Branch realised the net operating income of AUD10,830,000 and recorded
a pre-tax loss of AUD7,170,000.
Established in 2017, the Sydney Branch of the Company is the first branch approved to be established in Australia
among all the PRC joint-stock commercial banks. Relying on the economic and trade exchanges between China and
Australia, it proactively participates in the extensive cooperation between the two countries in the fields of energy,
minerals, trade and infrastructure development, facilitates the cooperation between the enterprises of the two
countries, proactively serves and promotes the economic exchange and development of the two countries, and offers
its customers the diversified financial products and services such as cross-border corporate finance, funds clearing,
financial market, trade finance and cash management. The establishment of the Sydney Branch further expanded
and improved the Company's global presence, forming a global service network across four continents: Asia, Europe,
America and Australia.
III Report of the Board of Directors
Sydney Branch
China Merchants Bank
Annual Report 2018
As at the end of the reporting period, the total assets of CMB Wing Lung Group amounted to HK$314.478 billion.
Total equity attributable to shareholders amounted to HK$35.432 billion. Total loans and advances to customers
(including trade bills) amounted to HK$162.466 billion. Deposits from customers amounted to HK$221.329 billion.
The loan-to-deposit ratio was 68.59%. The non-performing loan ratio (including trade bills) was 0.52%. The total
capital ratio was 17.98%, and the average liquidity coverage ratio for the fourth quarter of 2018 was 166.28%, all
above the regulatory requirements.
Established in 2016, the London Branch of the Company is the first branch approved directly to be established in
the United Kingdom among all the PRC joint-stock commercial banks and also the first branch established in the
United Kingdom directly by a bank in Mainland China since the founding of the PRC. It mainly focuses on corporate
banking business and provides customers with diversified corporate banking products and services, such as deposits,
loans (including bilateral loans, syndicated loans and cross-border M&A financing), settlement and asset custody. It
also engages in interbank transaction of funds, bonds and foreign exchange trading, and conducts funds clearing
and asset transfer with other financial institution customers. For nearly three years since its establishment, our
London Branch has operated in compliance with regulatory requirements. Its business has developed steadily.
London Branch
In 2018, the Luxembourg Branch adapted itself to changes in the relevant policies, grasped market opportunities
and achieved steady business growth through efficient services and close cooperation with other banks and financial
institutions at home and abroad. During the reporting period, our Luxembourg Branch realised net operating income
of €15,470,000 and a profit before tax of €2,340,000.
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 global" and the enterprises "brought in" from Europe. It is committed to establishing an
operational platform of the Company in Europe on the basis of the superior businesses of the parent bank combined
with the special advantages of Luxembourg.
3.10.6 CMB Wing Lung Group
In 2018, the Singapore Branch adhered to the operating strategy of concurrent development of cross-border
financing business and local business, and focused on the domestic strategic customers to "go global" from
the Head Office and branches of the Company. Moreover, it actively studied the opportunities arising from the
infrastructure construction projects of the countries involved in "The Belt and Road" initiative and seized the
business opportunities. As a result, all its businesses achieved steady and healthy development. During the reporting
period, our Singapore Branch realised the net operating income of USD22,960,000 and a profit before tax of
USD2,450,000.
Hong Kong Branch
Luxembourg Branch
Established in 2002, our Hong Kong Branch is the first branch duly established overseas by the Group. As a
full-licensed bank and a registered institution with SFC, the Hong Kong Branch may engage in comprehensive
commercial banking businesses, including 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, settlement, trade facilities, bilateral loans, syndicated loans, cross-border M&A portfolio
solutions and asset custody, and engages in transaction of funds among financial institutions, bond trading and
foreign exchange trading, and conducts funds clearing and asset transfer with financial institution customers.
With respect to retail banking, the Hong Kong Branch proactively develops featured retail banking services and
provides cross-border personal banking services and private wealth management 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".
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Annual Report 2018
In 2018, CMB Wing Lung Group posted an attributable profit to shareholders of HK$3.219 billion and achieved
an operating income of HK$6.188 billion, of which net interest income was HK$4.765 billion and net non-interest
income was HK$1.423 billion. The cost-to-income ratio was 35.05%.
In 2018, by giving full play to its own characteristics and leveraging the advantages of Hong Kong's status as an
international financial center, the Hong Kong Branch actively served the "going global" strategy and focused on the
strategic opportunities such as "The Belt and Road" initiative, "Internationalisation of RMB" and "Guangdong-Hong
Kong-Macao Greater Bay Area", greatly promoted cross-border business coordination, continually developed the
local customer base, constantly expanded its market share, and provided customers with strong financial support
and good service. Meanwhile, the Hong Kong Branch further strengthened risk compliance and internal basis
management, constantly improved and innovated its product and service systems and strove to explore the asset
operation model. As a result, all its businesses achieved healthy development. During the reporting period, the Hong
Kong Branch realised net operating income of HK$3.323 billion and a profit before tax of HK$2.922 billion.
New York Branch
Established in 2008, the Company's New York Branch represents the first branch of a Chinese bank approved in the
U.S. since the US Foreign Bank Supervision Enhancement Act in 1991. The New York Branch is located in the global
financial center and is committed to establishing a cross-border financial platform characterised by coordination
between China and the U.S., so as to offer diversified and all-round banking services for the companies and
high-net-value private banking customers in China and the U.S..
Established in 2013, our Singapore Branch is positioned as a significant cross-border financial platform in Southeast
Asia. Based in Singapore and expanding to Southeast Asia, the Singapore Branch takes two major businesses
of cross-border finance and wealth management as its core and strives to provide all-round non-stop solutions
for cross-border finance to the Chinese companies "going global" and the companies "brought in" located in
Singapore and other Southeast Asian countries. Its major services and products include: funds settlement, deposit
service, foreign exchange trading, coordination financing, trade financing, M&A loans, syndicated loans, real estate
trust leveraged financing and delisting financing. With respect to wealth management business, the Private Banking
(Singapore) Center was officially launched in April 2017 to provide private banking products and value-added
services with integrated investment and financing solutions, such as cash management, asset allocation and heritage
of wealth to high-net-value customers.
In 2018, our New York Branch adhered to the principle of "taking compliance as a priority and maintaining steady
operation" and aimed to build a featured cross-border financial platform. The New York Board made positive
progress in expanding Sino-US cross-border business, developing local business, product innovation and customer
accumulation, enabling it to achieve a steady growth in business and profits, laying a solid foundation for the
subsequent business transformation. During the reporting period, our New York Branch realised net operating
income of USD128 million and a profit before tax of USD53,270,000.
Singapore Branch
III Report of the Board of Directors
(1)
profit appropriation of the Company shall focus on reasonable returns on investment of the investors,
and such policies shall maintain continuity and stability;
(2)
(4)
(5)
(6)
(7)
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 to shareholders of ordinary shares each year in principle shall not be less than 30% of the
net profit after taxation attributable to shareholders of ordinary shares 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;
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;
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 profit appropriation plan in the form of shares and implement the same
upon consideration and approval at a general meeting, provided that the abovementioned cash profit
appropriation requirements are satisfied;
(3)
2.
3.12.3 The formulation and implementation of the Company's cash dividend policies
As specified in the Articles of Association of China Merchants Bank Co., Ltd., the profit appropriation policies
of the ordinary shares of the Company are:
III Report of the Board of Directors
China Merchants Bank
Annual Report 2018
30.05
30.06
The profit appropriation plan for 2018 is subject to consideration and approval at the 2018 Annual General Meeting of the Company.
78,901
70,150
62,081
the Company shall pay cash dividends and other amounts to holders of domestic shares listed
domestically 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;
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 disclose the implementation progress of the cash dividend policy and other
relevant matters in its periodic reports in accordance with the applicable requirements.
23,707
18,663
21,185
1.
30.20
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.
73
4.4 Fixed assets
For details of changes in shareholders' equity of the Company, please refer to the "Consolidated Statement of
Changes in Shareholders' Equity" in the financial statements.
the year (in
of RMB) millions of RMB) statements (%)
4.3 Shareholders' equity
Details are set out in Chapter II Summary of Accounting Data and Financial Indicators.
4.2 Financial highlights
The Company is engaged in banking and related financial services.
4.1 Principal business activities
Important Events
Annual Report 2018
IV Important Events
China Merchants Bank
During the reporting period, the profit appropriation plan of the Company for 2017 was implemented in
strict accordance with the relevant provisions of the Articles of Association of China Merchants Bank Co.,
Ltd.. It was considered and approved by the 22nd meeting of the Tenth Session of the Board of Directors
of the Company, and submitted for consideration and approval at the 2017 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 2018
will also be implemented in strict accordance with the relevant provisions of the Articles of Association
of China Merchants Bank Co., Ltd.. It will be considered and approved by the 40th meeting of the Tenth
Session of the Board of Directors of the Company, and submitted for consideration and approval at the 2018
Annual General Meeting of the Company. The Independent Directors of the Company have expressed their
independent opinions on the profit appropriation plans for 2017 and 2018 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.
Chairman of the Board of Directors
22 March 2019
By order of the Board of Directors
3.16 Permitted indemnity provision
3.15 Management contracts
So far as the Board of Directors is aware, during the reporting period, 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.
3.14 Compliance with relevant laws and regulations
During the reporting period, adhering to the social responsibility principle of "Gain from society and contribute to
society", the Company actively made contribution and fulfilled its social responsibilities on target poverty alleviation,
green loans, support to SMEs, protection of consumers' interests, public welfare and employee care. For more
details, please refer to the "Corporate Social Responsibility Report of China Merchants Bank for 2018", which is
available on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company. The
relevant disclosures are in compliance with the requirements of the Environmental, Social and Governance Reporting
Guide issued by the Hong Kong Stock Exchange.
reporting guide
3.13 Requirements of the environmental, social and governance
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
74
Li Jianhong
financial
3.12.1 The profit appropriation plan for 2018
(inclusive of statements for
72
71
During the reporting period, the Company actively fulfilled its anti-money laundering duties and took various
measures to ensure the compliance and effectiveness of its anti-money laundering. These measures included but not
limited to accelerating the improvement of the anti-money laundering and anti-terrorism financing risk management
system of the Company in accordance to the "Guidelines for Risk Management of Money Laundering and Terrorism
Financing for Legal Entities of Financial Institutions (Trial)" (Yin Fan Xi Fa [2018] No. 19), continuously carrying out
"risk elimination", conducting in-depth inspection on various types of money laundering risks; improving the due
diligence procedures of customers, implementing Notice of the People's Bank of China on Strengthening the Work
of Identifying Anti-Money Laundering Customers (Yin Fa [2017] 235) and other regulatory policies; continuously
strengthening the management and control of high-risk customers, implementing the follow-up risk control
measures for suspicious transactions reported; actively promoting the application of new technologies in the field of
anti-money laundering, continuing to optimise the anti-money laundering system; and continuously strengthening
anti-money laundering management of business and products to ensure that anti-money laundering risk control is
effectively embedded in business systems and processes.
The Company has established a relatively sound anti-money laundering internal control system. The Company has
formulated a full set of anti-money laundering management system based on the requirements of relevant laws
and regulations on anti-money laundering and its own actual conditions. It has also developed and launched a
comparatively sound anti-money laundering management system, established a comparatively sound anti-money
laundering monitoring system, and had a dedicated anti-money laundering team to ensure the sound operation of
business throughout the Bank.
3.11.9 Anti-money laundering management
Compliance risk refers to the risk of the Company 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 of Directors to supervise the compliance risk
management. The Risk and Compliance Management Committee of the Head Office is the supreme organisation
to manage compliance risk of the whole company under the senior management. The Company has established
a comprehensive and effective compliance risk management system, optimised the organisational 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 defense 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, confronting the situation of stringent and strict regulatory requirements, the Company
proactively adapted to the adjustments in regulatory policies, accurately grasped the direction of compliance, and
ensured the dissemination of regulatory requirements. The Company vigorously promoted the implementation of
various internal control and compliance management measures, and further improved the long-term mechanism
of its internal compliance management. In accordance with the regulatory requirements and in line with the actual
situation of the Company, the Company formulated and issued Guiding Opinions for 2018 Internal Control and
Compliance Work of the Bank to effectively guide the internal compliance management throughout the whole
Bank, completed in-depth rectification of "market disorders in the banking industry" and other rectification works
assigned by the CBIRC in a timely and orderly manner, strengthened the understanding of polices and the circulation
and delivery of new regulations, and identified, assessed, mitigated and dissolved the compliance risks associated
with new products, new businesses and major projects. The Company adopted various measures to strengthen
employee behavior management, proactively implemented multi-level compliance education and training, promoted
the "Compliance Courses of Branch Leaders and Compliance Officers" and "Compliance Seminars of Sub-branch
Leaders and Compliance Supervisors" activities in an orderly manner, formulated and issued training materials such
as employee compliance and warning cases, enhanced the employee's compliance concept and awareness, continued
to conduct comprehensive compliance inspections, thoroughly analysed the causes of problems, followed up and
supervised the rectification, and continuously improved the internal compliance management at all levels.
3.11.8 Compliance risk management
During the reporting period, the Company developed and launched domestic and overseas public opinion monitoring
and management system, which realised 7*24 hours of network-wide public opinion monitoring and real-time
dynamic data analysis, which effectively improved public opinion monitoring efficiency and optimised the linked
responding process of the Head Office and branches. The Company strengthened forward-looking management
of reputational risks, timely made pre-warning for incidents where reputational risks may occur, and formulated
reputational risk plans in advance. Also, the Company carried out reputational risk management training and drills in
line with new communication trends, and strengthened the awareness of reputational risks of all employees under
the background of "everyone is media", so as to reduce the chances of occurrence of negative public opinions.
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 the reputational risk management system and formulated 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.
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.
3.11.7 Reputational risk management
China Merchants Bank
III Report of the Board of Directors
The stress test is the Company's internal management indicator - the domestic calibre
14
The liquidity coverage ratio is an external regulatory indicator - the legal person calibre
13
Please refer to Note 61(c) to the financial statements for more details of the liquidity risk management of the
Company.
In 2018, in accordance with the Administrative Measures on Liquidity Risk of Commercial Banks formally issued
by the CBIRC, the Company has completed the comprehensive consolidation and revision of the liquidity risk
management policy system, and has fully satisfied the regulatory requirements in internal management procedures,
measurement and monitoring of risks.
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 continued to optimise the asset and
liability structure, promoted the growth of proprietary deposits through various measures, and increased the efforts
in matching of growth in deposits and loans. Secondly, the Company strengthened active liability management,
coordinated active liability instruments such as central bank financing instrument and financial bond issuance, and
flexibly arranged active liability policy according to its own liquidity need and market trend. Thirdly, the Company
conducted in-depth refined forward-looking liquidity risk management. By using quantitative modeling and dynamic
measurement and calculation, the Company enhanced its research and judgment in macro-economy and the
dynamic prediction on the liquidity of the whole Bank, so as to improve proactive risk management and proactively
lay down investment and financing strategies. Fourthly, the Company continuously improved the management of
treasurer's daily liquidity, optimised financing capability assessment mechanism and fund gap prediction measures,
and further strengthened the refined management of funding positions. Fifthly, 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 set separate liquidity risk limit and enhanced the duration matching
management of its assets and liabilities.
In 2018, the central bank maintained a prudent and neutral monetary policy and the liquidity remained reasonably
adequate. The liquidity of the Company was basically in line with that of the market, and overall liquidity was
relatively stable due to steady growth in deposits from customers and the progressive investment of assets. As at the
end of the reporting period, the Company's liquidity coverage ratio was 137.99% 13, representing 37.99 percentage
points higher than the minimum requirement of CBIRC. The stress test 14 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. 11%
(2017: 15%) of the total RMB deposits and 5% (2017: 5%) of the total foreign currency deposits 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.
Changes in fixed assets of the Company as at the end of the reporting period are detailed in Note 29 to the financial
statements.
3.11.6 Liquidity risk management
China Merchants Bank
Annual Report 2018
III Report of the Board of Directors
Annual Report 2018
3.12 Profit appropriation
held (No. of
shares)
0.94
0.84
0.74
shares) of tax, in RMB)
bonus shares Cash dividend
for every share for every share
held (No. of held (inclusive
ཏི མནྟཱ ཨིཏི, སྨཱ ནྟི བྷི
of ordinary
shares in the
consolidated
to holders
attributable
Proportion of
cash bonus
to net profit
financial
of ordinary
shares in the
consolidated
to holders
Net profit
attributable
dividends
Total cash
capitalisation of
surplus reserve
for every share
Number of
shares issued on
Number of
Note:
Year
2016
2017
2018 (note)
3.12.2 Profit appropriation for the last three years
For the other information on the closing date for registration, the period for closure of register of members and
the profit appropriation plan for the shareholders who are entitled to attend the Company's 2018 Annual General
Meeting and those who are entitled to receive the final dividends for 2018, the Company will make further
announcement(s) at appropriate times. The Company expects that the distribution of final dividends to the H
Shareholders will be completed by 27 August 2019.
10% of the audited net profit of the Company for 2018 of RMB75.232 billion, equivalent to RMB7.523 billion,
was allocated to the statutory surplus reserve, while 1.5% of the total balance of the risk assets, equivalent to
RMB6.028 billion, was appropriated to the general reserve. 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 RMB0.94 (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 2018, 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 2018
Annual General Meeting of the Company.
tax, in millions
4.5 Purchase, sale or repurchase of listed securities of the Company
0.00026
4.6 Pre-emptive rights
77
According to the relevant requirements of China Securities Regulatory Commission, the Company considered and
approved the "Resolution Regarding the Dilution of Current Returns by the Non-public Issuance of Preference
Shares and the Remedial Measures" at its 2016 Annual General Meeting on 26 May 2017, and formulated the
remedial measures in respect of the dilution of current returns of the holders of ordinary shares which may be
caused by the non-public issuance of preference shares. The measures include adhering to the business strategies
of "Light-operation Bank" and "One Body with Two Wings", creating differentiated competitive advantages,
strengthening the awareness of capital constraints and return on capital, striving to reduce capital consumption,
improving the efficiency of capital utilisation, strengthening the management of asset quality, and maintaining a
stable return policy for the holders of ordinary shares. Meanwhile, the Directors and senior management of the
Company also undertook to earnestly implement the remedial measures. So far as the Company is aware, as at the
date of this report, neither the Company nor its Directors and senior management had breached any of the aforesaid
undertakings.
In the course of the rights issue of A shares and H shares in 2013, each of China Merchants Group Ltd., China
Merchants Steam Navigation Co., Ltd. (AES) (now renamed as China Merchants Steam
Navigation Co., Ltd. () and China Ocean Shipping (Group) Company (now renamed as China
Ocean Shipping Company Limited) 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 websites of Shanghai Stock
Exchange, Hong Kong Stock Exchange and the Company. So far as the Company is aware, as at the date of the
report, the above shareholders had not violated the aforesaid undertakings.
4.15 Undertakings made by the Company, Directors, Supervisors,
senior management and other connected persons
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.
4.14 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.
Supervisors or senior management
4.13 Disciplinary actions imposed on the Company, Directors,
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).
4.12 Contractual rights and service contracts of Directors and
Supervisors
78
IV Important Events
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.
4.11 Financial, business and kinship relations among Directors,
Supervisors and senior management
So 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.
Company
4.10 Directors' interests in the businesses competing with those of the
0.00018
0.00022
45,000
0.00024
0.00029
60,000
China Merchants Bank
Annual Report 2018
China Merchants Bank
IV Important Events
Annual Report 2018
During the reporting period, in order to prevent loss arising from systematic operational risk and material operational
risk, the Company continued to improve its operational risk management. Firstly, the Company strengthened the
control of risks associated with key areas. The Company continued with its risk monitoring and evaluation of key
areas, made timely risk warnings for problems, and put forward management proposals. Secondly, the Company
optimised and improved its management tools. Through the inspection of key risk indicators, the Company
examined and adjusted indicators from various perspectives. Thirdly, the Company strengthened the management of
outsourcing-related risk from the top-level deployment. The Company further improved its outsourcing-related risk
management mechanism, standardised the management of outsourcing projects, conducted on-site risk assessment
for outsourced suppliers in key areas, and urged them to implement the rectification. Fourthly, the Company
strengthened the management of risks related to compliance in credit investigation. The Company organised the
whole Bank to conduct self-inspection, self-correction and on-site inspection on credit investigation compliance, and
further strengthened credit investigation compliance and information security management. Fifthly, the Company
strengthened the management of information technology risk. New availability indicators of important systems were
added so as to achieve full coverage monitoring of the Company's important system availability, conduct analysis on
operation of important systems, IT project launches and external IT risk events, and strengthen information security
management and control. Sixthly, the Company accelerated the establishment of business continuity management
system. The Company promoted the development of business continuity drills and strengthened emergency
switching drills for important operating systems.
79
As at the end of the reporting period, the continuing connected transactions between the Company and Anbang
Insurance Group amounted to RMB1.270 billion.
The annual cap for the continuing connected transactions between the Company and Anbang Insurance Group
for 2018 was RMB2.0 billion, for which the relevant percentage ratios calculated in accordance with Rule 14.07 of
the Hong Kong Listing Rules were not more 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.
On 20 March 2018, the Company entered into a Business Co-operation Agreement with Anbang Insurance Group
for a term commencing on 1 January 2018 and expiring on 31 December 2020. The agreement was entered into on
normal commercial terms after an arm's length negotiation, pursuant to which Anbang Insurance Group shall pay
the service fees to the Company at the normal market prices.
As at the end of the reporting period, Anbang Insurance Group indirectly held more than 10% of the equity interest
in the Company and is one of the Company's substantial shareholders. According to the Hong Kong Listing Rules,
Anbang Insurance Group is a connected person of the Company. The insurance products agency sales services
provided by the Company to Anbang Insurance Group constituted continuing connected transactions of the
Company under the Hong Kong Listing Rules.
Anbang Insurance Group
As at the end of the reporting period, the continuing connected transactions between the Company and CM
Securities Group amounted to RMB254 million.
The annual cap for the continuing connected transactions between the Company and CM Securities Group for 2018
was RMB500 million, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07
of the Hong Kong Listing Rules were not more 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.
On 27 March 2018, the Company entered into a Business Co-operation Agreement with CM Securities for a term
commencing on 1 January 2018 and expiring on 31 December 2020. The agreement was entered into on normal
commercial terms after an arm's length negotiation, pursuant to which CM Securities Group shall pay the service
fees to the Company at the normal market prices.
At the end of the reporting period, China Merchants Group Ltd. indirectly held 29.97% of the 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 Ltd. also held 44.09% of the equity interest in CM Securities, CM Securities Group is a connected
person of the Company pursuant to the Hong Kong Listing Rules. The services relating to the provision of third
parties custodian account, sales of funds, account custodian and agency sales for wealth management products
and collective investment products and other services provided by the Company to CM Securities Group constituted
continuing connected transactions of the Company under the Hong Kong Listing Rules.
CM Securities Group
IV Important Events
China Merchants Bank
Annual Report 2018
As at the end of the reporting period, the continuing connected transactions between the Company and CMFM
Group amounted to RMB1.333 billion.
The annual cap for the continuing connected transactions between the Company and CMFM Group for 2018 was
RMB3.8 billion, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07 of
the Hong Kong Listing Rules were not more 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.
On 13 December 2016, the Company entered into a Business Co-operation Agreement with CMFM for a term
commencing on 1 January 2017 and expiring on 31 December 2019. The agreement was entered into on normal
commercial principles after an arm's length negotiation. The agency 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.
At the end of the 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.
The fund distribution agency service provided by the Company to CMFM Group constituted continuing connected
transactions of the Company under the Hong Kong Listing Rules.
CMFM Group
With the approval of the Board of Directors of the Company, on 13 December 2016, the Company announced that
the annual caps for the continuing connected transactions with CMFM Group for the years of 2017, 2018 and
2019 had been RMB2.5 billion, RMB3.8 billion and RMB5.8 billion, respectively. On 27 March 2018, the Company
announced that the annual caps for the continuing connected transactions with CM Securities Group for the years
of 2018, 2019 and 2020 had been RMB500 million. On 20 March 2018, the Company announced that the annual
caps for the continuing connected transactions with Anbang Insurance Group for the years of 2018, 2019 and 2020
had been RMB1.5 billion. On 24 August 2018, the Company announced that the annual cap for the continuing
connected transactions with Anbang Insurance Group for the year of 2018 had been adjusted from RMB1.5 billion
to RMB2.0 billion. Further details of the above continuing connected transactions, please refer to the relevant
announcements issued by the Company on 13 December 2016, 20 March 2018, 27 March 2018 and 24 August
2018, respectively.
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.
4.16.2 Non-Exempt continuing connected transactions
A majority of the continuing connected transactions of the Company met the de minimis exemption and the
non-exempt continuing connected transactions fulfilled the reporting and announcement requirements under the
Hong Kong Listing Rules.
4.16.1 Overview of connected transactions
4.16 Significant connected transactions
0.00032
65,800
Beneficial Owner
Beneficial Owner
Beneficial Owner
Long position
Long position
Long position
110,000
Beneficial Owner
Percentage
of total
issued
ordinary
shares (%)
Percentage
of the
relevant class
of shares
in issue (%)
shares
Capacity
No. of
Long/short
position
Long position
A Share
Executive Director, President
Class of
shares
Position
Name
Tian Huiyu
As at 31 December 2018, 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:
4.9 Interests and short positions of Directors, Supervisors and chief
executives under Hong Kong laws and regulations
Annual Report 2018
IV Important Events
China Merchants Bank
76
75
As at the end of the reporting period, the net operating income contributed by the top 5 customers of the Company
did not exceed 30% of the total net operating income of the Company.
4.8 Principal customers
Details about retirement and welfare provided by the Company to its employees are detailed in Note 40 to the
financial statements.
4.7 Retirement and welfare
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.
0.00053
Neither the Company nor its subsidiaries had purchased, sold or repurchased any of the Company's listed securities
during the reporting period.
0.00044
Li Hao
A Share
A Share
A Share
Employee Supervisor
Supervisor
External Supervisor
Employee Supervisor
Jin Qingjun
Wang Wanging
Huang Dan
Supervisors, Employee
0.00036
0.00044
90,000
0.00009
0.00011
23,282
Interest of spouse
Beneficial Owner
Long position
Long position
A Share
A Share
Non-Executive Director
Chairman of Board of
Liu Yuan
Zhou Song
Executive Vice President
and Chief Financial Officer
0.00040
0.00048
100,000
Beneficial Owner
Long position
A Share
Executive Director, First
and Chief Executive Officer
Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, incompetent
personnel or IT systems of the Company, or external events.
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.
Annual Report 2018
III Report of the Board of Directors
China Merchants Bank
70
3.11.5 Operational risk management
Investment Holdings Co., Ltd.
Interest of controlled
2,202,555,520
corporation
Others
1,147,377,415
55,196,540
3,405,129,475
1
16.51
Long
Beneficial owner
A
13.50
China Merchants Finance
corporation
26.78
3.20
17.57
806,680,423 1
Interest of controlled
Long
H
32.73
1
6,752,746,952
55,196,540
Long
Best Winner Investment
Limited
Long
Others
China Merchants Bank
Annual Report 2018
8.73
10.68
1
2,202,555,520
corporation
Ltd.
944,013,171
Interest of controlled
Long
and Development Company
1,258,542,349
Beneficial owner
A
Long
Shenzhen Yan Qing Investment
1.30
7.16
1
328,776,923
Beneficial owner
Long
H
0.23
0.28
1
58,147,140
Beneficial owner
A
Long
3,408,080,075
V Changes in Shares and Information on Shareholders
China Merchants Bank emphasizes 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, China
Merchants Bank 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.
4.19 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.
4.20 Information on significant equity investments
In June 2018, the "Proposal on Capital Contribution of RMB2 billion to the National Financing Guarantee Fund"
was considered and approved at the 26th meeting of the 10th Session of the Board of Directors of the Company,
approving the Company to make a capital contribution of RMB2 billion to the National Financing Guarantee
Fund. The capital contribution will be made in the coming four years from 2018. During the reporting period, the
Company has completed the capital contribution of RMB500 million.
In July 2018, CMB Financial Leasing, the wholly-owned subsidiary of the Company, had made a capital increment of
RMB4.5 billion to its wholly-owned subsidiary, Zhaoyin Aviation and Shipping Financial Leasing Co., Ltd. (±
運金融租賃有限公司).
For the relevant details, please refer to the relevant announcements published by the Company on the websites of
Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
81
82
32
China Merchants Bank
Annual Report 2018
IV Important Events
4.21 Appointment of accounting firms and sponsors
After review, it was ascertained that the guarantee business of CMB was approved by the CBIRC, and it was carried
out in the ordinary course of business of the banks as a conventional business. As at 31 December 2018, the
balance of the irrevocable guarantees of China Merchants Bank was RMB242.047 billion.
According to the resolutions passed at the 2017 Annual General Meeting, the Company engaged Deloitte Touche
Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company for 2018 and Deloitte
Touche Tohmatsu as the international accounting firm of the Company for 2018. These two accounting firms have
been engaged as auditors of the Company since 2016.
The Company appointed UBS Securities Co., Ltd. and CM Securities as its sponsors for the non-public issuance
of domestic preference shares. During the reporting period, the Company paid remuneration of RMB9.30 million
(including sponsorship and underwriting fees) to UBS Securities Co., Ltd. and RMB8.70 million (including sponsorship
and underwriting fees) to CM Securities, respectively.
4.22 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. The Audit Committee under the Board of Directors of the Company has reviewed the
Company's annual report for 2018.
4.23 Annual general meeting
For the convening of its 2018 Annual General Meeting, the Company will make further announcement.
4.24 Explanation on changes in accounting policies
For details of the changes in the accounting policies of the Company during the reporting period, please refer to
Note 3 "Adoption of newly effective IFRSS and their amendments" to the financial statements.
4.25 Publication of annual report
The Company prepared the annual report in both English and Chinese versions in accordance with the International
Accounting 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.
China Merchants Bank
Annual Report 2018
V Changes in Shares and Information on Shareholders
Changes in Shares and Information on Shareholders
The financial statements of the Group for 2018 prepared under the PRC Generally Accepted Accounting Principles
and the internal control of the Group as at the year end of 2018 were audited by Deloitte Touche Tohmatsu Certified
Public Accountants LLP, and the financial statements for 2018 prepared under International Accounting Standards
were audited by Deloitte Touche Tohmatsu. The total audit fees (including fees for the audit on the financial
statements of our overseas branches, subsidiaries and their respective subsidiaries) amounted to approximately
RMB23,344,100, among which the audit fees for internal control was approximately RMB1,206,600.
corporation
In accordance with the relevant requirements of the CSRC and Shanghai Stock Exchange, the Independent
Non-Executive Directors of the Company carried out a due diligence review of the guarantees of the Company for
2018 on an open, fair and objective basis, and their opinions are as follows:
IV Important Events
Interest of controlled
Long
Navigation Co., Ltd.
3,289,470,337
Beneficial owner
80
China Merchants Bank
Annual Report 2018
IV Important Events
4.16.3 Confirmation from the Independent Non-Executive Directors and auditors
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:
1.
The transactions were entered into in the ordinary and usual course of business of the Company;
2.
Explanatory notes and independent opinions of the Independent Non-Executive
Directors towards the guarantees of China Merchants Bank
3.
The terms of the transactions are fair and reasonable, and are in the interest of the Company and its
shareholders as a whole;
The transactions were entered into on normal commercial terms or better terms; and
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 of Directors has confirmed the findings, conclusions and the
unqualified letter issued by Deloitte Touche Tohmatsu in respect of the aforesaid continuing connected 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.
4.16.4 Significant transactions with related parties
The significant transactions between the Company and related parties are set out in note 62 to the financial
statements. These transactions comprised those between the Company and its related parties in its ordinary course
of business, including borrowings, investments, deposits, securities trading, agency services, custody and other
fiduciary operations as well as off-balance sheet transactions. These transactions were conducted in the ordinary
course of business of the Company, which constituted connected transactions under the Hong Kong Listing Rules
and complied with the applicable requirements thereof.
4.17 Material litigations and arbitrations
Several lawsuits were filed during the daily operation of the Company, most of which were filed proactively for the
purpose of recovering non-performing loans. As at the end of the reporting period, there were 211 pending cases
(including litigations and arbitrations) in which the Company was involved, with an aggregate of principal and
interest of RMB870 million. The Company believes 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.
4.18 Material contracts and their performance
Significant events in respect of holding in custody, contracting, hiring or
leasing of assets
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.
Significant guarantees
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 CBIRC, there was no other
significant discloseable guarantees.
China Merchants Bank
Annual Report 2018
4.
Percentage
of the
Percentage
5.1 Changes in ordinary shares of the Company during the reporting
period
CNIC Corporation Limited
H
Long
Interest of controlled
477,903,500
4
10.41
1.89
corporation
89
Long
125,880,225
Investment manager
Long
26,465,550
Beneficial owner
Long
H
JPMorgan Chase & Co.
Company Limited
6.24
7.63
1,574,729,111
Beneficial owner
Long
A
China Ocean Shipping
1.89
10.41
4
477,903,500
Long
Approved lending agent
78,690,591
231,052,446
3
5.03
0.92
Short
Beneficial owner
2,037,902 3
0.04
0.01
Pagoda Tree Investment
4.99
H
Interest of controlled
477,903,500
4
10.41
1.89
Company Limited
corporation
(中國華馨投資有限公司)
Compass Investment Company
H
Long
Limited
Interest of controlled
corporation
Long
6.10
2
1,258,949,171
2
229,498,500
Interest of controlled
Long
H
corporation
Ltd.
10.72
13.11
2
2,704,596,216
Interest of controlled
Long
4.99
A
shares (%)
issue (%)
Notes
No. of shares
Capacity
position
shares
Shareholder
issued
ordinary
of shares in
Class of Long/short
Name of Substantial
of total
Anbang Insurance Group Co.,
relevant class
0.91
Anbang Life Insurance Co., Ltd.
Beneficial owner
Long
Hexie Health Insurance Co., Ltd. A
0.91
4.99
229,498,500 2
Beneficial owner
Long
H
5.73
7.01
1,445,647,116 2
corporation
corporation
1,258,949,171
Long
Insurance Company Ltd.
186,697,945
Beneficial owner
Long
A
Anbang Property & Casualty
4.99
6.10
1,258,949,100
Beneficial owner
Long
A
Interest of controlled
31 December 2017
Long
Changes in the
No. of shares
during the
reporting period
No. of shares
Domestic legal 754,798,622
person
Corporation Limited
China Securities Finance
9
moratorium
subject to trading
legal person
Investment and Development
Company Ltd.
A Shares not
2.99
3.74
State-owned
Shenzhen Chu Yuan
8
moratorium
subject to trading
legal person
Investment Holdings Co. Ltd.
A Shares not
4.55
944,013,171
A Shares not
subject to trading
moratorium
5.3 Information on substantial shareholders
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2018
The above shareholders do not hold the shares of the Company through credit securities accounts.
(4)
(3) During the reporting period, Anbang Property & Casualty Insurance Company Ltd. (hereinafter referred to as "Anbang Insurance")
transferred its 1,258,949,171 A shares and 1,258,949,100 A shares in the Company to Hexie Health and Anbang Life, respectively. After
the share transfer, Anbang Insurance, Hexie Health and Anbang Life together held 2,704,596,216 A shares and 229,498,500 H shares in
the Company, which together accounted for 11.63% of the total share capital of the Company.
Of the aforesaid top 10 shareholders, China Merchants Steam Navigation Co., 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. China Ocean Shipping Company Limited and COSCO Shipping (Guangzhou) Co., Ltd.
are controlled by China COSCO Shipping Corporation Limited. Hexie Health Insurance Co., Ltd. (hereinafter referred to as "Hexie Health")
and Anbang Life Insurance Co., Ltd. (hereinafter referred to as "Anbang Life") are controlled by Anbang Insurance Group Co., Ltd. The
Company is not aware of any affiliated relationships among other shareholders.
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.
(2)
Unknown
(share)
Shares
pledged
or frozen
-106,265,358
Notes: (1)
A Shares not
subject to trading
moratorium
legal person
2.76
696,450,214
State-owned
COSCO Shipping (Guangzhou)
Co., Ltd.
10
1,147,377,415
State-owned
China Merchants Finance
7
Domestic legal 1,258,949,171
person
-
Hexie Health Insurance Co.,
Ltd. Traditional Ordinary
insurance products
4
moratorium
subject to trading
A Shares not
6.24
1,574,729,111
State-owned
legal person
China Ocean Shipping
Company Limited
3
moratorium
subject to trading
legal person
Navigation Co., Ltd.
A Shares not
13.04
3,289,470,337
State-owned
China Merchants Steam
4.99
5.3.1 Information on the Company's largest shareholder
A Shares not
subject to trading
moratorium
subject to trading
Ltd.
legal person
and Development Company
A Shares not
4.99
1,258,542,349
State-owned
Shenzhen Yan Qing Investment
6
moratorium
subject to trading
1,258,949,100
A Shares not
4.99
Domestic legal 1,258,949,100
person
- Conservative Investment
Portfolio
Anbang Life Insurance Co., Ltd.
5
moratorium
1,258,949,171
2
China Merchants Steam Navigation Co., Ltd. is the largest shareholder of the Company. The company has a
registered capital of RMB7.0 billion, and its legal representative is Li Jianhong. It mainly engages 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.
The Company did not have any controlling shareholder and de facto controller. As at the end of the reporting
period, the equity relationship among the Company, its largest shareholder and the controlling shareholder of its
largest shareholder is illustrated as follows:
Capacity
Class of Long/short
shares position
Shareholder
Name of Substantial
of the
relevant class
Percentage
Percentage
As at 31 December 2018, 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 (in the report, any discrepancies between the total shown and the sum of the amounts listed
are due to rounding):
5.4 Substantial shareholders' and other persons' interests and short
positions in the Company under Hong Kong laws and regulations
China Merchants Group Ltd.
V Changes in Shares and Information on Shareholders
88
87
Hebei Port Group Co., Ltd.. As at the end of the reporting period, Hebei Port Group Co., Ltd. held 1.21%
of the shares of the Company and is a shareholder which has appointed Supervisors in the Company. There
was no pledge of the shares of the Company. Hebei Port Group Co., Ltd. was established on 28 August 2002
with a registered capital of RMB8 billion. The legal representative is Cao Ziyu and the de facto controller is
the State-owned Assets Supervision and Administration Commission of Hebei Province.
SAIC Motor Corporation Limited. As at the end of the reporting period, SAIC Motor Corporation Limited held
1.23% of the shares of the Company and is a shareholder which has appointed Supervisors in the Company.
There was no pledge of the shares of the Company. SAIC Motor Corporation Limited was established on
16 April 1984 and has a registered capital of RMB11.683 billion, and its legal representative is Chen Hong.
As at the end of the reporting period, Shanghai Automotive Industry Corporation (Group) held 71.24% of
the shares of SAIC Motor Corporation Limited, and therefore is its controlling shareholder, and its de facto
controller is the State-owned Assets Supervision and Administration Commission of Shanghai City. Shanghai
Automotive Industry Corporation (Group) was established on 1 March 1996 with a registered capital of
RMB21.599 billion, and its legal representative is Chen Hong.
China Communications Construction Company Limited. As at the end of the reporting period, China
Communications Construction Company Limited held 1.78% of the shares of the Company and is a
shareholder which has appointed Supervisors in the Company. China Communications Construction Company
Limited was established on 8 October 2006 with a registered capital of RMB16.174 billion, and its legal
representative is Liu Qitao. As at the end of the reporting period, China Communications Construction Group
(Limited) held 63.84% of the equity interests of China Communications Construction Company Limited, and
therefore is the controlling shareholder of China Communications Construction Company Limited, its de
facto controller is the State-owned Assets Supervision and Administration Commission of the State Council.
China Communications Construction Group (Limited) was established on 8 December 2005 with a registered
capital of RMB5.855 billion, and its legal representative is Liu Qitao. As at the end of the reporting period,
through its subsidiaries, namely China Communications Construction Company Limited, CCCC Guangzhou
Dredging Co., Ltd., CCCC Fourth Harbor Engineering Co. Ltd., CCCC Shanghai Dredging Co., Ltd., Zhen
Hua (Shenzhen) Engineering Co., Ltd. and CCCC Third Harbor Consultants Co. Ltd., China Communications
Construction Group (Limited) held in aggregate 2.27% of the shares of the Company. There was no pledge
of the shares of the Company.
3.
2.
Percentage
(%)
1.
China Merchants Bank
Annual Report 2018
A
Long
Interest of controlled
corporation
Long
A
China Merchants Steam
corporation
26.78
3.20
17.57
806,680,423 1
Interest of controlled
Long
H
32.73
1
6,752,746,952
55,196,540
Others
Long
shares (%)
of total
issued
ordinary
of shares in
issue (%)
Notes
No. of shares
6,697,550,412
5.3.3 Other substantial shareholders under the regulatory calibre
Annual Report 2018
V Changes in Shares and Information on Shareholders
China Merchants Bank
and Development Company Ltd.
China Merchants China
49%
Shenzhen Yan Qing Investment
27.59%
51%
1.89%
Best Winner
Investment Limited
China Merchants
Union (BVI) Limited
100%
50%
China Merchants International
Finance Company Limited
100%
China Merchants Finance
Investment Holdings Co. Ltd.
100%
China Merchants Holdings (Hong Kong) Company Limited
100%
China Merchants
Steam Navigation Co., Ltd.
100%
China Merchants Group Ltd.)
16,080
Direct Investments Limited
China Merchants Group Ltd. directly holds 100% equity interests of China Merchants Steam Navigation Co., Ltd. and
is the controlling shareholder of the Company's largest shareholder, with a registered capital of RMB16.7 billion. Its
legal representative is Li Jianhong. China Merchants Group Ltd. is a state-owned enterprise under the direct control
of State-owned Assets Supervision and Administration Commission of the State Council. Its predecessor, China
Merchants Steam Navigation Company, was founded in 1872, when China was in its late Qing Dynasty and was
undergoing the Westernisation Movement. It 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
diversified conglomerate, with its businesses focusing on three core industries, namely integrated transportation,
featured finance and comprehensive development of cities and industrial zones. It is realising the transformation
from three main businesses to three major platforms of industrial operation, financial services, investment and
capital operation.
50%
100%
China COSCO Shipping Corporation Limited. As at the end of the reporting period, China COSCO
Shipping Corporation Limited held 100% equity interests in China Ocean Shipping Company Limited and
is its controlling shareholder. Its de facto controller is State-owned Assets Supervision and Administration
Commission of the State Council. China COSCO Shipping Corporation Limited was established in February
2016, with a registered capital of RMB11.0 billion. Its legal representative is Xu Lirong. As at the end of
the reporting period, China COSCO Shipping Corporation Limited in aggregate held 9.97% shares in the
Company through China Ocean Shipping Company Limited, COSCO Shipping (Guangzhou) Co., Ltd.,
Guangzhou Haining Maritime Technology Consulting Co., Ltd. (NOTOKRT), COSCO
Shipping (Shanghai) Co., Ltd. (+1(1)), COSCO Shipping Financial Holdings Co.,
Limited and Shenzhen Sanding Oil Transport Trading Co., Ltd. (}|+=££££%), all being its
subsidiaries. There was no pledge of the shares of the Company.
China Ocean Shipping Company Limited. As at the end of the reporting period, China Ocean Shipping
Company Limited held 6.24% shares in the Company. China Ocean Shipping (Group) Company (the
predecessor of China Ocean Shipping Company Limited) was established on 22 October 1983, with a
registered capital of RMB16.191 billion. Its legal representative is Xu Lirong. The scope of its businesses
includes: international shipping; ancillary business in international maritime transportation; acceptance
of space booking, voyage charter and time charter from cargo owners at home and abroad; leasing,
construction, trading and maintenance of vessels and containers and manufacture of related facilities; ship
escrowing business; provision of ship materials, spare parts and communications services relating to shipping
business at home and abroad; management of enterprises engaging in vessel and cargo agency business and
seafarer assignment business.
Anbang Insurance Group Co., Ltd.. As at the end of the reporting period, Anbang Insurance Group Co., Ltd.
in aggregate held 11.63% shares in the Company through Anbang Insurance, Hexie Health and Anbang Life,
all being its subsidiaries, and it did not pledge any of its shares in the Company. The controlling shareholder
of Anbang Insurance Group Co., Ltd. is China Insurance Security Fund Co., Ltd.. The de facto controller of
China Insurance Security Fund Co., Ltd. is the Ministry of Finance. Anbang Insurance Group Co., Ltd. was
established on 15 October 2004, with a registered capital of RMB61.9 billion, and its legal representative
is He Xiaofeng. The scope of its businesses includes: investments in establishment of insurance enterprises;
supervision and management of various domestic and international businesses of the enterprises under
control with its investment; the investment businesses permitted under the PRC laws and regulations; the
insurance businesses permitted under the PRC laws and regulations; and other businesses approved by the
CBIRC.
2.
1.
5.3.2 Information on other shareholders holding more than 5% shares of the
Company
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2018
86
85
As at the end of the reporting period, 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. There was
no pledge of the shares of the Company. (In this report, any discrepancies between the total shown and the sum of
the amounts listed are due to rounding.)
China Merchants Bank Co., Ltd.
0.22%
3.74%
4.55%
13.04%
1.53%
4.99%
China Merchants Industry
Development (Shenzhen) Limited
and Development Company Ltd.
Shenzhen Chu Yuan Investment
50%
2,470,137
Trustee
Number
25,219,845,601
100.00
HKSCC Nominees Ltd.
100.00
As at the end of the reporting period, the Company had a total of 288,819 shareholders, including 255,217 holders
of A Shares and 33,602 holders of H Shares. Neither the holders of A Shares nor the holders of H Shares are subject
to trading moratorium.
As at the end of the previous month prior to the disclosure date of this report (namely 28 February 2019), the
Company had a total of 237,687 shareholders, including 204,204 holders of A Shares and 33,483 holders of H
Shares. Neither the holders of A Shares nor the holders of H Shares are subject to trading moratorium.
Based on the publicly available information and so far as the Directors were aware, as at the end of the reporting
period, the Company had met the public float requirement of the Hong Kong Listing Rules.
83
84
China Merchants Bank
Annual Report 2018
V Changes in Shares and Information on Shareholders
Total shares
5.2 Top ten holders of ordinary shares and top ten holders of
ordinary shares whose shareholdings are not subject to trading
moratorium
H Shares
(share)
period (share)
Type of shares
moratorium
the reporting
of shares
subject to
trading
Type of
shareholder
Changes in
Percentage
of total
share
capital (%)
18.03
1
Serial No. Name of shareholder
3.
25,219,845,601
18.20
31 December 2018
Percentage
No. of shares
(%)
No. of shares
1.
Shares subject to trading
moratorium
2.
Shares not subject to trading
moratorium
25,219,845,601
100.00
(4) Others
25,219,845,601
Shares held at
the end of the
period (share)
4,546,479,669
100.00
4,590,901,172
18.20
4,590,901,172
(H Shares)
(3) Foreign shares listed overseas
(2) Foreign shares listed domestically
81.80
20,628,944,429
81.80
20,628,944,429
(A Shares)
(1) Ordinary shares in RMB
Without cultural heritage, there is no spiritual source. The Bank will pass on the heritage of "China Merchant family and
Shekou gene (ÀOK' )" and, with the courage of "daring to become the pioneer" and adoption of a fault
tolerance mechanism, promote the "win-win" sharing culture. We will always keep at our original aspiration to business
transformation and reform, overcome economic cycles, seize opportunities, and challenge ourselves, so as to foster a
cultural atmosphere of "openness, integration, equality and inclusiveness".
2020 is the final year for China to develop into a well-off society and accomplish the 13th Five-Year Plan. The Bank will
work relentlessly to "outrun the market and outperform its peers" with stunning performance, create greater value and
open a new chapter of strong growth!
China Merchants Bank Co., Ltd.
Chairman
李进化
China Merchants Bank
Annual Report 2019
President's Statement
President's Statement
20 March 2020
28
Without sound risk control, there is no cornerstone for development. The Bank will continue to consolidate and enhance
the sound and prudent risk culture, continuously improve the risk management system, eliminate weaknesses, blind spots
and dead corners, optimise the allocation of major asset classes, and strengthen the management of various non-traditional
risks.
We remained energised and in good shape and delivered another satisfactory performance in 2019. As at the end of the
year, total assets of the Bank reached RMB7.42 trillion, 9.95% higher than the end of the previous year. Net operating
income and net profit attributable to shareholders of the Bank amounted to RMB269.788 billion and RMB92.867 billion,
a year-on-year increase of 8.59% and 15.28%, respectively. We continued to record an increase in ROAA and ROAE, a
decline in both the balance and percentage of non-performing loans and a rise in the allowance coverage ratio. More
importantly, we have opened up new room for future development: monthly active users (MAU) of CMB APP and CMB
Life APP exceeded 100 million. Digital transformation of retail finance is burgeoning as corporate finance digitalisation is
consolidating. Our cloud computing is in a leading position and features an open digital infrastructure cloud platform. We
are gaining more efficient growth while keeping our asset growth in check. We have gone beyond the expansion stage
centering on scale and structural enlargement and are now devoted to exploring the digital era.
Chairman's Statement
Annual Report 2019
Chairman's Statement
The development and reform process of the Bank is a concerto that persists in inheritance, transformation and innovation.
In 2019, with the strategic vision of "building the best commercial bank in China with innovation-driven development,
leading retail banking and distinguished features", we made unforgettable and proud achievements despite the complicated
business environment.
We adhered to the concept of dynamic and balanced development of quality, efficiency and scale, and continuously
created value with high-quality growth. Net profit attributable to shareholders of the Company for the year amounted to
RMB92.867 billion, a year-on-year increase of 15.28%. The weighted return on average equity (ROAE) rose to 16.84%,
which has continued to increase for three consecutive years. As at the end of 2019, the market price of our A Shares and
H Shares rose by 53% and 43%, respectively, from the beginning of the year, hitting a record high in market capitalisation.
At the same time, we took several measures to achieve the operational goal of "increase in both total loans and number
of loan customers, and control of both loan quality and overall costs" of inclusive finance and control the grant of real
estate loans. We consistently implemented the financial supply-side reform, prevented and mitigated major risks and
satisfied various regulatory requirements for supporting the development of real economy. We continuously optimised
asset allocation among major asset categories. As a result, the asset quality continued to improve, the amount and ratio of
non-performing loans both declined for three consecutive years, capital maintained its internal generation capacity, and the
core Tier 1 capital adequacy ratio kept rising, thus achieving a high-quality growth in a stable and controllable manner.
We are determined to transform and innovate, sow the seeds of innovation and explore possibilities for new business
models. Embracing the concept of coexistence and co-development and focusing on high-frequency living scenarios, we
cooperate with business partners to provide high-quality services for customers. The Company explored opportunities of
building a new and open ecological model by convening a partnership conference held by commercial banks for the first
time, at which the Company initiated the establishment of the "Forerunners' Alliance" to participate in coffee retail, travel
booking and movie ticket sales. Provisions about Fintech investment, market-based labour recruitment and allocation
mechanism and remuneration and incentive system were added into the Articles of Association. We keep on optimising our
staff's career development path and strengthen recruitment of and training given to Fintech talents. The establishment of
the "Egg Shell" communication platform is to grow the culture of "equality and inclusiveness". In 2019, the Company was
among the top five on the list of China's Best Employers of the Year compiled by Zhaopin.com. As such, our systems and
talents are well positioned to support innovation-driven development in the long run.
As a responsible corporate citizen we actively deliver our social responsibility. Poverty alleviation efforts have not stopped
for the past two decades for Wuding County and Yongren County of Yunnan Province. Specifically, poverty relief through
simultaneous development in education, industries and culture is taken forward to build self-development capacity in these
areas. Today, Yongren County has been lifted out of poverty while Wuding County has come a long way and is not far
from freeing itself from poverty. In the battle against the COVID-19 pandemic, we donated money to support Wuhan in no
time to facilitate the construction of the Huoshenshan hospital and Leishenshan hospital in Wuhan, provide convenience to
companies to purchase urgently needed medical supplies from overseas by opening a "Green Passage" for remittances, and
provide loan term extensions and other measures to help companies resume work and production. Drawing on the Bank's
stable, efficient, and convenient Fintech operation, high-quality online services are available for individuals and businesses to
participate in donation drives, among other ways to support the nationwide effort to win the battle against the pandemic
and ensure the stable operation of the national economy.
Without mechanism guarantee, there is no momentum for transformation. The Bank will uphold the corporate governance
system in which the President assumes full responsibility under the leadership of the Board of Directors, while insisting on,
and constantly enriching and improving the market-oriented incentive mechanism, so as to provide the reassurance and
support of systems and mechanisms for the transformation and innovation of the Bank.
Marking the advent of the third decade of the 21st century, this year is going to see more tumultuous changes in world
development trend and political landscape. The COVID-19 pandemic has huge adverse impact on worldwide economy,
society, finance and local people's lives, poses severe challenges to the state's governance system and capability and has
caused serious reflection among people. The China's banking industry is met with both challenges and opportunities: On the
one hand, the economic growth rate of China trends downward; the Sino-US trade relation is mired in great uncertainty;
interest rate liberalisation is taken further; and banking disintermediation among young customers is underway, all of which
pose grave challenges to the operation and management of banking industry. On the other hand, it is evident that the
quality of China's economic development is right on an improving trend and financial supply-side reforms are taken forward,
which coupled with the growing wealth of residents and deepening of technology applications, as well as the structural and
long-lasting opportunities opened up by the pandemic-caused changes in living, production and business models, will fuel
the high-quality development of the banking industry.
Chairman
6
China Merchants Bank
Annual Report 2019
Chairman's Statement
How to overcome challenges, seize opportunities and make new achievements for the Bank? Our answer remains
unchanged, that is, adhering to inheritance, transformation and innovation.
Without characteristics, there is no competitiveness. The Bank will adhere to its long established retail banking
characteristics, give full play to the innovation of the "openness and integration" model and the digital innovation
achievements, and forge new characteristics for our businesses with a wide range of connections, multiple connection
points and a high degree of digitalisation.
Without innovation, there is no foundation for everlasting growth. In the long run, the Bank will use Fintech to gain
insights into customer needs, improve service methods and improve operation efficiency, while continuously improving the
model innovation for building an ecosystem with partners. At the same time, it will further increase its efforts in digital
transformation, continuously accumulate and consolidate innovation capabilities, further enhance our capabilities in digital
customer acquisition, business operation and risk control, promote continuous improvement in operation and management
efficiency, so as to form a sustainable, scalable, iterative and upgrading innovation system for the Bank.
Li Jianhong
These results are acquired through the abiding supports and encouragement from hundreds of millions of customers, which
urged us to keep our commitment that "we are here just for you", and we change for you in step with the situation. The
results are also attributed to the Fintech revolution over the past decade which has defined the characteristics of the Bank's
new business model. They are also achieved through our unswerving strategic resolve over the past decade: a deeper
transformation for "Light-operation Bank", which has been constantly levered by the technology benefits of "All-in-one
Card" and the Bank's head start in retail banking brought forth by "The First Transformation".
2
Facing the digital world, we are growing in constant collisions with reality, and our biggest gain is that the entire
organisation has gradually gotten a feeling about digital transformation, just as we have felt about services in the retail
business over the past decade, which has deeply penetrated into the core of our systematic ability. We are constantly
subverting our cognition through trials and errors: we followed our customers into new living scenarios, but found
ourselves as strangers. We strived to forge digital operations, but found that the infrastructure is not sufficient enough. We
wanted to gear into the fast lane of technology advancement, but felt that the organisational evolvement lagged behind.
We wanted to simplify our organisation, but found that the culture is not open and inclusive enough, which made us falter.
We saw our ignorance and insignificance among the stars of the Fintech in the digital era.
3.3 Analysis of Balance Sheet
M 招商銀行
CHINA MERCHANTS BANK
CHINA MERCHANTS BANK CO., LTD.
(a joint stock company incorporated in the
People's Republic of China with limited liability)
H Share Stock Code: 03968
Preference Share Stock Code: 04614
2019 Annual Report
We are here
Just for you
China Merchants Bank
Annual Report 2019
Contents
Contents
After the first half of the transformation, our "Light Assets" operation achieved remarkable results, giving us the courage
to abandon the dependence on "sheer scale" and seize the opportunity to succeed in structure. As the transformation of
"Light-operation Bank" progressed, we recognised that the power of science and technology was the only force that may
subvert the business model of commercial banks, and to truly help us realise "Light Operation" and "Light Management".
Therefore, we take a clear-cut stand to build a Digital Bank with the focus on exploring new digital business models for
development stage 3.0 in the second half of the transformation.
1
Important Notice
Definitions
3
President
Tian Huiyu
The root of openness and integration is the change of culture. Culture is the primary level of productivity and is a
tacit value network that links individuals and connects individuals and organisations. If management is a process of filling
a container, then system is the stone, the manager is sand and corporate culture is water. Corporate culture, like water, is
ubiquitous and nourishing. With an organisation's cultural consciousness, many issues that cannot be covered by system
and people can be addressed.
Integration is to improve service capability. In the digital era, market competition is no longer competition in individual
products and business lines, but the competition in the overall ecosystems. This requires us to break down the internal
silos and erase business boundaries, draw in energetic forces to act on the market, serve customers, increase service value
through service packages, and enhance service stickiness. Openness and integration are two sides of the same coin. Only
with openness can we obtain access to more services and richer customer needs, so as to stimulate the ability to integrate;
only through integration can we form a complete service ecosystem and further create value for openness.
Openness and integration go with new requirements for our organisational evolution and management upgrades.
We are committed to breaking down boundaries in both organisation and operation to forge more task-oriented teams.
We work hard to improve middle office capabilities and foster an empowering organisation: build an open, agile and
iterative system at middle office, decouple the system, achieve modular-based and product-based functions, and open up
all business systems starting from basic setting of technologies. We aim to build a middle office with strong data capability,
regard data as core assets, connect internal and external data and improve the big data governance system. We strive to
build a pro-business middle office, build a powerful "General Staff Section", empower the market and reduce the burden
of front office staff. We expect to build a virtuous cycle where middle office empowers front office, which in turn improves
the iteration of middle office, so that the organisation of the Bank can be self-evolved.
Openness is to seek service opportunities. In the digital era, for customers, finance is just a tool, personal life and
business operations are the purpose. Humdrum and isolated financial services are becoming more and more difficult to
reach customers. We must follow in the footsteps of customers to identify and adopt the new channel connecting to
financial services in the digital era. We will build or cut into customers' financial service ecosystem. The construction of
CMB's retail finance-based ecological service platform based on CMB APP and CMB Life APP has begun to take shape. We
will "bring in" companies more vigorously, build an ecosystem with our partners, focus on forming advantageous scenarios
to cultivate and strengthen user habits. We must stride to "go out", open type II and type III accounts, and output financial
service capabilities through API interface to establish a wider ecological alliance. The digitalisation of business operations
is an important entrance for customer services in the future. We will seek to use enterprise digital services as the initial
product offer to help corporate customers construct their own industrial Internet, and use asset management ecological
services as the tipping point to participate in ecosystem construction of financial institution customers.
President's Statement
China Merchants Bank
Annual Report 2019
8
We keep a low-profile like an ignorant teenager to embrace the golden digital era. With curiosity and awe, we are
enthusiastically looking for the key to unlock our digital doors: openness and integration.
China Merchants Bank
4
3
The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures.
Please refer to Chapter III for the details in relation to risk management.
Significant Risk Warning
4
Chairman's Statement
7
President's Statement
12
I Company Information
17
Il Summary of Accounting Data and Financial Indicators
21
III Report of the Board of Directors
21
3.1 Analysis of Overall Operation
21
3.2 Analysis of Income Statement
109
V Changes in Shares and Information on Shareholders
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
126
VII Corporate Governance
144
VIII Report of the Board of Supervisors
145
IX Financial Statements
2
33
China Merchants Bank
3.4 Analysis of Loan Quality
3.5 Analysis of Capital Adequacy Ratio
IV Important Events
96
3
87
3.16 Permitted Indemnity Provision
85
3.15 Management Contracts
85
3.14 Compliance with Relevant Laws and Regulations
85
3.13 Requirements of the Environmental, Social and Governance Reporting Guide
85
3.12 Profit Appropriation
83
3.11 Risk Management
76
3.10 Business Operation
57
3.9 Changes in External Environment and Corresponding Measures
46
3.8 Implementation of Business Development Strategies
43
3.7 Other Financial Disclosures under the Regulatory Requirements
42
3.6 Results of Operating Segments
39
Important Notice
42
Important Notice
CMB Wing Lung Bank Limited
CMB Wing Lung Group:
CMB Wing Lung Bank and its subsidiaries
CMB Financial Leasing or CMBFL:
CMB Financial Leasing Co., Ltd.
CMB International Capital or CMBIC:
CMB International Capital Holdings Corporation Limited
CMB Wealth Management:
CMB Wealth Management Company Limited
China Merchants Fund or CMFM:
China Merchants Fund Management Co., Ltd.
CMB Wing Lung Bank:
CIGNA & CMB Life Insurance Co., Ltd.
Merchants Union Consumer Finance Company Limited
CM Securities:
China Merchants Securities Co., Ltd.
Deloitte Touche Tohmatsu Certified Public
Accountants LLP:
Deloitte Touche Tohmatsu Certified Public Accountants LLP
(Special General Partnership)
SFO:
Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong)
Significant Risk Warning
Annual Report 2019
Model Code for Securities Transactions by Directors of
Listed Issuers of Hong Kong Stock Exchange
MUCFC:
The Rules Governing the Listing of Securities on the SEHK
CIGNA & CMB Life Insurance:
The Stock Exchange of Hong Kong Limited
1.
2.
3.
Hong Kong Listing Rules:
4.
5.
6.
7.
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.
The 9th meeting of the Eleventh Session of the Board of Directors of the Company was held by way of remote
video conference on 20 March 2020. The meeting was presided by Li Jianhong, Chairman of the Board of Directors.
17 out of 17 eligible Directors attended the meeting in person. 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..
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu (both being auditors of the
Company) have separately reviewed the 2019 annual financial report prepared in accordance with the PRC Generally
Accepted Accounting Principles and International Accounting Standards, and issued standard auditing reports with
unqualified opinions.
Unless otherwise stated, all monetary sums stated in this annual report are expressed in RMB.
Li Jianhong, Chairman of the Company, Tian Huiyu, President and Chief Executive Officer, Wang Liang, 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.
The profit appropriation plan: it was proposed that 10% of the audited net profit of the Company for 2019
of RMB86.085 billion, equivalent to RMB8.609 billion, will be allocated to the statutory surplus reserve, while
1.5% of the total amount of the risk assets, equivalent to RMB10.002 billion, will be 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 will declare a cash dividend of RMB1.20 (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 profit appropriations amount in HKD would be calculated
based on the average benchmark rate for RMB to HKD published by the People's Bank of China for the previous
week (including the day of the general meeting) before the date of the general meeting. The retained profits will be
carried forward to the next year. In 2019, the Company did not transfer any capital reserve into share capital. The
above profit appropriation plan is subject to consideration and approval at the 2019 Annual General Meeting of the
Company.
Model Code:
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.
Hong Kong Stock Exchange or SEHK:
China Securities Regulatory Commission
CBIRC:
China Merchants Bank and its subsidiaries
The Group:
China Banking and Insurance Regulatory Commission
CSRC:
Definitions
Annual Report 2019
China Merchants Bank
Definitions / Significant Risk Warning
The Company, the Bank, CMB or China Merchants Bank:
China Merchants Bank Co., Ltd.
7
moratorium
subject to trading
Ltd.
legal person
A Shares not
4.99
China Merchants Finance
1,258,542,349
State-owned
Shenzhen Yan Qing Investment
and Development Company
State-owned
subject to trading
4.55
A Shares not
Investment Holdings Co. Ltd.
legal person
6
moratorium
8
Hong Kong Securities Clearing
Company Limited
Overseas legal 1,017,326,161
moratorium
4.03
person
subject to trading
331,710,060
1,147,377,415
A Shares not
(share)
subject to trading
9
the reporting moratorium
subject to
trading
Shares
pledged
or frozen
Type of shares
period (share)
(share)
3
China Ocean Shipping
Company Limited
State-owned
legal person
1,574,729,111
6.24
A Shares not
subject to trading
moratorium
moratorium
Hexie Health Insurance Co.,
Ltd. Traditional Ordinary
insurance products
Domestic legal 1,258,949,171
4.99
A Shares not
-
person
subject to trading
moratorium
5
Anbang Life Insurance Co., Ltd.
- Conservative Investment
Portfolio
Domestic legal 1,258,949,100
person
4.99
A Shares not
4
Shenzhen Chu Yuan
Direct Investments Limited
944,013,171
China Merchants
Steam Navigation Co., Ltd.
100%
China Merchants Holdings (Hong Kong) Company Limited
100%
China Merchants Finance
Investment Holdings Co. Ltd.
100%
China Merchants International
Finance Company Limited
100%
50%
China Merchants
Union (BVI) Limited
Best Winner
Investment Limited
1.89%
51%
100%
27.59%
49%
China Merchants China
Changes in
50%
50%
Shenzhen Chu Yuan Investment
and Development Company Ltd.
100%
China Merchants Industry
Development (Shenzhen) Limited
4.99%
1.53%
13.04%
4.55%
3.74%
0.22%
Shenzhen Yan Qing Investment
and Development Company Ltd.
State-owned
China Merchants Group Ltd.)
China Merchants Group Ltd. directly holds 100% equity interests in China Merchants Steam Navigation Co., Ltd. and
is the controlling shareholder of the Company's largest shareholder, with a registered capital of RMB16.7 billion. Its
legal representative is Li Jianhong. China Merchants Group Ltd. is a state-owned enterprise under the direct control
of State-owned Assets Supervision and Administration Commission of the State Council. Its predecessor, China
Merchants Steam Navigation Company, was founded in 1872, when China was in its late Qing Dynasty and was
undergoing the Westernisation Movement. It 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
diversified conglomerate, with its businesses focusing on three core industries, namely integrated transportation,
featured finance and comprehensive development of cities and industrial zones. It is realising the transformation
from three main businesses to three major platforms of industrial operation, financial services, investment and
capital operation.
3.74
A Shares not
Investment and Development
Company Ltd.
legal person
subject to trading
10
China Securities Finance
Domestic legal
754,798,622
2.99
Corporation Limited
person
Notes: (1)
(2)
The Company did not have any controlling shareholder and de facto controller. As at the end of the reporting
period, the equity relationship among the Company, its largest shareholder and the controlling shareholder of its
largest shareholder is illustrated as follows (in this report, any discrepancies between the total shown and the sum of
the amounts listed are due to rounding):
(3)
A Shares not
subject to trading
moratorium
Shares held by HKSCC Nominees Ltd. are the total shares in the accounts of holders of H Shares of China Merchants Bank trading on the
transaction platform of HKSCC Nominees Ltd.. Hong Kong Securities Clearing Company Limited is an institution designated by others to
hold shares on behalf of them as a nominal holder, and the shares held by it are the shares of China Merchants Bank acquired by investors
through Shanghai-Hong Kong Stock Connect.
Pursuant to the approval by CBIRC, Anbang Life Insurance Co., Ltd. has been renamed as Dajia Life Insurance Co., Ltd. and its controlling
shareholder has been changed from Anbang Insurance Group Co., Ltd. to Dajia Insurance Group Co., Ltd.. The change of the names of
its shareholders' accounts is still subject to completion of relevant procedures at China Securities Depository & Clearing Corporation Ltd.,
Shanghai Branch. For details, please refer to the announcement of the Company dated 28 August 2019.
As at the end of the reporting period, of the aforesaid top 10 shareholders, HKSCC Nominees Ltd. is a wholly-owned subsidiary of Hong
Kong Securities Clearing Company Limited; China Merchants Steam Navigation Co., 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 all subsidiaries of China Merchants Group Ltd.; the ultimate controlling shareholder of both Hexie Health Insurance Co., Ltd. and
Dajia Life Insurance Co., Ltd. is China Insurance Security Fund Co., Ltd.. The Company is not aware of any affiliated relationship or action
in concert among other shareholders.
(4)
The above holders of A Shares did not hold the shares of the Company through credit securities accounts.
97
98
China Merchants Bank
V Changes in Shares and Information on Shareholders
Annual Report 2019
5.3 Information on Substantial Ordinary Shareholders
5.3.1 Information on the Company's largest shareholder
As at the end of the reporting period, China Merchants Group Ltd., through its subsidiaries, namely China Merchants
Steam Navigation Co., Ltd., China Merchants Finance Investment Holdings Co., Ltd., Shenzhen Yan Qing Investment
and Development Company Ltd., Shenzhen Chu Yuan Investment and Development Company Ltd., China Merchants
Union (BVI) Limited, Best Winner Investment Limited and China Merchants Industry Development (Shenzhen) Limited,
indirectly held an aggregate of 29.97% shares in the Company. There was no pledge of the shares of the Company.
Among which, China Merchants Steam Navigation Co., Ltd. directly held 13.04% shares in the Company, and is the
largest shareholder of the Company. China Merchants Steam Navigation Co., Ltd. has a registered capital of RMB7.0
billion, and its legal representative is Li Jianhong. It mainly engages in passenger and cargo shipping businesses;
dockyard, warehouse and vehicle transportation; sale, purchase and supply of various transportation equipment,
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.
moratorium
Percentage
of the total
share
capital (%)
Based on the publicly available information and so far as the Directors were aware, as at the end of the reporting
period, the Company had met the public float requirement of the Hong Kong Listing Rules.
Type of
shareholders
China Merchants Bank
Annual Report 2019
After review, it was ascertained that the external guarantee business of China Merchants Bank was approved by
the CBIRC, and it was carried out in the ordinary course of business of banks as a conventional business. As at 31
December 2019, the balance of the irrevocable guarantees of China Merchants Bank was RMB201.427 billion.
China Merchants Bank emphasises the 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, China
Merchants Bank has enhanced risk monitoring and safeguarded this business through management means such as
on-site and off-site inspections. During the reporting period, the guarantee business of China Merchants Bank had
been in normal operation and there were no non-compliant guarantees.
In accordance with the relevant requirements of the CSRC and Shanghai Stock Exchange, the Independent Non-
Executive Directors of the Company carried out a due diligence review of the external guarantees of the Company
for 2019 on an open, fair and objective basis, and issued their opinions on the special review as follows:
Explanatory notes and independent opinions of the Independent Non-Executive
Directors on 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 CBIRC, the Company did not have
any other significant discloseable guarantees.
Significant guarantees
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 banks.
Significant events in respect of holding in custody, contracting, hiring or
leasing of assets
IV Important Events
4.18 Material Contracts and Their Performance
4.17 Material Litigations and Arbitrations
The significant transactions between the Company and related parties are set out in note 61 to the financial
statements. These transactions comprised those between the Company and its related parties in its ordinary
course of business, including borrowings, investments, deposits, securities trading, agency services, custody and
other fiduciary operations as well as off-balance sheet transactions. These transactions were conducted on normal
commercial terms in the ordinary course of business of the Company, which constituted the connected transactions
under the Hong Kong Listing Rules and complied with the applicable requirements thereof.
4.16.4 Significant transactions with related parties
Annual Report 2019
IV Important Events
China Merchants Bank
92
92
Several litigations were filed during the daily operation of the Company, most of which were filed proactively for
the purpose of recovering non-performing loans. As at the end of the reporting period, there were 213 pending
cases (including litigations and arbitrations) in which the Company was involved, with an aggregate of principal and
interest of RMB1.204 billion. The Company believes 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.
91
4.19 Use of Funds by Related Parties
4.20 Information on Significant Equity Investments
The Company prepared its annual report in both English and Chinese versions in accordance with the International
Accounting Standards and the Hong Kong Listing Rules, which 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 COVID-19 pandemic started to break out across the country in January 2020. It is expected that in a short
period of time, it will have a significant impact on the operation of enterprises in certain provinces, especially Hubei
Province, cities and certain industries, as well as the overall economic situation, which may in turn affect the return
on equity or asset quality of the credit assets and investment assets of the Company to some extent, depending on
the situation and duration of the fight against the pandemic, the implementation of various regulatory policies and
other factors.
4.25 Post-balance Sheet Events
For details of the changes in the accounting policies of the Company during the reporting period, please refer to
Note 3 "Application of new and amendments to IFRSS" to the financial statements.
4.24 Explanation on Changes in Accounting Policies
For the convening of its 2019 Annual General Meeting, the Company will make further announcement.
4.23 Annual General Meeting
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu, the external auditors of
the Company, 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. The Audit Committee under the Board of Directors of the Company has reviewed the
Company's annual report for 2019.
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.
4.22 Review of Annual Results
China Merchants Bank
Annual Report 2019
94
93
The Company has appointed UBS Securities Co., Ltd. and CM Securities as its sponsors for the non-public issuance
of domestic preference shares since 2017, and the period of their continuous supervision over the Company had
expired on 31 December 2019. The Company paid all the remuneration (including sponsorship and underwriting
fees) to its sponsors in 2018.
The financial statements of the Company for 2019 prepared under the PRC Generally Accepted Accounting Principles
and the internal control of the Company as at the year end of 2019 were audited by Deloitte Touche Tohmatsu
Certified Public Accountants LLP, and the financial statements for 2019 prepared under International Accounting
Standards were audited by Deloitte Touche Tohmatsu. The total audit fees amounted to approximately RMB23.93
million, among which the audit fees for internal control was approximately RMB1.34 million. The Company paid the
total non-audit fees of approximately RMB12.20 million to Deloitte Touche Tohmatsu Certified Public Accountants
LLP and Deloitte Touche Tohmatsu for the current year. Deloitte Touche Tohmatsu Certified Public Accountants LLP
and Deloitte Touche Tohmatsu confirmed that the provision of such non-audit services would not compromise their
audit independence.
According to its resolutions passed at the 2018 Annual General Meeting, the Company engaged Deloitte Touche
Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company and its domestic
subsidiaries for 2019 and Deloitte Touche Tohmatsu as the international accounting firm of the Company and its
overseas subsidiaries for 2019. These two accounting firms have been engaged as auditors of the Company since
2016. Zeng Hao and Zhu Wei are the certified public accountants who signed the audit report on the Company's
financial statements for 2019 prepared in accordance with the PRC Generally Accepted Accounting Principles, who
have been serving as the public accountants signing the financial statements of the Company since 2016 and 2017,
respectively.
4.21 Appointment of Accounting Firms and Sponsors
The Company obtained the approval from the CBIRC in November 2019 for the commencement of business of
CMB Wealth Management, a wholly-owned subsidiary of the Company. At present, CMB Wealth Management has
officially commenced operation. For details, please refer to the relevant announcements published by the Company
on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
IV Important Events
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 of Directors has confirmed the findings, conclusions and the
unqualified letter issued by Deloitte Touche Tohmatsu in respect of the aforesaid continuing connected 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 the SEHK.
4.
The transactions were entered into on normal commercial terms or better terms;
4.16.1 Overview of connected transactions
4.16 Significant Connected Transactions 16
Annual Report 2019
IV Important Events
China Merchants Bank
90
00
99
A majority of the continuing connected transactions of the Company met the de minimis exemption and the non-
exempt continuing connected transactions fulfilled the reporting and announcement requirements under the Hong
Kong Listing Rules.
China Merchants Bank
Annual Report 2019
5.3.2 Information on other shareholders holding more than 5% shares of the
Company
1. As at the end of the reporting period, Hexie Health Insurance Co., Ltd. and Dajia Life Insurance Co., Ltd.
each held 4.99% shares in the Company, so that they held an aggregate of 9.98% shares in the Company,
and did not pledge any of its shares in the Company. In particular:
2.
(1)
(2)
The controlling shareholder of Hexie Health Insurance Co., Ltd. is Anbang Insurance Group Co.,
Ltd.. The controlling shareholder of Anbang Insurance Group Co., Ltd. is China Insurance Security
Fund Co., Ltd.. The de facto controller of China Insurance Security Fund Co., Ltd. is the Ministry of
Finance. Anbang Insurance Group Co., Ltd. was established on 15 October 2004, with a registered
capital of RMB41.539 billion, and its legal representative is He Xiaofeng. The scope of its businesses
includes: investments in establishment of insurance enterprises; supervision and management of
various domestic and international businesses of the enterprises under control with its investment; the
investment business permitted under the PRC laws and regulations; the insurance business permitted
under the PRC laws and regulations; and other businesses approved by the CBIRC.
Dajia Life Insurance Co., Ltd. is formerly known as Anbang Life Insurance Co., Ltd. before change
of name, and its controlling shareholder is Dajia Insurance Group Co., Ltd.. On 23 August 2019,
pursuant to the approval by the CBIRC, Anbang Life Insurance Co., Ltd. was renamed as Dajia Life
Insurance Co., Ltd. and its controlling shareholder was changed from Anbang Insurance Group Co.,
Ltd. to Dajia Insurance Group Co., Ltd.. The controlling shareholder of Dajia Insurance Group Co., Ltd.
is China Insurance Security Fund Co., Ltd.. The de facto controller of China Insurance Security Fund
Co., Ltd. is the Ministry of Finance. Dajia Insurance Group Co., Ltd. was established on 25 June 2019,
with a registered capital of RMB20.36 billion, and its legal representative is He Xiaofeng. The scope
of its businesses includes: investments in and holding of the shares of insurance enterprises and other
financial institutions; supervision and management of various domestic and international businesses
of the enterprises under control with its investment; the investment business and insurance fund
utilisation business permitted under the PRC laws and regulations; the insurance business permitted
by the CBIRC; and other businesses approved by the CBIRC and other relevant authorities of the PRC.
As at the end of the reporting period, China COSCO Shipping Corporation Limited indirectly held an
aggregate of 9.97% shares in the Company through its subsidiaries, namely China Ocean Shipping Company
Limited, COSCO Shipping (Guangzhou) Co., Ltd., Guangzhou Haining Maritime Technology Consulting Co.,
Ltd. (R2), COSCO Shipping (Shanghai) Co., Ltd. ( (EF) ĦRAĀ),
COSCO Shipping Financial Holdings Co., Ltd. and Shenzhen Sanding Oil Transport Trading Co., Ltd. (
=+\X\). There was no pledge of the shares of the Company. Among which, China Ocean
Shipping Company Limited held 6.24% shares in the Company. China Ocean Shipping (Group) Company
(the predecessor of China Ocean Shipping Company Limited) was established on 22 October 1983, with
a registered capital of RMB16.191 billion. Its legal representative is Xu Lirong. The scope of its businesses
includes: international shipping; ancillary business in international maritime transportation; acceptance
of space booking, voyage charter and time charter from cargo owners at home and abroad; leasing,
construction, trading and maintenance of vessels and containers and manufacture of related facilities; ship
escrowing business; provision of ship materials, spare parts and communications services relating to shipping
business at home and abroad; management of enterprises engaging in vessel and cargo agency business and
seafarer assignment business.
China COSCO Shipping Corporation Limited held 100% equity interests in China Ocean Shipping Company
Limited and is its controlling shareholder. Its de facto controller is the State-owned Assets Supervision and
Administration Commission of the State Council. China COSCO Shipping Corporation Limited was established
in February 2016, with a registered capital of RMB11.0 billion. Its legal representative is Xu Lirong. The scope
of its businesses includes: international shipping; ancillary business in international maritime transportation;
imports and exports of goods and technology; marine, land, aviation international freight forwarding
business; ship leasing; sales of ships, containers and steel products; offshore engineering equipment
design; terminal and port investment; communication equipment sales, information and technical services;
warehousing (except hazardous chemicals); engaged in technology development, technology transfer,
technical consulting, technical services and equity investment funds in the field of shipping and spare parts.
V Changes in Shares and Information on Shareholders
4.16.2 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"), and CM Securities and its associates (hereinafter referred to as "CM Securities Group"), respectively.
With the approval of the Board of Directors of the Company, on 13 December 2016, the Company announced that
the annual caps for the continuing connected transactions with CMFM Group for the years of 2017, 2018 and 2019
were RMB2.5 billion, RMB3.8 billion and RMB5.8 billion, respectively. On 27 March 2018, the Company announced
that the annual caps for the continuing connected transactions with CM Securities Group for the years of 2018,
2019 and 2020 were RMB500 million. For details of the above continuing connected transactions, please refer to
the relevant announcements issued by the Company on 13 December 2016 and 27 March 2018, respectively.
CMFM Group
At the end of the 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. The
fund distribution agency service provided by the Company to CMFM Group constituted the continuing connected
transactions of the Company under the Hong Kong Listing Rules.
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.
1. The transactions were entered into in the ordinary and usual course of business of the Company;
The Independent Non-Executive Directors of the Company have reviewed the above-mentioned non-exempt
continuing connected transactions between the Company and each of CMFM Group and CM Securities Group and
confirmed that:
4.16.3 Confirmation from the Independent Non-Executive Directors and auditors
In 2019, the continuing connected transactions between the Company and CM Securities Group amounted to
RMB84 million.
The annual cap for the continuing connected transactions between the Company and CM Securities Group for 2019
was RMB500 million, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07
of the Hong Kong Listing Rules were not more 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.
On 27 March 2018, the Company entered into a Business Co-operation Agreement with CM Securities for a term
commencing on 1 January 2018 and expiring on 31 December 2020. The agreement was entered into on normal
commercial principles after an arm's length negotiation, pursuant to which CM Securities Group shall pay the service
fees to the Company at the normal market prices.
At the end of the reporting period, China Merchants Group Ltd. indirectly held 29.97% of the 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% of the equity interest in CM Securities, CM Securities Group is a connected
person of the Company under the Hong Kong Listing Rules. The third-party custodian accounts, sales of funds,
account custodian, the agency sales for wealth management products and collective investment products and other
services provided by the Company to CM Securities Group constituted the continuing connected transactions of the
Company under the Hong Kong Listing Rules.
CM Securities Group
IV Important Events
China Merchants Bank
Annual Report 2019
"Connected Transaction(s)" and "Connected Parties" in this section are the terms of the Hong Kong Listing Rules.
16
The Company and CMFM entered into the new Fund Business Co-operation Agreement on 3 December 2019 for a
term of three years commencing on 1 January 2020 and expiring on 31 December 2022. The agreement was entered
into on an arm's length basis and calculated on normal commercial terms. CMFM Group shall calculate fees based
on the rates specified in the fund offering documents and/or the offering prospectuses, and pay agency service fees
to the Company in accordance with the agreement. For details of the Fund Business Co-operation Agreement, please
refer to the relevant announcement of the Company dated 3 December 2019.
In 2019, the continuing connected transactions between the Company and CMFM Group amounted to RMB1.081
billion.
The annual cap for the continuing connected transactions between the Company and CMFM Group for 2019 was
RMB5.8 billion, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07 of
the Hong Kong Listing Rules were not more 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.
On 13 December 2016, the Company entered into a Business Co-operation Agreement with CMFM for a term
commencing on 1 January 2017 and expiring on 31 December 2019. The agreement was entered into on normal
commercial principles after an arm's length negotiation. The agency service fees payable by CMFM Group shall 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 Company also prepared its 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.
Shares held at
the end of the
period (share)
Simple Work Style
both difficult and easy.
Shares
Number
of shares
subject to
trading
moratorium
Changes in
the reporting
period (share)
Type of shares
Percentage
of the total
share
capital (%)
18.03
Shares held at
the end of the
period (share)
4,548,278,354
Type of
shareholders
Overseas legal
person
HKSCC Nominees Ltd.
pledged
1
5.2 Top Ten Holders of Ordinary Shares and Top Ten Holders of
Ordinary Shares Whose Shareholdings are not Subject to Trading
Moratorium
As at the end of the previous month prior to the disclosure date of this report (i.e. 29 February 2020), the Company
had a total of 355,287 shareholders, including 322,658 holders of A Shares and 32,629 holders of H Shares. Neither
the holders of A Shares nor the holders of H Shares are subject to trading moratorium.
As at the end of the reporting period, the Company had a total of 263,863 shareholders, including 231,096 holders
of A Shares and 32,767 holders of H Shares. Neither the holders of A Shares nor the holders of H Shares are subject
to trading moratorium.
100.00
25,219,845,601
100.00
25,219,845,601
Total shares
Serial No. Name of shareholders
3.
or frozen
H Shares not
Serial No. Name of shareholders
of shares
Number
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2019
moratorium
subject to trading
A Shares not
(share)
moratorium
13.04
3,289,470,337
State-owned
legal person
Navigation Co., Ltd.
China Merchants Steam
2
(share)
Unknown
1,798,685
subject to trading
(4) Others
18.20
4,590,901,172
No. of shares
31 December 2018
1. Shares subject to trading
moratorium
5.1 Changes in Ordinary Shares of the Company During the
Reporting Period
Changes in Shares and Information on Shareholders
Annual Report 2019
V Changes in Shares and Information on Shareholders
China Merchants Bank
Percentage
(%)
96
Oll
> > >
Oll
貝
"
finding them.
worse than not
Ignoring problems is
H
Changes in the
No. of shares
during the
reporting period
31 December 2019
No. of shares
18.20
4,590,901,172
(H Shares)
(3) Foreign shares listed overseas
(2) Foreign shares listed domestically
81.80
20,628,944,429
81.80
20,628,944,429
Shares)
(1) Ordinary shares in RMB (A
100.00
25,219,845,601
100.00
25,219,845,601
Shares not subject to trading
moratorium
2.
Percentage
(%)
No. of shares
" Getting hands dirty is
4.26 Publication of Annual Report
99
China Merchants Bank Co., Ltd.
17.57
806,680,423 1
Interest of controlled
Long
H
26.78
32.73
1
3.20
6,752,746,952
Others
corporation
Long
3,408,080,075
Interest of controlled
Long
3,289,470,337
Beneficial owner
55,196,540
corporation
China Merchants Finance
A
2010.8-2022.6
Tian Huiyu
Male
1965.12
Executive Director
2013.8-2022.6
110,000
3,405,129,475 1
55,196,540
Others
corporation
Long
2,202,555,520
Interest of controlled
Long
Investment Holdings Co., Ltd.
1,147,377,415
Beneficial owner
Long
Long
A
16.51
3.20
Percentage
of total
As at 31 December 2019, as far as the Company is aware, substantial shareholders had interests and short positions
in the shares of the Company under Hong Kong laws and regulations as recorded in the register required to be kept
by the Company pursuant to Section 336 of the SFO (in the report, any discrepancies between the total shown and
the sum of the amounts listed are due to rounding):
5.5 Substantial shareholders' interests and short positions in the
Company under Hong Kong laws and regulations
Annual Report 2019
V Changes in Shares and Information on Shareholders
China Merchants Bank
The Company did not issue any internal staff shares.
For the issuance of other bonds of the Company and its subsidiaries, please refer to Note 32 to the financial
statements.
During the reporting period, the Company did not have any corporate bonds listed on a stock exchange by way of
public issuance.
For details of the issuance and listing of preference shares of the Company, please refer to the section headed
"Preference Shares" of this chapter.
During the reporting period, the Company did not issue any new ordinary shares.
5.4 Issuance and Listing of Securities
As at the end of the reporting period, Hebei Port Group Co., Ltd. held 1.17% shares in the Company and
is a shareholder which has appointed a Supervisor in the Company. There was no pledge of the shares of
the Company. Hebei Port Group Co., Ltd. was established on 28 August 2002, with a registered capital
of RMB8.0 billion. Its legal representative is Cao Ziyu and its de facto controller is the State-owned Assets
Supervision and Administration Commission of Hebei Province.
As at the end of the reporting period, SAIC Motor Corporation Limited held 1.23% shares in the Company
and is a shareholder which has appointed a Supervisor in the Company. There was no pledge of the shares
of the Company. SAIC Motor Corporation Limited was established on 16 April 1984, with a registered capital
of RMB11.683 billion, and its legal representative is Chen Hong. Its de facto controller is the State-owned
Assets Supervision and Administration Commission of Shanghai City.
As at the end of the reporting period, China Communications Construction Group (Limited) through its
subsidiaries, namely China Communications Construction Company Limited, CCCC Guangzhou Dredging Co.,
Ltd., CCCC Fourth Harbor Engineering Co., Ltd., CCCC Shanghai Dredging Co., Ltd., Zhen Hua (Shenzhen)
Engineering Co., Ltd. and CCCC Third Harbor Consultants Co., Ltd. indirectly held an aggregate of 1.68%
shares in the Company, and is a shareholder which has appointed a Supervisor in the Company. There was no
pledge of the shares of the Company. China Communications Construction Group (Limited) was established
on 8 December 2005, with a registered capital of RMB7.274 billion, and its legal representative is Liu Qitao.
Its de facto controller is the State-owned Assets Supervision and Administration Commission of the State
Council.
3.
2.
1.
5.3.3 Other substantial shareholders under the regulatory calibre
Percentage
of the
relevant class
Non-Executive Director
Name of Substantial
Shareholder
of shares in
17.57
26.78
32.73
55,196,540
6,752,746,952 1
806,680,423 1
Interest of controlled
corporation
Long
H
Others
Long
shares (%)
issue (%)
Notes
No. of shares
6,697,550,412
Interest of controlled
corporation
Long
465.83
China Merchants Group Ltd.
Capacity
issued
ordinary
Class of Long/short
shares position
China Merchants Steam
Navigation Co., Ltd.
Yes
Vice Chairman
Repurchase or conversion of preference shares
During the reporting period, there had been no repurchase and conversion of preference shares.
5.6.5 Restored voting rights of preference shares
During the reporting period, the voting rights of the Company's domestic and offshore preference shares in issue
had not been restored.
5.6.6 Accounting policies for preference shares and the reason of adoption
The Company made accounting judgments over its preference shares then issued and outstanding in accordance
with the requirements of the relevant accounting principles, including the "International Financial Reporting
Standard 9 Financial Instruments" and the "International Financial Reporting Standard 7 - Financial Instruments:
Disclosures" promulgated by International Accounting Standards Board. As the preference shares issued and
outstanding of the Company carry no obligation to deliver cash and cash equivalents, nor have they any contractual
obligations to deliver a variable number of its own equity instruments for settlement, they were therefore measured
as equity instruments.
107
66
5.6.4
Don't look down
on juniors. Don't
kiss up to seniors.
Fear not for opposition, fear for silence.
You are respected for your
capacity to create, not for your
authority to dictate.
"
China Merchants Bank
Annual Report 2019
Simple Work Style
For the details of dividend distribution for domestic and offshore preference shares, please refer to the relevant
announcements published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Stock
Exchange and the Company on 10 December 2019 and 15 October 2019, respectively.
The dividends for domestic preference shares of the Company are paid once a year in cash. The domestic preference
shares adopt non-cumulative dividend payment method. After the dividends are distributed to the holders of
domestic preference shares in accordance with the agreed dividend rate, these shareholders will not participate in
the remaining profit distribution with the ordinary shareholders. Pursuant to the terms of dividends payment for
domestic preference shares, based on the dividend rate of 4.81% for domestic preference shares, the dividends per
preference share paid were RMB4.81 (including tax), and based on 275 million of domestic preference shares in
issue, the total amount of the dividends paid was RMB1,322.75 million (including tax).
In accordance with the relevant requirements under the "Resolution Regarding the Plan for the Non-public Issuance
of Domestic Preference Shares of the Company", which was considered and approved at the 2016 annual general
meeting, the first class meeting of the holders of A Shares for 2017 and the first class meeting of the holders of H
Shares for 2017, the Company fully paid the dividends for domestic preference shares on 18 December 2019, which
was in compliance with the relevant distribution conditions and distribution procedures.
5,000,000
1.82
State-owned legal Domestic preference
5,000,000
1.82
person
shares
Notes: (1)
(2)
(3)
The shareholdings of preference shareholders are calculated based on the information listed in the register of holders of preference shares
maintained by the Company.
China National Tobacco (Henan Province) Company, China National Tobacco (Sichuan Province) Company, China National Tobacco (Anhui
Province) Company and China National Tobacco (Liaoning Province) Company are all wholly-owned subsidiaries of China National Tobacco
Corporation. Save for the above, the Company is not aware of any affiliated relationship or action in concert among the above holders of
preference shares or between the above holders of preference shares and the Company's top ten holders of ordinary shares.
"Percentage of shareholdings" represents the percentage of the number of domestic preference shares held by the holders of preference
shares to the total number of domestic preference shares.
China Merchants Bank
Annual Report 2019
V Changes in Shares and Information on Shareholders
5.6.3 Dividend distribution of preference shares
Dividend distribution of offshore preference shares
In accordance with the relevant requirements under the "Resolution Regarding the Plan for the Non-public Issuance
of Offshore Preference Shares of the Company", which was considered and approved at the 2016 annual general
meeting, the first class meeting of the holders of A Shares for 2017 and the first class meeting of the holders of H
Shares for 2017, the Company fully paid the dividends for offshore preference shares on 25 October 2019, which
was in compliance with the relevant distribution conditions and distribution procedures.
The dividends for offshore preference shares of the Company are paid once a year in cash. The offshore preference
shares adopt non-cumulative dividend payment method. After the dividends are distributed to the holders of
offshore preference shares in accordance with the agreed dividend rate, these shareholders will not participate in
the remaining profit distribution with the ordinary shareholders. Pursuant to the relevant terms of the offshore
preference shares, the dividend rate per annum of the offshore preference shares is 4.40% (excluding tax, i.e., the
actual dividend yield to be received by the holders of the preference shares is 4.40%). According to relevant laws
and regulations, the Company shall withhold an income tax at a rate of 10% when distributing the dividends for the
offshore preference shares to the offshore non-resident enterprises. According to the terms and conditions of the
offshore preference shares, the Company is responsible to pay relevant income tax. Total amount of the proceeds
from the issuance of the Company's offshore preference shares was USD1 billion, the total amount of dividends for
the offshore preference shares is USD48,888,888.89, comprising of USD44,000,000.00 which was actually paid to
the holders of the offshore preference shares, and the withholding tax amounted to USD4,888,888.89.
Dividend distribution of domestic preference shares
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
2018.7-2022.6
109
6.1 Directors, Supervisors and Senior Management
having
received
remunerations
from the
related
parties of
the Company
during the
reporting
Li Jianhong
Male
during the
1956.5
2014.8-2022.6
period
Yes
Non Executive Director
2014.7-2022.6
Fu Gangfeng
Male
1966.12
Chairman
Aggregate
pre-tax
remunerations
(RMB ten
thousand)
(share)
Whether
received from
Shareholding
the Company
at the
beginning
Shareholding
at the
reporting
of the
end of
period
Date of Birth
period
the period
Name
Gender (Y/M)
Title
Term of office
(share)
Directors, Supervisors, Senior Management,
Employees, and Organisational Structure
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2019
100
No
NO
339.83
160,000
80,000
2019.8-2022.6
Executive Director
1965.12
Executive Vice President
Male
2019.7-2022.6
Secretary of Board of Directors
2013.12-2022.6
Executive Vice President
No
No
ZZAAAAA
339.81
Wang Liang
2015.1-2022.6
Chief Financial Officer
2019.4-2022.6
Male
Tian Hongqi
Liu Qiao
Li Menggang
1953.6
Wong See Hong Male
50.00
2015.1 (note 1)
Independent Non-Executive Director
1962.9
Male
Zhao Jun
Antony
No
50.00
2015.1 (note 1)
Independent Non-Executive Director
1952.1
Leung Kam Chung, Male
160,000
Liu Yuan
80,000
Executive Director
2007.6-2022.6
Non-Executive Director
1964.10
Male
Zhang Jian
Non-Executive Director
1963.3
Male
2016.11-2022.6
Hong Xiaoyuan
2018.10-2022.6
Non-Executive Director
1972.4
Male
Zhou Song
2013.9-2022.6
President and Chief Executive Officer
No
Yes
Yes
Yes
Su Min
1965.8
Male
Liu Jianjun
2019.7-2022.6
Non Executive Director
1970.9
Male
Luo Sheng
Yes
2016.11-2022.6
Non Executive Director
1960.12
Male
Wang Daxiong
Yes
2014.9-2022.6
Non Executive Director
1968.2
Female
2019.8-2022.6
Male
Male 1967.4
Male 1970.5
1957.5
1962.1
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
290.58
121,000
60,000
2018.7-2022.6
Employee Supervisor
1964.9
Male
Wang Wanging
Liu Xiaoming
20.00
External Supervisor
1955.9
Male
Xu Zhengjun
40.00
2016.6-2022.6
External Supervisor
1963.7
2019.6-2022.6
Male
1963.11
Employee Supervisor
No
No
No
No
No
No
zzzzzZÁÁÁ
339.27
241,400
80,000
2006.5-2022.6
Executive Vice President
1960.3
Male
Tang Zhihong
141.85
100,000
50,000
2019.6-2022.6
Male
Han Zirong
40.00
2016.6-2022.6
No
No
No
No
2 2 2 2 2 2
381.81
180,000
90,000
2014.8-2022.6
Chairman of Board of Supervisors,
20.30
2019.8-2022.6
Independent Non-Executive Director
50.00
2018.11-2022.6
50.00
2018.11-2022.6
50.00
2017.2-2022.6
No
State-owned legal Domestic preference
shares
Employee Supervisor
1963.10
External Supervisor
1956.6
Male
Ding Huiping
Yes
2016.6-2022.6
Shareholder Supervisor
1976.8
Male
Wu Heng
Yes
2016.6-2022.6
Shareholder Supervisor
1962.10
Male
Wen Jianguo
Yes
2019.6-2022.6
Shareholder Supervisor
Peng Bihong Male
person
A
Changjiang Pension
Interest of controlled
corporation
477,903,500
2
10.41
1.89
China Merchants Union (BVI)
H
Long
Long
Beneficial owner
10.41
1.89
Limited
BlackRock, Inc.
H
Long
Interest of controlled
corporation
243,190,481
477,903,500 2
Verise Holdings Company Limited H
1.89
10.41
Long
Limited (中國華馨投資有限公
司)
Interest of controlled
corporation
477,903,500 2
10.41
1.89
Compass Investment Company H
Limited
Long
Interest of controlled
corporation
477,903,500
2
10.41
1.89
CNIC Corporation Limited
H
Long
Interest of controlled
corporation
477,903,500
2
3
5.30
0.96
Short
corporation
China Merchants Bank
Annual Report 2019
V Changes in Shares and Information on Shareholders
Notes:
(1)
For details of China Merchants Group Ltd. and its subsidiaries' interests in the Company, please refer to section 5.3.1 "Information on the
Company's largest shareholder".
(2)
Pagoda Tree Investment Company Limited was deemed to hold interests in the 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:
(3)
(2.1)
(2.2)
(2.3)
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 the 477,903,500 H shares in the Company held by China Merchants Union (BVI) Limited by virtue of
holding the 50% interest in China Merchants Union (BVI) Limited.
Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited. Therefore, CNIC Corporation Limited was deemed
to hold the 477,903,500 H shares in the Company which Verise Holdings Company Limited was deemed to hold.
Compass Investment Company Limited (referred to in (2) above) 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 the 98.9% interest in CNIC Corporation Limited.
The 477,903,500 H shares referred to in (2) and (2.1) to (2.3) above represented the same shares.
BlackRock, Inc. was deemed to hold a total of 243,190,481 H shares (long position) and 408,000 H shares (short position) in the Company (of
which 55,500 H shares (long position) and 260,500 H shares (short position) were held through cash settled unlisted derivatives) by virtue of
its control over a number of companies, which were all indirectly wholly-owned by BlackRock, Inc. except for the following:
(3.1)
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:
0.01
Pagoda Tree Investment Company H
0.04
Interest of controlled
Interest of controlled
408,000 3
0.01
0.00
corporation
Citigroup Inc.
H
Long
Interest of controlled
24,375,639
corporation
Long
Approved lending agent
300,827,276
325,202,915
4
7.08
1.29
Short
2,278,349 4
Insurance Co., Ltd.
China Resources SZITIC
Trust Co., Ltd.
6.24
1,574,729,111
Ltd.
corporation
2,202,555,520
1
10.68
8.73
101
102
944,013,171
China Merchants Bank
Annual Report 2019
Percentage
of the
relevant class
Percentage
of total
Name of Substantial
Class of Long/short
of shares in
issued
ordinary
Shareholder
V Changes in Shares and Information on Shareholders
Interest of controlled
Long
and Development Company
13.50
Best Winner Investment Limited
A
Long
Beneficial owner
58,147,140 1
0.28
0.23
H
Long
Beneficial owner
328,776,923 1
7.16
1.30
Shenzhen Yan Qing Investment
A
Long
Beneficial owner
1,258,542,349
shares
position
Capacity
No. of shares
4.99
corporation
Dajia Life Insurance Co., Ltd.
A
Long
Beneficial owner
1,258,949,100
6.10
4.99
Dajia Insurance Group Co., Ltd.
A
Long
Interest of controlled
corporation
1,258,949,100
6.10
4.99
China Ocean Shipping Company A
Limited
Long
Beneficial owner
6.10
7.63
1,258,949,171
Long
Notes
issue (%)
shares (%)
Hexie Health Insurance Co., Ltd.
A
Long
Beneficial owner
1,258,949,171
6.10
4.99
Anbang Property & Casualty
Insurance Company Ltd.
A
Long
Interest of controlled
corporation
1,258,949,171
6.10
4.99
Anbang Insurance Group Co.,
Ltd.
A
Interest of controlled
(3.1.1)
220,400
to trading
moratorium
Offshore
(share)
(share)
or frozen
Shares pledged
of the period
Percentage of
(share) shareholdings (%)
Number of
shares subject
Shares held
at the end
50,000,000
Changes in
the reporting
period (share)
shareholder
Overseas legal
person
York Depository
The Bank of New
Type of
Type of
Name of
shareholder
Serial No.
1
As at the end of the reporting period, the shareholdings of the Company's top ten holders of offshore preference
shares (or their nominees) were as follows:
shares
100
Unknown
preference share
Type of
shares
Type of
shareholder
Name of
shareholder
Serial No.
As at the end of the reporting period, the shareholdings of the Company's top ten holders of domestic preference
shares were as follows:
Annual Report 2019
V Changes in Shares and Information on Shareholders
China Merchants Bank
106
105
"Percentage of shareholdings" represents the percentage of the number of offshore preference shares held by the holders of preference
shares to the total number of offshore preference shares.
The Company is not aware of any affiliated relationship or action in concert among the above holders of preference shares and the top
ten holders of ordinary shares.
As the issuance is an offshore non-public issuance, the information listed in the register of holders of preference shares is the information
on the nominees of the placees.
The shareholdings of holders of preference shares are calculated based on the information listed in the register of holders of preference
shares maintained by the Company.
(4)
(3)
(2)
Notes: (1)
(Nominees) Limited
As at the end of the previous month (i.e. 29 February 2020) preceding the date for disclosure of this report, the
Company had a total of 13 holders of preference shares (or nominees), including 1 holder of offshore preference
shares (or its nominee), and 12 holders of domestic preference shares.
As at the end of the reporting period, the Company had a total of 13 holders of preference shares (or their
nominees), including 1 holder of offshore preference shares (or its nominee) and 12 holders of domestic preference
shares.
5.6.2 Number of holders of preference shares and their shareholdings
Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 275,000,000
domestic preference shares on 22 December 2017. The issuance price is RMB100 each and the coupon dividend rate
per annum is 4.81% (including tax). The domestic preference shares of the issuance have been listed and traded on
the integrated business platform of Shanghai Stock Exchange since 12 January 2018 (abbreviated name of shares:
"Zhao Yin You 1 (1)"; stock code: 360028; number of listed shares: 275,000,000). The total proceeds from
the issuance of the domestic preference shares amounted to RMB27.5 billion. The net proceeds after deduction of
the expenses relating to the issuance, has fully been used to replenish the Company's additional Tier 1 Capital.
For details, please refer to the relevant announcement(s) published by the Company on the websites of Shanghai
Stock Exchange, Hong Kong Stock Exchange and the Company, respectively.
(3.2.6)
(3.2.5) BLACKROCK (Luxembourg) S.A. held 13,257,792 H shares (long position) in the Company.
BlackRock Asset Management Ireland Limited held 25,867,784 H shares (long position) in the Company.
(3.2.4)
(3.2.3) BlackRock International Limited held 418,161 H shares (long position) in the Company.
(3.2.2) BlackRock Advisors (UK) Limited held 379,000 H shares (long position) in the Company.
(3.2.1) BlackRock (Netherlands) B.V. held 497,500 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 (3.1) above). BlackRock Group
Limited held its interests in the Company through its direct or indirect wholly-owned companies as follows:
(3.3)
(3.2)
(4)
V Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2019
104
103
(3.1.5) BlackRock (Singapore) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 6,500 H shares (long
position) in the Company.
(3.1.4) BlackRock Asset Management North Asia Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
2,449,740 H shares (long position) in the Company.
BlackRock Investment Management (Australia) Limited (indirectly wholly-owned by BR Jersey International Holdings L.P.) held
1,403,000 H shares (long position) in the Company.
(3.1.3)
(3.2.7)
1
(3.2.8)
BlackRock Asset Management Deutschland AG held 240,731 H shares (long position) in the Company.
Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 50,000,000
non-cumulative perpetual offshore preference shares on 25 October 2017. The issuance price is USD20 each and the
coupon dividend rate per annum is 4.40% (excluding tax, i.e., the actual dividend yield to be received by the holders
of the preference shares is 4.40%). The offshore preference shares of the issuance were listed on Hong Kong Stock
Exchange on 26 October 2017 (abbreviated name of shares: "CMB 17USDPREF"; stock code: 04614; number of
listed shares: 50,000,000). The total proceeds from the issuance of the offshore preference shares amounted to
USD1.0 billion and, after deduction of the expenses relating to the issuance, has fully been used to replenish the
Company's additional Tier 1 Capital.
5.6.1 Issuance and listing of preference shares
5.6 Preference Shares
Annual Report 2019
V Changes in Shares and Information on Shareholders
China Merchants Bank
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 of the Company as at 31 December 2019 as recorded in the register required to be kept by
the Company pursuant to Section 336 of the SFO.
- through physically settled unlisted derivatives
-through cash settled unlisted derivatives.
- through physically settled listed derivatives
133,475 H shares (long position) and 2,000,000 H shares (short position)
432,253 H shares (long position) and 51,849 H shares (short position)
5,046,000 H shares (long position) and 86,500 H shares (short position)
Citigroup Inc. was deemed to hold a total of 325,202,915 H shares (long position) and 2,278,349 H shares (short position) in the Company
by virtue of its control over a number of companies. The equity interests and short positions of Citigroup Inc. in the Company included a
lending pool of 300,827,276 H shares. Besides, 5,611,728 H shares (long position) and 2,138,349 H shares (short position) were held through
derivatives as follows:
(3.3.2) BlackRock Institutional Trust Company, National Association held 47,087,775 H shares (long position) and 408,000 H shares
(short position) in the Company.
(3.1.2) BlackRock Asset Management Canada Limited held 547,500 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..
BlackRock Fund Advisors held 103,839,388 H shares (long position) in the Company.
(3.3.1)
BlackRock Holdco 6, LLC was indirectly held as to 90% by BlackRock, Inc.. BlackRock Holdco 6, LLC held its interests in the Company
through its direct or indirect wholly-owned companies as follows:
(3.2.10) BlackRock Asset Management (Schweiz) AG held 31,500 H shares (long position) in the Company.
(3.2.9) BlackRock Life Limited held 2,439,062 H shares (long position) in the Company.
BlackRock Fund Managers Limited held 5,830,371 H shares (long position) in the Company.
BlackRock Investment Management (UK) Limited held 12,375,237 H shares (long position) in the Company.
China Mobile
BlackRock Japan Co., Ltd. (indirectly wholly-owned by BR Jersey International Holdings L.P.) held 18,909,018 H shares (long
position) in the Company.
Changes in
State-owned legal Domestic preference
China National Tobacco
Company
shares
person
(Sichuan Province)
45
5.45
15,000,000
China National Tobacco State-owned legal Domestic preference
7
6.91
19,000,000
Domestic preference
shares
Company Limited
Others
China Everbright Bank
6
Ltd.
15,000,000
Company of China,
5.45
(Anhui Province)
Company
1.82
5,000,000
State-owned legal Domestic preference
shares
person
(Liaoning Province)
China National Tobacco
10
Guangdong Branch
3.64
10,000,000
State-owned legal Domestic preference
shares
person
State-owned legal Domestic preference
China Construction
9
Company
shares
person
445
7.27
Bank Corporation,
Domestic preference
shares
State-owned legal Domestic preference
CCB Trust Co., Ltd.
2
Group Co., Ltd.
shares
person
Communications
38.55
106,000,000
(share)
or frozen
to trading
moratorium
(share)
(share) shareholdings (%)
period (share)
Percentage of
Number of
shares subject
Shares held
at the end
of the period
the reporting
20,000,000
30,000,000
10.91
Shares pledged
shares
Casualty Insurance
person
Others
Ping An Property &
Company
shares
7.27
20,000,000
China National Tobacco State-owned legal Domestic preference
(Henan Province)
person
27
理有限公司)
3
9.09
25,000,000
Domestic preference
shares
4
Co., Ltd. (中銀資產管
BOC Asset Management Others
Xiong Liangjun
Male
Wang Jianzhong
No
339.81
160,000
2014.7-present
Secretary of the Party Discipline Committee
1963.2
1962.10
reporting
period
Male
80,000
Executive Vice President
Executive Vice President
80,000
162,100
339.81
No
Shi Shunhua
Male
1962.12
2019.4-2022.6
85,000
165,000
during the
339.27
No
2019.4-2022.6
the Company
period
from the
Wang Yungui
Mr. Wang Wanging is an Employee Supervisor of the Company. Mr. Wang obtained a bachelor's degree in Chinese
Language & Literature from Anhui University. Mr. Wang currently serves as the Business Director of the Head Office
and the General Manager of the Audit Department of the Company. He is concurrently the executive member of
the China Institute of Internal Audit. Mr. Wang started his career in Anhui University in July 1986. He worked in
the General Office in Anhui Province from November 1991 to February 2001. He consecutively served as the Head,
Assistant President and Vice President of the Hefei Branch of the Company from February 2001 to April 2007. He
served as the General Manager of the Human Resources Department at the Head Office of the Company and the
Deputy Director of the Labour Union from April 2007 to August 2012. He served as the Business Director of the
Head Office, the General Manager of the Human Resources Department and the Deputy Director of the Labour
Union of the Company from September 2012 to March 2014. He has been an Employee Supervisor of the Company
since July 2018.
110
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Shareholding
at the
beginning
Shareholding
at the
reporting
of the
end of
Date of Birth
period
the period
(RMB ten
Name
Gender
(Y/M)
Title
Term of office
(share)
(share)
thousand)
Aggregate
pre-tax
remunerations
received from
the Company
during the
Whether
having
received
remunerations
related
parties of
Mr. Xu Zhengjun is an External Supervisor of the Company. Mr. Xu obtained a master's degree in the Maritime
Transportation Management from Shanghai Maritime University and is a senior political engineer. He is currently an
Independent Director of China Merchants RenHe Life Insurance Co., Ltd.. He previously served as the Section Chief
and the Department Head of Shanghai Ocean Shipping Co., Ltd., the General Manager of the crew company and
land property company of COSCO Container Lines Co., Ltd., the Assistant to General Manager of COSCO Container
Lines Co., Ltd., the General Manager of Shanghai Ocean Shipping Co., Ltd., the Secretary of the Disciplinary
Committee of COSCO Container Lines Co., Ltd., the General Manager of COSCO (HK) Industry & Trade Holdings
Ltd., the Vice Chairman of Shenzhen Guangju Energy Co., Ltd. (a company listed on Shenzhen Stock Exchange),
the Vice President and General Counsel of COSCO (Hong Kong) Group Limited and the Director of True Smart
International Limited, the General Manager and Executive Director of COSCO International Holdings Limited, the
Chairman of the Corporate Governance Committee of COSCO International and the Independent Director of
Sinotrans Shipping Limited.
1963.6
Executive Vice President
Zhou Song
Hong Xiaoyuan
China Merchants Group Ltd.
China Merchants Group Ltd.
Major Title
Chairman
Zhang Jian
China Merchants Group Ltd.
Director and General Manager
Chief Accountant
Assistant General Manager
Director (Executive) of the Executive Committee of the
China Merchants Financial Group/Platform
China COSCO Shipping Corporation Limited
Chief Digital Officer
Term of Office
From July 2014 up to now
From September 2019 up to now
From October 2018 up to now
From September 2011 up to now
From June 2018 up to now
From January 2019 up to now
From June 2018 up to now
Deputy Director (Executive) of the Executive Committee of From June 2018 up to now
the China Merchants Financial Group/Platform
Chairman
COSCO SHIPPING Development Co., Ltd.
Dedicated risk disposal team of CBIRC despatched to Deputy Head
Anbang Group
Su Min
China Merchants Group Ltd.
Deputy Director (Executive) of the Executive Committee of
the China Merchants Financial Group/Platform
Wang Daxiong
Fu Gangfeng
Li Jianhong
2.
3.
4.
5.
6.
7.
8.
9.
10.
Mr. Fu Gangfeng serves as the director and general manager of China COSCO Shipping Corporation Limited
and ceased to serve as the director and general manager of China Merchants Group Ltd. and the Chairman
of China Merchants Port Group Co., Ltd..
Mr. Zhou Song ceased to serve as the Chairman of China Merchants Capital Investments Co., Ltd..
Mr. Hong Xiaoyuan serves as the Chairman of China Merchants Capital Investments Co., Ltd. and the director
of CNIC Corporation Limited and ceased to concurrently serve as the Chairman of CMB Qianhai Financial
Asset Exchange Co., Ltd..
China Merchants Group Ltd.
Mr. Zhang Jian concurrently serves as a director of China Great Bay Area Fund Management Co., Limited, a
director of China Merchants Capital Holdings (International) Limited, a director of China Merchants United
Development Company Limited, the Vice Chairman of China Merchants Capital Management Co. Ltd. and
the Vice Chairman of China Merchants Capital Holdings Co. Ltd., and ceased to concurrently serve as the
director of CMB Qianhai Financial Asset Exchange Co., Ltd..
Mr. Wong See Hong ceased to concurrently serve as an independent director of Tahoe Life Insurance
Company Limited.
Mr. Li Menggang concurrently serves as the director of the Human Capital Research Institute of the China
Human Resource Development Association and ceased to serve as the special economic analyst of Xinhua
News Agency.
Mr. Liu Yuan ceased to serve as a member of the Council of Shenzhen Finance Institute of The Chinese
University of Hong Kong (Shenzhen).
Mr. Peng Bihong serves as the chief accountant of China Communications Construction Group (Limited) and
the Chairman of CCCG Real Estate Group Limited and ceased to concurrently serve as a standing committee
member of the party committee and Chief Financial Officer of China Communications Construction Company
Limited and the Chairman of CCCC Finance Company Limited.
Mr. Wu Heng serves as the general manager of the Finance Affairs Department of SAIC Motor Corporation
Limited.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
113
6.4 Current Positions Held by Directors and Supervisors in the
Shareholders' Companies
Name of Company
Name
Mr. Wang Daxiong ceased to concurrently serve as the Chairman of COSCO SHIPPING Captive Insurance Co.,
Ltd..
Luo Sheng
Peng Bihong
China Communications Construction Group Co., Ltd. Chief Accountant
Mr. Liu Jianjun is an Executive Director, Executive Vice President and the Secretary of the Board of Directors 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, an Executive Vice
President of the Retail Banking Department under the Head Office and the Business Executive of the Head Office
since September 2000. He has been an Executive Vice President of the Company since December 2013, the Secretary
of the Board of Directors of the Company since July 2019 and an Executive Director of the Company since August
2019.
Mr. Wang Liang is an Executive Director, Executive Vice President and Chief Financial Officer 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 concurrently, 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 been serving as an Executive Vice President of the Company since January 2015. He
concurrently served as the secretary of the Board of Directors of the Company from November 2016 to April 2019,
and has concurrently been serving as the Chief Financial Officer of Company since April 2019. He concurrently
serves as Vice President of Payment & Clearing Association of China and a member of the High-level Steering and
Coordination Committee for Data Governance of China Banking and Insurance Regulatory Commission.
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. He also attended Harvard Business School's
Program for Management Development and Advanced Management Program. He is the Chairman and Chief
Executive Officer of Nan Fung Group, the Chairman and co-founder of New Frontier, and the Chairman of two
charitable organisations, Heifer Hong Kong and "Food Angel". Mr. Leung served as a member of the Executive
Committee, the Senior Managing Director and the Chairman of Greater China Region of Blackstone. 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.
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, 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
concurrently serves as the Independent Non-Executive Director of Bright Scholar Education Holdings Limited (a
company listed on New York Stock Exchange) and the Independent Non-Executive Director of Sichuan Xunyou
Network Technology Co., Ltd. (||2), a company listed on the Shenzhen Stock Exchange.
He was a Managing Partner of DT Capital Partners, the Managing Director and the Chief Representative in China of
ChinaVest.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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. (¥Ã¤ÂÂÌÎ and EC World Asset Management Private Limited. He
previously served as the Deputy Chief Executive of BOCHK, head, Managing Director and President for the Southeast
Asia region, and the head of the Financial Market Department in Asia (±) of ABN AMRO
Bank, 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(新加坡總理辦公室公務員學院), a member of the Client Consulting Commission (客戶諮詢委員會)of
Thomson Reuters and a member of the Financial Management Commission of the Hong Kong Administration Society
(香港管理學會財務管理委員會).
Mr. Li Menggang is an Independent Non-Executive Director of the Company. Mr. Li obtained a Ph.D. in Economics
and a post-doctoral degree in both Transportation and Communication Engineering and Theoretical Economics from
Beijing Jiaotong University. He has been serving as a professor and doctoral supervisor at Beijing Jiaotong University,
the Joint Dean of the National Academy of Economic Security (NAES) of Beijing Jiaotong University, the Director of
Beijing Laboratory of National Economic Security Pre-Warning Project, the Chief Expert of Major Bidding Projects of
the National Social Science Fund, the Project Review Expert of the National Social Science Fund and the Chairman
of the Professional Committee of the Logistics Informatisation and Industrial Security System of the Institute of
Electrical and Electronics Engineers (IEEE). He concurrently serves as the Vice President and the Deputy Director
of the Expert Committee of China Human Resource Development Association, the Director of the Human Capital
Institute, the Deputy Director of the Independent Board Committee of China Association for Public Companies, an
Independent Director of Daqin Railway Co., Ltd. (a company listed on Shanghai Stock Exchange) and Hunan Copote
Science & Technology Co., Ltd. (a company listed on Shanghai Stock Exchange). He served as an Independent
Director of Sichuan Golden Summit (Group) Joint-stock Co., Ltd. (a company listed on Shanghai Stock Exchange) and
an Independent Non-Executive Director of Yuxing InfoTech Investment Holdings Limited (a company listed on Hong
Kong Stock Exchange).
Mr. Liu Qiao is an Independent Non-Executive Director of the Company. Mr. Liu obtained a bachelor of science
degree in Economics and Mathematics from Renmin University of China, a master's degree in Economics from the
Institute of Finance of People's Bank of China and a Ph.D. in Economics from University of California, Los Angeles in
the United States and is a distinguished professor () of Changjiang Scholars Program. He has been serving
as the Dean at the Guanghua School of Management of Peking University, professor of Finance and Economics
and doctoral supervisor. He is also a member of Think Tank Committee of All-China Federation of Industry and
Commerce (I¾¾¶È¦¦ª), the Economic Research Center of Chinese Kuomintang Revolutionary Committee
and the expert panel of the Shenzhen Stock Exchange; an advisor of the post-doctoral stations of the CSRC, the
Shenzhen Stock Exchange, the China Financial Futures Exchange and China Minsheng Banking Corp., Ltd. etc.,
the Vice Chairman of the China Enterprise Reform and Development Society (+£↑¥¥¥£¥Ì✯), an
Independent Non-Executive Director of CSC Financial Co., Ltd. (a company listed on Hong Kong Stock Exchange),
an Independent Non-Executive Director of Zensun Enterprises Limited (formerly known as ZH International Holdings
Limited, a company listed on Hong Kong Stock Exchange) and an Independent Director of Beijing Capital Co., Ltd.
(a company listed on Shanghai Stock Exchange). Mr. Liu served as an assistant professor at School of Economics and
Finance of the University of Hong Kong, a consultant of the Asia-Pacific Corporate Finance & Strategy Practice of
McKinsey & Company and an assistant professor and associate professor (with tenure) at the Faculty of Business and
Economics of the University of Hong Kong.
Mr. Tian Hongqi is an Independent Non-Executive Director of the Company. Mr. Tian obtained a bachelor's degree
in Finance and Accounting from the Faculty of Water Transportation Management of Shanghai Maritime University,
and is a senior accountant. He previously served as the Chief Financial Officer and Chief Information Officer of
COSCO SHIPPING Bulk Co., Ltd., the General Manager of the Finance Department of COSCO Container Lines Co.,
Ltd., the Director and the General Manager of the Financial Department of COSCO Japan, the Chief Financial Officer
of COSCO Holdings (Singapore) Pte. Ltd. (+), the General Manager of the Finance
Department of the COSCO Container Transportation Operation Headquarters (+₹¶¤ÁLHK), and the
Deputy Director of the Finance Department of COSCO.
117
118
Mr. Luo Sheng is a Non-Executive Director of the Company. Mr. Luo obtained a doctoral degree in corporate
governance from the Business School of Nankai University. Mr. Luo is currently the deputy head of the dedicated
risk disposal team despatched to Anbang Group and a director of Gemdale Corporation (a company listed on
Shanghai Stock Exchange). Mr. Luo was the principal staff member of the Regulation Division of the Policy and
Regulation Department, the principal staff member of the Market Analysis Division of the Development and Reform
Department, the deputy director and director of the Corporate Governance Division of the Development and Reform
Department, and the deputy director of the Regulation Department of the China Insurance Regulatory Commission.
He also served as an executive director, the executive vice president, the secretary of the board of directors, and
general manager of Shanghai Branch of China Insurance Information Technology Management Co., Ltd., and the
deputy director of Development and Reform Department of China Insurance Regulatory Commission.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Liu Yuan is the Chairman of the Board of Supervisors of the Company and an Employee Supervisor. Mr. Liu
obtained a bachelor's degree in Global Economy from Renmin University of China, and is a senior economist. 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 (deputy division
head level) of the Management Office and Deputy Chief of the Monetary Office of Foreign Exchange Affairs
Division () of State Administration of Foreign Exchange from October 1991 to February 1994. He
consecutively served as the Secretary (division head level) of the General Office (E), researcher of the
regulatory office I of the banking division (Kί€Ð¶A), head of the regulatory office III of the banking
regulatory division || (==) and head of the regulatory office VII of the banking regulatory
division II (±Â¯¡£¥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 (±) of the CBRC, director of CBRC
Shanxi Bureau, director of CBRC Shenzhen Bureau, head of the Banking-related Case Audit Bureau (14
) of the CBRC and head of the Banking-related Consumer Protection Bureau (Ä⠀**KRA) of
the CBRC from July 2003 to July 2014. He has been the Chairman of the Board of Supervisors of the Company since
August 2014. He is concurrently a visiting professor of Renmin University of China, the chairman of the professional
committee under the supervisory committee of China Association for Public Companies and a member of Shenzhen
Finance Development Decision-making Consultation Committee (Ì£***DELA).
Mr. Peng Bihong is a Shareholder Supervisor of the Company. Mr. Peng graduated from Hunan College of Finance
and Economics () majoring in Finance and obtained a master's degree in Economics from Wuhan
University. Mr. Peng is a certified public accountant. He currently serves as a standing committee member of the
Party Committee and chief accountant of China Communications Construction Group (Limited), the chairman of
CCCG Real Estate Group Limited and vice chairman of Jiang Tai Insurance Brokers Co., Ltd. He has worked for China
Poly Group Corporation Limited ("Poly Group") for nearly 20 years, serving successively as the director of the finance
department of China Poly Group Corporation, the general manager of Poly Finance Company Limited, the chief
financial officer of Poly Real Estate Group Co., Ltd. and a standing committee member of the Party Committee and
the chief accountant of Poly Group, as well as the chairman of Poly Finance Company Limited and Poly Investment
Holdings Co., Ltd. respectively. He served as the chief financial officer of China Communications Construction
Company Limited from September 2018 to September 2019.
Mr. Wen Jianguo is a Shareholder Supervisor, a university graduate and an accountant. Mr. Wen is a Director, a
standing committee member of the Party Committee and Chief Accountant of Hebei Port Group Co., Ltd.
) and concurrently the Chairman of Hebei Port Group Finance Company Limited and a Director of Caida
Securities Co., Ltd. and Bank of Hebei Co., Ltd.. He once served as a deputy head and head of Finance Department
of Qinhuangdao Port Bureau (1) 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 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 is the General Manager of Finance Affairs Department of SAIC Motor Corporation Limited,
the General Manager of SAIC Motor Financial Holding Management Co., Ltd. and a Non-executive Director of Bank
of Chongqing Co., Ltd. (a company listed on Hong Kong Stock Exchange). He consecutively 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 consecutively served as a
Division Head, Assistant to Executive Controller and the 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, and concurrently
serving as the Director and General Manager of Huayu Automotive Systems (Shanghai) Co., Ltd. (X3 (E
)) during the period from May 2014 to May 2015, and the Deputy General Manager of the Finance
Affairs Department of SAIC Motor Corporation Limited from May 2015 to August 2019.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Ding Huiping is an External Supervisor of the Company. Mr. Ding 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 of Beijing Jiaotong University, the head of PRC Enterprise
Competitiveness Research Center, 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), Shandong International Trust Co., Ltd. (a company listed on Hong Kong Stock Exchange)
and China Haisum Engineering Co., Ltd. (a company listed on Shenzhen Stock Exchange). He consecutively served
as 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), China
International Marine Containers (Group) Ltd. (a company listed on Hong Kong Stock Exchange and Shenzhen Stock
Exchange) and China Merchants Securities Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai
Stock Exchange). He served as an Independent Director of the Company from May 2003 to May 2006.
Mr. Han Zirong is an External Supervisor of the Company. Mr. Han obtained a bachelor's degree in Business
Economics from Jilin Finance and Trade College, and is an economist and certified public accountant. He is currently
a partner of Shu Lun Pan Hong Kong CPA Limited, and he is concurrently an External Supervisor of Bank of Chengdu
Corporation Limited (a company listed on Shanghai Stock Exchange) and an Independent Director of Bank of
Hainan. He served as a credit administrator of Industrial and Commercial Bank of China, Changchun Branch from
August 1985 to October 1992. He served as an Assistant Director in the Audit Firm under Audit Bureau of Shenzhen
Municipality from October 1992 to September 1997. He served as a managing partner of Shenzhen Finance
Accounting Firm from October 1997 to October 2008. He served as a senior partner of
Daxin Certified Public Accountants from October 2008 to October 2012.
Supervisors
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2019
116
Wen Jianguo
Hebei Port Group Co., Ltd.
Director and Chief Accountant
Wu Heng
SAIC Motor Corporation Limited
General Manager of Finance Affairs Department
From July 2019 up to now
From February 2020 up to now
From September 2019 up to now
From July 2009 up to now
From August 2019 up to now
6.5 Biography and Positions of Directors, Supervisors and Senior
Management
Directors
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 and is a senior economist. He is the Chairman of China Merchants Group Ltd. and concurrently
serves as the Chairman of China Merchants RenHe Life Insurance Co., Ltd.. He was the Vice President of China
Ocean Shipping (Group) Company, and the Director and President of China Merchants Group Ltd.. He also
concurrently served as the Chairman of the Board of Directors of China Merchants Port Holdings Company Limited
(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. Fu Gangfeng is the Vice Chairman and 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 Director and General Manager of China COSCO Shipping Corporation Limited. He concurrently
serves as the Executive Director and Chairman of the Board of Directors of China Merchants Port Holdings Company
Limited (a company listed on Hong Kong Stock Exchange), and the Chairman of the Board of Supervisors of China
Merchants RenHe Life Insurance Co., Ltd.. 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., the General Manager of the Finance Division
of China Merchants Group Ltd., the Chief Financial Officer and Chief Accountant of China Merchants Group Ltd.,
the Director and General Manager of China Merchants Group Ltd., and the Chairman of China Merchants Port
Group Co., Ltd. (a company listed on Shenzhen Stock Exchange).
114
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Tian Huiyu is an Executive Director, President and Chief Executive Officer of the Company. Mr. Tian obtained
a bachelor's degree in Infrastructure Finance and Credit from Shanghai University of Finance and Economics and
a master's degree in Public Administration from Columbia University. He is a senior economist. He is concurrently
the Chairman of CMBIC, the Chairman of CMB International Capital Corporation Limited, the Vice Chairman of
Merchants Union Consumer Finance Company Limited, 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.
Mr. Zhou Song is a Non-Executive Director of the Company. Mr. Zhou obtained a master's degree of World
Economics in Wuhan University. Mr. Zhou is the Chief Accountant of China Merchants Group Ltd., the Chairman
of Shenzhen China Merchants Ping An Asset Management Co., Ltd. (¤¯à¥¤¤à¤‡ŒÃ¬), the
Chairman of China Merchants Finance Co., Ltd. (UKR) and the Chairman of the Board of
Supervisors of China Merchants Shekou Industrial Zone Holdings Co., Ltd. (a company listed on the Shenzhen Stock
Exchange). He was the Deputy General Manager of the Planning and Finance Department of the Head Office of
China Merchants Bank, the Vice General Manager of Wuhan Branch, the Deputy General Manager (in charge of
work) and General Manager of the Planning and Finance Department of the Head Office, the Employee Supervisor
of China Merchants Bank, the Business Director and General Manager of the Assets and Liabilities Management
Department of the Head Office, the President of Interbank Financial Department, the General Manager of the
Assets Management Department of the Head Office and the Business Director of the Head Office, the President of
Investment Banking and Financial Market Department, the General Manager of the Assets Management Department
of the Head Office and the Business Director of the Head Office.
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 serves as the Director of China Merchants Holdings (Hong Kong) Company Limited and the Assistant
General Manager of China Merchants Group Ltd., the Director (Executive) of the Executive Committee of the China
Merchants Financial Group/Platform and the Chairman of China Merchants Finance Holdings Company Limited. He
concurrently serves as the Chairman of China Merchants Finance Investment Holdings Co., Ltd., China Merchants
Capital Investments Co., Ltd., China Merchants United Development Company Limited and China Merchants
Innovative Investment Management Co., Ltd., and the Director of China Merchants RenHe Life Insurance Co.,
Ltd. and CNIC Corporation Limited. He served as the Director of China Merchants Securities Co., Ltd. (a company
then listed on the Shanghai Stock Exchange), the Chairman of the Board of Directors of China Merchants China
Direct Investments Limited (a company listed on Hong Kong Stock Exchange), the Chief Executive Officer of China
Merchants Finance Holdings Company Limited and the Chairman of Shenzhen CMB Qianhai Financial Asset Exchange
Co., Ltd..
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
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 Chief Digital Officer of China
Merchants Group Ltd., General Manager of Finance Department, the Director of the Digital Centre, the Deputy
Director (Executive) of the Executive Committee of the China Merchants Financial Group/Platform and a Director of
China Merchants Finance Holdings Company Limited. He concurrently serves as the Chairman of China Merchants
Financial Technology Co., Ltd. (RN), the Chairman of the Board of Directors of China
Merchants China Direct Investments Limited, the Vice Chairman of China Merchants Capital Investments Co., Ltd.,
the Vice Chairman of China Merchants Capital Management Co. Ltd., the Vice Chairman of China Merchants
Capital Holdings Co. Ltd., a Director of China Merchants Innovative Investment Management Co., Ltd., a Director of
China Great Bay Area Fund Management Co., Limited, a Director of China Merchants Capital Holdings (International)
Limited, a Director of China Merchants Innovative Investment (International) Co., Ltd. (¾ (IK) ĦR
A), a Director of China Merchants Innovation Investment General Partnership (International) Co., Ltd. (N
#LAK (4) ĦRA), a Director of China Merchants United Development Company Limited, a Director
of Shi Jin Shi Credit Service Co., Ltd. (2) and a Director of Siyuanhe Equity Investment
Management Co., Ltd. (IRATUARA). 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), Business Director and General Manager of the Corporate Banking
Department at the Head Office of China Merchants Bank, 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, a Director of China
Merchants RenHe Life Insurance Company Limited, a Director of China Merchants Insurance Holdings Co., Ltd. (
BAKERĦRA), a Director of China Merchants Ping An Asset Management Co., Ltd., Deputy General Manager
of China Merchants Finance Holdings Co., Ltd. and a Director of Shenzhen CMB Qianhai Financial Asset Exchange
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, and is a senior accountant, certified public accountant and certified public valuer. She is
the Deputy Director (Executive) of the Executive Committee of the China Merchants Financial Group/Platform. She
concurrently serves as a Director of Bosera Asset Management Co., Limited, a Director of China Merchants Securities
Co., Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange). She successively served
as the Deputy Director of Property Office of the State-owned Assets Supervision and Administration Commission of
Anhui Province, a Director of Huishang Bank, 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 of China Shipping (Group)
Company, the Chairman of China Shipping Finance Co., Ltd., the Chairman of COSCO Financial Leasing Co., Ltd. (+
X112), 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). She served as a Director of
China Merchants Innovation Investment Management Co., Ltd. (HÀ¯Â¥¤¤ÊHARĦ|2Ƒ), a Supervisor of
China Merchants Capital Investments Co., Ltd. and the General Manager of China Merchants Finance Holdings Co.,
Limited.
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 Development Co.,
Ltd. (a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange) and the Chairman of COSCO
Shipping Financial Holdings Co., Ltd.. He concurrently serves as a Director of China Merchants Securities Co., Ltd.
(a company listed on Hong Kong Stock Exchange and Shanghai Stock Exchange). 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.
115
1.
6.3 Changes in Information of Directors and Supervisors
For details of the above-mentioned matters, please refer to the relevant announcements published by the Company
on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.
In June 2019, according to the relevant resolutions passed at the first meeting of the Eleventh Session of the Board
of Directors of the Company, the Board of Directors of the Company appointed Mr. Liu Jianjun as the Secretary of
the Board of Directors. Mr. Liu Jianjun obtained the qualification certificate of board secretary training and officially
served as the Secretary of the Board of Directors in July 2019.
Former Executive Director, First Executive Vice
2007.6-2019.4
100,000
200,000
141.20
No
President and Chief Financial Officer
Pan Chengwei
Male
1946.2
Former Independent Non-Executive Director
2012.7-2019.8
1959.3
29.70
Male
1961.5
Former Shareholder Supervisor
2015.9-2019.2
Jin Qingjun
Male
1957.8
Former External Supervisor
2014.10-2019.6
65,800
65,800
20.00
Fu Junyuan
Male
Li Hao
Yes
2019.6-2022.6
160,000
248.38
No
Li Delin
Male
1974.12
Executive Assistant President
2019.4-present
60,000
130,000
223.09
No
Liu Hui
Female
1970.5
Executive Assistant President
2019.4-present
55,000
134,100
223.41
No
Sun Yueying
Female
1958.6
Former Non-Executive Director
2001.4-2019.6
Huang Dan
Male
Female
Former Employee Supervisor
The total remunerations before tax of Mr. Wang Jianzhong and Mr. Shi Shunhua included the remunerations during the period of being
members of the CPC Committee of the Company from January to April 2019; the total remuneration before tax of Mr. Wang Yungui included
the remuneration during the period of being a member of the CPC Committee of the Company from April to June 2019.
There was a change in the shareholdings of the Directors, Supervisors and senior management listed in the above table during the reporting
period, which was due to an increase in their respective shareholdings.
None of the Directors, Supervisors and senior management listed in the above table 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 any share options of the Company or has been
granted any of its restricted shares.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
111
6.2 Appointment and Resignation of Directors, Supervisors and
Senior Management
Directors
In April 2019, Mr. Li Hao resigned as the Executive Director of the Company due to age reason.
In June 2019, according to the relevant resolutions of the 2018 Annual General Meeting of the Company, Mr. Luo
Sheng was elected as Non-Executive Director of the Company, and his qualification for serving as a director was
approved by the CBIRC in July 2019; Mr. Sun Yunfei was newly elected as Non-Executive Director of the Company,
and his qualification for serving as a director is subject to the approval of the CBIRC; Mr. Liu Jianjun and Mr. Wang
Liang were newly elected as Executive Directors of the Company, and their qualifications for serving as directors
were approved by the CBIRC in August 2019; Mr. Tian Hongqi was newly elected as Independent Non-Executive
Director of the Company, and his qualification for serving as a director was approved by the CBIRC in August 2019.
At the same time, Mr. Pan Chengwei ceased to be an Independent Non-Executive Director of the Company due to
the expiration of his term of office.
In June 2019, Ms. Sun Yueying ceased to be a Non-Executive Director of the Company upon conclusion of the 2018
Annual General Meeting due to expiration of her term of office.
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 remunerations of other staff will be disclosed separately upon
confirmation of payment.
In June 2019, Mr. Sun Yunfei was newly elected as the Vice Chairman at the first meeting of the Eleventh Session
of the Board of Directors of the Company, and his qualification for serving as a Vice Chairman is subject to the
approval of the CBIRC.
In February 2019, Mr. Fu Junyuan resigned as a Shareholder Supervisor of the Company due to work arrangement.
In June 2019, according to the relevant resolutions of the 2018 Annual General Meeting of the Company, Mr. Peng
Bihong was newly elected as a Shareholder Supervisor of the Company, and Mr. Xu Zhengjun was newly elected as
an External Supervisor of the Company. Their terms of office shall commence from 27 June 2019.
In June 2019, Mr Jin Qingjun ceased to be an External Supervisor of the Company upon conclusion of the 2018
Annual General Meeting due to expiration of his term of office.
In June 2019, according to the resolutions passed at the Worker's Congress of the Company, Mr. Liu Xiaoming was
newly elected as an Employee Supervisor of the Company, and his term of office shall commence from 27 June
2019.
In June 2019, Ms. Huang Dan ceased to be an Employee Supervisor of the Company upon conclusion of the 2018
Annual General Meeting due to expiration of her term of office.
112
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Senior management
In February 2019, according to the relevant resolutions passed at the 37th meeting of the Tenth Session of the Board
of Directors of the Company, Mr. Zhu Qi and Mr. Zhao Ju resigned as the Executive Vice Presidents of the Company
due to other business commitments, and the Board of Directors of the Company appointed Mr. Wang Jianzhong
and Mr. Shi Shunhua as the Executive Vice Presidents of the Company. In April 2019, the qualifications of Mr. Wang
Jianzhong and Mr. Shi Shunhua as the Executive Vice Presidents were approved by the CBIRC.
In April 2019, the qualifications of Mr. Li Delin and Ms. Liu Hui as the Executive Assistant President were approved
by the CBIRC.
In April 2019, according to the relevant resolutions passed at the 41st meeting of the Tenth Session of the Board of
Directors of the Company, Mr. Li Hao ceased to act as the First Executive Vice President and Chief Financial Officer
of the Company due to his age, and the Board of Directors of the Company appointed Mr. Wang Yungui as the
Executive Vice President of the Company. In June 2019, the qualification of Mr. Wang Yungui for serving as an
Executive Vice President was approved by the CBIRC.
In April 2019, according to the relevant resolutions passed at the 42nd meeting of the Tenth Session of the Board of
Directors of the Company, the Board of Directors of the Company appointed Mr. Wang Liang as the Chief Financial
Officer of the Company. Due to changes in the assignment of responsibilities in the Bank, Mr. Wang Liang ceased to
concurrently serve as the Secretary of the Board of Directors of the Company.
Supervisors
The remunerations received from the Company by the Directors, Supervisors and senior management who were appointed or resigned during
the reporting period are calculated on the length of their service in the Company during the reporting period.
Mr. Zhu Qi received his remunerations from CMB Wing Lung Bank, a subsidiary of the Company. Mr. Zhao Ju received his remunerations from
CMB International Capital Corporation Limited, a subsidiary of the Company.
Pursuant to the relevant requirements of the "Guiding Opinions on Establishing the Independent Director System in Listed Companies" ( <
KELA¶\⠀⠀¶¤§)), the term of office of independent directors shall not exceed six years. Therefore, the terms
of office of Mr. Leung Kam Chung, Antony and Mr. Zhao Jun, both being Independent Directors, will expire earlier than conclusion of the
Eleventh Session of the Board of Directors.
2015.3-2019.6
45,000
90,000
73.62
Zhu Qi
Male
1960.7
Zhao Ju
Male
1964.11
Former Executive Vice President
Former Executive Vice President
2008.12 - 2019.2
2015.2-2019.2
2 2 2 2 2 2
Yes
No
No
No
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
1966.6
As at the end of the reporting period, the spouse of Mr. Zhou Song held 23,282 A shares in the Company.
119
250,032
200120
22/F, 1088 Lujiazui Ring Road, Shanghai
HK$341,843
2,031
45 Des Voeux Road Central, Hong Kong
CMB Wing Lung Bank
CMB Financial Leasing
11
Other assignments
3,989
12,045
57
11,024
51
2
6,438
45
80,289
1
122
Taipei Representative Office
Luxembourg Branch
London Branch
Sydney Branch
1 Raffles Place, Tower 2, #32-61, Singapore
333, Section 1, Jilong Road, Xinyi District, Taipei
20 Boulevard Royal, L-2449, Luxembourg
297
048616
1
18/F, 20 Fenchurch Street, London, UK
1
L39, GPT, 1 Farrer Place, Sydney, NSW
1
EASSAR.
L-2449
10022
188,718
45-46/F, Champion Tower, 3 Garden Road, Central,
Office of the Board of Directors
6.9 Organisational Structure of the Company:
125
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2019
Including employees of the Company, CMB Wing Lung Bank, CMB Financial Leasing, CMB International Capital, CMB Wealth Management, China
Merchants Fund, CIGNA & CMB Life Insurance and Merchants Union Consumer. There were 82,241 employees at the end of 2018 calculated on the same
statistical calibre. Among them, the statistical calibre of employees of CIGNA & CMB Life Insurance has been adjusted.
84,68318
1,833
Total
92,697
957
518000
Merchants Union Consumer 18/F, Building A4, Kexing Science Park, Nanshan District,
Shenzhen
58,752
3,914
518040
CIGNA & CMB Life Insurance Unit 3102, China Merchants Bank Tower, 7088 Shennan
Boulevard, Shenzhen
487
HK$27,973
Hong Kong
CMB Wealth Management
Level 17-20, CR Capital Tower, 2700 Keyuan South
518052
CMB International Capital
316
Road, Nanshan District, Shenzhen
China Merchants Fund
China Merchants Bank Tower, 7088 Shennan Boulevard,
Shenzhen
518040
635
7,295
5,190
China Merchants Bank
1
10022
010098
9 Chilechuan Avenue, Saihan District, Huhhot
No.136-5 Minzu Avenue, Qingxiu District, Nanning
284 Zhonghua Road North, Yunyan District, Guiyang
138 Beijingzhong Road, Jinfeng District, Yinchuan
4 Xinning Road, Chengxi District, Xining
Outside Mainland China Hong Kong Branch
Yinchuan Branch
Xining Branch
Guiyang Branch
Hohhot Branch
650021
1 Chongren Street Wuhua District, Kunming
830006
2 Huanghe Road, Urumchi
49
401121
88 Xingguang Road, New North District, Chongqing
Urumchi Branch
Kunming Branch
Chongqing Branch
710075
1 Gaoxin No.2 Road, Xi'an
Business address
Postal code
branches
staff
of RMB)
Chengdu Branch
530028
No. 1, the 3rd section of Renmin Road South, Wuhou
District, Chengdu
55
1,673
65,658
Lanzhou Branch
Xi'an Branch
9 Qingyang Road, Chengguan District, Lanzhou
730030
610000
1
550001
26922261
23rd Floor, 535 Madison Avenue, New York, U.S.A
23rd Floor,535 Madison Avenue, New York, U.S.A
New York Branch
Singapore Branch
USA Representative Office
125,208
261
1
31/F, Three Exchange Square, 8 Connaught Place,
Central, Hong Kong
10,201
270
10
810000
13,375
425
17
23,958
461
30,142
941
32,194
1,909
80,294
1,656
84,739
750001
792
49
1,292
56,069
631
22,940
540
25,286
Name of branches
Office of Board of Supervisors
Consumer Rights Protection and Services
Supervision Management Center#
Fintech Committee
Wuhan Audit Division
Chengdu Audit Division
Fuzhou Audit Division
|||||
Shenyang Audit Division
Nanjing Audit Division
Xi'an Audit Division
Shenzhen Audit Division
Audit Department
Shanghai Audit Division
Business Continuity and Emergency
Committee
IT Management Committee
Beijing Audit Division
Risk and Compliance Management
Committee
Assets and Liabilities Management
Committee
Supervisory Committee
Strategy Committee
Nomination Committee
Remuneration and Appraisal Committee
Risk and Capital Management Committee
Audit Committee
Shareholders' General Meeting
China Merchants Bank
Annual Report 2019
Nomination Committee
Board of Supervisors
Office of the Board of
Directors
Office of Board of
Supervisors
Related Party Transactions Management and
Consumer Rights Protection Committee
Executive Office of
President
Board of Directors
7.1 Corporate Governance Structure:
VII Corporate Governance
During the reporting period, the Company convened 1 shareholders' general meeting (14 proposals were reviewed
and 5 reports were heard), 17 meetings of the Board of Directors (101 proposals were reviewed and 11 reports
were heard or reviewed), 10 meetings of the Board of Supervisors (33 proposals were reviewed and 15 reports were
delivered), 35 meetings of the special committees under the Board of Directors (123 proposals were reviewed and
12 reports were delivered), 6 meetings of the special committees under the Board of Supervisors (12 proposals were
reviewed) and 1 meeting of Non-Executive Directors (1 report was delivered). In addition, 2 special researches were
organised by the Board of Directors, and 4 by the Board of Supervisors.
129
During the reporting period, the Board of Supervisors of the Company made an appraisal on the annual duty
performance of the Directors, and the annual duty performance and cross-appraisal of the Independent Non-
Executive Directors, and reported the appraisal results to the shareholders' general meeting.
The Company attached great importance 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 relevant laws, regulations and systems, the regulatory requirements of the CBIRC, the
CSRC, Shanghai Stock Exchange and Hong Kong Stock Exchange and the requirements of the Articles of Association
of the Company. The Company has renewed the "Insurance for Liabilities of Directors, Supervisors and Senior
Management" for all its Directors.
The Board of Directors of the Company reviewed its work during the reporting period, believing that it has
effectively performed its duties and safeguarded the interests of the Company and its shareholders. 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 opinions on the
resolutions reviewed by the Board of Directors, including offering independent written opinions on significant
matters such as the profit appropriation plan, nomination and election of directors, engagement of accounting firms
and related party transactions. In addition, the Independent Non-Executive Directors of the Company also gave full
play to their professional advantages in the relevant special committees under the Board of Directors, and provided
professional and independent opinions regarding corporate governance and operation management of the Company,
thereby ensuring 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
under the Articles of Association of the Company and the domestic and overseas regulatory rules, 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 97%.
7.4.3 Responsibilities of Directors
The procedures for appointment, re-election and removal of Directors, candidates' qualification and other
requirements of the Company are set out in the Articles of Association and the implementation rules of the
Nomination Committee of the Company. The Nomination Committee under the Board of Directors of the Company
shall carefully consider the qualifications and experience of every candidate for a Director and recommends suitable
candidates to the Board of Directors. Upon passing the candidate nomination proposal, the Board of Directors shall
propose election of the related candidates at a shareholders' general meeting and submit the relevant resolution at a
shareholders' general meeting for consideration and approval.
The term of office for the Independent Non-Executive Directors of the Company shall be the same as that for other
Directors of the Company. The term of office for the Independent Non-Executive Directors of the Company shall
comply with the relevant laws and the requirements of the governing authority.
A Director may be removed by an ordinary resolution at a shareholders' 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 shall not be affected).
In accordance with the Articles of Association of the Company, the Directors of the Company shall be elected or
replaced by the shareholders at the shareholders' general meetings, and the term of office for the Directors shall
be three years commencing from the date on which the approval from the PRC banking regulatory authority is
obtained. A Director is eligible for re-election upon the expiry of his/her current term of office. The term of office for
a Director shall not be terminated without any justification at a shareholders' general meeting before expiry of his/
her term.
7.4.2 Appointment, re-election and removal of Directors
VII Corporate Governance
China Merchants Bank
Annual Report 2019
The list of Directors of the Company is set out in Chapter VI of this report. To comply with the Hong Kong Listing
Rules, the Independent Non-Executive Directors have been clearly identified in all the corporate communication
documents of the Company which disclose their names.
The Company values the diversity of the members of the Board of Directors, and has formulated the relevant
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
according to the Company's business operation, asset scale and shareholding structure, and put forward proposals in
respect of any intended changes to the Board of Directors in line with the strategies of the Company.
At present, the Board of Directors of the Company has seventeen members, including eight Non-Executive Directors,
three Executive Directors, and six Independent Non-Executive Directors. All the eight Non-Executive Directors
are from large- state-owned enterprises where they hold key positions such as the Chairman of the Board of
Directors, General Manager, Deputy General Manager or Chief Financial Officer. They have extensive experience in
corporate management, finance and accounting fields. The three Executive Directors have been engaged in financial
management for a long time with extensive professional experience. Among the six Independent Non-Executive
Directors, there are renowned experts in accounting and finance, and financial experts, university professors and
investment bankers with international vision, and they all have in-depth knowledge about the development of the
banking industry at home and abroad. The two Independent Non-Executive Directors from Hong Kong are proficient
in international accounting standards and the requirements of Hong Kong capital market. The Board of Directors
of the Company has one female Director who, together with other Directors of the Company, offers 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.
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 the CSRC's regulatory documents
governing the corporate governance of listed companies.
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 honors, mainly including the "Excellent Corporate Governance Award" and the "Most Innovative Board
Secretary Award" in the selection of the "Gold Round Table Award" by Directors&Boards; the "Gold Award for
Annual Reports Worldwide" selected by League of American Communications Professionals LLC, the highest grade
of "A" in the annual evaluation of information disclosures by Shanghai Stock Exchange; the awards of the "Most
Respectful Asian Company", the "Best CEO", the "Best CFO", the "Best Corporate Governance", the "Best Investor
Relations Management Company", the "Best Company in Environmental Protection and Social Responsibilities" and
the "Best Investor Relations Management Expert" for the Asian listed banks selected by Institutional Investor of U.S.,
and the "Most Influential Listing Companies in 2019" hosted by xueqiu.com.
7.3 Information about Shareholders' General Meetings
During the reporting period, the Company convened 1 shareholders' general meeting, namely the 2018 Annual
General Meeting on 27 June 2019.
For details of the resolutions, please refer to the documents on the shareholders' general meeting published on
the websites of Shanghai Stock Exchange and the Company as well as the circulars regarding the shareholders'
general meeting published on the websites of Hong Kong Stock Exchange and the Company. The notification,
gathering, convening and voting procedures of the meeting 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, as well as on China Securities Journal, Shanghai Securities News and Securities Times. For more
information on the attendance of Directors at the shareholders' general meeting, please refer to "Attendance of
Directors at Relevant Meetings" of this report.
127
7.2 Overview of Corporate Governance
128
VII Corporate Governance
7.4
Board of Directors
The Board of Directors is an independent policy-making body of the Company, responsible for executing resolutions
passed by the shareholders' general meetings; formulating 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; preparing annual financial budgets,
final accounts and profit appropriation plans; and appointing and evaluating members of senior management. The
Company adopts a system in which the President assumes full responsibility under the leadership of the Board of
Directors. The 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.
The Board of Directors of the Company facilitates scientific and reasonable decision-making through the
establishment of a diversified directorship structure, and continues to improve the decision-making and operational
efficiency through promoting the effective operation of special committees. The Board of Directors focuses
on key issues, directions and strategies, and continues to strengthen the corporate philosophy of balanced,
healthy and sustainable development. The Board of Directors ensures the Company to achieve dynamic and
balanced development in quality, efficiency and scale through effective management of its strategy, risks, capital,
remuneration, internal control and connected transactions, etc., thus providing a solid basis for the Company to
enhance its operation and management capabilities.
7.4.1 Composition of the Board of Directors
China Merchants Bank
Annual Report 2019
General Office
Corporate Governance
VII Corporate Governance
Credit Card Center
(Consumer Finance Center)
Retail Credit Business Department
(Inclusive Finance Service Center)
Private Banking Department
Wealth Management Department
Bill Brokerage Department*
Bills Business Department*
Asset Custody Department
Asset Management Department
Financial Market Department
Investment Banking Department
Offshore Finance Center
(General Office of Retail Finance
General Office of Investment
Banking and Financial Markets
International Business Center#
Loan Approval Center#
Pension Finance Department#
Human Resources Department
Financial Technology Office
Assets and Liabilities Management Department
Financial Accounting Department
Investment Management Department#
Finance
General Office of Corporate
Network Operation Service Center#
Head Office
Sub-branches
Strategic Customers Department
Institutional Customers Department
Financial Institutions Department
Small Enterprises Finance Department
Transaction Banking Department
Branches
Annual Report 2019
Overseas Divisions#
Credit Approval Department
China Merchants Bank
126
*independent secondary department
Note #secondary department
Project Management Department#
Procurement Management Department#
Anti-money Laundering and Sanction Compliance Management Center#
Banking Department
Administration Department
Representative Offices (Beijing, Shanghai,
United States of America, Taipei)
Security Department#
Data Center#
Testing Center#
Data Asset and Platform R&D Center#
Infrastructure R&D Center#
Wholesale Application R&D Center#
Retail Application R&D Center#
Operation Center#
Asset Security Department
Operation Management Department
Information Technology Department
Audit Department
Inspection Department
Legal Compliance Department
Risk Management Department
CMB Research Institute
Labor Union of the Head Office
Operational Risk Management Department#
Market Risk Management Department#
Loan Approval Center#
Pre-warning Center#
Special Assets Operating Center#
Training Center
15
Regions
Western China
No. of
32
175,339
2,762
72
174,771
2,982
80
125228
325000
Block 2, 4, 5, Hongshengjin Garden, Wuqiao Avenue,
Wenzhou Branch
214001
6-107, 6-108 1st Financial Street, Binhu District, Wuxi
Wuxi Branch
29
215028
36 Wansheng Street, Industrial Park, Suzhou
120
23,769
Zone Branch
District, Shanghai
Nanjing Branch
199 Lushan Road, Jianye District, Nanjing
1,204
210005
23 Hangda Road, Hangzhou
310007
Ningbo Branch
342 Min'an East Road, Ningbo
315042
Suzhou Branch
Hangzhou Branch
China Merchants Bank
Annual Report 2019
73,237
112,634
49
336,286
5,029
95
54
300201
255 Guangdong Road and 9 Qianjin Road, Hexi District,
Tianjin Branch
266103
65 Hai'er Road, Laoshan District, Qingdao
Qingdao Branch
100031
156 Fuxingmen Nei Dajie, Xicheng District, Beijing
Beijing Branch
9
1
100045
776
42,819
13
540
32,773
Lucheng District, Wenzhou
1,352
Nantong Branch
226007
14
570
26,853
Bohai Rim
Beijing Representative Office 26/F, Building 3, No.1 Yuetan South Street, Xicheng
District, Beijing
111 Gongnong Road, Nantong
1,573
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Senior management
assets
No. of
No. of
(in millions
Regions
Head Office
Name of branches
Head Office
Business address
Postal code
branches
staff
of RMB)
Credit Card Center
7088 Shennan Boulevard, Shenzhen
686 Lai'an Road, Pudong New District, Shanghai
518040
1
4,884
2,728,674
4,985
213
200131
6 Jilong Road, Waigaoqiao Bonded Area, Pudong New
Shanghai Pilot Free Trade
92
Volume of
200120
Shanghai Branch
Yangtze River Delta
648,768
6,360
1
201201
1088 Lujiazui Ring Road, Pudong New District, Shanghai
Mr. Liu Xiaoming, is an Employee Supervisor of the Company. Mr. Liu obtained a Ph.D. in Applied Economics from
Xi'an Jiaotong University, and is a senior economist. He currently serves as the Director of the Labor Union of the
Head Office of the Company. He started his career in Shaanxi University of Finance and Economics in July 1987.
He served as the deputy head and head of the business office II of Shaanxi Office of China Rural Development
Trust and Investment Corporation (+ŒÌHR¤ÂƑ) from March 1994 to February 1997. He joined the
Bank in February 1997, and consecutively served as Manager of the Credit Department and General Manager of
the Risk Control Department of Xi'an Branch, Assistant General Manager and Deputy General Manager of Urumqi
Branch, Deputy General Manager of the Risk Management Department, Deputy General Manager of the Credit
Management Department, General Manager of the Credit Approval Department and General Manager of the Credit
Risk Management Department of the Head Office, and the General Manager of Zhengzhou Branch. He served as
Executive Vice President of China Merchants Bank University, Director of the Training Center of the Head Office
from December 2016 to June 2019, during which he concurrently served as General Manager of the Strategic
Development Department of the Head Office.
6.8 Branches and Representative Offices
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Tian Huiyu, please refer to Mr. Tian Huiyu's biography under the heading of "Directors" above.
Mr. Liu Yuan, please refer to Mr. Liu Yuan's biography under the heading of "Supervisors" above.
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 and the
head of the Shenzhen Administration Unit of the Company, and an Executive Assistant President of the Head Office.
He has been an Executive Vice President of the Company since May 2006. He concurrently serves as a Director of
the Federation of Shenzhen Commerce ().
Mr. Liu Jianjun, please refer to Mr. Liu Jianjun's biography under the heading of "Directors" above.
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 the CBRC Guangxi Bureau and the 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. Wang Liang, please refer to Mr. Wang Liang's biography under the heading of "Directors" above.
Mr. Wang Jianzhong is an Executive Vice President of the Company. He obtained a bachelor's degree in Accounting
from Dongbei University of Finance and Economics and is an assistant economist. Mr. Wang joined the Company in
November 1991 and successively served as the General Manager of Changsha Branch, the Deputy General Manager
of the Corporate Banking Department of the Head Office, the General Manager of Foshan Branch, the General
Manager of Wuhan Branch, the Business Director of General Office of Corporate Finance Group of the Head Office
and the General Manager of Beijing Branch of the Company since October 2002. He has served as an Executive Vice
President of the Company since April 2019. He is concurrently a Director of China UnionPay Co., Ltd. and a member
of Visa Asia Pacific Senior Advisory Council.
Mr. Shi Shunhua is an Executive Vice President of the Company. He obtained an MBA degree from China Europe
International Business School and is a senior economist. Mr. Shi joined the Company in November 1996 and
successively served as the Assistant General Manager and the Deputy General Manager of Shanghai Branch,
the General Manager of Suzhou Branch, the General Manager of Shanghai Branch and the Business Director of
the General Office of Corporate Finance Group under the Head Office of the Company since May 2003. He has
served as an Executive Vice President of the Company since April 2019. He is concurrently the General Manager of
Shanghai Branch of the Company and the Chairman of CMBFL and also serves as a member of the 13th Session of
the Shanghai People's Political Consultative Committee.
China Merchants Bank
Annual Report 2019
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
Mr. Wang Yungui is an Executive Vice President of the Company. Mr. Wang obtained a master's degree from the
Party School of the Central Committee of the Communist Party of China and a MBA degree (International Courses)
from Fudan University and The University of Hong Kong, and is a senior economist. He successively served as the
General Manager of the Department of Education and the General Manager of the Human Resources Department
of the Industrial and Commercial Bank of China from July 2008 to December 2016, and served as the Secretary of
the Disciplinary Committee of China Development Bank from December 2016 to March 2019. He has served as an
Executive Vice President of the Company since June 2019.
Mr. Li Delin is an Executive Assistant President of the Company. Mr. Li obtained a doctoral degree in Finance from
Wuhan University, and is a senior economist. He joined the Company in October 2013 and successively served as
the Director of the Head Office, the General Manager of the Strategic Customer Department, the General Manager
of the Strategic Customer Department and the General Manager of the Institutional Customer Department, and the
General Manager of Shanghai Branch and the General Manager of Shanghai Pilot Free Trade Zone Branch of the
Company. He has served as an Executive Assistant President of the Company since April 2019 and is concurrently the
Chairman of the Board of Supervisors of Shenzhen Public Companies Association.
Ms. Liu Hui is an Executive Assistant President of the Company. Ms. Liu obtained a MBA degree in Finance from
Tsinghua University and The Chinese University of Hong Kong, and is a senior economist. She joined the Company
in April 1995 and successively served as the Deputy General Manager of the Planning and Finance Department of
the Head Office, the General Manager of the Market Risk Management Department, the General Manager of the
Asset and Liability Management Department and the General Manager of the Investment Management Department,
and the President of the Investment Banking and Financial Market Department and the General Manager of the
Asset Management Department. She has been serving as an Executive Assistant President of the Company since
April 2019. She is concurrently the General Manager of the Asset Management Department of the Head Office
of the Company, the Chairman of China Merchants Fund Management Co., Ltd., the Chairman of CMB Wealth
Management Company Limited and a Director of the Asian Financial Cooperation Association.
Joint company secretaries
Mr. Liu Jianjun, please refer to Mr. Liu Jianjun's biography under the heading of "Biography of Directors" above.
Ms. Ho Wing Tsz Wendy is a joint company secretary of the Company. Ms. Ho obtained a MBA degree from the
Hong Kong Polytechnic University. She is a Chartered Secretary, a Chartered Governance Professional and a Fellow
of both The Hong Kong Institute of Chartered Secretaries (HKICS) and The Chartered Governance Institute (CGI)
(formerly The Institute of Chartered Secretaries and Administrators (ICSA)) in the United Kingdom and is a council
member of HKICS, the Vice Chairlady of the Education Committee of HKICS and is a holder of the Practitioner's
Endorsement issued by HKICS. Ms. Ho is an Executive Director of Corporate Services of Tricor Services Limited,
and her professional practice area covers business consulting, corporate services for private, offshore and listed
companies. Ms. Ho has over 20 years of experience in the corporate secretarial and compliance service field and
is currently the company secretary or joint company secretary of a few listed companies on the Hong Kong Stock
Exchange.
6.6 Evaluation and Incentive System for Directors, Supervisors and
Senior Management
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."; and offers remuneration to Employee Supervisors in
accordance with the policies on remunerations of employees of the Company. All of the Directors and Supervisors
nominated by shareholders of the Company do not receive any remuneration from the Company.
China Merchants Bank
Annual Report 2019
Including employees of the Company, CMB Wing Lung Bank, CMB Financial Leasing, CMB International Capital, CMB Wealth Management, China
Merchants Fund, CIGNA & CMB Life Insurance and Merchants Union Consumer. There were 82,241 employees at the end of 2018 calculated on the same
statistical calibre. Among them, the statistical calibre of employees of CIGNA & CMB Life Insurance has been adjusted.
17
The Company has formulated a tiered staff training program, with the trainees 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 and education programs.
Staff education and training program
The Company's remuneration policy is in line with its operation targets, cultural and value concepts. 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 remuneration management
principles 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".
123
Staff remuneration policy
6.7 Information About Employees
The Board of Directors of the Company evaluates the performance of the senior management through the "Policies
on Remunerations of Senior Management of China Merchants Bank Co., Ltd." and the "Assessment Standards
of the H-Share Appreciation Rights Incentive Scheme for the Senior Management". According to the "Policies on
Evaluation of Performance of Directors by the Board of Supervisors" and the "Policies on Evaluation of Performance
of Supervisors by the Board of Supervisors", the Board of Supervisors evaluates the annual duty performance of
the Directors and Supervisors through monitoring their duty performance in the ordinary course, conducting duty
performance interviews, reviewing and evaluating their annual duty performance records (including but not limited
to, attendance of meetings, participation of researches, provision of recommendations and the term of office in
the Company), the "Duty Performance Self-Evaluation Questionnaire" completed by each Director and Supervisor
and work summaries, and then reports the same to the shareholders' general meeting and regulatory authorities.
According to the "Policies on Evaluation of Duty Performance of Senior Management by the Board of Supervisors
(Trial)", the Board of Supervisors evaluates the annual duty performance of senior management through monitoring
their duty performance in the ordinary course and accessing to their duty performance information (including
but not limited to, major speeches, major meeting minutes and the evaluation of the duty performance of senior
management by the Board of Directors) and work reports, and then reports the same to the shareholders' general
meeting and regulatory authorities.
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2019
122
121
As of 31 December 2019, the Group had 84,683 employees 17 (including dispatched employees). The classification of
our employees by profession is: 17,876 employees in corporate finance, 36,052 employees in retail finance, 4,280
employees in risk management, 14,679 employees in operation management, 3,253 employees in research and
development, 900 employees in administrative and logistical support, and 7,643 employees in general management.
The classification of our employees by educational background is: 18,056 employees with master's degree and
above, 56,928 employees with bachelor's degree and 9,699 employees with junior college degree or below.
(in millions
49,226
1,741
330008
468 Dieshan Road, Donghu District, Nanchang
Nanchang Branch
114
430022
518 Jianshe Avenue, Wuhan
Wuhan Branch
Central China
24,787
701
27
43,483
1,100
38
35,996
1,248
37
Dalian Branch
Harbin Branch
Changchun Branch
Shenyang Branch
12 Shiyiwei Road, Heping District, Shenyang
110003
17 Renmin Road, Zhongshan District, Dalian
116001
Changsha Branch
3 Zhongyang Avenue, Daoli District, Harbin
9999 Renmin Avenue, Nanguan District, Changchun
130022
2382
62
1,670
45,806
150010
North-eastern China
766 Wuyi Avenue, Changsha
Hefei Branch
Zhengzhou Branch
Taiyuan Branch
No. of
assets
Volume of
18
VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure
China Merchants Bank
Annual Report 2019
124
11,212
343
31,202
877
72,852
1,322
54,343
1,372
51,990
1,492
169 Funan Road, Hefei
230001
96 Nongye Road East, Zhengzhou
450018
Haikou Branch
265 Nan Zhong Huan Road, Xiaodian District, Taiyuan
Building C, Haian Yihao, 1 Shimao Road North, Haikou
410005
030012
ཤྰ8¥4% ག
2,737
150,671
58
1,510
84,811
570125
44
53,892
28
Taiwan Strait
West Side of
Pearl River Delta and
5,431
233
21,081
452
5333
9
063000
45 Beixin Road West, Lubei District, Tangshan
Tangshan Branch
14
050000
172 Zhonghua Street South, Shijiazhuang
Shijiazhuang Branch
16,583
76,337
Tianjin
Jinan Branch
7 Gongqingtuan Road, Jinan
250012
59
Guangzhou Branch
Shenzhen Branch
Fuzhou Branch
Yantai Branch
264006
17
1675
1,867
77,400
558
66 Zhujiang Road, Economic & Technological
Development Area, Yantai
1,016
5 Huasui Road, Tianhe District, Guangzhou
78
528200
12 Denghu Road East, Guicheng Street, Nanhai District,
Foshan
44,513
908
28
523000
200 Hongfu Road, Nancheng District, Dongguan
Dongguan Branch
Foshan Branch
20,717
502
17
362800
180 Jiangbin North Road, Fengze Street, Quanzhou
Quanzhou Branch
52,877
1,025
31
2,740
160,759
2016 Shennan Boulevard, Futian District, Shenzhen
518001
113
5,208
510623
404,361
350014
1,206
60,098
Xiamen Branch
18 Lingshiguan Road, Siming District, Xiamen
361012
316 Jiangbinzhong Boulevard Road, Fuzhou
Nanning Branch
34
1/1
Li Menggang
Liu Qiao
17/17
5/5
7/7
17/17
5/5
5/5
4/4
Tian Hongqi
Pan Chengwei (resigned)
5/5
2/2
2/2
12/12
5/5
5/5
7/7
Wong See Hong
1/1
2/2
3/3
2/2
I
2/2
Independent Non-Executive Directors
Leung Kam Chung, Antony
15/17
4/5
4/4
Zhao Jun
17/17
5/5
2/2
5/5
17/17
5/5
3/3
ངངང➢= ོ་ྔ
132
China Merchants Bank
VII Corporate Governance
Annual Report 2019
7.5 Special Committees under the Board of Directors
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 Transactions Management and Consumer Rights Protection Committee.
In 2019, all the 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 35 meetings
to study and review 135 significant issues, including strategic implementation and assessment, FinTech, profit
appropriation, annual financial budget and final account, remuneration and appraisal, capital management plan,
comprehensive risk management and internal control, and reported their audit opinions and advices to the Board of
Directors by submitting meeting minutes and holding on-site meetings, hence fully playing its role in assisting the
Board of Directors to make scientific decisions.
The composition and duties of the six special committees under the Board of Directors of the Company as well as
their work in 2019 are summarised as follows:
7.5.1 Strategy Committee
The Strategy Committee consists of Non-Executive Directors and Executive Directors. The incumbent members of
the Strategy Committee are Li Jianhong (Chairman), Fu Gangfeng, Luo Sheng, all being Non-Executive Directors and
Tian Huiyu (an Executive Director). The Strategy Committee is mainly responsible for formulating the operation and
management goals and the medium-to-long term development strategies of the Company, as well as supervising
and examining the implementation of its annual operation plan and investment plan.
Main authorities and duties:
1.
Formulate the operational goals and the medium-to-long term development strategies of the Company, and
make an overall assessment on strategic risks;
2.
Consider the material investment and financing plans and make proposals to the Board of Directors;
3.
According to the "Rules Governing Independent Directors' Work on Annual Reports" of the Company, the
Independent Non-Executive Directors of the Company listened to the reports on the operation of the Company in
2019, believing that such reports had fully and objectively reflected the operation of the Company as well as the
progress of significant matters in 2019. They recognised and were satisfied with the work performed and the results
achieved in 2019. They also reviewed the unaudited financial statements of the Company, and discussed with the
certified public accountants in charge of annual audit in respect of major matters and formed their written opinions;
they reviewed the procedures for convening board meetings in the year, the decision-making procedures for matters
on the agenda and the adequacy of information about such meetings; they reviewed the continuing connected
transactions of the Company and made confirmations as required by the Hong Kong Listing Rules.
During the reporting period, the Independent Non-Executive Directors of the Company expressed their independent
opinions on significant matters such as the profit appropriation plan, nomination and election of directors,
engagement of accounting firms and related party transactions. They made no objection to the resolutions of the
Board of Directors and others of the Company in the year.
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 the relevant
requirements of the CBIRC, the CSRC, Shanghai Stock Exchange and the Hong Kong Listing Rules. All the six
Independent Non-Executive Directors of the Company are not involved in the circumstances set out in Rule 3.13
of the 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 the Hong Kong Listing Rules. Therefore, the Company is of the opinion
that all the Independent Non-Executive Directors have complied with the requirement of independence set out
in the Hong Kong Listing Rules. The majority of members of the Nomination Committee, the Remuneration and
Appraisal Committee, the Audit Committee and the Related Party Transactions Management and Consumer Rights
Protection 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 the meetings held by the Board of Directors and
its various special committees, actively expressing their opinions and suggestions and attending to the interests
and requests of minority shareholders. For details of the attendance of Independent Non-Executive Directors at the
meetings convened by the Board of Directors and its special committees, please refer to "Attendance of Directors at
relevant meetings" in this report.
7.4.7 Performance of duties by Independent Non-Executive Directors
1/1
1/1
Notes: (1)
During the reporting period, the Board of Directors of the Company held a total of 17 meetings, and the special committees under the
Board of Directors held a total of 35 meetings.
(2)
Actual number of attendance does not include attendance by proxy.
(3)
4/4
(4)
Mr. Luo Sheng has been a Non-Executive Director of the Company since 12 July 2019, and Mr. Tian Hongqi has been an Independent
Director of the Company since 5 August 2019. Both Mr. Liu Jianjun and Mr. Wang Liang have been the Executive Directors of the
Company since 25 August 2019.
China Merchants Bank
VII Corporate Governance
Annual Report 2019
7.4.6 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 specific enquiry, so far as the Company is aware, all the Directors and Supervisors of the Company had
complied with the aforesaid Model Code during the reporting period.
The Company has also established the guidelines for the relevant employees' dealings in the Company's securities,
which are no less exacting than the Model Code. During the reporting period, the Company is not aware of any
non-compliance with the aforesaid guidelines by the relevant employees.
Mr. Li Hao has ceased to be an Executive Director of the Company since 8 April 2019, Ms. Sun Yueying has ceased to be a Non-Executive
Director of the Company since 27 June 2019, and Mr. Pan Chengwei has ceased to be an Independent Director of the Company since 5
August 2019.
Supervise and review the implementation of the annual operation and investment plans;
Li Hao (resigned)
Wang Liang
Management
Audit
Management
and Consumer
Rights
Protection
Committee
Shareholders'
General
Meeting
Non-Executive Directors
Li Jianhong
17/17
5/5
5/5
Fu Gangfeng
16/17
5/5
Zhou Song
Nomination
Committee
Committee Committee
Actual times of attendance/Required times of attendance (2)
16/17
Committee
Remuneration
and Appraisal
130
China Merchants Bank
VII Corporate Governance
Annual Report 2019
7.4.4 Chairman of the Board of Directors and the President
The Chairman of the Board of Directors and the President of the Company has been served 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,
ensuring that all the Directors are updated regarding issues arising at board meetings, managing the operation 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. In order to enable the Board of Directors to discuss all major and relevant matters in
time, the Chairman of the Board of Directors worked together with senior management to ensure that the Directors
duly receive appropriate, complete and reliable information for their reference and review. Mr. Tian Huiyu serves
as the President, responsible for the business operation of the Company and implementation of its strategies and
business plans.
7.4.5 Attendance of Directors at relevant meetings
The following table sets forth the records of attendance of each Director at the meetings convened by the Board of
Directors and the special committees under the Board of Directors and at the shareholders' general meeting held in
2019.
Directors
Board of
Directors(1)
Strategy
Committee
Special committees under the Board of Directors
Related Party
Transactions
Risk and
Capital
Hong Xiaoyuan
Zhang Jian
17/17
2/2
4/4
1/1
0/1
1/1
1/1
=_======
1/1
Executive Directors
Tian Huiyu
17/17
5/5
5/5
Liu Jianjun
3/3
4/4
1
5/5
4/4
17/17
Su Min
17/17
Wang Daxiong
17/17
Luo Sheng
5/5
3/3
Sun Yueying (resigned)
7/7
5/5
8/8
8/8
4/4
5/5
3/3
11/11
4.
131
Evaluate and monitor the implementation of the Board resolutions;
7.
8.
Review the strategies, policies and objectives of the consumer rights protection work of the Company;
Regularly listen to the report on the implementation of the consumer rights protection work of the Company
and the relevant resolution, and make recommendations to the Board of Directors in respect of the relevant
work;
Supervise and evaluate the comprehensiveness, timeliness and effectiveness of the consumer rights protection
work of the Company, the duty performance of senior management in the protection of consumer rights,
and the information disclosure of consumer rights protection work; and
Any other tasks delegated by the Board of Directors.
In 2019, the Related Party Transactions Management and Consumer Rights Protection Committee reviewed the
fairness of the related party transactions, assisted the Board of Directors to ensure the legitimacy and compliance
of related party transactions, carried out relevant responsibilities of consumer right protection in accordance with
the regulatory requirements, reviewed and approved various resolutions on, among others, the 2018 Annual
Related Party Transaction Report and the List of Related Parties in 2019, reviewed and approved the related party
transactions of the Company with China Merchants Group Ltd., China COSCO Shipping Corporation Limited,
Gemdale Corporation, Merchants Union Consumer, CMB Financial Leasing and Guotai Junan Co., Ltd. (
1), reviewed and approved the cap for the continuing connected transactions with China Merchants Fund,
and reviewed and approved the report on consumer rights protection.
7.6 Corporate Governance Functions
During the reporting period, the Board of Directors has performed the following duties on corporate governance:
Formulate and evaluate the policies and practices on corporate governance of the Company and make certain
amendments as it deems necessary, so as to ensure the validity of those policies and practices;
1.
2.
3.
4.
5.
6.
Evaluate and supervise the trainings and the improvement of professional competence of Directors and senior
management;
6.
5.
Review the announcements on related party transactions of the Company;
4.
3.
The Audit Committee considered and discussed the accounting firm's audit plan for 2019 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 auditors in charge
of annual audit, the Audit Committee reviewed the report on the operation of the Company for 2019,
exchanged opinions on the significant matters and audit progress with the auditors in charge of annual audit,
reviewed the financial statements of the Company, and then formed written opinions on the above issues.
Before the convening of the annual meeting of the Board of Directors, the Audit Committee reviewed
the Company's Annual Report for 2019 and agreed to submit the same to the Board of Directors for
consideration and approval. Moreover, the Audit Committee reviewed and submitted to the Board of
Directors the conclusion report prepared by the auditors in charge of annual audit in respect of the audit
work of the Company in 2019.
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China Merchants Bank
Annual Report 2019
VII Corporate Governance
Evaluate and supervise the policies and practices of the Company for compliance with laws and regulatory
requirements;
7.5.6 Related Party Transactions Management and Consumer Rights Protection
Committee
Main authorities and duties:
1.
2.
3.
Identify related parties of the Company pursuant to relevant laws and regulations;
5.
Review the administrative measures on related party transactions of the Company, and monitor the
establishment and improvement of the related party transaction management system of the Company;
The majority of members of the Related Party Transactions Management and Consumer Rights Protection Committee
are Independent Non-Executive Directors, and the committee was chaired by an Independent Non-Executive Director.
The members of the Related Party Transactions Management and Consumer Rights Protection Committee are
Zhao Jun (Chairman), Wong See Hong and Tian Hongqi (all being Independent Non-Executive Directors), Su Min
(a Non-Executive Director) and Liu Jianjun (an Executive Director). The Related Party Transactions Management and
Consumer Rights Protection Committee is mainly responsible for inspection, supervision and review of related party
transactions of the Company and protection of the legitimate rights and interests of consumers.
2.
Formulate, evaluate and supervise the Code of Conduct and the Compliance Handbook applicable to the
Directors and employees of the Company;
Manage, control, monitor and assess the risks of the Company and evaluate the internal control status of the
Company. The Board of Directors is of the opinion that the risk management and internal control systems of
the Company are effective.
The Nomination Committee and the Supervisory Committee are established under the Board of Supervisors, each
consisting of four Supervisors, and those committees were chaired by an External Supervisor.
The Nomination Committee under the Board of Supervisors
As at the end of the reporting period, the members of the Nomination Committee of the Eleventh Session of the
Board of Supervisors were Ding Huiping (Chairman), Peng Bihong, Wen Jianguo and Liu Xiaoming. 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 Board of Directors, Board of Supervisors and senior management and the duty performance of their
members, 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 are scientific and
reasonable.
In 2019, the Nomination Committee under the Board of Supervisors held three meetings at which it studied and
considered the evaluation process and specific conclusions of the Board of Supervisors on the duty performance
of the Board of Directors, the Board of Supervisors and the senior management and their members in 2018, the
procedures and proposals for re-election of a new session of the Board of Supervisors and the nomination of
candidates for Shareholder Supervisors and External Supervisors.
The Supervisory Committee under the Board of Supervisors
As at the end of the reporting period, the members of the Supervisory Committee of the Eleventh Session of the
Board of Supervisors were Han Zirong (Chairman), Wu Heng, Xu Zhengjun and Wang Wanqing. 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 Company and conduct
relevant examinations; to supervise the adoption by the Board of Directors of prudent business philosophy and value
standards and its formulation of suitable development strategies in line with the actual situations of the Company;
to conduct supervision and assessment on the important financial decisions of the Board of Directors and the senior
management 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
their duty performance; to formulate the specific plans for reviewing the operation decisions, internal control and
risk management of the Company under the authorisation of the Board of Supervisors when necessary; to formulate
the plans for conducting resignation audit on Directors, President and other senior management when necessary.
In 2019, the Supervisory Committee under the Board of Supervisors convened a total of three meetings at which
it reviewed and considered the work plan of the Board of Supervisors for 2019 and the audit on the resignation
of senior management and major issues of concern for risk management and control. 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 under the Board of Directors. They also reviewed
the consideration and discussion of the above special committee on the financial decisions, risk management, capital
management, internal control compliance, internal audit and other aspects of the Company, and offered comments
and suggestions on some of the issues.
China Merchants Bank
Annual Report 2019
VII Corporate Governance
7.8 Trainings and Investigations/Surveys conducted by Directors and
Supervisors during the Reporting Period
During the reporting period, the Board of Directors and the Board of Supervisors of the Company organised seven
investigations/surveys, through which the duty performance, decision-making and effectiveness of supervision of our
Directors and Supervisors continued to improve.
During the reporting period, the Board of Directors of the Company organised two investigations/surveys/visits
for the Directors, which involved visits to the Credit Card Center and some tier-1 and tier-2 branches to have
deep understanding of the operation and management of the Head Office and its branches and sub-branches,
implementation of the "Light-operation Bank" strategy, development of key businesses, risk management and
internal control and consumer rights protection, and put forward targeted opinions and suggestions. In addition,
the Company's Non-Executive Directors reviewed the "Report on Current Situation of Anti-Money Laundering and
Sanction Compliance (¤¾£¸Ð¾Âµ»)" of the Company to have deeper understanding of
the policy guidelines and regulatory requirements of regulators for improving the regulatory systems and mechanisms
of anti-money laundering, anti-terrorist financing and anti-tax evasion, and provided constructive opinions and
suggestions for the Company to improve its anti-money laundering risk management system, speed up application of
financial technologies in anti-money laundering management, optimise relevant processes and accelerate personnel
trainings.
During the reporting period, the Board of Supervisors continued to optimise and improve the ways and methods
of researches by focusing on key areas of concerns to identify and solve problems, hence effectively improving the
quality and efficiency of researches. The Board of Supervisors organised a total of four collective surveys in the
year, including three domestic surveys and one overseas survey, involving nine branches and sub-branches. During
the surveys, members of the Board of Supervisors conducted discussions with management of branches and on-
site visits to grassroots staff, customers and peers to gain in-depth understanding of the strategic development, risk
management and control, internal control compliance and basic management of the branches, and the effectiveness
of the policy of "empowering frontlines and reducing burden on grassroots ()" of the Head Office, and put
forward high-quality opinions and suggestions on the development of second-tier branches and the operation and
management of overseas branches. During the year, the Board of Supervisors compiled and distributed a total of
four issues of the "Work Summary of the Board of Supervisors («‡ªIM))”, submitting the investigation
results and recommendations of the Board of Supervisors to the Board of Directors and the senior management in
a timely manner, and coordinated and promoted the solving of key and difficult issues to facilitate the operation
and development of the Company. With focus on the roots of risks, the Board of Supervisors used internal audit
to trace the root cause, find out the reasons and give warning of the issues. The Board of Supervisors supervised
the departments under the Head Office to effectively solve the problems encountered in root operations in respect
of performance evaluation, resource allocation, product support, talent training, etc. Through adjustment and
optimisation, the researches of the Board of Supervisors have formed a closed-loop full process of information
collection, problem sorting, supervised solution and communication and feedback. The mechanism has been running
smoothly with remarkable effect.
During the reporting period, the Directors of the Company participated in relevant trainings or researches according
to the requirements on duty performance, the contents of which include corporate governance, policies and
regulations and banking operation and management. The above trainings or researches helped improve the duty
performance of the Directors, ensure that the Directors were fully aware of the information required for duty
performance, and continued to make contributions to the Board of Directors of the Company based on the actual
situation of the Company. If necessary, the Company would assist the Directors to attend appropriate trainings and
researches and make reimbursements for relevant expenses.
During the reporting period, part of the Company's new Supervisors attended the training courses for directors
and supervisors organised by the Shenzhen Securities Regulatory Bureau to further deepen their learning and
understanding of corporate governance operation and supervisory functions, which effectively promoted the
improvement of their duty performance.
139
7.7.4 Operation of the special committees under the Board of Supervisors
Annual Report 2019
VII Corporate Governance
China Merchants Bank
China Merchants Bank
Annual Report 2019
VII Corporate Governance
7.7 Board of Supervisors
The Board of Supervisors is a supervisory body of the Company and is accountable to the shareholders' general
meetings, and effectively oversees the strategic management, financial activities, internal control, risk management,
legal operation, corporate governance, as well as the duty performance of the Board of Directors and senior
management with an aim to protect the legitimate rights and interests of the Company, its shareholders, employees,
creditors and other stakeholders.
7.7.1 Composition of the Board of Supervisors
The Board of Supervisors of the Company consists of nine members, including three Shareholder Supervisors,
three Employee Supervisors and three External Supervisors. The proportion of Employee Supervisors and External
Supervisors in the members of the Board of Supervisors each meets the regulatory requirements. The three
Shareholder Supervisors are from large- state-owned enterprises where they serve important posts and have
extensive experience in business management and professional knowledge in finance and accounting; the three
Employee Supervisors have long participated in banking operation and management, and thus accumulated rich
professional experience in finance; and the three External Supervisors have professional expertise and rich practical
experience in economic management and research, accounting, corporate governance and other areas. Members of
the Board of Supervisors of the Company have professional ethics and professional competence required for their
performance of duties which ensures the effective supervision by the Board of Supervisors.
A Nomination Committee and a Supervisory Committee are established under the Board of Supervisors.
Review the compliance of the Company with the Code of Corporate Governance and the disclosures in the
Report of Corporate Governance; and
7.7.2 How the Board of Supervisors performs its supervisory duties
7.7.3 Duty performance of the Board of Supervisors during the reporting period
During the reporting period, the Board of Supervisors convened a total of ten meetings, of which three were on-
site meetings and seven were meetings convened and voted by correspondence. 33 proposals regarding business
operation, financial activities, internal control, risk management, internal audit, related party transactions, corporate
governance, evaluation of the duty performance of Directors and Supervisors and audit on the resignation of
senior management were considered, and 15 special reports involving implementation of strategic planning and
risk appetite, disposal of non-performing assets, prevention and control of crimes, consumer rights protection were
reviewed at those meetings.
In 2019, the Company convened one shareholders' general meeting and seven on-site board meetings. Supervisors
attended the shareholders' general meeting and were present at all the on-site board meetings, and supervised
the legitimacy and compliance of convening the shareholders' general meeting and the Board meetings, voting
procedures, the Directors' attendance at those meetings, issue of opinions and voting details.
During the reporting period, all the three 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 shareholders'
general meeting and meetings of the Board of Directors or any of its special committees, participating in the Board
of Supervisors' investigations and surveys conducted at branch level on a collective or separate basis, proactively
familiarising themselves with the operation and management and the implementation of strategies of the Company,
and actively participating in studies and reviews on significant matters. During the adjournment of the meetings
of the Board of Directors and the Board of Supervisors, the External Supervisors reviewed various documents and
reports of the Company, and exchange opinions with the Board of Directors and senior management in respect
of the problems found in a timely manner, thereby playing an active role in assisting the Board of Supervisors in
performing their supervisory duties.
During the reporting period, the Board of Supervisors of the Company had no objection to each of the supervisory
matters.
137
138
The Board of Supervisors performs its supervisory duties primarily by: holding regular meetings of Board of
Supervisors and special committees, attending shareholders' general meetings, board meetings and its special
committee meetings, attending various meetings on operation and management held by the senior management;
reviewing various documents of the Company, reviewing work reports and specific reports of the senior
management, conducting opinion exchanges and discussions, carrying out special investigations and surveys at
domestic and overseas branches of the Company on a collective or separate basis and having talks with Directors
and the senior management over their duty performance in the year, communicating with external auditors regularly,
etc. By doing so, the Board of Supervisors comprehensively monitors the operation and management status, risk
management status and internal control status of the Company as well as duty performance of the Directors and
the senior management, and puts forward the constructive and targeted operation and management advice and
supervision opinions.
1.
Inspect, supervise and review the major related party transactions and continuing connected transactions,
and control the risks associated with related party transactions;
In 2019, based on the quarterly regular meeting system, the Audit Committee mainly reviewed the regular
reports and internal and external audit reports to supervise and verify the truthfulness, accuracy and timeliness of
information set out in the financial statements. The Company obtained the findings of internal audits in a timely
manner and strengthened bank-wide self-examination and the rectification of and the accountability for the
problems concerned by relevant regulators, and promoted an effective communication mechanism between internal
and external audits by constantly enhancing the communication with internal and external auditors, gave full play
to its important role in monitoring operation management, disclosing risks and issues and improving management
levels, and effectively discharged relevant functions and promoted enhancement of management level.
According to the "Work Procedures on Annual Reports for Audit Committee under the Board of Directors" adopted
by the Company, the Audit Committee under the Board of Directors of the Company performed the following duties
in preparing and reviewing the annual report for 2019:
In view of the expiration of the term of office of the Tenth Session of the Board of Directors in 2019, the Nomination
Committee studied and formulated a re-election plan according to the latest provisions of external regulations and
the Company's Articles of Association regarding Board structure and the nomination and election of Directors, so
as to clarify the number of members and the composition structure of the Board of Directors as well as the way of
election of various Directors. The Nomination Committee also successively completed the procedures for selection of
five Executive Vice Presidents, the Chief Financial Officer and the Secretary of the Board of Directors and other senior
executives. Besides, according to regulatory requirements and with comprehensive consideration of various factors
such as education background, work experience and professional knowledge, the Nomination Committee initially
reviewed the qualifications of the 18 candidates for the Directors of the Eleventh Session of the Board of Directors
and submitted the list of candidates to the Board of Directors and the shareholders' general meeting, providing
strong guarantee for the successful re-election of the Board of Directors.
7.5.3 Remuneration and Appraisal Committee
The majority of members of the Remuneration and Appraisal Committee were Independent Non-Executive Directors,
and the committee was chaired by an Independent Non-Executive Director. The members of the Remuneration and
Appraisal Committee currently include Li Menggang (Chairman), Leung Kam Chung, Antony, Liu Qiao (all being
Independent Non-Executive Directors), Hong Xiaoyuan and Wang Daxiong (both being Non-Executive Directors). The
Remuneration and Appraisal Committee is responsible mainly for reviewing the remuneration management system
and policies of the Company, formulating the remuneration package for the Directors and senior management,
making proposals to the Board of Directors and supervising the implementation of such proposals.
Main authorities and duties:
1.
2.
Study the standards for assessment of Directors and senior management and make assessments and put
forward proposals depending on the actual conditions of the Company;
Study and review the remuneration policies and proposals in respect of Directors and senior management of
the Company, make recommendations to the Board of Directors and supervise the implementation of such
proposals;
3.
Review the systems and policies for remuneration management of the whole Bank; and
4.
Any other tasks delegated by the Board of Directors.
In 2019, the Remuneration and Appraisal Committee continued to guide the cadres and employees of the
Company to follow the strategic principle of "adhering to long-term strategies and tapping existing advantages",
thoroughly implement the mid- and long-term strategic goals set by the Board of Directors, continuously enriched
the connotation of the incentive and restrictive mechanism, and studied and improved the incentive plan and
promoted the implementation thereof; the Remuneration and Appraisal Committee also reviewed and formulated
the "Implementation Rules for Management of Benefit Package and Business Expenditures of Responsible Persons
of China Merchants Bank ( \[####)" to further standardise the
performance benefits and operational expenditures of relevant executives. Pursuant to the provisions of the H Share
Appreciation Rights Scheme, the Remuneration and Appraisal Committee conducted validity appraisal and price
adjustment in respect of the appreciation rights granted, which ensured the continuous implementation of the
medium-to-long term incentive mechanism of the Company.
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134
Conduct preliminary examination on the candidates for Directors and senior management and make
recommendations to the Board of Directors; and
China Merchants Bank
Annual Report 2019
5.
Conduct extensive searches for the qualified candidates for Directors and senior management;
Make recommendations and proposals on the important issues for discussion and determination by the Board
of Directors; and
6.
Any other tasks delegated by the Board of Directors.
In 2019, the Strategy Committee focused on reviewing the development strategy rolling plan and the use of the
Fintech Innovation Project Fund and other proposals and made prospective deployment of the business model for
development stage 3.0. Following the strategic principle of "adhering to long-term strategies, tapping existing
advantages, focusing on technology-driven development and embracing changes", the committee firmly promoted
the "Digital Bank" transformation, ensured the long-term and normalised investment in Fintech innovations
and supported the research and establishment of an adaptive human resource management mechanism. It also
put forward a proposal on incorporating the market-oriented mechanism on talent selection, employment and
remuneration incentives and the Fintech investment policies into the Company's Articles of Association, so as to
provide a strong institutional guarantee for implementing the twin-driver strategy of "talents + innovations".
Moreover, the Strategy Committee also considered the annual financial budget and final account report, the business
plan implementation report, the authorisation and issuance of the Write-down Undated Capital Bonds and other
matters.
China Merchants Bank
Annual Report 2019
VII Corporate Governance
7.5.2 Nomination Committee
The majority of members of the Nomination Committee are Independent Non-Executive Directors, and the committee
was chaired by an Independent Non-Executive Director. The members of the Nomination Committee include Wong
See Hong (Chairman), Li Menggang and Liu Qiao (all being Independent Non-Executive Directors), Li Jianhong (a
Non-Executive Director) and Tian Huiyu (an Executive Director). The Nomination Committee is mainly responsible
for formulating the procedures and standards for election of the Directors and senior management, conducting
preliminary verification on the qualification for appointment of the Directors and senior management and making
proposals to the Board of Directors.
Main authorities and duties:
1.
2.
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 proposed changes to the Board of
Directors to implement the strategies of the Company according to the Company's business operation, asset
scale and shareholding structure of the Company;
Study the standards and procedures for selection of Directors and senior management, and make
recommendations to the Board of Directors;
3.
4.
VII Corporate Governance
Any other tasks delegated by the Board of Directors.
The members of the Risk and Capital Management Committee are Hong Xiaoyuan (Chairman), Zhang Jian, Wang
Daxiong, Luo Sheng (all being Non-Executive Directors), Wang Liang (an Executive Director) and Liu Qiao (an
Independent Non-Executive Director). The Risk and Capital Management Committee is mainly responsible for
supervising the status of risk management by the senior management of the Company in relation to various major
risks, making regular assessment on the risk policies, risk-withstanding ability and capital management status of the
Company and submitting proposals on perfecting the management of risks and capital of the Company.
Main authorities and duties:
1.
Propose the appointment or replacement of external auditors;
2.
Monitor the internal audit system of the Company and its implementation, and evaluate the work procedures
and work effectiveness of the internal audit department;
3.
Coordinate the communications between internal auditors and external auditors;
The majority of members of the Audit Committee are Independent Non-Executive Directors, and the committee
was chaired by an Independent Non-Executive Director. The members of the Audit Committee are Tian Hongqi
(Chairman), Zhao Jun, Wong See Hong, Li Menggang (all being Independent Non-Executive Directors) and Zhou
Song (a Non-Executive Director). None of the above persons has ever served as a partner of the incumbent auditors
of the Company. The Audit Committee is mainly responsible for examining the accounting policies and financial
position of the Company; and is responsible for the annual audit work of the Company, proposing the appointment
or replacement of external auditors and examining the status of the internal audit and internal control of the
Company.
4.
6.
7.
8.
Audit the financial information of the Company and disclosure of such information, and is responsible for
the annual audit work of the Company, including issue of a conclusive report on the truthfulness, accuracy,
completeness and timeliness of the information contained in the audited financial statements, and submit the
same to the Board of Directors for consideration;
Examine the internal control system of the Company, and put forward the advices to improve the internal
control of the Company;
7.5.4 Risk and Capital Management Committee
Examine the accounting policies, financial reporting procedures and financial position of the Company; and
Any other tasks delegated by the Board of Directors.
5.
7.5.5 Audit Committee
Review and supervise the mechanism for the Company's employees to whistle blow any misconduct in respect
of financial statements, internal control or otherwise, so as to ensure that the Company always handles the
whistle blowing issues in a fair and independent manner and takes appropriate actions;
China Merchants Bank
Annual Report 2019
VII Corporate Governance
1.
2.
3.
Supervise the status of risk control by the senior management of the Company in relation to credit risk,
market risk, operational risk, liquidity risk, strategic risk, compliance risk, reputation risk, country risk and
other risks;
Make regular assessment on the risk policies, management status, risk-withstanding ability and capital status
of the Company;
Perform relevant duties under the Advanced Measurement Approach for Capital Measurement pursuant to
the authorisation given by the Board of Directors;
4.
Main authorities and duties:
5.
6.
Arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
and
Any other tasks delegated by the Board of Directors.
In 2019, the Risk and Capital Management Committee continued to implement the Board of Director's strategic
principles of "quality first, efficiency in priority, risk controllable, and moderate scale", adhered to the long-term
and prudent risk management philosophy, and always maintained a strategic focus on risk management. It assisted
the Board of Directors in strengthening the management of comprehensive risk, major asset allocation, capital
replenishment, money laundering and sanction risks, external agency cooperation risk, collection and disposal of
non-performing assets and other areas, and actively implemented the Board of Directors' target requirements of
"outrunning the market and outperforming the peers".
The Risk and Capital Management Committee studied and considered various resolutions on the comprehensive
risk reports, major asset allocation plan, the risk preference implementation report and the comprehensive risk
consolidated management plan for each quarter. It has strengthened the comprehensive risk management system at
the group level of the Bank, promoted the integration of off-balance sheet asset management business and related
subsidiaries into the comprehensive risk management system, and strengthened downward penetration of risk
management of subsidiaries. It has also studied and improved the major asset allocation plan across the Bank, and
made corresponding adjustments to the whole Bank's major asset allocation based on macroeconomic growth and
industrial structure adjustments. Moreover, it has also reviewed the annual business continuity management work
report, the annual anti-money laundering work report, the work report on compliance of institutions in the United
States, the stress test report, the verification policy implementation report and the outsourcing management report,
effectively practiced the prudent risk management concepts and assisted the Board of Directors in further enhancing
its risk management capability.
Submit proposals on perfecting the management of risks and capital of the Company;
China Merchants Bank
144
143
In 2019, the Audit Department of the Company paid close attention to its strategies, risks and regulatory concerns.
According to the work requirement of "empowering frontlines and reducing burden on grassroots ()",
it emphasised on risk prevention and control to strengthen audit and supervision over key areas, key risks and
other key aspects; stressed on special rectifications and took various measures simultaneously to strengthen audit
rectifications; and highlighted continuous audit, carried on the shift from post-rectification to the issue of warning
before and during the events, proposed audit suggestions timely, and promoted the continuous improvement of
mechanism, processes and systems, thus enabling the improvement of operation and management across the Bank.
The Company has an independent and vertical internal audit management system. The Board of Directors shall
assume the ultimate responsibility for the independence and effectiveness of internal audit, being responsible for
reviewing and approving the constitutional documents of internal audit, establishing the audit organisation system,
formulating the medium-to-long term audit plan and the annual audit plan, appointing the head officer of the
audit department, providing necessary support to carry out internal audit work independently and objectively, and
assessing the independence and effectiveness of internal audit work. The Board of Directors has an Audit Committee
which, upon receiving its authorisation, is responsible for reviewing important systems and reports such as the
constitutional documents of internal audit, approving the medium-to-long term audit plan and the annual audit
plan, and guiding, assessing and evaluating the internal audit work. The Head Office has an Audit Department
which consists of nine audit divisions, which are under the guidance of the Board of Supervisors and senior
management, and shall undertake the specific internal audit duties. The Audit Department under the Head Office
has nine specialised teams to strengthen off-site audit work such as "research, analysis, organisation and guidance"
and enhanced the support and guidance to the audit divisions. Meanwhile, four corresponding audit teams were set
up to strengthen the auditing of departments under Head Office, overseas institutions, anti-money laundering work
and credit card business. In each audit division, five professionally mixed audit teams were established to strengthen
the ongoing audit and rectification following-up of regional branches and institutions.
During the reporting period, the Company amended the Articles of Association. For details, please refer to the
shareholders' circular, the documents of the shareholders' general meeting and the announcement of the Company
published on 10 May 2019, 11 June 2019 and 23 October 2019, respectively.
7.17 Internal Audit
China Merchants Bank
Annual Report 2019
7.16 Internal Control
VII Corporate Governance
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).
7.15 Compliance with the Corporate Governance Code
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 2019 to present a true view of the operating results of the
Company. So far as the Directors are aware, there is no material uncertainty related to events or conditions that
might have a significant adverse effect on the Company's ability of sustainable operation.
7.14 Statement made by the Directors about Their Responsibility for
the Financial Statements
VIII Report of the Board of Supervisors
During the reporting period, according to the unified deployment of the CBIRC, the Company has conscientiously
organised campaigns "to reinforce its results on rectification of disorders and promote compliance construction",
so as to carry out a comprehensive review on the previous rectification of disorders and consolidate rectification
results. The Company fully carried out self-examination and self-correction by focusing on the major issues of
rectification work proposed by the CBIRC in 2019, and implemented comprehensive rectification work in respect of
system improvement, culture promotion, system construction, processes optimisation, business training, supervision
and inspection, etc., and continued to improve the institutional foundation and mechanism guarantee for lawful
and compliant operation by consolidating the long-lasting mechanism for preventing the "stubborn diseases" of
disorders and risk cases. Considering its own actual conditions, the Company continued to enhance the quality and
efficiency of internal management according to the policy of "removing inherent barriers, empowering frontlines
and reducing burden on grassroots ()". Faced with the new normal fueled by strict
regulations and rectification of disorders, the Company continued to organise and conduct compliance education,
case warning trainings and code of conduct education, continuously strengthened the employees' awareness of
risks and compliance, vigorously promoted the professional ethics in integrity and compliance with disciplines, and
actively fostered a compliance culture in which "we cannot violate regulations, dare not violate regulations, and are
unwilling to violate regulations"; continued to conduct investigations on employees' abnormal behaviors and case
risk, identify and eliminate all kinds of potential risks in a timely manner; further strengthened the supervision and
inspection of various business activities and non-compliance accountability and continued to maintain high pressure
on all kinds of violations with a view to ensuring the implementation of each regulatory requirement and national
regulatory policies, and the compliance operation and healthy development of the Company's various businesses.
During the reporting period, the Company organised evaluation campaigns on the status of internal control of
the whole Bank in 2019. 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 details,
please refer to the "Report of Assessment on Internal Control of China Merchants Bank Co., Ltd. in 2019", and the
"Auditors' Report on Internal Control" issued by Deloitte Touche Tohmatsu Certified Public Accountants LLP with
standard unqualified opinions.
Annual Report 2019
During the reporting period, the use of proceeds of the Company was consistent with such usages as committed in the
Prospectus of the Company.
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 of the People's Republic of China", the Articles of
Association of the Company and the supervisory duties delegated by relevant supervisory authorities.
7.13 Major Amendments to the Articles of Association of the Company
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 2019", and concurred with the Board of Directors' representations regarding the completeness, reasonableness and
effectiveness of the internal control system of the Company as well as its implementation.
Internal Control
The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to
the shareholders' general meeting in 2019, and concluded that the Board of Directors had duly implemented relevant
resolutions passed at the shareholders' general meeting(s).
Implementation of Resolutions Passed at Shareholders' General Meeting(s)
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.
Report of the Board of Supervisors
Related Party Transactions
Purchase and Disposal of Assets
Use of Proceeds
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu have audited the financial
statements for 2019 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
statements 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 of the People's
Republic of China", the "Commercial Banking Law of the People's Republic of China" 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.
Lawful Operation
Independent opinions on relevant matters from the Board of Supervisors:
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.
The Company has formulated its cash dividend policies. For details, please refer to the "formulation and
implementation of the Company's cash dividend policies" in Chapter III.
We also evaluated management judgement in whether
the Group has control in the 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 structured entities and the ability of the Group to use its
power to affect its return.
Shareholders are entitled to review the information on the Company (including the Articles of Association, the status
of share capital, the minutes of the shareholders' general meeting, resolutions of board meetings, resolutions of
meetings of the Board of Supervisors, financial and accounting reports) in accordance with the provisions of the
Articles of Association of the Company upon the submission of written documents certifying the class and quantity
of shares of the Company held by the shareholders, the identity of whom has been verified by the Company.
manner.
Chairman Li Jianhong and President Tian Huiyu attached great importance to investor relations management. They
attended the 2018 performance presentation and press conference, and gave detailed answers to market and media
concerns. Following the release of our 2018 annual results, President Tian Huiyu and other senior management
formed two road-show teams to roll out global road shows in Hong Kong, Europe, the United States and other
regions, visiting a total of 97 key investment institutions, and communicating with them adequately and intensively
on the strategic visions, Fintech transformation, business development and special advantages of the Company.
After the release of the 2019 interim results, Liu Jianjun, an Executive Vice President and the Secretary of the
Board of Directors, led a team to roll out a road-show exchange campaign in Shanghai and Hong Kong, meeting
with 53 key investment institutions. Upon the release of the third quarterly results, the Company visited a total
of 22 key institutional investors in Beijing, Guangzhou and Shenzhen and conducted in-depth exchanges with
them. In addition, the Company received a total of 109 visits and telephone surveys by 322 domestic and foreign
institutional investors and analysts in the year, attended the investor conferences held by 36 investment banks or
securities brokers at home and abroad, and conducted 156 one-to-one or one-to-many discussions with a total of
1,082 Institutional investors. We also answered hundreds of phone calls from our investors and processed hundreds
of messages from our investors on the Company's official website, investors' mailbox, and SSE E-interaction. The
above measures satisfied the needs of our investors and analysts to communicate with the Company in an effective
During the reporting period, the Company rolled out one global road show and two domestic road shows for its
annual results, and held two performance presentations and one media press. A total of 427 institutional investors
or analysts and 32 media reporters at home and abroad attended the Company's 2018 performance presentation
and press conference, setting the Company's highest record since its listing in 2002.
In 2019, the Company remained investor-oriented, strove to improve the openness and effectiveness of
communication with the capital market in a positive, innovative and professional manner. Through variety of
innovative forms, the Company introduced its development strategy, business strategy, business highlights and
investment value more comprehensively and deeply to various investors and analysts at home and abroad, and
responded to various concerns from the capital market in a timely and efficient manner. The Company's full-year
performance in the capital market achieved the goal of "outrunning the market and outperforming the peers". The
valuation of the Company's A+H Shares remained at the forefront in the domestic banking industry, the full-year
growth rate exceeded the market and industry averages and the market value maintained the fifth place among the
domestic banks.
Investor relations
7.11 Communication with Shareholders
During the reporting period, the Company had no internal cases that inflict huge losses, or external cases or
incidents of theft or robbery, or material safety issues.
China Merchants Bank
Annual Report 2019
7.10 Misconduct Reporting and Monitoring
During the reporting period, Mr. Liu Jianjun, the company secretary of the Company appointed on 24 April 2019 to
replace Mr. Wang Liang, and Mrs. Seng Sze Ka Mee Natalia of Tricor Services Limited, an external services provider,
are the joint company secretaries of the Company under Hong Kong Listing Rules. Mr. Liu Jianjun is the major
contact person of the Company on internal issues.
7.9 Company Secretary under Hong Kong Listing Rules
Annual Report 2019
VII Corporate Governance
China Merchants Bank
140
Liu Yuan
During the reporting period, Mr. Liu Jianjun and Mrs. Seng Sze Ka Mee Natalia attended the relevant professional
trainings for not less than 15 hours in compliance with the requirements of Rule 3.29 of Hong Kong Listing Rules.
After the reporting period, on 1 January 2020, Ms. Ho Wing Tsz Wendy of Tricor Services Limited, an external
services provider, was appointed as the joint company secretary of the Company to replace Ms. Seng Sze Ka Mee
Natalia.
Cash dividend policies
VII Corporate Governance
The Board of Directors, the Board of Supervisors and senior management of the Company attached great importance
to the Company's information disclosure. The Company's information disclosure is based on good corporate
governance practice, sound internal control, and an effective information disclosure system, which ensures that our
investors can obtain information in a timely, accurate and equal manner.
Making inquiries to the Board of Directors
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 the extraordinary board meeting within ten (10) days upon
receiving such proposal.
Convening of extraordinary board meeting
Annual Report 2019
VII Corporate Governance
China Merchants Bank
142
Information disclosure
141
Making proposals at the shareholders' general meetings
An extraordinary shareholders' 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.
Convening of extraordinary shareholders' general meetings
7.12 Shareholders' Rights
The Company's well-regulated operation and outstanding information disclosure practice met with full recognition
from the regulatory authorities, and received the highest grade of "A" in the annual appraisal of information
disclosure of listed companies organised by the SSE.
During the reporting period, through collating the information disclosure management system comprehensively,
the Company carried out comprehensive revision of the terms of the information disclosure management system
according to the strict principles of domestic and overseas regulatory rules and the latest regulatory requirements,
and formally implemented the revised terms after review and approval by the Board of Directors. The revised
"Management System for Information Disclosure of China Merchants Bank Co., Ltd. (GORA¬AE
*)" kept pace with the latest supervisory requirements and, in the meantime, adapted more to the
needs of internal management of the Company's information disclosure practice, providing a strong guarantee for
improving the Company's information disclosure system and strengthening compliance management of information
disclosure practice.
During the reporting period, the Company, upon completion of the statutory information disclosure in the year,
further strengthened the initiative and transparency of information disclosure. In 2019, the Company issued a total
of 283 disclosure documents of approximately 2.16 million words on the stock exchanges in Shanghai and Hong
Kong, disclosing all major issues in a timely, fair, open, and just manner, strictly fulfilling its statutory information
disclosure obligation without any disclosure errors. Meanwhile, the Company further enhanced the quality of
voluntary information disclosure, with highlighted emphasis and distinctive features. Through strengthening analysis
of development strategies and the effectiveness of implementation thereof in regular reports, it further demonstrated
the Company's achievements in its transformation into a "Digital Bank". Thanks to the detailed data analysis, the
disclosures fully reflect the Company's differentiated competitive strength from its peers, and give a honest analysis
of the difficulties and challenges faced by the Company, providing sufficient basis for investors to fully understand
the Company's operating conditions.
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 proposals within two working days after receiving the proposals.
Chairman of the Board of Supervisors
China Merchants Bank
Annual Report 2019
China Merchants Bank
We identified the valuation of financial instruments as a
key audit matter due to the materiality of the balances
and the complexity involved in valuing certain financial
instruments, of which significant judgement and estimation
are required in determining the valuation technique and
the inputs used in the valuation models.
The valuation of the Group's financial instruments,
measured at fair value, is based on a combination of
market data and valuation models which require a
considerable number of inputs. Most of these inputs are
obtained from readily available data, in particular for
level 1 and level 2 financial instruments, the valuation
techniques for which use quoted market prices and
observable inputs, respectively. Where observable data
is not readily available, as in the case of level 3 financial
instruments, estimates are required to determine the
unobservable inputs, which involve significant management
judgement.
Valuation of financial instruments
Key audit matter
Key Audit Matters (continued)
DTTHK(A)(20)100024
Annual Report 2019
IX Financial Statements
China Merchants Bank
148
With the support of our internal modelling specialist,
we assessed the reasonableness of the key definitions,
parameters and assumptions used in the ECL model. This
included assessing stage determination, probability of
default, loss given default, exposure at default and forward-
looking information. We selected samples to conduct
credit reviews in order to assess whether the significant
judgements made by the management regarding SICR
and credit impairment events had occurred and were
appropriately and timely recognized are appropriate. In
addition, we tested the input data samples of the ECL
model to evaluate the completeness and accuracy of the
data input. We also tested the calculation of the ECL model
on a sample basis. For the loans and advances at amortised
cost and debt investments at amortised cost at stage 3, we
selected samples to test the reasonableness of future cash
flows from the borrowers estimated by the Group, including
the expected recoverable amount of collateral, to assess
whether there were material misstatements in the loss
allowance.
We assessed whether the ECL model applied by the
Group has covered all the exposures that should be taken
into consideration. In respect of different portfolios of
loans and advances to customers at amortised cost and
debt investments at amortised cost, we involved our
internal modelling specialist to assist us in assessing the
appropriateness of the Group's methodology of ECL
modelling. We reviewed relevant documents and evaluated
the appropriateness and application of the ECL model.
We understood management's process and tested the
design and operating effectiveness of key controls across
the processes relevant to the ECL estimation of the Group.
These controls included the validation and review of the ECL
model; the controls over the model data input, including
manual controls and automated controls; the automated
controls over the ECL model calculation process; the controls
over the identification of SICR indicators and impairment
evidence.
Our audit procedures in relation to the expected credit loss
allowance of loans and advances to customers at amortised
cost and debt investments at amortised cost included the
following:
How our audit addressed the key audit matter
As at December 31, 2019, as set out in note 60(g) the
Group's financial assets and financial liabilities at fair value
totalled RMB1,177,342 million and RMB66,634 million
respectively, accounting for 16% and 1% of total assets
and liabilities of the Group respectively.
Principal accounting policies, accounting estimates and
judgement applied in determining the loss allowance of
loans and advances to customers at amortised cost and
debt investments at amortised cost are set out in notes
4(5) and 5(4) to the consolidated financial statements.
Significant estimates applied in fair value of financial
instruments and the disclosure of fair value are set out
in notes 5(5) and 60(g) to the consolidated financial
statements.
Our audit procedures in relation to the valuation of the fair
value of financial instruments included the following:
20 March 2020
149
We understood and tested the design and operating
effectiveness of key controls over the management process
in determining the consolidation scope for interests in
structured entities as well as understood the purpose for
setting up the structured entities.
Our audit procedures in relation to consolidation of
structured entities included the following:
How our audit addressed the key audit matter
As described in note 4(1), the consolidation of structured
entities is determined based on control. Control is
achieved when the investor has power over the investee,
the investor is exposed, or has rights, to variable returns
from its involvement with the investee; and the investor
has the ability to use its power to affect its returns. 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 interests that it holds in the
structured entities.
The structured entities include the wealth management
products, asset management schemes, mutual funds,
etc. as disclosed in note 64 to 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 or not the
Group has control of certain structured entities.
Consolidation of Structured Entities
Key audit matter
Key Audit Matters (continued)
DTTHK(A)(20)100024
IX Financial Statements
With the support of our internal valuation specialists, we
performed independent valuations, on a sample basis, for
financial instruments of which the determination of the
fair value involves significant management judgement and
estimates, and compared our results with those of the
Group's.
We evaluated the valuation techniques through comparison
with the valuation techniques commonly used in the
markets, assessed inputs and assumptions for validity, and
against alternative pricing or data sources. Market data
inputs are validated using external observable market data.
We assessed the level 1 fair values, on a sample basis, by
comparing the fair values applied by the Group with publicly
available market data.
How our audit addressed the key audit matter
Key judgements and estimates in respect of the
measurement of ECLs include: the criteria selected
to identify a significant increase in credit risk (SICR);
the identification of credit impairment events; the
determination of inputs used in the ECL model, as well as
the determination of the forward-looking information to
incorporate.
We understood and tested the design and operating
effectiveness of key internal controls over the determination
of valuation model and valuation of the financial instrument
at fair value.
We identified expected credit loss (ECL) allowance of loans
and advances to customers at amortised cost and debt
investments at amortised cost as a key audit matter due
to the materiality of the balances of these financial assets
and judgement involved in deriving the ECL estimates.
An expected credit loss model was applied by the Group
to estimate ECLS, which involves significant management
judgement and estimates in model design, its application
and inputs.
Independent Auditor's Report
Annual Report 2019
IX Financial Statements
China Merchants Bank
146
305
152
146
Unaudited Supplementary Financial Information
(See Annexures)
Financial Statements and Notes Thereto
Independent Auditor's Report
Financial Statements
Annual Report 2019
As at 31 December 2019, as set out in note 22, the Group
reported loans and advances to customers at amortised
cost of RMB4,230,285 million and RMB222,899 million of
expected credit loss allowance. Whilst as set out in note
23(b), the Group reported debt investments at amortised
cost of RMB935,288 million and expected credit loss
allowance of RMB14,060 million.
IX Financial Statements
Deloitte.
To the shareholders of China Merchants Bank Co., Ltd.
145
DTTHK(A)(20)100024
Key audit matter
(A joint stock company incorporated in the People's Republic of China with limited liability)
Key Audit Matters (continued)
DTTHK(A)(20)100024
147
IX Financial Statements
Expected credit loss allowance of loans and advances
to customers at amortised cost and debt investments
at amortised cost
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.
Key Audit Matters
China Merchants Bank
Annual Report 2019
Basis for Opinion
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 2019, 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.
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 152 to 304, which comprise the consolidated statement of
financial position as at 31 December 2019, 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 flow
statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
Opinion
德勤
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.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
IX Financial Statements
For the year ended 31 December 2019
(Expressed in millions of Renminbi unless otherwise stated)
China Merchants Bank
Annual Report 2019
Profit for the year
Notes
2019
2018
25
80,819
Other comprehensive income for the year after tax and
reclassification adjustments
Items that may be reclassified subsequently to profit or loss
Equity-accounted investees share of other
comprehensive income
368
259
(36)
Fair value gain on debt instruments measured at fair value
through other comprehensive income
93,423
556
106,497
92,867
1,640
26
37
37
117,132
15
(23,709)
(25,678)
Profit for the year
80,560
Attributable to:
Non-controlling interests
Earnings per share
Basic and diluted (RMB)
17
3.62
3.13
The notes form part of these consolidated financial statements.
93,423
80,819
Equity shareholders of the Bank
6,243
622
Cash flow hedge: net movement in hedging reserve
Exchange difference on translation of financial statements
23
97,182
89,936
Attributable to:
Equity shareholders of the Bank
Non-controlling interests
The notes form part of these consolidated financial statements.
96,560
89,654
1,272
282
153
154
China Merchants Bank
IX Financial Statements
Annual Report 2019
Consolidated Statement of Financial Position
At 31 December 2019
(Expressed in millions of Renminbi unless otherwise stated)
66
9,094
3,693
Total comprehensive income for the year
of foreign operations
Items that will not be reclassified to profit or loss
Fair value gain on equity instruments measured at fair value
through other comprehensive income
Remeasurement of defined benefit liability
626
(102)
496
149
497
1,995
Net changes in expected credit losses of debt instruments
measured at fair value through other comprehensive income
729
1
(62)
Other comprehensive income for the year, net of tax
16
3,759
9,117
Attributable to:
Equity shareholders of the Bank
Non-controlling interests
332
1,686
79,047
NN
Conclude on the appropriateness of the directors of the Bank's 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.
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.
The engagement partner on the audit resulting in the independent auditor's report is Eric Tong.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
20 March 2020
151
152
China Merchants Bank
IX Financial Statements
Annual Report 2019
Consolidated Statement of Profit or Loss
For the year ended 31 December 2019
(Expressed in millions of Renminbi unless otherwise stated)
Notes
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors of the Bank.
2019
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.
As part of an audit in accordance with ISAS, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
Notes
159
150
China Merchants Bank
Annual Report 2019
IX Financial Statements
Other Information
DTTHK(A)(20)100024
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.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
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.
Responsibilities of Directors and Those Charged with Governance for
the Consolidated Financial Statements
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 of the Bank determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors of the Bank 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 of the Bank either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
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.
China Merchants Bank
Annual Report 2019
IX Financial Statements
DTTHK(A)(20)100024
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements (continued)
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.
Interest income
Interest expense
Net interest income
268,065
247,135
Operating expenses
10
(91,497)
(81,110)
Operating profit before impairment losses
176,568
166,025
Expected credit losses
14
(61,066)
(60,829)
Impairment losses on other assets
(93)
Share of profit of joint ventures
Share of profit of associates
Profit before taxation
Income tax
Operating income
(350)
146
- Disposal of financial instruments at amortised cost
Fee and commission income
6
292,994
7
(119,904)
2018
270,911
(110,527)
173,090
160,384
8
25
73,046
(7,554)
(6,566)
Net fee and commission income
71,493
66,480
Other net income
9
23,482
20,271
Fee and commission expense
2019
95,349
Assets
China Merchants Bank
Annual Report 2019
IX Financial Statements
2018
Total equity attributable to equity shareholders of the Bank
Non-controlling interests
Notes
Share
capital instruments
Other
equity Capital
Investment
Regulatory
Proposed
Perpetual
Non-
revaluation Hedging Surplus
general Retained
profit Exchange
debt controlling
reserve
reserve reserve reserve
reserve profits
appropriations
reserve
Subtotal
The notes form part of these consolidated financial statements.
2,427 617,707
3,979
1,561 611,301
(23,707)
(143) (23,850)
(iv) Distribution to perpetual
capital instruments
62
(153)
(153)
(v) Proposed dividends for the year 2019
(30,264)
30,264
(vi) Dividends paid for preference shares
capital interests Total
(1,670)
(1,670)
(e) Transfers within equity upon disposal
of equity Instruments designated
at FVTOCI
23
(23)
At 31 December 2019
25,220
34,065 67,523
8,919 (39) 62,291 90,151 291,346
30,264
(1,670)
(23,707)
25,220
67,523
1,973
89,654
52
230
89,936
91
91
At 1 January 2018
Changes in equity for the year
(a) Net profit for the year
(b) Other comprehensive income for the year 16
Total comprehensive income for the year
(c) Capital contribution from equity holders
(i) Non-controlling shareholders'
contribution to non-wholly
owned subsidiaries
(ii) Decrease in non-controlling interests
(d) Profit appropriations
(i) Appropriations to statutory
125
125
25
(34) (34)
80,560
149
6,972
9,117
(1,444)
(86) 46,159
70,921 210,608
21,185
(843) 473,308
1,170
2,012 476,490
6,976
149 7,523
7,621 40,046
2,522
34,065
1,973 66,810
317
67,115
80,560
80,560
64
195
80,819
6,972 149
1,973 9,094
(12)
35
(12)
paid for the year 2018
(ii) Dividends declared and
11,609 (11,609)
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
(Expressed in millions of Renminbi unless otherwise stated)
2019
Other
Share
Notes
reserve
34,065 67,523
5,532
3,387
Total equity attributable to equity shareholders of the Bank
Investment
equity Capital revaluation Hedging Surplus
capital instruments
25,220
Regulatory
Proposed
reserve reserve reserve
reserve
63 53,682
general Retained
profits appropriations
78,542 250,654
23,707
profit Exchange
Non-controlling interests
Perpetual
Non-
debt controlling
reserve Subtotal
capital interests Total
1,130 540,118
Annual Report 2019
IX Financial Statements
China Merchants Bank
156
540,118
Non-controlling interests
6,406
3,487
-
- Non-controlling interest
2,427
2,329
- Perpetual debt capital
62(a)
3,979
(102) 8,609
1,158
617,707
7,417,240
543,605
6,745,729
Total equity and liabilities
The notes form part of these consolidated financial statements.
Approved and authorised for issue by the Board of Directors on 20 March 2020.
Li Jianhong
Director
Tian Huiyu
Director
Company Chop
155
Total equity
11,609
40,692
6,557
owned subsidiaries
(ii) Decrease in non-controlling interests
(ii) Issue of perpetual debt capital
2
2
(170) (170)
2,761
2,761
(d) Profit appropriations
8,609
11,609
contribution to non-wholly
(52,152)
(25,377)
(153)
(143) (25,673)
(i) Appropriations to statutory
surplus reserve
50
8,609
(8,609)
(i) Appropriations to regulatory
general reserve
51
6,557
7,523
Non-controlling shareholders'
Total comprehensive income for the year
431 71,183 2,821
1,158 2,329 543,605
98 74,102
92,867
92,867
153
403 93,423
3,364 (102)
431
3,693
60
6 3,759
(c) Capital contribution from equity holders
3,364
92,867
431 96,560
2113
409 97,182
2,761
(168)
2,593
At 1 January 2019
Changes in equity for the year
(a) Net profit for the year
(b) Other comprehensive income for the year 16
(102)
7,621
(40,510)
2,522
(903,854)
(994,234)
802,970
980,939
49,221
48,692
(46)
(2,154)
(23,964)
5,063
(17,492)
2,173
39
9
1,785
(70,571)
19,718
China Merchants Bank
Annual Report 2019
IX Financial Statements
Financing activities
Note
2019
2018
Proceeds from the issue of debt securities
70,607
(35,721)
4,432
The notes form part of these consolidated financial statements.
Net cash (used in) generated from investing activities
336,329
Deposits and placements from banks and other financial institutions
Balances and placements with banks and other financial institutions with
original maturity over 3 months
32,183
(87,461)
5,917
(21,311)
Borrowing from central banks
(43,625)
(14,693)
Other liabilities
(4,593)
73,029
(48,130)
38,421
3,868
Income tax paid
(33,989)
(39,589)
Investments and net gains received from investments
Net cash generated from (used in) operating activities
Investing activities
Payment for the purchase of investments
Proceeds from the disposal of investments
2018
Cash generated from operating activities before tax
Proceeds from the issue of negotiable interbank certificates
of deposits
Proceeds from the issue of certificates of deposits
Interest paid on financing activities
(17,337)
(11,813)
Payment for other financing activities
(185)
(431)
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents as at 1 January
Effect of foreign exchange rate changes
Cash and cash equivalents as at 31 December
Cash flows from operating activities include:
Interest received
Interest paid
The notes form part of these consolidated financial statements.
(22,912)
110,450
44,311
78,330
543,683
460,425
1,681
4,928
55(a)
589,675
543,683
243,249
101,258
214,843
94,333
443,748
(25,673)
(34)
455,128
27,631
407,328
32,300
Proceeds from the issue of perpetual debt capital
2,761
Proceeds from non-controlling shareholders
125
Proceeds from other financing activities
6,509
2,921
Repayment of debt securities
Dividends paid
(22,363)
Repayment of negotiable interbank certificates of deposits
(351,235)
(342,201)
Repayment of certificates of deposit
(30,921)
(28,389)
Repayment of lease liabilities
(4,302)
N/A
Payment for acquiring additional non-controlling equity
(170)
(15,590)
611,301
Deposits from customers
(5,200)
(4) (21,189)
(64)
(64)
(1,659)
(e) Transfers within equity upon disposal
of equity Instruments designated
at FVTOCI
4
(4)
At 31 December 2018
25,220
34,065 67,523
5,532
63 53,682
78,542 250,654
23,707
1,130 540,118
1,158
2,329 543,605
The notes form part of these consolidated financial statements.
158
China Merchants Bank
IX Financial Statements
(1,659)
(1,659)
23,707
(23,707)
(22,844)
(64)
(4) (22,912)
7,523
(7,523)
51
1 ------
7,621
(7,621)
--------
(21,185)
Annual Report 2019
(21,185)
50
(ii) Appropriations to regulatory
general reserve
(ii) Dividends declared and paid for
the year 2017
(iv) Distribution to perpetual
capital instruments
(v) Proposed dividends for the year 2018
62
I
(vi) Dividends paid for preference shares
surplus reserve
Consolidated Cash Flow Statement
For the year ended 31 December 2019
(Expressed in millions of Renminbi unless otherwise stated)
- Interest income on investments
- Interest expense on issued debt securities
(48,902)
(48,267)
17,631
14,530
- Share of profits of associates
(37)
(37)
- Share of profits of joint ventures
(1,686)
(200)
(1,272)
(382)
(196)
557
N/A
Changes in:
Balances with central banks
Loans and advances to customers
(36,397)
(509,737)
91,162
(375,451)
Other assets
- Net gains on disposal of properties and equipment and other assets
- Interest expense on lease liabilities
(14,437)
(867)
1,005
2019
2018
Cash flows from operating activities
Profit before tax
Adjustments for:
117,132
106,497
- Impairment losses on loans and advances
54,214
59,252
- Impairment losses on investments and other assets
- Net gain on debt securities and equity investments
6,945
- Unwind of discount
(286)
(307)
- Depreciation of properties and equipment and investment properties
6,379
5,270
- Depreciation of right-of-use assets
4,364
N/A
- Amortisation of other assets
1,063
1,585
Total equity attributable to shareholders of the Bank
Payment for the acquisition of subsidiaries, associates, joint venture
Payment for the purchase of properties and equipment and other assets
Proceeds from the disposal of properties and equipment and other assets
Proceeds from the disposal of subsidiaries, associates, joint venture
Proceeds from other investing activities
1,561
9,150
4,575
30
N/A
20,000
29(a)
2,061
56,206
66,408
28
1,925
27
Intangible assets
Right-of-use assets
Property and equipment
Investment properties
249
460
26
Interest in associates
8,622
10,324
Goodwill
25
Deferred tax assets
31
359,175
Borrowing from central banks
2018
2019
Notes
Liabilities
Annual Report 2019
IX Financial Statements
China Merchants Bank
The notes form part of these consolidated financial statements.
6,745,729
7,417,240
Total assets
32,568
37,990
33
58,374
65,151
32
9,954
9,954
Other assets
Interest in joint ventures
4,015
6,077
21
Amounts held under resale agreements
313,411
307,433
20
Placements with banks and other financial institutions
100,160
106,113
19
Balances with banks and other financial institutions
477,568
552,590
18
6,638
4,094
15,814
15,306
Balances with central banks
Precious metals
Cash
1,130
108,961
199,386
Loans and advances to customers
22
23(d)
comprehensive income
Equity investments designated at fair value through other
421,070
478,856
23(c)
comprehensive income
Debt investments at fair value through other
916,012
921,228
405,314
23(b)
34,220
24,219
60(f)
Derivative financial assets
330,302
398,276
23(a)
Investments at fair value through profit or loss
3,749,949
4,277,300
Debt investments at amortised cost
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
Financial liabilities at fair value through profit or loss
Derivative financial liabilities
157
55
46
44225
Regulatory general reserve
48
34,065
34,065
25,220
25,220
34
555,581
470,826
35
165,921
203,950
36
43,434
44,144
60(f)
23,200
36,570
Amounts sold under repurchase agreements
34,065
37
34,065
67,523
53
Exchange reserve
23,707
30,264
52(b)
Proposed profit appropriations
250,654
291,346
Retained profits
78,542
90,151
51
53,682
62,291
50
63
(39)
49
5,532
8,919
67,523
47
63,233
45
Deposits from customers
20,411
41
6,488
5,607
29(b)
14,379
N/A
42
5,665
43
578,191
424,926
32
956
44
77,178
1,211
69,318
6,799,533
6,202,124
78,141
19,069
40
6,109
11,638
4,874,981
8,475
38
4,427,566
Salaries and welfare payable
Tax payable
Contract liabilities
Lease liabilities
Debt securities issued
Deferred tax liabilities
Other liabilities
Provisions
Equity
39(a)
Surplus reserve
Total liabilities
Investment revaluation reserve
Capital reserve
Hedging reserve
-
Other equity instruments
Share capital
- Preference shares
excluded initial direct costs from the measuring the right-of-use asset at the date of initial application.
1 January
When recognising the lease liabilities for leases previously classified as operating leases, the Group has
applied incremental borrowing rates of the relevant group entities at the date of initial application. The
weighted average lessee's incremental borrowing rate applied is 4.01%.
2019
The Group recognised lease liabilities of RMB12,807 million and right-of-use assets of RMB19,112 million at
1 January 2019.
On transition, the Group has made the following adjustments upon application of IFRS 16:
used hindsight, such as in determining the lease term if the contract contains options to extend or
terminate the lease.
•
•
3. Application of new and amendments to IFRSS (continued)
•
elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within
12 months of the date of initial application.
When applying the modified retrospective approach under IFRS 16 at transition, the Group applied
the following practical expedients to leases previously classified as operating leases under IAS 17, on
lease-by-lease basis, to the extent relevant to the respective lease contracts:
As at 1 January 2019, the Group recognised additional lease liabilities and right-of-use assets at amounts
equal to the related lease liabilities by applying IFRS 16.C8(b)(ii) transition. Any difference at the date of
initial application is recognised in the opening retained profits and comparative information has not been
restated.
The Group has applied IFRS 16 retrospectively with the cumulative effect recognised at the date of initial
application, 1 January 2019.
Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)
As a lessee
(1)
(continued)
New and revised IFRSS effective in the current year applied by the Group
Annual Report 2019
Irrevocable operating lease commitments disclosed as at 31 December 2018
applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
(value added tax included)
as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
Less: Value added tax
In addition, the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria
IX Financial Statements
China Merchants Bank
Annual Report 2019
4.
IX Financial Statements
Principal accounting policies (continued)
(5) Financial instruments (continued)
Classification and measurement of financial assets (continued)
Amortised cost and interest income
Interest income is recognised using the effective interest method for financial assets measured subsequently at
amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Interest income is calculated
by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets
that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired,
interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from
the next reporting period. If the credit risk on the credit impaired financial instrument improves so that the financial
asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross
carrying amount of the financial asset from the beginning of the reporting period following the determination that
the asset is no longer credit impaired.
14,548
Debt instruments and loans and advances to customers classified as at FVTOCI
Equity instruments designated as at FVTOCI
At the date of initial application/initial recognition, the Group may make an irrevocable election (on an
instrument-by-instrument basis) to designate investments in equity instruments which are not held for trading as
at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised
in OCI and accumulated in the investment revaluation reserve; and are not subject to impairment assessment. The
cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be
transferred to retained profits.
Dividends from these investments in equity instruments are recognised in profit or loss when the Group's right
to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the
investment. Dividends are included in the "other net income" line item in profit or loss.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as
FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting
period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss
includes any dividend or interest earned on the financial asset and is included in the "other net income" line item.
169
Lease liabilities discounted at relevant incremental borrowing rates
(value added tax excluded)
Irrevocable operating lease commitments disclosed as at 31 December 2018
(609)
Subsequent changes in the carrying amounts for debt instruments and loans and advances to customers classified
as at FVTOCI as a result of interest income calculated using the effective interest method, foreign exchange gains
and losses are recognised in profit or loss. All other changes in the carrying amount of debt instruments and loan
and advances to customers are recognised in OCI and accumulated under the heading of investment revaluation
reserve. Impairment losses are recognised in profit or loss with corresponding adjustment to OCI without reducing
the carrying amounts of debt instruments and loan and advances to customers. The amounts that are recognised
in profit or loss are the same as the amounts that would have been recognised in profit or loss if debt instruments
and loan and advances to customers had been measured at amortised cost. When debt instruments and loan
and advances to customers are derecognised, the cumulative gains or losses previously recognised in investment
revaluation reserve are reclassified to profit or loss.
China Merchants Bank
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
161
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 Share-based Payment, leasing transactions that are within the scope
of IFRS 16 Lease, and measurements that have some similarities to fair value but are not fair value, such as net
realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.
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 also the
Bank's functional currency, rounded to the nearest million.
(2) Basis of measurement
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.
(1) Statement of compliance and basis of preparation
Basis of preparation of consolidated financial statements
2.
The principal activities of the Bank and its subsidiaries (the "Group") are providing corporate and personal banking
services, conducting treasury business, providing asset management and other financial services.
(2) Principal activities
China Merchants Bank
Annual Report 2019
As at 31 December 2019, apart from the Head Office, the Bank had 51 branches in the Mainland China, Hong
Kong, New York, Singapore, Luxembourg, London and Sydney. In addition, the Bank has three representative offices
in Beijing, New York and Taipei.
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.
Organisation
(1)
1. Organisation and principal activities
(Expressed in millions of Renminbi unless otherwise stated)
Notes to the Financial Consolidated Statements
it is a derivative that is not designated and effective as a hedging instrument.
IX Financial Statements
China Merchants Bank
160
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").
2.
IX Financial Statements
Basis of preparation of consolidated financial statements (continued)
(2) Basis of measurement (continued)
For contracts entered into or modified on or after 1 January 2019, the Group applies the definition of a lease
in accordance with the requirements set out in IFRS 16 in assessing whether a contract contains a lease.
The Group has elected the practical expedient to apply IFRS 16 to contracts that were previously identified as
leases applying IAS 17 and IFRIC-Int 4 Determining whether an Arrangement contains a Lease and not apply
this standard to contracts that were not previously identified as containing a lease. Therefore, the Group has
not reassessed contracts which already existed prior to the date of initial application.
The Group applied the following accounting policies in accordance with the transition provisions of IFRS 16.
Definition of a lease
The Group has applied IFRS 16 Leases ("IFRS 16") for the first time in the current year. IFRS 16 superseded
IAS 17 Leases ("IAS 17") and the related interpretations.
Impacts and changes in accounting policies of application on IFRS 16 Leases
(1)
The new and amendments to IFRSS have been applied in accordance with the relevant transition provisions in the
respective standards and amendments which results in changes in accounting policies. Except for the new and
amendments to IFRSS mentioned below, the application of the other new and amendments to IFRSS in the current
year has no material impact on the Group's consolidated financial statements.
Plan amendment, curtailment or settlement
Long-term interests in associates and joint ventures
Annual improvements to IFRSS 2015-2017 Cycle
Prepayment features with negative compensation
Uncertainty over income tax treatments
Leases
Amendments to IAS 28
Amendments to IFRSS
Amendments to IAS 19
IFRIC 23
Amendments to IFRS 9
IFRS 16
New and revised IFRSS effective in the current period applied by the Group
3. Application of new and amendments to IFRSS
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 5.
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 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
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:
162
Annual Report 2019
For the year ended December 31, 2019
it has been acquired principally for the purpose of selling in the near term; or
Effective from 1 January 2019, leasehold lands are measured under IFRS 16 at cost less any accumulated
amortisation and any impairment losses.
69,223
(95)
12,807
12,807
N/A
69,318
31,580
(988)
32,568
3,738
(5,412)
9,150
19,112
19,112
N/A
2019
amounts
under IFRS 16
at 1 January
Carrying
Adjustments
under IFRS 16
reported at
31 December
2018
previously
As a lessor
In accordance with the transitional provisions in IFRS 16, the Group is not required to make any adjustment
on transition for leases in which the Group is a lessor but account for these leases in accordance with IFRS 16
from the date of initial application and comparative information has not been restated.
163
164
Definition of a Business
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
Insurance Contracts
Note:
Amendments to IAS 1
Amendments to IFRS 9,
IAS 39 and IFRS 7
Amendments to IAS 1
and IAS 8
Amendments to IFRS 3
Amendments to IFRS 10
and IAS 28
IFRS 17
Carrying
amounts
Standards and amendments that are not yet effective and have not been
adopted by the Group
The Group acts as a buyer-lessor
Sales and leaseback transactions
Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)
(1)
(continued)
New and revised IFRSS effective in the current year applied by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
In accordance with the transition provisions of IFRS 16, sale and leaseback transactions entered into before
the date of initial application were not reassessed. Upon application of IFRS 16, the Group as a buyer-lessor
does not recognise the transferred asset if such transfer does not satisfy the requirements of IFRS 15 Revenue
from Contracts with Customers ("IFRS 15") as a sale.
Definition of Material
Other liabilities
Liabilities
2019
1 January
The carrying amount of right-of-use assets as at 1 January 2019 comprises the following:
Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)
As a lessee (continued)
(1)
(continued)
New and revised IFRSS effective in the current year applied by the Group
3. Application of new and amendments to IFRSS (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
12,807
Lease liabilities as at 1 January 2019
12,807
Lease liabilities relating to operating leases recognised upon application of IFRS 16
Add: Obligations under finance leases
Recognition exemption - low value assets
(18)
Less: Recognition exemption - short-term leases
98
Add: Extension options reasonably certain to be exercised
13,939
12,730
-
Right-of-use assets relating to operating leases recognised upon application of IFRS 16
Add: Reclassified from prepaid lease payments
- Land use rights
Others
Other assets
Intangible assets
Right-of-use assets
Assets
The following adjustments were made to the amounts recognised in the consolidated statement of financial
position at 1 January 2019. Line items that were not affected by the changes have not been included.
5
Motor vehicles and others
5
13,690
5,412
Lease liabilities
19,112
988
5,412
6,400
12,807
- Computer equipment
- Buildings
- Land use rights
By class:
Right-of-use assets as at 1 January 2019
Less: Accrued lease liabilities
(95)
•
Interest Rate Benchmark Reform
Effective for annual
period beginning
China Merchants Bank
168
167
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 cash-generating unit ("CGU") or groups of CGUs, that is expected to benefit from the synergies of the
combination and is tested annually for impairment (see Note 4(11)).
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
based on the fair value of net assets acquired in the acquiree and the fair value of the Group's previously
held equity interest in the acquiree; over
Goodwill represents the excess of
Goodwill
(4)
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 4(5)).
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.
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 4(4)
and 4(11)).
Investments in associates are 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).
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 judging 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.
IX Financial Statements
Associate is an entity in which the Group has significant influence, but not control, or joint control, including
participation in the financial and operating policy decisions.
Annual Report 2019
(5)
•
A financial asset is classified as held for trading if:
All other financial assets are subsequently measured at fair value through profit or loss ("FVTPL"), except that at
the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present
subsequent changes in fair value of an equity investment, which is not held for trading, in other comprehensive
income ("OCI").
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
the financial asset is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling; and
•
•
Debt instruments that meet the following conditions are subsequently measured at fair value through other
comprehensive income ("FVTOCI"):
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding ("SPPI").
the financial asset is held within a business model whose objective is to collect contractual cash flows; and
.
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
The Group classifies its financial assets into the following measurement categories at initial recognition: financial
assets at amortised cost; financial assets fair value through other comprehensive income; and financial assets at fair
value through profit or loss.
Classification and measurement of financial assets
The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability
and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net
carrying amount on initial recognition.
At initial recognition, financial assets and financial liabilities are initially measured at fair value except for trade
receivables arising from contracts with customers which are initially measured in accordance with IFRS 15.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from
the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
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
Financial instruments
Principal accounting policies (continued)
4.
Classification of Liabilities as Current or Non-current
(3) Associates
IX Financial Statements
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 4(5)) or, when appropriate, the cost on initial recognition of an investment
in a joint venture (see Note 4(2)) or, an associate (see Note 4(3)).
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.
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. 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 in 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.
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.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies
in line with the Group's accounting policies.
Financial statements include financial statements of the Bank and its subsidiaries. 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.
Subsidiaries and non-controlling interests and business combination
(1)
Principal accounting policies
4.
IX Financial Statements
China Merchants Bank
Annual Report 2019
The above new and amendments to IFRSS have not been adopted in advance in the consolidated financial statements
of this year. The Group anticipates that the application of all new and amendments to IFRSS will have no material
impact on the consolidated financial statements in the foreseeable future.
In addition to the above new and amendments to IFRSS, a revised Conceptual Framework for Financial Reporting
was issued in 2018. Its consequential amendments, the Amendments to References to the Conceptual Framework in
IFRS Standards, will be effective for annual periods beginning on or after 1 January 2020.
Effective for business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual period
beginning on or after 1 January 2020.
1 January 2022
1 January 2020
1 January 2020
Note
a date to be determined
1 January 2021
on or after
Business combination
4. Principal accounting policies (continued)
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.
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.
China Merchants Bank
Annual Report 2019
When the Group ceases to have joint control over a joint venture and no significant impact occurs, 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 4(5)).
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 4(4)
and 4(11)).
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.
ventures.
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
whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
parties sharing control.
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.
When judge whether there is a joint control, the Group usually considers the following cases:
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.
(2) Joint ventures
Principal accounting policies (continued)
4.
Annual Report 2019
IX Financial Statements
China Merchants Bank
166
165
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 acquiree's identifiable net assets.
The choice of measurement basis is made on a transaction-by-transaction basis.
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.
on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
179
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. Accounting
policies for impairment losses are disclosed in note 4(5).
China Merchants Bank
(6)
(7)
Property, equipment, investment property and depreciation
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:
Land and buildings
Investment properties
170
Motor vehicles and others
Leasehold improvements (leasing property)
Leasehold improvements (self-owned property)
20 years
20 years
3 years
Principal accounting policies (continued)
3-5 years
the estimated useful lives
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.
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.
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.
Repossessed assets
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 except the equity instrument are reported in "other assets".
Repossessed assets of equity instruments are detailed in note 4(5).
China Merchants Bank
Annual Report 2019
IX Financial Statements
4.
(8)
Principal accounting policies (continued)
Intangible assets
3 years
Intangible assets are stated at cost less accumulated amortisation (only intangible assets with finite useful lives) and
impairment losses (see Note 4(11)). 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.
4.
IX Financial Statements
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.
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 writes off a financial asset when there is information indicating that the counterparty is in severe
financial difficulty and there is no realistic prospect of recovery. A write-off constitutes a derecognition event.
Any subsequent recoveries are recognised in profit or loss.
China Merchants Bank
Annual Report 2019
4.
IX Financial Statements
Principal accounting policies (continued)
(5) Financial instruments (continued)
Derecognition of financial instruments (continued)
(b)
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. Interests in the securitised financial assets may
be retained in the form of senior or junior tranches, or other residual interests (retained interests).
When a securitisation of financial assets does not qualify for derecognition, the relevant financial assets are
not derecognised, and the consideration collected from third parties are recorded as a financial liability.
When the securitisation results in derecognisation or partial derecognisation of financial assets, the Group
allocates the carrying amount of the transferred financial assets between the financial assets derecognised
and the retained interests based on their relative fair values at the date of the transfer. Gains or losses on
securitisation, which is the difference between the consideration received and the allocated carrying amount
of the financial assets derecognised, are recorded in "other net income". The retained interests continue to
be recognised on the same basis before the securitisation.
Annual Report 2019
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:
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 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 assets.
(c)
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.
(d)
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis
or realize the asset and settle the liability simultaneously.
175
176
China Merchants Bank
when the Group transfers substantially all the risks and rewards of ownership of the financial assets,
the Group shall derecognise the financial assets;
the Group has transferred its rights to receive cash flows from the asset; or
Land use rights are stated at cost, amortised on a straight-line basis over the respective lease periods.
The amortization period of intangible assets is as follow:
whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the
site on which it is located or restore the underlying asset to the condition required by the terms and
conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included
in the related right-of-use asset, unless those costs are incurred to produce inventories.
After the commencement date, the right-of-use assets are measured at cost (subject to certain exceptions)
less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability.
The Group recognises the depreciation of right-of-use assets as an operating expense on a straight-line
basis and calculate the depreciation charge into the operating expenses of the consolidated statement of
profit or loss. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset
reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying assets.
Accounting policies for any identified right-of-use asset impairment loss are disclosed in note 4(11).
(d)
Leasehold land and building
For payments of a property interest which includes both leasehold land and building elements, the entire
property is presented as property and equipment of the Group when the payments cannot be allocated
reliably between the leasehold land and building elements, except for those that are classified and accounted
for as investment properties.
China Merchants Bank
IX Financial Statements
Annual Report 2019
4.
(9)
Principal accounting policies (continued)
Leases (continued)
any initial direct costs incurred by the lessee; and
As a lessee (continued)
Lease liabilities
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date using its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
Fixed lease payments (including in-substance fixed payments), less any lease incentives;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at
the commencement date;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options;
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to
terminate the lease; and
The amount expected to be payable by the lessee under remaining value guarantees.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the
lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease
payments made the Group remeasures the lease liability and makes a corresponding adjustment to the
related right-of-use asset whenever:
The lease term has changed or there is a change in the assessment of exercise of a purchase option,
in which case the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment
under a guaranteed remaining value, in which cases the lease liability is remeasured by discounting
the revised lease payments using the initial discount rate. But if the change in lease payments results
from a change in floating interest rates, the lessee shall use a revised discount rate that reflects
changes in the interest rate.
As a lessor
Leases for which the Group is a lessor are classified as finance or operating leases. When the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease.
All other leases are classified as operating leases.
(e)
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 the end of reporting period.
any lease payments made at or before the commencement date, less any lease incentives received;
and
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The right-of-use asset is initially measured at cost. This cost includes:
Land use right
Software and Others
2~20 years
30-50 years
Both the periods and method of amortisation are reviewed annually.
(9)
Leases
Core deposit
28 years
Definition of a lease
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. The Group assesses whether a contract is or contains a lease based on
the definition under IFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms
and conditions of the contract are subsequently changed.
As a lessee
(a)
Allocation of consideration to components of a contract
For a contract that contains a lease component and one or more additional lease or non-lease components,
the Group allocates the consideration in the contract to each lease component on the basis of the relative
stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
the amount of the initial measurement lease liability; and
(b)
The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term leases (lease term of 12 months or less and
do not contain a purchase option) and leases of low value assets (the value of assets is below equivalent to
RMB35,000).
Lease payments on short-term leases and leases of low-value assets are recognised as expense on a
straightline basis over the lease term.
177
178
China Merchants Bank
IX Financial Statements
Annual Report 2019
4.
Principal accounting policies (continued)
(9) Leases (continued)
As a lessee (continued)
(c)
Right-of-use assets
Short-term leases and leases of low-value assets
the rights to receive cash flows from the asset have expired; or
Computer equipment
(i)
Specific items (continued)
Equity instruments
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.
Perpetual debt capitals: At initial recognition, the Group classifies the perpetual debt capitals 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.
A financial instrument is an equity instrument if, and only if, both conditions (i) and (ii) below are met:
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk
management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio
of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
(ii)
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
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.
Perpetual debt capitals issued that should be classified as equity instruments are recognised in equity based on
the actual amount received. Any distribution of interests during the instruments' duration is treated as profit
appropriation. When the perpetual debt capitals are redeemed, the redemption price is charged to equity.
Preference shares: At initial recognition, the Group classifies the preference shares 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.
The Group classifies preference shares issued as an equity instrument. Fees, commissions and other transaction costs
of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as profit
distribution at the time of declaration.
Derecognition of financial instruments
(a)
Financial instruments (continued)
Financial Assets
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged
item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses
to hedge that quantity of hedged item.
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
there is an economic relationship between the hedged item and the hedging instrument;
For hedge effectiveness assessment, the Group considers whether the hedging instrument is effective in offsetting
changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging
relationships meet all of the following hedge effectiveness requirements:
The Group has elected to adopt the new general hedge accounting in IFRS 9. This requires the Group to ensure that
hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more
qualitative and forward-looking approach to assessing hedge effectiveness.
Hedge effectiveness testing
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 hedging reserve. Any gain or
loss relating to an ineffective portion is recognised immediately in the consolidated statement of profit or loss.
For cash flow hedge of a recognised asset or liability, the associated cumulative gain or loss is reclassified from
hedging reserve 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 hedging reserve 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 is immediately reclassified to the consolidated statement of
profit or loss.
Cash flow hedge
Hedge accounting (continued)
Financial instruments (continued)
Principal accounting policies (continued)
(5)
4.
Annual Report 2019
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
is derecognised when:
IX Financial Statements
Principal accounting policies (continued)
4.
Specific items
Cash equivalents
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.
Balances and placements with banks and other financial institutions
Banks represent other banks approved by the People's Bank of China ("PBOC") and other authorities. Other financial
institutions represent finance companies, insurance companies, investment trust companies and leasing companies
which are registered with and under the supervision of the China Banking and Insurance Regulatory Commission
(the "CBIRC") and securities firms and investment fund companies, etc. which are registered with and under the
supervision of other regulatory authorities. Balances and placements with banks and other financial institutions are
accounted for as loans and receivables.
China Merchants Bank
Annual Report 2019
4.
(5)
IX Financial Statements
Principal accounting policies (continued)
Financial instruments (continued)
Specific items (continued)
Resale and repurchase agreements
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".
(5)
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).
Equity investments are accounted for as financial assets at fair value through profit or loss or equity investments
designated at fair value through other comprehensive income. Debt investments are classified as financial assets at
fair value through profit or loss, debt investments at amortised cost, debt investments at fair value through other
comprehensive income in accordance with the entity's business model, contractual cash flow characteristics and the
fair value option.
Loans and advances to customers
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.
Loans and advances to customers are classified as loans and advances customers at fair value through profit or loss
(loans and advances customers at FVTPL), loans and advances customers at amortised cost, loans and advances
customers at fair value through other comprehensive income (loans and advances customers at FVTOCI) in
accordance with the entity's business model, contractual cash flow characteristics and the fair value option.
Derivative financial instruments
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.
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.
Embedded derivatives
Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 are not
separated. The entire hybrid contract is classified and subsequently measured in its entirety as either amortised cost
or fair value as appropriate. Derivatives embedded in non-derivative host contracts that are not financial assets within
the scope of IFRS 9 are treated as separate derivatives when they meet the definition of a derivative, their risks and
characteristics are not closely related to those of the host contracts and the host contracts are not measured at
FVTPL. 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 hedging relationship. Separated embedded derivatives are
presented in the statement of financial position together with the host contract.
173
174
China Merchants Bank
IX Financial Statements
Annual Report 2019
Investments
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.
China Merchants Bank
171
Financial liabilities at FVTPL
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
Classification and measurement of financial liabilities
(5) Financial instruments (continued)
Principal accounting policies (continued)
IX Financial Statements
4.
China Merchants Bank
Annual Report 2019
For investments in debt instruments and loans and advances to customers that are measured at FVTOCI, the loss
allowance is recognised in OCI and accumulated in the investment revaluation reserve without reducing the carrying
amounts of these financial assets. The loss allowance for loan commitments and financial guarantee contracts is
recognised in profit or loss and accumulated in provision. The loss allowance for other financial assets which are
subject to impairment under IFRS 9 is recognised in profit or loss through a loss allowance account.
the cash flows that the Group expects to receive if the loan is drawn down.
•
if the holder of the loan commitments draws down the loan, and
•
For undrawn loan commitments, ECL is the present value of the difference between the contractual cash flows that
are due to the Group:
Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading or (ii) it is designated as
at FVTPL.
For a financial guarantee contract, the Group is required to make payments only in the event of a default by the
debtor in accordance with the terms of the instrument that is guaranteed. Accordingly, the expected losses is the
present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that
the Group expects to receive from the holder, the debtor or any other party.
Generally, ECL is estimated as the difference between all contractual cash flows that are due to the Group in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective
interest rate determined at initial recognition.
ECL is measured based on the probability of default, loss given default and the exposure at default. Measurement of
ECL are detailed in Note 60(a).
Measurement and recognition of ECL
The Group defines whether there is credit impairment based on the internal evaluation results of the credit risk
management system for relevant financial assets. The Group considers that financial assets have been credit impaired
when its 5-tier loan classification is substandard, doubtful or loss or is more than 90 days overdue.
Credit-impaired financial assets
In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on
the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both
quantitative and qualitative information that is reasonable and supportable, including historical experience and
forward-looking information that is available without undue cost or effort. The assessment of whether the credit risk
has increased significantly are detailed in Note 60(a).
Significant increase in credit risk
For the above financial instruments that apply the ECL model, an assessment of whether credit risk has increased
significantly since initial recognition is performed at each reporting period by the Group to determine whether to
recognize lifetime ECL. When the credit risk of these financial instruments does not increase significantly after the
initial recognition, the Group makes provision for credit losses according 12-month ECL; in the event of a significant
increase in credit risk, the group makes provision for the credit losses in accordance with the ECL for the entire
duration.
The Group performs impairment assessment under expected credit loss ("ECL") model on financial assets which are
subject to impairment under IFRS 9 (including financial assets at amortised cost, debt instruments assets at fair value
through other comprehensive income), leases receivable, loan commitments and financial guarantee contracts etc.
The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.
The Group assesses the ECL of financial assets with forward-looking information. 12-month ECL ("12m ECL")
represents the portion of lifetime ECL that is expected to result from default events that are possible within 12
months after the reporting date. In contrast, lifetime ECL represents the ECL that will result from all possible default
events over the expected life of the relevant instrument. Assessment are done based on the factors that are specific
to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date
as well as the forecast of future conditions.
Impairment under ECL model
(5) Financial instruments (continued)
4. Principal accounting policies (continued)
Annual Report 2019
IX Financial Statements
For a lease receivable, the cash flows used for determining the ECL is consistent with the cash flows used in
measuring the lease receivable in accordance with IAS 17 Leases.
172
A financial liability is classified as held for trading if:
Derivatives that do not qualify for hedge accounting
The Group designates certain derivatives as hedging instruments for cash flow hedge. The Group documents
the relationship between the hedging instruments and hedged items, as well as its risk management objective
and strategy for undertaking the hedge, at the inception of a hedging relationship,. The Group also requires
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.
Hedge accounting
Financial liabilities including borrowing from central banks, deposits from banks and other financial institutions,
placements from banks and other financial institutions, amounts sold under repurchase agreements, deposits from
customers are subsequently measured at amortised cost, using the effective interest method.
Financial liabilities at amortised cost
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the grouping is provided internally on that basis.
it forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire
combined contract to be designated as at FVTPL.
such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial
recognition if:
it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective
hedging instrument.
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
it has been acquired principally for the purpose of repurchasing it in the near term; or
Interest income and expense for all financial instruments except for those classified as at FVTPL are recognised in
"Interest income" and "Interest expense" in the profit or loss account using the effective interest method. Interest
on financial instruments measured as at FVTPL is included within the fair value movement during the period, which
is recognized in "Other net income".
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.
Rental income
the customer simultaneously receives and consumes the benefits provided by the Group's performance as the
Group performs;
•
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.
China Merchants Bank
IX Financial Statements
Annual Report 2019
4.
Principal accounting policies (continued)
(14) Income recognition (continued)
Fee and commission income
Under IFRS 15, the Group 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.
A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series
of distinct goods or services that are substantially the same. For contracts that contain more than one performance
obligations, the Group allocates the transaction price to each performance obligation on a relative stand-alone
selling price basis, except for the allocation of discounts and variable consideration.
The stand-alone selling price of the distinct goods or service underlying each performance obligation is determined
at contract inception. It represents the price at which the Group would sell a promised goods or service separately
to a customer. If a stand-alone selling price is not directly observable, the Group estimates it using appropriate
techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of
consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services
to the customer.
For contracts that contain variable consideration, the Group estimates the amount of consideration to which it will
be entitled using either (a) the expected value method or (b) the most likely amount, depending on which method
better predicts the amount of consideration to which the Group will be entitled.
The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly
probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty
associated with the variable consideration is subsequently resolved. At the end of each reporting period, the Group
updates the estimated transaction price (including updating its assessment of whether an estimate of variable
consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and
the changes in circumstances during the reporting period.
Control is transferred over time and revenue is recognised over time by reference to the progress towards complete
satisfaction of the relevant performance obligation if one of the following criteria is met:
Premium income
Income derived from operating leases is recognised in the consolidated statement of profit or loss using the
straight-line method over the lease term.
De-recognition of financial assets transferred (continued)
Net Interest income
China Merchants Bank
Annual Report 2019
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.
Insurance contract liabilities
Premiums from long-term life insurance contracts are recognized as revenue when due from policy holders.
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 income recognition
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.
Insurance contracts classification
(10) Insurance contracts
For a transfer of asset that does not satisfy the requirements of IFRS 15 to be accounted for as a sale of asset, the
Group as a buyer-lessor does not recognise the transferred asset and recognises loan and advance to customers
equal to the transfer proceeds within the scope IFRS 9.
The Group acts as a buyer-lessor
4.
Sale and leaseback transactions
When the Group is a lessor of an operating lease, income derived from operating leases is recognised in the
consolidated statement of profit or loss using the straight-line method over the lease term. 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. Contingent lease income is charged to
profit or loss in the accounting period in which they are incurred.
As a lessor (continued)
Leases (continued)
Principal accounting policies (continued)
(9)
4.
Annual Report 2019
IX Financial Statements
China Merchants Bank
180
When a contract includes lease and non-lease components, the Group applies IFRS 15 to allocate the consideration
under the contract to each component. Non-lease components are separated from lease component on the basis of
their relative stand-alone selling prices.
IX Financial Statements
Principal accounting policies (continued)
(11) Impairment on tangible, intangible assets other than impairment under ECL
model
Revenue is the inflow of economic benefits that the Group has formed in its daily activities that will result in an
increase in shareholders' equity and have nothing to do with the capital invested by shareholders.
(14) Income recognition
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.
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 highly 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.
Other provisions and contingent liabilities
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. The provision of financial guarantees
issued is confirmed in the statement of financial position in accordance with note 4(5).
Financial guarantees issued
(13) Financial guarantee issued, provisions and contingent liabilities
4. Principal accounting policies (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
182
181
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.
(12) Precious metals
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.
Recognition of impairment losses
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).
Calculation of recoverable amount
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.
Internal and external sources of information are reviewed at the end of the reporting period to identify indications
that other assets may be impaired.
The carrying amount of tangible and intangible assets other than impairment under ECL model is reviewed
periodically in order to assess whether the recoverable amount has declined below the carrying amount, including
property and equipment, right-of-use assets, intangible assets, investment properties, interest in joint ventures,
interest in associates, good will and other non-current assets. 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.
the Group's performance creates and enhances an asset that the customer controls as the Group performs; or
•
If a performance obligation is not satisfied over time, it is satisfied at a point in time. To determine the point in time
at which a customer obtains control of a promised service, the following indicators of the transfer of control should
also be considered; these include, but are not limited to:
Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or
service.
4. Principal accounting policies (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
The fair value of the H share appreciation rights is using Black-Scholes model, taking into account the terms and
condition upon which the H share appreciation rights were granted.
The Group offers H share appreciation rights to its employee, namely H Share Appreciation Rights Scheme for the
Senior Management ("the Scheme"), the Scheme is settle by cash. 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.
Share-based payment
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 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.
Post employment benefits
whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer
qualifies for the "pass through" of those cash flows to independent third parties.
Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
employees.
Salaries and staff welfare
(17) Employee benefits
Principal accounting policies (continued)
4.
Annual Report 2019
IX Financial Statements
China Merchants Bank
186
185
(18) Related parties
On the disposal of a foreign operation, all of the exchange differences accumulated in exchange reserve in respect
of that operation attributable to the owners of the Bank are reclassified to profit or loss.
For the purposes of these consolidated financial statements, parties are considered to be related to the Group if
the Group has the ability, directly, indirectly or jointly, 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.
the Group's performance does not create an asset with an alternative use to the Group and the Group has an
enforceable right to payment for performance completed to date.
(3)
5. Significant accounting estimates and judgements (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
Where the Group enters into structured transactions by which it transfers financial assets to structured entities, the
Group analyzes whether the substance of the relationship between the Group and these structured entities indicates
that it controls these structured entities to determine whether the Group needs to consolidate these structured
entities. This will determine whether the following de-recognition analysis should be conducted at the consolidated
level or at the entity level from which the financial assets are transferred.
In its normal course of business, the Group transfers its financial assets through various types of transactions
including regular way sales and transfers, securitization, financial assets sold under repurchase agreements. The
Group applies significant judgement in assessing whether it has transferred these financial assets which qualify for a
full de-recognition.
De-recognition of financial assets transferred
(3)
Business model assessment: Classification and measurement of financial assets depends on the results of the SPPI
and the business model test. The Group determines the business model at a level that reflects how groups of
financial assets are managed together to achieve a particular business objective. This assessment includes judgement
reflecting all relevant evidence including how the performance of the assets is evaluated and their performance
measured, the risks that affect the performance of the assets and how these are managed and how the managers
of the assets are compensated. The Group monitors financial assets measured at amortised cost or FVTOCI that
are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons
are consistent with the objective of the business for which the asset was held. Monitoring is part of the Group's
continuous assessment of whether the business model for which the remaining financial assets are held continues to
be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective
change to the classification of those assets.
Classification of financial assets
(2)
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 interests that it holds in the structured entities.
(1) Control over structured entity
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.
5. Significant accounting estimates and judgements
IX Financial Statements
China Merchants Bank
Annual Report 2019
188
187
Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
(21) 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. The Group only charges a relevant
commission.
(20) Fiduciary activities
(19) Segmental reporting
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 exchange
reserve (and attributed to non-controlling interests as appropriate).
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. 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.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
Exchange differences on transactions entered into in order to the effective portion of the hedge certain foreign
currency risks.
189
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.
(15) Taxation
A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group
has received consideration (or an amount of consideration is due) from the customer.
A contract asset represents the Group's right to consideration in exchange for goods or services that the Group has
transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with IFRS 9. In
contrast, a receivable represents the Group's unconditional right to consideration, i.e. only the passage of time is
required before payment of that consideration is due.
When another party is involved in providing goods or services to a customer, the Group determines whether the
nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a
principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).
The Group is an agent if its performance obligation is to arrange for the provision of the specified goods or service
by another party. In this case, the Group does not control the specified goods or service provided by another
party before that goods or service is transferred to the customer. When the Group acts as an agent, it recognises
revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the
specified goods or services to be provided by the other party.
The customer has accepted the services.
The customer has the significant risks and rewards of ownership of the service;
The Group has transferred physical possession of the service;
The Group has a present right to payment for the services;
Loss Given Default ("LGD"): LGD is an estimate of the loss arising on default. It is based on the difference
between the contractual cash flows due and those that the lender would expect to receive, taking into
account cash flows from collateral and integral credit enhancements. Refer to Note 60(a) for more details.
The Group analyzes the contractual rights and obligations in connection with such transfers to determine whether
the de-recognition criteria are met based on the following considerations:
(14) Income recognition (continued)
Principal accounting policies (continued)
4.
Annual Report 2019
IX Financial Statements
China Merchants Bank
184
183
If the revenue is recognised over time, the Group recognizes revenue in accordance with the progress towards
complete satisfaction of a performance obligation. The progress towards complete satisfaction of a performance
obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements
of the value of the goods or services transferred to the customer to date relative to the remaining goods or services
promised under the contract, that best depict the Group's performance in transferring control of goods or services.
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.
Fee and commission income (continued)
Probability of Default ("PD"): PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood
of default over a given time horizon, the calculation of which includes historical data, assumptions and
expectations of future conditions. Refer to Note 60(a) for more details.
•
Models and assumptions used: The Group uses various models and assumptions in measuring fair value
of financial assets as well as in estimating ECL. Judgement is applied in identifying the most appropriate
model for each type of asset, as well as for determining the assumptions used in these models, including
assumptions that relate to key drivers of credit risk. See Note 60(a) for more details on ECL and Note 60(g)
for more details on fair value measurement.
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.
Forward-looking information: When measuring ECL the Group uses reasonable and supportable forward
looking information, which is based on assumptions for the future movement of different economic drivers
and how these drivers will affect each other. Refer to Note 60(a) for more details.
(16) Foreign currencies translations
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.
the same taxable entity; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation
authority on either:
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
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:
Principal accounting policies (continued)
4.
Annual Report 2019
IX Financial Statements
(15) Taxation (continued)
China Merchants Bank
The Group shall recognise a deferred tax liability for all taxable temporary differences associated with investments in
subsidiaries, and associates, and interests in joint ventures, except to the extent that both of the following conditions
are satisfied: the parent, investor, joint venturer or joint operator is able to control the timing of the reversal of the
temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.
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.
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 of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and liabilities are not
discounted.
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.
the extent to which the associated risks and rewards of ownership of the financial assets are transferred.
Significant judgment is applied in the Group's estimation with regard to the cash flows before and after
the transfers and other factors that effect the outcomes of Group's assessment on the extent that risks and
rewards are transferred.
(4)
Impairment under ECL model
•
Significant increase of credit risk: ECL are measured as an allowance equal to 12-month ECL for stage 1
assets, or lifetime ECL assets for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk
has increased significantly since initial recognition. In assessing whether the credit risk of an asset has
significantly increased the Group takes into account qualitative and quantitative reasonable and supportable
forward looking information. Refer to note 60(a) for more details.
Establishing groups of assets with similar credit risk characteristics: When ECLs are measured on a collective
basis, the financial instruments are grouped on the basis of shared risk characteristics. Refer to Note 60(a)
for details of the characterics considered in this judgement. The Group monitors the appropriateness of the
credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required
in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the
assets. This may result in new portfolios being created or assets moving to an existing portfolio that better
reflects the similar credit risk characteristics of that group of assets. Assets move from 12-month to lifetime
ECLs when there is a significant increase in credit risk, but it can also occur within portfolios that continue
to be measured on the same basis of 12-month or lifetime ECLs but the amount of ECL changes because the
credit risk of the portfolios differ.
1.24
1.15
1.09
1.13
Return on average equity attributable to
16.54
16.84
16.57
16.27
17.09
1.31
ordinary shareholders of the Bank
shareholders of the Bank
6,799,533
Key Financial Ratios
(%)
3,571,698
25,220
361,758
5,113,220
25,220
25,220
543,605
403,362
6,202,124
5,538,949
4,844,422 4,400,674 4,064,345 3,802,049
7,417,240 6,745,729 6,297,638 5,942,311 5,474,978
4,490,650 3,933,034 3,565,044 3,261,681 2,824,286
Total loans and advances to customers
Total assets
Deposits from customers
25,220
483,392
5,814,246
Total liabilities
Cost-to-income ratio
25,220
617,707
Return on average assets attributable to
32.08
15.48
30.21
Total shareholders' equity
19
12.57
13.33
15.68
15.54
10.83
11.54
13.02
12.62
12.69
10.83
31.04
11.54
11.78
11.95
the Advanced Measurement Approach
Tier 1 capital adequacy ratio under the
Advanced Measurement Approach
Capital adequacy ratio under the Advanced
Measurement Approach
Core Tier 1 capital adequacy ratio under
1.68
1.87
1.61
1.36
1.16
Non-performing loan ratio
27.55
27.60
12.06
Share capital
Distinctive wholesale finance. The Company actively builds a market-leading wholesale finance business with
distinctive features and leverages on its professional advantages to provide its clients with customised and integrated
financial services. New growth engines such as investment banking, transaction banking, asset custody, asset
management, bills and financial markets have been growing continuously and professional service capabilities have
been affirmed and recognized by the market and customers.
(in millions of RMB)
In February 2019, at the "Private Banking and Wealth Management Award Ceremony 2019" organised by
Euromoney, the Company won the "China's Best Private Bank" Award for the 9th time.
In March 2019, the Company won the "Best Credit Card Business Development Award" and "Best
Technology Innovation Award" at the award ceremony for the "2019 China Retail Bank" held by Asiamoney;
In addition, the Company received the "Best National Joint-Stock Bank" Award at the award ceremony for
the "Private Bank of China 2019 "held by Asiamoney.
In May 2019, the Company was awarded the "Best Electronic Transaction Bank" at the ceremony for the
"2019 China Bank of Excellent Transaction" held by Asiamoney.
In May 2019, the Company won the "Best Financial Innovation Award" in the selection campaign for the
"2019 Finance Innovation Award in China" organised by The Banker (China).
In July 2019, the Company ranked 19th on the list of "Top 1000 World Banks 2019" released by The Banker
(UK) with a tier 1 capital of USD75.39 billion, up by 1 place from the previous year.
In July 2019, the list of Fortune China 500 was published, on which the Company ranked 38th with a
revenue of RMB248.555 billion. In the same month, the Company appeared on the list of Fortune Global 500
for 8 consecutive years, ranking 188th, up by 25 places from the previous year.
In July 2019, the Company received the award of "Best Bank in China" at the "2019 Awards for Excellence"
Ceremony staged by Euromoney.
In July 2019, the Company was honored as the "2019 Best Asset Management Bank" at the award ceremony
for the "12th Golden-Shell Award of China Asset Managements" hosted by 21st Century Business Herald.
In January 2019, the Company was honored as an "AA-Level CSR Reporting Enterprise" in the 'A-Share
Listed Companies' Social Responsibility Report Summit Forum and 10th Anniversary Ceremony for Social
Responsibility Report Rating of Listed Companies" organised by Rankins CSR Ratings (RKS) and SGS-CSTC.
On the list of "2019 Top 500 World Banks" released by The Banker (UK) in February 2019, the Company
ranked 9th with a brand value of USD22.48 billion, up by 2 places from the previous year, and was present
among the top 10 for the first time.
In July 2019, in the "2019 International Excellence in Retail Financial Services Awards Ceremony" organised
by The Asian Banker, the Company was honored as the "Best Retail Bank in China" for the 10th time and
the "Best Joint Stock Retail Bank in China" for the 15th time.
In September 2019, the Company won two exceptional awards, i.e. the "Best A-share Listed Company
in 2019" and the "Best Corporate Management in Asia for the 30th Anniversary" at the annual awards
ceremony held by Asiamoney. In addition, the Company was granted the "Best Corporate Finance and
Investment Bank in China" and "Best M&A Financing Business" Awards at the ceremony for the "2019 China
Excellent Corporate Finance and Investment Banking Awards".
In November 2019, the Company was awarded the "Star of Family Office and Wealth Management Star" at
the awards ceremony for Star of China organised by Global Finance (a renowned magazine based in US).
In November 2019, the Company won three exceptional awards, i.e. the "Top 10 Best Employers", "Most
Socially Responsible Employer", and "Most Admired Employer by Women" at the awards ceremony for the
"Best Employer in China 2019" jointly organised by Zhaopin.com and Institute of Social Science Survey,
Peking University.
In December 2019, the Company received the "China's Private Bank of the Year" Award at the ceremony for
"Asian Banker 2019 - Global Wealth and Society Awards Program" held by The Asian Banker.
China Merchants Bank
Chapter II Summary of Accounting Data and Financial Indicators
17
Annual Report 2019
In August 2019, at the awards ceremony for the "2019 All-Asia Executive Team" held by the Institutional
Investor (a renowned magazine based in US), the Company championed all the seven awards in banking
sector in Asia, including "Honored Companies", "Best CEO", "Best CFO", "Best Corporate Governance",
"Best IR Company", "Best ESG/SRI Meyrics" and "Best IR Professional".
In 2019, the Company received a number of honors and awards from organisations both at home and abroad,
including:
1.4 Honors and Awards
Annual Report 2019
Proactively occupying the strategic dominant position in the future: Firstly, we are to accelerate the
development of our Fintech strategy, i.e. promoting the qualitative change of the financial technology, empowering
the digital transformation of our retail finance 3.0 as well as the upgrade of the industrial Internet model. Secondly,
we are to implement the strategy of best customer experience, i.e. establishing a closed-loop monitoring system and
indicator system for customer experience, conducting regular evaluations and continuously optimising our customers'
experience. Thirdly, we are to deepen our risk management strategy, i.e. clearly defining the risk appetites,
optimising our risk processes, and establishing a Fintech-driven risk management tool system. Fourthly, we are to
promote the synergy efficiently, i.e. creating a coordinated "wealth management-asset management-investment
bank" business expansion system, establishing a B2B2C customer-linked operation coordination system, and building
a data sharing collaboration system across and beyond the bank.
Pushing forward the transformation of the business model: Firstly, we are to create a new business model
for retail finance 3.0, which is Fintech-armed, big data-driven, and MAU-guided, aiming to capture the strategic
heights of future development, build a new model of online user acquisition and operation, further promote the
digital transformation of retail finance 3.0, and build us into an exceptional bank with the best customer experience.
Secondly, we are to promote the high-quality development of our wholesale finance. On the one hand, we must
closely follow the direction of the development of our innovative financial services based on the industrial Internet
and improve our industry-based comprehensive service capabilities and risk management capabilities. On the other
hand, we are to deepen the construction of our customer segmentation and categorisation, as well as a relationship
manager management system, and effectively promote the transformation and upgrading of the two major business
systems, i.e. transaction banking and investment banking. Thirdly, we are to improve our expertise of comprehensive
operation and provide our customers with high-quality and comprehensive financial services. Fourthly, we are
to strengthen our international service capabilities and strive to build us into "a bank with the best customer
experience in cross-border financial sector".
Building a strong strategic supporting system: Firstly, we are to advance our transformation towards the
"Dual-Mode IT"1 in science and technology, i.e. adhering to the strategy of introducing the leading technologies,
adapting to the trend of digitalised, information-based and network-based development, and enhancing our digital
innovation capabilities. Secondly, we are to build a light-weight HR management system and grow a talent team
with outstanding service strategy, structural optimisation, reasonable echelon and excellent ability. Thirdly, we
are to strengthen our asset/liability and financial management, continue to improve our professional capabilities
and efficiency in asset/liability management, and build a comprehensive, intelligent and professional financial
management system. Fourthly, we are to further the construction of our internal control and compliance system in
a quantified, standardised and refined way. Fifthly, we are to build a smart operating system to effectively balance
the relationship between customer experience, operating efficiency, operating costs, and operating risks. Sixthly, we
are to enrich and develop our CMB culture and brand, and continue to increase its differentiated advantages and
influences.
Dual-Mode IT represents two different IT working modes, Mode I is applicable for work with explicit requirements, and Mode II is applicable for exploratory
work.
China Merchants Bank
Annual Report 2019
Chapter I Company Information
Investment Value and Core Competitiveness:
Well-developed and refined strategic management. Adhering to the strategy-driven development, the
Company's strategic management has become increasingly well-developed. It has given full play to its comparative
advantages and management potential amidst the crucial period of technological progress, industrial restructuring
and deepening of financial market reform. The Company attains proper strategic positioning and vigorously carries
out structural adjustment for business development, customers, channels and products in an effort to promote the
dynamic and balanced development of "Quality, Efficiency and Scale", thus navigating a differentiated development
path with outstanding performance.
Accelerating innovation and changes in corporate culture. With the "Shekou gene" inherited from the reform
and opening up, the Company formulated a business philosophy of "we are here just for you", held onto its core
values of "service, innovation and prudence", adhered to the distinct corporate culture that strived for excellence
and accelerated innovation and changes in the course of its business development. In recent years, under the
backdrop of management upgrading, the "Simple Work Style" has been proposed, and a light-operation culture of
"openness, integration, equality and inclusiveness" has gradually formed.
Fully empowered Fintech. The Company endeavoured to build itself into a "Digital Bank", and used Fintech
as the locomotive to provide "nuclear power" for its transformation and development, so as to fully empower
its business development. Through benchmarking with Fintech companies, the Company will build up the overall
infrastructure for the Company's financial science and technology, establish an ecological system for the business of
the Company with an open mindset and a long-term perspective, and transform the business management model
with the concepts and methods of Fintech so as to strengthen the capability of science and technology, promote the
integration of technology with business and promote business agility based on agile technology.
Well-structured layout of business plans. Leveraging on its own endowment of resources, the Company
established a clear strategic positioning of "One Body with Two Wings" through its focus on business and
customers, built a professional system of "Wealth Management - Asset Management - Investment Bank", thereby
creating a large- number of industry-leading and distinctive businesses and forming the layout of business plans with
a coherent structure and stronger capability to withstand cyclical risks.
Advantageous retail finance. The retail business of the Company set an early lead in the industry and formed an
inward development system in terms of customer base, channels, products and brands. At the same time, through
vigorous promotion of inclusive and intensive growth and enhancement of refined management, key factors
including the proportion of net operating income and profit contribution are among the best in the industry. The
Company enjoys a leading advantage in its retail finance.
Scientific and efficient management system. Based on the principle of serving customers and boosting business
development, the Company successfully established the comprehensive, modern and scientific risk management
system, capital management system, operational management system, information management system,
performance appraisal system and 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.
Continuous improvement of the organisational system. In accordance with the direction of "professionalism,
delayering and intensification", the Company creates an efficient light management structure, establishes an end-to-
end customer service process and builds organisational models with distinctive features, such as setting up business
divisions in the branch level. The professionalization level and the efficiency of operation and management have
been improving and the speed to respond to customer needs and market changes has been picking up.
Industry-leading quality service. The Company developed a unique service model ever since it was founded.
Through its long-term practice, it has established its service concept of "we are here just for you". We attach
importance to the customer service experience, proactively promote service upgrading, and always keep its service
quality ahead. "Good service" has been the tag for the Company to attract customers and expand market.
Excellent professional personnel. The Company has cultivated and created a high-quality talent team through a
people-oriented culture and a market-based talent incentive mechanism. Our senior management team has extensive
experience and is well settled down. The overall quality of our staff and their professional skills are industry leading.
We took a proactive stance on the competition in Fintech by expanding our introduction and cultivation of Fintech
talents.
15
16
China Merchants Bank
Chapter I Company Information
Summary of Accounting Data
and Financial Indicators
2.1 Key Accounting Data and Financial Indicators
(in millions of RMB, unless otherwise specified)
15.65
22.89
20.07
14.05
(in millions of RMB, unless otherwise specified)
Volume Indicators
Total assets
of which: total loans and advances to customers (3)
Total liabilities
of which: total deposits from customers (3)
Total equity attributable to shareholders of the Bank
Notes:
(1)
(2)
(3)
31 December
2019
31 December
2018
Changes
+/(-)%
3.13
Closely following the direction of transforming into a "Light-operation Bank",
accelerating the paces of our construction of the "Light-operation Bank" and
promoting the balanced development of "quality, efficiency and scale", making
constant efforts to achieve qualitative breakthroughs in our endeavor to build us into
a Digital Bank, constantly intensifying our risk management efforts to find a final
solution, vigorously growing us into a bank that offers the best customer experience,
and further enhancing our internationalized and integrated service capabilities.
Adhering to our strategic positioning of "One Body with Two Wings", whereas
"One Body" for our retail segment means to take MAU as our "North Star Metric",
while focusing on both "customers and technologies", aiming to establish our new
competitive edge in the era of mobile internet, and forging a new digital model for
retail finance 3.0; the "Two Wings" for our wholesale business means to be oriented
towards specialization, focusing on building a complete wholesale business system,
accelerating the digital transformation, and accomplishing the high-quality development
of the wholesale finance. We should constantly promote the in-depth integration of
"One Body with Two Wings", building it into a complete system which can realise
organic circulation and mutual promotion, and forming a highly integrated value chain.
3.62
3.13
Operating Results
Net operating income (1)
Profit before tax
2019
2018
Changes
+/(-)%
269,788
248,444
8.59
117,132
106,497
9.99
Net profit attributable to shareholders of the Bank
92,867
80,560
15.28
Per Share (RMB)
Basic earnings attributable to ordinary shareholders of the Bank (2)
Diluted earnings attributable to ordinary shareholders of the Bank
Year-end net assets attributable to ordinary shareholders
of the Bank
3.62
15.65
7,417,240
Building the "Best Commercial Bank in China" with innovation-driven development,
leading retail banking and distinguished features.
Strategic positioning:
Secretary of the Board of Directors: Liu Jianjun
Joint Company Secretaries: Liu Jianjun, Ho Wing Tsz Wendy
Securities Representative: Huo Jianjun
1.1.3 Registered and Office Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
1.1.4 Mailing Address:
7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Postcode: 518040
Tel: +86 755 8319 8888
Fax: +86 755 8319 5109
Authorised Representatives: Tian Huiyu, Liu Jianjun
E-mail: cmb@cmbchina.com
Hotline for complaints on customer service: 95555-7
Hotline for consumer rights protection: +86 755 8307 7333
1.1.5 Principal Place of Business in Hong Kong:
31/F, Three Exchange Square, 8 Connaught Place, Central, Hong Kong
1.1.6 Share Listing:
1.1.7
A Shares: Shanghai Stock Exchange
Abbreviated Name of A Shares: CMB
Website: www.cmbchina.com
1.1.2 Legal Representative: Li Jianhong
Registered Company Name in English: China Merchants Bank Co., Ltd.
SĦRA (Abbreviated Name in Chinese: Rí¯)
10
China Merchants Bank
Annual Report 2019
President's Statement
The deepest level of "Light-operation Bank" transformation is light culture. The advocation of "Simple Work Style"
signifies our resolve to foster the new corporate culture of "openness, integration, equality and inclusiveness", so that every
employee can do the right thing genuinely. The greatest common denominator of value among more than 70,000 CMB
staffs will synchronise with hundreds of millions of customers, forming the ultimate protective shield for CMB.
At the start of 2020, the outbreak of COVID-19 pandemic spreading across the globe has brought substantial impacts on
the real economy and the financial industry. But we firmly believe that the crisis cannot change the century-long path of
China's rise to a great power. Bill Gates once said "We always overestimate the change that will occur in the next two
years and underestimate the change that will occur in the next ten." We will learn from this crisis. In the face of crisis, it is
more important to respond proactively than to predict the outcome. We are convinced that adhering to original aspirations,
following the rules, getting closer to customers and the market, proactively embracing change, quick trialing, fast learning
and rapid evolution are the best ways to deal with the crisis.
The pandemic not only made us more care about vegetables, masks, relatives and friends, but also made us more faithful
in the value of openness, integration and sharing. We cannot predict the future, but firmly believe that only by opening up
and integrating more thoroughly and participating in shaping the future can we have a brighter tomorrow.
Road ahead is long and hard. Persist, success is in card. Pure thoughts are issues which remain unresolved until we work on
it.
China Merchants Bank Co., Ltd.
President
20 March 2020
Liu Yuan
Chairman of the Board of Supervisors
12
China Merchants Bank
Chapter I Company Information
Annual Report 2019
Company Information
1.1 Company Profile
1.1.1 Registered Company Name in Chinese:
Stock Code: 600036
H Shares: SEHK
Abbreviated Name of H Shares: CM BANK
Stock Code: 03968
Office Address: 12th and 15th Floor, Yinglan International Financial Center, No. 7 Financial Street, Xicheng
District, Beijing
Sponsor Representatives: Liu Wencheng, Luo Yong
China Merchants Securities Co., Ltd.
Office Address: 27/F China Merchants Securities Building, No. 111, Fuhua 1st Road, Futian District, Shenzhen
Sponsor Representatives: Wang Yuting, Wei Jinyang
Continuous Supervision Period: 12 January 2018 to 31 December 2019
1.2 Corporate Business Overview
Founded in 1987 with its head office in Shenzhen, China, the Company is a national commercial bank with
distinctive features and brand influence in China. The Company mainly focuses on the market in China. The
Company's distribution network primarily covers China's major economic centres such as Guangdong-Hong Kong-
Macao Greater Bay Area, Yangtze River Delta and Bohai Rim, and some large- and medium- cities in other regions.
For details, please refer to the sections headed "Distribution Channels" and "Branches and Representative Offices".
The Company was listed on Shanghai Stock Exchange in April 2002 and on the SEHK in September 2006.
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,
CMB APP and CMB Life APP, CMB Corporate APP, transaction banking services and offshore business services, such
as global cash management and trade financing, asset management, asset custody, investment banking and other
services, have been widely recognised by consumers in China.
In 2019, the Company actively adapted to the changes in the external and internal environment, gave full play
to Fintech as its nuclear power engine, accelerated digital transformation and endeavored to develop itself into a
bank that offers the best customer experience. Over the past year, the Company has delivered remarkable results in
business development, further consolidated its customer base and steadily improved its customer service capabilities.
In 2020, the Company will closely center on the two critical elements, i.e. customers and technologies to deepen its
strategic transformation and promote its opening and internal integration, and strive to build the business model for
development stage 3.0 along the way of its evolution. For details, please refer to the sections headed "Chairman's
Statement" and "President's Statement".
13
14
China Merchants Bank
Chapter I Company Information
Annual Report 2019
1
1.3 Development Strategies, Investment Value and Core
Competitiveness
Development vision:
Strategic objectives:
UBS Securities Co., Ltd.
Development Strategies:
1.1.11 Sponsor for Domestic Preference Shares:
website of the Company (www.cmbchina.com)
Domestic Preference Shares: Shanghai Stock Exchange
Abbreviated Name of Shares: Zhao Yin You 1 (1)
Stock Code: 360028
Offshore Preference Shares: SEHK
Abbreviated Name of Shares: CMB 17USDPREF
Stock Code: 04614
Domestic Auditor: Deloitte Touche Tohmatsu Certified Public Accountants LLP
Office Address: 30th Floor, Bund Center, 222 Yan'an Road East, Shanghai, China
Certified Public Accountants for Signature: Zeng Hao, Zhu Wei
International Auditor: Deloitte Touche Tohmatsu
Office Address: 35th Floor, One Pacific Place, 88 Queensway, Hong Kong
Chapter I Company Information
1.1.8 Legal Advisor as to PRC Law: Jun He Law Offices
Legal Advisor as to Hong Kong Law: Herbert Smith Freehills
1.1.9 Registrar for A Shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Share Register and Transfer Office as to H Shares: Computershare Hong Kong Investor Services Ltd.
Shops 1712-1716, 17/F, Hopewell Center, 183 Queen's
Road East, Wanchai, Hong Kong
Registrar for Domestic Preference Shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Registrar and Transfer Agent for Offshore Preference Shares: The Bank of New York Mellon SA/NV,
Luxembourg Branch
1.1.10 Newspapers and Websites Designated for Information Disclosure:
Mainland China: "China Securities Journal", "Securities Times", "Shanghai Securities News"
website of Shanghai Stock Exchange (www.sse.com.cn)
Hong Kong:
website of the Company (www.cmbchina.com)
website of SEHK (www.hkex.com.hk)
Place for maintenance of annual reports: Office of the Board of Directors of the Company
6,745,729
9.95
4,490,650
2019
2018
2017
2016
2015
269,788
248,444
221,037
Net operating income
210,270
Operating expenses
91,497
81,110
70,431
65,148
67,957
Impairment losses
61,159
202,302
Results for the year
(in millions of RMB)
2.3 Five-year Financial Summary
Allowance ratio of loans (6)
4.97
4.88
Increased by 0.09
percentage point
Notes:
(1)
Net interest spread = average yield of the total interest-earning assets - average cost ratio of total interest-bearing liabilities.
(2)
Net interest margin = net interest income/average balance of total interest-earning assets.
(3)
(4)
Cost-to-income ratio = operating expenses/net operating income. The numerator does not include taxes and surcharges, provisions for insurance
claims and the depreciation charges on fixed assets under operating lease and investment properties.
As at the end of the reporting period, the Group's capital adequacy ratio, Tier 1 capital adequacy ratio and Core Tier 1 capital adequacy ratio
under the Weighted Approach were 13.02%, 11.30% and 10.64% respectively.
(5)
Allowance coverage ratio of non-performing loans = allowances for impairment losses/balance of non-performing loans.
(6)
Allowance ratio of loans = allowances for impairment losses/total loans and advances to customers.
China Merchants Bank
Annual Report 2019
Chapter II Summary of Accounting Data and Financial Indicators
60,837
59,926
66,159
59,266
3.62
3.13
2.78
2.46
2.29
Diluted earnings attributable to ordinary
shareholders of the Bank
3.62
3.13
2.78
2.46
2.29
Year-end net assets attributable to ordinary
shareholders of the Bank
22.89
20.07
17.69
15.95
14.31
shareholders of the Bank
percentage points
Basic earnings attributable to ordinary
0.74
Profit before tax
117,132
106,497
90,680
78,963
75,079
Net profit attributable to shareholders
of the Bank
92,867
80,560
70,150
62,081
57,696
(RMB)
Per Share
Dividend (tax inclusive)
1.20
0.94
0.84
0.69
percentage point
Increased by 68.60
358.18
426.78
Increased by 0.07
Return on average equity attributable to ordinary
16.84
16.57
percentage point
Increased by 0.27
shareholders of the Bank
percentage point
Net interest spread(1)
2.48
2.44
Increased by 0.04
percentage point
Net interest margin (2)
2.59
2.57
Increased by 0.02
percentage point
As percentage of net operating income
- Net interest income
1.24
64.16
1.31
Profitability indicators
3,933,034
14.18
6,799,533
6,202,124
9.63
4,400,674
540,118
10.08
13.18
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.
The Bank issued non-cumulative preference shares in 2017, and paid dividends on the preference shares during the year. Therefore, when
calculating basic earnings per share, return on average equity and net assets per share, dividends on the preference shares were deducted from
"net profit attributable to shareholders of the Bank", while the preference shares were deducted from both the "average equity" and the "net
assets".
In accordance with the "Notice on the Revision and Issuance of the Format of the Financial Statements of the Financial Enterprise for 2018"
(<2018✰✰✰) issued by the Ministry of Finance, the interest on financial instruments accrued
based on the effective interest rate method shall be included in the balance of the relevant financial instruments, and shall be reflected in the
relevant items of the financial reports, and the "interest receivable" or "interest payable" item shall no longer be listed separately. The balance
of "interest receivable" or "interest payable" listed in the "other assets" or "other liabilities" item is only the interest receivable or payable
where the relevant financial instruments have expired but the interest has not yet been received or paid at the balance sheet date. Since the
2018 annual report, the Group has adjusted the financial statements and its accompanying notes in accordance with the above requirements.
Unless otherwise stated, the balances of the relevant items herein and set out below do not include the above interest on financial instruments
accrued based on the effective interest method.
18
China Merchants Bank
Annual Report 2019
Chapter II Summary of Accounting Data and Financial Indicators
2.2 Financial Ratios
(%)
2019
2018
Changes
Return on average assets attributable to shareholders
of the Bank
Year end
64.56
– Net non-interest income
percentage point
12.69
12.62
Increased by 0.07
percentage point
15.54
15.68
Decreased by 0.14
percentage point
8.33
8.06
Increased by 0.27
percentage point
Asset quality indicators
Non-performing loan ratio
1.16
1.36
Decreased by 0.20
Allowance coverage ratio of non-performing loans (5)
Increased by 0.17
Decreased by 0.40
11.78
Changes over
2018 year-end
35.84
35.44
percentage point
Increased by 0.40
percentage point
Cost-to-income ratio (3)
32.08
31.04
Increased by 1.04
percentage points
(%)
Capital adequacy indicators under the Advanced
Measurement Approach (4)
Core Tier 1 capital adequacy ratio
Tier 1 capital adequacy ratio
Capital adequacy ratio
Equity to total assets
31 December
31 December
2019
2018
11.95
China Merchants Bank
Annual Report 2019
4,844,422
611,301
199
Luo Sheng (iii)
Wang Daxiong
Su Min
Zhang Jian
Hong Xiaoyuan
Zhou Song
Fu Gangfeng
Li Jianhong
Non-executive directors
Subtotal
The executive directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
114
3,398
38
3,398
38
4,658
38
11,340
3,360
11,454
3,360
The non-executive directors' emoluments shown above were for their services as directors of the Bank.
directors and supervisors
3,780
Liu Yuan
203
203
Tian Hongqi (iv)
500
500
Liu Qiao
500
Independent non-executive
500
500
500
Wong See Hong
500
500
Zhao Jun
500
500
Liang Jinsong
Li Menggang
38
4,620
Total
RMB'000
81,110
91,497
Total
22,214
25,406
Other general and administrative expenses (note (ii))
244
245
Charge for insurance claims
Notes:
4,242
N/A
302
Short-term leases expenses and leases of low-value assets expenses
Rental expenses
N/A
4,364
Depreciation of right-of-use assets
983
1,014
Amortization of intangible assets
N/A
(i)
(i)
(ii)
contributions
RMB'000
bonuses
RMB'000
RMB'000
in kind
Retirement
scheme
Discretionary
and benefits
Salaries,
allowances
2019
Performance bonus is included in the salaries and bonuses, the details of which are disclosed in Note 39(a).
Directors'
fees
RMB'000
Wang Liang (ii)
Liu Jianjun (ii)
Tian Huiyu
Executive directors
The emoluments of the Directors and Supervisors during the year are as follows:
11. Directors' and supervisors' emoluments
IX Financial Statements
China Merchants Bank
Annual Report 2019
Auditors' remuneration amounted to RMB31 million for the year ended 31 December 2019 (2018: RMB30 million), is included in other general
and administrative expenses.
Subtotal
5,270
3,818
Wen Jianguo
Total
The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
2,645
30
736
18
200
2,118
497
4,200
718
2972 297
1,412
| | | |
00 - 12 1,4
1,400
(i)
Total
RMB'000
RMB'000
RMB'000
RMB'000
200
RMB'000
21,501
25,944
(x)
In June 2019, Ms. Sun Yueying ceased to be a non-executive director of the Bank after the end of her term of office.
In April 2019, Mr. Li Hao retired and resigned as the executive director of the Bank.
In June 2019, according to the election results of the Bank's staff congress, Mr. Liu Xiaoming was newly elected as the Bank's staff supervisor,
with the term of office effective from June 27, 2019.
In June 2019, according to the relevant resolutions of the 2018 general meeting of shareholders of the Bank, Mr. Xu Zhengjun was newly
elected as the external supervisor of the Bank, with the term of office effective from June 27, 2019.
In June 2019, according to the relevant resolutions of the 2018 general meeting of shareholders of the Bank, Mr. Peng Bihong was newly
elected as the shareholder supervisor of the Bank.
Mr. Tian Hongqi was newly elected as an independent non-executive director of the Bank. His qualification for the position of independent
director has been approved by the China Banking and Insurance Regulatory Commission in August 2019. At the same time, Mr. Pan Chengwei
will no longer be an independent non-executive director of the Bank at the end of his term of office.
In June 2019, Mr. Luo Sheng was elected as a non-executive director of the Bank, and his qualification for the post of director has been
approved by the CBRC in July 2019.
(ix)
243
(viii)
(vi)
(v)
(iv)
(iii)
In June 2019, Mr. Liu Jianjun and Mr. Wang Liang were newly elected as the executive directors of the Bank, and their qualifications for the
post of directors were approved by the China Banking and Insurance Regulatory Commission in August 2019.
(ii)
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.
(i)
Notes:
(vii)
Peng Bihong (v)
Retirement
scheme
contributions
in kind
8,043
3,703
Subtotal
1,418
23
1,395
Liu Xiaoming (vii)
2,906
38
99
2,868
200
200
Xu Zhengjun (vi)
400
400
400
400
Han Zirong
Ding Huiping
Wu Heng
Wang Wanging
bonuses
11,845
193
fees
Discretionary
and benefits
Directors'
Salaries,
allowances
2019
Subtotal
Huang Dan (xii)
Jin Qingjun (xi)
The independent non-executive directors' and supervisors' emoluments shown above were for their services and
employment as directors or supervisors of the Bank.
Fu Junyuan (x)
Sun Yueying (ix)
Li Hao (viii)
directors and supervisors
Former Executive, non-executive
11. Directors' and supervisors' emoluments (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
194
Pan Chengwei (iv)
In February 2019, Mr. Fu Junyuan resigned as the shareholder supervisor of the Bank for work reasons.
6,379
2,132
Deposits from banks and other financial institutions
10,982
9,207
Borrowing from central banks
61,987
73,430
Deposits from customers
2018
2019
10,269
Interest expense
Note: The Group recognized RMB 286 million interest income on impaired loans and advances to customers (2018: RMB 307 million), RMB 5 million
interest income on impaired debt securities investments (2018: nil), and RMB 9,577 million on loans and advances to customers at fair value
through other comprehensive income (2018: RMB 9,462 million).
Total
270,911
292,994
36,011
35,081
12,256
13,821
48,267
7.
48,902
12,166
6,406
16,727
19,551
Bank cards fees
2018
2019
Fee and commission income
8.
110,527
119,904
Placements from banks and other financial institutions
N/A
Total
Lease liabilities
14,530
17,631
Debt securities issued
3,568
2,404
Amounts sold under repurchase agreements
7,294
557
Remittance and settlement fees
7,531
8,802
- Corporate loans
Loans and advances to customers
Interest income
6.
Annual Report 2019
IX Financial Statements
China Merchants Bank
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.
(7) Impairment of goodwill
- Retail loans
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.
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.
(5) Fair value of financial instruments
Significant accounting estimates and judgements (continued)
5.
Annual Report 2019
IX Financial Statements
China Merchants Bank
190
9,117
(6) Income taxes
4,302
- Discounted bills
Balances with banks and other financial institutions
8,170
1,980
1,882
7,961
7,759
8,718
8,302
113,698
134,763
Balances with central banks
73,954
196,370
221,979
2018
2019
- Debt investments at amortised cost
- Debt investments at FVTOCI
Investments
Amounts held under resale agreements
Placements with banks and other financial institutions
78,914
Depreciation of property, equipment and investment properties
11,492
Agency services fees
382
Total
Others
- insurance income
3,555
4,488
- rental income
3,889
4,870
334
Other income
3,259
Foreign exchange gain
(27)
245
- others
154
170
- dividend income from equity investments designated at FVTOCI
1,742
3,538
1,941
921
23,482
2,348
Tax and surcharges
46,025
51,439
Subtotal
7,171
7,702
- Others
-
426
5,777
- Social insurance and corporate supplemental insurance
33,077
37,267
- Salaries and bonuses (note (i))
2018
2019
Staff costs
10. Operating expenses
20,271
6,470
10,267
of which: gain on disposal of bills
2,457
9.
Annual Report 2019
IX Financial Statements
China Merchants Bank
192
191
73,046
79,047
Total
Other net income
2,784
Others
23,370
23,560
Commissions on trust and fiduciary activities
6,807
6,310
Commissions from credit commitment and lending business
13,091
13,681
4,453
1,816
2019
Profit (loss) from fair value change
gain on disposal of debt instruments at FVTOCI
(350)
146
- gain on disposal of financial assets at amortised cost
9,734
11,030
11,327
14,048
Investment income
2018
(764)
precious metals
52
(255)
- derivatives instruments
1,803
1,112
- financial instruments at fair value through profit or loss
1,091
384
(473)
(xi)
- financial instruments at FVTPL
(xiii)
Subtotal
- Overseas
– Hong Kong
- Mainland China
Current income tax expense
(a) Income tax in the consolidated statement of profit or loss represents:
15. Income tax
60,829
61,066
Deferred taxation
Total
34
Others
374
545
loan commitments
Expected credit losses relating to financial guarantees and
389
678
- Debt investments at FVTOCI (Note 23(c))
395
787
Total
30,296
29,283
Tax at the PRC statutory income tax rate of 25% (2018: 25%)
106,497
117,132
Profit before taxation
2018
2019
(b) A reconciliation of income tax expense in the consolidated statement of profit
or loss and that calculated at the applicable statutory tax rate is as follows:
25,678
2019
23,709
(7,960)
33,977
31,669
216
130
1,017
1,243
32,744
2018
(8,299)
26,624
5,803
(208)
1
1
1
1
1
3
4
5,000,001 -5,500,000
4,500,001 5,000,000
4,000,001 -4,500,000
During the year ended 31 December 2019, the five highest paid individuals include six persons in total as three
of them are with the same emoluments and being the forth highest paid individuals. During the year ended 31
December 2018, the five highest paid individuals include six persons in total as three of them are with the same
emoluments and being the forth highest paid individuals.
3,500,001 -4,000,000
2018
2019
The number of the five highest paid individuals whose emoluments fell within the following bands is set out below:
23,200
22,068
Total
520
228
22,680
HKD
(368)
13. Loans to directors, supervisors and executive officers
Aggregate amount of relevant loans made by the Group
outstanding at year end
59,252
54,214
- Debt investments at amortised cost (Note 23(b))
Loans and advances to customers (Note 22(c))
Amounts due from banks and other financial institutions
Investments
2018
2019
14. Expected credit losses
Annual Report 2019
IX Financial Statements
Loans to directors, supervisors and executive officers of the Group are as follows:
China Merchants Bank
197
54
71
47
66
2018
2019
the Group outstanding during the year
Maximum aggregate amount of relevant loans made by
198
21,840
Tax effects of the following items:
1,298
Fair value gain on equity
subsequently to profit or loss
Items that will not be reclassified
1,995
1,995
497
497
(36)
(36)
instruments measured at fair
368
149
(31)
180
(102)
13
(115)
496
6
490
368
626
value through other
991
(62)
(xii)
12
(2,371)
11,488
3,759
(971)
4,730
(74)
1
comprehensive income
1
through reserve
benefit scheme redesigned
Remeasurement of defined
-
332
(107)
439
729
(262)
Other comprehensive income
- Effects of non-deductible expenses
(173)
6,243
China Merchants Bank
The applicable income tax rate for the Group's operations in Mainland China is 25% during 2019 (2018: 25%).
Taxation for Hong Kong and overseas operations are charged at the applicable rates of tax prevailing in relevant regions.
(!!)
(i)
Notes:
25,678
23,709
Income tax expense
37
IX Financial Statements
(37)
1,320
- Transfer out of previously recognised deferred tax assets
- Others
(210)
(417)
- Effects of different applicable rates in other jurisdictions
(5,917)
(7,738)
- Effects of non-taxable income
1,574
3,570
799
Annual Report 2019
(a) Income tax effects relating to each component of other comprehensive income
(2,251)
8,494
1,640
(549)
2,189
(expense)
amount
Before-tax Tax benefit/ Net-of-tax
amount
16. Other comprehensive income
Net-of-tax
Before-tax
amount
amount
2019
of financial statements of foreign
operations
- Exchange difference on translation
of other comprehensive income
- Equity-accounted investees-share
- Net movement in cash flow
hedge reserve
- Net fair value gain on debt instruments
measured at fair value through
other comprehensive income
Net changes in expected credit
losses of debt instruments
measured at fair value through
other comprehensive income
2018
Tax benefit/
(expense)
Contributions to defined contribution retirement schemes
Items that may be reclassified to
profit or loss
Salaries and other emoluments
500
500
500
500
500
500
500
Subtotal
Wang Wanqing (v)
Huang Dan
500
Han Zirong
Jin Qingjun
Wu Heng
Wen Jianguo
Fu Junyuan (iv)
Liu Yuan
Liu Qiao (iii)
Li Menggang (iii)
Wong See Hong
Zhao Jun
Ding Huiping
Pan Chengwei
42
42
11,161
222
2,245
93
1,762
39
400
400
400
42
7,655
2,152
1,723
400
400
400
3,870
90
3,780
42
3,284
The independent non-executive directors' and supervisors' emoluments shown above were for their services and
employment as directors or supervisors of the Bank.
Liang Jinsong
| | | |
Total
Retirement
scheme
contributions
RMB'000
bonuses
RMB'000
RMB'000
in kind
Discretionary
and benefits
Directors'
fees
RMB'000
Salaries,
allowances
RMB'000
2018
Tian Huiyu
Executive directors
11. Directors' and supervisors' emoluments (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
As at 31 December 2019, the Group has offered 10 phases of H share appreciation rights scheme to its senior management ("the Scheme").
Details of the Scheme are set out in Note 39 (a)(iii).
Discretionary bonuses (Note 11(i))
In June 2019, due to the expiration of his term of office, Mr. Jin Qingjun will no longer serve as the external supervisor of the Bank after the
end of the 2018 general meeting of shareholders.
In June 2019, due to the expiration of her term of office, Ms. Huang Dan will no longer serve as the employee supervisor of the Bank after the
end of the 2018 general meeting of shareholders.
Li Hao
directors and supervisors
4,620
8,820
Independent non-executive
The non-executive directors' emoluments shown above were for their services as directors of the Bank.
||||||
Subtotal
Wang Daxiong
Zhang Jian
Su Min
Hong Xiaoyuan
Fu Gangfeng
4,200
Sun Yueying
Non-executive directors
The executive directors' emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
Subtotal
8,980
160
4,290
90
4,690
70
Li Jianhong
195
Zhou Song (ii)
China Merchants Bank
2019
4,000,001 -4,500,000
3,500,001 -4,000,000
3,000,001 3,500,000
2,500,001 3,000,000
2,000,001 -2,500,000
1,500,001 -2,000,000
500,001 1,000,000
0 - 500,000
2018
HKD
As at 31 December 2018, the Group has offered 10 phases of H share appreciation rights scheme to its senior management ("the Scheme").
Details of the Scheme are set out in Note 39 (a)(iii).
(viii)
In November 2018, Mr. Wong Kwai Lam and Mrs. Pan Yingli resigned as the Bank's independent non-executive director.
(vii)
(vi)
In January 2018, Mr. Li Xiaopeng resigned as the Bank's vice chairman and non-executive director.
In July 2018, Mr. Xu Lizhong, the former employee supervisor, submitted his resignation to the Supervisory Committee of the Bank for work
reasons. According to the results of the employee representative meeting held on July 18, 2018, Mr. Wang Wanqing was newly elected as
the employee supervisor of the tenth session of the Supervisory Committee of the Bank, and Mr. Xu Lizhong no longer served as employee
supervisor of the Bank.
Mr. Fu Junyuan resigned as a shareholder supervisor of the Bank and a member of the Nomination Committee of the Board of Supervisors for
work reasons, effective since February 28, 2019.
During the reporting period, the appointment qualification of Mr. Li Menggang and Liu Qiao were approved by the China Banking and
Insurance Regulatory Commission in November 2018.
The number of the Directors and Supervisors whose emoluments are within the following bands is set out below:
15
55 12
16
2018
RMB'000
2019
RMB'000
Of the five individuals with the highest emoluments for the year ended 31 December 2019, 4 (2018: 3) are directors
or supervisors of the Bank whose emoluments are included in Note 11 above. The aggregate of the emoluments in
respect of the five individuals during the year is as follows:
196
12. Individuals with highest emoluments
IX Financial Statements
China Merchants Bank
Annual Report 2019
During the year ended 31 December 2019, there was no arrangement under which a director or a supervisor waived
or agreed to waive any remuneration.
During the year ended 31 December 2019, 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.
26
25
1
1
1
-
1
1
4,500,001 - 5,000,000
5,000,001 5,500,000
Total
1
1
4
(v)
(iv)
1
During the reporting period, the appointment qualification of Mr.Zhou Song was approved by the China Banking and Insurance Regulatory
Commission in October 2018.
Total
scheme
contributions
bonuses
RMB'000
(i)
in kind
RMB'000
RMB'000
fees
Discretionary
and benefits
Directors'
RMB'000
Salaries,
allowances
Subtotal
Xu Lizhong (v)
Pan Yingli (vii)
Wong Kwai Lam (vii)
Li Xiaopeng (vi)
directors and supervisors
(iii)
Former Executive, non-executive
Annual Report 2019
2018
RMB'000
Retirement
11. Directors' and supervisors' emoluments (continued)
22,404
500
500
445
17,675
IX Financial Statements
4,284
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.
Notes:
(ii)
Total
(i)
The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
2,263
-63
1,263
63
500
500
1,000
1,200
1,200
26
1,219
Water, environment and public utilities management
5,635
9,309
Construction
Telecommunications, software and IT services
4,494
7,889
2,196
Others
625
17,882
Subtotal of corporate loans and advances
249,575
228,856
Residential mortgage
9,475
7,260
Micro-finance loans
Others
177
1,525
5,553
191
11,215
Credit cards
52,174
2,196
2,326,943
1,987,643
Subtotal of retail loans and advances
25,396
Gross amount of loans and advances to customers
4,205,402
3,682,482
Operations outside Mainland China
2019
2018
Finance
63,286
Property development
60,035
54,167
Transportation, storage and postal services
30,567
38,212
Leasing and commercial services
28,992
2,001
Manufacturing
20,994
26,860
Wholesale and retail
11,579
12,505
Mining
9,445
Production and supply of electric power, heating power, gas and water
12,720
advances to customers
Gross amount of loans and advances to customers
226,040
4,490,650
3,783,268
149,766
3,933,034
During the reporting period, for those business using domestic letter of credit, domestic standby L/C or overseas standby L/C as collateral, the Group
and the Bank reclassified the type of guarantees from pledged loans to guaranteed loans while restated the figures respectively.
Analysed by overdue term:
Credit loans
Guaranteed loans
Collateralised loans
Pledged loans
Gross amount of loans and
Overdue
within
3 months
Overdue
3 months
up to 1 year
31 December 2019
Overdue
1 year up to
3 years
11111
10,953
10,259
1,745
Overdue
more than
3 years
Total
overdue
2,608
141,835
3,952
4,207
1,870
4,691
4,264,610
Subtotal of retail loans and advances
225,964
1,653,517
35,673
21,696
285,248
250,552
As at 31 December 2019, over 90% of the Group's loans and advances to customers were conducted in the People's
Republic of China (31 December 2018: over 90%).
China Merchants Bank
IX Financial Statements
Annual Report 2019
22. Loans and advances to customers (continued)
(b) Analysis of loans and advances to customers (continued)
(ii)
Analysed by type of guarantees:
(iii)
Credit loans
Guaranteed loans
Collateralised loans
Pledged loans
Subtotal
Discounted bills
Gross amount of loans and advances to customers
Note:
31 December
2019
31 December
2018
1,320,545
1,535,977
636,709
1,859,500
583,242
232,424
152,193
- Stage 3 (Lifetime ECL- credit impaired)
349,009
Subtotal
2019
2018
38,120
27,601
226,015
149,766
264,135
177,367
(213)
(187)
(117)
(41)
(11)
(341)
(228)
No loss allowance is recognised in the consolidated statement of financial position for loans and advances to
customers at FVTOCI as the carrying amount is at fair value.
(iii)
Loans and advances to customers at FVTPL
Corporate loans and advances
Interest receivable
Subtotal
2019
5,744
2018
403
35
5,779
- Stage 2 (Lifetime ECL- not credit-impaired)
403
- Stage 1 (12-month ECL)
Loans and advances to customers at FVTOCI
2,009,339
3,519
Discount bills
25
Gross amount of loans and advances to customers at amortised cost
4,220,771
3,755,264
Less: loss allowances
- Stage 1 (12-month ECL)
(138,803)
(105,978)
- Stage 2 (Lifetime ECL- not credit-impaired)
- Stage 3 (Lifetime ECL- credit impaired)
Subtotal
(37,644)
(38,517)
(46,309)
(47,277)
(222,756)
(191,772)
Net amount of loans and advances to customers at amortised cost
3,998,015
3,563,492
(ii)
Loans and advances to customers at FVTOCI
Corporate loans and advances
Discount bills
Loss allowances
205
206
China Merchants Bank
61,963
Water, environment and public utilities management
57,044
55,890
Telecommunications, software and IT services
51,406
60,703
Mining
29,744
35,349
Residential mortgage
Others
Subtotal of corporate loans and advances
Discounted bills
Credit cards
59,640
59,021
1,652,419
1,545,073
226,040
149,766
1,098,673
921,500
670,922
575,299
Micro-finance loans
405,155
63,420
Finance
84,475
95,279
IX Financial Statements
Annual Report 2019
22. Loans and advances to customers (continued)
(b) Analysis of loans and advances to customers
(i)
Analysed by industry sector and category:
Operations in the Mainland China
2019
2018
Property development
308,342
262,323
Transportation, storage and postal services
Others
306,642
Manufacturing
240,717
255,683
Wholesale and retail
151,278
157,984
Production and supply of electric power, heating power, gas and water
144,530
138,773
Leasing and commercial services
144,377
124,094
Construction
248,815
3,800
4,380
credit-
23,634
16,811
15,766
-Stage 3
(684)
(9,480)
10,164
Charge for the year (note 14)
30,869
10,271
12,961
Write-offs/disposes
(32,201)
54,101
(32,201)
Unwinding of discount on allowance
(286)
(286)
Recovery of loans and advances written off
9,170
9,170
Exchange difference
Balance as at the end of the year
137
20
43
200
138,803
37,644
46,309
222,756
(770)
2018
1,375
- Stage 2
177,367
(187)
(41)
(228)
China Merchants Bank
Annual Report 2019
IX Financial Statements
22. Loans and advances to customers (continued)
(c)
Movements of allowance for expected credit loss
(i) Reconciliation of allowance for expected credit loss measured at amortised cost:
-Stage 1
2019
-Stage 2
(Lifetime
ECL - not
(12-month
ECL)
credit-
impaired)
-Stage 3
(Lifetime
ECL-credit
impaired)
Balance as at the beginning of the year
105,978
38,517
47,277
Total
191,772
Transfer to
Stage 1
3,108
(3,059)
(49)
(605)
-Stage 1
-Stage 2
(Lifetime
ECL - not
(12-month
7,453
Exchange difference
152
49
78
279
Balance as at the end of the year
105,978
38,517
47,277
191,772
(ii)
Reconciliation of allowance for expected credit loss measured at FVTOCI:
2019
2018
Balance as at the beginning of the year
228
180
Charge for the year (note 14)
113
48
Balance as at the end of the year
341
228
209
3.13
2,362,616
(307)
(307)
7,453
Recovery of loans and advances written off
Unwinding of discount on allowance
-Stage 3
(Lifetime
ECL-credit
ECL)
impaired)
impaired)
Balance as at the beginning of the year
68,107
33,815
49,418
Total
151,340
Transfer to
- Stage 1
1,545
(1,462)
2,289
- Stage 2
1,951
(83)
(327)
- Stage 3
(845)
(6,341)
7,186
Charge for the year (note 14)
38,643
10,505
10,056
Write-offs/disposes
(26,197)
59,204
(26,197)
(1,624)
3,068
175,078
6,334
6,684
1,326
3,314
overdue
loans
16,349
19,474
19,996
6,184
advances to customers
19,731
16,447
19,130
6,695
62,003
Note:
Loans are classified as overdue when the principal or interest is overdue more than one day.
Among the above-mentioned overdue loans and advances to customers, collateralised loans and pledged loans that
are overdue but not impaired at the balance sheet date are as follows:
Collateralised loans that are overdue but not impaired
Pledged loans that are overdue but not impaired
Total
31 December
31 December
2019
2018
3,904
3,084
682
4,472
4,586
7,556
207
208
4,472
China Merchants Bank
Pledged loans
4,692
18,899
20,288
16,657
7,519
Overdue
within
3 months
Overdue
from
3 months
up to 1 year
6,732
31 December 2018
Overdue from
1 year up to
3 years
Overdue
7,152
63,363
Total
11111
7,645
6,674
4,313
1,679
9,441
more than
3 years
Credit loans
Guaranteed loans
Collateralised loans
2,922
2,798
5,306
IX Financial Statements
Annual Report 2019
22. Loans and advances to customers (continued)
(11)
(341)
Loans and advances measured at amortised cost
Less: Loss allowances of loans and advances to
customers at amortised cost
Net loans and advances to customers
at amortised cost
Loans and advances to customers at FVTOCI
Loss allowances of loans and advances to
customers at FVTOCI
2018
-Stage 1
(12-month
-Stage 2
(Lifetime
ECL - not
credit-
-Stage 3
(Lifetime
ECL-credit
ECL)
impaired)
impaired)
Total
3,610,711
90,942
53,611
3,755,264
(105,978)
(38,517)
(47,277)
(191,772)
3,504,733
52,425
(117)
(213)
264,135
3,998,015
(b) Analysis of loans and advances to customers (continued)
(iv)
Analyzed by ECL
2019
-Stage 1
(12-month
-Stage 2
(Lifetime
ECL - not
credit-
-Stage 3
(Lifetime
ECL-credit
ECL)
impaired)
impaired)
Total
Loans and advances measured at amortised cost
Less: Loss allowances of loans and advances to
customers at amortised cost
4,088,065
3,563,492
80,141
4,220,771
(138,803)
(37,644)
(46,309)
(222,756)
Net amount of loans and advances to
customers at amortised cost
Loans and advances to customers at FVTOCI
Loss allowances of loans and advances to
customers at FVTOCI
3,949,262
42,497
263,144
972
6,256
19
52,565
Retail loans and advances
3.62
1,858,130
73,825
60,222
2,484
2,833
76,309
63,055
29,923
36,861
74
106
29,997
36,967
106,306
100,022
- Banks
- Other financial institutions
(361)
(133)
(11)
Less: Impairment allowances
(38)
Total
- Banks
2019
106,306
2018
100,022
(372)
(171)
105,934
99,851
179
309
106,113
100,160
(a) Analysed by nature of counterparties
2019
2018
Balances in Mainland China
- Banks
- Other financial institutions
Subtotal
Balances outside Mainland China
- Other financial institutions
Subtotal
Total
Subtotal
(171)
Subtotal
Interest receivable
Total
2019
306,656
2018
312,559
(338)
(405)
306,318
312,154
1,115
307,433
1,257
313,411
(a) Analysed by nature of counterparties
2019
2018
Placements in Mainland China
- Banks
- Other financial institutions
Impairment allowances (a)(c)
(372)
Principal (a)
Annual Report 2019
Total
105,934
99,851
(b) Movements of allowances for impairment losses are as follows:
2019
2018
Balance as at the beginning of the year
171
138
Charge for the year (note 14)
201
43
Exchange difference
Balance as at the end of the year
(10)
372
171
China Merchants Bank
IX Financial Statements
20. Placements with banks and other financial institutions
Subtotal
Interest receivable
Impairment allowances (a)(b)
(1)
106
(101)
Net movement in the hedging reserve during the year recognised
in other comprehensive income
Effective portion of changes in fair value of hedging instruments
Reclassification adjustment for realised (loss) gain to profit or loss
Cash flow hedge
332
729
Net movement in the equity investment revaluation reserve during the
year recognised in other comprehensive income
332
729
Changes in fair value recognised during the year
comprehensive income
Equity instruments measured at fair value through other
496
626
Net movement in the debt instrument revaluation reserve during the
year recognised in other comprehensive income
496
626
43
Changes in expected credit losses recognised during the year
(102)
China Merchants Bank
Annual Report 2019
25,220
25,220
78,901
91,197
(1,659)
(1,670)
80,560
92,867
2018
2019
Note:
to equity shareholders of the Bank (in RMB)
Basic and diluted earnings per share attributable
Net profit attributable to ordinary shareholders of the Bank
Weighted average number of shares in issue (in million)
Less: Net profit attributable to preference shareholders of the Bank
Net profit attributable to equity shareholders of the Bank
The calculation of basic earnings per share for the years 2019 and 2018 are based on the net profit attributable to
ordinary shareholders of the Bank and the weighted average number of shares in issue during corresponding years.
There is no difference between basic and diluted earnings per share for the years 2019 and 2018.
17. Earnings per share
IX Financial Statements
149
Subtotal
Changes in expected credit losses in financial assets at FVTOCI
1,640
Interest receivable
Total
2019
472,533
75,077
4,697
283
552,590
2018
438,777
36,488
2,056
247
477,568
Notes:
(i)
(ii)
Statutory deposit reserve funds are deposited with the PBOC as required and are not available for the Group's daily operations. The statutory
deposit reserve funds of the Bank's institutions located in Mainland China are calculated at 10.5% and 5% for eligible RMB deposits and
foreign currency deposits respectively as at 31 December 2019 (2018: 11% and 5% for eligible RMB deposits and foreign currency deposits
respectively). Eligible deposits include deposits from government authorities and other organizations, 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 and settlement
purposes.
201
202
China Merchants Bank
Annual Report 2019
IX Financial Statements
19. Balances with banks and other financial institutions
Principal (a)
Fiscal deposits
6,243
Surplus deposit reserve (note (ii))
18. Balances with central banks
Net movement in the debt instrument revaluation reserve during the
year recognised in other comprehensive income
(1,362)
(1,843)
profit or loss upon disposal
7,605
3,483
Changes in fair value recognised during the year
Reclassification adjustments for amounts transferred to
2018
2019
Reserve changes in debt instruments at FVTOCI
(b) Movements relating to components of other comprehensive income are as
follows:
16. Other comprehensive income (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
200
1,745,925
The Bank issued non-cumulative preference shares in year 2017. For the purpose of calculating basic earnings per share for the year ended 31 December
2019 and 2018, dividends on non-cumulative preference shares declared in corresponding years should be deducted from the amounts attributable to
equity shareholders of the Bank.
The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not exist as
at 31 December 2019 and 2018. Therefore the conversion feature of preference shares has no effect on the calculation of diluted earnings per share.
Statutory deposit reserve (note (i))
Placements outside Mainland China
Gross amount of loans and
Subtotal
- Within one month (inclusive)
108,014
- Between one month and one year (inclusive)
Total
2018
2019
Loans and advances to customers at amortised cost
(i)
3,749,949
4,277,300
403
5,779
3,572,179
177,367
264,135
Loans and advances to customers at FVTPL (iii)
Total
Loans and advances to customers at FVTOCI (ii)
4,007,386
(191,895)
(222,899)
(123)
-
(191,772)
2018
Maturing
Other financial institutions
21
Subtotal
109,353
199,918
Banks
Less: Impairment allowances
- Other financial institutions
Subtotal
(222)
(229)
(174)
(508)
(396)
(737)
Total
108,957
199,181
(b) Analysed by residual maturity
2019
_
(222,756)
(143)
Subtotal
1,364
737
Balance as at the beginning of the year
2018
2019
(d) Movements of allowances for impairment losses are as follows:
199,181
10,752
1,738
108,957
188,429
2018
2019
107,219
Total
Bonds
Bills
(c) Analysed by underlying assets
108,957
198,183
998
- Banks
943
Release for the year (note 14)
Loans and advances to customers at amortised cost
(341)
Exchange difference
loss allowances of interest receivable
amortised cost (i)
Less: loss allowances of loans and advances to customers at
8,810
3,764,074
3,755,264
4,220,771
9,514
4,230,285
Subtotal
Gross amount of loans and advances to customers at amortised cost (i)
Interest receivable
2018
2019
(a) Loans and advances to customers
22. Loans and advances to customers
Annual Report 2019
IX Financial Statements
China Merchants Bank
737
396
2
Balance as at the end of the year
(629)
Amounts held under resale agreements outside Mainland China
199,181
92,955
Total
(58)
(180)
(280)
(225)
(338)
(405)
306,318
312,154
2019
2018
216,735
208,432
75,796
102,493
13,787
1,229
306,318
312,154
- Over one year
(c)
- Between one month and one year (inclusive)
Maturing
80,251
47,793
152,125
Total
155,386
136,274
235,637
235,761
71,019
76,798
71,019
76,798
306,656
312,559
Less: Impairment allowances
- Banks
- Other financial institutions
Subtotal
Total
(b) Analysed by residual maturity
- Within one month (inclusive)
Movements of allowances for impairment losses are as follows:
99,487
(Release)/charge for the year (note 14)
Total
(a) Analysed by nature of counterparties
2019
2018
109,353
(396)
199,918
(737)
108,957
199,181
4
205
108,961
199,386
2019
2018
Amounts held under resale agreements in Mainland China
Balance as at the beginning of the year
- Banks
- Other financial institutions
Interest receivable
Subtotal
16,377
Principal (a)
Impairment allowances (a)(d)
Balance as at the end of the year
2018
2019
405
184
Corporate loans and advances
218
1
(68)
338
405
203
204
China Merchants Bank
IX Financial Statements
Annual Report 2019
21. Amounts held under resale agreements
3
Exchange difference
- Unlisted
192,123
269,600
790
121
1,060
- Listed in Mainland China
Classified by listing
Subtotal
192,123
270,511
3
- Others
Subtotal
864
- Listed outside Mainland China
270,511
(ii)
Total other investments measured at FVTPL
Other debt securities
- Wealth management products
7,382
1,630
- Bonds issued by commercial banks and other financial institutions
2,314
79
2018
2019
· Bonds issued by policy banks
Classified by issuer
Bonds:
Financial assets designated at fair value through profit or loss
(a) Financial assets at fair value through profit or loss (continued)
23. Investments (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
217,151
279,931
192,123
-
Other investments:
67,615
2,344
5,126
22,684
4,294
Bonds issued by commercial banks and other financial institutions
Other debt securities
-
2018
2019
Subtotal
Classified by issuer
Other investments measured at FVTPL
Investments measured at FVTPL (continued)
(i)
(a) Financial assets at fair value through profit or loss (continued)
23. Investments (continued)
Annual Report 2019
3,413
IX Financial Statements
Bonds:
Classified by listing
- Listed in Mainland China
- Listed outside Mainland China
- Investments in funds
1,450
2,215
174,845
199,817
Non-standard assets – Bills
25,028
9,420
387
399
71
24,641
8,950
25,028
9,420
– Equity investments
Classified by underlying assets
Subtotal
- Unlisted
14,765
3,708
(b) Debt investments at amortised cost (continued)
13,404
- Listed in Mainland China
Classified by listing
657,926
778,170
Subtotal
8,942
7,354
29,602
772,837
33,026
219,275
239,480
- Bonds issued by policy banks
400,107
498,310
Government bonds
2018
2019
- Bonds issued by commercial banks and other financial institutions
Other debt securities
Classified by issuer
651,347
3,243
China Merchants Bank
138,749
- Non-standard assets – Loans and advances to customers
1,334
666,092
794,212
657,926
778,170
- Listed outside Mainland China
3,089
Non-standard assets – Bills
-
Classified by underlying assets
Other investments:
Fair value for the listed bonds
Subtotal
- Unlisted
3,490
2,090
5,122
Bonds:
(i)
Impairment losses of interest receivable
Impairment losses of principal (i)(ii)(iii)
Subtotal
Debt investments at amortised cost (i)(ii)
Interest receivable
(b) Debt investments at amortised cost
The amounts of changes in the fair value of these investments that are attributable to changes in credit risk are
considered not significant during the years ended 31 December 2019 and 2018 and as at 31 December 2019 and
2018.
13,404
7,834
Subtotal
5,410
5,122
292
4,830
Total
- Listed outside Mainland China
Unlisted
- Listed in Mainland China
Classified by listing
Total
160
Debt investments at amortised cost:
Total
2018
23. Investments (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
214
213
916,012
921,228
2019
(8,126)
(46)
(65)
(8,080)
(13,995)
924,138
12,790
911,348
921,467
13,821
935,288
(14,060)
212
916,012
99,747
134,663
(22,456)
157,119
28,450
(6,603)
35,053
72,389
(11,777)
(2,411)
84,166
(4,076)
37,900
receivable
Present value of
minimum leases
Unearned
finance income
Total minimum
leases receivable
2018
Net carrying amount of in finance leases receivable
33,824
- Stage 3 (Lifetime ECL- credit impaired)
(492)
130,913
921,228
23(b)
Debt investments at amortised cost
34,220
24,219
60(f)
Derivative financial assets
330,302
(847)
398,276
Financial assets at fair value through profit or loss
2018
2019
Notes
23. Investments
Annual Report 2019
IX Financial Statements
China Merchants Bank
23(a)
43,655
206,229
- Stage 2 (Lifetime ECL- not credit-impaired)
Less: Impairment allowances
Less: Impairment allowances
Present value of minimum leases receivable
Unearned finance income
Subtotal
Over 4 years but within 5 years (inclusive)
Over 5 years
Over 3 years but within 4 years (inclusive)
Over 1 year but within 2 years (inclusive)
Over 2 years but within 3 years (inclusive)
Within 1 year (inclusive)
Stage 1 (12-month ECL)
Total minimum leases receivable
The table below provides an analysis of finance leases receivable for leases of equipments in which the Group is the
lessor:
Finance leases receivable
(d)
22. Loans and advances to customers (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
210
2019
Stage 1 (12-month ECL)
- Stage 2 (Lifetime ECL- not credit-impaired)
Net carrying amount of finance leases receivable
Subtotal
Over 5 years
Over 1 year but within 5 years (inclusive)
Within 1 year (inclusive)
Note: As stated in note 3(1), the finance leases receivable at 31 December 2019 does not include the receivable of which the group acts as a
buyer-lessor during sale and leaseback transactions and the transfer of asset that does not satisfy the requirements of IFRS 15 to be accounted for
as a sale of asset. Meanwhile, in accordance with the requirements of IFRS 16, a maturity analysis showing the total minimum leases receivable
on an annual basis for each of the first five years and a total of the amounts for the remaining years is disclosed.
99,617
(743)
(1,608)
- Stage 3 (Lifetime ECL- credit impaired)
(1,965)
(17,822)
121,755
30,775
8,880
12,446
17,072
22,547
30,035
103,933
211
Debt investments at FVTOCI
478,856
3,306
4,084
- Investments in funds
111
242
- Equity investments
Classified by underlying assets
Other investments:
-
Subtotal
108,714
1,083
1,162
- Unlisted
8,571
15,178
- Listed outside Mainland China
86,565
96,219
92,374
- Long position in precious metal contracts
111
113,223
Total financial assets held for trading
3,528
4,509
Subtotal
3,323
4,088
- Unlisted
183
121
- Listed outside Mainland China
84
231
Listed in Mainland China
Classified by listing
3,528
4,509
Subtotal
190
23(c)
- Listed in Mainland China
96,219
13,404
316,898
393,154
5,122
(ii)
Financial assets designated at fair value through profit or loss
Total
(i)
Investments measured at FVTPL
2018
398,276
2019
(a) Financial assets at fair value through profit or loss
4,015
1,705,619
1,828,656
Total
6,077
23(d)
Equity investments designated at FVTOCI
421,070
Notes
Classified by listing
330,302
Investments measured at FVTPL
108,714
Subtotal
48,147
52,922
17,460
20,641
- Bonds issued by commercial banks and other financial institutions
Other debt securities
9,317
(i)
10,364
21,295
24,787
Government bonds
2018
2019
Classified by issuer
Bonds:
Financial assets held for trading
- Bonds issued by policy banks
- Non-standard assets - Creditor's beneficiary rights to other
216
2,650
2019
Movements of allowances for expected credit loss
(ii)
414,691
472,586
71,858
94,501
50,486
2018
54,995
323,090
Total
- Listed outside Mainland China
Unlisted
- Listed in Mainland China
414,691
472,586
Classified by listing
Total
292,347
35,820
Balance as at the beginning of the year
1,445
(d) Equity investments designated at FVTOCI
23. Investments (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
218
217
1,897
1,897
2,600
28
Balance as at the end of the year
Exchange difference
(3)
Write-offs
389
678
Charge for the year (note 14)
63
Repossessed equity instruments
43,426
102,750
472,586
6,270
2018
2019
Total
Impairment losses of interest receivable
Impairment losses of debt investments at FVTOCI (ii)
Total
Interest receivable
414,691
Debt investments at FVTOCI (i)
23. Investments (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
8,080
3,981
517
3,582
(c) Debt investments at FVTOCI
98,428
478,856
(2,600)
(1)
- Bonds issued by commercial banks and other financial institutions
Other debt securities
-
60,365
66,318
- Bonds issued by policy banks
220,078
260,092
Government bonds
6,379
421,070
2018
Classified by issuer
Bonds:
Debt investments at FVTOCI :
(i)
No impairment allowances are recognised in the consolidated statement of financial position for debt investments at
FVTOCI as the carrying amount is at fair value.
(1,912)
(2,601)
(1,897)
(15)
2019
Balance as at the end of the year
Others
2018
Luxembourg
China Merchants Europe S.A.
(note (vi))
Liu Hui
Limited company
100% Asset management
RMB5,000
Shenzhen
CMB Wealth Management Co., Ltd
(note (v))
EUR50
Liu Hui
55% Fund management
RMB1,310
Shenzhen
China Merchants Fund Management
Co., Ltd. (note (iv))
Zhu Qi
Limited company
100% Banking
HKD1,161
Limited company
Hong Kong
100% Banking
Li Biao
219
China Merchants Europe S.A. ("CMB Europe S.A.") is a wholly-owned subsidiary approved by the Bank of China Banking Regulatory
Commission Yin Jian Fu [2016] No. 460. It was formally established in November 2019 and is currently waiting for a commercial banking
license from the Luxembourg financial regulatory authority (CSSF).
CMB Wealth Management Co., Ltd. ("CMBWM") is a wholly-owned subsidiary approved by the Bank with the China Banking Regulatory
Commission, Yinbao Jianfu [2019] No. 981, and commenced its operation on November 1, 2019.
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 EUR63,567,567.57. Following the settlement of the above consideration in cash, the Bank's
shareholding 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. In December 2017, the Bank made an additional capital contribution of RMB605 million in CMFM,
and other shareholders of CMFM also make capital contribution of RMB495 million proportionally. The capital of CMFM increased to RMB1,310
million, and the Bank's shareholding percentage remains unchanged.
CMB Wing Lung Bank Limited ("CMB WLB"), formerly known as Wing Lung Bank Limited. On 30 September 2008, the Bank acquired
a 53.12% equity interests in CMB WLB. CMB WLB became a wholly owned subsidiary of the bank on 15 January 2009. CMB 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 CBIRC 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.
Limited company
(vi)
(iv)
(iii)
(ii)
(i)
Notes:
24. Particulars of principal subsidiaries of the bank (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
(v)
2019
CMB Wing Lung Bank Limited
(note (iii))
Limited company
2,539
3,749
1,410
2,131
66
197
Total
- Unlisted
6,077
- Listed outside Mainland China
Classified by listing
Total
4,015
6,077
3,795
5,452
220
625
- Listed in Mainland China
Shi Shunhua
4,015
24. Particulars of principal subsidiaries of the bank
100% Finance lease
RMB6,000
Shanghai
CMB Financial Leasing Company
Limited (note (ii))
Tian Huiyu
Limited company
100% Financial advisory
services
HKD4,129
During the year ended 31 December 2019, because the loss of equity instruments has reached the group's stop-loss
Limits and disposal of repossessed equity instruments, the fair value of the equity investment designated at FVOCI at
the date of derecognition was RMB112 million (2018: RMB17 million), the cumulative loss on disposal was RMB23
million (2018: RMB4 million) which was transferred from investment revaluation reserve to retained profits on
disposal.
Hong Kong
Legal
representative
Economic
nature
Bank Principal activities
% of
ownership
held by the
Particulars of
the issued and
paid up capital
(in millions)
Place of
incorporation
and operation
Name of company
The following list contains only particulars of subsidiaries which principally affected the financial 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 4(1) and have been included in the scope of the consolidated financial statements
of the Group.
CMB International Capital Holdings
Corporation Limited (note (i))
commercial banks
36
32
-Stage 2
(Lifetime ECL
-Stage 1
2018
907,472
148
297
907,027
(13,995)
(12-month
(4,533)
(9,179)
921,467
4,681
580
916,206
Total
impaired)
impaired)
(283)
ECL)
- not credit-
ECL)
302
520
902,446
Net debt investments at amortised cost
(8,080)
(3,981)
(517)
(3,582)
-Stage 3
(Lifetime
ECL- credit
at amortised cost
911,348
4,283
1,037
906,028
Debt investments at amortised cost
Total
impaired)
impaired)
Less: Loss allowances of debt investments
903,268
ECL- credit
(12-month
(3,582)
(9,179)
Stage 1 (12-month ECL)
Less: loss allowances
911,348
921,467
Total
253,422
Stage 2 (Lifetime ECL - not credit-impaired)
143,297
Classified by listing
253,422
143,297
Subtotal
3,000
538
564
Others
-
Unlisted
- not credit-
(283)
Stage 3 (Lifetime ECL - credit impaired)
-Stage 3
(Lifetime
2019
-Stage 2
(Lifetime ECL
-Stage 1
Net debt investments at amortised cost
Less: Loss allowances of debt investments
at amortised cost
Debt investments at amortised cost
(ii) Analyzed by stage of ECL:
(517)
(b) Debt investments at amortised cost (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
903,268
907,472
(3,981)
(4,533)
Net debt investments at amortised cost
23. Investments (continued)
4
215
China Merchants Bank
Total
7,065
2,555
49
4,461
Balance as at the beginning of the year
impaired)
ECL-credit
credit-
impaired)
Transfer to:
ECL)
(Lifetime
-Stage 3
-Stage 2
(Lifetime
ECL - not
-Stage 1
2018
13,995
4,533
283
(12-month
9,179
Stage 1
- Stage 2
Exchange difference
192
192
Recoveries of debt previously written off
787
1,189
488
(890)
24
Charge (Release) for the year (note 14)
(9)
(42)
- Stage 3
(3)
(7)
(17)
॰
(3)
51
4
105
9
3,582
Balance as at the beginning of the year
Total
impaired)
ECL-credit
credit-
impaired)
ECL)
(12-month
(Lifetime
5
ECL - not
-Stage 3
-Stage 2
(Lifetime
2019
Movements of allowances for expected credit loss
(iii)
(b) Debt investments at amortised cost (continued)
23. Investments (continued)
Annual Report 2019
-Stage 1
IX Financial Statements
517
8,080
Balance as at the end of the year
Exchange difference
5,803
(2)
(2)
105
Recoveries of debt previously written off
442
(232)
5,593
3,981
Charge (Release) for the year (note 14)
Write-offs
(1)
(2)
Stage 3
- Stage 2
(1)
1
Stage 1
Transfer to:
3
Assets
Software and
others
and
use rights
Amortisation:
3,738
Net carrying amount:
1,427
45
1,633
17
At 31 December
Exchange difference
(12)
17
At 31 December
134
171
1,243
1,427
3,488
3,558
95
38
(12)
550
18
32
1,925
At 1 January
64
68
148
267
414
2019
Total
Over 5 years
4 year to 5 years (inclusive)
2,061
3 year to 4 years (inclusive)
1 year to 2 years (inclusive)
Within 1 year (inclusive)
Investment properties of the Group mainly represent the leased properties of CMB WLB and the Bank's properties in
Beijing, Shenzhen, Zhengzhou, Qingdao and Hefei, etc. that have been leased out under operating leases. The fair
value of the Group's investment properties is determined by the method of capitalization of net rental income. There
has been no change to the valuation methodology during the year. As at 31 December 2019, the fair value of these
properties was RMB4,665 million (2018: RMB4,645 million). The Group's total future minimum lease receivables
under non-cancellable operating leases are as follows:
27. Investment properties (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
As at 31 December 2019, no impairment allowance was considered necessary for investment properties by the
management of the Group (2018: Nil).
1,612
2,061
2 year to 3 years (inclusive)
424
2,855
-
comprehensive
income
Net profit
Total
Other
27. Investment properties
Group's effective interest
Others
2018
Group's effective interest
comprehensive
Others
The following list contains the information of associates, which are unlisted corporate entities and are not
individually material to the Group:
37
37
17
Share of other comprehensive income for the year
Share of profits for the year
2018
249
Equity
Revenue
Net profit
2019
3,488
income
93
Disposals
Transfers in/(out)
Depreciation
At 1 January
Accumulated depreciation:
At 31 December
Exchange difference
Liabilities
Disposals
3,764
Transfers in/(out)
Cost:
2018
2019
4,837
37
37
4,837
3,857
54
17
37
At 1 January
income
1,385
1 year to 5 years (inclusive)
87,787
6,369
33,904
7,669
12,276
1,646
25,923
At 1 January 2019
Cost:
Additions
Total
equipment
vehicles and
professional
Leasehold
equipment improvements
in progress
buildings
Computer
Construction
Land and
others
Motor
1,510
1,882
18
19
63
Exchange difference
(6,742)
(746)
(5,249)
(76)
(427)
1,506
(244)
(32)
52
(188)
104
Reclassification and transfers
20,639
726
14,168
847
Disposals
Within 1 year (inclusive)
vessels and
28. Property and equipment
2,837
1,828
1,828
2019
Level 3
Level 2
Level 1
as at 31
December
Fair Value
2,837
1,664
738
443
2018
Total
Held overseas
Held in Mainland China
The fair value hierarchy of Investment properties of the Group are listed as below:
Total
Over 5 years
483
Aircrafts,
4,665
Fair Value
Annual Report 2019
IX Financial Statements
China Merchants Bank
224
223
In estimating the fair value of the properties, the highest and best use of the properties is their current use.
4,645
4,645
Total
4,665
2,864
Held overseas
1,781
1,781
Held in Mainland China
2018
Level 3
Level 2
Level 1
as at 31
December
2,864
486
equivalents
Income tax
Group's
effective
interest
incorporation Particulars of issued
and operation and paid up capital
(in thousands)
RMB2,800,000
Shenzhen
CIGNA & CMB Life Insurance Company Limited company
Limited (note (i))
Form of business
structure
Name of joint ventures
Place of
of
Percentage
of
Percentage
351
1,272
1,686
8,622
10,324
2018
2019
Details of the Group's interest in major joint ventures are as follows:
Share of other comprehensive income (expense) for the year
(36)
Share of profits for the year
ownership
of the
(i)
Summarised financial information of the joint ventures which are individually material to the Group is as below:
25. Interest in joint ventures (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
The Bank's subsidiary, CMB 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"). CBIRC has approved the operation of MUCFC on 3
March 2015. CMB WLB and CUNC hold 50.00% equity interests in MUCFC respectively and share the risks, profits and losses based on the
above proportion of their shareholding. In December 2017, the Group made an additional capital contribution of RMB600 million to CUNC,
with the other shareholder of CUNC injected capital proportionally. The capital of CUNC increased to RMB2,859 million, and the Bank's
shareholding percentage reached 15%, CMB WLB's shareholding percentage decreased to 35%, resulting the Group's shareholding percentage
remained unchanged. In December 2018, the Group made an additional capital contribution of RMB1,000 million to CUNC, and the other
shareholder of CUNC injected capital proportionally. The Bank's shareholding percentage is 24.15%, CMB WLB's shareholding percentage is
25.85%, and the Group's shareholding percentage remains unchanged.
The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Company Limited ("CIGNA & CMB Life"), and Life Insurance
Company of North America ("INA") holds the other 50.00% equity interests in 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 by their proportion of shareholding. The Bank's
investment in CIGNA & CMB Life is accounted for as an investment in a joint venture.
(ii)
(i)
ownership
of the Bank
Notes:
24.15%
50.00%
RMB3,868,964
Shenzhen
Limited company
Merchants Union Consumer Finance
Company Limited (note (ii))
Life insurance business
50.00% 50.00%
subsidiaries Principal activity
25.85% Consumer finance
CIGNA & CMB Life
Share of net assets
Annual Report 2019
1,403
263
2018
Others
1,051
(111)
940
Group's effective interest
137
comprehensive
income
(23)
221
222
China Merchants Bank
IX Financial Statements
Annual Report 2019
26. Interest in associates
2019
Share of net assets
460
114
25. Interest in joint ventures
Total
1,403
IX Financial Statements
China Merchants Bank
220
33,428
3,946
3,478
626
626
1,137
263
15
196
Summarised financial information of the joint ventures that are not individually material to the Group:
2019
Others
Group's effective interest
Other
comprehensive
Net profit
income
391
amortisation
Assets Liabilities
Net profit
74,748
66,855
7,893
6,956
1,253
1,253
2,273
10
Group's effective interest
MUCFC
37,374
Total
MUCFC:
(ii)
123
14
152
245
28
303
Depreciation
552
2018
426
2019
MUCFC
92,697
83,337
9,360
10,740
1,466
1,466
1,015
213
44
46,349
41,669
4,680
5,370
734
734
508
22
45
Group's effective interest
Equity Revenue
496
1,020
29,376
Group's effective interest
221
47
522
2,102
724
1,378
20,164
25,545
7,663
58,752
CIGNA & CMB Life
2019
Income tax
equivalents amortisation
income
Cash Depreciation
and cash
and
Total
Other
comprehensive comprehensive
income
51,089
(13)
3,831
689
(25)
1353
509
8,325
2,891
19,775
22,666
Group's effective interest
1,045
10,082
16,649
39,549
45,332
CIGNA & CMB Life
2018
111
24
261
1,040
351
5,783
Land
2
At 31 December 2019
4,173
185
Depreciation (Note 10)
662
At 1 January 2019
662
Adjustments under IFRS 16
Accumulated depreciation:
24,591
1
(621)
5,438
19,774
19,774
55638
18
3
18,602
5,968
At 31 December 2019
(3)
(3)
16
Disposals
(418)
13
2
14,847
13,690
5,412
5,138
At 1 January 2019
At 31 December 2019
Net carrying amount:
4,591
(17)
5
3,755
830
At 31 December 2019
(435)
-
4,364
662
662
151
1
20,000
5513
(106)
3,472
2018
Total
Over 5 years
1 year to 5 years (inclusive)
Within 1 year (inclusive)
34,490
13,057
3,456
12,656
4,133
Total
Over 5 years
4 year to 5 years (inclusive)
3 year to 4 years (inclusive)
2 year to 3 years (inclusive)
4,677
4,740
1 year to 2 years (inclusive)
Within 1 year (inclusive)
4,427
(509)
10,606
225
Disposals
5,421
13,690
6,074
6,074
Additions
At 1 January 2019
Adjustments under IFRS 16
Total
26,734
and others
Land
use rights
At 31 December 2018
Cost:
Right-of-use assets
(a)
29. Lease contracts
IX Financial Statements
China Merchants Bank
Annual Report 2019
226
Computer Motor vehicles
Buildings equipment
2019
5
19,112
1,186
8,161
26
24
2
(3)
(3)
1,840
1,840
9,347
7,484
6,322
(6,074)
(6,074)
13,558
1,162
6,322
6,074
Total
Core deposits
1,162
and others
662
427
735
3,003
4,575
708
3,867
4,772
478
4,294
12
3,319
10
1,014
41
973
3,746
427
3,319
(662)
(662)
4,408
2
5
Software
At 1 January 2019
14,379
2,211
Total
After 5 years
After 1 year
but within
5 years
8,436
year
2,729
476
527
Lease liabilities
Interest expense on lease liabilities are set out in note 7.
but within 1
1 month
Within
After 1 month After 3 months
As at 31 December 2019, analysis of the Group's lease liabilities by residual maturity is as follows:
(d)
(c)
Lease liabilities
(b)
The Group mainly leases land use rights and buildings for its operations. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the
length of the non-cancellable period, the Group reassesses whether it is reasonably certain to exercise an extension
option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant
change in circumstances that is within the control of the lessee. During the year ended 31 December 2019, there is
no such triggering event.
but within
3 months
Land
use rights
Short-term leases and leases of low-value assets
During the year ended 31 December 2019, the total cash outflow of the Group's leases amount to RMB4,604
million.
At 31 December 2019
Net carrying amount:
At 31 December 2019
Exchange difference
Disposals
Additions (Note 10)
At 1 January 2019
Adjustments under IFRS 16
At 31 December 2018
Short-term leases expense and leases of low-value assets expense are disclosed in note 10. The Group entered into
short-term leases for buildings, computer equipment, motor vehicles and others. As at 31 December 2019, the
portfolio of short-term leases is similar to the portfolio of short-term leases to which the short-term lease expense
disclosed in note 10.
At 31 December 2019
Disposals
At 1 January 2019
Additions
At 31 December 2018
Adjustments under IFRS 16
Cost:
30. Intangible assets
IX Financial Statements
China Merchants Bank
Annual Report 2019
As at 31 December 2019, the leases committed but not yet commenced is not significant.
(e)
Exchange difference
588
The Group's total future minimum lease receivables under non-cancellable operating leases are receivables as follows:
As at 31 December 2019, the Group has no significant unused property and equipment (2018: nil).
1,027
30,735
2,800
3,487
1,646
16,511
At 1 January 2019
66,408
1,251
56,206
38,693
3,587
2,964
16,844
At 31 December 2019
Net carrying amount:
93
93
At 31 December 2019
9 9393
3,069
35,739
China Merchants Bank
Annual Report 2019
26,420
6,829
10,165
2,482
24,847
At 1 January 2018
Cost:
Total
and others
IX Financial Statements
equipment
Leasehold
Computer
equipment improvements
in progress
buildings
Construction
Land and
vessels and
Aircrafts,
28. Property and equipment (continued)
professional Motor vehicles
6,416
At 1 January 2019
Additions
5,100
2,165
587
1,765
1,233
Depreciation
31,581
5,342
3,169
4,869
458
8,789
At 1 January 2019
Accumulated depreciation:
102,240
6,351
43,309
8,510
13,750
2,964
27,356
9,412
Impairment loss:
6,208
(18)
4,523
5,441
10,163
10,512
At 31 December 2019
124
1
67
9
Reclassification and transfers
10
Exchange difference
(2,156)
(701)
(878)
(24)
(401)
(152)
Disposals
(18)
37
(c)
77,159
65
8,789
9,412
At 31 December 2018
147
4
19
6
24
94
4,869
Exchange difference
(487)
(256)
(18)
(252)
(19)
Disposals
(17)
(17)
Reclassification and transfers
(1,032)
5,136
3,169
31,581
(b)
As at 31 December 2019, the process of obtaining the registration license for the Group's properties with an aggregate net carrying value of
RMB2,516 million (2018: RMB2,066 million) was still in progress.
(a)
49,812
1,128
24,473
2,524
2,492
2,482
5,342
16,713
56,206
1,027
30,735
2,800
3,487
1,646
16,511
At 31 December 2018
Net carrying amount:
At 1 January 2018
Additions
537
576
180
Exchange difference
(3,006)
(490)
(2,094)
(19)
(252)
(151)
Disposals
54
(550)
(1,641)
982
Reclassification and transfers
12,783
431
8,437
736
2,309
805
109
1,459
14
12
1,344
1,220
Depreciation
27,347
5,288
1,947
4,305
7,673
8,134
1,141
At 1 January 2018
87,787
6,369
33,904
7,669
12,276
1,646
25,923
At 31 December 2018
1,401
Accumulated depreciation:
13,690
comprehensive
10,177
Transfers
(1,785)
(1,785)
Disposals
(4)
(4)
Exchange difference
5
5
67
At 31 December 2018
6,074
6,322
1,162
77
13,558
Amortisation:
At 1 January 2018
426
358
3,397
Additions (Note 10)
Transfers/disposals
4,622
237
1,398
Additions
9,598
(579)
10,177
2019
2019
2019
December
December
December
Release in
the year
Addition in
the year
1 January
2019 and 31
Core deposits
Cash and cash
Total
Cost:
At 1 January 2018
4,634
4,923
1,095
10,652
3,224
706
40
983
China Merchants Bank
IX Financial Statements
Annual Report 2019
31. Goodwill
CMB WLB (note (i))
CMFM (note (ii))
Zhaoyin Internet
(note (iii))
Total
Notes:
(i)
(!!)
(iii)
As at 1
January 2019
355
1
10,533
As at 31
Impairment
loss at 1
January
2019 and 31
Net value at
228
227
7,255
737
(2)
(3)
(5)
Exchange difference
1
3
29
33
At 31 December 2018
662
355
3,319
4,408
Net carrying amount:
At 31 December 2018
5,412
3,003
735
9,150
At 1 January 2018
4,208
2,310
427
355
2,613
1
advances to customers and other assets at
Impairment allowances on loans and
Deferred tax liabilities
58,374
234,353
65,151
260,990
Total
1,579
6,980
1,899
7,580
Others
4,646
18,582
6,621
26,482
Salary and welfare payable
1,940
7,758
(316)
amortised cost
Financial assets at FVTOCI
Financial instruments at FVTPL
Others
229
(1,211)
(8,189)
(956)
1
(1,254)
(8,524)
(1,000)
(6,376)
(29)
(1,263)
(116)
11
38
244
(6)
(29)
34
207
47
291
Total
3
Financial instruments at FVTPL
(6,103)
(5,899)
65,151
2018
2019
Deferred tax assets
(a) Analysed by nature of deferred tax assets and liabilities
The components of deferred tax assets/liabilities are as follows:
Net amount
Deferred tax liabilities
Deferred tax assets
32. Deferred tax assets, deferred tax liabilities
Annual Report 2019
IX Financial Statements
China Merchants Bank
In assessing impairment of goodwill, the Group assumed that the terminal growth rate is comparable to the forecast
long-term economic growth rate issued by authoritative institutions. A pre-tax discount rate of 9% and 12% (2018:
12% and 14%) 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, CMB 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.
Impairment test for CGU containing goodwill
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. The details about CMFM are set out in Note 24.
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 RMB3 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 30 September 2008, the Bank acquired a 53.12% equity interests in CMB WLB. On the acquisition date, the fair value of CMB 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. The details about CMB WLB are set out
in Note 24.
(579)
10,533
(1,475)
58,374
(956)
9,954
64,195
(1,211)
(8,952)
Financial assets at FVTOCI
51,684
206,932
59,185
237,143
amortised cost
advances to customers and other assets at
Impairment allowances on loans and
(2,238)
difference
Deferred tax
difference
temporary
(taxable)
Deductible/
Deductible/
(taxable)
temporary
57,163
2018
2019
Deferred tax
Precious metal relevant financial liabilities
Short selling securities
Total
13,701
2018
17,906
1,187
2019
Financial liabilities held for trading
28,546
44,144
43,434
25,148
Financial liabilities designated at fair value through profit or loss (b)
Total
18,996
14,888
1,090
2018
2019
(a)
Financial liabilities held for trading (a)
9,673
18,996
- Certificates of deposit issued
- Debt securities issued
36. Financial liabilities at fair value through profit or loss
Outside Mainland China
25,148
233
9,977
9,237
2,619
14,888
767
9,092
9,217
2018
2019
Financial liabilities designated at fair value through profit or loss
(b)
- Others
- Precious metal contracts with other banks
In Mainland China
2,879
Annual Report 2019
In Mainland China
China Merchants Bank
203,950
165,921
976
518
2018
202,974
Total
Interest payable
Principal (a)
2019
165,403
35. Placements from banks and other financial institutions
469,008
553,684
9,929
14,679
9,897
32
41
14,638
459,079
- Others
(a) Analysed by nature of counterparties
2019
2018
- Banks
202,974
165,403
72,787
78,739
18
72,769
78,739
130,187
86,664
IX Financial Statements
48,311
81,876
77,526
Total
Subtotal
- Other financial institutions
- Banks
Outside Mainland China
Subtotal
- Other financial institutions
9,138
Total
478,894
As at 31 December 2019 and 2018, the difference between the fair values of the Group's financial liabilities
designated at fair value through profit or loss and the contractual payable at maturity is not significant. The amounts
of changes in the fair value that are attributable to changes in credit risk of these liabilities are not significant during
the years ended 31 December 2019 and 2018 and as at 31 December 2019 and 2018.
Principal (a)
38. Deposits from customers
IX Financial Statements
China Merchants Bank
Annual Report 2019
78,029
63,107
7,853
6,374
Total
Discounted bills
70,176
56,733
Subtotal
1,917
3,337
- Other debt securities
5,469
493
- Bonds issued by commercial banks and other financial institutions
Interest payable
Total
(a) Analysed by nature of counterparties
Corporate customers
539,005
1,346,033
1,645,684
1,692,068
2018
2019
26,892
4,427,566
4,874,981
4,400,674
21,399
4,844,422
30,559
2019
Total
Subtotal
- Time deposits
Demand deposits
Retail customers
Subtotal
- Time deposits
Demand deposits
2018
28,546
21,941
41,391
- Banks
In Mainland China
2018
2019
(a) Analysed by nature of counterparties
78,141
63,233
2018
78,029
112
63,107
126
2019
Total
Interest payable
Principal (a)(b)
37. Amounts sold under repurchase agreements
Annual Report 2019
IX Financial Statements
China Merchants Bank
234
233
- Other financial institutions
Subtotal
Outside Mainland China
- Banks
30,962
PRC government bonds
Debt securities
2018
2019
(b) Analysed by the type of underlying assets
78,029
63,107
7,769
- Bonds issued by policy banks
3,244
7,769
1,845
70,260
59,863
1,171
69,089
Total
Subtotal
- Other financial institutions
1,399
350,347
(31)
60,111
assets at
FVTOCI
cost
amortised
Financial
assets at
and other
customers
on loans and
advances to
allowances
Impairment
64,195
899
6,621
(313)
(2,244)
59,232
43
20
23
Financial
instruments
(971)
at FVTPL
Others
(1,437)
51,718
(26)
1,192,037
5
(2,371)
(19)
(2,352)
8,299
21
762
Total
51,261
354
3,884
2,208
(297)
(6)
7,819
921
43,894
Salary and
welfare
payable
13
(984)
7,960
comprehensive Income
Recognised in other
Recognised in profit or loss.
At 1 January 2018
At 31 December 2019
Exchange difference
Income
Recognised in other comprehensive
Recognised in profit or loss
At 1 January 2019
advances to
customers and
other assets at
allowances
on loans and
Impairment
(b) Movements of deferred tax
32. Deferred tax assets, deferred tax liabilities (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
230
Exchange difference
At 31 December 2018
Financial
Financial
541
1,975
(2,224)
177
7,491
57,163
325
4,646
1,911
1,911
(1,437)
Total
Others
payable
FVTPL
FVTOCI
amortised cost
welfare
assets at instruments at
Salary and
51,718
4,646
325
57,163
232
231
(ii) The Group plans to dispose of the repossessed assets by auction, bid or agreement transfer.
In 2019, the Group has disposed of repossessed assets with a total cost of RMB15 million (2018: RMB143 million).
(i)
597
768
(188)
(174)
785
942
18
19
767
923
2018
2019
Notes:
Net repossessed assets
China Merchants Bank
Annual Report 2019
IX Financial Statements
34. Deposits from banks and other financial institutions
Principal (a)
2018
2019
470,826
555,581
469,008
1,818
1,897
2018
2019
553,684
Total
Less: impairment allowances
Subtotal
- Banks
Outside Mainland China
Subtotal
- Other financial institutions
- Banks
In Mainland China
(a) Analysed by nature of counterparties
Total
Interest payable
Other financial institutions
108,732
Total
Residential properties
768
Repossessed assets (note (a))
1,117
345
Prepaid lease payments
2,888
3,148
Interest receivable
987
Continuing involvement assets
9,344
2018
2019
11,219
Amounts pending for settlement
33. Other assets
Annual Report 2019
IX Financial Statements
China Merchants Bank
Note: No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group
is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the
foreseeable future.
597
Guarantee deposits
619
794
(a) Repossessed assets
15,060
32,568
37,990
Total
17,132
Others
31
22
- Defined benefit plan (Note 39(b))
Others
-
112
122
Premium receivables
2,416
3,436
Prepayment for lease hold improvement and other miscellaneous items
209
192
Recoverable from reinsurers
Post-employment benefits
3,038,101
59,383
480
1,171,221
2018
2019
Share appreciation rights granted on 4 May 2012 (Phase V)
Share appreciation rights granted on 22 May 2013 (Phase VI)
Share appreciation rights granted on 7 Jul 2014 (Phase VII)
Share appreciation rights granted on 22 Jul 2015 (Phase VIII)
Share appreciation rights granted on 24 Aug 2016 (Phase IX)
Share appreciation rights granted on 25 Aug 2017 (Phase X)
The number and weighted average exercise prices of share appreciation rights are as follows:
10 years
3 years after the grant date
1.290
10 years
3 years after the grant date
1.035
10 years
3 years after the grant date
1.058
10 years
3 years after the grant date
0.623
10 years
3 years after the grant date
0.092
10 years
3 years after the grant date
0.046
rights
Exercise conditions
at the end of 2019
(in millions)
Contract period of
share appreciation
Weighted
average
exercise price
Number of
unexercised share
appreciation rights
Number
of share
(HKD)
1.08
5.86
19.00
4.14
13.80
18.57
(1.30)
16.06
Exercisable at the end of the year
Outstanding at the end of the year
Forfeited during the year
(0.08)
12.34
(1.72)
15.02
Exercised during the year
7.24
19.32
5.86
19.00
Outstanding as at the beginning of the year
Weighted Number of share
appreciation
rights
(in million)
(HKD)
price
rights
(in million)
appreciation average exercise
14.13
(2)
As at 31 December 2019, the Group has offered 10 phases of H share Appreciation Rights Scheme to its senior
management ("the Scheme"). The share appreciation rights of the Scheme vest after 2 years or 3 years from the
grant date and are then exercisable within a period of 7 years or 8 years. Each of the share appreciation right is
linked to one H-share.
Annual Report 2019
IX Financial Statements
China Merchants Bank
238
237
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 2019, the Group's annual contributions to this plan are determined based
on 0% to 8.33% of the staff salaries and bonuses (2018: 0% to 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 2019, the Group's contributions to the schemes are determined by local governments and vary at a range
of 12% to 16% (2018: 12% to 20%) of the staff salaries.
129
(3,642)
3,543
228
21
(50)
43
(1,462)
65
(2,130)
2,134
1,356
53
18
61
149
Ending
balance
in the year
Beginning
balance
699
39. Staff welfare scheme (continued)
All share appreciation rights shall be settled in cash. The terms and conditions of the scheme are listed below:
(a) Salaries and welfare payable (continued)
Other long-term employee benefits
(1)
49
(17)
30
36
Cash settled share-based transactions
balance
in the year
for the year
Ending
Payment
Charge
Beginning
balance
2018
67
(36)
54
49
Cash settled share-based transactions
Ending
balance
in the year
Payment
Charge
for the year
Beginning
balance
2019
(iii)
20
0.96
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.
Expected volatility
27.59
17.05
18.48
11.33
11.26
10.70
Exercise price (in HKD)
29.15
29.15
29.15
29.15
29.15
29.15
Share price (in HKD)
7.20
10.70
10.19
14.51
15.04
16.06
Fair value at measurement date (in RMB)
Phase X
Phase IX
Phase VIII
32.46%
Phase VII
32.46%
32.46%
239
Share appreciation rights 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 appreciation rights granted.
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining
life of the share appreciation rights) and adjusted for any expected changes to future volatility based on publicly
available information. Expected dividend rate is based on historical dividend rates. Changes in the subjective input
assumptions could materially affect the fair value estimate.
1.43%
1.43%
1.43%
1.43%
1.43%
1.43%
Risk-free interest rate
3.39%
3.39%
8.67
7.67
6.58
3.39%
3.39%
3.39%
3.39%
Expected dividends rate
5.50
4.42
3.33
Share appreciation rights life (year)
32.46%
32.46%
32.46%
The share appreciation rights outstanding at 31 December 2019 had a weighted average exercise price of HKD18.57
(2018: HKD19.00) and a weighted average remaining contractual life of 6.26 years (2018: 7.10 years).
Phase VI
2018
22.91
40.6
Phase VII
10.19
Expected volatility
Exercise price (in HKD)
Share price (in HKD)
Fair value at measurement date (in RMB)
The fair value of services received in return for share appreciation rights granted are measured by reference to the
fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted
is measured based on the Black-Scholes model. The contractual lives of the rights are used as an input of the model.
1.43%
Risk-free interest rate
3.24%
Expected dividends rate
2.33
Share appreciation rights life (year)
26.68%
9.63
40.6
Phase V
25.44
Fair value of share appreciation rights and assumptions
(3)
(iii) Other long-term employee benefits (continued)
2,837,721
39. Staff welfare scheme (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
10.26
Phase V
2019
40.6
17.41
1.43%
1.43%
7.67
3.24%
3.24%
3.24%
1.43%
1.43%
1.43%
3.24%
3.24%
26.52
26.68%
26.68%
6.67
4.50
3.42
26.68%
26.68%
40.6
40.6
15.98
40.6
Phase X
11.23
23.93
Phase VI
5.58
26.68%
TEEEE
Phase IX
17.09
Phase VIII
16.74
Payment/
Transfers
(a) Salaries and welfare payable (continued)
(1,094)
(3,642)
3,543
228
contribution plans (ii)
Post-employment benefits - defined
8,297
(38,932)
39,473
7,756
Short-term employee benefits (i)
Ending
balance
129
in the year
Charge
for the year
Beginning
balance
Payment/
2018
11,638
(42,286)
45,449
8,475
Total
67
(36)
Transfers
Other long-term employee benefits (iii)
Total
36
30
69
(4,271)
4,267
73
8,451
(28,893)
31,232
Ending
balance
in the year
transfers
Charge
for the year
Beginning
balance
6,112
Social insurance
Welfare expense
Salary and bonus
Payment/
2019
Short-term employee benefits
(i)
8,475
(42,591)
43,046
8,020
49
(17)
54
49
Other long-term employee benefits (iii)
(3,396)
24,734
46,107
26,878
12,974
19,086
20,908
29,620
64,919
62,809
2018
2019
Total
Others
Guarantee for issuing letters of credit
Deposit for letters of guarantee
Guarantee for loans
Guarantee for acceptance bills
(b) The deposits taken from customers as collateral or for the purpose of
guarantees are as follows:
4,400,674
4,844,422
1,562,953
1,806,321
503,030
(60)
(3,396)
1,059,923
635,100
19,054
- Medical insurance
163,127
235
3,966
129
contribution plans (ii)
defined
Post-employment benefits
10,872
(38,854)
41,429
8,297
Short-term employee benefits (i)
balance
in the year
Ending
Transfers
Charge
for the year
balance
Beginning
Payment/
2019
(a) Salaries and welfare payable
39. Staff welfare scheme
Annual Report 2019
IX Financial Statements
China Merchants Bank
236
163,962
38
699
(2,289)
8,297
39,473
7,756
1,867
(1,035)
1,286
1,616
198
(2,282)
2,309
171
5
(80)
81
4
4
(28)
29
3
38
(2,112)
2,108
42
73
(3,523)
(ii) Post-employment benefits-defined contribution plans
3,534
Basic retirement security
Unemployment insurance
Charge
for the year
(2,242)
2018
2,358
1,661
3,966
129
59
21
43
65
Beginning
balance
2,246
7111
Charge
for the year
69
610
Ending
balance
Payment/
Transfers
in the year
2019
Defined contribution pension schemes
Total
Unemployment insurance
Supplementary pension
Basic retirement security
Total
Supplementary pension
62
(38,932)
(29,872)
(38,854)
41,429
8,297
Total
1,986
(1,317)
1,436
1,867
Labour union and employee education
246
(1,967)
2,015
10,872
198
7
(93)
95
5
- Maternity insurance
6
(24)
6,112
26
4
- Injury insurance
107
Housing reserve
China Merchants Bank
expenses
Annual Report 2019
5,858
30,126
Ending
balance
in the year
IX Financial Statements
transfers
Charge
for the year
balance
Beginning
2018
Total
education expenses
Labour union and employee
Payment/
- Maternity insurance
39. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(i) Short-term employee benefits (continued)
Welfare expense
- Medical insurance
Salary and bonus
- Injury insurance
Housing reserve
Social insurance
Annual Report 2019
IX Financial Statements
43. Debt securities issued (continued)
(10,061)
RMB3,000
(b) Long-term debt securities issued (continued)
China Merchants Bank
246
245
As at the end of the reporting period, long-term debt securities issued by CMBFLC were as follows: (continued)
43,501
231
22 Nov 2019
15,244
38,097
Total
349
349
USD50
2.72
12 months
2,991
2,992
Notes:
Fixed rate bond
(10)
(i)
during
(iii)
balance
the year
Annual interest rate Nominal value
3.60
Ending
Exchange
premium
Issue during
Beginning
Date of
issuance
Term to
maturity
Debt type
Repayment
Discount or
As at the end of the reporting period, long-term debt securities issued by CMBI were as follows:
The Bank holds financial bonds issued by CMBIL amounted to USD43 million as of 31 December 2019, equivalent to RMB300 million (31
December 2018: Nil).
The Bank holds financial bonds issued by CMBIL amounted to USD50 million as of 31 December 2019, equivalent to RMB348 million (31
December 2018: Nil).
(viii)
(vii)
The Bank holds financial bonds issued by CMBIL amounted to RMB100 million as of 31 December 2019 (31 December 2018: Nil).
(vi)
The Bank holds financial bonds issued by CMBIL amounted to RMB260 million as of 31 December 2019 (31 December 2018: RMB260 million).
The Bank holds financial bonds issued by CMBIL amounted to RMB140 million as of 31 December 2019 (31 December 2018: RMB140 million).
The Bank holds financial bonds issued by CMBIL amounted to RMB300 million as of 31 December 2019 (31 December 2018: Nil).
The Bank holds financial bonds issued by CMBFLC amounted to RMB200 million as of 31 December 2019 (31 December 2018: RMB200
million).
The Bank holds financial bonds issued by CMBFLC amounted to RMB300 million as of 31 December 2019 (31 December 2018: RMB300
million).
(v)
(iv)
33
(ii)
17 Jul 2019
4.80
Fixed rate bond
1,497
2
1,495
RMB1,500
3.50
14 Mar 2019
36 months
Fixed rate bond (note (v))
3,994
5
3,989
RMB4,000
4.50
16 Jul 2018
36 months
Fixed rate bond
3,995
6
3,989
RMB4,000
9 May 2018
36 months
Fixed rate bond (note (iv))
3,995
3,989
amortisation
6
Fixed rate bond (note (vi))
60 months
14 Mar 2019
4.00
692
(6)
692
USD100
3.69
25 Jun 2019
120 months
Fixed rate bond (note (vii))
6,231
54
(50)
6,227
USD900
36 months
3.12
60 months
Fixed rate bond (note (vii))
2,993
2
2,991
RMB3,000
3.68
28 May 2019
36 months
Fixed rate bond
499
499
RMB500
25 Jun 2019
the year
At 31 December
2018
balance
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Domestic Preference
Shares in the aggregate par value of RMB27,500 million on 22 December 2017. Each Domestic Preference Share has a par value of RMB100
and 275 million Domestic Preference Shares were issued in total. The initial dividend rate is 4.81% and is subsequently subject to reset per
agreement, but shall not exceed 16.68%. Dividends on the Domestic Preference Shares shall be paid out by cash. Save for such dividend at
the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution of the remaining
profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative. The Bank shall
be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event that the Bank
cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders of Ordinary
Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of full dividend
payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will not distribute
the dividends that be cancelled in prior years to preference shares holders.
The Offshore Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBIRC, all or part of the Offshore Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
Pursuant to the approvals by the relevant authorities in China, the Bank issued the US Dollar settled non-cumulative Offshore Preference Shares
in the aggregate par value of USD1,000 million on 25 October 2017. Each Offshore Preference Share has a par value of USD20 and 50 million
Offshore Preference Shares were issued in total. The initial dividend rate is 4.40% and is subsequently subject to reset per agreement, but not
exceed 16.68%. Dividends on the Offshore Preference Shares shall be paid out by cash, which shall be priced and announced in RMB. Save for
such dividend at the agreed dividend pay-out ratio, the holders of the above Preference Shares shall not be entitled to share in the distribution
of the remaining profits of the Bank together with the holders of the ordinary shares. The dividends on preference shares are non-cumulative.
The Bank shall be entitled to cancel any dividend on the Preference Shares, and such cancellation shall not be deemed a default. In the event
that the Bank cancels the distribution of part or all of the dividends on the Preference Shares, the Bank will not distribute any profit to holders
of Ordinary Shares during the period from the date when the shareholders' general meeting adopts relevant resolution to the restoration of
full dividend payment to the holders of Preference Shares. The dividends on the preference shares are non-cumulative, that is, the Bank will
not distribute the dividends that be cancelled in prior years to preference shares holders.
34,065
325
34,065
325
27,468
275
6,597
50
Amount
31 December 2018
No.
(millions
of shares)
Amount
6,597
27,468
275
50
31 December 2019
No.
(millions
of shares)
(ii)
(i)
Issuance of Offshore Preference Shares in 2017 (note (i))
Issuance of Domestic Preference Shares in 2017 (note (ii))
Total
25,220
(in million)
25,220
Amount
No. of shares
Capital
(a) Preference Shares
46. Preference shares
247
At 1 January 2019 and at 31 December 2019
248
IX Financial Statements
Equity attributed to non-controlling interests
RMB4,000
34,065
34,065
- Equity attributed to other equity holders of the Bank
506,053
577,236
540,118
611,301
Date of issuance
Equity attributed to shareholders of the Bank
2019
At 31 December
(b) Equity Attributed to Different Types of Shareholders
Upon the occurrence of the above mandatory conversion events, the Bank shall report to the CBIRC for review and determination and shall
fulfill the relevant information disclosure obligations of the Securities Law, the CSRC and Hong Kong's laws and regulations such as making
provisional reports or announcements in accordance with relevant regulatory requirements.
Upon the occurrence of a Tier-2 Capital Trigger Event, the Bank shall have the right to convert, without the approval of the holders
of Preference Shares, all of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value of
the Preference Shares. A Tier-2 Capital Trigger Event means the earlier of the following events: 1) the China Banking and Insurance
Regulatory Commission (the "CBIRC") having concluded that without a conversion or write-off, the Bank would become non-viable,
and 2) the relevant authorities having concluded that without a public sector injection of capital or equivalent support, the Bank
would become non-viable.
Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event, that is, the Core Tier-1 Capital Adequacy Ratio drops
to 5.125% or below, the Bank shall have the right to convert, without the approval of the holders of Preference Shares, part or all
of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total par value of the Preference Shares in
order to restore the Core Tier- 1 Capital Adequacy Ratio of the Bank to above 5.125%. In case of partial conversion, the Preference
Shares shall be converted on a pro rata basis and on identical conditions.
(2)
(1)
The domestic and offshore preference shares have conditions of events triggering mandatory conversion as follows:
The Domestic Preference Shares have no maturity date. However, until five years or longer since the issuance ending date, subject to the
satisfaction of the redemption conditions and having obtained the prior approval of the CBIRC, all or part of the Domestic Preference Shares
may be redeemed at the discretion of the Bank, but the Bank does not have the obligation to redeem Preference Shares. The holders of
Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that the Preference Shares
will be redeemed.
(continued)
(ii)
Preference Shares (continued)
(a)
46. Preference shares (continued)
Annual Report 2019
China Merchants Bank
difference
25,220
Total
Salary risk allowances (note)
Clearing and settlement accounts
44. Other liabilities
2,090
30
2,060
2,090
30
2,060
USD300
3.72
36 months 9 Jul 2018
Fixed rate bond
Total
million)
million)
million)
million)
million)
million)
(in million)
(%)
(RMB in
(RMB in
(RMB in
(RMB in
(RMB in
(RMB in
Insurance liabilities
All H-Shares are ordinary shares and rank pari passu with the A-Shares. There is no restriction on these shares.
Collecting on behalf of customers
Cheques and remittances returned
Others
- H-Shares
20,629
4,591
2019 and 2018
No. of shares
(in million)
- A-Shares
Listed shares
By type of shares:
45. Share capital
IX Financial Statements
China Merchants Bank
Annual Report 2019
Note: 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.
69,318
70
41,223
77,178
40,194
49
987
2,532
2,046
1,832
1,931
16,000
22,000
7,661
9,971
2018
2019
Total
Continuing involvement liability
5.24
- Equity attributed to ordinary shareholders of the Bank
36 months
Beginning
Issue during
premium
Exchange
Ending
Date of issuance
Annual interest rate
Nominal value
balance
the year
amortisation
difference
Term to
maturity
balance
(RMB in
(RMB in
(RMB in
(RMB in
(%)
(in million)
million)
million)
million)
million)
million)
Fixed rate bond
(RMB in
Debt type
Discount or
As at the end of reporting period, long-term debt securities issued by the Bank were as follows:
(RMB in
(%)
(in million)
million)
million)
million)
million)
million)
Fixed to floating rate notes 120 months
22 Nov 2017
3.75 (for the first 5 years);
USD400
2,743
40
2,783
T*+1.75% (from 6
year onwards, if the
notes are not called by
the Bank)
Total
2,743
40
2,783
T represents the 5 years US Treasury rate.
China Merchants Bank
Annual Report 2019
IX Financial Statements
43. Debt securities issued (continued)
(b) Long-term debt securities issued
36 months
22 May 2017
4.20
RMB18,000
0.25
EUR300
2,337
(6)
10
2,341
Medium term note
36 months
19 Jun 2019
3M Libor+0.74
USD600
4,170
(10)
13
4,173
Fixed rate bond
36 months
5 Jul 2019
3.45
RMB30,000
29,987
3
29,990
Fixed rate bond
36 months
4 Sep 2019
6,406
12 Jun 2019
(RMB in
36 months
29,973
17,984
7
17,991
Medium term note
36 months
12 Jun 2017
3M Libor+0.825
USD800
5,496
5
78
5,579
Fixed rate bond
36 months
14 Sep 2017
4.30
RMB12,000
11,990
4
11,994
Fixed rate bond
36 months
17 Aug 2018
3.95
RMB30,000
29,964
9
Medium term note
(RMB in
(RMB in
(RMB in
36 months
Fixed rate bond
(703)
(3)
706
RMB4,930
4.3/4.5/4.73
21 Feb 2017
31 months
Leased asset backed securities
6,268
104
7
6,157
USD900
3.25
29 Nov 2016
60 months
Fixed rate bond
(2,075)
16
3
2,056
USD300
2.63
29 Nov 2016
36 months
15 Mar 2017
Fixed rate bond
4.5
3,992
Fixed rate bond (note (ii))
1,999
2
1,997
RMB2,000
4.6
3 Aug 2017
36 months
Fixed rate bond
2,499
3
2,496
RMB2,500
4.89
20 Jul 2017
36 months
Fixed rate bond (note (ii))
1,499
2
1,497
RMB1,500
4.80
5 Jul 2017
36 months
Fixed rate bond (note (i))
3,999
7
RMB4,000
14 Mar 2018
(3,800)
3,798
Term to
As at the end of the reporting period, long-term debt securities issued by CMBFLC were as follows:
122,453
103
12
56,904
65,434
Total
19,994
19,993
RMB20,000
3.33
24 Sep 2019
36 months
Fixed rate bond
418
2
417
USD60
2.64
Annual interest rate
Nominal value
balance
amortisation
difference
year
balance
Debt type
2
maturity
Annual interest rate
RMB3,800
3.27
11 Mar 2016
36 months
Fixed rate bond
(3,483)
51
1
3,431
USD500
3.25
11 Aug 2014
60 months
Fixed rate bond
(in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million)
(%)
balance
Ending
during the year
Repayment
Exchange
difference
premium
amortisation
the year
Issue during
Beginning
balance
Discount or
Nominal value
Date of
issuance
3,487
210
2,427
Present value of the funded defined benefit obligation
(363)
(326)
Net asset recognised in the statement of financial position
22
31
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 2019.
There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2019 and 2018.
The amounts recognised in the consolidated statement of profit or loss are as follows:
Current service cost
Net interest income
Net expense for the year included in retirement benefit costs
2019
357
(11)
(10)
2018
(10)
2
The actual profit on the plan assets for the year ended 31 December 2019 was RMB47 million (2018: actual loss
RMB39 million).
- Equity attributed to non-controlling holders of ordinary shares
2019
2018
Present value of obligation at 1 January
326
285
Current service cost
1
385
Fair value of the plan assets
2018
150
180
330
210
210
240
660
96
192
1,021
1,560
1,410
1,590
5,869
2,065
Note: In 2019, senior management had exercised 1.72 million shares of appreciation rights (2018: 0.75 million) and the weighted average exercise price
is HKD15.02 (2018: HKD11.33).
(b)
Post-employment benefits - defined benefit plan
The Group's subsidiary CMB 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 CMB WLB.
The latest actuarial valuation of the plan was performed in accordance with IAS 19 issued by the IASB as at 31
December 2019 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 106% (2018: 110%).
China Merchants Bank
Annual Report 2019
IX Financial Statements
39. Staff welfare scheme (continued)
(b)
Post-employment benefits - defined benefit plan (continued)
The amounts recognised in the statement of financial position as at 31 December 2019 are analysed as follows:
2019
11
10
Interest cost
6
Actual benefits paid
Exchange difference
Fair value of the plan assets at 31 December
(26)
(18)
7
20
385
357
241
242
China Merchants Bank
IX Financial Statements
Annual Report 2019
39. Staff welfare scheme (continued)
(b)
Post-employment benefits – defined benefit plan (continued)
The major categories of the plan assets are as follows:
Equities
Bonds
Cash
Total
2019
2018
Amount
%
Amount
%
(46)
Total
40
7
5
Actual benefits paid
(26)
(18)
Actuarial profit or losses due to liability experience
Actuarial profit or losses due to financial assumption changes
29
Actuarial gain or losses due to demographic assumption changes
Exchange difference
19
10
10
11
-
7
7
16
Actual obligation at 31 December
363
326
The movements in the fair value of the plan assets during the year are as follows:
2019
2018
Fair value of the plan assets at 1 January
357
394
Interest income
7
Expected return on plan assets
238
Xiong Liang Jun
810
300
330
1,155
75
Liu Jian Jun
53
105
158
240
556
314
Wang Liang
300
38
240
645
165
Xu Shi Qing
150
180
330
Xiong Liang Jun
Total
105
157
240
502
157
225
947
956
240
China Merchants Bank
IX Financial Statements
Annual Report 2019
39. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
(iii) Other long-term employee benefits (continued)
(4)
The number of share appreciation rights granted to members of senior management:
2019
(in
Phase IX Phase X
(in
(in
Total
(in
Exercised
(in
Phase V Phase VI Phase VII Phase VIII
(in
(in
(in
thousands) thousands) thousands) thousands) thousands) thousands) thousands) thousands)
Li Hao
Tang Zhi Hong
Tian Hui Yu
-
2,131
46
92
158
210
210
240
158
46
92
624
300
1,140
991
210
210
240
956
947
Tian Hui Yu
225
300
300
330
1,155
75
Liu Jian Jun
Wang Liang
158
210
210
240
818
52
150
210
210
240
270
Xu Shi Qing
240
Tang Zhi Hong
1,057
1,035
1,290
4,144
3,790
2018
Phase V Phase VI
Phase VII
Phase VIII
(in
(in
(in
(in
Phase IX
(in
Phase X
Total
Exercised
(in
(in
(in
50
100
180
46
92
158
Li Hao
thousands) thousands) thousands) thousands) thousands) thousands) thousands) thousands)
61.8
The movements in the defined benefit obligation during the year are as follows:
60.6
(%)
(in million)
million)
million)
million)
million)
million)
Fixed rate bond
180 months
28 Dec 2012
5.20
RMB11,700
(RMB in
11,693
Fixed rate bond (note)
120 months
18 Apr 2014
6.40
RMB11,300
11,285
15
(11,300)
Fixed rate bond
120 months
15 Nov 2018
4.65
11,693
(RMB in
(RMB in
(RMB in
424,926
243
244
China Merchants Bank
IX Financial Statements
Annual Report 2019
43. 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:
Discount or
Repayment
Debt type
Term to
maturity
Beginning
Issue during
premium
during the
Ending
Date of issuance
Annual interest rate
Nominal value
balance
the year
amortisation
year
balance
(RMB in
RMB20,000
19,993
19,993
42,971
(42)
326
Equity-accounted investees share of other comprehensive income
29
30
Remeasurement of defined benefit liability
1,857
2,609
Fair value gain on equity instruments measured at fair value through
other comprehensive income
3,688
5,954
Debt instruments measured at fair value through other comprehensive
income: investment revaluation reserve
2018
2019
48. Investment revaluation reserve
2018
67,523
2019
67,523
At 1 January and 31 December
Capital reserve primarily represents share premium of the Bank and can be used to issue shares with the
shareholders' approval.
47. Capital reserve
Annual Report 2019
IX Financial Statements
China Merchants Bank
1,158
3,979
- Equity attributed to non-controlling holders of other equity
instrument (note 62)
2,329
Total
578,191
8,919
49. Hedging reserve
15
(11,300)
31,686
Total
Note: The Bank redeemed the Tier-2 capital bond amounted to RMB11,300 million as of 21 April 2019.
As at the end of the reporting period, subordinated note issued by CMB WLB was as follows:
Discount or
Repayment
216
Term to
maturity
Beginning
premium
Exchange
during the
Ending
249
53,682
62,291
7,523
2018
46,159
53,682
8,609
2019
At 31 December
Provided for the year
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.
50. Surplus reserve
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 4(5).
5,532
Total
Debt type
2,829
Corporate income tax
Value added tax
Others
Total
2019
2018
13,909
16,229
3,057
3,137
2,103
1,045
40. Tax payable
19,069
China Merchants Bank
IX Financial Statements
Annual Report 2019
41. Contract liabilities
Credit card points
Other deferred fee and commission income
Total
As at 1 January 2018, contract liabilities amounted to RMB4,244 million.
42. Provisions
Expected credit loss provisions
Other
2019
20,411
As at 31 December 2018 and 2019, there is no significant change of the amount in the liabilities of the retirement
benefit plan due to the above mentioned actuarial assumptions.
86
1.8
5.0
2,599
73
19.0
63
17.6
74
19.2
78
21.8
385
100.0
357
100.0
Deposit with the Bank included in the amount of the plan assets was RMB57 million (2018: RMB56 million).
The principal actuarial assumptions adopted in the valuation are as follows:
Discount rate
- Defined benefit scheme
-
- Defined benefit pension scheme
Long-term average rate of salary increase for the plan
Pension increase rate for the defined benefit pension plan.
2019
%
2018
%
1.6
1.9
1.7
2018
5,262
6.0
1,226
Expected credit loss provisions
(12-month ECL)
2,934
impaired)
1,221
ECL-credit
impaired)
Total
410
4,565
43. Debt securities issued
Notes
2019
Subordinated notes issued
34,469
45,714
Long-term debt securities issued
(b)
165,602
104,483
Negotiable interbank certificates of deposit
349,284
245,406
Certificates of deposit issued
26,007
26,724
4,799
Interest payable
not credit-
-Stage 1
2018
-Stage 2
808
6,488
(Lifetime ECL--Stage 3 (Lifetime
5,607
2019
5,116
2018
4,565
993
1,100
6,109
Total
The expected credit loss provisions for loan commitments and financial guarantee contracts by stages are as follows:
2019
-Stage 2
(Lifetime ECL-
5,665
-Stage 3
2018
5,116
413
1,307
3,396
Total
Expected credit loss provisions
ECL-credit
not credit-
impaired)
-Stage 1
(12-month ECL)
(Lifetime
impaired)
187,404
3,630
1,766,508
6,130
100,090
87,314
954,555
75,119
80,354
269,055
ECL-credit
credit-
1,129
impaired) impaired)
2019
Total
201,427
-Stage 3
(Lifetime
1111
102,431
IX Financial Statements
81,198
58. Contingent liabilities and commitments (continued)
ECL- not
(a) Credit commitments (continued)
Annual Report 2019
China Merchants Bank
1,779,313
98,996
794
75,119
960,785
87,718
100,304
188,022
272,762
12,011
-Stage 2
(Lifetime
90,636
101,477
58. Contingent liabilities and commitments
The transactions under repurchase agreements are conducted under terms that are usual and customary to standard
lending and securities borrowing and lending activities.
480,140
543,016
Total
190,363
(a) Credit commitments
- Loans and advances to customers
- Other assets
71,196
21,907
- Debt investments at fair value through other comprehensive income
2018
-Stage 2
(Lifetime
280,262
109,757
98,544
At any given time the Group has outstanding commitments to extend credit. These commitments take the form of
approved loans and credit card limits.
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.
200,021
ECL)
-Stage 1
(12-month
Total
Others
Credit card commitments
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.
- with an original maturity over 1 year
Irrevocable loan commitments
Bills of acceptances
Irrevocable letters of credit
Non-financial guarantees
Of which: Financial guarantees
Irrevocable guarantees
- with an original maturity within 1 year (inclusive)
-Stage 1
1,556,484
(12-month
845,502
81
8,497
836,924
Credit card commitments
54,034
Others
-
53,951
- with an original maturity over 1 year
42,856
12
54
42,790
83
- with an original maturity within 1 year (inclusive)
74,918
74,923
229,202
259
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 CBIRC.
The amount within the scope approved by the CBIRC in April 2014 is calculated using the internal rating-based
approach, and the standardised approach is used to calculate those not eligible to the internal rating-based
approach.
2018
373,397
2019
444,075
Credit risk weighted amounts of contingent liabilities and commitments
5
Apart from the irrevocable loan commitments, the Group had loan commitments of RMB2,829,535 million at 31
December 2019 (31 December 2018: RMB2,236,875 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 include credit limits granted to offshore customers by overseas branches, subsidiaries
and onshore and offshore syndicated loans etc.
As at 31 December 2019, the Group's irrevocable letters of credit includes sight letters of credit of RMB9,368 million
(31 December 2018: RMB8,679 million), usance letters of credit of RMB2,068 million (31 December 2018: RMB5,640
million), other commitments of RMB69,762 million (31 December 2018: RMB52,923 million).
468
12,181
1,543,835
Total
These contingent liabilities and commitments have off-balance sheet credit risk. Before the commitments are fulfilled
or expired, management assesses and makes allowances for expected credit 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.
ECL- not
96,890
137
3
288
142,937
Total
235,100
357
370
143,228
234,373
Irrevocable guarantees
impaired)
impaired)
ECL)
-Stage 3
(Lifetime
ECL-credit
credit-
Of which: Financial guarantees
12
Non-financial guarantees
82
96,741
Irrevocable loan commitments
236,827
12
2,134
234,681
91,436
Bills of acceptances
6
1,038
66,198
Irrevocable letters of credit
91,872
354
67,242
- Debt investments at amortised cost
7,523
10,908
.
75,232
75,232
Other comprehensive income for
the year
7,143
59
1
233
7,435
Total comprehensive income for
the year
Net profit for the year
Profit appropriations
surplus reserve
-----
7,143
59
75,232
233
82,667
7,523
6,028 (38,917)
2,522
(75,840)
Appropriations to statutory
59,823
233
2,522
reserve
reserve
reserve
reserve
profits
appropriations
reserve
Subtotal
At 1 January 2018
25,220
34,065
76,681
(1,603)
(86) 46,159
69,790
183,307
21,185
(78)
454,640
Changes in equity for the year
7,143
59
7,523
6,028
36,315
(80,754)
instruments reserve
(2,354)
(43,803)
144,716
109,295
111,832
20,271
23,482
7,565
7,449
525
1,227
12,181
14,806
125,843
66,480
3,685
3,523
42,700
46,724
20,095
21,246
160,384
173,090
747
545
82,618
71,493
11,517
11,997
268,065 247,135
(45,547)
(29,683)
(31,451)
- Others
N/A
(4,364)
N/A
(161)
N/A
(2,473)
N/A
(1,730)
- Right-of-use assets depreciation
(5,270)
(6,379)
(1,488)
(2,433)
(2,255)
(2,368)
(1,527)
(1,578)
investment properties depreciation
- Property, equipment and
Operating expenses
Operating income
(3,756)
capital
profit Exchange
Retained
Share
capital instruments
equity
Investment
Capital revaluation
Regulatory
Hedging Surplus general
Retained
Proposed
profit Exchange
reserve
reserve
reserve
25,220
Other
34,065
5,540
reserve
(27) 53,682
reserve
profits appropriations reserve Subtotal
75,818
219,622
23,707
155
514,463
3,136
1
76,681
Dividends paid for preference shares
Proposed dividends for the year 2019
Dividends paid for the year 2018
578,352
514,463
Total equity and liabilities
6,960,232
6,347,615
Note: The Bank has applied IFRS 16 since 1 January 2019 in accordance with transitional provision stated in Note 3. Lease liabilities and right-of-
use assets amounted to RMB12,136 million were recognised on initial application of IFRS 16. In addition, right-of-use assets were adjusted by
including land use rights amounted to RMB5,212 million, prepaid lease payments under other assets amounted to RMB988 million and deducting
accrued rental payables amounted to RMB95 million.
251
252
China Merchants Bank
Annual Report 2019
IX Financial Statements
54. The bank's statement of financial position and changes in the
bank's reserves (continued)
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 reserves are as
follows.
At 1 January 2019
Changes in equity for the year
Net profit for the
year
Other comprehensive income for
the year
Total comprehensive income for
the year
Profit appropriations
Appropriations to statutory
surplus reserve
Appropriations to regulatory
general reserve
8,609
10,002
35,533
6,557
FVTOCI
7
(7)
At 31 December 2019
25,220
34,065
76,681
8,676
(26) 62,291
85,820
255,155
30,264
206
578,352
Other
Investment
Regulatory
Proposed
Share
equity
Capital
revaluation
Hedging
Surplus
general
of equity Instruments designated at
96,765
Transfers within equity upon disposal
(1,670)
51
63,889
86,085
86,085
3,129
51
3,181
3,129
1
86,085
51
89,266
8,609
10,002
(50,545)
6,557
(25,377)
8,609
(8,609)
10,002
(10,002)
(23,707)
(23,707)
(30,264)
30,264
(1,670)
Total equity
77,019
35,619
(34,872)
(9,921)
Interest/dividend paid
(409,006)
(4,302)
(185)
(30,921) (22,363)
(351,235)
Repayment
559,875
6,509
70,607
(7,416)
27,631
Proceeds from the issue
Cash changes:
453,234
12,807
2,879
26
Total
Lease
liabilities
liabilities
Other
financial
Debt
securities Interest Dividend
issued payable payable
160,174
2,599
455,128
(25,673)
(43,010)
Non-cash changes:
745
635
9
349,284
At 31 December 2019
Foreign exchange
211
105
90
16
Fair value adjustments
9,985
18
70
9,897
Discount or premium
amortisation
25,673
8,203
557
25,673
7,646
Dividend declared
Accrued interest
5,317
5,317
Acquisition of lease liabilities
29,343
17
245,406
Certificates
of deposit
issued
155
23,707
219,622
75,818
(27) 53,682
5,540
76,681
34,065
25,220
At 31 December 2018
(1,659)
514,463
(1,659)
23,707
(23,707)
Proposed dividends for the year 2018
(21,185)
(21,185)
Dividends paid for the year 2017
(6,028)
6,028
general reserve
Appropriations to regulatory
(7,523)
Dividends paid for preference shares
China Merchants Bank
IX Financial Statements
Annual Report 2019
of deposit
certificates
Negotiable
interbank
The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were classified in the Group's
consolidated statement of cash flows as cash flows from financing activities
(b) Reconciliation of liabilities arising from financing activities
543,683
589,675
14,615
106,793
191,923
103,633
200,326
227,606
84,517
61,260
52,302
90,383
2018
2019
Total
Debt securities investments
Balance with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Cash and Balances with central banks
(a) Analysis of the balances of cash and cash equivalents (including assets with
original maturity within 3 months):
55. Notes to consolidated cash flow statements
At 1 January 2019
1,406
26,774
209,271
(a)
56. Operating segments (continued)
Segment results, assets and liabilities
IX Financial Statements
China Merchants Bank
Annual Report 2019
As listed in Note (4), the accounting policies of the operating segments are the same as the Group's accounting
policies. Operating segment income represents income generated from external customers, inter-segment
transactions are offset. No customer contributed 10% or more to the Group's revenue for 2019 and 2018. Internal
transactions are conducted at fair value.
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 includes: property leasing and businesses operated by subsidiaries other than CMB WLB, and
associates and joint ventures. None of these segments meets any of the quantitative thresholds so far for segments
division.
(3) Other Business
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.
(2) 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.
External net interest income
Internal net interest income/(expense)
(1) Wholesale finance business
The Group's principal activities are commercial lending and deposits taking. The funding of existing retail and
corporate loans are mainly from customer deposits.
56. Operating segments
Annual Report 2019
IX Financial Statements
China Merchants Bank
254
253
There are no significant non-cash transactions during the year.
(c) Significant non-cash transactions
440,427
2,879
The Group manages its businesses by divisions, which are organised by a mixture of both business lines and
geography.
Net interest income
Net fee and commission income
Other net income
(38,041)
(17,681)
(19,656)
52,553
57,697
100,299
116,421
24,466
2019
2018
Wholesale
financial business
0000
173,090 160,384
2018
Total
2019
2018
38,586
2019
Other business
2018
financial business
Retail
18,083
2019
26
2,599
403
2,593
1,186
160,174
2,921
73,029
32,300
407,328
Proceeds from the issue
Cash changes:
Total
305,747
26
Other
financial
liabilities
Dividend
payable
Interest
payable
1,820
Debt
securities
issued
101,592
24,120
178,189
At 1 January 2018
of deposit
issued
of deposit
certificates
Certificates
Negotiable
interbank
611,888
14,379
9,325
26
2,829
515,578
75,780
Repayment
(28,389) (15,590)
1,246
29,343
161
245,406
At 31 December 2018
Foreign exchange
389
8,597
(47)
4
56
10
fair value adjustments
8,588
amortisation
Discount or premium
5,933
22,912
22,912
Dividend declared
5,933
Accrued interest
Non-cash changes:
(34,725)
(22,912)
(5,154)
(6,659)
Interest/dividend paid
(386,611)
(431)
(342,201)
18,925
155
Exchange reserve
China Merchants Bank
6,202,124
6,799,533
Consolidated total liabilities
50,151
20,411
19,069
47,967
Other unallocated liabilities
Tax payable
6,131,562
6,732,497
IX Financial Statements
Total liabilities for reportable segments
6,745,729
7,417,240
Consolidated total assets
4,674
7,611
Other unallocated assets
9,954
735
58,374
65,151
6,671,992
7,333,816
9,954
708
Deferred tax assets
Liabilities
Annual Report 2019
56. Operating segments (continued)
(c) Geographical segments
2019
2018
2019
2018
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2019
2019
2018
2019
2018
Geographical information
ended
Operating income
For the year For the year For the year
For the year
ended
ended
ended
Profit before tax
Non-current assets
Total liabilities
Total assets
"Subsidiaries" refers to subsidiaries wholly owned or controlled by the Group, including CMB WLB,
CMBICHC, CMBFLC, CMFM, CMBWM, etc.
"Overseas" refers to overseas branches in Hong Kong, New York, Singapore, Luxembourg, London, Sydney
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;
"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;
"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
Jiangxi province, Shanxi province and Hainan province;
"Bohai Rim region" refers to branches and representative offices in Beijing municipality, Tianjin municipality,
Shandong province and Hebei province;
"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
province;
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.;
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.
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, Sydney and Luxembourg, subsidiaries operating in Hong Kong, Shenzhen and Shanghai
and representative offices in Beijing, New York and Taipei.
Intangible assets
2018
Goodwill
Assets
3,737,661
Reportable segment liabilities
6,671,992
7,333,816
1,794,697
1,831,826
2018
2019
2018
2019
2018
2,045,530
3,526,129
2019
2,307,439
Reportable segment assets
2,831,765
3,194,551
2018
2019
Total
Other business
financial business
financial business
Retail
Wholesale
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
1,846,913
1,598,208
1,147,923
31 December 2019 31 December 2018
247,135
106,497
2018
2019
268,065
117,132
For the year ended 31 December
Total profit before income tax for reportable segments
Total operating income for reportable segments
(b) Reconciliations of reportable segment revenue, profit or loss, assets, liabilities
and other material items
56. Operating segments (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
256
255
Capital expenditure represents the amount incurred for acquiring long-term segment assets.
(i)
Note:
8,871
10,784
8,871
10,784
Interest in associates and joint ventures
6,131,562
6,732,497
1,007,225
Total assets for reportable segments
Headquarter
Yangtze River Delta region
3,306,057
912,227
10,337
11,567
38,903
48,005
529,647 465,295 432,749 376,424
Subsidiaries
4,285
3,731
3,041
2,669
145
20,336
1,344
238,988 240,080 233,402
Overseas
17,491
17,361
10,790
10,880
2,389
4,692
371,913
380,152 436,575
444,856
234,741
17,240
Total
7,417,240 6,745,729 6,799,533 6,202,124
- Financial assets at fair value through profit or loss
-
483,455
422,408
78,141
63,233
2018
405,314
359,175
Assets pledged
Subtotal
Amounts sold under repurchase agreements
Borrowing from central banks
2019
The following assets have been pledged as collateral for borrowing from central banks liabilities under repurchase
arrangements:
57. Assets pledged as security
Annual Report 2019
IX Financial Statements
China Merchants Bank
258
257
Note: Non-current assets include interests in joint ventures, interests in associates, property and equipment, investment properties, right-of-use assets,
intangible assets, goodwill, etc.
247,135
117,132 106,497 268,065
86,242
113,646
Western region
16,925
16,995
11,930
16,383
15,809
2,015
4,701
513,813
570,647
526,143
582,344
Bohai Rim region
34,386
33,895
24,040
24,634
2,948
6,177
759,258
893,454
777,607
91,577
111,034
12,017
16,363
34,056
37,821
3,129,174 2,856,659 2,739,929
27,124
17,405
26,946
Coast region
10,282
2,524
4,344
449,597 380,025
389,081
457,081
Central region
6,349
5,998
(1,320)
3,271
1,125
2,006
144,367 147,584 146,060
150,072
Northeast region
31,936
31,591
19,279
21,657
2,137
4,556
679,961
693,830 778,866
795,968
Pearl River Delta and West
206
22,412
15,158
N/A
3,752
8,157
63,663
56,866
28,736
25,174
6,960,232
6,347,615
358,728
405,314
19,078
Deposits from banks and other financial institutions
452,305
Placements from banks and other financial institutions
73,880
116,072
Financial liabilities at fair value through profit or loss
32,922
40,175
Derivative financial liabilities
22,911
35,795
Amounts sold under repurchase agreements
541,745
23,169
25,565
1,262
Debt investments at amortised cost
920,575
915,410
Debt investments at fair value through other comprehensive income
416,181
380,971
Equity investments designated at fair value through
other comprehensive income
5,430
3,465
Investments in subsidiaries
49,495
43,901
Interest in joint ventures
Investment properties
Property and equipment
Right-of-use assets (note)
Intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Borrowing from central banks
6,091
4,797
1,203
55,455
33,582
77,064
4,660,232
Other equity instruments - Preference Shares
34,065
34,065
Capital reserve
76,681
76,681
Investment revaluation reserve
8,676
5,540
Hedging reserve
(26)
25,220
(27)
62,291
53,682
Regulatory general reserve
85,820
75,818
Retained profits
255,155
219,622
Proposed profit appropriations
30,264
23,707
Surplus reserve
25,220
Share capital
Equity
4,237,430
Salaries and welfare payable
9,581
6,697
Provision
Tax payable
Contract liabilities
Lease liabilities (note)
Debt securities issued
17,655
19,512
6,488
5,607
13,632
N/A
6,061
5,638
527,986
375,625
Other liabilities
54,604
55,918
Total liabilities
6,381,880
5,833,152
Deposits from customers
23,769
Derivative financial assets
315,000
166,025
176,568
8,155
5,167
79,785
94,328
78,085
77,073
impairment losses
Reportable segment profit before
(22,844)
Expected credit losses and impairment
250
IX Financial Statements
51. Regulatory general reserve
Pursuant to relevant regulatory notices, the Bank and the Group's financial services subsidiaries are required to set
aside a general reserve from profit after tax up to a certain percentage of the ending balance of gross risk-bearing
assets to cover potential losses. The Bank and the Group's financial services subsidiaries have complied with the
requirements as of 31 December 2019.
At 1 January
Provided for the year
At 31 December
52. Profit appropriations
(a) Dividends approved/declared by shareholders
Dividends in 2018, approved and to be declared RMB0.94 per shares
Dividends in 2017, approved and to be declared RMBO.84 per shares
(b) Proposed profit appropriations
Statutory surplus reserve
China Merchants Bank
Annual Report 2019
losses on other assets
(30,642)
(38,171) (27,911)
4,858
4,275
3,291
2,979
Capital expenditure (note (i))
106,497
117,132
8,320
4,284
58,263
66,417
39,914
46,431
Reportable segment profit before tax
1,309
1,723
1,309
1,723
joint ventures
Share of profit of associates and
(60,837)
(61,159)
(1,144)
(2,606)
(21,522)
Regulatory general reserve
Dividends
- cash dividend: RMB1.20 per shares (2018: RMB0.94 per shares)
Total
2019
2018
2018
Assets
Cash
Precious metals
Balances with central banks
Balances with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Loans and advances to customers
14,356
14,997
4,006
6,573
549,969
474,380
73,472
68,501
304,396
299,981
103,740
199,555
3,968,513
3,471,874
Financial assets at fair value through profit or loss
378,242
2019
9,256
bank's reserves
Annual Report 2019
78,542
70,921
11,609
7,621
90,151
78,542
2019
2018
23,707
21,185
2019
2018
8,609
7,523
11,609
7,621
30,264
23,707
50,482
38,851
2019 dividends profit appropriation is proposed in accordance with the resolution passed at the meeting of the
Board of Directors held on 20 March 2020 and will be submitted to the 2019 annual general meeting for approval.
53. Exchange reserve
Exchange reserve comprises all foreign exchange differences arising from the translation of the consolidated financial
statements of operations outside Mainland China.
China Merchants Bank
IX Financial Statements
54. The bank's statement of financial position and changes in the
3
other financial institutions
203
IX Financial Statements
China Merchants Bank
266
265
4,220,771
52,565
80,141
4,088,065
Balance as at the end of the year
(32,201)
(32,201)
Write-offs
31,672
(16,504)
(15,168)
Annual Report 2019
- Stage 3
60. Risk management (continued)
(x)
Net changes for the year
3,445,162
57,848
70,498
3,316,816
Balance as at the beginning of the year
Total
-Stage 3
(Lifetime ECL-
credit impaired)
impaired)
ECL)
- not credit-
(12-month
2018
-Stage 2
(Lifetime ECL
-Stage 1
Movements of loans and advances and debt investments measured at amortised cost (continued)
Loans and advances measured at amortised cost: (continued)
(a) Credit risk (continued)
343,854
(1,165)
(39,048)
-Stage 3
(Lifetime
-Stage 2
(Lifetime ECL
-Stage 1
(12-month
2019
Loans and advances measured at amortised cost:
Movements of loans and advances and debt investments measured at amortised cost
(x)
20,618
8,495
2018
2019
enhancements held against – Loans and advances to customers
Estimate of the fair value of collateral and other credit
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
ECL)
40,213
- not credit-
impaired)
impaired)
- Stage 2
(104)
(26,034)
26,138
- Stage 1
Transfer to
497,708
Total
3,755,264
53,611
752
(8,476)
505,432
Net changes for the year
90,942
3,610,711
Balance as at the beginning of the year
ECL-credit
(6,173)
(1,382)
336,299
4,681
580
916,206
Balance as at the end of the year
116
(7)
(109)
- Stage 3
9
(9)
- Stage 2
(3)
3
- Stage 1
Transfer to
921,467
Total
911,348
10,119
2018
-Stage 2
(Lifetime ECL
873
(23,449)
Net changes for the year
933,751
3,425
264
930,062
Balance as at the beginning of the year
Total
credit impaired)
impaired)
ECL)
-Stage 3
(Lifetime ECL -
- not credit-
(12-month
-Stage 1
4,283
282
(456)
10,293
Balance as at the end of the year
Write-offs
23,870
(10,720)
(13,150)
- Stage 3
(402)
46,633
(46,231)
- Stage 2
(126)
(9,296)
9,422
- Stage 1
Transfer to
3,610,711
90,942
(26,197)
53,611
(26,197)
3,755,264
Net changes for the year
1,037
906,028
Balance as at the beginning of the year
impaired)
impaired)
ECL)
(ix)
ECL-credit
(12-month
(Lifetime
-Stage 3
-Stage 2
(Lifetime ECL
-Stage 1
2019
Debt investments at amortised cost:
- not credit-
Note: Bonds issued by the governments, central banks and policy banks held by the Group amounted to RMB1,099,430 million (2018: RMB932,751
million) are included.
1,203,238
1,369,477
60. Risk management
Annual Report 2019
IX Financial Statements
China Merchants Bank
262
261
Notes: Funds received from customers under wealth management services are the funds received from customers under unconsolidated
non-principal-guaranteed wealth management services.
1,851,964
2018
2019
2,098,944
Funds received from customers under wealth management services
At the end of the reporting period, funds received from customers under unconsolidated non-principal-guaranteed
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 bonds, funds, 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 received from customer for wealth
management business that yet to be invested are recorded under other liabilities.
(b) Wealth management services
(417,263)
(a) Credit risk
(320,404)
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.
(ii)
Internal credit risk rating
(i)
(a) Credit risk (continued)
60. Risk management (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
Analysis of loans and advances by industry and loan portfolio are stated in Note 22.
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).
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 financial 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 financial business, the Group formulates credit policy
guideline, and enhances credit acceptance and exit policies for corporate and institutional clients, and implements
limit control measures to improve the quality of credit exposure.
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.
417,263
320,404
2018
(c)
10,461
394
1,639
50,684
10,067
2018
2019
49,045
Total
- Authorised but not contracted for
- Contracted for
Authorised capital commitments were as follows:
(b) Capital commitments
58. Contingent liabilities and commitments (continued)
Annual Report 2019
IX Financial Statements
Outstanding litigations
At 31 December 2019, the Group was a defendant in certain outstanding litigations with gross claims of RMB778
million (2018: RMB515 million) arising from its banking activities. The Group 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) Redemption obligations
As an underwriting agent of PRC government bonds, the Group has the responsibility to make advances to bond
holders 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 issued by the
MOF and the PBOC. The redemption price may be different from the fair value of similar instruments traded at the
redemption date.
2019
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 through 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.
Entrusted lending business
The Group classifies credit risk based on probability of default. The Group classifies credit risk into 25 grades. The
internal credit risk rating is based on the predicted default risk. Internal credit risk ratings are based on qualitative
and quantitative factors. For customers of wholesale business include net profit growth rate, sales growth rate,
industry, etc. For customers of retail business include maturity, ageing, mortgage rate, etc.
(a)
IX Financial Statements
China Merchants Bank
Annual Report 2019
The Group expects that the amount of redemption before the maturity date of these government bonds through the
Group will not be material.
2018
25,568
2019
27,363
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:
59. Transactions on behalf of customers
173
Significant increase in credit risk
In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of a default occurring on the financial instrument and other items as at the reporting date with the risk of a default
occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group
considers an actual or expected significant deterioration in the financial instrument's internal credit risk rating (Note
60(a)(i)), as well as internal warning signal, the result of 5-tier classification and overdue information. The Group
regularly reviews whether the evaluation criteria are applicable to the current situation.
851
2018
2019
Total
Subtotal
Impairment allowances
Unrated
Lower than A-
A- to A+
AA- to AA+
AAA
Neither overdue nor impaired
Subtotal
Impairment allowances
Impaired gross amount of debt investments
968
At the end of the reporting period, the analysis of the credit quality of debt investments by designated external
credit assessment institution, Standard & Poor's, is as follows:
(571)
280
1,202,725
1,369,197
(3,575)
(3,965)
214,306
295,750
27,726
20,972
597,389
656,976
70,452
50,791
296,427
348,673
513
(455)
(viii) Credit quality of debt investments
(a) Credit risk (continued)
60. Risk management (continued)
(v)
(iv)
(iii)
(a) Credit risk (continued)
60. Risk management (continued)
Annual Report 2019
IX Financial Statements
264
263
The Group considers that a debt instrument has been credit impaired when its 5-tier loan classification is
substandard, doubtful or loss or is more than 90 days overdue.
For loan commitments and financial guarantee contracts, the date that the Group becomes a party to the irrevocable
commitment is considered to be the date of initial recognition for the purposes of assessing the financial instrument
for impairment.
A debt instrument is determined to have low credit risk if i) it has a low risk of default, ii) the borrower has a strong
capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and
business conditions in the longer term may not necessarily reduce the ability of the borrower to fulfil its contractual
cash flow obligations.
For credit card business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; the customer has early credit
risk warning signals; or the customer has other significant risk signals identified by the Group etc.
For retail business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; or the customer has other
significant risk signals identified by the Group etc.
For wholesale business, credit risk is considered as significantly increased if any of the following conditions are met:
the 5-tier loan classification is special mention; more than 30 days (inclusive) overdue; the internal credit risk rating
of the customer has met the standard of downgrading; the early warning signal of the customer has reached a
certain level; or the customer has other significant risk signals identified by the Group etc.
Measurement of ECL
The key inputs used for measuring ECL are:
probability of default (PD): is an estimate of the likelihood of default over 12 months or lifetime horizon;
loss given default (LGD): is the proportion of the loss arising on default to the exposure at default;
exposure at default (EAD): is the risk exposure on a debt instrument.
Annual Report 2019
IX Financial Statements
China Merchants Bank
The carrying amount of loans and advances that were impaired and the terms been renegotiated was RMB25,022
million as at 31 December 2019 (31 December 2018: RMB22,766 million).
Renegotiated loans and advances to customers
(vii)
The Group's maximum exposure to credit risk without taking account of any collateral held or other credit
enhancements is the carrying amount of the relevant financial assets (including derivatives) as disclosed in the
consolidated statement of financial position and the irrevocable contract amount of the off balance sheet items
disclosed in Note 58(a). At 31 December 2019, the amount of the Group's maximum credit risk exposure is
RMB8,997,378 million (2018: RMB8,134,428 million).
As describe in Note 4, the Group recognises lifetime ECL if there are significant increases in credit risk.
Maximum exposure
The Group divides the primary business into wholesale business, retail business and credit card business. The model
is grouped based on shared risk characteristics, and the primary grouping reference indicators include scale, business
type and collateral type.
Groupings based on shared risk characteristics
The forecasts of macroeconomic indicators in the indicators pool are provided periodically by the Group. Based on
macroeconomic statistical analyzes and expert judgements, the Group determines the values and the weightings of
those macroeconomic indicators under optimistic, neutral and pessimistic scenarios. The Group measures PD as a
weighted average of PD under the three scenarios, with the combination of the dynamic LGD of different business,
the Group calculates the forward-looking adjusted ECL.
The Group uses forward-looking information that is available without undue cost or effort, and predict the
macroeconomic assumptions. External information includes macroeconomic data, forecast information issued by
government or regulatory agencies, for example, GDP, fixed asset investment, total social consumption, etc. The
Group assigns different scenarios to different probabilities.
According to the different risk characteristics of assets, the Group divides assets into different asset groups, identifies
macro indicators related to credit risks, and establishes regression models.
Incorporation of forward-looking information
These figures are generally derived from internally developed statistical models and other historical data and they are
adjusted to reflect forward-looking information.
(vi)
(22,403)
Transfer to
- Stage 1
Investments (including derivatives)
151,605
29,394
4,267,929
40,074
18,013
16,578
12,027 521,209
16,115
115,486
204,764 135,626
3,887,465
Loans and advances to customers
377,581
other financial institutions
Amounts due from banks and
1,665,629
5,178
86,169
13,585
71,048 7,417,240
509,932 214,491
6,621,769
Total
16,621
7,876
251,859
2,021
14,870
54,855
180,113
Other assets
48,343
12,369
1,808,630
43,247
6,985
567,613
3,341
(2)
Foreign exchange risk (continued)
(i)
(b) Market risk (continued)
60. Risk management (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
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.
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.
Trading book
(1)
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, the board of supervisors, 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.
Foreign exchange risk
(i)
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 audit department is responsible for auditing. 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.
4,633
48,658
510,981
Cash and Balances with central banks
Assets
HKD
Original
currency in million
USD
73,202
Total
HKD
USD
RMB
Equivalent in RMB million
2019
Assets and liabilities by original currency are shown as follows:
The Group continued to strengthen bank account exchange rate risk monitoring and authorization
management of quota limit to ensure that risks are controlled within a reasonable range.
Others
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 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.
239,760
Amounts due to central bank, banks and
31,692
12,405
16,299 1,779,313
28,351
86,415
1,648,248
Credit commitments (note)
Net off-balance sheet position:
21,214
5,226
17,094 617,707
18,978
36,392
545,243
Net position
Derivatives:
218,546
-forward purchased
- net currency option position
269
48,754
15,555
172,679
(285)
2,221
1,585
(4,077)
(50,275)
53,116
63,609
937,946
(766,852)
47,517
12,180
(3,647) (13,838)
(255) 1,861
43,615
435,138 443,111
(399,138) (350,229)
(15,493) 15,472
20,507 108,354
Total
- forward sold
67,976
53,954 6,799,533
195,513
29
1,247
24,369
40,989
profit or loss (including derivatives)
Financial liabilities at fair value through
182,485
41,408
8,861
15,137
14,391 1,138,714
32,647 4,844,422
105,451
7,928
288,454 163,251
4,360,070
Deposits from customers
1,010,944
66,634
3,497
1,394
Debt securities issued
473,540
6,076,526
Total
21,016
1,179
1,288 174,401
18,802
Liabilities
8,210
Other liabilities
4,790
6,755
5,599 575,362
4,285
47,056
518,422
146,101
China Merchants Bank
(b) Market risk
Annual Report 2019
(11)
(361)
106,306
11
106,295
other financial institutions
Balances with banks and
567,613
567,613
Cash and Balances with central banks
impaired)
credit-
Stage 1
(12-month
ECL)
Total
Total
(372)
impaired)
Placements with banks and
306,656
48
472,112
other comprehensive income
Debt investments at fair value through
(396)
(200)
(196)
109,353
200
109,153
agreements
Amounts held under resale
(338)
(338)
306,656
other financial institutions
Stage 3
(Lifetime
ECL-credit
Expected credit loss
Stage 2
(Lifetime
ECL - not
31 December 2019
4,283
1,037
906,028
Balance as at the end of the year
700
(98)
(602)
- Stage 3
(4)
70
(66)
- Stage 2
(11)
(72)
83
911,348
China Merchants Bank
IX Financial Statements
Annual Report 2019
The staging of credit risk of loans and advances to customers and debt investments at amortised cost are disclosed
in note 22 and note 23(b) respectively, the staging of credit risk of other financial instruments are as follows:
impaired)
impaired)
ECL)
ECL-credit
credit-
(12-month
426
(Lifetime
Stage 1
Stage 3
Balance
Stage 2
(Lifetime
Credit quality of financial instruments
(xi)
(a) Credit risk (continued)
60. Risk management (continued)
ECL - not
60. Risk management (continued)
46
(1,667)
199,918
200
199,718
agreements
Amounts held under resale
(405)
(405)
312,559
312,559
financial institutions
Placements with banks and other
(171)
(11)
(160)
100,022
(537)
11
(200)
Debt investments at fair value through
IX Financial Statements
China Merchants Bank
268
267
During the years ended 31 December 2019 and 2018, there were no significant transfers of financial assets disclosed
above between different stages.
Notes: The balance of the financial instrument disclosed above does not include interest receivable, and most of the corresponding interest receivable is
stage 1.
(1,897)
(769)
(39)
(1,089)
414,691
516
53
414,122
other comprehensive income
(737)
100,011
financial institutions
Balances with banks and other
(Lifetime
ECL-not
Stage 1
Stage
(Lifetime
Stage 3
(Lifetime
Stage 2
Stage 2
Expected credit loss
Balance
31 December 2018
(2,600)
(928)
(5)
Stage 1
ECL-not
(Lifetime
(12-month
493,135
493,135
Cash and Balances with central banks
Total
impaired)
impaired)
ECL)
472,586
Total
impaired)
ECL)
ECL-credit
credit-
(12-month
ECL-credit
credit-
impaired)
260
China Merchants Bank
(Short)/long position
6,202,124 4,305,174
543,605 (1,204,460)
1,072,870
1,037,797
539,398
52,307
232,375
296,336
368,232
45,700
Note:
(i)
(ii)
Asset-liability gap
For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2019 and
31 December 2018, net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the
principals or interests were overdue.
2019
2018
Change in interest
rates (in basis points)
Change in interest
rates (in basis points)
25
(25)
25
(25)
(Decrease)/increase in annualised
net interest income
(2,243)
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
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 2019 and 31 December 2018.
Total liabilities
148,234
19
10,792
4,683
5,179
Deposits from customers
4,400,674
3,424,830
545,087
417,315
2,597
10,845
Financial liabilities at fair value through
profit or loss (including derivatives)
80,714
206
Debt securities issued
422,327
77,883
2,667
197,850
9,511
213
68,117
101,780
44,814
Other liabilities (note (ii))
148,253
2,243
327,266
(1,966)
(Decrease)/increase in equity
Repayable
Within
1 month
but within
3 months
but within
1 year
but within
After
on demand
1 month
3 months
1 year
After
5 years
5 years
Indefinite
Overdue
Total
63,438
34,072
42,592
25,749
1,842
-Debt investments at amortised cost
9,809
193,484
After
After
2019
(3,701)
4,067
(3,544)
3,756
Actual changes in the Group's net interest income and equity resulting from increase or decrease in interest
rates may differ from the results of this sensitivity analysis.
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group is not able to obtain sufficient funds at a reasonable cost and in a timely
manner to deal with the appreciation of asset growth, to meet the maturity obligations, or to perform other
payment obligations.
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, the board of supervisors, senior management, designated committees and relevant
departments to ensure the effectiveness of the 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 board of supervisors shall be responsible for the
supervision and evaluation of the performance of the board of directors and senior management in the liquidity
risk management and report to the general meeting of shareholders. 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 Group's 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 policies and systems meet regulatory requirements and its own management
needs.
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.
The Group measures, monitors and identifies liquidity risk by short-term reserves as well as duration structures and
contingencies. It monitors the limit indicators closely at fixed intervals. Specifically, the Group adopts information
outsourced from Wind, Reuters and other systems as its external liquidity indicators, and uses liquidity risk
management system to measure its internal liquidity indicators and cash flow statements.
The Group regularly conducts stress testing to assess its liquidity demand under extreme circumstances. Except for
the annual stress testing requested by the regulatory authorities, the Group conducts monthly stress testing on the
liquidity risk of domestic and foreign currencies. The Group sets up liquidity contingency plans and conducts liquidity
contingency drills to strengthen the capability to liquidity crises.
275
276
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(c)
Liquidity risk (continued)
Analysis of the Group's assets and liabilities by residual maturity is as follows:
1,966
802,236
1,150,156
other financial institutions
575,362
Other liabilities (note (ii))
160,022
117,570
1,125
302,061
120,869
34,862
158,897
Total liabilities
Asset-liability gap
6,799,533 4,590,846
Debt securities issued
1,162,082
39,828
233,250
617,707
(1,523,938) 1,451,578
194,740
421,103
74,224
273
274
China Merchants Bank
IX Financial Statements
773,527
2,211
8,436
2,729
Liabilities
Amounts due to banks and
other financial institutions
1,138,714
Deposits from customers
4,844,422
828,647
3,642,086
297,855
3,936
1,507
6,769
559,236
630,193
1,248
11,659
Financial liabilities at fair value through
profit or loss (including derivatives)
66,634
415
201
10,093
55,925
Lease liabilities
14,379
1,003
Annual Report 2019
60. Risk management (continued)
(b) Market risk (continued)
(ii)
Loans and advances to customers (note (i))
3,741,262
1,665,384
1,846,122
170,453
59,303
Investments (including derivatives)
1,686,496
439,396
173,454
665,013
360,022
48,611
Other assets (note (ii))
213,650
213,650
Total assets
6,745,729
3,100,714
2,110,667
835,734
420,539
278,075
Liabilities
Amounts due to banks and
1,214
78,307
268
518,613
Interest rate risk (continued)
(2)
Banking book (continued)
2018
Total
3 months
or less
(include
overdue)
Over
Over
Non-
3 months
1 year
Over
interest
to 1 year
to 5 years
5 years
bearing
Assets
Cash and Balances with central banks
493,135
477,321
15,814
Amounts due from banks and
other financial institutions
611,186
91,091
307,474
106,912
240,250
4,267,929
5,163,254
425,241
389,108
1,360,791
1,435,590
181
1,536,707
15,817
Investments
- Financial assets at fair value
through profit or loss
Loans and advances to customers
398,276
4,734
96,022
56,958
160,636
71,844
18,397
1,547
15
- Debt investments at
amortised cost
907,472
410,153
11,107
59,109
51,242
Repayable
on demand
Within
1 month
but within
3 months
but within
After
1 year
but within
After
1 month
3 months
1 year
5 years
5 years
Indefinite Overdue
Non-derivative financial assets
Cash and Balances with central banks
567,613
567,613
90,384
477,229
Amounts due from banks and
other financial institutions
521,209
523,740
75,300
326,801
1,092,832
Total
11,961
550,066 379,389
7,390
11,342
7,476
1,627
6,504
3,911
Total
7,214,032 8,365,891
199,477
879,140
549,521
7,967
1,842,670 2,347,534
492,009
20,874
Non-derivative financial liabilities
Amounts due to banks and
other financial institutions
1,138,714 1,187,903
440,802
253,535
153,219
315,174
18,230
2,034,666
27,196
73,413
72,870
155
155
705
-Debt investments at fair value
through other comprehensive
income
472,586
528,809
1,863
11,148
22,899
122,160
271,451
98,365
161
497
426
26
- Equity investments designated
at fair value through other
comprehensive income
6,077
6,077
6,077
Other assets
21,924 128,632
Carrying
amount
After
After
140,244
1,053,468
472,090
1,409,522
1,682,861
1,335,606
622,817
29,121
6,745,729
Amounts due to banks and
other financial Institutions
Total assets
328,999
184,328
334,596
25,383
5,744
1,612
1,150,156
Cash and Balances with central
2,705,487
392,496
333,848
547,380
269,494
213,650
9,139
155,446
2225
275
364,522
435
903,268
-Debt investments at fair value through
other comprehensive income
434
21,042
16,391
74,532
204,145
97,770
377
414,691
- Equity investments designated at fair value
through other comprehensive income
4,015
4,015
Other assets (note (iv))
23,775
4,692
6,532
11,244
2,822
418,866
2,597
4,400,674
Financial liabilities at fair value through
54,153
4,934
6,202,124
1,281,453 617,883
29,121
543,605
Notes:
(i)
(ii)
For Balances with central banks, the amount with an indefinite maturity represents statutory deposit reserve and fiscal balances maintained
with the PBOC.
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.
The deposits from customers that are repayable on demand include matured time deposits which are pending for customers' instructions.
(iii)
(iv)
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
277
278
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(c)
Liquidity risk (continued)
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 and lease liabilities may vary significantly from this analysis.
2019
1,117,110 573,306
(132,263) 292,412 1,109,555
467,555
734,087 604,353
(2,973,937) 319,381
3,114,181
profit or loss (including derivatives)
14,608
13,904
8,400
21,810
21,760
232
80,714
Debt securities issued
13,343
68,339
194,051
101,780
44,814
422,327
Other liabilities (note (iv))
65,087
44,850
9,438
19,273
5,517
766
3,322
148,253
Total liabilities
(Short)/long position
6,799,533
460,931
3,066,908 2,613,660
83,407
243,113
113,062
20,669
6,943
10,046
1,863
other comprehensive income
- Debt investments at fair value through
907,472
712
426
307,331
104,421
16,218
9,041
- Debt investments at amortised cost
422,495
15
1,528
15,486
76,875
165,452
58,515
469,749
472,586
- Equity investments designated at
fair value through other
other financial Institutions
7,417,240
20,758
654,460
1,557,070
1,933,638
1,678,998
616,803
756,326
199,187
Amounts due to banks and
Total assets
251,859
3,911
169,626
1,627
13,929
19,954
7,480
8,426
26,906
6,077
6,077
Other assets (note (iv))
comprehensive income
99,890
440,699
4,734
- Financial assets at fair value through
(2)
Banking book (continued)
2018
Original
Equivalent in RMB million
currency in million
RMB
USD
HKD
Others
Total
Foreign exchange risk (continued)
USD
Assets
Cash and Balances with central banks
468,309
18,266
4,680
1,880
493,135
2,660
5,338
Amounts due from banks and
other financial institutions
HKD
(i)
(b) Market risk (continued)
60. Risk management (continued)
Investments (note (ii))
4,267,929
15,694
1,149,038
1,119,454
1,217,503
355,891
410,349
Loans and advances to customers
521,209
181
10,518
58,606
158,030
218,574
75,300
other financial institutions
Amounts due from banks and
567,613
477,229
90,384
270
China Merchants Bank
IX Financial Statements
Annual Report 2019
profit or loss (including derivatives)
237,753
133,511
303,651
but within
After
on demand
1 month
3 months
1 year
5 years
5 years
Indefinite
Overdue
Total
but within
31,621
493,135
81,344
410,287
31,664
85,447
1,230
1,214
611,186
414,154
275,758
1,097,315
461,514
but within
Within
Repayable
(3,205,921)
101,557
(67,428)
486,592
1,125,118
1,506,063
650,968
20,758
617,707
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(c) Liquidity risk (continued)
Cash and Balances with central banks (note (i))
Amounts due from banks and
other financial institutions
Loans and advances to customers
2018
After
After
After
1 month
3 months
1 year
964,517
970,623
18,895
3,741,262
8,436
2,729
476
527
Lease liabilities
66,634
6,096
23,558
6,806
7,754
13,029
9,391
profit or loss (including derivatives)
Financial liabilities at fair value through
4,844,422
1,248
632,146
561,032
426,827
360,013
2,863,156
Deposits from customers (note (iii))
1,138,714
6,335
16,765
2,211
414,598
14,379
12,008
Investments (note (ii))
- Financial assets at fair value through
profit or loss (including derivatives)
3,070
3,492
51,007
1,192,406 808,520
684,231
654,769
3,405,108
Total liabilities
160,022
3,492
255
6,748
16,126
10,100
31,439
91,862
Other liabilities (note (iv))
575,362
34,862
120,867
302,062
105,563
Debt securities issued
968,267
166,478
11,244
Increase/(decrease) in annualised equity
(145)
145
177
(177)
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.
Interest rate risk
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.
(1)
Trading book
According to the basic principles of risk management, the group has built and continuously improved the
market risk management system, and established the management process of market risk identification,
measurement, monitoring, control and reporting, covering the interest rate, exchange rate, commodity
and other risks involved in the trading book business. Under the market risk preference formulated by the
board of directors, the group manage the trading book, clearly identifies, accurately measure and effectively
manage the trading book market risk, to ensure that the trading book risk exposure is within an acceptable
range and achieve a reasonable balance of risk and return. The group constantly improve the risk-adjusted
return level to achieve the maximum shareholder value.
Up 1%
(177)
The trading book market risk governance organization structure defines the responsibilities, division of
labor and reporting routes of the board of directors, the board of directors risk and capital management
committee, senior management and relevant departments of the bank, to achieve management objectives.
The market risk management department is the group's trading book market risk department, which is
responsible for risk policy formulation and management.
272
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(1)
(2)
Trading book (continued)
271
Down 1%
177
145
(145)
108,022
27,788
(20,583)
26,918
15,733
31,692
Notes: Credit commitments generally expire before they are drawn, therefore the above net position does not represent the future cash
outflows.
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(b) Market risk (continued)
(i)
Foreign exchange risk (continued)
(2)
Banking book (continued)
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 2019 and 31 December 2018.
2018
(ii)
2019
Change in foreign currency
exchange rate
Change in foreign currency
exchange rate
Down 1%
Up 1%
Increase/(decrease) in annualised net profit
According to the business and market risk management organization structure, the group establishes the
trading book market risk quota management system. Formulated by the board of directors, the quantitative
index is the limitation of highest level risk, which is transmitted from top to bottom and level by level. Within
the scope of their authorization, management departments at all levels allocate and set quotas according
to risk characteristics, product types and trading strategies, etc. The business department shall carry out
the business according to the authorization and quota requirements, and the supervisory and administrative
departments at all levels shall continuously monitor and report according to the quota management
regulations.
415
The trading book market risk management adopts the scale index, loss limit index, sensitivity index, risk
value index, pressure test index and other risk measurement indexes as the quota index, and sets the limit
value by comprehensively considering the risk preference, risk tolerance, business operation strategy, risk
return, management conditions and other factors, considering such factors as risk preference, risk tolerance,
business operation strategy, risk return and management conditions and other factors.
Banking book
Amounts due from banks and
other financial institutions
521,209
454,186
57,023
10,000
Loans and advances to customers (note (i))
4,267,929
1,787,157
2,207,931
215,672
15,306
57,169
1,808,630
273,258
348,706
742,595
403,762
40,309
Other assets (note (ii))
251,859
251,859
Total assets
7,417,240
Investments (including derivatives)
552,307
567,613
Cash and Balances with central banks
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
I managed by the Asset and Liability Management Department. The audit department is responsible for
auditing.
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. 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 Group conducts stress test on interest rate risk of banking book on
a monthly basis. The results of stress test for 2019 showed that the interest rate risk of banking book of the
Company was generally stable with various indicators staying within the set limits.
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(2)
Banking book (continued)
The preference of the Group in respect of the interest rate risk in the banking book is neutrally prudent.
Based on the risk measurement and monitoring results, the Group 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.
The Group 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.
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.
2019
Total
3 months
or less
(include
overdue)
Over
Over
Non-
3 months
to 1 year
1 year
to 5 years
Over
5 years
interest
bearing
Assets
The group uses valuation, sensitivity analysis, value-at-risk analysis, pressure test and other measurement
methods to identify and quantify risk factors in the interest rate market. The group applies the market risk
measurement model in daily risk management and takes market risk measurement as the basis of business
planning, resource allocation, financial market business operation and risk management.
9,404
3,500
(650)
493,854
190,032
69,083 6,745,729
71,930
216,733
Liabilities
Amounts due to central bank, banks and
other financial institutions
1,025,703
103,989
13,116
5,992,760
Deposits from customers
316,770
142,793
7,348
37,139 4,400,674
1,150,156
15,146
14,959
46,137
162,857
Financial liabilities at fair value through profit
or loss (including derivatives)
49,486
3,903,972
Total
14,666
6,311
611,186
24,247
21,517
Loans and advances to customers
3,377,558
191,839
130,064
41,801
3,741,262
27,941
148,339
Investments (including derivatives)
1,576,694
73,949
23,563
12,290
1,686,496
10,771
26,873
Other assets
155,601
43,322
12,859
1,868
213,650
29,237
1,972
19
80,714
543,605
(252)
21,175
Net off-balance sheet position:
Credit commitments (note)
1,384,833
119,708
28,089
23,854 1,556,484
17,435
32,036
Derivatives:
- forward purchased
- forward sold
- net currency option position
Total
515,342 586,568
(542,869) (543,114)
(60,782)
(88,309)
64,568
52,220
(24,796)
364
25,454 1,179,584
85,433
59,557
(45,387) (1,156,166)
(79,104)
(28,280)
17,493
18,866
18,565
509,285
4,258
2,249
Debt securities issued
373,113
38,382
7,923
2,909
422,327
5,590
9,036
Other liabilities
131,201
7,214
5,663
4,175
148,253
1,051
6,457
Total
5,483,475 495,592
171,467
51,590 6,202,124
72,182
195,558
Net position
(1,738)
Deposits from customers
Deposits from customers (note (ii)
4,844,422
Other assets
68,165
68,290
24,041
4,861
6,485
10,969
2,772
10,023
9,139
4,017
Total
151,283 1,084,121
514,980
1,568,469 2,038,928 1,724,305
477,422
29,204
Non-derivative financial liabilities
Amounts due to banks and
other financial institutions
1,150,156
1,195,858
6,566,024 7,588,712
4,017
4,015
comprehensive income
- Debt investments at
amortised cost
903,268
1,059,887
11,876
82,521
126,478
539,495
298,966
51
551
- Debt investments at fair value
through other comprehensive
income
414,691
469,935
434
22,104
18,406
83,448 232,981
112,052
510
- Equity investments designated
at fair value through other
342,929
276
275,784
4,400,674
Other liabilities
117,184 117,690
35,521
44,540
9,085
17,487
7,224
1,863
1,970
Total
49,337
6,134,485 6,336,442 3,472,356
528,405
1,095,986
604,134
61,853
3,582
Gross loan commitments
942,392
942,392
Note: Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
279
570,126
Financial liabilities at fair value
88,801
68,511 224,268
4,523,601
3,072,330
220,813
197,112 344,251
251,698 504,660
27,644
6,526
1,612
470,186
3,914
Financial liabilities at fair value
through profit or loss
44,144
45,152
21,576
5,765
1,999
5,320
10,279
213
Debt securities issued
422,327
454,141
23,224
Deposits from customers
1,868
banks (note (i))
34,330
61,356
30,778
9,326
15,171
7,486
245
4,956
Total
6,744,657 6,969,913 3,418,526
671,917
128,346 129,318
708,155
886,361
58,185
4,956
Gross loan commitments
1,148,807 1,148,807
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(c) Liquidity risk (continued)
1,221,813
Other liabilities
40,692
4,993,293 2,906,977
306,506 132,560
30,190
107,009
12,541
2,645
9,445
2,768
475
525
6,060
13,545
1,094
3,941
10,202
9,391
43,434 44,233
14,379 15,858
575,362 599,308
Debt securities issued
Lease liabilities
through profit or loss
1,600
705,095
434,185
364,336
2018
After
581,100
After
664,376 92,117
425,647
42,522
99,309
3,567
1,214
Loans and advances to customers
3,741,262
4,485,884
429,359
305,185 1,224,946
1,281,883
18,728
Investments
- Financial assets at fair value
through profit or loss
330,302
343,188
3,070
190,274
59,861
After
23,319
611,186
other financial institutions
1,225,783
461,514
3 months
Amounts due from banks and
1 year
Carrying
amount
Total
Repayable
on demand
Within
but within
but within
After
1 month
but within
1 month
493,135
3 months
493,135
Non-derivative financial assets
Overdue
Cash and Balances with central banks
Indefinite
5 years
5 years
1 year
31,621
20
- Non-standard assets -Bills
864
844
199,817
- Investments in funds
71,699
414
2,149
2,457
199,817
- Wealth management products
69,136
17
20,810
369,393
2,951
393,154
Investments designated at FVTPL
-
· Debt securities
4,830
275
5,122
Derivative financial assets
1,315
24,219
Subtotal
1,142
Level 1 inputs: unadjusted quoted prices in active markets that are observable at the measurement date for
identical assets or liabilities;
183
24,219
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.
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 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 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.
China Merchants Bank
Annual Report 2019
IX Financial Statements
60. 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
The table below analyses financial instruments without interests, measured at fair value at the end of the reporting
period, by the level in the fair value hierarchy:
2019
Level 1
Level 2
Level 3
Total
Assets
Investments measured at FVTPL
Debt securities
17,336
100,420
378
118,134
- Long position in precious metal contracts
183
- Equity investments
Loans and advances to customers at FVTPL
66,634
Debt investments at FVTOCI
- Others
Subtotal
Derivative financial liabilities
Total
6,220
3,105
9,325
18,454
6,987
3,105
28,546
23,200
23,200
9,237
33,342
3,105
(i)
285
286
China Merchants Bank
Annual Report 2019
IX Financial Statements
60. 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)
2018
Level 1
Level 2
Level 3
30,187
9,237
- Debt securities issued
767
104,530
374,326
5,779
478,856
Loans and advances to customers at FVTOCI
233,789
Equity investments designated at FVTOCI
Total
2,329
30,346
3,748
264,135
132,499
1,002,002
42,841
6,077
1,177,342
Liabilities
- Precious metal relevant financial liabilities
13,701
13,701
- Short selling securities
1,187
1,187
Subtotal
14,888
14,888
Financial liabilities designated at FVTPL
Precious metal contracts with other banks
9,217
9,217
- Certificates of deposit issued
767
5,779
(g) Fair value information
735
29,842
55,926
57,086
169
Equity options written
1,160
55,926
57,086
(169)
Commodity trading
121
171
11
303
1,160
69
Credit default swap
570
137
707
4
Subtotal
2,441
741
112,000
115,182
242
(239)
Cash flow hedge derivatives
(69)
Equity options purchased
Other derivatives
(21,321)
25,398
148
11,172
Foreign exchange swaps
450,164
604,153
9,767
91,789
1,064,084
1,104
(867)
13,748
(12,551)
Futures
2,839
2,839
Options
185,109
253,869
5,377
444,355
2,766
(7,903)
Subtotal
690,344
886,259
15,292
11,172
1,603,067
17,618
Interest rate derivatives
Interest rate swaps
52
2,103
34,220
(36,570)
There was no ineffective portion of cash flow hedge during the year ended 31 December 2019 and 2018.
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.
283
284
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(f)
Use of derivatives (continued)
2019
2018
Credit risk weighted assets of counterparties
Interest rate derivatives
Currency derivatives
Other derivatives
Credit valuation adjustment risk weighted assets
Total
257
272
6,404
7,728
4,439
4,236
10,517
17,606
21,617
Total
Note: 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 CBIRC, covering default risk weighted assets of counterparties and credit valuation adjustment risk weighted
assets. The amount within the scope approved by CBIRC 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.
(62)
8,848
6,864
339
9,358
118
(2)
Derivatives managed in
conjunction with financial
instruments designated
at fair value through
profit or loss
Interest rate derivatives
Interest rate swaps
624
Total
4,707
6,066
103
103
(62)
Currency derivatives
Foreign exchange swaps
2,164
618
2,782
12
Subtotal
624
2,899
5,325
115
Assets
4,015
Debt securities
liquidity discount
Cash flow, risk-adjusted
discount rate, actual trading
conditions-adjusted discount rate
Cash flow, risk-adjusted
discount rate, actual trading
conditions-adjusted discount rate
Risk-adjusted discount rate,
Liquidity discount
Liquidity discount
Risk-adjusted discount rate,
Risk-adjusted discount rate,
cash flow
Financial liabilities designated
3,105
Net fund value approach
cash flow
Net assets, liquidity discount
China Merchants Bank
Annual Report 2019
IX Financial Statements
60. 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 are as below: (continued)
Fair value
as at
31 December
2018
Equity investments designated
1,031
Valuation techniques
Market approach
at FVTPL
approach
Discounted cash flow
approach
17
Investments designated at FVTPL
at FVTOCI
Equity investments designated
2,643
Net asset value approach
Net assets,
at FVTOCI
Loans and advances to
5,779
customers at FVTPL
Discounted cash flow
approach
Loans and advances to
30,346
customers at FVTOCI
Discounted cash flow
approach
Investments measured at FVTPL
- Debt securities
378
Discounted cash flow
approach
cash flow
- Equity investments
1,315
Market approach
- Investments in funds
414
Market approach
- Wealth management products
844
Discounted cash flow
Unobservable input
Liquidity discount
at FVTOCI
Equity investments designated
Discounted cash flow
approach
Market approach
Discounted cash flow
approach
Market approach
Discounted cash flow
approach
Discounted cash flow
Cash flow, risk-adjusted
discount rate, actual trading
conditions-adjusted discount rate
Cash flow, risk-adjusted
discount rate, actual trading
conditions-adjusted discount rate
Risk-adjusted discount rate,
cash flow
Liquidity discount
Risk-adjusted discount rate,
cash flow
Liquidity discount
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
cash flow
Risk-adjusted discount rate,
cash flow
Financial liabilities designated
2,514
Net fund value approach
Net assets, liquidity discount
at FVTPL
289
Discounted cash flow
approach
Liquidity discount
48
approach
1,509
Net asset value approach
Net assets, liquidity discount
at FVTOCI
Loans and advances to
403
customers at FVTPL
Discounted cash flow
approach
Loans and advances to
20,684
customers at FVTOCI
Discounted cash flow
approach
Investments measured at FVTPL
- Debt securities
746
- Equity investments
1,373
- Equity investments
5
- Investments in funds
307
- Investments in funds
99
- Wealth management products
1,060
approach
- Others
3
Discounted cash flow
Investments designated at FVTPL
Investments measured at FVTPL
Unobservable input
1,105
Derivative financial assets
34,220
Loans and advances to customers at FVTPL
403
Debt investments at FVTOCI
79,158
341,912
13,404
34,220
403
421,070
Loans and advances to customers at FVTOCI
156,683
20,684
177,367
Equity investments designated at FVTOCI
48
1,475
55,071
Total
98,180
841,929
27,268
967,377
Liabilities
Financial liabilities held for trading
- Precious metal relevant financial liabilities
17,906
17,906
- Short selling securities
1,090
2,540
8,384
4,972
- Debt securities
10,335
746
121,247
- Long position in precious metal contracts
111
111
- Equity investments
125
58
1,378
1,561
- Investments in funds
2,004
15,661
406
18,071
- Wealth management products
1,060
- Non-standard assets -Bills
174,845
- Others
3
1,060
174,845
3
Subtotal
12,575
300,730
3,593
316,898
Investments designated at FVTPL
1,090
Subtotal
18,996
18,996
(ii)
Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(1) Basis of determining the market price for recurring fair value measurements categorised within
Level 1
Bloomberg's quoted prices are used for financial instruments with quoted prices in an active market.
(2)
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 currency denominated swap yield curve as at the end
of reporting period.
Dealing price of the investment fund derived from the net asset values of the investment funds with reference
to observable quoted price in market is used as the basis of determining the market price for recurring fair
value.
The fair value of loans and advances to customers at FVTOCI in Mainland China is measured based on the
transaction interest rate of rediscounted bills announced by Shanghai Commercial Paper Exchange; the Group
uses 10-day average of the transaction interest rate as the basis for calculating the value of discounted
bills. The fair value of loans and advances to customers at FVTOCI outside Mainland China is measured by
discounted cash flow approach. The discount rates used are determined by factors such as credit rating of
the loan customer provided by S&P, Moody's or Fitch, customer industry, term to maturity of the loan, loan
currency and the issuer credit spread.
The fair value of non-standard bills at FVTPL in Mainland China is measured based on the transaction interest
rate of rediscounted bills announced by Shanghai Commercial Paper Exchange; the Group uses 10-day
average of the transaction interest rate as the basis for calculating the value of discounted bills.
The fair value of certificates of deposit issued is measured by using the comprehensive valuations issued by
Bloomberg.
287
288
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. 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 are as below:
Fair value
as at
31 December
2019
Equity investments designated
(g) Fair value information (continued)
Valuation techniques
Market approach
60. Risk management (continued)
IX Financial Statements
Financial liabilities designated at FVTPL
- Precious metal contracts with other banks
9,673
9,673
- Certificates of deposit issued
2,619
2,619
- Debt securities issued
9,977
9,977
- Others
365
2,514
2,879
Subtotal
19,650
2,984
2,514
25,148
Derivative financial liabilities
36,570
36,570
Total
38,646
39,554
2,514
80,714
During the year there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair
value hierarchy.
China Merchants Bank
Annual Report 2019
Forwards
110,166
(198)
(14,946)
4,644,767
1,272
1,723,783
2,143,494
776,218
Subtotal
1
279
279
Bond options
10
10,978
(14)
871
35
348
488
10
Bond futures
Bond forwards
(10,676)
10,960
4,643,607
1,272
1,723,469
17
2,143,146
(10,690)
Forwards
232,799
5,183
103,354
124,262
Options
2,944
2,564
380
Futures
(7,781)
8,595
Currency derivatives
833,418
12,541
390,664
428,898
Foreign exchange swaps
(477)
569
65,987
21,541
803
7,007
36,636
1,315
775,720
Interest rate swaps
Liabilities
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.
Since 1 January 2013, the Group has calculated its capital adequacy ratio in accordance with the CBIRC's
Administrative Measures on the Capital of Commercial Banks (Trial) and other relevant regulations. On 18 April 2014,
the CBIRC approved the Bank to adopt the advanced capital management approach. Within the scope of approval
of the CBIRC, the Bank could calculate corporation and financial institutions risk exposure using the primary internal
rating-based approach, retail risk exposure using the advanced internal rating-based approach, market risk using
the internal model approach, and operational risk using the standardised approach. At the same time, the CBIRC
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.
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 2019, the Group's subsidiaries that were within the
scope of consolidated statements in respect of the capital adequacy ratio included: CMB WLB, CMBICHC, CMBFLC
and CMFM, CMBWM.
(e) Capital management (continued)
60. Risk management (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
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, additional 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
CBIRC. The Group and the Bank file required information to CBIRC quarterly.
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.
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;
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;
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.
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;
(e) Capital management
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.
During the reporting period, through the strengthening of operational risk appraisal and assessment mechanisms,
stepping up the identification, evaluation and monitoring of operational risk in key areas, the Group carried out a
comprehensive special management of low-risk business. Starting with process, institution, employee and system, the
Group focused on the existing problems of critical control segment, and measured these problems by management
requirement's solidification and refinement. Meanwhile, further improvement on operational risk management
framework and methods, developing operational risk assessment mechanism and strengthening operational risk
management economic capital allocation mechanism can enhance the ability and effectiveness of operational risk's
management in the Group. Now all major indexes can meet the requirements of the Group's risk preference.
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.
(d) Operational risk
60. Risk management (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
280
Currency derivatives
The objectives of the Group's capital management are to:
(f) Use of derivatives
Derivatives include forward, swap and option transactions undertaken by the Group in the foreign exchange and
interest rate markets.
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.
Assets
Total
More than
5 years
1
year
and 5 years
Between
Between
3 months
and 1 year
Within
3 months
Fair value
Notional amounts with remaining life of
2019
Interest rate derivatives
through profit or loss
Derivatives at fair value
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 transaction volume that has not been delivered at the end of the reporting period, not representing amounts at
risk.
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.
(f) Use of derivatives (continued)
60. Risk management (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
282
281
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.
The Group will choose appropriate hedging strategies and tools in light of the risk profile of interest rates or
exchange rates of its assets and liabilities, as well as its analyses and judgement regarding future interest rates or
exchange rate movements.
3,313
(3,498)
Financial liabilities held for trading
590,176
More than
5 years
Total
Assets
Liabilities
Bond Forwards
636,827
481
1,804,827
618
1,922,312
343
3,323
4,367,289
1,442
15,929
198
Between
1 year
and 5 years
(14,748)
637,308
1,805,445
1,922,655
3,323
4,368,731
49
7
16,127
Currency derivatives
Subtotal
4,482
Subtotal
Between
3 months
and 1 year
3 months
Within
Foreign exchange swaps
586
586
2
Subtotal
634
1,271
3,163
5,068
9
Total
24,219
(34)
(23,200)
China Merchants Bank
IX Financial Statements
Annual Report 2019
60. Risk management (continued)
(f)
Use of derivatives (continued)
Derivatives at fair value
through profit or loss
Interest rate derivatives
Interest rate swaps
2018
Notional amounts with remaining life of
Fair value
2,577
1,271
(34)
Interest rate swaps
697
836
1,533
2
Subtotal
5,151
634
113,433
130,219
750
(720)
Credit default swap
Cash flow hedge derivatives
Interest rate derivatives
Interest rate swaps
55
6,549
507
209
7,320
5
Derivatives managed in
conjunction with financial
instruments designated
at fair value through
(213)
11,635
2,720
Interest rate derivatives
503,589
18,527
241
1,135,148
profit or loss
12,477
(11,756)
Other derivatives
Equity options purchased
1,423
5,113
22,856
62,983
56,447
573
Commodity trading
(507)
62,983
1,608
5,113
1,423
Equity options written
507
56,447
539
4,681
572,873
Debt securities issued
2.17
4,719
861,608
2.20
4,733,875
other financial institutions
Deposits and placements from banks and
1.64
19,517
1.63
19,800
4,816,302
Deposits from customers
844,704
4,849
4,605
549,771
Annual Report 2019
3.2.6 Net non-interest income
In 2019, the Group recorded a net non-interest income of RMB96.698 billion, up by 9.81% from the previous year.
The components are as follows:
Net fee and commission income amounted to RMB71.493 billion, representing an increase of 7.54% as compared
with the previous year. Among the fee and commission income, income from bank card fees amounted to
RMB19.551 billion, representing an increase of 16.88% as compared with the previous year, which was primarily
attributable to the increase in bank card transaction volume, hence resulting in the increase in revenue; income from
settlement and clearing fees amounted to RMB11.492 billion, representing an increase of 11.93% as compared with
the previous year, which was primarily attributable to the increase in income from e-payment; income from agency
services fees amounted to RMB13.681 billion, representing an increase of 4.51% as compared with the previous year
on the same statistical calibre, which was primarily attributable to the increase in income from agency distribution
of insurance policies, securities brokerage for our subsidiaries and other agency businesses. The commissions from
credit commitment and loan business amounted to RMB6.310 billion, representing a decrease of 7.30% as compared
with the previous year, which was mainly attributable to the decrease in the fee income from our financial leasing
business; the commissions from trust and other fiduciary activities amounted to RMB23.560 billion, representing an
increase of 0.81% as compared with the previous year on the same statistical calibre.
Other net non-interest income amounted to RMB25.205 billion, representing an increase of 16.80% as compared
with the previous year, of which, net investment income amounted to RMB14.048 billion, representing an increase
of 24.02% as compared with the previous year, mainly due to the increase in gains on non-standardised bill
investments and bond investments at fair value through profit or loss; net profit from fair value change amounted to
RMB384 million, representing a decrease of 64.80% as compared with the previous year, which was mainly due to
the decrease in the valuation of non-standardised bill investments at fair value through profit or loss; other income
amounted to RMB5.791 billion, representing an increase of 34.21% as compared with the previous year, which was
mainly due to the increase in the income from operating leases.
In terms of business segments, the net non-interest income from retail finance amounted to RMB47.951 billion,
representing an increase of 10.93% as compared with the previous year and accounting for 49.59% of the Group's
net non-interest income; the net non-interest income from wholesale finance amounted to RMB36.052 billion,
representing an increase of 11.70% as compared with the previous year and accounting for 37.28% of the Group's
net non-interest income; the net non-interest income from other businesses amounted to RMB12.695 billion,
representing an increase of 1.08% as compared with the previous year and accounting for 13.13% of the Group's
net non-interest income.
(in millions of RMB)
2019
2018
Fee and commission income
79,047
73,046
Bank card fees
19,551
16,727
Settlement and clearing fees
11,492
Less: fees and commission expense
2,784
4,453
Others
23,370
23,560
Chapter III Report of the Board of Directors
Commissions on trust and fiduciary activities
6,310
Commissions from credit commitment and loan business
13,091
13,681
Agency service fees
10,267
6,807
3.36
China Merchants Bank
25
3.32
Borrowings from the central bank
289,380
2,211
3.03
275,671
2,116
3.05
Lease liabilities
15,776
163
4.10
12,873
133
4.10
Total
6,539,035
In the fourth quarter of 2019, the net interest margin of the Group was 2.40%, down by 16 basis points as
compared with the third quarter of 2019, and its net interest spread was 2.30%, down by 15 basis points as
compared with the third quarter of 2019. The annualised average yield of the interest-earning assets was 4.22%,
down by 15 basis points as compared with the third quarter of 2019 while the annualised average cost ratio of
interest-bearing liabilities was 1.92%, remaining the same as compared with the third quarter of 2019. For the
reasons for the decrease in the Company's net interest margin from the previous quarter, please refer to 3.9.1 "Net
interest margin" in this chapter.
2.56
2.40
Net interest margin
2.30
Net interest spread
26
43,817
Net interest income
1.92
31,090
6,433,798
1.92
31,704
41,866
2.45
Expense
(%)
Annualised
Average
Interest
average
Average
Interest
average
(in millions of RMB, except for percentages)
balance
income
yield (%)
balance
income
yield (%)
Interest-earning assets
Loans and advances to customers
4,462,793
55,710
4.95
Annualised
4,404,849
July to September 2019
The following table sets out the average balances of assets and liabilities, interest income/interest expenses and
annualised average yields/cost ratios of the Group for the periods indicated. The average balance of the interest-
earning assets and interest-bearing liabilities is the daily average balance.
negotiation can not
Simple Work Style
Whenever one
66
(323)
(1,775)
Lease liabilities
557
557
Changes in interest expense
10,214
(837)
9,377
Changes in net interest income
14,136
(1,430)
12,706
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
October to December 2019
Interest-bearing liabilities
57,191
Investments
73,570
4.22 6,800,424
74,907
4.37
Annualised
Annualised
Average
Interest
average
cost ratio
average
Average
Interest
cost ratio
(in millions of RMB, except for percentages)
balance
(7,554)
(%)
balance
Expense
6,914,804
5.15
Total
3,371
1,339,480
12,290
3.64
1,351,054
12,366
3.63
Balances with the central bank
503,820
1,973
1.55
502,025
1,979
1.56
Balances and placements with banks and
other financial institutions
608,711
3,597
2.34
542,496
2.47
(6,566)
27
Other net non-interest income
31 December 2019
31 December 2018
(in millions of RMB, except for percentages)
Derivative financial assets
Amount
24,219
Percentage of
the total (%)
1.33
Amount
34,220
Percentage of
the total (%)
2.02
Investments at fair value through
profit or loss (1)
398,276
21.89
330,302
19.48
- Bond investments
123,256
6.77
134,651
7.94
- Non-standardised credit asset investments
199,817
10.98
174,845
The following table sets forth the components of investment securities and other financial assets of the Group by
line items.
10.31
The Group's investment securities and other financial assets consist of listed and unlisted financial instruments
denominated in RMB and foreign currencies.
Chapter III Report of the Board of Directors
9.08
Goodwill
9,954
0.13
9,954
0.15
Other assets (3)
Total assets
Notes:
196,049
7,417,240
2.65
158,359
2.35
100.00
6,745,729
100.00
(1)
The "allowances for impairment losses on loans" as at the end of the year include the allowances for impairment losses of the principal and
interest of the loans and advances to customers measured at amortised cost. The allowances for impairment losses of RMB341 million were
not deducted from the carrying values of the loans and advances to customers measured at fair value through other comprehensive income.
For details, please refer to Note 22(a) to the financial statements.
(2)
Including balances and placements with banks and other financial institutions and amounts held under resale agreements.
(3)
Including fixed assets, right-of-use assets, intangible assets, investment properties, deferred tax assets and other assets.
3.3.1.1 Loans and advances to customers
As at the end of the reporting period, total loans and advances to customers of the Group amounted to
RMB4,490.650 billion, representing an increase of 14.18% as compared with the end of the previous year; total
loans and advances to customers accounted for 60.54% of the total assets, representing an increase of 2.24
percentage points as compared with the end of the previous year. For details of the loans and advances to customers
of the Group, please refer to the section headed "Analysis of Loan Quality" in this chapter.
China Merchants Bank
Annual Report 2019
3.3.1.2 Investment securities and other financial assets
- Others(2)
75,203
4.14
414,691
24.46
Equity investments designated at fair value through
other comprehensive income
6,077
0.33
4,015
0.24
Investments in joint ventures and associates
10,784
0.60
8,871
0.52
Total investment securities and other
financial assets
1,819,414
100.00
1,695,367
100.00
Notes:
(1)
Beginning from the 2019 annual report, the Group will incorporate the coupon interest receivable of its investments measured at fair value
through profit or loss in the fair value of its assets and disclose them together, and restate the comparable balance of the corresponding assets
as at the end of the previous year.
(2)
Including equity investments, investments in funds, wealth management products, long position in precious metal contracts and others.
29
25.97
472,586
comprehensive income
(0.48)
20,806
1.23
Debt investments at amortised cost
907,472
49.88
903,268
53.28
- Bond investments
778,170
42.77
657,926
38.81
612,957
- Non-standardised credit asset investments
7.84
252,884
14.92
- Others
564
0.04
538
0.03
- Less: allowances for impairment losses
Debt investments at fair value through other
(13,995)
(0.77)
(8,080)
142,733
7.04
522,507
Inter-bank transactions (2)
3.2.7 Operating expenses
In 2019, the Group's operating expenses amounted to RMB91.497 billion, representing an increase of 12.81%
as compared with the previous year, among which staff costs increased by 11.76% and other general and
administrative expenses increased by 14.37% as compared with the previous year. The cost-to-income ratio was
32.08%, representing an increase of 1.04 percentage points as compared with the previous year. The increase
in operating expenses was primarily attributable to the Group strengthening its efforts to support the Fintech
innovation, enhancing its technology-based capability, and increasing its investment in digital infrastructure and R&D
talents. In order to transform and upgrade its business models and foster its ability to acquire customers by digital
means and carry out digital operations for the whole business lines, the Group increased its investment in related
business areas. In order to improve the outlets' brand image and service level, the Group increased investment in the
upgrade of the hardware and software of its digital outlets. The Company's cost-to-income ratio was 32.53%, up by
1.30 percentage points as compared with the previous year.
The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
Group.
(in millions of RMB)
Staff costs
Depreciation, amortisation and rental expenses
Taxes and surcharges
Other general and administrative expenses
Allowances for insurance claims
Total
2019
2018
51,439
46,025
12,059
10,495
2,348
2,132
25,406
22,214
245
91,497
244
81,110
3.2.8 Expected credit losses
In 2019, the expected credit losses of the Group were RMB61.066 billion, representing a year-on-year increase of
0.39%.
The following table sets forth, for the periods indicated, the principal components of expected credit losses of the
Group.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
22
conclude one pending issue,
Other net income
Net profit from fair value change
- Net investment income
- Exchange gain
Other income
71,493
66,480
25,205
21,580
23,482
20,271
384
(in millions of RMB)
1,091
11,327
3,259
3,538
5,791
4,315
Share of profits of associates and joint ventures
Total net non-interest income
1,723
1,309
96,698
88,060
Note: In 2019, the Group adjusted the statistical calibre of the breakdown items of fee and commission income, service fees for securities brokerage
and investment services provided by its subsidiaries were adjusted from "others" to "agency service fees", the fund management fees of the
subsidiaries were adjusted from "others" to "commissions on trust and fiduciary activities", and corresponding adjustments were made to the
comparable figures of the previous year.
14,048
Net fee and commission income
2019
Loans and advances to customers
Amount
Percentage of
the total (%)
4,500,199
60.67
3,941,844
58.43
(222,899)
(3.00)
(191,895)
(2.84)
Net loans and advances to customers
Investment securities and other financial assets
4,277,300
57.67
3,749,949
55.59
1,839,440
24.80
1,714,490
25.42
Cash, precious metals and balances with the
central bank
571,990
7.71
500,020
7.41
Percentage of
Amount the total (%)
(in millions of RMB, except for percentages)
Total loans and advances to customers
Allowances for impairment losses on loans (1)
31 December 2018
31 December 2019
54,214
59,252
Financial investments
6,481
1,176
Amounts due from banks and other financial institutions
(208)
(368)
Expected credit losses relating to financial guarantees and loan commitments
Other assets
545
374
34
2018
395
60,829
61,066
Expected credit losses of loans and advances to customers were the largest component of expected credit losses. In
2019, expected credit losses of loans and advances to customers of the Group were RMB54.214 billion, representing
a year-on-year decrease of 8.50%. In 2019, the Group has, from a forward-looking perspective, increased the
provision for its proprietary non-standardised corporate investments. For details of the allowances for impairment
losses on loans, please refer to the section headed "Analysis of Loan Quality" in this chapter.
28
China Merchants Bank
Chapter III Report of the Board of Directors
Annual Report 2019
3.3 Analysis of Balance Sheet
3.3.1 Assets
As at the end of the reporting period, the total assets of the Group amounted to RMB7,417.240 billion, up by 9.95%
from the end of the previous year, which was mainly attributable to the increase in loans and advances to customers
and bond investments of the Group.
To maintain the figures comparable, the financial instruments in section "3.3.1 Assets" were still analysed on the
statistical calibre excluding interest receivable, except for the table "components of the total assets of the Group",
in which interest receivable calculated using the effective interest method was included as required by the Ministry
of Finance.
The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
Total expected credit losses
escalate.
Chapter III Report of the Board of Directors
eyes of data.
Balance
Expense
(%)
Balance
Interest
Expense
Average
cost ratio
(%)
Deposits from corporate customers
Demand
1,607,847
(in millions of RMB, except for percentages)
13,245
1,559,171
12,641
0.81
Time
1,363,971
38,900
2.85
1,242,061
34,166
2.75
0.82
Subtotal
Average
Interest
195,120
8,718
4.47
221,979
5.17
3,825,123
196,370
5.13
In 2019, from the perspective of the maturity structure of loans and advances to customers of the Company, the
average balance of short-term loans was RMB1,668.152 billion with the interest income amounting to RMB100.094
billion, and the average yield reached 6.00%; the average balance of medium-to-long term loans was RMB2,316.817
billion with the interest income amounting to RMB109.447 billion, and the average yield reached 4.72%. The
average yield of short-term loans was higher than that of medium-to-long term loans, which was attributable to the
higher yield of credit card overdrafts and micro-finance loans in short-term loans.
Interest income from investments
Average
cost ratio
In 2019, the interest income from investments of the Group was RMB48.902 billion, representing a year-on-year
increase of 1.32%. The average yield of investments was 3.66%, down by 11 basis points as compared with the
previous year, which was mainly attributable to the impact of the falling market interest rates.
In 2019, the interest income of the Group from balances and placements with banks and other financial institutions
was RMB14.354 billion, representing a year-on-year decrease of 21.62%, and the average yield of balances and
placements with banks and other financial institutions was 2.51%, representing a year-on-year decrease of 40 basis
points, which was primarily attributable to the Group's efforts towards continued optimisation of its assets structure
and the reduction in the allocation of low-yield assets such as the placements with banks and other financial
institutions during the period of downward market interest rates.
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
3.2.4 Interest expense
In 2019, the interest expense of the Group was RMB119.904 billion, representing a year-on-year increase of 8.48%,
which was primarily attributable to the increase in the size of interest-bearing liabilities and the persistent increase in
the cost ratio of deposits from customers, which has bolstered up the interest expense of the Group.
Interest expense on deposits from customers
In 2019, the Group's interest expense on deposits from customers was RMB73.430 billion, up by 18.46% as
compared with the previous year, which was mainly due to the intensified competition in deposits in addition to the
increase in size, as well as the Group appropriately increasing the supply of the relatively high-cost deposit products
such as structured deposits and large- deposit certificates in order to accommodate our customers' matured wealth
management funds, resulting in a rise in the cost ratio of deposits.
The following table sets forth, for the periods indicated, the average balances, interest expenses and average cost
ratios for the deposits from corporate and retail customers of the Group.
2019
2018
Average
Interest income from balances and placements with banks and other financial institutions
3.31
2,971,818
1.75
73,430
1.58
4,269,523
61,987
1.45
Interest expense on deposits and placements from banks and other financial institutions
In 2019, the interest expense of the Group on deposits and placements from banks and other financial institutions
amounted to RMB19.079 billion, representing a year-on-year decrease of 17.15%, which was primarily due to the
declining market interest rates, which in turn brought down the cost of interbank liabilities. Meanwhile, the Group
continued to optimise its liability structure and constantly increased the proportion of its proprietary deposits, and
had the proportion of its interbank liabilities under proper control in line with the market liquidity conditions.
Interest expense on debt securities issued
In 2019, the interest expense on debt securities issued of the Group amounted to RMB17.631 billion, representing
a year-on-year increase of 21.34%, which was primarily attributable to the increase in interbank certificates of
deposits and long-term debt securities.
3.2.5 Net interest income
In 2019, the Group's net interest income amounted to RMB173.090 billion, representing a year-on-year increase of
7.92%.
The following table sets out the average balances of assets and liabilities, interest income/interest expense, and
average yield/cost ratio 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.
4,636,967
2019
(in millions of RMB, except for percentages)
Average
Balance
Interest
Income
Average
yield (%)
Average
Balance
Interest
Income
Average
yield (%)
Interest-earning assets
Loans and advances to customers
2018
52,145
Total
15,180
2,801,232
All ideas are equal in the
1.67
Deposits from retail customers
Demand
1,081,045
3,973
0.37 1,029,918
3,409
0.33
1.03
Time
17,312
2.96
438,373
11,771
2.69
Subtotal
1,665,149
21,285
1.28
1,468,291
584,104
4,289,765
8,302
Loans and advances to customers
93,423
80,819
12,604
Net profit attributable to shareholders of the Bank
92,867
80,560
12,307
21
22
22
Net profit
China Merchants Bank
Annual Report 2019
3.2.2 Net operating income
In 2019, the net operating income of the Group was RMB269.788 billion, representing an increase of 8.59% as
compared with the previous year. The net interest income accounted for 64.16% of the net operating income, the
net non-interest income accounted for 35.84% of the net operating income, representing a year-on-year increase of
0.40 percentage point.
The following table sets out the percentages of the components of the net operating income of the Group in the
recent three years.
(%)
Net interest income
Other net income
Net fee and commission income
Share of profits of associates and joint ventures
Total
Chapter III Report of the Board of Directors
2019
1,969
(23,709)
Other net income
23,482
20,271
3,211
Operating expenses
(91,497)
(81,110)
(10,387)
Share of profits of associates and joint ventures
Expected credit losses
1,723
(25,678)
(61,066)
414
(237)
Impairment losses on other assets
(93)
(8)
(85)
Profit before tax
117,132
106,497
10,635
Income tax
1,309
(60,829)
250,635
4,289,765
2018
64.16
(in millions of RMB, except for percentages)
Balance
Income
yield (%)
Balance
Income
yield (%)
Corporate loans
1,818,831
78,914
Average
4.34
73,954
4.24
Retail loans
2,220,299
134,763
6.07
1,886,389
113,698
6.03
Discounted bills
1,743,614
2017
Interest
Average
64.56
65.53
26.50
26.76
28.96
8.70
8.16
5.05
0.64
0.52
Average
0.46
100.00
100.00
3.2.3 Interest income
In 2019, the Group recorded an interest income of RMB292.994 billion, representing a year-on-year increase of
8.15%, mainly due to the increase in interest-earning assets, and increased yield of interest-earning assets brought
by the continuous optimisation of asset structure as well as improvement in risk pricing. Interest income from loans
and advances to customers continued to be the biggest component of the interest income of the Group.
Interest income from loans and advances to customers
In 2019, the interest income from loans and advances to customers of the Group was RMB221.979 billion,
representing a year-on-year increase of 13.04%.
The following table sets forth, for the periods indicated, the average balance, interest income and average yield of
each component of loans and advances to customers of the Group.
2019
2018
Average
Interest
100.00
221,979
46,807
3,825,123
Interest-earning assets
Loans and advances to customers
2019 compared with 2018
Increase (decrease) due to
Volume Interest rate
24,043
1,566
25,609
Investments
2,063
(in millions of RMB)
(1,428)
Balances with the central bank
(268)
66
(202)
Balances and placements with banks and
other financial institutions
(1,488)
71,493
5.17
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 volume were measured by changes
in average balances (daily average balance), while changes in interest rate were measured by changes in the average
interest rates; the changes in interest income and interest expenses due to changes in both volume and interest rates
have been included in the amount of changes in interest income and interest expenses due to changes in volume.
In 2019, the average yield of our interest-earning assets was 4.38%, representing a year-on-year increase of 4 basis
points; the average cost ratio of our interest-bearing liabilities was 1.90%, same as that of the previous year; the net
interest spread and the net interest margin were 2.48% and 2.59%, representing a year-on-year increase of 4 and 2
basis points, respectively.
Note: The Group began to implement the International Financial Reporting Standard 16 - Leases (the "New Lease Standards") on 1 January 2019,
pursuant to which, for lease contracts, the Group recognised the lease liabilities based on the present value of the lease payments that have
not been paid on the commencement date of the lease term, and subsequently calculated the interest expense of the lease liabilities in each
period using the effective interest method and recognised it as interest expense, except for short-term leases and low-value lease contracts. The
comparable figures for the corresponding period of the previous year were not subject to adjustment.
N/A
Total
6,298,768
119,904
1.90
5,820,808
110,527
1.90
Net interest income
Net interest spread
Net interest margin
173,090
160,384
/
2.48
2.44
2.59
/
2.57
(2,471)
N/A
(3,959)
24,350
Changes
2018
2019
(in millions of RMB)
In 2019, the Group realised a profit before tax of RMB117.132 billion, representing a year-on-year increase of 9.99%.
The effective income tax rate was 20.24%, representing a year-on-year decrease of 3.87 percentage points. The
following table sets out the changes in major income/loss items of the Group in 2019.
3.2.1 Financial highlights
3.2 Analysis of Income Statement
The quality of our assets continued to improve with a decrease in both the balance and percentage of non-
performing loans, and the allowance coverage ratio remained solid. As at the end of the reporting period, the Group
had total non-performing loans of RMB52.275 billion, representing a decrease of RMB1.330 billion as compared
with the end of the previous year. The non-performing loan ratio was 1.16%, down by 0.20 percentage point as
compared with the end of the previous year. The non-performing loan allowance coverage ratio was 426.78%,
representing an increase of 68.60 percentage points as compared with the end of the previous year; the loan
allowance ratio was 4.97%, representing an increase of 0.09 percentage point as compared with the end of the
previous year.
Net interest income
The scale of assets and liabilities expanded steadily. As at the end of the reporting period, the Group's total assets
amounted to RMB7,417.240 billion, representing an increase of 9.95% as compared with the end of the previous
year. The total loans and advances to customers amounted to RMB4,490.650 billion, representing an increase
of 14.18% as compared with the end of the previous year. Total liabilities amounted to RMB6,799.533 billion,
representing an increase of 9.63% as compared with the end of the previous year. Total deposits from customers
amounted to RMB4,844.422 billion, representing an increase of 10.08% as compared with the end of the previous
year.
In 2019, the Group continued to implement its strategic direction of "Light-operation Bank" and the strategic
positioning of "One Body with Two Wings" by carrying out various businesses in a proactive and sound manner.
Our overall operation continued to improve and the dynamic and balanced development of "Quality, Efficiency and
Scale" was achieved, which were reflected mainly in the following aspects:
3.1 Analysis of Overall Operation
Report of the Board of Directors
Annual Report 2019
China Merchants Bank
"
it's not your thing.
Do the right thing, even if
Earnings increased rapidly with higher capital returns. In 2019, the Group realised a net profit attributable to
shareholders of the Bank of RMB92.867 billion, representing a year-on-year increase of 15.28%, the highest since
2013; the net interest income was RMB173.090 billion, representing a year-on-year increase of 7.92%; the net
non-interest income was RMB96.698 billion, representing a year-on-year increase of 9.81%; the return on average
asset (ROAA) attributable to shareholders of the Bank and return on average equity (ROAE) attributable to ordinary
shareholders of the Bank were 1.31% and 16.84%, up by 0.07 percentage point and 0.27 percentage point from
the previous year, respectively.
173,090
160,384
12,706
(2,267)
22,083
Interest-bearing liabilities
Deposits from customers
5,819
5,624
11,443
Deposits and placements from banks and
other financial institutions
(447)
(3,502)
(3,949)
Debt securities issued
5,737
(2,636)
3,101
Borrowings from the central bank
(1,452)
Net fee and commission income
Changes in interest income
N/A
635
557
4.34
23
24
24
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
Average
Average
Average
Interest
cost ratio
Average
Interest
cost ratio
(in millions of RMB, except for percentages)
Balance
Expense
(%)
Balance
Expense
(%)
Interest-bearing liabilities
Deposits from customers
4,636,967
270,911
6,244,967
4.38
292,994
196,370
5.13
Investments
1,335,247
48,902
3.66
1,278,915
48,267
4.09
Balances with the central bank
493,722
7,759
73,430
1.57
7,961
1.56
Balances and placements with banks and
other financial institutions
570,995
14,354
2.51
630,169
18,313
2.91
Total
6,689,729
510,760
1.58
3.77
61,987
other financial institutions
843,293
19,079
2.26
863,041
23,028
2.67
Debt securities issued
504,241
17,631
3.50
66,480
340,151
4.27
Borrowings from the central bank
300,662
9,207
3.06
348,093
10,982
3.15
Lease liabilities
13,605
4,269,523
14,530
5,013
Net increase
(decrease)
Deposits and placements from banks and
1.45
(1)
Shenzhen
Shenzhen Yan Qing
distribution, shipping agency
services, etc.
chain management and
shareholder
repair, procurement, supply
Li Jianhong
Limited company
The largest
Transportation, building and
13.04%
(note (ii))
RMB7,000 million 3,289,470,337
Beijing
China Merchants Steam
Navigation Co., Ltd.
(CMSNCL)
Legal
representative
Li Jianhong
parent
company
shareholder's
and facility, repair and
contracting, sales operating
management service, etc.
manufacturing building
and storage, leasing,
agency, warehousing
(note (i)(viii)))
million
Legal form
Limited company
The largest
Transportation, shipping
29.97%
RMB600 million 1,258,542,349
4.99%
Invest and set up industries,
Shareholder
Hong Xiaoyuan
Limited company
Shareholder
Invest and set up industries,
4.55%
RMB600 million 1,147,377,415
Shenzhen
China Merchants Finance
marketing business, etc.
materials supply and
Development Co., Ltd.
domestic commerce,
Investment and
RMB16,700 7,559,427,375
Xu Xin
Shareholder
Invest and set up industries,
3.74%
RMB600 million 944,013,171
Shenzhen
Shenzhen Chu Yuan
marketing business, etc.
materials supply and
Co., Ltd.
domestic commerce,
Investment Development
Xu Xin
Limited company
Limited company
Beijing
The relationship
with the Bank
Financial Assets
Subordinated notes issued
Level 2 Level 3
Level 1
Carrying Fair
Level 3 amount value
Level 2
Level 1
Fair
value
Carrying
amount
2018
2019
Financial liabilities mainly include deposits from customers, amounts due to banks and other financial
institutions, sold under repurchase agreements, and debts securities issued by the Group. The carrying value
of financial liabilities approximate their fair value at the end of the year presented, except the financial
liabilities set out below:
Financial Liabilities
(2)
34,469 35,631
Level 1 Level 2 Level 3
4,777 663,110 257,476
Level 1
6,577
Carrying Fair
amount value
907,472 930,217
Debt investments at amortised cost
2018
2019
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
category adopts discounted cash flow valuation technique to measure fair value.
The carrying value, fair value and fair value hierarchy of Debt investments at amortised cost not measured or
disclosed at fair value are listed as below:
Debt investments at amortised cost are stated at amortised costs less impairment, and the fair value of listed
debt securities are disclosed in Note 23(b).
Except for loans and advances and held-to-maturity investments, most of the financial assets will mature
within 1 year, and their carrying value approximate their fair value. Loans and advances are stated at
amortised costs less allowances for impairment loss (Note 22). Loans and advances are mostly priced at
floating rates close to the PBOC rates and repriced at market rates at least annually, 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 is close to the fair value.
The Group's financial assets 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.
(g) Fair value information (continued)
(iii)
Financial assets and financial liabilities that are not measured at fair value
Carrying Fair
Level 2 Level 3 amount value
789,068 134,572 903,268 925,363
China Merchants Group
(CMG)
35,631
46,191
Bank Business
Company
held by the held by the
held by the
Company
paid capital
Issued and fully
Registered
location
Company name
of the Bank the Company
of the Bank
Proportion Proportion of
No. of Shares
The Bank's main shareholders and its parent company and the Bank's subsidiaries.
45,714 46,191
(a)
Annual Report 2019
IX Financial Statements
China Merchants Bank
150,903
150,197 150,903
203,036
200,071 203,036
Total
104,712
104,483 104,712
167,405
165,602 167,405
Long-term debt securities issued
61. Material related-party transactions
Material connected person information
In profit or loss
marketing business, etc.
RMB3,191,200,000
RMB2,000,000
RMB1,398,941,000
China COSCO Shipping Financial Holdings Co., Ltd.
Guangzhou Tri-Dynas Oil & Shipping Co., Ltd.
China Communications Construction Group LTD
China Communications Construction Co., Ltd
HKD500,000,000
RMB299,020,000
HKD500,000,000
RMB299,020,000
RMB7,274,023,830
RMB5,855,423,830
RMB2,000,000
RMB1,398,941,000
RMB16,174,735,425
Shanghai Automotive Industry Corporation (Group)
RMB21,599,175,737
RMB21,599,175,737
SAIC Motor Corporation Limited
RMB11,683,461,365
RMB11,683,461,365
Hebei Port Group Co., Ltd.
RMB8,000,000,000
RMB8,000,000,000
RMB16,174,735,425
CMBICHC
RMB3,191,200,000
RMB16,191,351,300
RMB600,000,000
China Merchants Union (BVI) Limited.
USD50,000
USD60,000
USD50,000
USD60,000
China Merchants Industry Development (Shenzhen)
Co., Ltd.
China Insurance Security Fund Co., Ltd
Hexie Health Insurance Co., Ltd
Dajia Life Insurance Co., Ltd
RMB16,191,351,300
China COSCO Shipping Corporation Limited.
China COSCO Shipping (Guangzhou) Co., Ltd.
Guangzhou Haining Maritime Technology Service
Co., Ltd.
China COSCO Shipping (Shanghai) Co., Ltd.
USD10,000,000
RMB100,000,000
USD10,000,000
RMB100,000,000
RMB 13,900,000,000
RMB30,790,000,000
RMB13,900,000,000
RMB30,790,000,000
RMB11,000,000,000
RMB11,000,000,000
China Ocean Shipping Co., Ltd.
RMB600,000,000
CMBFLC
CMFM
CMBFLC
The subsidiaries held by the Bank
CMB WLB
CMBICHC
CMBWM
RMB
At 1 January 2019
Change
%
HKD %
RMB %
3,289,470,337 13.04 4,129,000,000 100.00 6,000,000,000 100.00
HKD %
1,160,950,575 100.00
HKD
720,500,000 55.00
CMBICHC
%
At 31 December 2019
3,289,470,337 13.04 4,129,000,000 100.00 6,000,000,000 100.00
1,160,950,575 100.00
5,000,000,000 100%
720,500,000 55.00 5,000,000,000 100%
The Bank held by the
largest shareholder
CMSNCL
RMB
%
CMBICHC
HKD
RMB %
CMB WLB
CMSNCL
The change of proportion of the Bank held by the largest shareholder and the portion of the subsidiaries
held by the Bank
CMBWM
CMB Europe S.A.
HKD4,129,000,000
HKD4,129,000,000
RMB6,000,000,000
RMB6,000,000,000
HKD1,160,950,575
HKD1,160,950,575
RMB1,310,000,000
The Bank held by the
largest shareholder
RMB1,310,000,000
N/A
EUR50,000,000
N/A
China Merchants Bank
IX Financial Statements
Annual Report 2019
61. Material related-party transactions (continued)
(a)
Material connected person information (continued)
RMB5,000,000,000
The subsidiaries held by the Bank
CMBFLC
China Merchants Finance Investment Holdings Co., Ltd.
Best Winner Investment Ltd.
RMB600,000,000
100% Finance lease
Subsidiary
Limited company
Shi Shunhua
Company Limited (CMBFLC)
CMB Wing Lung Bank Limited Hong Kong
HKD1,161 million
100% Banking
Subsidiary
RMB6,000 million
Limited company
(CMB WLB)
China Merchants Fund
Shenzhen
RMB1,310 million
55% Fund Management
Subsidiary
Limited company
Liu Hui
Management Co., Ltd.
Zhu Qi
(CMFM)
Shanghai
Limited (CMBICHC)
- Production and sale of vehicles,
consulting service, imports and
exports
Shareholder
Joint stock limited Chen Hong
company
Hebei Port Group Co., Ltd.
Qin Huangdao
RMB8,000 million
305,434,127
1.21%
(note (vii))
- Port construction and investment
management, port leasing and
maintenance business, handling
and warehousing business etc.
CMB Financial Leasing
Shareholder
Cao ziyu
100% Financial advisory services
Subsidiary
Limited company
Tian Huiyu
CMB International Capital
Hong Kong
HKD4,129 million
Holdings Corporation
Limited company
RMB600,000,000
CMB Wealth Management
RMB5,000 million
(vi)
Shanghai Automotive Industry Corporation (Group) ("Shanghai Automotive Industry Group") holds 1.23% of the bank through its subsidiary
(SAIC Motor Corporation Limited) (2018: 1.23%).
(vii)
Hebei Port Group Company Ltd. directly holds 1.21% of the Bank (2018: 1.21%).
(viii)
The sum of the direct ratio of CMG's shareholdings in the Bank and the above-mentioned relevant numbers may differ slightly in the mantissa
due to rounding.
The information of registered capital of the related parties as at 31 December 2019 and 2018 is as below:
Name of related party
CMG
China Communications Construction Group LTD ("China Communications Construction Group") holds 1.68% of the bank through its
subsidiaries (2018: 2.27%).
CMSNCL
2018
RMB16,700,000,000
RMB16,700,000,000
RMB7,000,000,000
RMB7,000,000,000
Shenzhen Yan Qing Investment Development Co., Ltd.
Shenzhen Chu Yuan Investment and Development
RMB600,000,000
RMB600,000,000
Company Ltd.
2019
Shenzhen
China COSCO Shipping Corporation Ltd. holds 9.97% of the Bank (2018: 9.97%) through its subsidiaries.
(iv)
100% Asset management
Subsidiary
Limited company
Liu Hui
Co., Ltd
295
296
China Merchants Bank
IX Financial Statements
(v)
Annual Report 2019
(a)
Material connected person information (continued)
Notes:
(i)
CMG holds 29.97% of the Bank (2018: 29.97%) through its subsidiaries.
(ii)
As the largest shareholder, CMSNCL who is the subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2019 (2018: 13.04%).
(iii)
China Insurance Security Fund Co., Ltd ("China Insurance Security Fund") holds 9.98% of the Bank (2018: 11.63%) through respectively holds
98.23% of Anbang Insurance Group Co., Ltd. and Dajia Insurance Group Co., Ltd.
61. Material related-party transactions (continued)
CMB WLB
CMBICHC
%
Annual Report 2019
61. Material related-party transactions (continued)
(e) Associates and joint ventures other than those under Note 61(c) above
2019
2018
On-balance sheet:
- Loans and advances to customers
- Deposits from customers
- Placements
IX Financial Statements
Off-balance sheet:
Interest income
Interest expense
Net fee and commission income
Operating expenses
6,178
2,748
1,040
1,696
11,600
- Irrevocable guarantees
9,500
China Merchants Bank
6
5,429
5,017
640
97
6,391
2,056
1,628
Interest income
1,402
(87)
672
530
470
Net fee and commission income
1,042
562
Operating expenses
(1,614)
(1,436)
Other net income
Interest expense
32,269
8,299
79
Interest income
36,365
16,144
50
30
540
360
11
746
- Factoring
267
1,341
971
Net fee and commission income
1,290
1,360
Other net income
19
55
299
Interest expense
8,701
- Bills of acceptances
- Irrevocable guarantees
11
19
17
973
1,123
(31)
10
(f)
Other shareholders holding more than 5% shares
- Irrevocable letters of credit
2019
On-balance sheet:
- Loans and advances to customers
- Investments
31,715
795
41,031
22,306
934
27,601
- Deposits from customers
Off-balance sheet:
2018
48,969
3,549
3,788
Medium to long-term loans
Demand deposits
Time deposits
4.75% to 4.90%
0.35%
1.10% to 2.75%
4.75% to 4.90%
0.35%
1.10% to 2.75%
There were no credit impaired loans and advances granted to related parties during the year.
297
298
China Merchants Bank
2018
4.35%
IX Financial Statements
61. Material related-party transactions (continued)
(c)
Shareholders and their related companies
The Bank's largest shareholder CMG holds 29.97% (2018: 29.97%) shares of the Bank through its subsidiaries as at
31 December 2019 (among them 13.04% shares is held by CMSNCL (2018: 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
- Deposits from customers
Off-balance sheet:
Annual Report 2019
- Irrevocable guarantees
2019
4.35%
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:
RMB
%
HKD
%
HKD
%
At 1 January 2018
Change
3,289,470,337
13.04 4,129,000,000
Short-term loans
100.00
100.00
1,160,950,575
100.00
720,500,000
55.00
At 31 December 2018
3,289,470,337 13.04 4,129,000,000 100.00 6,000,000,000 100.00 1,160,950,575 100.00 720,500,000 55.00
(b)
Transaction terms and conditions
6,000,000,000
- Irrevocable letters of credit
- Bills of acceptances
- Factoring
561
398
(34)
(47)
(1)
3
(d) Companies controlled by or be significantly influenced by or appointed
common directors, senior management and/or supervisors of the Bank other
than those under Note 61(c) above
2019
2018
728
Bills of acceptances
- Loans and advances to customers
- Investments
- Deposits from customers
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
- Factoring
22,577
13,489
On-balance sheet:
718
1,189
834
Interest income
Interest expense
Net fee and commission income
Operating expenses
Other net income
2019
2018
26,222
12,151
2,527
4,526
68,795
59,156
2,449
1,868
341
434
462
146
-
161
1.23%
310,125,822
RMB11,683 million
Shanghai
assets at fair
Financial
(567)
(62)
35
(540)
included in the consolidated
statement of profit or loss for
assets held at the end of the
reporting period
Total unrealised gains and losses
42,841
Loans and
advances to
3,748
5,779
2,968
At 31 December 2019
189
190
8
(9)
Exchange difference
(42,427)
30,346
(41,713)
value through
Loans and
advances to
customers at
'
377
5
376
- In profit or loss
Profit or loss
19,460
2,380
14,909
customers at
2,171
Total
FVTOCI
FVTOCI
FVTPL
profit or loss
Assets
designated at
investments
Equity
At 1 January 2018
- In other comprehensive income
(400)
Disposals or settlement on maturity
Total
Equity
investments
designated at
FVTOCI
FVTOCI
FVTPL
profit or loss
Assets
Loans and
advances to
customers at
customers at
value through
At 1 January 2019
Loans and
advances to
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)
Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurements categorised within Level 3 are as below: (continued)
(3)
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2019
Financial
assets at fair
(314)
3,641
20,684
59
59
Transfer to Level 3
57,307
51,435
5,741
131
Purchases/loans
1,020
403
1,018
- In other comprehensive income
(575)
(62)
27
(540)
- In profit or loss
Profit or loss
27,268
2,540
2
30
86
116
IX Financial Statements
China Merchants Bank
292
291
During the year, the Group has not changed the valuation techniques for financial assets that are
measured at fair value on a recurring basis.
Changes in valuation technique and the reasons for making the changes
3)
During the year, there were no significant transfers between different levels for financial instruments
which are measured at fair value on a recurring basis.
Transfers between level 1 and level 2 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
level 1 and level 2 are deemed
Annual Report 2019
251
(17)
3,105
17
2,514
(17)
591
at fair value
through profit
or loss
Financial
liabilities
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 2018
Issues
251
2,263
2,514
At 1 January 2018
60. Risk management (continued)
consulting, etc.
Best Winner Investment
Co., Ltd.
British Virgin
Islands
USD0.05 million 386,924,063 1.53%
Shareholder
Joint stock limited
company
China Merchants Union
(BVI) Limited
British Virgin
Islands
USD0.06 million 477,903,500
1.89%
China Insurance Security Beijing
Shareholder
China Merchants Industry Shenzhen
Development (Shenzhen)
USD10 million 55,196,540
0.22%
Invest and set up industries,
Shareholder
Limited company
Wang Xiaoding
Limited
enterprise management
consulting and investment
Limited company
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 2019
Exchange difference
At 31 December 2018
(310)
(27)
10
(293)
Exchange difference
(28,332)
(25,983)
'
3,641
(2,349)
279
279
Transfer to Level 3
35,678
101
31,732
388
3,457
Purchases/loans
Disposals or settlement on maturity
403
20,684
2,540
Issues
In profit or loss
At 1 January 2019
Liabilities
Valuation of financial instruments with significant unobservable inputs (continued)
1)
(3)
Valuation techniques used and the qualitative and quantitative information of key parameters for
recurring fair value measurements categorised within Level 3 are as below: (continued)
(ii) Assets and liabilities which are measured at fair value at date of financial position on a recurring basis
(continued)
(g) Fair value information (continued)
60. Risk management (continued)
IX Financial Statements
China Merchants Bank
Annual Report 2019
377
(4)
5
376
reporting period
included in the consolidated
statement of profit or loss for
assets held at the end of the
Total unrealised gains and losses
27,268
IX Financial Statements
materials supply and
China Merchants Bank
Investment Holdings
Co., Ltd.
Financial Holdings Co.,
business, insurance business
Ltd.
etc.
China Merchants Bank
Annual Report 2019
IX Financial Statements
61. Material related-party transactions (continued)
(a) Material connected person information (continued)
Proportion
Limited company
of the Bank Proportion of
of the Bank
held the Company
Company name
Registered
location
Issued and
held by the
by the
held by the
fully paid capital
No. of Shares
Company
Shareholder
0.22%
Business services
Shareholder
Limited company
Huang Biao
Technology Service Co.,
Ltd.
China COSCO Shipping
Shanghai
RMB1,399 million
Leasing business, financing
75,617,340
Shipping business, leasing
Shareholder
Limited company
Zhao Bangtao
(Shanghai) Co., Ltd.
business, ship repairing and
building etc.
China COSCO Shipping
Hong Kong
HKD500 million 54,721,930
0.30%
0.41%
Company
Shenzhen Tri-Dynas Oil &
Beijing
RMB16,175 million
301,089,738
1.19%
General contraction for construction, Shareholder
Construction Co., Ltd
leasing and repair, technical
Joint stock limited Liu Qitao
company
consulting service, imports
China Communications
and exports, investment and
Shanghai Automotive Industry Shanghai
Corporation (Group)
RMB21,599 million
310,125,822
1.23%
(note (vi))
- Production and sale of vehicles, asset
management business, domestic
trade business, consulting service
Shareholder's
parent company
Limited company
Chen Hong
SAIC Motor Corporation
Limited
management business
Bank Business
Liu Qitao
Shareholder's
parent company
Shenzhen
RMB299 million
10,121,823
0.04%
Ship purchasing and marketing
Shipping Co., Ltd.
The relationship
with the Bank
Shareholder
Limited company
Legal form
Limited company
business, shipping agency, leasing
business, shipping business etc.
China Communications
Beijing
RMB7,274 million
422,770,418
Construction Group LTD
1.68%
(note (v))
General contraction for construction
Legal
representative
Ren Zhaoping
103,552,616
RMB2 million
Guangzhou Haining Maritime Guangzhou
of the Bank
of the Bank the Company
Registered
location
Issued and fully
held by the
held by the held by the
paid capital
Company
Company
Proportion Proportion of
Bank Business
1,258,949,100
4.99%
Life insurance, health insurance, Shareholder
million
accident insurance, and
The relationship
with the Bank
Legal form
Joint stock limited
company
Dajia Life Insurance Co., Ltd Beijing
RMB30,790
other personal insurance
No. of Shares
61. Material related-party transactions (continued)
(a) Material connected person information (continued)
RMB100 million 2,517,898,271
Fund Co., Ltd
9.98%
(note (iii))
Investing and establishing
insurance companies,
supervising and managing
Shareholder's
parent
company
limited company
Yu Hua
Company name
various domestic and
of holding investment
enterprises, and investment
business permitted
by national laws and
regulations, etc.
293
294
China Merchants Bank
IX Financial Statements
Annual Report 2019
international businesses
services, etc.
Hexie Health Insurance Chengdu
Co., Ltd
RMB13,900 1,258,949,171
million
China Ocean Shipping Co., Beijing
Ltd.
RMB16,191 1,574,729,111
million
6.24%
Transportation business,
Shareholder
Limited company
Xu Lirong
shipping space booking,
etc.
time charter, voyage charter,
trading ships, etc.
China COSCO Shipping
(Guangzhou) Co., Ltd.
Guang zhou RMB3.191 million
696,450,214
2.76%
Shipping business
Shareholder
Limited company
Shou Jian
leasing, constructing and
freight forwarding business,
company
and technology, International
4.99%
Various RMB and foreign
currency health insurance
business, accidental
injury insurance business,
supporting the national
medical security policy,
Legal
representative
He Xiaofeng
Shareholder
Joint stock limited
company
Gu Hongmei
and health insurance
business entrusted by the
government, etc.
China COSCO Shipping
Corporation Limited.
Beijing
RMB11,000 2,515,193,034
million
9.97%
(note (iv))
International shipping business, Shareholder's
Limited company
Xu Lirong
import and export of goods
parent
290
domestic commerce,
by Level 1 HQLA
17,420
715,925
125,448
131,489
Total risk-weighted assets
Net capital
Net tier-2 capital
Regulatory deductions from core tier-2 capital
125,448
131,489
Total tier-2 capital
55
65
Qualifying portion of non-controlling interests
82,393
99,724
Surplus provision for loans impairment
43,000
641,881
31,700
4,606,786
Notes:
Total consolidated assets as per published financial statements
Adjustments for investments in banking, financial, insurance or
commercial entities that are consolidated for accounting purposes
In accordance with the CBIRC'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 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:
(B) Leverage ratio
In 2019, by the method of calculating credit risk using the 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
10.09%, tier-1 capital adequacy ratio is 10.75%, capital adequacy ratio is 12.53%, net capital is RMB593,418
million and total risk-weighted assets is RMB4,737,827 million.
In 2019, by the method of calculating credit risk using the 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 10.64%, tier-1 capital adequacy ratio is 11.30%, capital adequacy ratio is 13.02%, net capital is RMB673,366
million and total risk-weighted assets is RMB5,170,500 million.
In 2019, in accordance with the advanced capital management approach approved by CBIRC in April 2014, the Bank
calculated core tier-1 capital adequacy ratio is 11.48%, tier-1 capital adequacy ratio is 12.23%, capital adequacy
ratio is 15.27%, net capital is RMB635,977 million and total risk-weighted assets is RMB4, 163,903 million.
(A) Capital adequacy ratio (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
306
305
The Group's additional tier-1 capital includes qualifying portion of non-controlling interests, preferred shares and etc.
(ii) :
Others represent exchange reserve of foreign currency consolidated financial statements under CBIRC's Administrative Measures on the Capital
of Commercial Banks (Trial).
:
(i)
4,092,890
Qualifying portion of tier-2 capital instruments and their premium
Tier-2 capital:
516,433
Retained profits
78,543
90,151
Regulatory general reserve
53,648
62,184
Surplus reserves
67,149
67,281
Qualifying portion of capital reserve
25,220
25,220
Qualifying portion of share capital
15.68%
15.54%
12.62%
12.69%
317,643
272,510
Qualifying portion of non-controlling interests
243
584,436
Net tier-1 capital
34,093
34,097
Additional tier-1 capital (note (ii))
482,340
550,339
Net core tier-1 capital
2019
21,795
Regulatory deductions from core tier-1 capital
504,135
573,346
Total core tier-1 capital
6,858
10,624
Others (note (i))
207
23,007
11.78%
2018
6,745,729
cash receivables of gross SFT assets
Less: Netted amounts of cash payables and
199,386
110,047
after adjusting for sale accounting transactions
Gross SFT assets (with no recognition of netting),
42,964
36,015
Total derivative exposures
Less: Adjusted effective notional deductions for written credit derivatives
954
817
Effective notional amount of written credit derivatives
Less: Exempted central counterparty leg of client-cleared trade exposures
Less: Deductions of receivables assets for cash variation margin
provided in derivatives transactions
from the balance sheet assets
Gross-up for derivatives collateral provided where deducted
Counterparty credit risk exposure for SFT assets
24,590
Agent transaction exposures
34,953
8,604,521
Balance of adjusted on-balance sheet and off-balance sheet assets
516,433
584,436
Net tier-1 capital
1,054,031
1,194,234
Balance of adjusted off-balance sheet assets
(910,508)
(1,072,667)
Less: Adjustments for conversion to credit equivalent amounts
1,964,539
2,266,901
Off-balance sheet exposure at gross notional amount
234,339
138,908
Total securities financing transaction exposures
28,861
21,805
Add-on amounts for potential future exposure associated
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.
7,812,054
8,604,521
Balance of adjusted on-balance sheet and off-balance sheet assets
(21,795)
(23,007)
Other adjustments
1,054,031
1,194,234
Adjustment for off-balance sheet items
8,744
34,953
11,796
28,861
Adjustment for securities financing transactions
Adjustments for derivative financial instruments
Adjustments for fiduciary assets
(9,608)
(24,603)
but outside the scope of regulatory consolidation
China Merchants Bank
IX Financial Statements
Annual Report 2019
(B) Leverage ratio (Continued)
13,393
with all derivatives transactions
(net of eligible cash variation margin)
Replacement cost associated with all derivatives transactions
6,480,720
7,235,364
(excluding derivatives and SFTs)
Balance of adjusted on-balance sheet assets
7,417,240
(21,795)
Less: Asset amounts deducted in determining Basel III Tier 1 capital
6,502,515
7,258,371
securities financing transactions (SFT))
On-balance sheet items (excluding derivatives and
2018
2019
Leverage ratio, net tier-1 capital, on-balance sheet and off-balance sheet exposures and other information:
(23,007)
7,812,054
11.95%
2019
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.
Repurchase transactions and securities lending transactions
During the year 2019, the Group has transferred credit assets to third party institutions directly amounted to
RMB889 million (2018: RMB79,544 million), and none of these transferred credit assets is transferred to structured
entities (2018: RMB77,607 million). The Group carried out an assessment based on the criteria as detailed in Note
4(5), and concluded that these transferred assets qualified for full de-recognition.
Transactions of credit assets
With respect to 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 recognised as financial
liabilities. As at 31 December 2019, the Group does not have carrying amount of transferred assets that did not
qualify for derecognition (31 December 2018: RMB1,415 million) and the carrying amount of recognised financial
liabilities (31 December 2018: RMB706 million).
For those in which the Group has neither transferred nor retained substantially all the risks and rewards of the
transferred credit assets, and retained control of the credit assets, the Group recognises the assets on the statement
of financial position in accordance with the Group's continuing involvement and the rest is derecognised. The
extent of the Group's continuing involvement is the extent of the risks and rewards undertaken by the Group with
value changes of the transferred financial assets. The amount at the time of transfer of the original credit assets,
which the Group determined that it has continuing involvement through acquiring the subordinated tranches, was
RMB10,402 million during the year ended 31 December 2019 (2018: Nil) and the carrying amount of assets that the
Group continues to recognise on the statement of financial position was RMB987 million during the year ended 31
December 2019 (2018: Nil). The Group also recognized other assets and other liabilities of the same amount arising
from such continuing involvement.
Securitisation of credit assets (continued)
63. Transfers of financial assets (Continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
302
301
The Group carried out an assessment based on the criteria as detailed in Note 4(5), and with respect to the credit
assets that were securitised and qualified for derecognition, the Group derecognised the transferred credit assets
in their entirety. During the year ended 31 December 2019 the Group has transferred the ownership of the loans
amounted to RMB115,881 million (2018: RMB45,071 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.
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. The Group may acquire some
asset-backed securities and fund shares at the subordinated tranche level and accordingly, may retain parts of the
risks and rewards of the transferred credit assets. The Group would determine whether or not to derecognise the
associated credit assets by evaluating the extent to which it retains the risks and rewards of the assets.
Securitisation of credit assets
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.
China Merchants Bank
63. Transfers of financial assets
IX Financial Statements
64. Interests in unconsolidated structured entities
Maximum
investments
at amortised
value through
profit or loss
165,068
Total
Asset backed securities
Investment in funds
Trust beneficiary rights
Asset management schemes
Debt
investments
Debt
Carrying amount
31 December 2019
Financial
assets at fair
The Group holds interests 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
income from managing assets on behalf of investors and are financed through the issue of notes to investors.
The following table sets out an analysis of the carrying amounts of interests held by the Group as at 31 December
2019 and 31 December 2018 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 2019 and 31 December 2018 in which assets are
recognised relating to the Group's interests in structured entities sponsored by third parties:
Interest in the structured entities sponsored by third party institutions
(a)
Annual Report 2019
There is no maturity of the instruments and the payments of distribution can be cancelled at the discretion of the
issuer. Cancelled interest is not cumulative. There is no contractual obligation of the issuer to deliver cash to other
parties. During the year ended 31 December 2019, CMB WLB did not cancel the payment of distribution and the
corresponding amount was paid to perpetual debt holders accordingly.
3,979
60
3,979
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
2019 and 31 December 2018.
Annuity scheme
The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note
39(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 4(17); 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.
82,228
1,312
29,444
51,472
RMB'000
2018
101,642
54,390
506
-
2019
RMB'000
46,746
Total
Contributions to defined contribution retirement schemes
Share-based payment
Discretionary bonuses (Note 11(i))
China Merchants Bank
Annual Report 2019
IX Financial Statements
62. Non-controlling interests
a)
At 31 December 2019
Exchange difference
60
(153)
153
153
(153)
2,761
1,158
cost
Total
Principal
1,158
2,761
Paid in 2019
Distributions in 2019
Perpetual debt capital issued
At 1 January 2019
CMB WLB, the Group's subsidiary, issued perpetual debt of US$170 million on 27 April 2017 and another perpetual
debt of US$400 million on 24 January 2019.
Perpetual debt capital
Non-controlling interests represent the interests that the Group does not hold in the subsidiaries. In the opinion of
the directors of the Bank, the Group does not have any subsidiary with significant non-controlling interests during
the reporting period.
Distributions/Paid
2018
at FVTOCI
exposure
(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 income 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.
64. Interests in unconsolidated structured entities (Continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
304
303
The maximum exposures held by the Group in the subordinated tranches of assets backed securities, investments
in funds, the wealth management products, asset management schemes, trust beneficiary rights, senior tranches of
assets backed securities are the carrying amount 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.
351,751
351,751
1,214
234,793
115,744
18,071
18,071
18,071
Total
As at 31 December 2019, the amount of the unconsolidated non-principal-guaranteed wealth management
products, which are sponsored by the Group, is RMB2,293,628 million (31 December 2018: RMB2,052,183 million).
As at 31 December 2019, the amount of the unconsolidated mutual funds, which are sponsored by the Group, is
RMB378,304 million (31 December 2018: RMB382,772 million).
Investment in funds
As at 31 December 2019, the amount of the unconsolidated asset management schemes, which are sponsored by
the Group, is RMB270,585 million (31 December 2018: RMB271,239 million).
During year ended 31 December 2019, the amount of fee and commission income received from such category of
non-principal-guaranteed wealth management products by the Group is RMB7,330 million (2018: RMB8,972 million).
Core tier-1 capital:
Components of capital base
Capital adequacy ratio
Tier-1 capital adequacy ratio
Core tier-1 capital adequacy ratio
In accordance with the advanced capital management approach approved by CBIRC in April 2014, the Group
calculated core tier-1 capital adequacy ratio, tier-1 capital adequacy ratio and capital adequacy ratio as follows:
The Group's capital adequacy ratio was prepared solely in accordance with the CBIRC'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.
(A) Capital adequacy ratio
(Expressed in millions of Renminbi unless otherwise stated)
Unaudited Supplementary Financial Information
IX Financial Statements
China Merchants Bank
Annual Report 2019
2019 Novel Coronavirus Disease broke out in China in January 2020 and it is expected to have significant impact on
the overall economy and the business operation of certain industries and cities, especially in Hubei Province in the
short run. Hence the quality or the yields of the credit assets and investment assets of the Group will be undermined
to a certain degree. The degree of the influence depends on the situation of the pandemic preventive measures, the
duration of the pandemic and the implementation of regulatory policies, etc.
65. Subsequent events
The total amount of non-principal-guaranteed wealth management products issued by the Group after 1 January
2019 with a maturity date before 31 December 2019 was RMB2,363,999 million (2018: RMB3,008,657 million).
During the year ended 31 December 2019, the amount of management fee income received from the unconsolidated
asset management schemes by the Group is RMB744 million (2018: RMB762 million).
During the year ended 31 December 2019, the amount of management fee income received from the unconsolidated
mutual funds by the Group is RMB1,400 million (2018: RMB1,448 million).
As at 31 December 2019, 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 RMB63,214 million (31 December 2018: RMB87,903 million) and RMB82,113
million (31 December 2018: RMB60,591 million) respectively. The above transactions were made in accordance with
normal business terms and conditions.
3,538
3,538
1,214
381,800
381,800
1,185
142,773
237,842
71,699
71,699
2,300
2,300
1,185
40
1,075
71,699
33,389
33,389
274,412
274,412
109,344
33,389
31 December 2018
Carrying amount
Financial
assets at fair
value through
profit or loss
855
1,469
82,457
82,457
247,685
247,685
151,481
82,457
Asset backed securities
Total
Trust beneficiary rights
Asset management schemes
Maximum
exposure
Total
at FVTOCI
cost
Debt
investments
at amortised
Debt
investments
96,204
Salaries and other emoluments
Leverage ratio
6.61%
Performing loans to financial institutions secured
18
24,523
3,283,353
965,108 2,397,879
8,382
2,061,993
55,617
Performing loans and securities
17
40,664
operational purposes
Deposits held at other financial institutions for
16
118,678
Total NSFR high-quality liquid assets (HQLA)
15
Key management personnel
Required stable funding (RSF) item
(h)
1
Interest income
Interest expense
Net fee and commission
Operating expenses
Other net income
3,433
277
573
816
91
454
413
1,084
132
1,419
13
All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the
consolidated financial statements.
- Bills of acceptances
4,584,414
14
10
1,170,310
349,363
428,058
1,665,956
319,283
Other wholesale funding
9
837,176
120,131
1,554,221
Operational deposits
8
2,007,486
349,363
Liabilities with matching interdependent assets
Total ASF
6.79%
20,608
25,290
22,421
5,738
161,687
20,608
above categories
All other liabilities and equity not included in the
13
30,390
NSFR derivative liabilities
12
25,290
52,811
5,738
161,687
Other liabilities
428,058
- Irrevocable guarantees
- Deposits from customers
1,978
1,142
309
183,806
82,308
895
297
16,578
104,868
155,584
60,761
23,137
142,726
41,754
Other assets
26
136,112
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities
- Investments
717
300
China Merchants Bank
IX Financial Statements
Annual Report 2019
61. Material related-party transactions (continued)
(g) Subsidiaries
On-balance sheet
2019
2018
- Balances with banks and other financial institutions
Placements with banks and other financial institutions
3,285
2,545
28,654
25,689
- Loans and advances to customers
3,237
Off-balance sheet
25
24
Performing loans to non-financial corporate clients,
loans to retail and small business customers, and
loans to sovereigns, central banks and PSES,
of which:
20
236,571
43,270
157,762
612,826
13,863
by non-Level 1 HQLA and unsecured performing
loans to financial institutions
Performing loans to financial institutions secured
19
- Deposits from banks and other financial institutions
45,298
12,859
3,130
1,036
1,139,168
Securities that are not in default and do not qualify
755,264
1,979,691
With a risk weight of less than or equal to 35%
under the Basel II standardized approach
for credit risk
23
911,507
213,326
179,212
1,037,004
28,945
31,161
Performing residential mortgages, of which:
22
223
89,860
103,817
under the Basel II standardized approach for
credit risk
With a risk weight of less than or equal to 35%
21
1,256,844
1,786,087
11
Wholesale funding
Undrawn committed credit and liquidity facilities
13
Cash outflows arising from secured debt Instruments funding
12
288,471
288,471
Cash outflows arising from derivative contract and other transactions
arising from related collateral requirements
11
346,476
1,347,629
Additional requirements, of which:
10
9,635
Secured funding
9
1,059,158
27,260
58,005
Other contractual obligations to extend funds
18
163,147
165,208
Secured lending (including reverse repo and securities borrowing)
17
Cash inflows
1,767,838
Total cash outflows
16
87,332
5,965,787
Other contingent funding obligations
15
48,915
48,915
1,873,504
Contractual inflows from fully performing loans
27,260
8
(average value) (average value)
Retail and small business customers deposits, of which:
Stable deposits
1 Total stock of high quality liquid assets
Cash outflows
Stock of high quality liquid assets
Serial No.
23450
amount
Weighted
Unweighted
amount
The Group prepared and disclosed information on liquidity coverage ratio in accordance with the "Measures for the
Disclosure of Information on Liquidity Coverage Ratio by Commercial Banks". The basis used herein may differ from
those adopted in Hong Kong or other countries. The average of liquidity coverage ratio of the Group was 167.42%
in the fourth quarter of 2019, an increase of 23.58 percentage points from the previous quarter, mainly due to the
increase in the scale of cash inflows from financial institutions. The Group's liquidity coverage ratio at the end of
the fourth quarter of 2019 was 169.63%, which was in line with the 2019 regulatory requirements of the China
Bank and Insurance Regulatory Commission. The breakdown of the Group's average value of each item of liquidity
coverage ratio in the fourth quarter of 2019 is set out below:
(C) Liquidity coverage ratio
IX Financial Statements
China Merchants Bank
Annual Report 2019
308
307
1,068,974
Unsecured debt issuance
1,854,925
403,047
663,820
1,249,161
Non-operational deposits (including all counterparties)
7
419,060
1,682,062
Operational deposits (excluding correspondent banks)
6
1,110,140
2,958,483
Unsecured wholesale funding, of which:
145,188
1,451,878
Less stable deposits
20,152
165,340
998,399
14
19
customer
Retail deposits and deposits from small business
4
11,700
11,700
Other capital instruments
3
627,443
20,000
607,443
Regulatory capital
2
639,143
20,000
619,143
1,458,292
Capital
666,624
1,476
7
1,491,241
707
19,514
618,306
1,018,329
Less stable deposits
421,254
769
148
2,505
439,963
Stable deposits
56
1,912,495
19,662
1
620,811
6 months to
12 months
Note:
Liquidity coverage ratio (%)
23
Net cash outflows
22
Total stock of high quality liquid assets
21
1,129,337
1,463,796
Total cash inflows
20
299,566
300,189
Other cash inflows
> 12 months
(i)
(ii)
(i)
1,068,974
Adjusted value
No maturity
Available stable funding (ASF) item
Serial No.
Weighted
amount
Unweighted amount
31 December 2019
The Group prepared and disclosed information on net stable funding ratio in accordance with the "Measures for
the Disclosure of Information on Net Stable Funding Ratio by Commercial Banks". The Group's net stable funding
ratio at the end of the fourth quarter of 2019 was 121.04%, representing an increase of 1.97 percentage points as
compared with the previous quarter, which was mainly due to the increase in time deposits. The breakdown of the
Group's net stable fund ratio in the last two quarters is set out below:
< 6 months
Annual Report 2019
IX Financial Statements
China Merchants Bank
The high quality liquid assets in the above table are prepared by the central bank reserve available under cash and pressure conditions, as well
as the bond in line with definition of Tier 1 and Tier 2 assets set by China Banking and Insurance Regulatory Commission on the "Measures for
the Liquidity Risk Management of Commercial Banks".
The data of mainland in the above table is a simple arithmetic average of the 92-day value for the latest quarter and the monthly average for
the date of subsidiaries.
167.42%
(D) Net Stable Funding Ratio
638,501
1,918,835
471,366
343,439
1,219,277
10
Liabilities with matching interdependent assets
11
172,668
24,716
5,636
68,821
22,059
12
71,672
NSFR derivative liabilities
Other liabilities
Other wholesale funding
471,366
807,260
Less stable deposits
621,603
31,740
989
1,419,980
7
Wholesale funding
1,681,474
1,923,553
343,439
2,026,537
8
Operational deposits
1,609,802
4,718
9
923,313
to review the announcements on related party transactions of the Bank.
310
624,642
20,000
604,642
Capital
1
≥ 12 months
12 months
< 6 months
No maturity
Available stable funding (ASF) item
Serial No.
6 months to
amount
Weighted
Unweighted amount
30 September 2019
121.04%
2
Regulatory capital
592,942
20,000
110
2,756
409,071
Stable deposits
5
1,811,348
1,016
31,850
Net Stable Funding Ratio (%)
624,359
customer
Retail deposits and deposits from small business
4
11,700
11,700
Other capital instruments
3
612,942
1,332,384
34
3,787,466
Total RSF
3,478
4,092
Physical traded commodities, including gold
Assets posted as initial margin for derivative contracts
and contributions to default funds of CCPs
28
27
Required stable funding (RSF) item (continued)
≥ 12 months
12 months
207
< 6 months
Serial No.
Weighted
amount
Unweighted amount
6 months to
31 December 2019 (continued)
(D) Net Stable Funding Ratio (continued)
Annual Report 2019
IX Financial Statements
China Merchants Bank
No maturity
49,580
176
222
33
177,106
7,959,301
Off-balance sheet items
32
173,996
56,045
895
29
16,578
All other assets not included in the above categories
31
6,156
30,782
NSFR derivative liabilities before deduction of
variation margin posted
30
26,056
NSFR derivative assets
100,776
13
19,241
above categories
5,553
17
7,889
16
Telecommunications, software and
IT services
4,494
Construction
heating power, gas and water
2,196
12
15
9,309
5,635
Water, environment and
public utilities management
1,219
86
24
Production and supply of electric power,
97
51
Leasing and commercial services
28,992
61
2,001
89
Manufacturing
20,994
22
26,860
45
Wholesale and retail
11,579
41
12,505
Mining
9,445
40
2,196
59
26
65
Others
56
96
21,696
Gross loans and advances to customers
285,248
55
250,552
82 2482825
315
35,673
316
IX Financial Statements
(G) Further analysis on loans and advances to customers analysed by
industry sector (continued)
When the amount of loans and advances to customers for an industry/variety accounts for 10% or above of the total
amount of loans and advances to customers, the amount of overdue loans, impaired loans and credit impairment
allowances in each expected credit loss stage are disclosed as follows:
2019
Overdue loans
and advances
Impaired loans
and advances
-Stage 1
(12-month ECL)
-Stage 2
(Lifetime ECL-not
credit-impaired)
China Merchants Bank
Annual Report 2019
Retail loans and advances subtotal
12,720
95
17,882
Corporate loans and advances subtotal
249,575
49
228,856
Residential mortgage
9,475
100
7,260
100
Credit cards
177
191
Micro-finance loans
625
100
1,525
Others
25,396
11,215
-Stage 3
(Lifetime ECL-
credit impaired)
38,212
30,567
Residential mortgage
1,098,673
100
Credit cards
670,922
Micro-finance loans
405,155
Others
100
152,193
2,326,943
Gross loans and advances to customers
4,205,402
5 23882355
55,890
61
60,703
35,349
Retail loans and advances subtotal
226,040
Discounted bills
1,652,419
23
84,475
28
63,420
32
61,963
40
280 800
Water, environment and
public utilities management
57,044
Telecommunications, software and
IT services
51,406
Mining
All other liabilities and equity not included in the
Others
59,640
Corporate loans and advances subtotal
59,021
1,545,073
90
149,766
921,500
covered by
collateral or
collateral or
Amount
other security
Amount
other security
Financial concerns
advances
covered by
63,286
52,174
36
Property development
60,035
51
54,167
66
Transportation, storage and postal services
37
loans and
advances
loans and
575,299
349,009
141,835
1,987,643
3,682,482
སྐ¥ལྐལྐ8མ$88
44
38
38
100
92
66
56
China Merchants Bank
Annual Report 2019
IX Financial Statements
(G) Further analysis on loans and advances to customers analysed by
industry sector (continued)
Operation outside Mainland China
2018
2019
% of gross
% of gross
100
95,279
Residential mortgage
Credit card
2,752
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 collateral of the Group included cash deposit, shares, land use right, property, motor vehicles and other equipment, etc. The fair value of
collateral 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.
(1) Rescheduled loans and advances to customers
2018
391,368
The amount of the Group's overdue loans and advances to financial institutions as at 31 December 2019 was RMB1
million (2018: RMB1 million).
6
2019
% of total
loans and
advances
Amount
Amount
Rescheduled loans and advances to
customers (Note)
25,022
0.56%
22,766
% of total
loans and
advances
19,137
46,032
32,978
0.54%
0.66%
0.99%
1.08%
317
318
China Merchants Bank
IX Financial Statements
Annual Report 2019
(H) Overdue loans and advances to customers (continued)
(iii) Collateral information
Secured portion of overdue loans and advances
Unsecured portion of overdue loans and advances
Value of collateral held against overdue loans and advances
2019
2018
11,849
9,277
32,483
0.58%
0.24%
Less:
19,255
to supervise and review the implementation of the annual operational and investment plans;
to evaluate and monitor the implementation of Board resolutions; and
to make recommendations and proposals on important issues for discussion and determination by the
Board of Directors.
(ii) Audit Committee
Main authorities and duties of the Audit Committee are:
to propose the appointment or replacement of external auditors;
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;
to coordinate the communication between internal auditors and external auditors;
to consider material investment and financing plans and make proposals to the Board of Directors;
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;
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
any other task delegated by the Board of Directors.
(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 examine the internal control system of the Bank, and make recommendations for improvement in
the internal control of the Bank;
to formulate the operational goals and medium-to-long term development strategies of the Bank, and
make an overall assessment on strategic risks;
Main authorities and duties of the Strategy Committee are:
Strategy Committee
0.43%
16,218
0.41%
Rescheduled loans and advances overdue
less than 90 days
5,767
0.13%
6,548
0.17%
Note: Represents the restructured non-performing loans.
The amount of the Group's rescheduled loans and advances to financial institutions as at 31 December 2019 was 1
million (2018: 1 million).
(J) 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 2019 and 31 December 2018, 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
IX Financial Statements
Annual Report 2019
(K) Corporate governance
Board committees
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.
(i)
- rescheduled loans and advances
overdue more than 90 days
3,985
18,349
0.25%
0.20%
6,044
12,895
As at 31 December 2019, for corporate loans and advances measured at amortised cost, the fair value of collateral
held against impaired loans and advances is RMB7,421 million (31 December 2018: RMB6,868 million).
China Merchants Bank
IX Financial Statements
Annual Report 2019
(H) Overdue loans and advances to customers
(i)
4,213
By geographical segments
Yangtze River Delta region
Bohai Rim region
Pearl River Delta and West Coast region
Northeast region
Central region
Western region
Outside Mainland China
Subsidiaries
Headquarters
2,054
435
7,655
9,038
372
1,940
9,033
4,869
15,969
8,645
2018
-Stage 2
-Stage 3
Overdue loans
and advances
Residential mortgage
Credit card
3,614
12,595
Impaired loans
and advances
2,610
6,394
-Stage 1
(12-month ECL)
(Lifetime ECL-not
credit-impaired)
(Lifetime ECL-
credit impaired)
Total
0.18%
(ii) By overdue period
2018
-
- between 3 and 6 months (inclusive)
- between 6 and 12 months (inclusive)
- 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)
Gross loans and advances to customers which have been overdue
with respect to either principal or interest for periods of:
- over 12 months
9,015
7,057
11,273
9,390
24,176
25,825
44,464
42,272
Total
2018
2019
42,272
10,835
6,025
6,920
7,834
6,324
7,798
6,420
6,020
4,023
3,922
2,957
4,003
5,777
5,460
276
248
932
962
44,464
2019
Financial concerns
29,744
124,094
174,029
33
Total RSF
3,766,359
34
Net Stable Funding Ratio (%)
119.07%
Note:
6,697,015
(i)
Items to be reported in the "no maturity" time bucket do not have a stated maturity. These may include, but are not limited to, items such
as capital with perpetual maturity, non-maturity deposits, short positions, open maturity positions, non-HQLA equities and physical traded
commodities.
The item 26 "Other assets" unweighted amount in the above table does not include the item 30 "NSFR derivative liabilities before deduction
of variation margin posted".
311
312
China Merchants Bank
IX Financial Statements
Annual Report 2019
(E) Currency concentrations other than RMB
(ii)
Off-balance sheet items
32
157,963
28
Assets posted as initial margin for derivative
contracts and contributions to default funds
of CCPs
230
196
29
NSFR derivative assets
37,688
30
NSFR derivative liabilities before deduction of
variation margin posted
50,298
10,060
31
All other assets not included in the above categories
96,931
24,110
544
36,377
2019
3,007
USD
Others
Net option position
2,222
Construction
349
2,444
Net long position
12,708
10,338
523,380
4,040
Net structural position
8,460
32,540
1,046
42,046
2018
USD
HKD
27,086
69,488
9,237
444,655
Total
(in millions of RMB)
Spot liabilities
Non-structural position
Spot assets
Forward purchased
Forward written
472,674
43,884
68,777
585,335
436,787
33,306
74,813
544,906
419,254
9,124
79,215
507,593
HKD
Others
3,537
27
Performing loans to financial institutions secured by
Level 1 HQLA
180,540
19
Performing loans to financial institutions secured by
non-Level 1 HQLA and unsecured performing
loans to financial institutions
21,407
18
631,541
37,161
222,335
China Merchants Bank
IX Financial Statements
Annual Report 2019
(D) Net Stable Funding Ratio (continued)
30 September 2019 (continued)
Serial No.
120,301
45,438
3,245,120
895,914 2,453,142
2,997
1,995,920
24,716
172,668
5,636
319
22,059
14
Total ASF
4,484,586
Required stable funding (RSF) item
15
Total NSFR high-quality liquid assets (HQLA)
130,546
16
Deposits held at other financial institutions for
operational purposes
87,879
17
Performing loans and securities
74,753
Required stable funding (RSF) item (continued)
Physical traded commodities, including gold
20
No maturity
under the Basel II standardized approach for
credit risk
24
Securities that are not in default and do not qualify
2222
25
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities
53,346
94,382
With a risk weight of less than or equal to 35%
29,375
175,731
26
Other assets
100,468
24,110
544
74,295
171,226
102,359
23
896,674
1,013,592
< 6 months
Unweighted amount
6 months to
12 months
≥ 12 months
Weighted
amount
1,044,329
718,070
1,300,030
1,950,380
21
With a risk weight of less than or equal to 35%
under the Basel II standardized approach for
credit risk
120,589
59,392
179,224
206,487
22
22
Performing residential mortgages of which:
45,128
28,168
Performing loans to non-financial corporate clients,
loans to retail and small business customers, and
loans to sovereigns, central banks and PSES, of
which:
Total
(127)
Non-structural position
17,117
36,068
North and South America
43,707
18,407
57,912
120,026
Total
732
222,475
298,231
567,837
313
314
China Merchants Bank
Annual Report 2019
IX Financial Statements
(G) Further analysis on loans and advances to customers analysed by
industry sector
47,131
18,219
Europe
190,785
institutions
entities
Others
Total
Foreign currencies transactions
in Mainland China
111,457
5,976
60,589
178,022
Asia Pacific excluding Mainland China
49,092
22,016
162,613
233,721
(in millions of RMB)
26,210
20,720
143,855
Operation in Mainland China
sector
2018
% of gross
240,717
32
255,683
31
Wholesale and retail
151,278
34
157,984
Manufacturing
37
heating power, gas and water
144,530
34
138,773
32
Leasing and commercial services
144,377
22
Production and supply of electric power,
34
248,815
33
% of gross
loans and
advances
covered by
loans and
advances
covered by
collateral or
collateral or
Amount
other security
Amount
other security
Property development
308,342
55
262,323
56
Transportation, storage and postal services
306,642
2019
financial
- of which attributed to Hong Kong
and other
511
(4,299)
Public
Net structural position
22,728
11,219
(2,292)
31,655
(107)
8,208
547
40,794
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.
China Merchants Bank
Annual Report 2019
IX Financial Statements
32,039
(4,703)
Net option position
669,524
Spot assets
464,106
34,567
77,376
576,049
Spot liabilities
453,891
21,100
78,093
553,084
Forward purchased
569,876
15,866
96,770
682,512
Forward written
552,660
18,007
98,857
(F) International claims
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.
Net long position
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.
183,808
Europe
10,951
2,346
17,928
31,225
North and South America
32,918
124,101
45,085
128,049
Total
178,544
86,471
287,721
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.
2018
Banks
50,046
34,766
552,736
of which attributed to Hong Kong
24,941
2019
Banks
and other
financial
Public
sector
institutions
entities
Others
Total
Foreign currencies transactions
27
91,598
1,702
75,452
168,752
Asia Pacific excluding Mainland China
43,077
37,338
144,295
in Mainland China
224,710
any other task delegated by the Board of Directors.
(vi)
Nomination Committee
Main authorities and duties of the Nomination Committee are:
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;
to study the standards and procedures for selection of directors and senior management, and make
recommendations to the Board of Directors;
公 招商銀行
to conduct preliminary examination on the candidates for directors and senior management and make
recommendations to the Board of Directors; and
any other task delegated by the Board of Directors.
to review the regulations and policies in respect of remuneration of the Bank; and
CHINA MERCHANTS BANK
招商銀行股份有限公司
We are here Just for you
http://www.cmbchina.com
Add: China Merchants Bank Tower, No 7088, Shennan Boulevard, Shenzhen, China
Tel: +86 7558319 8888
to conduct extensive searches for qualified candidates for directors and senior management;
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 arrange and instruct risk prevention works in accordance with the authorisation of the Board of
Directors; and
Main authorities and duties of the Remuneration and Appraisal Committee are:
320
China Merchants Bank
IX Financial Statements
Annual Report 2019
(K) Corporate governance (continued)
Board committees (continued)
(iv)
(v)
Main authorities and duties of the Risk and Capital Management Committee are:
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;
to make regular assessment on the risk policies, management status, risk-withstanding ability and
capital status of the Bank;
to perform relevant duties under the advanced capital measurement method pursuant to the
authorisation given by the Board of Directors;
to submit proposals on perfecting the management of risks and capital of the Bank;
any other task delegated by the Board of Directors.
Remuneration and Appraisal Committee
to study the appraisal standards for directors and senior management, and conduct appraisals and
make recommendations based on the actual conditions of the Bank;
Risk and Capital Management Committee
Postcode: 518040
Fax: +86 7558319 5109
4,400,674
1,825
0.58
284,366
7.23
1,968
0.69
Total loans and advances to
customers
4,490,650
100.00
52,275
1.16
3,933,034
100.00
53,605
1.36
Notes:
(1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2) The Head Office includes Credit Card Center, Offshore Finance Center and Banking Department of the Head Office.
Given the differences in economic patterns and customer bases of various regions, the Group implemented
differentiated risk supervisory management by category for branches and sub-branches in different regions. For 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
percentage of the balance of loans extended to Central China, Pearl River Delta and West Side of Taiwan Strait and
Western China showed increases, while the percentages of the balance of loans extended to other regions recorded
decreases. Due to the formation of non-performing loans in certain large-sized corporate customers and the increase
of non-performing credit card loans, the non-performing loan ratio of Head Office increased by 0.50 percentage
point as compared with the end of the previous year, while the non-performing loan ratio of other regions decreased
as compared with the end of the previous year.
35
36
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
Special mention
3.4.5 Distribution of loans and non-performing loans by type of guarantees
31 December 2019
7.00
314,214
Subsidiaries
0.37
5,583
3.82
Central China
453,128
10.09
3,739
0.83
384,094
9.77
5,005
1.30
Western China
446,520
31 December 2018
9.94
1.64
380,675
9.68
7,975
2.09
Overseas
139,341
3.10
276
0.20
123,337
3.13
456
7,321
Percentage
Non
Non
performing
2.63
583,242
14.83
20,338
3.49
Collateralised loans
1,859,500
41.40
15,103
0.81
1,653,517
42.04
20,769
1.26
Pledged loans (2)
232,424
5.18
6,960
2.99
225,964
5.75
2,746
1.22
Discounted bills
226,040
5.04
19.00
16,755
14.18
636,709
Guaranteed loans(2)
Non
Non
performing
Loan
of the total
performing
loan ratio
Loan
Percentage of
performing
loan ratio
(in millions of RMB, except for percentages)
balance
(%)
3.72
loan
balance
the total (%)
loan
(%) (1)
Credit loans
1,535,977
34.20
13,438
0.87
1,320,545
33.57
9,752
0.74
(%) (1)
146,198
3.39
5,146
2,362,616
52.61
17,186
0.73
2,009,339
51.09
15,847
0.79
Total loans and advances to
customers
4,490,650
100.00
52,275
1.16
3,933,034
100.00
53,605
1.36
Notes:
(1)
Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2)
Consists primarily of agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
In 2019, the Group closely followed the key national strategic plans and unwaveringly supported the development of
the real economy by constantly intensifying the adjustment of its credit structure and actively redirecting resources to
those major construction projects in the so-called "weakness-eliminating" fields such as the infrastructure, as well as
the strategic emerging industries, advanced manufacturing industry and modern service industry, while dynamically
adjusting its credit strategy in such key fields as the real estate industry, local government financing platforms,
and industries that we have reduced or withdrawn from in line with the national macro industrial policies, and
accelerating the reduction and withdrawal of loans granted to those customers with high risks such as the "zombie
companies" and those with high leverage and overcapacity. During the reporting period, due to the effect of such
factors as the downturn in the macro economy and defaults by certain major corporate customers, an increase in
the non-performing ratio was recorded in certain industries, such as the leasing and commercial service industry,
transportation, warehousing and postal services, information transmission, software and information technology
services, etc..
3.4.4 Distribution of loans and non-performing loans by region
Retail loans
3.81
149,766
0.01
270
0.46
55,916
1.42
294
0.53
Mining
39,189
0.87
2,084
5.32
37,545
0.95
31 December 2018
3,019
Others(2)
70,855
1.58
796
1.12
76,903
1.96
685
0.89
Discounted bills
226,040
5.04
19
8.04
31 December 2019
Percentage
Non
8,574
0.95
793,637
20.18
10,334
1.30
Bohai Rim
567,997
12.65
7,092
1.25
503,588
12.80
20.13
8,708
Pearl River Delta and West Side
of Taiwan Strait
773,445
17.22
7,093
0.92
667,011
16.96
7,009
1.05
North-eastern China
151,587
3.38
1.73
0.01
903,754
1.01
Non
performing
Loan
of the total
performing
loan ratio
Loan
Percentage
of the total
Non
Non
performing
performing
loan ratio
(in millions of RMB, except for percentages)
balance
Yangtze River Delta
(%)
(%) (1)
balance
(%)
loan
(%)(1)
Head Office(2)
740,664
16.49
11,209
1.51
650,128
16.53
6,567
loan
149,766
3.81
Total loans and advances to
Unwinding of discount on impaired loans and advances (note)
(286)
(307)
Recovery of loans and advances previously written off
9,170
Write-offs/disposal for the period
(32,201)
7,453
(26,197)
Foreign exchange rate movements
Balance at the end of the period
200
223,097
279
192,000
Note: Represents the interest income accrued on impaired loans as a result of the increase in their present value due to the passage of time.
The Group continued to adopt a stable and prudent policy in respect of making allowances. As at the end of the
reporting period, the balance of allowances for impairment losses on loans of the Group amounted to RMB223.097
billion, representing an increase of RMB31.097 billion as compared with the end of the previous year. The non-
performing loan allowance coverage ratio was 426.78%, representing an increase of 68.60 percentage points as
compared with the end of the previous year; the loan allowance ratio was 4.97%, representing an increase of 0.09
percentage point as compared with the end of the previous year.
China Merchants Bank
Chapter III Report of the Board of Directors
Annual Report 2019
3.5 Analysis of Capital Adequacy Ratio
As at the end of the reporting period, the capital adequacy ratio of the Group under the Advanced Measurement
Approach was 15.54%, representing a decrease of 0.14 percentage point as compared with the end of the previous
year, while the Tier 1 capital adequacy ratio and the core Tier 1 capital adequacy ratio of the Group under the
Advanced Measurement Approach were 12.69% and 11.95%, respectively, representing an increase of 0.07 and 0.17
percentage point respectively, as compared with the end of the previous year.
For details of the reasons for the decrease in the capital adequacy ratio under the Advanced Measurement Approach,
please refer to section 3.9.1 headed "Capital management".
The Group
(in millions of RMB, except for percentages)
Capital adequacy ratios under
the Advanced Measurement Approach (1)
Net core Tier 1 capital
31 December
2019
59,252
54,214
Charge/release for the period
1,088
151,520
Percentage
of total
loans (%)
0.56
Loan
balance
22,766
Percentage
of total
loans (%)
0.58
Of which: restructured loans overdue more than
90 days
19,255
0.43
16,218
0.41
Note: Represents the restructured non-performing loans.
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 0.56%, down by 0.02 percentage point as compared
with the end of the previous year.
37
38
31 December
China Merchants Bank
Annual Report 2019
3.4.9 Repossessed assets and impairment allowances
As at the end of the reporting period, the balance of repossessed assets (other than financial instruments) of
the Group amounted to RMB942 million. After deducting the impairment allowances of RMB174 million, the
net carrying value amounted to RMB768 million. The balance of repossessed financial instruments amounted to
RMB1.518 billion.
3.4.10 Changes in the allowances for impairment losses on loans
The Group adopted the new financial instrument standard to make adequate allowances for credit risk losses by
using the expected credit loss model and the risk quantification parameters such as the probability of customer
defaults and the loss ratio of defaults, after taking into consideration the adjustments in macro perspectiveness.
The following table sets forth the changes in the allowances for impairment losses on loans and advances of the
Group.
(in millions of RMB)
Balance as at the end of the previous year
2019
192,000
2018
150,432
Adjustment at the beginning of the period under the new financial
instrument standard
N/A
Balance as at the beginning of the year
192,000
Chapter III Report of the Board of Directors
2018
Increase/decrease at
the end of the current
year as compared
with the end of the
previous year (%)
12.56
Core Tier 1 capital adequacy ratio
Increased by 0.17
11.95%
11.78%
percentage point
Tier 1 capital adequacy ratio
Increased by 0.07
12.69%
12.62%
percentage point
Capital adequacy ratio
Information on leverage ratio (2)
4,092,890
Adjusted balance of on- and off-balance sheet assets
Leverage ratio
7,812,054
10.14
6.79%
6.61%
Increased by 0.18
percentage point
Decreased by 0.14
15.54%
15.68%
percentage point
Notes:
(1)
(2)
The "Advanced Measurement Approach" refers to the advanced measurement approach set out in the "Capital Rules for Commercial Banks
(Provisional)" issued by the former CBRC on 7 June 2012 (same as below). In accordance with the requirements of the Advanced Measurement
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 the end of the reporting period, the Group's subsidiaries for calculating its capital adequacy ratio
included CMB Wing Lung Bank, CMB International Capital, CMB Financial Leasing, CMB Wealth Management and China Merchants Fund.
During the parallel run period when the Advanced Measurement Approach for capital measurement is implemented, a commercial bank
shall use the capital floor adjustment coefficients to adjust the amount of its risk-weighted assets multiplying the sum of its minimum capital
required and reserve capital required, total amount of capital deductions and the allowances for excessive loan loss which can be included into
capital. The capital floor adjustment coefficients shall be 95%, 90% and 80% respectively in the first year, the second year, and the third and
subsequent years during the parallel run period. 2019 is the fifth year since the implementation of the parallel run period.
8,604,521
25,022
4,606,786
Risk-weighted assets (taking into consideration the
Net Tier 1 capital
Net capital
550,339
482,340
14.10
584,436
516,433
13.17
715,925
641,881
11.54
Risk-weighted assets (without taking into
consideration the floor requirements
floor requirements during the parallel run period)
during the parallel run period)
3,530,424
9.44
Of which: Credit risk weighted assets
Market risk weighted assets
3,347,515
3,052,636
9.66
66,514
65,906
0.92
Operational risk weighted assets
449,731
411,882
9.19
3,863,760
1.30
Restructured loans (note)
(in millions of RMB, except for percentages)
0.37
C
Property development
12,761
1.78
0.28
D
Manufacturing
10,100
1.41
0.22
E
Finance
10,000
1.40
0.22
F
Transportation, storage and postal services
8,070
1.13
0.18
G
Finance
7,969
1.11
0.18
H
2.33
16,650
0.69
4.34
customers
4,490,650
100.00
52,275
1.16
3,933,034
100.00
53,605
1.36
Notes:
(1)
Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2)
Transportation, storage and postal services.
Property development
During the reporting period, for loans guaranteed with domestic letters of credit, domestic standby letters of credit and overseas standby letters
of credit, the Group adjusted the type of guarantee from pledged to guaranteed, and adjusted the figures at the beginning of the year on the
same statistical calibre.
3.4.6 Loans to the top ten single borrowers
(in millions of RMB, except for percentages)
Top ten
Loan balance
as at
31 December
borrowers
Industry
2019
Percentage
of net capital
(under the
Advanced
Measurement
Approach) (%)
Percentage of
total loans (%)
A
B
Transportation, storage and postal services
Property development
31,100
As at the end of the reporting period, collateralised and pledged loans increased by 11.30% as compared with
the beginning of the previous year; guaranteed loans increased by 9.17% as compared with the beginning of the
previous year, and the credit loans increased by 16.31% as compared with the end of the previous year. The non-
performing pledged loan ratio increased by 1.77 percentage points as compared with the beginning of the year
due to the formation of non-performing loans in certain large-sized customers. The non-performing ratio of credit
loans increased by 0.13 percentage point as compared with the end of the previous year; while the ratio of non-
performing guaranteed loans and collateralised loans both decreased.
7,962
1.11
0.18
20,288
0.45
16,447
0.42
Overdue from 1 year up to 3 years
16,657
0.37
19,130
0.49
Overdue more than 3 years
7,519
0.17
6,695
Overdue from 3 months up to 1 year
0.17
Total loans and advances to customers
63,363
4,490,650
1.41
62,003
1.58
100.00
3,933,034
100.00
As at the end of the reporting period, overdue loans of the Group amounted to RMB63.363 billion, up by RMB1.360
billion from the end of the previous year and accounting for 1.41% of its total loans, representing a decrease of
0.17 percentage point as compared with the end of the previous year. Among the overdue loans, collateralised and
pledged loans accounted for 36.17%; guaranteed loans accounted for 26.53%; credit loans accounted for 37.30%
(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 was 1.18.
3.4.8 Restructured loans
31 December 2019
31 December 2018
Loan
Total overdue loans
balance
0.50
0.42
7,217
1.01
0.16
Mining
6,972
0.97
0.16
Total
118,801
16.59
2.64
As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to
RMB31.100 billion, representing 4.34% of the Group's net capital under the Advanced Measurement Approach.
The loan balance of the top ten single borrowers totalled RMB118.801 billion, representing 16.59% of the Group's
net capital under the Advanced Measurement Approach, 17.64% of the Group's net capital under the Weighted
Approach, and 2.64% of the Group's total loan balance, respectively.
China Merchants Bank
Annual Report 2019
19,731
Chapter III Report of the Board of Directors
31 December 2019
Percentage
31 December 2018
Loan
of total
Loan
Percentage
of total
(in millions of RMB, except for percentages)
balance
loans (%)
balance
loans (%)
Overdue within 3 months
18,899
3.4.7 Distribution of loans by overdue term
58,263
public utilities
environment and
3.3.2 Liabilities
In compliance with the PRC enterprise accounting principles, at the end of 2019, the Group conducted an
impairment test on the goodwill arising from the acquisition of CMB Wing Lung Bank, China Merchants Fund and
other companies and determined that provision for impairment was not necessary for the current year. As at the
end of the reporting period, the Group had a balance of allowances for impairment losses on goodwill of RMB579
million and the carrying value of goodwill was RMB9.954 billion.
3.3.1.3 Goodwill
As at the end of the reporting period, the investments in joint ventures and associates of the Group were
RMB10.784 billion, representing an increase of 21.56% as compared with the end of the previous year, which
was mainly due to the increase in the profits of its joint ventures, i.e. CIGNA & CMB Life Insurance and Merchants
Union Consumer Finance. As at the end of the reporting period, the balance of allowances for impairment losses on
investments in joint ventures and associates of the Group was zero. For details, please refer to Notes 25 and 26 to
the financial statements.
Investments in joint ventures and associates
"Official authorities" include the Ministry of Finance of the PRC, local governments and the central bank, etc.; "Others" mainly refer to
enterprises.
In 2019, the carrying amount of the investments measured at fair value through profit or loss included the interest receivable provided for using
the effective interest rate method, and the comparables as at the end of 2018 have been adjusted accordingly.
(2)
(1)
1,207,268
1,374,012
98,961
112,241
175,556
162,341
291,271
316,241
641,480
783,189
2018
31 December
2019
Notes:
Total Bond investments
Others(2)
Commercial banks and other financial institutions
Policy banks
Official authorities (2)
As at the end of the reporting period, the total liabilities of the Group amounted to RMB6,799.533 billion,
representing an increase of 9.63% as compared with the end of the previous year, which was primarily attributable
to the steady growth in deposits from customers and bond issuance during the reporting period.
To maintain the figures comparable, the financial instruments in section "3.3.2 Liabilities" were still analysed on the
statistical calibre excluding interest payable, except for the table "components of the total liabilities of the Group"
in which interest payable calculated using the effective interest method was included as required by the Ministry of
Finance.
The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
31 December 2019
8.50
578,191
Debt securities issued
1.30
80,714
0.98
66,634
and derivative financial liabilities
Financial liabilities at fair value through profit or loss
6.54
405,314
5.28
359,175
(in millions of RMB)
Borrowings from the central bank
752,917
11.54
784,735
Inter-bank transactions (1)
71.39
4,427,566
71.70
4,874,981
Deposits from customers
Percentage of
Amount the total (%)
Percentage of
Amount the total (%)
(in millions of RMB, except for percentages)
31 December 2018
12.14
31 December
The composition of the Group's total bond investments classified by the issuing entities (1)
Chapter III Report of the Board of Directors
(10,724)
10,990
4,656,569
Liabilities
Assets
amount
Liabilities
Assets
amount
Notional
Notional
Fair value
Fair value
4,382,713
31 December 2018
Other derivatives
Currency derivatives
Interest rate derivatives
(in millions of RMB)
31 December 2019
As at the end of the reporting period, the major categories and amount of derivative financial instruments held by
the Group are indicated in the following table. For details, please refer to Note 60(f) to the financial statements.
Derivative financial instruments
Annual Report 2019
Chapter III Report of the Board of Directors
China Merchants Bank
30
30
loan ratio
Total
424,926
16,150
1,135,734
Annual Report 2019
China Merchants Bank
As at the end of the reporting period, the balance of equity investments designated at fair value through other
comprehensive income of the Group amounted to RMB6.077 billion. Such investments were mainly non-trading
equity investments held by the Group in the investees over whom the Group had no control, joint control or
significant influence. For details, please refer to Note 23(d) to the financial statements.
Equity investments designated at fair value through other comprehensive income
As at the end of the reporting period, the balance of debt investments at fair value through other comprehensive
income of the Group amounted to RMB472.586 billion. During the reporting period, affected by the changes in the
market environment, the interest rate of the RMB bond market underwent remarkable fluctuation, with the interest
spreads on medium- and high-grade credit bonds narrowing sharply, and an increasing number of default events.
The Group closely monitored market changes, had the duration of its RMB asset portfolio carefully maintained at
a high level, captured opportunities arising at a particular period, and adjusted the existing portfolio structure in a
timely manner by increasing the amount of higher-value assets such as treasury bonds, local bonds, and medium-and
high-grade credit bonds, while deploying special credit audit teams aiming to optimise its asset structure and avoid
credit risks. For details, please refer to Note 23(c) to the financial statements.
Debt investments at fair value through other comprehensive income
As at the end of the reporting period, the balance of the Group's debt investments measured at amortised cost
amounted to RMB907.472 billion. Among them, the bond investments were made mainly in the bonds issued by
the PRC government and policy banks. 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. For details, please refer to
Note 23(b) to the financial statements.
Debt investments measured at amortised cost
As at the end of the reporting period, the balance of the investments at fair value through profit or loss amounted
to RMB398.276 billion, with bond investments and non-standardised asset investments accounting for the main
categories. Bond investments were made by the Group through analysis of fundamentals such as macroeconomic
and monetary policy to grasp the trading opportunities in the bond market to increase investment income. For non-
standardised asset investments, which are mainly non-standardised bills investments and part of the Group's bill
asset structure, the Group is to gain investment returns by capturing the investment opportunities arising in the bill
market based on its operational needs and the currency market development. For details, please refer to Note 23(a)
to the financial statements.
Investments at fair value through profit or loss
In 2019, the transaction volume of the bank-to-customer RMB exchange rate derivatives shrank by nearly 18%
market-wide, nevertheless, the central bank reformed and improved the Loan Prime Rate (LPR) in August to further
advance the marketisation of the RMB interest rate, boosting customers' demand for customised solutions for
derivative transactions to cope with the risk of fluctuations in market interest rates. While continuing to provide its
customers with derivative transaction services for exchange rate products, the Group gave full play to its professional
edge in derivative transactions in the financial market, such as interest rate swaps, exploring for new derivative
transaction services to the customers, and providing them with online transaction services, as a result of which the
number of the wholesale customers and the transaction volume continued to grow.
The above table shows the nominal value and fair value of the Group's derivatives by their remaining maturity on
each balance sheet date. The nominal value refers only to the volume of the transactions that have not yet been due
or completed on the balance sheet date, and does not represent the value at risk.
(36,570)
(14,812)
34,220
(437)
440
116,624
(720)
(23,200)
24,219
5,922,522
750
130,219
(21,321)
17,630
1,605,849
(11,756)
12,479
6,105,186
Loan
6.85
135,817
3,933,034
53,605
100.00
1.36
During the reporting period, the 5-tier loan classification system of the Group was further optimised. As at the end
of the reporting period, both the balance and percentage of the Group's special-mention loans and non-performing
loans recorded a decrease. Specifically, the balance of the special mention loans amounted to RMB52.590 billion,
representing a decrease of RMB6.739 billion as compared with the end of the previous year; the percentage of
special-mention loans was 1.17%, representing a decrease of 0.34 percentage point as compared with the end of
the previous year. The balance of our non-performing loans amounted to RMB52.275 billion, representing a decrease
of RMB1.330 billion as compared with the end of the previous year, with a non-performing loan ratio of 1.16%, a
decrease of 0.20 percentage point as compared with the end of the previous year.
3.4.2 Distribution of loans and non-performing loans by product type
31 December 2019
31 December 2018
Loan
(in millions of RMB, except for percentages)
balance
Percentage
of the
total (%)
Non-
Non-
performing
Percentage
performing
Normal
Percentage of
31 December 2018
31 December 2019
The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.
3.4.1 Distribution of loans by 5-tier loan classification
3.4 Analysis of Loan Quality
Annual Report 2019
Chapter III Report of the Board of Directors
China Merchants Bank
As at the end of the reporting period, the shareholders' equity of the Group was RMB617.707 billion, representing
an increase of 13.63% as compared with the end of the previous year, among which retained profits amounted to
RMB321.610 billion, representing an increase of 17.22% as compared with the end of the previous year; investment
revaluation reserve amounted to RMB8.919 billion, representing an increase of RMB3.387 billion as compared with
the end of the previous year, mainly due to the increase in the valuation of bond investments, equity investments
and bill assets measured at fair value through other comprehensive income.
3.3.3 Shareholders' equity
1.16
100.00
4,490,650
52,275
Note: Under the 5-tier loan classification system, non-performing loans of the Group are divided into substandard loans, doubtful loans and loss loans.
Substandard
Doubtful
Loss
Amount the total (%)
Amount
Percentage of
the total (%)
4,385,785
97.67
3,820,100
97.13
52,590
1.17
59,329
As at the end of the reporting period, the percentage of daily average balance per year of the demand deposits to
that of the total deposits from customers of the Group was 57.99%, representing a decrease of 2.65 percentage
points as compared with the previous year. Among which, the daily average balance per year of corporate demand
deposits accounted for 54.10% of that of the corporate deposits, representing a decrease of 1.56 percentage points
as compared with the previous year, and the daily average balance per year of retail demand deposits accounted
for 64.92% of that of the retail deposits, representing a decrease of 5.22 percentage points as compared with
the previous year. For the reasons for the decline in the percentage of the demand deposits, please refer to 3.9.1
"Proprietary deposits" in this chapter.
1.51
0.35
13,526
0.34
17,383
0.39
25,041
0.64
19,145
0.42
15,038
0.38
Total loans and advances to customers
Total non-performing loans
15,747
100.00
100.00
4,844,422
Deposits from corporate customers
Percentage of
the total (%)
Amount
Percentage of
the total (%)
Amount
(in millions of RMB, except for percentages)
31 December 2018
31 December 2019
The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type
and customer type.
As at the end of the reporting period, total deposits from customers of the Group amounted to RMB4,844.422
billion, representing an increase of 10.08% as compared with the end of the previous year. Deposits from customers,
accounting for 71.25% of the total liabilities of the Group, was the major funding source of the Group.
Deposits from customers
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
Demand
32
Including salaries and welfare payable, taxes payable, contract liabilities, lease liabilities, expected liabilities, deferred income tax liabilities and
other liabilities.
(2)
Including deposits and placements from banks and other financial institutions and amounts sold under repurchase agreements.
(1)
Notes:
100.00
6,202,124
100.00
6,799,533
Total liabilities
1.78
110,687
2.00
31
Others(2)
1,692,068
1,645,684
35.52
1,562,953
37.28
1,806,321
Total deposits from customers
Subtotal
11.43
503,030
13.10
635,100
Time
24.09
1,059,923
34.93
24.18
64.48
2,837,721
62.72
3,038,101
Demand
Deposits from retail customers
Subtotal
27.09
1,192,037
27.79
1,346,033
Time
37.39
1,171,221
Since 2015, the leverage ratio shall be calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks
(Revised)" promulgated by the former CBRC on 12 February 2015. The leverage ratio of the Group was 6.62%, 6.43% and 6.82% respectively
as at the end of the third quarter of 2019, the end of the first half of 2019 and the end of the first quarter of 2019.
of the
Non-
performing
1,773,929
45.10
37,758
2.13
Property development
368,377
8.20
1,636
0.44
316,490
8.05
3,263
1.03
Transportation, storage and
postal services
337,209
7.51
2,475
0.73
287,027
7.30
1,674
0.58
Manufacturing
261,711
5.83
15,943
1.84
35,070
42.35
1,901,994
Chapter III Report of the Board of Directors
In 2019, the Group actively expanded its retail credit business and steadily provided housing mortgage loans for self-
occupation purpose and credit card loans and actively supported the micro-finance loans to private companies, as a
result of which, our asset quality was stable and controllable. As at the end of the reporting period, the proportion
of retail loans increased by 1.52 percentage points to 52.61%; the non-performing retail loans amounted to
RMB17.186 billion, up by RMB1.339 billion as compared with the end of the previous year; and the non-performing
retail loan ratio was 0.73%, down by 0.06 percentage point as compared with the end of the previous year. Among
which, affected by the external factors such as the risk of "joint debts", the non-performing credit card loan ratio
was 1.35%, up by 0.24 percentage point as compared with the end of the previous year.
With regard to corporate loans, the Group steadily advanced the development of project financing and domestic
trade financing businesses, resulting in stable and optimised asset quality. As at the end of the reporting period, the
percentage of the Group's corporate loans dropped by 2.75 percentage points to 42.35%, while that of the fixed
asset loans and trade financing recorded an increase; the non-performing ratio of our corporate loans was 1.84%,
representing a decrease of 0.29 percentage point as compared with the end of the previous year, specifically, the
non-performing amounts and non-performing ratios of the fixed asset loans and trade financing both recorded a
decrease.
3.4.3 Distribution of loans and non-performing loans by industry
31 December 2018
31 December 2019
Percentage
Non-
Loan
of the total
performing
Non-
performing
loan ratio
Loan
6.09
Percentage
of the total
Non-
performing
performing
loan ratio
(in millions of RMB, except for percentages)
balance
(%)
loan
(%) (1)
balance
(%)
loan
(%) (1)
Corporate loans
Non-
282,543
7.18
18,760
126,706
2.82
229
0.18
114,137
2.90
3
0.00
Construction
97,475
2.17
1,270
1.30
Finance
90,110
1,080
1.20
Information transmission,
software and IT service
55,900
1.24
1,034
1.85
70,012
1.78
710
1.01
Water conservancy,
2.29
China Merchants Bank
Annual Report 2019
0.46
3.21
6.64
Wholesale and retail
162,857
3.63
5,202
3.19
170,489
4.33
6,867
4.03
Production and supply of
electric power, heat,
gas and water
576
150,083
519
0.35
146,662
3.73
827
0.56
Leasing and commercial
services
173,369
3.86
3,612
2.08
126,095
3.34
Non-
performing
=4
33
5,067
1.08
Trade finance
192,750
4.29
819
0.42
157,093
3.99
2,465
1.57
فين
Others(2)
295,543
6.58
4,835
1.64
261,655
6.65
4,528
1.73
Discounted bills (3)
226,040
5.04
19
0.01
149,766
11.97
470,521
0.80
4,491
loan ratio
loan
(%) (1)
balance
total (%)
loan
(%) (1)
Corporate loans
1,901,994
42.35
35,070
1.84
1,773,929
3.81
45.10
2.13
Working capital loans
854,121
19.02
24,925
2.92
884,660
22.49
25,698
2.90
Fixed asset loans
559,580
12.46
37,758
Retail loans
2,362,616
52.61
1.11
Others(4)
177,589
3.95
2,120
1.19
154,555
3.93
2,163
1.40
Total loans and advances to
customers
4,490,650
6,392
100.00
1.16
3,933,034
100.00
53,605
1.36
Notes:
(1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2)
Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
(3)
The Company will transfer discounted bills to corporate loans for accounting purposes once overdue.
(4)
The "Others" category consists primarily of general consumption loans, commercial housing loans, automobile loans, house decoration loans,
education loans and other personal loans secured by monetary assets.
52,275
34
14.63
1.35
17,186
0.73
2,009,339
51.09
15,847
0.79
Micro-finance loans
405,780
9.04
3,284
0.81
350,534
8.91
575,490
4,682
Residential mortgage loans
1,108,148
24.68
2,749
0.25
928,760
23.62
2,610
0.28
Credit card loans
671,099
14.94
9,033
1.34
39
(in millions of RMB, except for percentages)
415,290
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
As at the end of the reporting period, the capital adequacy ratio of the Company under the Weighted Approach was
12.53%, representing a decrease of 0.13 percentage point as compared with the end of the previous year; the Tier
1 capital adequacy ratio and the core Tier 1 capital adequacy ratio of the Company under the Weighted Approach
were 10.75% and 10.09% respectively, representing an increase of 0.20 and 0.27 percentage point respectively, as
compared with the end of the previous year.
The Company
(in millions of RMB, except for percentages)
Capital adequacy ratios under
the Weighted Approach
Net core Tier 1 capital
Note: The "Weighted Approach" refers to the Weighted Approach for credit risk, the Standardised Measurement 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 former CBRC on 7 June 2012. Same as below.
31 December
2019
2018
Increase/decrease at
the end of the current
year as compared
with the end of the
previous year (%)
478,083
420,996
13.56
Net Tier 1 capital
31 December
509,336
Decreased by 0.04
percentage point
13.02%
10.20
Risk-weighted assets
5,170,500
4,677,967
10.53
Core Tier 1 capital adequacy ratio
10.64%
13.06%
10.31%
percentage point
Tier 1 capital adequacy ratio
11.30%
11.04%
Increased by 0.26
percentage point
Capital adequacy ratio
Increased by 0.33
611,025
452,449
Net capital
percentage point
Type of risk exposure
Financial institution
Corporate
Balance of credit risk exposures
During the reporting period, the credit risk of the Company under the internal ratings-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:
(in millions of RMB)
Decreased by 0.13
Portion covered by
the IRB approach
Group
1,447,567
1,447,567
1,943,103
1,943,103
Retail
3,028,344
Legal person
12.57
12.66%
Capital adequacy ratio
593,418
542,610
9.36
Risk-weighted assets
4,737,827
4,286,653
10.53
12.53%
Core Tier 1 capital adequacy ratio
9.82%
Increased by 0.27
Tier 1 capital adequacy ratio
10.75%
10.55%
percentage point
Increased by 0.20
percentage point
10.09%
3,028,344
673,366
13.17
Net capital
635,977
573,466
10.90
Risk-weighted assets (without taking into
consideration the floor requirements
during the parallel run period)
12.57
3,426,517
9.05
Of which: Credit risk weighted assets
2,960,115
2,698,166
9.71
Market risk weighted assets
51,112
3,142,192
Operational risk weighted assets
452,449
Net Tier 1 capital
40
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
As at the end of the reporting period, the capital adequacy ratio of the Company under the Advanced Measurement
Approach was 15.27%, representing a decrease of 0.25 percentage point as compared with the end of the previous
year, while the Tier 1 capital adequacy ratio and the core Tier 1 capital adequacy ratio of the Company under the
Advanced Measurement Approach were 12.23% and 11.48%, representing a decrease of 0.02 percentage point and
an increase of 0.09 percentage point respectively, as compared with the end of the previous year.
The Company
(in millions of RMB, except for percentages)
Capital adequacy ratios under
31 December
2019
509,336
31 December
Increase/decrease at
the end of the current
year as compared
with the end of the
previous year (%)
the Advanced Measurement Approach
Net core Tier 1 capital
478,083
420,996
13.56
2018
Net capital
60,272
383,754
8.22
As at the end of the reporting period, the capital adequacy ratio of the Group under the Weighted Approach was
13.02%, representing a decrease of 0.04 percentage point as compared with the end of the previous year; the Tier
1 capital adequacy ratio and the core Tier 1 capital adequacy ratio of the Group under the Weighted Approach
were 11.30% and 10.64% respectively, representing an increase of 0.26 and 0.33 percentage point respectively, as
compared with the end of the previous year.
The Group
(in millions of RMB, except for percentages)
Capital adequacy ratios under
the Weighted Approach (note)
Net core Tier 1 capital
31 December
31 December
2019
percentage point
2018
year as compared
with the end of the
previous year (%)
550,339
482,340
14.10
Net Tier 1 capital
584,436
516,433
Increase/decrease at
the end of the current
(15.20)
15.52%
Decreased by 0.25
Risk-weighted assets (taking into consideration the
floor requirements during the parallel run period)
4,163,903
3,694,893
12.69
Core Tier 1 capital adequacy ratio
Increased by 0.09
15.27%
11.48%
percentage point
Tier 1 capital adequacy ratio
Capital adequacy ratio
Decreased by 0.02
12.23%
12.25%
percentage point
11.39%
40
Of which: Residential mortgage exposures
Qualified revolving retail
1,101,367
Reshape the wholesale business specialised service system from an ecological
perspective.
First, we continuously improved the hierarchical and classified customer operation system. We deepened the
understanding of regional markets, advantageous industries and high-quality customers, focused on core customers,
implemented the "direct operation + industry franchise" model, and built a hierarchical and classified customer
operation system. We rendered coordinated services for strategic customers, institutional customers, financial
institution customers, and small- and medium-sized customers in the supply chain, and fully improved the customer
service experience in terms of credit strategy, product strategy, service strategy, and resource allocation.
Second, we strengthened our professional service capabilities through digital transformation. Firstly, we
strengthened the construction of the digital operation platform. We relied on the CMB Corporate APP to build an
open all-scenario mobile service platform for corporate users. As at the end of the reporting period, the number
of CMB Corporate APP customers amounted to 1,000,800, representing an increase of 87.45% compared with
the end of the previous year, with 426,500 MAUS, representing an increase of 136.68% compared with the end
of the previous year under the same statistical calibre. We built a unified digital platform for corporate customers
- CMB Open Platform, exploring ways to support the transformation of business models with standardised and
modularised services, while responding quickly to customers' needs. Secondly, we achieved the online migration of
the wholesale financial products. We continued to advance the online processing of the bill business. During the
reporting period, the business volume of online bill discounting amounted to RMB300.623 billion, representing a
year-on-year increase of 46.02%, with 13,509 online bill discounting customers, representing a year-on-year increase
of 48.29%. Among them, small-, medium- and micro-sized enterprise customers accounted for 92%, indicating
a continuous improvement in our digital inclusive financial service capability. Thirdly, we enhanced our digital risk
control capabilities. We integrated the internal and external data to build customer-related knowledge graph, while
strengthening its risk analysis capabilities for specific scenarios, and establishing the risk characteristic models which
included scenarios such as guarantee circles, financial judicial disputes, risk transmission, risk-related public opinion,
financing of small loan companies, policy interpretation, data quality inspection, credit approval and authorisation.
We also built an intelligent pre-warning system for corporate customers which is based on the machine learning
algorithm. As at the end of the reporting period, the accuracy ratio of wholesale intelligent rating and pre-warning
continued to improve. The accuracy ratio of the intelligent rating system for corporate customers was 52.60%
higher than the traditional rating, and the accuracy ratio of pre-warnings on the corporate customers with potential
risks reached 75%.
Third, we achieved ecological operations by leveraging the industrial Internet. We unblocked the industry chain from
three aspects, i.e. digital operation of the account and payment system, digital financing, and output of Fintech
capability. In terms of the unified payment and settlement system, the Company has realised the innovative bill
collection and classification functions and the settlement model for internal accounts on the B2B platform. During
the reporting period, the comprehensive settlement solution "Cloud Bill" has served 5,766 corporate customers,
with a transaction volume of RMB287.271 billion; the aggregated collection business focused on the four major
scenarios, i.e. insurance, medicine, education and fast consumption. The number of transactions reached 502 million
with a total volume of RMB146.647 billion, representing a year-on-year increase of 267.51%.
China Merchants Bank
Annual Report 2019
3.
4.
Chapter III Report of the Board of Directors
Chapter III Report of the Board of Directors
Continue to create a bank offering best customer experience by taking process
optimisation as the starting point.
Constantly enhance the basic technology capabilities with openness and
intelligence as the core elements
In terms of Cloud + API, the Company accelerated the transformation of the system architecture, aiming to create an
open IT architecture, and establish a large-scale digital infrastructure based on Cloud computing technology. During
the reporting period, the total deployment of X86 servers increased by 60.67% year-on-year. With the expanded
application of a new generation of PaaS (Platform as a Service) platform, the percentage of Cloud migration of
the applications across the Bank reached 44%. At the same time, we continuously enhanced its capability of open
banking. The "Open API Platform" for the Bank's unified external services supported secure and fast output of
APIs, serving different scenarios such as financial payment, Al, intelligent parking, and intelligent medical care.
We empowered 629 cooperative companies. In terms of Big Data + Al, the Company upgraded its Big Data Cloud
platform to increase the overall capacity of the data lake to nearly 9.8PB, with the data in the lake increasing
by 68% compared with the previous year. Based on the integration of internal and external data, the Company
expanded the research and application of Al technology, established three major Al cloud services, i.e. intelligent
customer service, risk-related public opinion and computer visualisation, and launched three major Al solutions:
i.e. knowledge management, digital marketing and risk management, to support the intelligent development of
our businesses. In terms of the blockchain, the Company improved and developed standard sub-chain and BaaS
(Blockchain as a Service) platform ecology, with a total of 25 applications. At the same time, the Company continued
to deepen the integration of businesses and technologies, and fully advanced the transformation of the value-
driven lean R&D. As at the end of the reporting period, more than 60% of the technology teams have formed cross-
functional teams with the business department, thereby achieving lean and agile transformation and continuously
improving the quality and speed of delivery.
45
55
46
46
China Merchants Bank
Annual Report 2019
All retail and wholesale lines of the Company have established professional user experience teams, with "creating
values for customers" as the starting point to promote the improvement of customer experience. During the
reporting period, the Company, on one hand, reconstructed the retail customer experience monitoring system. The
wind chime system version 1.0 went online to connect to 20 internal systems, monitoring 923 customer experience
indicators, achieving the real-time monitoring and digital presentation of retail customer experience and preliminarily
constructing the experience vane and service upgrading engine for retail customers. Digital processing was realised
in the entire approving process of retail credit loans, with a year-on-year reduction of 20% in the approval time
of the approval centre. We adopted the "End-to-End Customer Journey Methodology (RN)”,
focusing on reshaping the entire process experience with respect to retail customers' first business journey, MGM
(Member Get a Member) journey, payroll service journey, and credit card bill installment journey, with significant
improvements. The first business journey project shortened the total time for retail customers to open an account at
an outlet by approximately 25%. For the MGM journey, we focused on solving the weakness of "multiple process
breakpoints ()". The monthly average number of users participating in referrals doubled, and the monthly
average number of users who accepted referrals and successfully opened accounts increased by 30%, with a
significant improvement in customer acquisition. For the payroll journey, we reduced the service contracting process
from 17 to 5 steps, greatly improving the process efficiency. After the credit card billing installment journey was
optimised, customer satisfaction increased by 15%. On the other hand, we comprehensively diagnosed the business
journey of key corporate customers, continuously promoted online processing of approval, risk, compliance and
operation, and continued to advance the reshaping of various service processes. Deposit collection supported the
autonomous completion of relationship managers' mobile ends on a 7 × 24 hours basis. Full-process online credit
authorisation and inquiry were realised. The time required for the full process of inquiry was shortened from about
one week to only 5 minutes at shortest. The time required for the full process of withdrawal under high-frequency
business credit such as banks acceptance, working capital loans and letters of guarantee was reduced by 37%
compared with the previous year. We established a number of offline corporate customer Fintech experience centres
across the country, providing customers with the online operation experience environment for 38 corporate products.
5.
2.
44
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
The following content and data starting from Section 3.8 are analysed from the
perspective of the Company.
3.8 Implementation of Business Development Strategies
During the reporting period, the Company adhered to the development strategy of "Light-operation Bank" and the
strategic positioning of "One Body with Two Wings". While staying current with the pulse of staged development
of China's banking industry, the Company further advanced the exploration of its business model towards stage 3.0
based on the advantages in structure and quality achieved in stage 2.0.
During the reporting period, the information technology expenses of the Company amounted to RMB9.361 billion,
representing a year-on-year increase of 43.97%, and the ratio of which to the Company's net operating income was
3.72%. As at the end of the reporting period, the Bank declared a total of 2,260 Fintech innovation projects, with
1,611 projects approved, of which 957 projects have been launched and put in use, covering such areas as retail,
wholesale, risk, technology and organisational culture transformation, which provided a solid support for exploring
the business model 3.0.
1.
China Merchants Bank
Annual Report 2019
Reshape the digital retail finance system under the guidance of the "North
Star" Metric MAU.
The second is digital operation. During the reporting period, the monthly active users (MAU) of the Company's
two major APPS, i.e. the CMB APP and CMB Life APP, amounted to 102,000,000, representing an increase of
25.58% compared with the end of the previous year, which made these two APPS our major platforms for
customer operation. Firstly, we further enhanced the efficiency of financial services based on digital operations.
During the reporting period, the wealth management transaction via the CMB APP amounted to RMB7.87 trillion,
up by 25.72% year-on-year, and accounting for 71.52% of the Bank's wealth management transaction. Wealth
management customers using CMB APP amounted to 7,620,900, up by 50.17% year-on-year, and accounted for
89.96% of the Bank's total number of wealth management customers. Secondly, we continuously strengthened the
online interaction with our customers through digital operations. During the reporting period, the number of logins
to the CMB APP was 6.093 billion, with a monthly average logins of 11.82. 44 of our branches have opened the
City Zones (), and 1,403 of our outlets have opened their online stores. Meanwhile, we actively explored
effective methods for operation of retail customers with online and centralised models, covering 4,690,000 Golden
Card Holder customers and Sunflower customers. Thirdly, through the opening of the platforms, the Company
constantly improved the efficiency of service innovation. By opening the APP platforms internally, all our branches
can quickly provide new services by developing applets on the CMB APP, and by opening the API (Application
Programming Interface) to our partners externally and focusing on key scenarios such as meal tickets, movie tickets,
transportation, and handy services for the public, etc., the boundary of service was further expanded. During the
reporting period, the CMB APP and the CMB Life APP had over 10 million MAUS engaging in 16 scenarios; the use
rates of the financial scenario and non-financial scenario³ of the CMB APP were 83.79% and 69.80%, respectively,
and the use rates of the financial scenario and non-financial scenario of the CMB Life APP were 76.21% and
73.90%, respectively.
The third is digital risk control. We have been continuously strengthening and expanding its intelligent risk control
platform known as the "Libra System", with its scope of counterfeit detection covering all online and offline transaction
channels, and further optimised reminding and interception of telecom frauds. During the reporting period, the "Libra
System" was able to intercept a suspected fraudulent transaction within 30 milliseconds, reducing the ratio of counterfeit
and misappropriation by non-cardholders to 8/10,000,000. It intercepted 80,000 telecom fraud transactions with an
amount of more than RMB1.8 billion, providing strong protection of the capital of our customers.
2
3
In 2019, the Company optimised the calculation calibre for the percentage of debit card customer acquisition through digital channel. The percentage of
debit card customer acquired through digital channel under the same calibre was 18.60% in 2018.
In 2019, the Company optimised the data calculation calibre, and re-divided the scenario attributes in the APP, and calculated the use rate after
de-duplicating the financial/non-financial scenarios. Financial scenario usage = financial scenario de-duplicated MAU/total MAU, non-financial scenario
usage = non-financial scenario de-duplicated MAU/total MAU. The same user may use two types of scenarios at the same time. Therefore, the sum of the
use rate of the two types of scenarios is greater than 100%.
43
The first is digital customer acquisition. We used the CMB APP and CMB Life APP as the platforms to explore
and build the digital customer acquisition model and secure new growth drivers in customer acquisition through
co-branded marketing, linked marketing, scenario marketing, branded advertising marketing, self-media fan
marketing and MGM (Member Get a Member) social marketing. As at the end of the reporting period, the
aggregate number of users of CMB APP amounted to 114,000,000, with the percentage of debit card customer
acquired through digital channel reaching 24.96%²; the aggregate number of users of the CMB Life APP amounted
to 91,264,300, with the percentage of digital acquisition of credit card customers reaching 64.32%.
As at the end of the reporting period, the Group did not have any outstanding overdue debts.
Chapter III Report of the Board of Directors
Relying on the "Egg Shell ()" platform of our internal forum, we continued to build a cultural atmosphere of
"openness, integration, equality and inclusiveness". During the reporting period, a total of 1,263 opinions and
suggestions on the "Egg Shell" platform were adopted, with an adoption rate reaching 29%. Through the special
action of "removing inherent barriers, empowering frontlines and reducing burden on grassroots (Ft
A)", we rectified the defect of "large-sized enterprises", removed systematic and business barriers, said no to
formalism, and empowered frontline employees and reduced their burdens. We refined the corporate culture into a
code of action, introduced the "Simple Work Style" proposal, including ten work styles such as "do the right thing,
whether it is in your KPI or not", and guided all members to form a cultural consensus.
Chapter III Report of the Board of Directors
In 2020, affected by factors such as a declining macroeconomy and the further advancement of the structural
readjustment, the growth of non-interest net income of the banking industry will still face with many challenges.
The Company will adhere to stable operation, focusing on the two major growth drivers of customers and
technologies, and proactively promote the formation of new business models and the further optimisation of
the business structure, actively tap potential businesses to increase revenue, and facilitate the development of
non-interest business. Firstly, we will consolidate the advantages of the retail business, with the agency distribution
of mutual funds and the agency distribution of insurance policies as the main growth drivers, and rely on online and
digital transformation to foster product allocation concepts and increase the revenue from customers. Meanwhile,
we will grasp the development pace of the credit card business, balance the growth of risks and scale, actively
adjust and optimise the asset structure, and increase customer stickiness and transaction frequency through
in-depth operations. Secondly, through building a systematic business model of wholesale customers, products and
risk management, we will improve our customer operating capabilities and service efficiency, accelerate the online
transformation of the Company's products, optimise the business structure, and achieve the restorative growth of
non-interest income from wholesale business such as transaction banking, asset management, asset custody, and
investment banking.
Proprietary deposits
In 2019, although the growth rate of the broad measure of money supply (M2) improved marginally, it was still at
a low level in recent years, and the year-on-year growth rate of deposits of financial institutions was only slightly
higher than the previous year by 0.76 percentage point. In 2019, the balance of the Company's proprietary deposits
increased by 9.96% over the end of the previous year, and the growth rate increased by 1.70 percentage points
over the end of the previous year. This was mainly due to two reasons: firstly, the Company continued to promote
low-cost general deposit growth by increasing customer base expansion and strengthening the optimisation of the
deposit structure; secondly, while maintaining a relatively high level of net interest margin, the Company moderately
increased the supply of deposit products such as structured deposits and large-denomination certificates of deposit,
and actively diverted customer funds, increasing the Company's deposit market share.
In 2019, demand deposits accounted for 59.06% of the daily average balance per year of the Company's customer
deposits, a year-on-year decrease of 2.50 percentage points. The main reasons included: firstly, due to insufficient
medium- and long-term financing needs of enterprises, a decline in deposit derivation, the weakening of capital
needs in capital-intensive industries, and the insufficient activation of corporate funds, the growth of corporate
demand deposits slowed down; secondly, due to the gradual implementation of the New Regulation on Asset
Management, part of the wealth management funds due were taken over by time deposits such as structured
deposits and large-denomination certificates of deposit, which led to the increase of retail time deposits being
higher than that of demand deposits.
In 2020, macroeconomic operation will still face downward pressure. The Company expects that it will still face the
challenges of fierce competition from peers in deposit growth and the rigid increase in deposit costs. Under such
circumstance, the Company will adhere to the dominant position of low-cost core deposits and strive to maintain
a relatively high percentage of demand deposits; strengthen the management of the pricing of deposit products,
and enhance the quota control over high-cost active liabilities so as to maintain their percentage in proprietary
deposits at a desirable level. Meanwhile, we will fully explore the favourable conditions for abundant market capital,
reasonably arrange active liabilities with a higher degree of marketisation in addition to proprietary deposits, and
further enrich the source of liabilities. Through the above measures, the Company expects that proprietary deposits
will maintain a steady growth, and to a certain extent, alleviate the upward pressure on deposit costs.
China Merchants Bank
Annual Report 2019
4.
Chapter III Report of the Board of Directors
49
5.
Investment of loans
In terms of retail loans, the Company continued to increase the granting of retail loans in 2019, with retail loans
maintaining a good growth trend. Retail loans totaled RMB2,327.955 billion, an increase of RMB340.368 billion or
17.12% over the end of the previous year, and accounted for 55.73% of the Company's total loans and advances,
an increase of 1.30 percentage points over the end of the previous year. In terms of mortgage loans, the Company
seized the business opportunity of personal housing mortgage loans in the first half of the year, appropriately
accelerated the pace of granting, and increased the allocation of credit lines, thus supporting residents' reasonable
need for home ownership. In terms of retail micro-finance loans, the Company actively responded to national
policies and regulatory requirements, vigorously supported the development of the real economy. In particular,
guided by inclusive finance, it vigorously supported the development of the retail micro-finance loan business.
In terms of corporate loans, the growth rate of corporate loans in 2019 had slowed down slightly from the previous
year. This was mainly because amidst the current economic downturn, enterprises were not eager to expand
business, and financing needs were relatively insufficient. In order to meet the challenge of insufficient effective
credit demand, on the one hand, the Company continued to optimise the business structure of corporate loans,
increased the corporate project financing reserves, and moderately increased the promotion of medium- and
long-term financing projects. On the other hand, provided that regional and industry risks were controllable, the
Company seized market opportunities such as the shift in driving forces and supply chain finance, made full use of
the inclusive financial evaluation subsidy policy, and increased the promotion of the corporate small-finance loan
business.
In terms of inclusive finance, the Company continued to promote inclusive finance business. As at the end of the
reporting period, the balance of the Company's inclusive corporate small-finance loans was RMB453.329 billion,
representing an increase of RMB60.154 billion or 15.30% compared with the end of the previous year, achieving the
target of "increase in both total loans and number of loan customers, and control of both loan quality and overall
costs" as requested by CBIRC. It was expected that the Company could continue to enjoy preferential policies such
as exemption on VAT for corporate small-finance loans and targeted statutory deposit reserve ratio cuts. However,
this would ultimately depend on the review and approval of the relevant regulatory authorities.
In 2020, the macroeconomy is still facing downward pressure, and the effective demand of enterprises is
still insufficient. Together with the impact of the COVID-19 pandemic and the advancement of interest rate
marketisation, the granting of loans will still be faced with challenges. To overcome the above challenges, so far
as the investment target of the loan business is concerned, the Company will rationally formulate mortgage loan
and corporate mortgage loan growth plans to effectively manage and control the concentration of loans in the real
estate industry. It will encourage investment in non-real estate industries, and grasp market opportunities such as
the shift in driving forces and supply chain finance, and increase the granting of loans to advanced manufacturing
industries and strategic emerging industries. Meanwhile, provided that risks are controllable, the Company will
actively meet the effective financing needs of small- and micro-sized enterprises and private enterprises, and
continuously optimise the existing loan business structure. Through the above efforts, the Company will strive to
maintain the steady growth of credit assets, with the Annual incremental ratio of corporate loans and retail credit
remaining stable as compared to 2019.
49
Optimise the organisational structure and cultural atmosphere by focusing on
removing inherent barriers, empowering frontlines and reducing burden on
grassroots.
China Merchants Bank
Annual Report 2019
3.
3.9 Changes in External Environment and Corresponding Measures
3.9.1 Impacts of changes in operating environment and key business concerns
1.
Net interest margin
In 2019, the net interest margin of the Company was 2.65%, representing an increase of 1 basis point year-on-year.
The net interest margin for the whole year showed a trend of high to low, mainly because the Company seized
the opportunities of asset investment at the beginning of the year and increased credit assets, especially increasing
the granting of high-yield retail loans. Meanwhile, the PBOC reduced the deposit reserve ratio three times. The
Company's deposits with the central bank accounted for a smaller proportion of interest-earning assets, and the
asset structure was further optimised, driving the net interest margin to rise steadily. However, due to the downturn
in real economy and weak corporate financing needs, loan yields declined during the year. Meanwhile, in order to
accept the wealth management funds due to customers, the Company took the initiative to moderately increase the
supply of deposit products with relatively high costs such as structured deposits and large-denomination certificates
of deposit in the second half of the year. The cost of liabilities increased, leading to a decline in net interest margin.
Looking forward into 2020, the net interest margin of the Company will remain under pressure. On the one hand,
the domestic economic growth will continue to face downward pressure. Together with the impact of the COVID-19
pandemic, the macroeconomic and financial situation can hardly be optimistic. At the same time, the loan prime
rate (LPR) will continue to advance, pushing forward the domestic interest rate marketisation steadily. It is expected
that the interest rate will further move downwards, and the asset pricing of commercial banks will face some
downward pressure. On the other hand, the competition for deposits is expected to remain fierce. Meanwhile,
under the influence of the continued awakening of customers' investment consciousness, the cost of deposits will
still face rigid upward pressure. To cope with the downward pressure on the net interest margin, the Company
will continue to strengthen its evaluation on the macro situation and policies, reinforce the forward-looking and
flexible management of assets and liabilities and constantly optimise the asset-liability structure. On the asset side,
we will maintain the steady growth of credit assets. On the liability side, we will insist on focusing on the growth
of low-cost core deposits, and strengthen the control over the limits of deposits with relatively high costs such
as structured deposits and large-denomination certificates of deposit. Meanwhile, the Company will also further
improve its risk pricing management capabilities. Through the above measures, the Company strives to maintain the
net interest margin at a better level in the industry.
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
2.
48
Loan prime rate (LPR)
12
The loan prime rate (LPR) reform is an important measure for China to deepen the reform of interest rate
marketisation and carry forward the "unification of interest rates", which will have an important impact on the
Company's loan pricing, interest rate risk management and net interest income. First, loan pricing has become
more market-oriented. Under the new quotation mechanism and pricing method, LPR has gradually strengthened
its role in guiding the pricing of newly granted loans. Loan pricing is more closely linked to market interest rates,
which poses a great challenge to the comprehensive pricing capabilities of banks. Second, the difficulty in managing
interest rate risks has increased. Subsequent loan business will gradually be based on market-oriented interest rates.
Different benchmarks for deposit and loan pricing will lead to increased benchmark risks and a shift in exposure. At
the same time, the volatility of loan interest rates and net interest margin will increase. Third, net interest income
is facing downward pressure. Taking into account the domestic and international macroeconomic situation, it is
expected that LPR will continue to decline in 2020, driving loan pricing downwards, which will have a certain
negative impact on the Company's loan interest income.
At present, the Company has used the LPR benchmark in all newly granted RMB general loan businesses (including
corporate loans and retail loans). In the fourth quarter of 2019, the percentage of the Company's newly granted
RMB general loans priced with reference to the LPR benchmark was 91.72%, and the central bank's guidance target
has been completed in advance.
After shifting the loan pricing benchmark from the existing floating rate to the LPR, the transmission of market
interest rates to credit rates will be smoother, and the fluctuation of loan interest rates will also increase, which will
bring more difficult challenges to the management of interest rate risks. The Company has made full preparations
for the rise in the interest rate risk level brought by the unification of interest rates, and timely adjusted the direction
and intensity of the measure for the active management of interest rate risks. It is expected that the overall interest
rate risk will be controllable in the future.
Net non-interest income
During the reporting period, the Company realised net non-interest income of RMB84.194 billion, representing a
year-on-year increase of 8.03%, which accounted for 33.49% of the net operating income of the Company, up by
0.16 percentage point year-on-year. The growth in net non-interest income was mainly explained by the followings:
firstly, benefiting from the continuous increase in the total wealth of residents and the demand for wealth
management, income from the wealth management business such as agency distribution of insurance policies and
agency sale of trusts grew satisfactorily; secondly, in line with the development trend of consumer finance and
mobile payment, credit card business income and electronic payment income grew steadily; thirdly, we seized the
opportunity to expand the bond underwriting and bill businesses during the period when market interest rates
trended down, bond underwriting income and bills sell-off spread income grew satisfactorily.
During the reporting period, against the backdrop of a decline in macroeconomic growth, the complex and repeated
trade frictions between China and the United States, and the continued advancement of the transformation of
asset management, the Company still maintained its strategic focus, accelerated customer expansion and in-depth
operations, and continuously improved its asset allocation capabilities and service efficiency so as to drive the steady
growth of fee and commission income. During the reporting period, the Company recorded fee and commission
income of RMB72.866 billion, representing a year-on-year increase of 7.90%. For key projects, the Company's fee
and commission income from wealth management amounted to RMB23.972 billion, representing a year-on-year
decrease of 4.67% (of which: income from agency distribution of trust schemes amounted to RMB6.774 billion, up
by 13.13% year-on-year, which mainly benefited from the customer base advantage and leading product creation
capabilities of the Company; income from entrusted wealth management services amounted to RMB6.558 billion,
down by 14.18% year-on-year, which was mainly due to the impact of New Regulation on Asset Management;
income from agency distribution of insurance policies amounted to RMB5.790 billion, up by 22.00% year-on-year,
which was mainly due to the overall recovery of the insurance industry and the gradual appearance of the effect
of the transformation of regular premium plan in the insurance business; income from agency distribution of funds
amounted to RMB4.730 billion, down by 29.06% year-on-year, which was mainly due to an increase in the year-
on-year base amount resulting from the optimisation and improvement of the accrual accounting of the Company's
income from agency distribution of funds in 2018; and income from agency distribution of precious metals
amounted to RMB120 million, up by 16.50% year-on-year). Income from bank card fees amounted to RMB19.446
billion, up by 16.98% year-on-year; income from settlement and clearing fees amounted to RMB11.461 billion, up
by 11.91% year-on-year; custodian fee income amounted to RMB3.605 billion, down by 18.79% year-on-year, which
was mainly due to a decline in the overall custody fee rate in the market.
47
1,101,367
3.7.2 Outstanding overdue debts
3.7 Other Financial Disclosures under the Regulatory Requirements
3.7.1 Balance of off-balance sheet items that may have a material effect on the
financial position and operating results and the related information
1
2
3
4
Item
Average value
Maximum value
Minimum value
Value at the end of the period
(in millions of RMB)
No.
Distressed risk
value during
the reporting
the reporting
period
period
604
200
1,001
General risk
value during
278
The Group's market risk capital under the Internal Model-based 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 the reporting period:
China Merchants Bank
Annual Report 2019
1,464,643
1,464,643
Other retail
462,334
462,334
Portion not covered
by the IRB approach
On-balance sheet
Off-balance sheet
Counterparty
Chapter III Report of the Board of Directors
2,304,065
135,076
12,843
148,314
21,784
Measurement of market risk capital
The Group uses mixed approaches to calculate its market risk capital. Specifically, it uses the Internal Model-based
Approach to calculate the general market risk capital of the Company (excluding overseas branches), and uses the
Standardised Measurement Approach to calculate the general market risk capital of overseas branches and affiliated
companies of the Company as well as the specific market risk capital of the Company and its affiliated companies.
As at the end of the reporting period, the market risk-weighted assets of the Group were RMB66.514 billion,
and market risk capital requirement was RMB5.321 billion, of which the general market risk capital requirement
calculated under the Internal Model-based Approach was RMB2.670 billion, and the market risk capital requirement
calculated under the Standardised Measurement Approach was RMB2.651 billion.
41
42
2,699,308
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. Among which, the credit commitment is the
primary component. As at the end of the reporting period, the balance of credit commitments of the Group was
RMB1,779.313 billion. For details of the contingent liabilities and commitments, please refer to Note 58 to the
financial statements.
405
597
58,263
125,843
46,431
111,832
39,914
109,295
4,284
144,716
13,240
13,306
117,132
269,788
106,497
248,444
During the reporting period, the percentage of profit from retail finance of the Group increased. Profit before tax
amounted to RMB66.417 billion, up by 14.00% from the previous year, accounting for 56.70% of the profit before
tax of the Group, representing a year-on-year increase of 1.99 percentage points; net operating income amounted
to RMB144.716 billion, up by 15.00% from the previous year, accounting for 53.64% of the net operating income
of the Group, representing a year-on-year increase of 2.99 percentage points. At the same time, the cost-to-income
ratio of retail finance business was 33.74%, representing a decrease of 1.73 percentage points as compared with
the previous year.
For details of the Group's business and geographical segments, please refer to Note 56 to the financial statements.
8,320
133
66,417
segments
161
3.6 Results of Operating Segments
The principal business segments of the Group include retail finance and wholesale finance. The following table
summarises the operating results of each business segment of the Group for the periods indicated.
Items
(in millions of RMB)
Retail finance
Wholesale finance
Net
operating
income
Other businesses
2019
2018
Profit
before tax
by business
Net
segments
operating
income
Profit before
tax by business
Total
4
Refers to the small- and micro-sized enterprise loans + private industrial and commercial business operating loans + small- and micro-sized enterprise
operating loans with a single-account credit limit of RMB10 million, according to the appraisal calibre of "increase in both total loans and number of loan
customers, and control of both loan quality and overall costs" of CBIRC, which is the full-scale RMB domestic calibre, including bill financing.
55
China Merchants Bank
Annual Report 2019
Secondly, we will strengthen external connections and open-up. We will open to the outside world for
empowerment by active integration into the life circle of retail customers to provide customers with more financial
and non-financial value-added services. We will actively integrate into the business circle of corporate core customers
and participate in the process of industrial Internet, transforming customer awareness and industry awareness into
the system and risk control abilities for serving the core customer ecosystem, so as to accelerate model innovation
for empowerment of corporate customers and their employees and C-terminal clients.
Firstly, we will strengthen internal integration. We will break the boundaries of system, data, organisation
and business to concentrate internal forces on serving customers and interaction with the market. Retail relies on
digital means to integrate various products, online and offline channels, financial and non-financial services as
well as equity systems to open up the customer service ecosystem and form the ability to provide continuous value
for customers. For corporate business, it emphasises on the integration of strategic customers and small business,
investment banking and asset management business as well as transaction banking business. We will promote the
integration of retail and wholesale businesses by building a "B2B2C" ecological service chain to form an organic
cycle of "one body" and "two wings" for inter-promotion. We will strengthen integration of front-office, middle-
office and back-office to keep abreast of customers and the market. We will promote domestic and overseas
integration by building a system of multinational business cooperation and global service system for servicing
companies and private banking customers.
In view of the current environment, the Company will maintain stable growth of deposits and loans in 2020, with
an expected overall growth rate at around 10%. Against complex and difficult environment at home and aboard,
the Company will maintain its strategic confidence by returning to the origin of customer service, adhering to the
strategic direction of "Light-operation Bank" and the strategic positioning of "One Body with Two Wings". Focusing
on the two main themes of customers and technologies with "openness and integration" as the methodology,
the Company will enhance professional capabilities and consolidate digital infrastructure to promote organisation
evolution and cultural transformation, continuously building the 3.0 business model.
Under sound monetary policies, credit policies will continue to encourage banks to increase their support for the
real economy, especially the "small- and micro-sized enterprises" and "agriculture, rural areas and farmers" as well
as pandemic areas and pandemic control-related industries; meanwhile, investment in infrastructure and resolving
hidden debts by local government still require support of bank credits. It is expected that the scale of bank credits
will continue to expand at a relatively fast pace. With further advanced consolidation and reform of interest rate, the
switch from existing loan interest rate to the LPR benchmark rate will push the return on equity of banks downward
and further narrow the interest margin. In the context of deepening financial supply-side structural reforms, policies
encourage the optimisation of financing structures, and capital markets are expected to develop faster, while
intermediary businesses related to banks and capital markets also enjoy better development environment. In terms
of supervision, 2020 will see the end of the "three tough battles". On the premise of keeping the bottom line of
systemic risks, the state will accurately deal with risk institutions. It is expected that liquidation of non-performing
assets of banks will be expedited and capital replenishment will be vigorously carried out. Some small- and medium-
sized banks may experience restructuring, mergers and acquisitions.
Monetary policies have opened space under the global coordinated "monetary-easing ()". Affected by the
pandemic or the loosed margins, efforts on countercyclical adjustments are strengthened while focus is made
on solving structural problems. In respect of quantitative control, the central bank is expected to further cut the
benchmark interest rate and flexibly use targeted tools such as targeted RRR cuts, Short-term Lending Faculity (SLF),
medium-term Lending Faculity (MLF), relending and bill re-discounting to maintain reasonably adequate liquidity and
reasonable growth in social financing, and may support infrastructure construction through mortgage replenishment
loans. In respect of price regulation, the policy interest rates for all maturities may be lowered in full scale, and the
LPR will be guided further downward by lowering the MLF, while the deposit interest rate may be guided downward
by adjusting the benchmark deposit rate.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
56
In respect of fiscal policy, due to the advent of the peak period of local governments' debt repayments and weak
growth of fiscal revenue, there will be less room for tax and fee reduction. Affected by the COVID-19 pandemic,
the governments may increase the rigorousness of fiscal policy by further increasing the targeted deficit rate and
expanding the scale of new special bonds issuance. In respect of expenditure, it is still necessary to continue to
reduce general expenditures to ensure funding in key areas with multiplier effects. Expenditure in areas such as
urban and rural community affairs, energy conservation and environmental protection, agriculture, forestry and sea
products, and debt interest payments that involve the "three major battles (EX)" may maintain relatively
rapid growth. Affected by the pandemic, the proportion of fiscal expenditure in the public health sector will increase
significantly. New policies such as funds raised from special bonds can be used as project funds and the increase
in the proportion of infrastructure projects may significantly increase the stimulus of fiscal funds on infrastructure
investment.
In respect of exchange rate, although the RMB faces triple pressure from the US dollar index, the COVID-19
pandemic and the trade frictions, cross-border funds will increase their allocation in the Chinese market against high
interest spreads between China and the United States, a "monetary-easing ()" in global monetary policy and
China's increased financial openness, which will support the repeated fluctuation of the RMB exchange rate around
7:1.
In 2020, China's GDP may be exposed to significant impact in the first quarter and experience a restorative rebound
afterwards. The main pressure comes from the COVID-19 pandemic and the trade frictions. In respect of investment,
the COVID-19 pandemic will pose significant pressure on real estate investment while real estate regulatory policies
for some areas may be relaxed. Growth of manufacturing investment may continue to be sluggish due to the
impact of the COVID-19 pandemic coupled with slowing growth of corporate profit and weakening confidence in
capital expenditure. Infrastructure investment will become the main driver for "steady growth" with further rising
probability of growth. In respect of consumption, the COVID-19 pandemic will have a relatively large- impact on
consumption in the first quarter while declined growth in resident incomes will also be unfavorable to consumption
growth for which the government may soon launch a stronger consumption stimulus policy. In respect of trade,
trade frictions will still have negative impact on imports and exports while overseas development of the COVID-19
pandemic will have significant impact on external demand and curb global trade activities. After the pandemic
shocks, China's aggregate supply and demand will experience restorative rebound but the annual GDP growth rate
will be negatively affected. In respect of prices, under the impact of surging pork prices, the year-on-year growth
rate of the CPI in the year may be the highest around the Spring Festival and is expected to decline afterwards; the
year-on-year growth rate of PPI may still hover around zero due to the COVID-19 pandemic.
In 2020, domestic economic growth will remain under pressure due to overlapping internal and external
contradictions. Externally, although the first stage of trade agreement between China and the U.S. has avoided
further deterioration of the trade frictions, the U.S. has only slightly reduced the tariffs imposed on China as
currently the average tariffs rate imposed on China by the U.S. remains close to five times of that before the
commencement of the trade friction, which will still have significant negative impact on China's economy.
Domestically, the COVID-19 pandemic will drag down economic growth significantly in the short term while
weakening resident consumption upgrade and declining momentum of investment in real estates under the
background of low fertility and aging population has resulted in growth of manufacturing investment in the bottom
range with possible narrowing of trade surplus.
3.9.2 Outlook and countermeasures for 2020
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
In the future, the Company will make efforts in the following aspects for the continuous promotion of the
growth of MAU. Firstly, the Company will carefully polish various digital platforms, improve the operating system,
accelerate the iteration and optimisation of the two major apps of "CMB" and "CMB Life", and create a brand new
digital operation and service platform for users as many as 100 million. Meanwhile, the Company will strengthen
empowerment in the aspects of data, traffic, platform and tool to enhance the coordinated operation capabilities
of the two major apps. Secondly, based on the existing customer acquisition system, the Company will establish
a centralised direct marketing and sales team to strengthen the market development capabilities of branches in
undertaking frontline work; accelerate breakthroughs in new customer acquisition models such as digital customer
acquisition to increase the proportion of digital customer acquisition; explore the construction of open banking,
actively carry out cross-sector cooperation, and promote the sustained and rapid growth of users and customers.
Thirdly, the Company will carry out data intelligent applications in marketing, risk control, customer service and
operations by making full use of Fintech, increase capabilities in digital operation, and improve user retention,
conversion and value realisation in the apps. Meanwhile, the Company will strengthen the expansion of scenarios,
enrich its capabilities of serving various scenarios, and constantly increase loyalty of customers.
In 2019, the Company continued to use monthly active users (MAU) as the North Star Metric, focused on building
the capability of acquiring mass customers at low cost and the capacity of digital operation, built new momentum
for the development of retail business, promoted the continued growth of MAU, and created new competitive
advantages. As at the end of the reporting period, the MAU of "CMB" and "CMB Life", two major apps of the
Company, exceeded 100 million, indicating that the Company had reached a new level on the road to digital
operation.
Increase in monthly active users (MAU)
In recent years, the "stringent regulatory requirements" of the regulatory authorities have become a norm.
Regulatory documents in specific areas such as the New Regulation on Asset Management, the "Guidelines on
Improving the Supervision of Systemically Important Financial Institutions (12|\AKIETOH
A)" have been issued in succession. The international regulatory reform has continued to advance, and the
final reform plan of Basel III will be fully implemented in the next few years. Being confronted with this situation, the
Company will continue to stick to the following principles in capital supplement: fund generation and accumulation
are mainly from internal resources, with capital replenishment through external resources as additional assistance;
fund-raising is achieved through various channels and ways. The Company will continue to enhance the concept of
refined capital management, continuously promote the application of the risk-adjusted return on capital (RAROC),
the economic value added (EVA) and other valuation 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 comprehensively plan the use of various capital instruments. Through
the above efforts, the capital adequacy ratio of the Company is expected to achieve its goals, i.e. the core Tier 1
capital adequacy ratio, the Tier 1 capital adequacy ratio and the capital adequacy ratio will reach and maintain
above 9.5%, 10.5% and 12.5%, respectively, in 2020 and 2021.
In order to ensure the sustainable and healthy development of the Company's business, protect the long-term
interests of shareholders and enhance the capability of risk resisting, with the approval of the Board of Directors and
Shareholders' general meeting, the Company decided to issue write-down undated capital bonds with an issue size
of not more than RMB50 billion in China to supplement the Company's other Tier 1 capital. For details, please refer
to the relevant announcements published on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange
and the Company. At present, the issue is still subject to regulatory approval. The issue of write-down undated
capital bonds is not expected to have a significant impact on the Company's ROE and other indicators. The Company
will continuously improve the level of shareholder returns through various methods such as improving the efficiency
of capital utilisation and optimising the structure of assets and liabilities.
Chapter III Report of the Board of Directors
The Company adhered to the development strategies of marketisation, branding and internationalisation, and
constantly promoted the innovation and development of assets securitisation business to provide room for capital
saving. As at the end of the reporting period, the Company issued a total of 18 asset securitisation projects through
the inter-bank market with a total issue size of RMB120.783 billion. The underlying assets included auto installment
loans, credit card loans, personal housing mortgage loans, non-performing mortgage loans and non-performing
credit card loans.
Thirdly, we will seize market opportunities and improve professional abilities. We will seize capital market
opportunities and residents' demand for preserving and adding value of assets by striving for enhancing asset
allocation service capability, market expansion capability and digital middle-desk capability of retail business.
In line with the trend towards counter-cyclical adjustment and open-up, our business will continue to focus on
professional capability construction, vigorous development of institutional business, enhancing the competitiveness
of international business, forming project financing system capability, and improving system capabilities for direct
financing. We will seek both temporary and permanent solutions by consolidating and improving our ability of
comprehensive risk management. We will eliminate blind spots and improve the system, with close attention to
risks in key areas and continuous strengthening of basic management. Meanwhile, we will consolidate our risk
management capabilities by deep integration of business.
Fifthly, we will promote open and integrated organisation evolution as well as cultural transformation.
We will promote across-business-line integration of task-oriented project teams to drive talent flows, break
traditional organisation boundaries and stimulate the vitality of the organisation. We will encourage employees to
do the right thing by ongoing implementation of the "Simple Work Style". Meanwhile, we will further promote
"removing inherent barriers, empowering frontlines and reducing burden on grassroots (#• ■A)"
while integrating management into services, consistently applying "openness and integration" in the standards for
evaluation and appointment of cadres, hence building a cadre team with a grand mindset and a strong sense of
openness.
Credit cards
The Company provided professional, comprehensive, private and confidential private banking financial services
in areas of investment, taxation, legal affairs, mergers and acquisitions, financing and liquidation for high-worth
customers at the three levels of individuals, families and enterprises. Always thinking from the perspective of
customers and taking investment advisory services as the core, the Company kept strengthening its professional
capacity for private banking business and deepening its comprehensive operation and service to customers, so as to
create value for customers. Firstly, the Company continued to deepen customer acquisition system by strengthening
customer base expansion. Secondly, by virtue of Fintech, the Company continued to make meaningful attempts in
improving accurate identification of customer needs, offering professional financial solutions, cultivating professional
skills of relationship managers, and improving internal operational efficiency to promote efficient operation of
business. Meanwhile, the Company continuously enriched and upgraded the contents of comprehensive financial
services and non-financial services to provide customers with comprehensive and effective integrated solutions.
Going forward, the Company will continue to construct an open product platform for entrusted wealth management
cooperation together with CMB Wealth Management Company Limited, and will implement various corresponding
tasks according to the principles of marketisation within the overall framework of business cooperation.
As at the end of the reporting period, the Company had 81,674 private banking customers (retail customers of
the Company with minimum total daily average assets of RMB10 million per month), representing an increase of
11.98% as compared with the end of the previous year; total assets under management from private banking
customers amounted to RMB2,231.052 billion, representing an increase of 9.40% as compared with the end of the
previous year; total assets per account amounted to RMB27.3166 million. As at the end of the reporting period,
the Company has established a high-end customer service network consisting of 79 private banking centers and 61
wealth management centers in 67 domestic cities and 7 overseas cities.
Chapter III Report of the Board of Directors
Private banking
China Merchants Bank
Annual Report 2019
During the reporting period, facing intensifying market competition, the Company maintained its differentiated
leading edge in wealth management business by strengthening its capabilities of customer base expansion and
operation as well as product creation and refined management. Firstly, the Company carried out management
by class and by group centering on customer needs, allocating the right products for the right customers in the
right channels through construction of a refined service system. Secondly, the Company innovatively created a
comprehensive financial service system in response to customers' changing needs of wealth management. Thirdly,
the Company promoted digital transformation by creating an efficient digital operation center and building a
full-channel online and offline integrated operation service system. Fourthly, the Company continued to improve
customer experience by enhancing its front-line professional level through people + intelligence. Affected by
regulatory policies for wealth management, the Company faced new challenges as well as opportunities in its wealth
management business. During the process of further promoting net value-based wealth management, the Company
actively explored new development ideas for wealth management, cooperated with CMB Wealth Management
Company Limited to conduct wealth management agency sales business, got a good insight in customer needs and
paid attention to industry trends, and carried out creation of differentiated and customised products. Meanwhile, the
Company continued to improve the after-sales service system, enriched the forms of customer investment education,
and optimised the whole process service experience of wealth management to create the brand advantage of wealth
management. During the reporting period, the Company continued to promote the Sunflower Wealth Planning
Service System (✰✯ and launched the wealth planning service on the CMB APP, striving to
provide customers with a whole life-cycle wealth management plan for gaining long-term happiness for customers.
The Company also constantly optimised analysis services of customers' asset allocation and offered full-asset
management service to customers through the use of Fintech, big data as well as online-offline integration, so as to
earnestly cater to customers' need for comprehensive wealth management.
In 2019, the Company recorded RMB1,883.358 billion in the balance of year-end retail wealth management
products, representing an increase of 15.33% as compared with the end of the previous year. The sales of non-
monetary mutual funds amounted to RMB219.770 billion, an increase of 33.89% as compared with the previous
year, a result of the fact that the Company seized opportunities in the capital market to focus on customer needs.
The Company recorded RMB339.476 billion in agency distribution of trust schemes, representing an increase
of 5.33% as compared with the previous year; and RMB94.319 billion in premiums from agency distribution of
insurance policies, representing an increase of 33.88% as compared with the previous year. In 2019, the Company
recorded a fee and commission income from retail wealth management business of RMB19.453 billion, among
which, income from agency distribution of trust schemes amounted to RMB6.432 billion, income from agency
distribution of insurance policies amounted to RMB5.788 billion, income from agency distribution of funds amounted
to RMB4.713 billion and income from entrusted wealth management amounted to RMB2.401 billion. For details of
the reasons of changes in fee and commission income from wealth management, please refer to 3.9.1 "Net interest
margin" in this chapter.
Wealth management
In 2019, the Company achieved steady growth in the number of retail customers and total assets under
management from customers through ongoing value creation for customers and upgrading the new service model
of "people + technology" led by digital transformation to create the best customer experience. As at the end of
the reporting period, the Company had established an operating service system fully connecting finance and life,
strengthened refined management while expanding the boundaries of customer services to continuously enhance its
strength of professional competence and comprehensive financial services for customers, so as to enhance its core
competitiveness in retail finance and consolidate its leading edge.
As at the end of the reporting period, the Company had 144 million retail customers (including debit and credit card
customers), representing an increase of 14.82% as compared with the end of the previous year, among which, the
number of Sunflower-level and above customers (those with minimum daily average total assets of RMB500,000
for each month) reached 2,647,700, representing an increase of 12.07% as compared with the end of the previous
year. The balance of total assets under management from our retail customers amounted to RMB7,493.955 billion,
representing an increase of 10.17% 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 RMB6,085.225
billion, representing an increase of 10.48% as compared with the end of the previous year, and accounting for
81.20% of the balance of total assets under management from retail customers of the Bank. As at the end of
the reporting period, the balance of deposits from retail customers of the Company amounted to RMB1,674.223
billion, representing an increase of 16.53% as compared with the end of the previous year and ranking first among
national small- and medium-sized banks according to data released by the PBOC. During the reporting period, the
demand deposits accounted for 67.34% of the daily average balance of deposits per year from retail customers of
the Company. As at the end of the reporting period, a total of 148,000,000 All-in-one Cards had been issued by the
Company for retail customers, up by 11.89% as compared with the end of the previous year.
Retail customers and total assets under management from retail customers
Annual Report 2019
Chapter III Report of the Board of Directors
China Merchants Bank
57
2019 was a crucial year for the Company's digital transformation of retail finance 3.0. Facing competition from
peer companies in the same and other industries, the Company focused on the goal of creating the "bank offering
best customer experience", aiming to form business control while insisting on optimising customer base and asset
structure, strengthening construction of technology empowerment, continuously exploring multi-dimensional
business models to accelerate the creation of a service system for all customers, all products and all channels, and
further promoting the digital transformation of retail finance 3.0 so as to seize the commanding heights of future
development strategies.
During the reporting period, the profit from the retail finance business of the Company maintained rapid growth,
with profit before tax amounting to RMB65.158 billion, representing an increase of 13.86% as compared with the
previous year. Net operating income from the retail finance business amounted to RMB142.558 billion, representing
an increase of 15.66% as compared with previous year and accounting for 56.71% of the net operating income
of the Company. Among the income from retail finance, the net interest income amounted to RMB95.184 billion,
representing an increase of 18.19% as compared with previous year and accounting for 66.77% of the net
operating income from retail finance; the net non-interest income amounted to RMB47.374 billion, representing an
increase of 10.90% as compared with previous year while accounting for 33.23% of the net operating income from
retail finance and 56.27% of the net non-interest income of the Company. During the reporting period, the retail
finance of the Company recorded a fee income of RMB19.337 billion from bank cards, representing an increase
of 17.09% as compared with previous year; the fee and commission income from retail wealth management was
RMB19.453 billion, accounting for 41.96% of the net fee and commission income from retail finance.
Business overview
3.10.1 Retail finance
3.10 Business Operation
Fourthly, we will construct a future-oriented Fintech infrastructure. We will accelerate construction of cloud
computing capabilities to speed up progress of cloud adoption, and enhance data middle-desk construction to
promote data access. We will also strengthen data governance to enhance the convenience and ease of data
application; build a data application tool platform to lower the threshold of data application; and promote the
connection and opening of systems to get through the work flow and information flow of all systems for achieving
one access to the whole bank. We will decouple the system with an open mindset, turning functional modules into
micro-based services and products, and will deposit all kinds of general capabilities into the middle-desk of the
system.
As at the end of the reporting period, the Company had issued an aggregate of 95.2999 million active credit
cards, representing an increase of 13.04% as compared with the end of the previous year, and there were 64.5048
million active credit card users, representing an increase of 11.16% as compared with the end of the previous
year. The balance of credit card loans was RMB670.992 billion, representing an increase of 16.62% as compared
with the previous year. The percentage of revolving balances of credit cards was 22.38%. In 2019, the credit card
transactions of the Company amounted to RMB4,348.615 billion, representing an increase of 14.62% as compared
with the previous year. Interest income from credit cards amounted to RMB53.999 billion, representing an increase
of 17.44% as compared with the previous year. Non-interest income from credit cards amounted to RMB25.989
billion, representing an increase of 25.42% as compared with the previous year.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
Risk management and control for consumer credit business
In response to changes in external macroeconomic situation, the Company proactively strengthened the control of
its risks associated with consumer credit business, real estate industry, local government financing platforms, the
industries from which our loans should be reduced and recovered and other key areas.
Asset quality in key areas
8.
In 2020, the macroeconomic and financial situation will become more complex and changeable. Together with the
impact of COVID-19 pandemic, the Company's asset quality management will be faced with challenges. In this
regard, the Company will strengthen the pre-judgment of risk evolution trends, enhance industry and customer
research capabilities, strengthen scientific and technological empowerment, adjust the customer structure and the
business structure, optimise the credit access standards, and reinforce full life cycle process management such as
risk pre-warning, effectively dispose of non-performing assets, strive to maintain stable asset quality, consolidate the
results of risk management and further increase the level of risk management.
In addition, since the reactivation of the pilot project of debt-to-equity conversion in 2016, in accordance with
the "Guidelines on Marketisation of Debt-to-equity Conversion of Banks" issued by the State Council, the
Company advanced the market-oriented debt-to-equity conversion, carefully selected qualified debt-to-equity
conversion subjects, reasonably formulated debt-to-equity conversion plans, and actively and steadily promoted the
implementation of the debt-to-equity conversion projects.
In 2019, the Company continued to accelerate the process of securitisation of the non-performing assets with an
efficient and well-established asset securitisation operation mechanism. During the reporting period, the Company
launched five securitisation projects, and disposed of non-performing assets with principal value in aggregate of
RMB6.326 billion, and the nominal value of securities issued amounted to RMB835 million. The Company holds 5%
of each tranche of such securities in accordance with regulatory requirements. The remaining portion of securities
were subscribed for by investors in the open market. 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 assets and liabilities structure, and improvement on asset liquidity and revenue structure.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
During the reporting period, the Company continued to strengthen the disposal of non-performing loans, taking
various approaches to reduce and dispose of risk assets. In 2019, the Company disposed of non-performing loans
amounting to RMB45.663 billion, of which RMB25.431 billion was written off in a normal way, RMB10.403 billion
was recovered by collection, RMB6.326 billion was securitised as non-performing assets, and RMB3.503 billion was
disposed of by repossession, assignment, restructuring, upward migration, remission and other means.
During the reporting period, affected by rising credit card risks, both the formation amounts and formation ratios of
the Company increased. Overall, in 2019, the Company recorded new non-performing loans formed of RMB44.215
billion, representing a year-on-year increase of RMB8.937 billion, with a formation ratio of non-performing loans
of 1.13%, up by 0.12 percentage point year-on-year. In terms of business category, the formation amounts and
formation ratios of non-performing credit cards increased. The formation amounts and formation ratios of non-
performing corporate loans increased slightly and remained unchanged, respectively, while those of the retail
loans (excluding credit cards) remained relatively stable. From the regional perspective, the formation amounts
and formation ratios of non-performing loans in the Head Office, Western China, Central China, Pearl River Delta,
and West Side of Taiwan Strait increased, while those in Bohai Rim, Yangtze River Delta, overseas regions and
Northeastern China fell. From the industrial perspective, the formation amounts and formation ratios of non-
performing loans in the leasing and commercial service, transportation, storage and postal services increased. From
the perspective of customer base, the formation amounts and formation ratios of non-performing loans to the large-
sized enterprises increased, while those to the medium- and small-sized enterprises fell.
As at the end of the reporting period, the non-performing loan ratio of the Company was 1.21%, representing a
decrease of 0.20 percentage point as compared with the end of the previous year, while the proportion of special-
mentioned loans in total loans was 1.18%, down by 0.38 percentage point from the end of the previous year; the
proportion of overdue loans in total loans was 1.46%, down by 0.19 percentage point from the end of the previous
year. The allowance coverage ratio of non-performing loans was 430.02%, representing an increase of 66.81
percentage points as compared with the end of the previous year. The loan allowance ratio was 5.19%, up by 0.05
percentage point from the end of the previous year. The credit cost ratio was 1.34%, representing a year-on-year
decrease of 0.34 percentage point. The risk exposure was generally stable.
The formation and disposal of non-performing assets
The Company believes that since 2019, a series of policies supporting the New Regulation on Asset Management
have played an important role in guiding, standardising and leading the healthy development of the asset
management business, and are conducive to creating a healthy and stable market environment. The majority of the
Company's existing non-standardised assets will expire in the transition period. Meanwhile, the Company will also
actively follow the regulatory guidance to continue to steadily promote the transformation of wealth management
products. The Company focused on the five major product lines of cash management, fixed income, multi-assets,
stocks, alternative and other products to build a product line that covers the entire customer base. It is expected that
the scale of wealth management products will maintain steady growth in 2020, and income from entrusted wealth
management services will remain stable. For other details of the asset management business, please refer to 3.10.2
"Asset management business" in this chapter.
Since the implementation of the New Regulation on Asset Management, the Company has actively adapted to the
requirements of the new regulatory regulations and supporting policies, actively promoted the transformation of
the asset management business, and accelerated preparations for the establishment of CMB Wealth Management
Company Limited. On 5 November 2019, the Company's wholly-owned subsidiary, CMB Wealth Management,
officially came into operation. CMB Wealth Management will serve the strategic positioning of "One Body with
Two Wings" of the Company, and is committed to meeting the needs of investors in preserving and increasing their
wealth, and will leverage the independent legal person advantages of the asset management business with the
vision of becoming "a domestically and internationally leading comprehensive asset management organisation" and
a focus on improving the seven major capabilities of product design, investment research, asset investment, product
sales, risk management, financial technology, and group collaboration.
Asset management business
Chapter III Report of the Board of Directors
7.
6.
China Merchants Bank
Annual Report 2019
50
Being confronted with an overall rise in risks in the entire consumer finance industry, the Company adhered to a
prudent risk appetite and a stable risk strategy, persisted in value customer orientation, actively paid attention to
changes in external risk trends. The Company has prejudged joint debt risks since 2017, and rationally arranged
business investment and growth strategies, and continuously adjusted and optimised its customer base and asset
structure and allocation. The Company comprehensively adopted various risk control measures, improved the
comprehensive credit management system characterised by "classified operation and unified management" for
customers, strengthened the pre-warning of risky customers, expanded collection resources, enhanced post-lending
collection, and increased its efforts in disposal such as the securitisation and writing-off of non-performing assets.
The Company continued to advance the construction of scientific and technological risk control, optimised the
iteration of risk prevention models, regularly conducted joint debt risk monitoring and investigation, and deployed
and dynamically optimised risk strategy linking measures. As at the end of the reporting period, the non-performing
loan ratio of credit card loans was 1.35%, an increase of 0.24 percentage point over the end of the previous year;
and the non-performing loan ratio of personal consumption loans was 1.18%, an increase of 0.05 percentage point
over the end of the previous year. From a short-term perspective, the industry is still in a period of risk release.
Together with the impact of the COVID-19 pandemic, the quality of the Company's consumer credit assets will still
face pressure. However, from a long-term perspective, the Company has a prime customer base. The crossover with
the joint debt risk customer base is mainly concentrated in a small number of subordinated customers, with a limited
size. The quality of assets will remain relatively stable.
10.
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China Merchants Bank
Annual Report 2019
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The statistical calibre of the industries that we have reduced or withdrawn from has been changed, and the figures at the beginning of the year have
been adjusted with the same calibre.
The 16 industries refer to coal, coal chemical, coal trade, iron and steel, steel trade, basic chemical, metal ore mining, nonferrous metal smelting and
calendaring, shipbuilding, glass, water transport, textile and chemical fibre, photovoltaic, fertiliser, engineering machinery and machine tool.
6
5
As at the end of the reporting period, the growth rate of risk-weighted assets (without taking into consideration
the floor requirements during the parallel run period) under the Advanced Measurement Approach of the Company
was only 9.05%, lower than the growth rate of risk-weighted assets under the Weighted Approach of 10.53%,
which was mainly attributable to the Company's continuous promotion of the strategy of "Light Capital", resulting
in further optimisation in the business structure. The growth rate of risk-weighted assets (having taken into
consideration the floor requirements during the parallel run period) under the Advanced Measurement Approach was
12.69%, higher than the growth rate of the risk-weighted assets under the Weighted Approach, which was mainly
due to the impact of regulatory measurement rules requiring more risk-weighted assets to be added back under the
Advanced Measurement Approach. According to the regulatory minimum capital calculation rules, the risk-weighted
assets added back from the minimum capital under the Advanced Measurement Approach are positively related to
their over-allowances. As the Company has adhered to a more prudent and sound risk management strategy, the
allowances in 2019 were adequate and the excess-allowances calculated into the Tier 2 capital under the Advanced
Measurement Approach increased correspondingly. The risk-weighted assets added back from the minimum capital
increased by RMB184.7 billion as compared with the end of the previous year, thereby accelerating the growth in the
risk-weighted assets under the Advanced Measurement Approach (taking into consideration the floor requirements
during the parallel run period). As at the end of the reporting period, the capital adequacy ratio of the Company
under the Advanced Measurement Approach increased as compared with the end of the previous year, but the total
capital adequacy ratio decreased as compared with the end of the previous year, mainly due to the redemption of
Tier 2 capital debt amounting to RMB11.3 billion during the year. If this factor is excluded, the capital adequacy
ratio of the Company under the Advanced Measurement Approach increased by 0.02 percentage point as compared
with the end of the previous year.
As at the end of the reporting period, the percentage of the Company's risk-weighted assets under the Weighted
Approach to total assets was 68.07%; the percentage of risk-weighted assets under the Advanced Measurement
Approach to total assets was 59.82%, lowered by 8.25 percentage points as compared to that under the Weighted
Approach, indicating an effective saving in capital. The risk-adjusted return on capital (RAROC, before tax) under the
Advanced Measurement Approach was 26.22%, significantly higher than the cost of capital.
The Company continued to optimise its business structure and enhance capital management. During the reporting
period, the Company satisfied the minimum capital requirements on the transition period arrangement, the reserve
capital requirements and the countercyclical capital requirements of the CBIRC, with relatively adequate capital
buffer.
Capital management
For the 16 industries that we have reduced or withdrawn from such as coal, iron and steel, shipbuilding,
photovoltaic and coal chemicals, the Company continued to implement the strategy of industry classification
management, raised its entry threshold for customers, prioritised services to satisfy green credit financing needs
related to energy conservation and environmental protection and technological upgrading, moderately increased
financing support for high-quality leading enterprises in the industry, devoted efforts to reducing and withdrawing
from customers associated with significant risks and "difficult-to-improve" operating conditions, and achieved the
optimised allocation of the asset structure and the customer structure through total amount control, elimination
of the inferior and selection of the superior. As at the end of the reporting period, the business financing exposure
to the industries that we have reduced or withdrawn from 6 (calculated on the full statistical calibre) amounted to
RMB123.994 billion, representing a decrease of RMB2.811 billion as compared with the beginning of the year. The
exposure to 4 industries including iron and steel, shipbuilding, basic chemical and coal chemical increased, and
the exposure to the remaining 12 industries all declined. The non-performing loan ratio was 6.07%, down by 3.49
percentage points as compared with the beginning of the year. Affected by a continued decline in the risk exposure
to and the scale of individual major customers, the non-performing loan ratio of 6 industries including mining and
dressing of metals, coal chemical, water transport, fertiliser, textile chemical fibre and nonferrous metal smelting
and calendaring was higher than that at the beginning of the year. The non-performing loan ratio of the other 10
industries was lower than that at the beginning of the year. It is expected that the overall risk in these industries is
controllable in 2020.
Risk management and control for industries that we have reduced or withdrawn from
9.
Annual Report 2019
Chapter III Report of the Board of Directors
China Merchants Bank
The Company strictly implemented legal procedures and adhered to legal and compliant operations in accordance
with the State's requirements to strengthen local governments' debts management, prevent and defuse the risks
on local governments' implicit liabilities and further regulate the financing platforms as well as the investment
and financing activities conducted by local state-owned enterprises. The Company upheld the overall principle of
"supporting preferential clients in selective areas in compliance with regulatory requirements and through quota
management", focused on supporting construction projects included in Guangdong-Hong Kong-Macau Greater Bay
Area, regional economic integration in the Yangtze River Delta and other key planning regions, carefully selected
its business based on the degree of the coverage of its own debts by the operating cash flow of projects and
customers, actively participated in the underwriting of and investment in local government bonds, enhanced quota
management on full statistical calibres, and strengthened post-lending management and monitoring. As at the end
of the reporting period, the balance of risk exposure of our businesses with local government financing platforms
(calculated on the broad statistical calibre) amounted to RMB256.208 billion (including businesses such as actual
and contingent credit, bond investments, proprietary investments and fund investments of wealth management
products), representing a decrease of RMB24.777 billion as compared with the end of the previous year. Included
therein was the balance of loans on balance sheet which amounted to RMB106.175 billion, representing an increase
of RMB3.789 billion as compared with the end of the previous year, and accounted for 2.54% of the total loans and
advances granted by the Company, down by 0.26 percentage point as compared with the end of the previous year.
There was no non-performing asset for our businesses involving local government financing platforms. Against the
backdrop that the national fiscal and financial policies remain stable, it is expected that the quality of the Company's
assets granted to local government financing platforms will remain stable in 2020.
Risk management and control for local government financing platform business
The Company attached great importance to the control of asset quality and risk prevention in the real estate sector.
The Company optimised its internal credit policy in a dynamic manner according to the policies on adjustments to
the real estate industry, regulatory requirements and industrial developments in active response to the guidance
of national policy in accordance with the overall strategy of "steady granting, structural adjustment, quota
management". 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 RMB508.331 billion (including businesses such as
actual and contingent credit, bond investments, proprietary trading and investment of wealth management products
in non-standardised assets), representing an increase of RMB23.784 billion as compared with the end of the previous
year. Included therein was the balance of loans to domestic real estate enterprises which amounted to RMB284.263
billion, representing an increase of RMB39.142 billion as compared with the end of the previous year, and were
mainly granted to the quality strategic customers while putting a strict curb on the grant of any incremental loans
to those customers not in the strategic customer list. Balance of such loans accounted for 6.81% of the total loans
and advances granted by the Company, up by 0.10 percentage point as compared with the end of the previous year.
As at the end of the reporting period, the assets in the domestic real estate enterprises were of good quality with a
non-performing loan ratio of 0.36%, down by 0.73 percentage point as compared with the end of the previous year.
In 2019, policies on financing for real estate enterprises were tightened. It is expected that in 2020, some real estate
enterprises with high costs and high leverage will face an increase in financial pressure to a certain extent. The
Company will continue to adjust the real estate enterprises and regional asset structure. It is expected that without
significant changes in macro environment and industrial policies, the asset quality of the Company in the real estate
sector will remain relatively stable.
Risk management and control for real estate credit business
Chapter III Report of the Board of Directors
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Against the backdrop of gradual exposure of risks brought by the previous rapid development of the cash loan
industry, the Company effectively balanced risks and returns by upholding prudent risk appetite and grasping the
rhythm and structure of business growth on the basis of a sound risk management system, seeking sustainable and
healthy development of the credit card business. As at the end of the reporting period, the non-performing loan
ratio of the Company's credit cards was 1.35%, up by 0.24 percentage point as compared with the end of the
previous year, while the risk indicators were stable and controllable as a whole. In the long run, the quality of the
Company's credit card loan assets will remain stable. For analysis of the risk management and control of consumer
credit businesses, please refer to 3.9.1 "Asset quality in key areas" in this chapter.
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With respect to its equity capital market business, the Company focused on customer deleverage, optimising capital
structure needs, actively promoted market-oriented debt-to-equity conversion, enhanced customer experience with
differentiated services, and deepened customer relationships, so as to promote the integrated operational benefits
from customers. During the reporting period, the equity capital market business amounted to RMB7.157 billion.
Financial institution business
With respect to its structural financing business, the Company has deeply cultivated market transaction business
system construction and channel construction, and leveraged Fintech to enable it to accelerate the update of
the "Zhao Tou Xing ()" system and the "Zhao Tou Xing ()" WeChat mini-program, opened internal
and external communication channels, so as to improve business, promote efficiency and achieve rapid business
development. During the reporting period, the Company realised structural financing of RMB28.504 billion and
the scale of structured finance (matching business) amounted to RMB115.597 billion, representing an increase of
67.67% year-on-year.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
With respect to its M&A financing business, the Company actively grasped the structural opportunities in the capital
market, continued to develop syndication capabilities, and cultivated professional services for financial consultants to
drive investment in high-quality assets through industry research. Despite a significant decline year-on-year in China's
M&A transactions amount, the Company's M&A business maintained steady development. During the reporting
period, the Company achieved M&A financing of RMB101.939 billion, achieved over RMB100 billion financing for
three consecutive years, and successfully led and completed the M&A for GREE Hybrid Reform () and other
large- mergers and acquisitions. With regard to M&A financial advisory, the Company led and completed the control
transfer of a number of listed companies, and the brand and influence of our M&A financial advisory business has
been greatly enhanced.
With respect to its bonds underwriting business, the Company further deepened whole process reform, explore
product innovation mode, and achieved a record performance in terms of underwriting scale and market ranking.
During the reporting period, the bonds with the Company as the lead underwriter amounted to RMB653.243 billion,
representing a year-on-year growth of 35.97%. According to WIND statistics, in 2019, the volume of credit bonds
with the Company as the lead underwriter ranked third in the inter-bank market. It ranked first among the lead
underwriters of banks in the non-policy financial bonds market. The Company actively participated in the issue of
innovative bonds. During the reporting period, the Company successfully led the underwriting of the first short-term
financing bond for security company by way of book-building, issued the first asset-backed "Three-green" (green
issuer, application of funds to green projects, green fundamental assets) bonds, and the first non-financial corporate
debt financing instrument in supporting the construction of Guangdong-Hong Kong-Macao Greater Bay Area in the
inter-bank market.
Investment banking business
During the reporting period, on the one hand, the Company continued to enhance anti-money laundering measures,
strengthened the implementation of anti-money laundering system, and used technology to help prevent and
control anti-money laundering. On the other hand, it promoted the establishment of a comprehensive management
system for non-resident customers, launched a number of new products for cross-border services to meet customers'
overseas financial needs, established a marketing support platform, and optimised the operation of electronic
processes to enhance the customer experience. During the reporting period, the Company pioneered the "Head
office - Branches" replication model to promote the FT free trade account business, and implemented it in Haikou
and Tianjin Free Trade Zones.
Offshore banking business
With respect to its cross-border finance, the Company proactively promoted online international business and
continuously innovated cross-border settlement facilitation. Firstly, the Company vigorously promoted the launch
of SWIFT GPI (Global Payment Innovation) Phase II, to expand the function of the Company's GPI business, give
feedback on cross-border remittance status, stop payment at real time, track payment from end to end, and enable
transparent and predictable fees. The Company's cross-border fund receipt and payment services have been further
improved, and corporate customers' cross-border RMB settlement needs have been met. During the reporting period,
the onshore international settlements of the Company amounted to USD205.892 billion. The Company provided
cross-border RMB settlement services to 23,300 corporate customers. The settlements amounted to RMB240.040
billion. Secondly, the Company vigorously promoted "electronic bills" business and provided complete online
remittance service for eligible enterprises to facilitate their goods trading business; and established "Jie Suan Tong
()", a comprehensive service plan for strategic customers to improve the effectiveness in the collection and
payment business, thereby facilitating paperless operation and real time exchange of remittance information as well
as foreign exchange collection and payment under the trade in goods.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
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65
)" and international forfeiting secondary market (business to meet the cross-border
financing needs of strategic customers. During the reporting period, the Company's on- and off balance sheet
commitments in international trade finance was USD18.266 billion. In domestic trade financing, the Company
applied Fintech innovations to provide online convenient financing services for small- and medium-sized enterprises,
including the promotion of direct payment agency services, focusing on small-valued and fragmented supply chain
financing scenarios for core enterprises, and serving the small- and medium-sized upstream and downstream
companies of core enterprises. The Company launched the self-service management and verification functions of
the "Invoice Cloud ()"platform, and vigorously explored the application of this function in domestic factoring,
domestic letters of credit, bills and refundable tax credits for small-sized enterprise customers, to improve operation
efficiency and effectively prevent double financing of invoices. As at the end of the reporting period, the Company
provided services to 2,131 corporate customers, checked and verified fund amounting to RMB126.334 billion. The
Company promoted the inter-bank electronic information exchange of domestic letters of credit, launched the
domestic electronic letter of credit system, and became the first bank in the country to pilot information exchange
with the PBOC electronic information exchange system for letters of credit. During the reporting period, the
Company's domestic trade financing amounted to RMB451.988 billion, a year-on-year increase of 18.36%.
In terms of trade finance, the Company proactively innovated featured products and promoted online trade
finance. With respect to international trade financing business, the Company provided featured solutions such as
"Engineering Guarantee (IR)" business, "Making Payments on Behalf of Customers for Imports & Exports (
With respect to the settlement and cash management, the Company has been committed to creating a unified
payment and settlement platform, and expedited innovation on payment and account management. Firstly,
the Company innovatively created a "Cloud Bill ()" payment platform for online and offline transaction
verification, identification and interbank payments. During the reporting period, the amount of transaction
conducted through online payment platform was RMB287.271 billion, of which the annual transaction amount
of five customers exceeded RMB10 billion. Secondly, the Company strengthened the extensive application of
corporate aggregated collection business in four major industries including insurance, medicine, fast consumption
and education as well as in social activities such as travel, convenience, medical and health care and campus, and
promoted the development of integrated projects such as Smart Mall, Smart Business District, Smart Industrial
Park and Smart Medical Care, to improve the retail and wholesale linking effect. During the reporting period, the
transaction volume of corporate aggregated collection business was RMB146.647 billion, representing a year-on-year
increase of 267.51%. Thirdly, the Company launched the "All-in-one Cards for Company (2)” which
integrated functions of "deposit, withdrawal, transfer, payment and self-services", and further incorporated it with
CMB Corporate APP to realise comprehensive card-free operation. The Company launched "Zhang Hu Tong (FB)”
and other products to meet the customers' needs of fund classification management, breakdown and reconciliation
and customised interest calculation, and expanded the settlement scenarios of multi-accounts bookkeeping and
management, so as to improve the management capability of corporate accounts. Fourthly, the Company developed
a user fund depository system for the administration of user funds in new forms of transport business. By opening
a nationwide unique user fund depository account for customers, users can realise functions such as "dedicated
funds, centralised management, and transaction restrictions." Fifthly, the Company upgraded and released CBS7.0,
a treasury management cloud platform, incorporating technologies such as RPA (Robotic Process Automation) and
big data analysis, to optimise global bank views, cross-border remittance tracking, internal fund valuation, automatic
allocation of domestic and overseas funds, and integration of investment and financing management and other
functions. As at the end of the reporting period, the Company provided treasury management services to 3,481
group customers. The number of companies under the treasury management reached 73,600, and the number of
transactions exceeded 29.8783 million, representing a year-on-year increase of 12.16%.
Transaction banking business
With respect to its financial institutions asset and liability business, the Company continued to strengthen the
management of financial institution business, optimised its financial institution deposit structure and supported the
liquidity management of the whole bank. As of the end of the reporting period, the balance of financial institution
deposits of the Company amounted to RMB539.941 billion, representing an increase of 19.80% as compared with
the end of the previous year. Among them, the total amount of financial institution demand deposits from fund
clearing, settlement and depository service reported a balance of RMB436.227 billion, accounting for 80.79% of
the total amount. The Bank maintained a leading position in terms of scale and percentage of demand deposits
among the small- and medium-sized banks in China and achieved a better deposit structure. With respect to its
depository service, the Company's security and future margin depository service was in stable operation, with
third-party depository services extended to 101 securities companies and 10,611,100 customers secured at the
end of the reporting period. In addition, the Company entered into cooperation with 85 securities companies on
margin trading and short selling business, securing 409,500 customers at the end of the reporting period. Also,
the Company entered into cooperation with 53 securities companies on stock options business, securing 29,200
customers at the end of the reporting period, and entered into cooperation with 126 future companies on fund
transfer, securing 168,900 customers at the end of the reporting period. With respect to interbank clearing, as at
the end of the reporting period, the number of the cross-border RMB accounts opened by banks and other financial
institutions with the Company accumulated to 256, ranking first among all small- and medium-sized banks in China
(according to the data released by the PBOC). There were 215 customers which participated indirectly through
the Company in the RMB Cross-border Interbank Payment System (CIPS), ranking second among all small- and
medium-sized banks in China and third among commercial banks (according to the data released by the CIPS). With
respect to the businesses on "Zhao Ying Tong ()" Interbank Online Service Platform, as at the end of
the reporting period, the number of financial institutions registered on the "Zhao Ying Tong ()" platform of
the Company reached 2,518, and during the reporting period, the online business volume amounted to RMB949.807
billion.
Asset management business
As at the end of the reporting period, the balance of the Company's wealth management products (excluding
structured deposits) 11 amounted to RMB2.19 trillion, representing an increase of 11.73% as compared with the
end of the previous year. Among them, off-balance sheet wealth management products accounted for 97.66%;
the balance of the funds raised from off-balance sheet wealth management ranked second among the commercial
banks (according to the data released by the CBIRC). The balance of new products 12 amounted to RMB685.196
billion, representing an increase of 200.27% as compared with the end of the previous year, accounting for 31.22%
of the balance of wealth management products (excluding structured deposits), up by 17.18 percentage points as
compared with the end of the previous year.
During the reporting period, the Company has maintained a steady and healthy development of the asset
management business while promoting the establishment of CMB Wealth Management. The Company's asset
management business scored a number of achievements in the following aspects.
69
In 2019, the trading volume of RMB exchange rate swaps reached USD832.197 billion, representing a year-on
year increase of 8.94%; the trading volume of wholesale customer derivatives had reached USD181.422 billion,
representing a year-on-year increase of 1.06%. According to the data from the China Foreign Exchange Trade
System, RMB options of the Company ranked first in the interbank market.
With respect to foreign exchange transactions, the Company proactively studied the global macro-economy and
the monetary policies in relevant countries, focused on the Sino-US trade negotiation process, and grasped the
opportunity brought by the low volatility of the global foreign exchange market and the periodic fluctuation
characteristics of the RMB exchange rate. Through flexible trading risk exposure management and active
market-making strategy, the Company promoted the development of relevant businesses.
With respect to RMB bond investment, through in-depth study of domestic monetary policies and macroeconomic
situation, the Company seized the opportunities brought by the volatility of the RMB bond interest rate. In the first
quarter and from July to August when bond yields were relatively low, the Company focused on selling long-duration
products. In the second quarter and from September to October when bond yields were relatively high, the
Company concentrated on buying long-duration products, so as to flexibly adjust the duration of the RMB bond
portfolio and improve the investment portfolio yields. At the same time, the Company also continued to optimise
the position structure of banking accounts, increased the proportion of products with high allocation value, such as
local government bonds, bonds with high credit ratings, and medium- and long-term treasury bonds, and reduced
short- and medium-term policy financial bonds and credit bonds with relative low allocation value, so as to maintain
stable yields despite the decrease of overall market yields. With respect to foreign currency bonds investment, the
Company predicted that the Fed would return to the track of interest rate reduction through close tracking of the
monetary policies of the major countries and based on logical judgment of the international economic situation and
market trends. The Company proactively increased its investment in USD bonds, promptly extended the duration
of foreign currency bonds investment portfolio, and increased the effort in credit bonds investment, so as to grasp
the opportunity of the decline in the US bond market yields and the narrowing of credit spreads, and improve the
investment yields of foreign currency bonds portfolios.
In 2019, facing the complexity and difficulties of the global economy, the Chinese economy was under downward
pressure and the interest rate of the RMB bond market fluctuated significantly. The RMB exchange rate dropped
after appreciation due to the impact of Sino-US trade negotiation process, and gradually stablised at the end of the
year.
Financial markets business
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
During the reporting period, by leveraging on Fintech, innovative products and optimised processes, we further
enhanced customer experience and market competitiveness of our asset custody business. Firstly, the Company
focused on customer mobile office requirements and released full-featured online custody bank 3.0 and Handheld
Custody APP 1.0 (App1.0), and continued to lead the industry in terms of its custody technology
capabilities. Secondly, the Company ranked first in terms of the scale of newly issued custody mutual fund in the
industry in the reporting period (WIND public data). Thirdly, the Company has officially obtained the qualification
of a pilot depositary certificate for depositary receipts, further consolidating the Company's leading position in the
domestic custody industry.
As at the end of the reporting period, the balance of assets under custody of the Company was RMB13.23 trillion,
representing an increase of 7.13% compared to the end of the previous year, and ranked second in the domestic
custody industry (according to the data released by China Banking Association). During the reporting period,
affected by the decline of the overall market custodian fee, the Company realised a custodian fee income of
RMB3.605 billion, down by 18.79% year-on-year. The Company ranked fourth in terms of revenue in the domestic
custody industry (according to the data released by China Banking Association).
Chapter III Report of the Board of Directors
Asset custody business
Secondly, the Company constantly optimised its asset structure. During the reporting period, the Company
maintained a stable asset allocation structure, and directed the wealth management capital flows towards the real
economy. On the one hand, the Company increased standardised asset investments, and bond investment was
steadily expanded in scale while the allocation strategy was adjusted accordingly. As at the end of the reporting
period, wealth management funds invested in the bond market reported a balance of RMB1,628.588 billion, and
the proportion of bond assets was 67.95%, rose 8.27 percentage points as compared with the end of the previous
year. On the other hand, the Company made non-standardised credit investments within the credit limit in strict
compliance with the regulatory guidance. Under the "Private Fixed Investment ()" model, private equity
funds with multi-asset class portfolios have been successfully issued, and the capacity of non-standardised assets
has been effectively improved, with investment scale significant rebound. The balance of wealth management funds
invested in non-standardised assets of the Company amounted to RMB208.728 billion as at the end of the reporting
period.
Firstly, the Company continued to promote the transformation of its products. During the reporting period, the
Company continued to promote the transformation of wealth management products in accordance with the
requirements of the New Regulation on Asset Management and supporting policies. The Company launched
158 new products in the year. The balance of new products ranked among the top in the industry, and our
products began to transform from short-term low-volatility or mid-to-long-term low-volatility to mid-to-long-term
medium-volatility. In terms of performance, new products have realised stable returns in fixed-income investment
and buy-low strategy in stock investment. The "Qing Kui ()" series of products have established reputation in
the market, and returns of products have remained stable against relevant benchmark. The balance of products
have exceeded RMB100 billion. After CMB Wealth Management went into operation, in response to the needs and
preferences of the Company's different customer groups, the new product naming system of "Zhao Ying Ruizhi
Zhuoyue ()" was formally launched. The first product "Zhao Rui Yi Yang Er Nian Ding Kai(2
E)" completed fund raising and started to accrue interest in early 2020.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
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New products are wealth management products in compliance with the relevant provisions of the New Regulation on Asset Management.
The balance of wealth management products (excluding structured deposits) is the sum of customers' principal in the on- and off-balance sheet wealth
management products under management by the Company and the changes in net value of net-value products as at the end of the reporting period.
12
11
Thirdly, the Company improved its risk management capability. During the reporting period, the Company continued
to attach great importance to risk management of asset management business, strictly implemented regulatory
policy requirements, and actively explored the establishment of a risk management system compatible with product
transformation, i.e. from asset-side individual credit risk management to a comprehensive risk management system
centered on product portfolios. Based on product creation and different stages of product operation and the
characteristics of different products, the Company formulated more target-oriented investment strategies and risk
preferences, and carried out full-coverage monitoring of risks including credit risks, concentration risks, interest rate
risks, liquidity risks, operation risks and other risk indicators, to ensure that the investment operation of the product
complies with external regulatory requirements and meets customers' risk appetite and return requirements. At
the same time, the Company continued to strengthen the management of outsourcing agencies. The outsourcing
agencies that continued in the reporting period were all large-scale funds, securities firms and well-known insurance
institutions in the market.
China Merchants Bank
Annual Report 2019
During the reporting period, the Company adhered to the strategy of integrating investment banking and
commercial banking, paid close attention to the direct financing market development opportunities and structural
opportunities emerged from market volatilities, actively capitalised on asset organising and asset sales as the dual
engines, and offered comprehensive services to its strategic customers at the Head Office and branches, to create
differentiated competitive advantages and to achieve the steady development of investment banking business. The
Company's brand image in the market is furthered enhanced.
Corporate customer deposits
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
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As at the end of the reporting period, the total number of corporate depositors was 2,098,400, up by 12.94% as
compared with the end of the previous year. The number of newly acquired corporate depositors of the Company
during the reporting period was 429,200, contributing daily average deposits of RMB161.045 billion.
Wholesale customers
During the reporting period, the Company achieved profit before tax from wholesale finance of RMB45.046 billion,
representing an increase of 5.30% as compared with the previous year. The net operating income from wholesale
finance of the Company was RMB109.822 billion, representing a decrease of 0.93% as compared with the previous
year, and accounting for 43.69% of the net operating income of the Company. Among them, net interest income
of wholesale finance business amounted to RMB74.226 billion, representing a decrease of 4.00% as compared with
the previous year, and accounting for 67.59 % of the net operating income of wholesale finance; net non-interest
income of wholesale finance amounted to RMB35.596 billion, representing an increase of 6.16% as compared
with the previous year, and accounting for 32.41% of the net operating income of wholesale finance business, and
42.28% of the net non-interest income of the Company.
Business overview
3.10.2 Wholesale finance
As to risk management, the Company continued to expand the breadth and depth of internal and external data
resources, and strengthened the quantitative risk capability composed of "data + platform + model + application"
to form a comprehensive risk management system driven by big data and quantitative model. The Company insisted
on taking high-quality customers with a job and income in a stable industry as the major subject of customer
acquisition to penetrate into different real consumption application scenarios. The Company carried out in-depth
mining of internal and external data to depict, verify and restore customers' real status of assets and liabilities on
a multi-dimensional basis, and establish personal income forecasting models for formation of a unified view of
customer risks, thus effectively preventing the "joint-debt" risk and excessive credit grants. The Company also used
Fintech to build personal loan customer relationship maps for identifying gang crimes and enhancing the ability of
identifying and preventing risks of external partners. With the completion of a post-loan management system, the
risk management defense lines were continuously advanced, thus forming a closed loop of risk management.
As to the quality of assets, the Company kept stabilising the quality of retail loan assets by constantly optimising
its policies for retail loans and enhancing its risk management capabilities. As at the end of the reporting period,
the balance of the special mention retail loans of the Company amounted to RMB27.457 billion, and its special
mention retail loans ratio was 1.18%, down by 0.15 percentage point as compared with the end of the previous
year. The balance of non-performing retail loans amounted to RMB17.054 billion, and the non-performing loan
ratio was 0.73%, down by 0.06 percentage point as compared with the end of the previous year. Among retail non-
performing loan portfolio, the non-performing ratio of micro-finance loans was 0.81%, down by 0.53 percentage
point as compared with the end of the previous year due to accelerated disposal of the non-performing micro-
finance loans; the non-performing ratio of consumption loans was 1.18%, up by 0.05 percentage point as compared
with the end of the previous year. Excluding credit cards, the mortgage and pledged loans accounted for 75.43%
of the balance of new non-performing retail loans of the Company in 2019, with a mortgage and pledge rate of
40.34%. Given that the vast majority of such new non-performing retail loans were fully secured by collaterals, the
final loss was not substantial.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
During the reporting period, the Company refocused on its business origin, created differentiated competitive
advantages, centred on the two competitive product lines of transaction banking and investment banking to serve
its customers, enhancing the loyalty and overall contribution of its customers through deposit products while
realising a steady growth in corporate deposits. As at the end of the reporting period, the balance of corporate
customer deposits amounted to RMB2,956.465 billion, representing an increase of 6.55% as compared with the
end of the previous year; the daily average balance amounted to RMB2,894.682 billion, representing an increase of
5.69% as compared with the previous year; the demand deposits accounted for 54.66% of the balance of the daily
average deposits from our corporate customers. During the reporting period, the average cost ratio of deposits from
corporate customers was 1.77%, up by 0.09 percentage point year-on-year.
As at the end of the reporting period, the total retail loans of the Company amounted to RMB2,327.955 billion,
representing an increase of 17.12% as compared with the end of the previous year and accounting for 55.73% of
the total loans and advances to customers, up by 1.30 percentage points as compared with the end of the previous
year. In particular, total amount of the Company's retail loans (excluding credit card loans) reached RMB1,657.034
billion, representing an increase of 17.33% as compared with the end of the previous year, accounting for 39.67%
of total loans and advances to customers of the Company and representing an increase of 1 percentage point as
compared with the end of the previous year.
Retail loans
During the reporting period, the Company adhered to an innovation-driven and technology-driven approach to
maintain a good momentum of business development. Details include: continuous adjustment to and optimisation
of new customer structure, active exploration of new models of customer acquisition through social activities, and
strengthening refined management of offline channels; further optimising card using environment for life scenarios
such as meal coupons and movie tickets; continuously upgrading of domestic and overseas marketing activities
by launching the super reward for the 10th anniversary of the "10 yuan storm (10)", and launching the
"Super Global ("plan by establishing a cooperation platform jointly with five major international card
organisations; refining the credit card product portfolios by launching the "Pokémon ()" fans cards jointly with
the IP "Pokémon", and combining with young people's characteristics of exploring the world and pursuing freedom
to launch the brand new "Constellation Guardian ()" credit card and the "Free Life ()" platinum
credit card; adhering to asset structure optimisation by continuously improving the satisfaction and marketing
efficiency of consumer financial products to promote the formation of a quantification-based and customer-centric
digital operation system; construction of an Al service platform with full efforts for active promotion of Fintech
applications to create a big data ecosystem for further enhancement of user experience. In addition, the Company
officially released the CMB Life APP 8.0 to restructure connection with customers from the three dimensions of
content ecosystem, quality e-commerce and auto life. For details of the CMB Life APP, please refer to 3.10.3
"Distribution Channels" in this chapter.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
60
The Company has established the corporate customer service system featuring segmentation and classification-based
management, as well as professional and dedicated management in respect of strategic customers, institutional
customers, small-sized enterprise customers, financial institution customers and offshore customers. With regards
to its strategic customers, the Company adopted intensive management approach and focused on professional
management in the industry and the integrated management for the customers, to explore new ways in the capital
chain, industrial chain and ecological chain of the enterprises. As at the end of the reporting period, the number
of the strategic customers under the Head Office of the Company was 2827, increasing by 31 as compared with
the end of the previous year; the balance of daily average proprietary deposits amounted to RMB683.643 billion,
increasing by 16.42% as compared with the beginning of the year; the balance of general loans amounted to
RMB586.496 billion, increasing by 23.57% as compared with the beginning of the year. The Company has deepened
its reform of the corporate financial management system during the reporting period. After the adjustment, the
Company had 5,6148 branch-level strategic customers. The daily average balance per year of the proprietary
deposits amounted to RMB529.841 billion. The balance of general loans amounted to RMB240.040 billion. With
regards to its institutional customers, the Company, by deepening the "Head Office-to-Head Office" strategic
cooperation with the national ministries and commissions, continued to empower bank-wide customer-group
operation and focus on fiscal, social security, public resource transactions, provident fund and other customer
groups, fully exploited the low cost "liquid funds" and "incremental funds" of its customers, strengthened the
"professional, scenario-based, and technology-driven" operation while making remarkable efforts in developing
the high-value scenarios and strengthening linkage with its retail business so as to promote the rapid growth of
institutional customers. As at the end of the reporting period, the Company had 35,400 institutional customers, up
by 14.56% as compared with the end of the previous year, with an average daily deposit balance of RMB840.317
billion, representing a year-on-year increase of 8.92%. The market coverage rate of local governments' special debts
issuance at provincial level increased from 54.28% to 77.78%. Accumulated derivative deposits were RMB262.801
billion, representing a year-on-year increase of 92.53%. The Company has secured the qualification for offering
the occupational annuity services in all the provinces which have completed such tenders, with entrusted fund
amounted to RMB42.904 billion, representing a year-on-year significant increase of 375.65%. With regards to its
small-sized enterprise customers, the Company actively promoted the construction of digital operation model for
small-sized enterprise, strengthened "online + offline" channels and optimised account opening process to enhance
its capabilities to acquire new customers. As at the end of the reporting period, the number of small-sized enterprise
customers reached 1,993,000, representing an increase of 13.76% as compared with the end of the previous year.
During the reporting period, the Company accelerated the construction of supply chain framework, continued
to focus on three major customer bases, which were Qian Ying Zhan Yi (F), upstream and downstream
enterprises of strategic customers and traditional enterprises with stable businesses, and innovatively developed
online financing products such as "Zheng Cai Dai ()" and "Tui Shui Dai ()" to continuously improve the
financing product offerings for small-sized enterprise customers. The Company increased the types of standardised
financing products for small-sized enterprise customers subject to centralised approval, so as to give full play to
the advantage of centralised approval in efficiency. With regards to its financial institution customers, the
Company, by establishing the financial institution customer service system featuring "centralised management,
segmentation-based and intensive management", subdivided two types of customer bases including strategic
customers and basic customers, carried out in-depth management of strategic financial institution customers under
comprehensive service plans and used Fintech methods to quickly access to basic customers, so as to efficiently
create value for its financial institution customers. As at the end of the reporting period, the numbers of strategic
financial institution customers at the Head Office-level and branch-level reached 67 and 196, respectively. With
regards to its offshore customers, the Company continued to deepen the segmentation-based management of
offshore customers, focus on strategic customers and new economic customers, conduct name list marketing, and
used Fintech to enable new marketing methods.
7
As to business development, the Company developed its mortgage business in a steady manner under local real
estate control policies in support of residents' reasonable needs for their own homes. Under the premise of fully
assessing risks, the Company actively implemented the state's inclusive finance policy to accelerate investment in
inclusive micro-finance loan business, and meanwhile use Fintech to launch the "CMB APP" specifically for serving
small- and micro-sized enterprises to provide them with intelligent, professional and integrated financial services to
solve their problems of difficult and expensive financing. The Company strictly controlled the usage of consumption
loans and guided a light development path of consumption loans towards the operation mode with online, small-
value and customised features. Through the above measures, the Company realised healthy development of its retail
credit business. As at the end of the reporting period, the Company recorded a balance of residential mortgage
loans of RMB1,098.547 billion, representing an increase of 19.23% as compared with the end of the previous
year. The balance of micro-finance loans amounted to RMB405.149 billion, representing an increase of 16.09% as
compared with the end of the previous year. The balance of consumption loans amounted to RMB123.691 billion,
up by 17.32% as compared with the end of the previous year. As at the end of the reporting period, the Company
had 6,422,300 retail loan customers, representing an increase of 35.63% as compared with the end of the previous
year. The rapid expansion of customer base was mainly attributable to the light customer acquisition model through
online resources.
8
The number of strategic customers at the Head Office level is that of the group customers as the strategic customers at the Head Office level operated
by the Company in 2019.
During the reporting period, the Company actively adhered to the bill rediscounting monetary policy of the central
bank. The business volume of bill rediscounting amounted to RMB206.326 billion, representing a year-on-year
growth of 72.76%. The Company ranked first in terms of discounted bill balance as at the end of the year (data
from China Banking Association). Because of the decrease in market interest rate and adjustment to internal
operating strategy, during the reporting period, the discounted bills transferred to other financial institutions
amounted to RMB579.229 billion, representing a year-on-year drop of 19.29%, and continued to stay ahead of its
industry peers.
During the reporting period, the Company continuously optimised customer experience, and achieved growth in the
number of customers of bill business as well as a solid foundation for business development. During the reporting
period, the Company had 84,251 customers of bill business, representing a year-on-year increase of 26.63%, and its
bills direct discounting business amounted to RMB1,236.210 billion, representing a year-on-year increase of 20.55%,
ranking second in the market in terms of business volume (data from China Banking Association). As at the end of
the reporting period, the bill discounting balance of the Company amounted to RMB224.884 billion, representing an
increase of 54.42% from the end of the previous year.
Bill business
The main purpose of the Company's syndicated loan business is to enhance interbank cooperation and information
sharing, and to spread the risks associated with large-amount loans. As at the end of the reporting period, the
balance of syndicated loans amounted to RMB229.520 billion, up by 43.19% as compared with the end of the
previous year.
"Qian Ying Zhan Yi (F)" is a strategic brand of the Company to serve the emerging innovative technology
enterprises. During the reporting period, the Company adhered to the strategic positioning of "Qian Ying Zhan Yi
()" customer base, while enriching and optimising featured services under "Qian Ying Zhan Yi (
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
64
63
According to the statistical system of the CBIRC in 2019 namely "G19 Loan Statistics for Industries with Key Concern", the strategic emerging industry
types were calculated in accordance with the new classification criteria of the "Strategic Emerging Industries Classification (2018)" of the National
Bureau of Statistics, and the data at the beginning of the year were adjusted on the same statistical calibre.
)", fully promoted the establishment of "Fintech Cooperation Alliance (±ˆÂ¾)”, and cooperated
with a few dozens of equity investment funds, securities firms and service providers to establish a joint servicing
mechanism for innovative technology enterprises, so as to nurture quality innovative technology enterprises for
the capital markets. Meanwhile, the Company continued to bring innovative investment and loan linking services,
launch new financial products such as "Tou Lian Dai ()" with well-known investment institutions to meet the
financing needs of emerging innovative technology enterprises. As at the end of the reporting period, the Company
had a total of 26,000 registered customers under "Qian Ying Zhan Yi (F)", representing an increase of
1,247 customers as compared with the beginning of the year. The total amount of the credit lines granted to
such customers amounted to RMB254.7 billion, and the balance of loans granted to such customers amounted to
RMB41.9 billion.
10
China Merchants Bank
Annual Report 2019
Corporate loans
As at the end of the reporting period, total corporate loans of the Company amounted to RMB1,624.314 billion,
representing an increase of 6.96% as compared with the end of the previous year and accounting for 38.89% of
total loans and advances to customers of the Company. Among them, the balance of the medium- and long-term
loans to domestic enterprises amounted to RMB810.964 billion, accounting for 54.59% of the total loans to
domestic enterprises, and representing an increase of 7.31 percentage points as compared with the end of the
previous year. The non-performing loan ratio of our corporate loans was 2.05%, representing a decrease of 0.32
percentage point as compared with the end of the previous year; the weighted average default probability of the
risk exposure of the domestic non-defaulting corporate customers was 0.99%, down 0.17 percentage point as
compared with the beginning of the year. The quality of corporate loan assets was controllable.
Since the underlying data is subject to adjustment or elimination as a result of change in classification of certain
enterprises after they have grown larger in scale at the beginning of the year, the calibre of our large-, medium- and
small-sized enterprises business at the beginning of the year was adjusted as compared to the end of the previous
year. As at the end of the reporting period, the balance of the Company's loans granted to domestic large-sized
enterprises amounted to RMB1,269.737 billion, representing an increase of 5.92% (calculated on the Bank's
calibre) as compared with the beginning of the year, accounting for 85.47% of our total loans granted to domestic
enterprises, down by 0.45 percentage point as compared with the beginning of the year; the non-performing loan
ratio was 1.91%, down by 0.07 percentage point as compared with the beginning of the year. The balance of the
Company's loans granted to domestic medium-sized enterprises amounted to RMB120.9 billion, representing a
decrease of 3.74% (calculated on the Bank's calibre) as compared with the beginning of the year, accounting for
8.14% of our total loans granted to domestic enterprises, down by 0.86 percentage point as compared with the
beginning of the year; the non-performing loan ratio was 5.16%, down by 1.28 percentage points as compared
with the beginning of the year. The balance of the loans granted to domestic small-sized enterprises amounted
to RMB94.854 billion, representing an increase of 33.99% (calculated on the Bank's calibre) as compared with
the beginning of the year, accounting for 6.39% of our total loans granted to domestic enterprises, up by 1.31
percentage points as compared with the beginning of the year; the non-performing loan ratio was 2.74%, down by
2.39 percentage points as compared with the beginning of the year.
Chapter III Report of the Board of Directors
During the reporting period, from the perspective of continued operations and asset portfolio allocation, the
Company steadily increased investment in incremental assets and optimised the structure of existing assets, closely
followed national key strategic plans, especially for the medium- and long-term investment in Guangdong-Hong
Kong-Macau Greater Bay Area, Yangtze River Delta, Beijing-Tianjin-Hebei, Yangtze River Economic Belt and other
key areas. The Company continued to support real economy development, and increase support for the green
industries and strategic emerging industries. The Company continued to explore new financial services for private
enterprises through the use of big data, promote standardised products investment to further realise the support
for private enterprises. As at the end of the reporting period, the balance of green loans of the Company was
RMB176.773 billion, representing an increase of RMB10.740 billion as compared with the end of the previous year,
and accounting for 10.88% of the total corporate loans; the balance of loans to strategic emerging industries 10 was
RMB145.747 billion, representing an increase of RMB15.418 billion as compared with the beginning of the year and
accounting for 8.97% of the total corporate loans. For further details of loans extended to the sectors which are
subject to the strict regulation of the nation, such as the real estate industry and the local government financing
platforms, please refer to section 3.9.1" Asset quality in key areas".
9
In 2019, adjustment was made to the primary scale and to the figures at the beginning of the year accordingly.
The number of strategic customers at the branch level is that of the corporate customers as the strategic customers at the branch level operated by the
Company in 2019.
3.10.11 CIGNA & CMB Life Insurance
60
CIGNA & CMB Life Insurance, a joint venture of the Company, was established in Shenzhen in 2003, and it is
the first Sino-foreign joint venture life insurance company established after China's entry into the World Trade
Organisation (WTO), with a registered capital of RMB2.8 billion. As at the end of the reporting period, the Company
held 50% of CIGNA & CMB Life Insurance's shares. 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 the end of the reporting period, the total assets of CIGNA & CMB Life Insurance amounted to RMB58.752
billion, and its net assets amounted to RMB7.663 billion. During the reporting period, CIGNA & CMB Life Insurance
realised a net profit of RMB1.378 billion.
75
76
As at the end of the reporting period, the total assets of China Merchants Fund amounted to RMB7.295 billion,
and its net assets amounted to RMB5.384 billion. The total size of the asset management business (including China
Merchants Fund and its subsidiaries) amounted to RMB933.495 billion. It realised a net profit of RMB803 million
during the reporting period.
Merchants Union Consumer Finance, a joint venture of the Company, was established in Shenzhen in 2015, and it is
the first consumer finance company in China established under the framework of the Closer Economic Partnership
Arrangement (CEPA), with a registered capital of RMB3.869 billion. As at the end of the reporting period, the
Company and its wholly-owned subsidiary, CMB Wing Lung Bank, jointly hold 50% of equity interest in Merchants
Union Consumer Finance. Merchants Union Consumer Finance is mainly engaged in the granting of personal
consumption loans.
Chapter III Report of the Board of Directors
3.10.12 Merchants Union Consumer Finance
The Company 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 determining the most
significant bank-wide risk management policies on risk preferences, strategies, policies and authorisations approved
by the Board of Directors.
As at the end of the reporting period, the total assets of Merchants Union Consumer Finance amounted to
RMB92.697 billion, and its net assets amounted to RMB9.360 billion. During the reporting period, Merchants Union
Consumer Finance realised a net profit of RMB1.466 billion.
3.11 Risk Management
Established in 2002, China Merchants Fund had a registered capital of RMB1.31 billion. As at the end of the
reporting period, the Company held 55% of China Merchants Fund's shares. The business scope of China Merchants
Fund covers fund establishment, fund management and other operations approved by the CSRC.
During the reporting period, against the backdrop of complicated and volatile economic environment at home and
abroad and the increasing risk in bank operations, the Company continued to improve its overall risk management
system while proactively overcoming and preventing all kinds of risk.
China Merchants Bank
Annual Report 2019
3.10.10 China Merchants Fund
For detailed financial information on CMB Wing Lung Group, please refer to the 2019 annual report of CMB Wing
Lung Bank, which is published on the website of CMB Wing Lung Bank (www.cmbwinglungbank.com).
CMB Wealth Management was established and wholly owned by the Company with a registered capital of RMB5.0
billion, and was officially launched in November 2019.
3.11.1 Credit risk management
Established in 2017, the Sydney Branch of the Company is the first branch approved to be established in Australia
among all the PRC joint-stock commercial banks. It proactively participates in Sino-Australian cross-border investment
and financing services, trade financing and settlement, exploitation of mineral resources and the development of
quality infrastructure projects, and provides supporting services for "going global" customers to layout in Australia
and New Zealand and for "brought in" foreign leading enterprises to develop in China. At the same time, it
steadily carried out private banking business in compliance with laws and regulations, and met the private banking
customers' needs for global service and the cross-border non-financial value-added service. The establishment of the
Sydney Branch further expanded and improved the Company's global presence, forming a global service network
across four continents: Asia, Europe, America and Australia.
In 2019, on the basis of compliance operation, the Sydney Branch adhered to the strategic direction of "Laying
a foundation with characteristics" and made great efforts to promote the development of various businesses,
and customer operations were on the right track. During the reporting period, the Sydney Branch realised a net
operating income of AUD18,112,300 and a loss before tax of AUD3,687,400, mainly due to the high allowances.
In 2019, the Company constantly improved its service capability and customer experience. As a result, the manual
telephone access ratio reached 97.86%; the percentage of manual telephone responses within 20 seconds reached
94.07%; and the satisfaction ratio of its telephone customer service reached 99.71%.
Founded in 1933, CMB Wing Lung Bank has a registered capital of HK$1.161 billion as at the end of the reporting
period, and is a wholly-owned subsidiary of the Company in Hong Kong. The principal operations of CMB Wing
Lung Bank and its subsidiaries comprise deposit-taking, lending, private banking and wealth management,
investment, securities, credit cards, NET banking, "CMB WLB Wintech ()" mobile banking, global
cash management, syndicated loans, corporate financing, documentary bills, leasing and hire purchase loans, foreign
exchange, insurance agency, mandatory provident fund, insurance brokerage and general insurance underwriting,
property management and trustee, nominee and asset management services. At present, CMB Wing Lung Bank
has one head office, 33 branches and private banking centers in Hong Kong, four branches and sub-branches in
Mainland China, one branch in Macau, and two branches located respectively in Los Angeles and San Francisco, the
United States.
In 2019, CMB Wing Lung Group realised an attributable profit to shareholders of HK$3.987 billion and a net
operating income of HK$7.124 billion, of which net interest income was HK$5.220 billion and net non-interest
income was HK$1.904 billion. The cost-to-income ratio was 32.75%.
As at the end of the reporting period, the total assets of CMB Wing Lung Group amounted to HK$341.843 billion.
Total equity attributable to shareholders amounted to HK$39.024 billion. Total loans and advances to customers
(including trade bills) amounted to HK$185.156 billion. Deposits from customers amounted to HK$243.136 billion.
The loan-to-deposit ratio was 70.20%. The non-performing loan ratio (including trade bills) was 0.51%.
As an independent legal entity with the tenet of "Repay Your Trust with Professional Wealth Management", CMB
Wealth Management gradually establishes an all-round asset management business model which focuses on fixed
income investments, supplemented by equity and alternative asset investments, and provides customers with cross-
market, multi-category wealth management product portfolios and asset management service options, so as to meet
their diversified needs for asset management.
China Merchants Bank
Annual Report 2019
3.10.7 CMB Financial Leasing
CMB Financial Leasing is one of the five pilot bank-affiliated financial leasing firms approved by the State Council.
It was established in 2008 and wholly owned by the Company with a registered capital of RMB6.0 billion. CMB
Financial Leasing has adhered to its operation and development strategy of "professionalisation, digitalisation
and internationalisation", carried out the mission of "supporting national strategy, serving the real economy and
promoting industrial upgrading", and launched the financial solutions for the ten industries of aviation, shipping,
energy, infrastructure, equipment manufacturing, environment, health industry and cultural tourism, public
transportation, smart interconnection & logistics and leasing. It satisfies the lessees' different needs in respect
of equipment procurement, sales promotion, asset revitalisation, balancing of tax liabilities and improvement of
financial structure.
As at the end of the reporting period, the total assets of CMB Financial Leasing amounted to RMB188.718 billion,
and its net assets amounted to RMB20.366 billion. It realised a net profit of RMB2.501 billion during the reporting
period.
3.10.8 CMB International Capital
Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong,
with a registered capital of HK$4.129 billion. At present, the business scope of CMB International Capital and its
subsidiaries mainly covers corporate finance, asset management, wealth management, stocks and structured finance.
As at the end of the reporting period, the total assets of CMB International Capital amounted to HK$27.973 billion,
and its net assets amounted to HK$8.841 billion. It realised a net profit of HK$1.078 billion during the reporting
period.
3.10.9 CMB Wealth Management
Chapter III Report of the Board of Directors
Credit risk refers to the risk arising from a bank's borrowers or counterparties failing to perform its obligations as
agreed. Adhering to its management philosophy of "Quality Goes First Based on Compliance and Risk Control (A
HAR · ª§**· £)”, and with the goal of "fostering a leading risk management bank", the Company
promoted the risk management culture of "staying healthy, rational, proactive and comprehensive (
The Company's Network Operation Service Center provides instant, comprehensive, prompt and professional services
to its customers through caring services such as telephone, network and video.
Ì· )”, stuck to the concept of balanced returns and risks and the prudent business strategy in which risks
can ultimately be covered by capital, implemented a unified credit risk preference, optimised the life-cycle credit risk
management processes, improved credit risk management tools, and fully improved risk management capabilities, so
as to prevent and reduce credit risk loss.
In 2019, due to a slowdown in global trade, the world's major economies had only limited response space in their
monetary policies. The endogenous growth momentum of the global economy further weakened and its growth
rate hit the lowest point since the 2008 financial crisis. There also saw an increase in external uncertainties. The
Federal Reserve cut its interest rates for the first time over the past 10 years and expanded the balance sheet for the
first time over the past 7 years. The yield curve of USD bonds once showed an inversion, causing market concerns.
The downward risk in the euro zone still existed, Japan underwent greater economic fluctuations, and Britain
I was dragged down by Brexit uncertainties. The economic development environment became more complicated in
China. Pork prices rose rapidly, the downward pressure on real economy augmented, and small- and medium-sized
banks sustained partial risks. Under this situation, the central bank has maintained a sound, flexible and moderate
monetary policy, strengthened counter-cyclical adjustments, and maintained reasonably sufficient liquidity. As a
result, the yield of the 10-year government bonds fluctuated between 3.0% to 3.5% for the whole year.
The investment scope of the trading book of the Company focused on RMB bonds, especially domestic interest rate
bonds. In 2019, various interest rate risk indicators of the trading book of the Company were within the target
range.
Banking book
The Company mainly adopts the re-pricing gap analysis, duration analysis, benchmark-correlated analysis, scenario
simulation and other methods to measure and analyse the 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-correlated 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 comprises a
number of 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 in history, clients' exercise of
embedded options in the deposit and loan business, and the most possible changes in interest rates in the 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.
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
During the reporting period, the Company adhered to the principle of moderately prudent interest rate risk
preference, kept a close eye on the domestic and international macroeconomic fundamentals and the marginal
changes in the direction of monetary policies, made in-depth analysis and forecast of the market interest rate
developments through macro-modeling while flexibly making adjustments to the proactive interest rate risk
management strategy based on the above judgments. Before the central bank officially issued the LPR reform plan,
the Company had conducted an impact analysis and forward-looking preparations for the interest rate risk caused
by unification of interest rates, and responded promptly after implementation of the reform plan to adjust the
direction and intensity of active management measures for interest rate risk in a timely manner. At the same time,
the Company started out to study the LPR-based derivatives, and explored new tools and channels for strengthening
the active management of interest rate risk in the context of loan interest rate marketisation. Although the results of
stress test showed that various indicators for the interest rate risk rose slightly, they still stayed within the set limits
and pre-warning values, and the interest rate risk of the banking book was generally controllable.
The Company uses various risk indicators, including volume indicators, market risk value indicators (VaR, covering
interest rate risk factors of various currencies and durations relating to trading book business), interest rate stress
testing loss indicators, interest-rate-sensitive indicators and accumulative loss indicators, to measure, monitor and
manage the interest rate risk of trading book. The interest rate risk factors used for risk measurement cover all
businesses under the trading book, and are comprised of around 110 interest rate indicators or bond yield curves.
VaR includes general VaR and stressed VaR, which are both calculated using the historical simulation method 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 scenarios include the parallel move, steep move and twisted change of interest rates at
various degrees and various unfavorable market scenarios designed on the characteristics of investment portfolios.
Among which, the extreme interest rate scenario may move up to 300 basis points and cover the extremely
unfavorable conditions of the market. Major interest rate sensibility indicator reflects the duration of bonds and the
change in the market value of bonds and interest rate derivatives PV01 (when an interest rate fluctuates unfavorably
by 1 basis point). As for daily risk management, the annual scope of authorisation and the market risk limits for
the interest rate risk businesses under the trading book 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.
Exchange rate risk management
The Company uses the risk indicators such as risk exposure indicator, market risk value indicator (VaR, covering
foreign exchange rate risk factors of various currencies related to transactions on the trading book), the exchange
loss indicator under stress test, exchange-rate-sensitive indicator and accumulated loss indicator to conduct risk
measurement and monitoring management. As for risk measurement, the selected exchange rate risk factor is
applied on spot prices, forward prices and volatilities 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 every
transaction currency against RMB, and changed volatility of foreign exchange options. Major exchange-rate-sensitive
indicators are Delta, Gamma, Vega and other indicators for exchange rate derivatives. For daily management, we set
annual 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 of the Board of
Directors, and delegated the Market Risk Management Department to perform daily monitoring and on-going
reporting.
The RMB exchange rate in 2019 fluctuated up and down according to market supply and demand, showing obvious
two-way fluctuations. In the spot market, affected by the international economic and financial situation, the
progress of trade negotiations and other factors, the RMB-USD exchange rate rose over "7:1" under market forces,
and RMB remained stable and strong against a basket of currencies. The "stabiliser" role of the RMB exchange rate
in market supply and demand was prominent with increased flexibility. In the derivative market, the spreads between
China and the United States changed frequently, the USD-RMB swap points fluctuated significantly, and the one-year
swaps reached to a maximum of 490 basis points. The implied volatility of the RMB exchange rate options was
basically within the reasonable range. However, due to the impact of Sino-US trade negotiations, the market mood
of risk aversion was strong at certain points in time, driving up the volatility which once exceeded the level at the
end of 2018.
Under this background, the Company mainly relied on foreign exchange trading business on behalf of customers
to obtain stable spread income, and utilised system modules to dynamically monitor the exposure of proprietary
trading, and strengthened the control over the limit indicators such as sensitivity index and stop-loss. In 2019, all
exchange rate risk indicators of trading book of the Company were within the target range.
Banking book
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 uses the
short-sided method, the correlation approach and the aggregation 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 historical
extreme fluctuations, 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.
79
Sydney Branch
Trading book
*
Trading book
The Company's market risk arises from trading book and banking book, and the interest rate risk and exchange rate
risk are the major market risks faced by the Company.
During the reporting period, the Company closely followed the macroeconomic and financial situations, conducted
an overall planning, made breakthroughs in key areas and took various measures to root out potential risks, thereby
effectively keeping asset quality in good shape. Firstly, the Company made pre-judgments to effectively adjust
customer structure and business structure. In line with the operation strategy focusing on the strategic customers
of the Head Office and its branches, the Company explored the business opportunities of project financing and
direct financing, focused on serving the strategic customers of its supply chain business while further developing
small and medium-sized corporate customers in batches in both the upstream and downstream supply chains,
and increased its credit grants for strategic emerging industries, the transformation and upgrading of traditional
industries and other new growth-driving industries. The Company continued to strengthen risk investigations in areas
such as large-scale risk exposure, inter-bank customers, P2P, private equity institutions and cooperative institutions,
and optimised the risk pre-warning and reporting mechanism, thus realising early warning, early exposure and
early disposal. Secondly, the Company vigorously promoted service integration to fuel business development. The
Company expanded and deepened its research on new growth-driving industries, achieved the full coverage of the
credit policies for an aggregate of 36 new growth engine industries and explored the implementation of active
credit grants. The Company conducted the analysis of industrial trends and the research of regional credit policies
of the Guangdong-Hong Kong-Macau Greater Bay Area, and formulated the credit policies for the Greater Bay Area
covering business operation strategies, customer selection criteria, target customer list and protection measures.
The Company has established a professional project evaluation team, developed a project evaluation system and a
risk project evaluation reporting template, and provided the professional financing solutions. Focusing on specific
industries, specific core enterprises, specific scenarios, specific products and specific cooperate institutions, the
Company enriched the risk control platform and developed the rating models for closed specific scenarios. Thirdly,
China Merchants Bank
Annual Report 2019
Chapter III Report of the Board of Directors
the Company comprehensively reviewed and leveraged various risk management tools. The Company promoted
concentrated management and initially achieved the customer-centric credit risk pre-control goal, thus providing a
starting point for management of concentration risk at the customer level. The Company explored the application of
portfolio management in the asset allocation of customer groups or business areas, and established the consolidated
risk management system in which the Risk and Capital Management Committee under the Board of Directors plays
a core role, with performance appraisal as the mechanism, connected IT systems as the foundation and reporting
relationships as the bridge. Fourthly, the Company optimised management processes and innovated management
methods to improve risk management efficiency. The basic credit-granting processes were fully optimised and
launched online, with pre-loan investigation, loan review and post-loan inspection upgraded to version 2.0,
thereby achieving the goals of automation, modularisation, standardisation and openness, as well as information
sharing through interconnection with relevant systems. Fifthly, the Company increased the channels for disposal of
non-performing assets while effectively disposing of non-performing assets. The Company intensified the recovery
of non-performing assets by cash collection while continuously promoting the write-off of non-performing assets
and securitisation of assets. The Company proactively explored debt-to-equity conversion, made use of a number of
methods to mitigate risk assets and achieved the effective and efficient disposal of non-performing assets based on
compliance regulations. Sixthly, the Company deepened the application of Fintech services. The Company developed
a series of projects, including an online risk management portal, a non-financial corporate smart rating model and a
smart risk pre-warning model, so as to effectively improve its management efficiency.
For more information about the Company's credit risk management, please refer to Note 60(a) to the financial
statements.
3.11.2 Management of large-scale risk exposure
In accordance with the "Management Measures for Large-Scale Risk Exposure of Commercial Banks" (CBIRC Order
2018 No. 1) ( ‹¤£í¯★¤¤¥¥¥¥¥Ì£) (2018 1)) issued by the CBIRC, large-scale risk
exposure refers to the credit risk exposure (including various credit risk exposures in the banking book and trading
book) to a single customer or a group of related customers of a commercial bank that exceeds 2.5% of its net Tier
1 capital. The Company has incorporated large-scale risk exposure management into its overall risk management
system, and measured and dynamically monitored changes in large-scale risk exposure, so as to effectively
controlled customer concentration risks. As at the end of the reporting period, other than customers with regulatory
exemption, single non-financial institution customers, group non-financial institution customers, single financial
institution customers and group financial institution customers of the Company that reached the standards of
large-scale risk exposure were all in compliance with the regulatory requirements.
Interest rate risk management
3.11.3 Country risk management
The Company has incorporated country risk management into its overall risk management system. In accordance
with relevant regulatory requirements, the Company dynamically monitored the change in its country risk profile.
The Company implemented its country risk assessment system mainly by using the rating results of its sovereign
rating model, and used the rating results to set limit on its country risk and make provisions for its country risk. As
at the end of the reporting period, the assets of the Company exposed to the country risk remained insignificant,
and this indicated low country risk ratings. Moreover, we have made adequate allowances for country risk according
to the regulatory requirements. As a result, the country risk will not have material effect on the operations of the
Company.
77
78
China Merchants Bank
Chapter III Report of the Board of Directors
Annual Report 2019
3.11.4 Market 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 the Company in that country or region, or other loss to the
Company 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.
In 2019, based on the traditional businesses such as accepting guarantees from domestic enterprises as security for
loans granted to overseas entities and accepting guarantees from overseas entities as security for loans granted to
domestic enterprises, the London Branch innovated and developed business varieties to launch new trade finance
products, such as making payments on behalf of customers (11) and forfeiting (1). At the same time, the
London Branch successfully issued the 3-year floating rate USD medium-term notes (MTN), marking the substantial
expansion of a long-term funding channel of the branch. During the reporting period, the London Branch realised a
net operating income of USD22,103,700 and a profit before tax of USD7,905,400.
3.10.6 CMB Wing Lung Group
London Branch
With emphasis on user experience, the Company upgraded online corporate banking to an integrated financial
service and management platform, fully optimised a number of high-frequency functions such as payment
settlement, billing and deduction, account inquiry, etc. and fully utilized personalized online banking to provide
differentiated services for the Company's key customers. As at the end of the reporting period, the number of online
corporate banking customers of the Company reached 1,954,400, representing an increase of 15.72% as compared
with the end of the previous year, of which the number of monthly active customers was 1,003,800, representing an
increase of 21.91% as compared with the end of the previous year. The total number of online corporate banking
transactions of the Company reached 284,031,600 and total value of transactions amounted to RMB111.16 trillion
during the reporting period.
Online corporate banking
Major wholesale e-banking channels
Remote banking
As for the smart credit card service system, the Company continued to explore the ecological layout of 1+N
services of emerging channels by focusing on CMB Life APP and complementing with third-party channels. In order
to sustain the enormous service traffic, the Company leveraged on Big Data and artificial intelligence to create
intelligent service robots, traffic distribution and decision-making robots, intelligent agent assistant robots, service
analysis robots and quality control robots, covering the five modules namely user insight, traffic distribution, service
interaction, demand re-excavation, and management improvement. We integrated the call center service to CMB Life
APP, so as to provide audio-visual multimedia interactive services for users and realise the improvement of service
efficiency and customer experience. As at the end of the reporting period, the Company gained a total of 139
million fans through third-party credit card channels (mainly from WeChat, Alipay service window and official QQ
account).
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
As for the smart debit card service system, the Company uses China Merchants Bank "WeChat Official Account"
as an important channel for its brand promotion and business promotion. Through continuous high-frequency
interaction with young customer groups over high-quality content and fun activities, the Company further
enhanced the value and brand reputation of online marketing of the Company. At the same time, with continued
improvements in the products and the operating system, the WeChat Official Account gradually became an
important new engine for APP user growth. As at the end of the reporting period, the "China Merchants Bank"
WeChat Official Account had accumulated 22,895,300 followers.
Smart service system
During the reporting period, the Company launched CMB Life APP 8.0, with the vision of "connecting the lives,
consumption and finance of millions of people", and on the basis of further enhancing the main business of credit
cards, actively explored and expanded content ecosystem, quality e-commerce, life with automobile and other
living scenarios, so as to reconstruct the connection with the users. As at the end of the reporting period, the total
number of CMB Life APP users was 91,264,300, of which non-credit card users accounted for 31.51%. During the
reporting period, the maximum number of daily active users of CMB Life APP reached 9,035,800 and the number
of monthly active users was 46,643,400 as at the end of the period. In terms of the number and online activity of
customers, CMB Life APP continued to outperform other credit card APPS in the banking industry.
As at the end of the reporting period, the number of CMB APP users in aggregate was 114 million, with 55,136,300
monthly active users, a total number of 6.093 billion logins and the average monthly logins of 11.82 per user during
the reporting period. During the reporting period, CMB APP had 1.687 billion transactions and a total transaction
amount of RMB33.20 trillion, up by 22.07% and 7.93% respectively, as compared with the previous year.
CMB Life APP for credit card
During the reporting period, the Company released CMB APP 8.0, launched innovative financial services such as
online financial planning and voice bookkeeping, and extensively introduced leading enterprises in the fields of
content, life, convenience, and travel as its partners to build a non-financial ecosystem and create a better financial
life for users.
CMB APP
During the reporting period, the Company constantly improved the retail e-banking channels and further increased
operational efficiency. As at the end of the reporting period, the Company's replacement rate of comprehensive
service counters through the retail electronic channels was 98.25%; and the rate of rerouting customers from the
service counters to visual counters was 95.99%.
Major retail e-banking channels
E-banking channels
The efficiently operated distribution network of the Company is primarily located in the major economic centers
of China such as Yangtze River Delta, Pearl River Delta and Bohai Rim, and certain large- and medium-sized cities
in other regions. As at the end of the reporting period, the Company had 141 branches, 1,681 sub-branches, one
dedicated branch-level operation center (credit card center), one representative office and 16,750 visual counters
in more than 130 cities of Mainland China. The Company also has a branch in Hong Kong; a branch and a
representative office in New York, the United States; a branch in London, the UK; a branch in Singapore; a branch in
Luxembourg; a representative office in Taipei and a branch in Sydney, Australia.
Physical distribution channels
The Company provides products and services via multiple distribution channels. The distribution channels of the
Company mainly consist of physical distribution channels and e-banking channels.
3.10.3 Distribution channels
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
10
In order to keep abreast with the trend of its customers increasingly moving to the mobile Internet, the Company
actively strengthened its network service capabilities. During the reporting period, the online interactive services
accounted for 90.11% 13, showing the online text interactive services to be the mainstream of remote consulting
services. At the same time, the Company accelerated the pace of evolution into intelligent services, deepened the
training and learning of intelligent robots, and enhanced algorithm optimisation. During the reporting period, the
intelligent self-services accounted for 76.11% 14. During the reporting period, our visual counters received an average
of 2,620,000 incoming calls per month, with the highest number of single day incoming calls reaching 132,100,
showing high replacement effect of in-branch non-cash transactions.
Established in 2016, the London Branch of the Company is the first branch approved to be established in the
United Kingdom among all the PRC joint-stock commercial banks and also the first branch established in the United
Kingdom directly by a bank in Mainland China since the founding of the PRC. It mainly focuses on corporate
banking business and provides customers with diversified corporate banking products and services, such as deposits,
loans (including bilateral loans, syndicated loans and cross-border M&A financing) and settlement. It also engages in
interbank transaction of funds, bonds and foreign exchange trading, and conducts funds clearing and asset transfer
with other financial institution customers.
CMB Corporate APP
Being the Company's second-largest "online" service platform for wholesale finance, CMB Corporate APP directly
reaches customers through mobile applications, establishing an Internet business model that integrates account
management, transaction payment and online foreign exchange services. During the reporting period, the Company
launched a total of 248 services with local features across domestic branches on the CMB Corporate APP and built
differentiated scenarios and O2O service models, which effectively improved customer experience and activity. We
launched the international version of CMB Corporate APP at our New York Branch. The Company created a mobile
financial service platform tailored for overseas corporate customers. As at the end of the reporting period, the
number of customers of CMB Corporate APP reached 1,000,800, representing an increase of 87.45% as compared
with the end of the previous year, of which monthly active customers reached 426,500, with the same caliber
increasing by 136.68% as compared with the end of the previous year. During the reporting period, the number
of mobile payment transactions made by customers through CMB Corporate APP amounted to 3,275,800, with a
transaction value of RMB107.681 billion.
70
Referring to the proportion of online text services in various types of remote consulting services.
Chapter III Report of the Board of Directors
13
China Merchants Bank
Annual Report 2019
73
In 2019, the Luxembourg Branch adapted itself to changes in the relevant policies, grasped market opportunities
and achieved steady business growth through efficient services and close cooperation with other banks and financial
institutions at home and abroad. During the reporting period, our Luxembourg Branch realised a net operating
income of €16,881,900 and a profit before tax of €5,298,200.
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 global" and the enterprises "brought in" from Europe. It is committed to establishing an
operational 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 2019, the Singapore Branch adhered to the operating strategy of concurrent development of cross-border
financing business and local business, focused on the strategic customers of the Head Office and branches and
quality enterprises located in Singapore, returned to its origin of customer service, adhered to professionalism and
pursued high-quality development. In respect of private banking business, it focused on new products and customer
expansion, went back to service essence and built the best customer experience bank. During the reporting period,
the Singapore Branch realised a net operating income of USD20,725,700 and a profit before tax of USD8,344,200.
Luxembourg Branch
Established in 2013, the Singapore Branch of the Company is positioned as a significant cross-border financial
platform in Southeast Asia. Based in Singapore and expanding to Southeast Asia, the Singapore Branch takes cross-
border finance and wealth management as its core and strives to provide all-round non-stop solutions for cross-
border finance to the Chinese companies "going global" and the companies "brought in" located in Singapore and
other Southeast Asian countries. Its major services and products include: funds settlement, deposit service, foreign
exchange trading, coordination financing, trade financing, M&A loans, syndicated loans, real estate trust leveraged
financing and delisting financing. With respect to wealth management business, the Private Banking (Singapore)
Center was officially launched in April 2017 to provide private banking products and value-added services with
integrated investment and financing solutions, such as cash management, asset allocation and heritage of wealth to
high-net-value customers.
In 2019, our New York Branch adhered to the principle of "taking compliance as a priority and maintaining steady
operation" and aimed to improve the comprehensive service capabilities of the featured cross-border financial
platform. Great progress was achieved in expanding Sino-US cross-border business, developing local business,
enhancing customer management and strengthening compliance management. During the reporting period, our
New York Branch realised a net operating income of USD100 million and a profit before tax of USD61,090,700.
Singapore Branch
Established in 2008, the New York Branch of the Company is Chinese banks' first branch approved in the U.S. since
the US Foreign Bank Supervision Enhancement Act in 1991. The New York Branch is located in the global financial
center and is committed to establishing a cross-border financial platform characterised by coordination between
China and the U.S., so as to offer diversified and all-round banking services for the companies and high-net-value
private banking customers in China and the U.S..
New York Branch
In 2019, the Hong Kong Branch focused on the opportunities such as "The Belt and Road" initiative, RMB
internationalisation and the construction of Guangdong-Hong Kong-Macao Greater Bay Area, greatly promoted
cross-border business coordination, continuously developed the local customer base, constantly expanded its
market share, and provided customers with strong financial support. Meanwhile, the Hong Kong Branch further
strengthened risk compliance and internal basis management, constantly improved and innovated its product and
service systems and strove to explore the asset operation model. As a result, all its businesses achieved healthy
development. During the reporting period, the Hong Kong Branch realised a net operating income of HK$3.032
billion and a profit before tax of HK$2.550 billion.
74
China Merchants Bank
Annual Report 2019
14 Referring to the proportion of services undertaken by intelligent robots in various remote consulting services.
Chapter III Report of the Board of Directors
72
China Merchants Bank
Annual Report 2019
3.10.4IT and R&D
71
During the reporting period, focusing on the objective of "building itself into a bank with the best customer
experience", the Company continued to build leading digital infrastructure while making adjustment to IT
organisational structure and strengthening the organisational guarantee of infrastructure and platform construction.
The Company further promoted lean transformation of research and development where the Company integrated
technology with business, driving business agility by means of technology agility and business convergence
with system integration. The business development of the whole Bank is supported by three software centers in
Shenzhen, Hangzhou and Chengdu and two data centers in Shenzhen and Shanghai.
With respect to basic platform construction, the Company built a "Cloud + API" technology architecture,
benchmarking advanced technology and services of public cloud, offering a private cloud with low-cost and massive
computing capabilities, providing self-service and convenient user experience for the whole Bank and subsidiaries
and supporting the transformation and development of Digital Bank. The Company built a unified external service
Open API platform and CMB APP small program platform to help build an open bank whereby the overall capacity
of the data lake reached 9.8PB, supporting the Company's massive demand for data analysis. With respect to the
development of application systems, the Company released CMB APP 8.0 and CMB Life APP 8.0, which were fully
open to accelerate the digital transformation of retail finance 3.0. The Company released the treasury management
cloud platform CBS7.0 to lead the innovation and transformation of treasury management and CMB Corporate
APP 5.0, focusing on digital customer base management and iterative optimisation of scenarios. With respect to
overseas support, the Head Office continued to coordinate the management and maintenance of the core business
system of overseas branches and strengthened support for the business development of overseas branches. During
the reporting period, the version upgrade of the core business system of Sydney Branch and New York Branch
was completed. With respect to security and stability, under the backdrop of rapid growth of system scale and
transaction volume, the overall system was on the smooth side, and the availability of core accounting system
and backbone networks remained its leading position among industry peers. The Company promoted the digital
transformation of operations and maintenance, continuously optimised the business continuity management system,
and established a Beijing site, together with Shenzhen and Shanghai sites to provide external network services and
improve the user's network access experience. With respect to "industry - university - science" partnership,
the Company has set up the Kunpeng Computing Joint Innovation Lab (¾ÂÂÌ) and Outbound
Load Balancing Joint Innovation Lab (¾Â¾IÐ) to accelerate the research results of the distributed
database joint innovation lab. In the field of financial application of artificial intelligence such as intelligent customer
service, risk-related public opinion, computer visualisation, knowledge management, knowledge map and marketing
model, our technology is ahead of industry peers.
3.10.5 Overseas branches
Hong Kong Branch
Established in 2002, the Hong Kong Branch is the first branch duly established overseas by the Company. As a
full-licensed bank and a registered institution with SFC, the Hong Kong Branch may engage in comprehensive
commercial banking businesses, including 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, settlement, trade financing, bilateral loans, syndicated loans, cross-border M&A portfolio
solutions, asset management and asset custody, and engages in transaction of funds, bond trading and foreign
exchange trading with financial institutions, and conducts funds clearing and asset transfer with financial institution
customers. With respect to retail banking, the Hong Kong Branch proactively develops featured retail banking
services and provides cross-border personal banking services and private wealth management services for individual
customers in Hong Kong and Mainland China. Featured products include "Hong Kong All-in-one Card" and "Hong
Kong Bank-Securities Express".
Chapter III Report of the Board of Directors
30,264
RMB)
78,901
23,707
30.20
70,150
21,185
(%)
30.05
to holders
of ordinary
shares in the
consolidated
statements
(in millions of
financial
of tax, in
millions of
Proportion of
cash dividend
to net profit
attributable
financial
statements
for the year
to holders
of ordinary
shares in the
consolidated
Net profit
attributable
Total cash
dividends
(inclusive
91,197
capitalisation
of surplus
reserve for
every share
held (No. of
shares)
RMB)
33.19
profit appropriation of the Company shall focus on reasonable returns on investment of the investors,
and such policies shall maintain continuity and stability;
80
of shares
issued on
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.
the Company shall pay cash dividends and other amounts to holders of domestic shares listed
domestically 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;
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
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 profit appropriation plan in the form of shares 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;
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 to shareholders of ordinary shares each year in principle shall not be less than 30% of the
net profit after taxation attributable to shareholders of ordinary shares 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;
(7)
(6)
(5)
(4)
Note: The profit appropriation plan for 2019 is subject to consideration and approval at the 2019 Annual General Meeting of the Company.
(3)
(1)
As specified in the Articles of Association of China Merchants Bank Co., Ltd., the profit appropriation policies
of the ordinary shares of the Company are:
3.12.3 The formulation and implementation of the Company's cash dividend policies
statements.
For more information about the Company's market risk management, please refer to Note 60(b) to the financial
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 optimisation program as a scientific reference for the management's decision-making.
In 2019, the annualised volatility of the RMB exchange rate stabilised gradually. Facing the changing international
economic situation, the Company increased its efforts to analyse the domestic economic situation and the Sino-US
trade friction, achieved a systematic measurement of foreign exchange exposure and imposed a stringent control
over the scale of foreign exchange risk exposure. The Company was prudent about the exchange rate risk. As of
the end of the reporting period, the size of the banking book of the Company's foreign exchange exposure was at
a relatively low level. The exchange rate risk of the Company is generally stable with all the core limit indicators,
general scenarios and stress testing results satisfying the regulatory limit requirement.
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. The Audit Department of the Company is responsible for overall
auditing of our exchange rate risk.
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
60
(2)
Number
Chapter III Report of the Board of Directors
0.94
Compliance risk refers to the risk of the Company 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 of Directors to supervise the compliance risk
management. The Risk and Compliance Management Committee of the Head Office is the highest management
organisation under the senior management to manage compliance risk of the whole Company. The Company has
set up a complete and effective compliance risk management system, the organisational management structure
comprising the Risk and Compliance Management Committee, compliance supervisors, compliance officers and the
Legal and Compliance Department under the Head Office and its branches as well as compliance supervisors at
branch and sub-branch levels, the three defence lines for compliance risk management and the double-line reporting
mechanism, and achieved effective control of compliance risk through continuously perfecting its risk management
system and mechanism and improving its management techniques.
3.11.8 Compliance risk management
During the reporting period, the Company carried out an iterative upgrade for the existing public opinion
surveillance system and increased the dual-line early-warning models of the Head Office and branches in respect of
branch-related public opinions, so as to improve the response efficiency of negative public opinions. The Company
comprehensively investigated the risk associated with third-party cooperative institutions, and strengthened the
pre-management of reputational risk to reduce hidden risks. The Company has established the public opinion
case database shared by the Head Office and branches, sorted out and analysed typical public opinion cases and
conducted relevant trainings, thus continuously improving the awareness and management of reputational risk of
the whole Bank.
Reputational risk refers to the risk that the Company might be negatively evaluated by relevant stakeholders due to
the Company's operations, management and other activities or external incidents. 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
the reputational risk management system and formulated 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.
3.11.7 Reputational risk management
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
=2
82
81
During the reporting period, confronting the continuously "tough and stringent regulatory requirements", the
Company proactively adapted to the new regulatory requirements, accurately grasped the direction of compliance,
ensured the full implementation of the regulatory requirements, and further improved the long-term mechanism
for internal control and compliance management. The Company primarily adopted the following internal control
and compliance management measures: firstly, formulating and issuing the "Guiding Opinions for Internal
Control and Compliance Work of the Bank in 2019", and making arrangements for the internal control and
compliance management of the whole Bank; secondly, carrying out the "Rectification of Disorders and Promotion
of Compliance" in accordance with the requirements of the CBIRC, and making comprehensive rectifications in
equity and corporate governance, implementation of macro-policies, credit management and other aspects, thus
further consolidating the foundation of internal control and compliance management; thirdly, timely understanding,
disseminating and effectively identifying new regulatory requirements and evaluating, mitigating and resolving
the compliance risks associated with new products, new businesses and major projects; fourthly, strengthening
the system management of the whole Bank, organising and carrying out system improvement, re-investigation,
post-evaluation and other tasks to improve management systems; at the same time, launching the office and
system optimisation projects to improve work efficiency while facilitating the staff of the Company to utilise their
fragmented time to learn the key knowledge points about the system; fifthly, strengthening employee behavior
management through various approaches such as investigating employees' abnormal behaviors, keeping a record of
employees' points of minor violations, conducting due diligence on the personnel engaging in asset business and
applying for resignation, issuing training materials such as employee compliance and warning cases, and organising
multi-level compliance education to further enhance the employees' compliance concept and awareness across the
Bank; sixthly, continuously conducting comprehensive compliance inspections, thoroughly analysing the causes of
various problems found in internal and external inspections, following up and supervising the rectifications, and
constantly improving the internal control and compliance management at all levels.
The liquidity coverage ratio, net stable funding ratio, liquidity ratio and liquidity matching ratio are all the external regulatory indicator - the
legal person's calibre.
For more information about the Company's liquidity risk management, please refer to Note 60(c) to the financial
statements.
The Company has satisfied the relevant requirements of the "Administrative Measures on Liquidity Risk of
Commercial Banks" issued by the CBIRC in May 2018. As at the end of the reporting period, the Company's liquidity
coverage ratio was 171.53%, higher by 71.53 percentage points than the minimum requirement of the CBIRC.
The net stable funding ratio was 122.62%, higher by 22.62 percentage points than the minimum requirement of
the CBIRC; the liquidity ratio was 51.90%, higher by 26.90 percentage points than the minimum requirement of
the CBIRC; and the liquidity matching ratio was 153.12%, higher by 53.12 percentage points than the minimum
requirement of the CBIRC 15, indicating that the Company had sufficient funding sources to meet the needs of
sustainable and healthy development of the business. 10.5% of the Company's total RMB deposits and 5% of the
Company's total foreign currency deposits were required to be placed with the PBOC. In summary, the Company's
liquidity indicators remained at healthy levels. Deposits maintained steady growth. Liquidity reserves were sufficient
and overall liquidity was at a safe level.
In 2019, the central bank maintained a prudent monetary policy and reasonably adequate liquidity. 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 continued to promote the growth of proprietary deposits,
through measures such as strengthening the guiding of marketing strategies for key customer groups, strengthened
the control of key timings, and promoted the steady growth of core deposits through various measures. Secondly,
the Company dynamically controlled the exposure of credit assets, and continued to optimise the asset structure,
in order to achieve smooth management of assets and liabilities. Thirdly, the Company strengthened active liability
management in all aspects and channels, enhanced cooperation with counterparties, expanded diversified financing
channels, and improve the financing capability of our treasury. Fourthly, the Company conducted in-depth refined
forward-looking liquidity risk management. By using quantitative modeling and dynamic measurement and
calculation, the Company enhanced its research and judgment in macro-economy and the dynamic prediction on
the liquidity of the whole Bank, flexibly conducted short term and medium to long-term active liability taking
according to its own liquidity profile and market interest rate trend, including proactively participating in the
central bank's medium-term lending facility and open market operation, and launched the issuance of financial
debts as the appropriate opportunities arose, so as to improve the proactive risk management of the liquidity risk.
Fifthly, the Company moderately increased its investments in qualified high-quality bonds, maintained sufficient
liquidity reserve, and further enhanced the ability to mitigate liquidity risk. Sixthly, 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 set separate liquidity risk limit and enhanced the duration matching
management of its assets and liabilities. Seventhly, the Company tested and improved the liquidity contingency plan
and emergency plan, and effectively improved the ability to respond to liquidity risk events through regular liquidity
risk emergency drills.
Liquidity risk refers to the risk that the Company's unable to obtain sufficient funds at a reasonable cost in a
timely manner to grow its assets, pay maturing debts and perform other payment obligations. The liquidity risk
management of the Company is based on the principles of prudence, foresight and comprehensiveness, which is
more appropriate for the current development stage of the Company. The current liquidity risk management policies
and systems of the Company have basically satisfied the regulatory requirements and its own management needs.
Based on the principle of separating policy-making, strategy implementation and supervision of liquidity risk
management, the Company puts in place a governing framework under which the roles, responsibilities and
reporting lines of the Board of Directors, the Risk and Capital Management Committee, the Board of Supervisors,
senior management, designated committees and relevant departments are segregated to ensure the effectiveness of
liquidity risk management.
3.11.6 Liquidity risk management
Chapter III Report of the Board of Directors
China Merchants Bank
Annual Report 2019
During the reporting period, in order to prevent loss arising from systematic operational risk and material operational
risk, the Company continued to improve its operational risk management system. Firstly, the Company strengthened
the control of risks associated with key areas, carried out risk screening on P2P, private equity funds, unlicensed
businesses and payments, management of funds from presale of commercial properties, discounted business bills
and other areas, and strengthened risk management and control. Secondly, the Company optimised and improved
its management tools. Through the inspection of key risk indicators, the Company examined and adjusted indicators
from various perspectives, so as to further strengthen the operational risk reporting mechanism, and optimise
the operational risk assessment mechanism and economic capital allocation plan of operational risk. Thirdly, the
Company strengthened the management of outsourcing-related risk, prudently accessed and evaluated the types of
products and services to be outsourced, fortified approval management, expanded the scope of outsourcing-related
risk monitoring and organised the post-assessment of outsourcing projects across the Bank. Fourthly, the Company
strengthened the management of IT risk and business continuity management, and conducted information
technology process inspection. Fifthly, the Company further improved the performance of operational risk
management system, and promoted the utilisation of operational risk data analysis platform. Sixthly, the Company
enhanced the empowerment of the branches, and conducted various forms of trainings for operational risk
management personnel at domestic and overseas branches to improve the operational risk management capabilities
of the branches.
Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, incompetent
personnel or IT systems, or external events. In view of the various aspects and wide range of operational risks, the
Company's operational risk management will, based on the principles of cost-revenue matching and input-output
balance, vigorously strengthen the establishment of operational risk management system, implement internal control
system, continue to carry out various businesses steadily and reduce or prevent operational risk losses with a certain
level of cost. In the process of operational risk management, within the risk limits set by the Board of Directors,
the Company will, through measures such as further improving the risk management mechanism, strengthening
risk prevention and control in key areas, conducting risk monitoring and pre-warning, improving assessment and
evaluation mechanism, and cultivating operational risk prevention culture, so as to further improve operational risk
management capabilities and effectiveness, and prevent and reduce operational risk losses.
3.11.5 Operational risk management
15
China Merchants Bank
China Merchants Bank
Annual Report 2019
Annual Report 2019
0.84
Cash dividend
for every
share held
(inclusive of
tax, in RMB)
2019(note)
2018
2017
held (No. of
shares)
Year
shares for
every share
of bonus
Number
3.12.2 Profit appropriation for the last three years
Annual Report 2019
Chapter III Report of the Board of Directors
China Merchants Bank
84
83
For the other information on the closing date for registration, the period for closure of register of members and
the profit appropriation plan for the shareholders who are entitled to attend the Company's 2019 Annual General
Meeting and those who are entitled to receive the final dividends for 2019, the Company will make further
announcement(s) at appropriate times. The Company expects that the distribution of final dividends to the H
Shareholders will be completed by 28 August 2020.
10% of the audited net profit of the Company for 2019 of RMB86.085 billion, equivalent to RMB8.609 billion,
was allocated to the statutory surplus reserve, while 1.5% of the total balance of the risk assets, equivalent to
RMB10.002 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 RMB1.20 (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 shareholders' general meeting (inclusive of the day of the
shareholders' general meeting). The retained profits will be carried forward to the next year. In 2019, the Company
did not transfer any capital reserve into share capital. The above profit appropriation plan is subject to consideration
and approval at the 2019 Annual General Meeting of the Company.
3.12.1 The profit appropriation plan for 2019
3.12 Profit Appropriation
During the reporting period, the Company fulfilled its anti-money laundering obligations and took various measures
to ensure the compliance and effectiveness of its anti-money laundering. These measures included but were not
limited: further improving the internal control system for anti-money laundering of the Company in accordance with
the requirements of the "Guidelines for Risk Management of Money Laundering and Terrorism Financing for Legal
Entities of Financial Institutions (Trial)", "Administrative Measures for Anti-Money Laundering and Anti-Terrorism
Financing in Banking and Financial Institutions" and other regulatory documents. The Company strengthened the
assessment of money laundering risks associated with its businesses and products and the review of the anti-money
laundering system, and effectively embedded anti-money laundering compliance requirements into business
processes and systems. The Company further carried out various risk screening and case re-investigations to prevent
various money laundering risks, proactively promoted the application of Al and other financial technologies in anti-
money laundering to enhance the efficiency and quality of monitoring and analysis, thus improving the efficiency
and quality in the field of analysis by 30% and 8%, respectively, developed and promoted the customer background
investigation platform for anti-money laundering and improved the customer due diligence processes. The Company
continuously optimised the anti-money laundering monitoring systems, the name list management system for
anti-money laundering and the risk rating systems to improve the effectiveness of anti-money laundering across the
Bank. The Company implemented the "Notice of the People's Bank of China on Strengthening the Identification
of Anti-Money Laundering Customers" and other regulatory requirements, and continued to carry out beneficiary
identification, suspicious transactions reporting, subsequent risk control and the management of customers
associated with high risks.
The Company has established a relatively sound anti-money laundering internal control system. The Company
has formulated a full set of anti-money laundering management system based on the requirements of relevant
laws and regulations on anti-money laundering and its own actual conditions. It has also developed and launched
a comparatively complete anti-money laundering monitoring system, established an anti-money laundering
organisational system, and had a dedicated anti-money laundering team to ensure the sound operation of business
throughout the Bank.
3.11.9 Anti-money laundering management
1.20
2.
66
During the reporting period, the profit appropriation plan of the Company for 2018 was implemented in
strict accordance with the relevant provisions of the Articles of Association of China Merchants Bank Co.,
Ltd.. It was considered and approved by the 40th meeting of the Tenth Session of the Board of Directors
of the Company, and submitted for consideration and approval at the 2018 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 2019
will also be implemented in strict accordance with the relevant provisions of the Articles of Association of
China Merchants Bank Co., Ltd.. It will be considered and approved by the 9th meeting of the Eleventh
Session of the Board of Directors of the Company, and submitted for consideration and approval at the 2019
Annual General Meeting of the Company. The Independent Directors of the Company have expressed their
independent opinions on the profit appropriation plans for 2018 and 2019 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.
President and Chief
Financial Officer
Chairman of Board of
Supervisors, Employee
Supervisor
Employee Supervisor
Employee Supervisor
Wang Wanging
Liu Xiaoming
Liu Yuan
Executive Vice
0.00063
0.00078
160,000
Beneficial Owner
Long position
A Share
Executive Director,
Wang Liang
Board of Directors
Secretary of
President and
Executive Vice
0.00063
0.00078
160,000
0.00009
0.00011
23,282
Interest of spouse
Beneficial Owner
Long position
Long position
A Share
A Share
Executive Director,
Non-Executive Director
A Share
Long position
Beneficial Owner
180,000
89
According to the relevant requirements of the CSRC, the Company considered and approved the "Resolution
Regarding the Dilution of Current Returns by the Non-public Issuance of Preference Shares and the Remedial
Measures" at its 2016 Annual General Meeting on 26 May 2017, and formulated the remedial measures in respect
of the dilution of current returns of the holders of ordinary shares which may be caused by the non-public issuance
of preference shares. The measures include adhering to the strategic direction of "Light-operation Bank" and the
strategic positioning of "One Body with Two Wings", creating differentiated competitive advantages, strengthening
the awareness of capital constraints and return on capital, striving to reduce capital consumption, improving the
efficiency of capital utilisation, strengthening the management of asset quality, and maintaining a stable return
policy for the holders of ordinary shares. Meanwhile, the Directors and senior management of the Company also
undertook to earnestly implement the remedial measures. So far as the Company is aware, as at the end of the
reporting period, neither the Company nor its Directors and senior management had breached any of the aforesaid
undertakings.
In the course of the rights issue of A shares and H shares in 2013, each of China Merchants Group Ltd., China
Merchants Steam Navigation Co., Ltd. (¯ARSSOR) (now renamed as China Merchants Steam
Navigation Co., Ltd. () and China Ocean Shipping (Group) Company (now renamed as China
Ocean Shipping Company Limited) 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. 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 the 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 websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the
Company. So far as the Company is aware, as at the end of the reporting period, the above shareholders had not
violated the aforesaid undertakings.
4.15 Undertakings Made by the Company, Directors, Supervisors,
Senior Management and Other Connected Persons
So far as the Company is aware, there has not been any court judgment over significant litigations with which the
Company has not fulfilled, nor has there been any outstanding debt of significant amount during the reporting
period.
4.14 Explanation on 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 persons, or been
publicly censured by any stock exchange. The Company has not been penalised by other regulatory bodies which
have significant impact on the businesses of the Company.
Supervisors or Senior Management
4.13 Disciplinary Actions Imposed on the Company, Directors,
So far as the Company is aware, 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).
4.12 Contractual Rights and Service Contracts of Directors and
Supervisors
IV Important Events
China Merchants Bank
Annual Report 2019
Zhou Song
Liu Jianjun
Save as disclosed herein, the Company is not aware that there has been any financial, business, kinship or other
material or connected relations among the Directors, Supervisors and senior management of the Company.
So 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.
the Company
4.10 Directors' Interests in the Businesses Competing with Those of
0.00040
0.00048
0.00048
0.00059
121,000
100,000
Beneficial Owner
Beneficial Owner
Long position
Long position
A Share
A Share
0.00071
0.00087
4.11 Financial, Business and Kinship Relations among Directors,
Supervisors and Senior Management
Chapter III Report of the Board of Directors
Executive Officer
0.00087
4.4 Fixed Assets
For details of changes in shareholders' equity of the Company, please refer to the "Consolidated Statement of
Changes in Shareholders' Equity" in the financial statements.
4.3 Shareholders' Equity
Details are set out in Chapter II Summary of Accounting Data and Financial Indicators.
4.2 Financial Highlights
The Company is engaged in banking and related financial services.
4.1 Principal Business Activities
Important Events
Annual Report 2019
IV Important Events
China Merchants Bank
Do not bother over-embellishing
PowerPoints.
Keep to the point and save time.
Simple Work Style
55
85
20 March 2020
Chairman of the Board of Directors
Li Jianhong
By order of the Board of Directors
The Company has maintained appropriate insurance coverage for the liabilities of the Directors, Supervisor and
senior management in respect of legal actions against its Directors, Supervisor and senior management arising out of
corporate activities.
3.16 Permitted Indemnity Provision
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.
3.15 Management Contracts
So far as the Board of Directors is aware, during the reporting period, 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.
During the reporting period, adhering to the social responsibility principle of "Gain from society and contribute to
society", the Company actively made contribution and fulfilled its social responsibilities on target poverty alleviation,
green loans, support to SMEs, protection of consumers' interests, public welfare and employee care. For more
details, please refer to the "Corporate Social Responsibility Report of China Merchants Bank for 2019", which is
available on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company. The
relevant disclosures are in compliance with the requirements of the Environmental, Social and Governance Reporting
Guide issued by the Hong Kong Stock Exchange.
3.13 Requirements of the Environmental, Social and Governance
Reporting Guide
Changes in fixed assets of the Company as at the end of the reporting period are detailed in Note 28 to the financial
statements.
4.5 Purchase, Sale or Repurchase of Listed Securities of the Company
Neither the Company nor its subsidiaries had purchased, sold or repurchased any of the Company's listed securities
during the reporting period.
4.6 Pre-emptive Rights
0.00107
220,400
Percentage
of the
total issued
ordinary
shares (%)
Percentage
of the
relevant class
of shares
in issue (%)
shares
Capacity
Beneficial Owner
Long position
A Share
Executive Director,
Tian Huiyu
No. of
Long/short
position
Class of
shares
President and Chief
Position
As at 31 December 2019, 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), 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 the 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:
4.9 Interests and Short Positions of Directors, Supervisors and Chief
Executives under Hong Kong Laws and Regulations
Annual Report 2019
IV Important Events
China Merchants Bank
88
2
87
As at the end of the reporting period, the net operating income contributed by the top 5 customers of the Company
did not exceed 30% of the total net operating income of the Company.
4.8 Principal Customers
Details about retirement and welfare provided by the Company to its employees are detailed in Note 39 to the
financial statements.
4.7 Retirement and Welfare
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.
Name
3.14 Compliance with Relevant Laws and Regulations
1.
The 31st meeting of the Twelfth Session of the Board of Directors of the Company was convened at the Head Office
of the Company in Shenzhen on 25 March 2024. The meeting was presided by Miao Jianmin, Chairman of the
Board of Directors. 12 out of 13 eligible Directors attended the meeting in person. Due to business engagement,
Zhou Song, Non-Executive Director, was absent from the meeting and appointed Zhang Jian (Non-Executive Director)
as his proxy to attend the meeting. 8 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..
CMB International Capital or CMBIC:
CMB International Capital Holdings Corporation Limited
CMB Wealth Management Company Limited
China Merchants Fund or CMFM:
China Merchants Fund Management Co., Ltd.
CIGNA & CMAM:
CIGNA & CMB Asset Management Company Limited
CMB Europe S.A.:
China Merchants Bank (Europe) Co., Ltd. ((&)
有限公司)
CIGNA & CMB Life Insurance:
CIGNA & CMB Life Insurance Co., Ltd.
MUCFC:
Merchants Union Consumer Finance Company Limited
CMB YunChuang:
CMB YunChuang Information Technology Co., Ltd. with
100% equity interest held by the Company indirectly
CMB Network Technology:
China Merchants Bank Network Technology (Shenzhen)
Co., Ltd. with 100% equity interest held by the Company
indirectly
Deloitte Touche Tohmatsu Certified Public
Accountants LLP:
Deloitte Touche Tohmatsu Certified Public Accountants
LLP (Special General Partnership)
SFO:
Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong)
Model Code:
CMB Financial Leasing Co., Ltd.
Model Code for Securities Transactions by Directors of
Listed Issuers of Hong Kong Stock Exchange
CMB Financial Leasing or CMBFL:
CMB Wing Lung Group:
Chapter VII Changes in Shares and Information on Shareholders
153 Chapter VIII Financial Statements
1
China Merchants Bank
Annual Report 2023 (H share)
Definitions
Definitions / Significant Risk Warning
The Company, the Bank, CMB or China Merchants
Bank:
China Merchants Bank Co., Ltd.
The Group:
China Merchants Bank and its subsidiaries
CSRC:
China Securities Regulatory Commission
Hong Kong Stock Exchange or SEHK:
The Stock Exchange of Hong Kong Limited
Hong Kong Listing Rules:
The Rules Governing the Listing of Securities on the SEHK
CMB Wing Lung Bank:
CMB Wing Lung Bank Limited
CMB Wing Lung Bank and its subsidiaries
Chapter VI Important Events
Significant Risk Warning
China Merchants Bank
on,
We have made remarkable achievements in building the "three capabilities". In terms of risk management
capability, as of the end of 2023, the non-performing loan ratio was 0.95%, indicating overall stability in asset quality.
The allowance coverage ratio remained at a high level, reaching 437.70%. The Bank further implemented the "Six All"¹ risk
management system, consistently promoted risk prevention and mitigation in key areas such as real estate and credit cards,
stepped up the management of risks associated with off-balance sheet businesses, launched the "dynamic rebalancing"
asset allocation tactics, promoted risk management empowered by digitalisation, and resolutely upheld the risk bottom line.
In terms of wealth management capability, the number of retail customers was 197 million, and the balance of total
assets under management (AUM) from retail customers exceeded RMB13 trillion. In terms of Fintech capability, CMB
took the lead in the industry in achieving a full-scale cloud deployment, and the "Project of Full-scale Cloud Deployment of
CMB Banking System" won the first prize of Fintech Development Award of the People's Bank of China. The Bank initiated
the construction of a large model ecosystem, and established a large model experience platform, connecting to multiple
mainstream large models in China.
We have achieved initial success in building the "Malik Curve". CMB increased its input in technology, and
comprehensively pushed forward a digital reshaping focusing on online, data-based, intelligent, platform-based and
ecological operation. "Stepping out of its comfort zone and daring to embrace new challenges", the Bank gradually
established a financial services ecosystem and explored scenario-based applications of artificial intelligence. The Bank
released the CMB APP 12.0 version with upgraded core scenario-based services such as accounting, loans, etc. with the
number of users exceeding 200 million. Intelligent operation were applied in scenarios such as intelligent customer service,
intelligent process, quality inspection and the Conch RPA+ (Robotic Process Automation), and our staff were relieved from
repetitive, time-consuming work equivalent to a workload of over 17,000 individuals.
We have taken solid steps towards building a "world-class value creation bank". In terms of customer value, the
Bank focused on value creation and actively fulfilled its mission of "serving the nation and the people with finance".
Through the steady growth in on-balance sheet and off-balance sheet businesses, the Bank supported the real economy
at multiple levels, through multiple channels, and by multiple financing structures, with the balance of aggregate
financing products to corporate customers (FPA) exceeding RMB5.5 trillion. The Bank employed a "people + digitalisation"
mechanism to improve the breadth, depth, personal touch and precision of its services, and enhanced consumer rights
protection, with 99.16% of customer complaints responded within one hour. In terms of employee value, CMB adopted
a strict yet caring attitude in management of staff, and has been shortlisted as top ten "Best Employers of the Year" by
Zhaopin.com for 13 consecutive years. In terms of shareholder value, the return on average equity (ROAE) attributable
to ordinary shareholders of the Bank remained above 16%, creating good returns for shareholders. In terms of partner
value, the Bank continued to expand the "circle of friends" in the wealth management ecosystem. Our "Zhao Cai Hao (
)", an open platform of wealth management business, has onboarded in total 152 asset management institutions
with industrial representativeness. In terms of social value, CMB actively practiced the concept of "blue waters and
green mountains are indeed gold and silver mountains". Its balance of green loans was nearly RMB450 billion. The Bank
has won wide international acclaim in recognition of its excellent performance. It ranked first in the award of "Best
Performing Chinese Bank" released by The Banker (UK) for three consecutive years, and achieved the first "5 Consecutive
Championship" in the history of the "Best Bank in China" selection by Euromoney.
1
Six All: all risks, all branches and subsidiaries, all customers, all assets, all processes and all factors.
China Merchants Bank
Annual Report 2023 (H share)
Chairman's Statement
Miao Jianmin
Chairman
LO
China Merchants Bank
Annual Report 2023 (H share)
Chairman's Statement
The 2023 Central Financial Work Conference marked a new milestone in the development history of China's financial
industry, calling for accelerated actions to make China a financial powerhouse in the new era. Finance is an important part
of China's core competitiveness, and its high-quality development plays a pivotal role in the overall success of Chinese
style modernisation. In 2024, CMB will unswervingly follow the path of financial development with Chinese
characteristics and contribute to the transformation of China into a financial powerhouse. We will maintain stable
operation, resolutely upholding the risk bottom line. We will forge ahead in a responsible and proactive manner,
countering uncertainties of the environment with our own efforts. We will spearhead the trend, seizing the major
development opportunities brought about by the large language model to establish an unassailable core competitiveness.
We will shift paradigm, assessing and timely responding to the prevailing trends over interest rates, real estate, and
population with forward-looking and strategic vision.
- We aim to grow stronger, better, and bigger through differentiated development. With accurate positioning of
our strategic direction, the Bank will unwaveringly adhere to our strategic goal of building a "world-class value creation
bank", maintain our existing characteristics and competitiveness, build a new moat centred around intelligent banking, and
further strengthen all cost management. The Bank will give full play to the differentiated competitive advantages in retail
finance, extensive wealth management and digitalisation to deliver solid achievements in the "five priorities" of sci-tech
finance, green finance, inclusive finance, retirement finance, and digital finance. In the national campaign to build global
financial centre, the Bank will undauntedly shoulder responsibilities, grow and strengthen cross-border finance, consolidate
and improve our business characteristics in syndicated loans, asset management, wealth management and other aspects in
the Hong Kong market.
- We aim to strengthen risk management and control in key areas. To maintain steady growth amidst a challenging
and complex business environment, our greatest confidence lies in our prudent risk culture and effective risk management.
We will stabilise the growth rate in scale, optimise the asset structure, and strive to form a new balance among the growth
rate of risk-weighted asset, the growth rate of profit, as well as capital endogeneity. We will closely monitor risks in key
areas such as real estate, industries with overcapacity, and extensive wealth management. We will also deepen science and
technology security management and strengthen compliance risk management.
- We aim to promote a financial culture with Chinese characteristics. Carrying with the "China Merchants Inheritance,
Hailiao Spirit () and Shekou Gene", CMB has cultivated an excellent corporate culture. Our entrepreneurial
culture of "fighting spirit and dedication", service culture of "We are here just for you", innovative culture that honours
"pioneering spirit", and risk culture prioritising "stability and prudence" have become the fundamental consensus among
all employees of the Bank, contributing significantly to the formation of a positive brand image for CMB. We will effectively
educate employees about the ideals and the financial culture with Chinese characteristics, establish righteous philosophies
on business, performance and risk, solidify the foundation of financial culture, and safeguard the essence of the modern
financial system with Chinese characteristics.
China Merchants Bank
In 2023, the Chinese economy sought progress while maintaining stability, with high-quality development being solidly
promoted. However, it still faced difficulties and challenges, including insufficient effective demand, excess capacity in
certain industries, relatively weak market expectations, and a variety of potential risks. Confronting these challenges head-
CMB built a fortress-style balance sheet, continuously strengthened the management and control of all costs and risks,
and maintained dynamically balanced development focusing on "Quality, Profitability and Scale", thereby ensuring steady
growth of profits and maintaining the high-quality development momentum. In summary, the Bank's performance in 2023
was primarily characterised by "unchanging fundamentals, solid foundation, and unwavering confidence".
The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures.
Please refer to Chapter III for the details in relation to risk management.
Chairman's Statement
Annual Report 2023 (H share)
Annual Report 2023 (H share)
Important Notice
Important Notice
1.
2.
3.
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 severally and jointly accept legal responsibility for such
contents.
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu (both being auditors
of the Company) have separately audited the 2023 annual financial statements prepared in accordance with the
PRC Generally Accepted Accounting Principles and International Financial Reporting Standards, and have separately
issued standard auditing reports with unqualified opinions.
4.
Unless otherwise stated, all monetary sums stated in this report are expressed in RMB.
5.
6.
7.
Miao Jianmin, Chairman of the Company, Wang Liang, President and Chief Executive Officer, Peng Jiawen, Executive
Vice President, Chief Financial Officer and Secretary of the Board of Directors and Zhang Dong, the person in charge
of the Financial Accounting Department, hereby make representations in respect of the truthfulness, accuracy and
completeness of the financial statements in this report.
The Board of Directors of the Company recommended the payment of a cash dividend of RMB1.972 (tax inclusive)
for every ordinary share for the year of 2023. The implementation of the profit appropriation plan is subject to
consideration and approval at the 2023 Annual General Meeting. In 2023, the Company did not transfer any capital
reserve into share capital.
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.
3
China Merchants Bank
Chairman's Statement
Chapter V Corporate Governance
CMB Wealth Management:
144
China Merchants Bank Co., Ltd.
The year 2024 marks the 75th anniversary of the founding of the People's Republic of China, and it is also a crucial year for
implementing the "14th Five-Year" strategic plan. As the saying goes, “diligent ploughing in spring begets bountiful harvest
in autumn". We will remain steadfast in our confidence, build on our capabilities, and work diligently with perseverance
to achieve high-quality growth of CMB, thereby contributing to China's development into a financial powerhouse, while
writing a new chapter for CMB on the journey of financial development with Chinese characteristics. Paying tribute to
history with a commitment to carrying forward its legacy, and creating history with an ambition to write our own story, we
will strive to achieve greater successes on the Chinese path to modernisation.
Chairman's Statement
Annual Report 2023 (H share)
CHINA MERCHANTS BANK
CHINA MERCHANTS BANK CO., LTD.
(a joint stock company incorporated in the
People's Republic of China with limited liability)
H Share Stock Code : 03968
2023 Annual Report
☑
3.li
무
China Merchants Bank
Annual Report 2023 (H share)
Contents
Contents
2
Definitions
Chairman
廖建民
25 March 2024
8
ㅆ招商銀行
Management staff can be promoted or demoted; qualified talents can be recruited and those unqualified can be dismissed; remuneration can be
increased or decreased.
2
Drawing a new blueprint in a new era, "high-quality development will be the top priority in the new stage". The
goal of "Accelerating Construction of a Financial Powerhouse" was proposed at the Central Financial Work Conference,
and CMB will stride in tandem with the times and align with the direction of the Chinese path to modernisation. Steadfast
in its strategic determination, the Company will continue to explore and forge a new model for high-quality financial
development. A new model for high-quality development is anchored in value creation. As the saying goes, "Only by
taking the right path can we avoid going astray". We will adhere to the goal of creating greater comprehensive value for
customers, employees, shareholders, partners and society, serve the real economy and people's aspiration for a better life,
and follow the value creation logic of "volume growth - revenue growth - profit growth - value growth", resolutely forging
ahead on the right path. A new model of high-quality development honours long-term success. Bank operation is a
marathon, and it is about the determination and endurance to secure steady and sustainable growth. The path of extensive
development driven by scale expansion has been proved unsustainable, and the "100-1=0" effect of risk will be more
prominent, highlighting the logic of development determined by management and driven by innovation. We will adhere to
the development philosophy which "takes quality as the foundation and profitability as priority, while maintaining moderate
scale and reasonable structure" to achieve long-term sustainable development through intensive growth. A new model
of high-quality development is rooted in differentiation and specialisation. As one of the first batch of joint-stock
commercial banks established in the mid to late 1980s, the Bank has been making every effort to become a new force
serving the real economy and people's livelihood, and a path-breaker for financial innovation and development. We will
grow stronger, better and bigger through differentiated competition to serve a wider range of customers and cater for more
diversified financial needs to integrate ourselves into a multi-layered, wide-covered, and differentiated modern financial
service system. A new model of high-quality development emphasises balance and coordination. Individual business
and institution will find it difficult to meet customer needs through its own efforts only, which is also unsustainable. We
will uphold the philosophy of "One CMB" and provide customers with comprehensive, global and integrated services, thus
achieving balanced, coordinated and complementary development of various business segments and regional branches and
subsidiaries.
CMB overcame difficulties and challenges in 2023. Under the strong leadership of the Board of Directors, and with the
unwavering support of governments at all levels, regulatory departments, customers, investors, partners, and all walks
of life, CMB spared no efforts to create greater value for all stakeholders. These hard-earned results have retained our
fundamental stability of customers, market share and asset quality, demonstrating the resilience of sustainable development,
as well as the strength and cohesion of the 110,000 CMBers. We would like to express our sincere gratitude to the people
from all walks of life who care about and support the development of China Merchants Bank, and show our great respect
to the 110,000 CMBers for their hard work!
The Company continued to build up talent team and promote the CMB culture. We intensified the recruitment of
talents with more than 10,000 people recruited throughout the year; we strengthened the selection and appointment
of management staff and the development of talents across different organisational levels; we enhanced the career
development path of employees, improved the talent training and cultivation system, boosted the professional quality
of employees, and highlighted the application of the "Six Can-do"2 mechanism in order to stimulate the motivation and
vitality of the talent team. We promoted the organic integration of financial culture with Chinese characteristics and CMB
culture to inspire, unite and encourage our employees with such cultures, and enhance the soft power in competition.
The Company continued to practice ESG philosophy and fulfill social responsibilities. We facilitated the green
and low-carbon transformation, developed green finance and promoted green operation. We enhanced consumer rights
protection, conducted the "Service Quality Improvement Year" campaign, promoted the banking service transformation
to be more respectful, suitable, and accessible for the elderly customers, and focused on strengthening network security,
data security, and privacy protection. In the performance appraisal for targeted assistance and poverty alleviation projects,
we received the highest rating for three consecutive years, with an external donation of RMB115 million in the year,
demonstrating our commitment to "benefiting from and giving back to society".
The Company continued to create new advantages in digital transformation and accelerate the construction of
"Digital CMB". We enhanced top-level design to develop a three-year plan of digital transformation, and sped up the
transition from "Online CMB" to "Smart CMB". We increased input in technology with the information technology input
reaching 4.60% of the Bank's net operating income, and R&D personnel accounting for 9.14% of our total employee
headcount. We set our sights on the cutting edge technologies, robustly strengthened the research and development as
well as comprehensive applications of Al technology, and launched brand new intelligent wealth assistant "Xiao Zhao (/\
)". Al has relieved our staff from repetitive, time-consuming work equivalent to the workload of over 17,000 individuals.
We improved our service capability of "people + digitalisation", serving over 200 million users via the CMB APP; the online
rate of our basic corporate banking business and financing business exceeded 92%; the digital application capabilities of all
employees of the Bank continued to improve, further enhancing the quality and efficiency for integrated online and offline
services.
President's Statement
Annual Report 2023 (H share)
2 Significant Risk Warning
China Merchants Bank
The Company continued to improve refined management level and enhanced high-quality development
capabilities. We tightened up internal management, optimised assets and liabilities management, performance
management, cost management, capital management, pricing management, budget management, etc. and steadily
promoted the implementation of the New Capital Rules. We aim to provide solid support for the implementation of the
value creation bank strategy and achieve balance among multiple goals. We deepened organisational reform, steadily
advanced the reform of branch operational systems, optimised the Head Office's organisational structure and improved
service system, so at to further align our organisational structure with development strategies.
The Company continued to strengthen the foundation of risk compliance management so as to uphold the
bottom line of systemic risk. We reinforced the concept of "how far we can reach depends on our risk management
capabilities" and advanced the establishment of the risk management system covering "all risks, all branches and
subsidiaries, all customers, all assets, all processes and all factors", enhanced digital risk control capabilities and efficiency,
and strengthened proactive risk prevention and control and differentiated management of the branches and subsidiaries.
We actively prevented and mitigated risks in key areas, increased efforts to dispose of non-performing assets, and firmly
upheld the risk bottom line. We comprehensively strengthened internal control compliance, and enhanced sanction and
money laundering risk management.
The Company continued to strengthen its featured and systematic competitive advantages and maintained the
balanced and coordinated development. Our four major business segments kept steady growth momentum. We secured
the dominant position of retail finance, while consolidating and expanding our systematic advantages. The number of retail
customers we served reached 197 million, up by 7.07% from the end of the previous year, thanks to more retail customers
choosing CMB. Total assets under management (AUM) from retail customers exceeded RMB13 trillion, and retail finance
contributed more than 55% of total net operating income and total profit before tax. We consistently exceled in corporate
finance, enhanced our services rendered to customers in terms of the breadth and depth, and established distinctive
financial service systems including sci-tech finance, green finance, etc. The number of our corporate customers reached
2,820,600, up by 11.66% from the end of the previous year, and the aggregate financing products (FPA) provided to real
economy-based enterprise clients exceeded RMB5.5 trillion. We continued to pursue business specialisation and innovation
in investment banking and financial markets business, and maintained a leading position in various specialised sectors such
as M&A loans, bond underwriting, bond trading, bill business and asset custody. We continued to expand and strengthen
our wealth management and asset management business, and our capability was constantly enhanced. The number of retail
customers holding our wealth management products exceeded 50 million, representing an increase of 19.13% as compared
with the end of the previous year. The total asset management business scale reached RMB4.48 trillion, up by 1.59% from
the end of the previous year. We made further progress in comprehensive and international business operations, with
subsidiaries and overseas branches continuing to enhance their competitiveness, and branches in key regions improving
quality and efficiency of their development, further demonstrating the "flywheel effect" of coordinated development across
the Bank.
The Company continued to consolidate the fortress-style balance sheet, which boasted the financial indicators to
maintain the good momentum featuring steady growth with improved quality. We saw steady growth in business
scale. As of the end of 2023, our total assets reached a new milestone of RMB11 trillion. Our operating efficiency remained
stable. Annual net operating income amounted to RMB339.078 billion. Net profit attributable to shareholders of the
Bank amounted to RMB146.602 billion, with ROAA and ROAE being 1.39% and 16.22%, respectively. We maintained
endogenous capital growth. The core Tier 1 capital adequacy ratio and capital adequacy ratio under the Advanced
Measurement Approach were 13.73% and 17.88% respectively, up by 0.05 and 0.11 percentage point from the end of
the previous year, respectively. Asset quality has improved overall with a non-performing loan ratio of 0.95%, down by
0.01 percentage point from the end of the previous year. The allowance coverage ratio was 437.70% and allowance-to-
loan ratio was 4.14%, maintaining strong risk compensation capability. We further consolidated structural advantages by
strengthening our capital-heavy business while expanding capital-light business operations, and realised more balanced and
stable management of customer structure, asset structure, regional structure and income structure, relentlessly reinforcing
the foundation for sound operation.
In the face of the complicated and volatile business environment at home and abroad in 2023, the management of the
Bank led all employees to earnestly fulfill the work requirements outlined by the national macroeconomic policies as well as
the regulatory departments, and accomplish the objectives and tasks set by the Board of Directors. The Bank made stability
as its top priority, sought progress while maintaining stability, adhered to high-quality development with the strategic
objectives of building a value creation bank, thereby achieving dynamically balanced development of "Quality, Profitability
and Scale".
President's Statement
President's Statement
Chapter IV Environmental, Social and Governance (ESG)
China Merchants Bank
6
3
Annual Report 2023 (H share)
4
3.6
Results of Operating Segments
43
3.7
43
3.8
Other Financial Disclosures under the Regulatory Requirements
Implementation of Development Strategies
48
42
3.9
3.10 Business Operation
76
3.11 Risk Management
82
3.12 Outlook and Coping Tactics
85
96
137
Important Notice
57
Analysis of Capital Adequacy
Key Business Concerns in Operation
39
Chairman's Statement
3.5
8
President's Statement
12
Chapter I Company Information
18
Chapter II Summary of Accounting Data and Financial Indicators
Chapter III Management Discussion and Analysis
22
3.1 Analysis of Overall Operation
22
3.2 Analysis of Income Statement
29
3.3 Analysis of Balance Sheet
33
22
Analysis of Loan Quality
3.4
2023.2-2025.6
1969.5
Executive Vice
President
2023.11-2025.6
167,700
No
240.52
Secretary of the Board
Male
Chief Financial Officer
221,900
Peng Jiawen
62,000
No
241.46
230,000
200,000
2023.11-2025.6
No
123.17
2023.7-2025.6
President
Executive Vice
President
Executive Vice
Female
2023.6-2025.6
1972.11
President
of Directors
2019.11-present
Male
Male
Wang Ying
Hu Jianhua
Officer
276.78
232,400
198,100
Chief Information
1967.12
Jiang Chaoyang Male
President
14.85
Lei Caihua
200,000
2023.11-present
Executive Assistant
1968.9
Male
Xu Mingjie
President
14.91
264,400
197,700
2023.11-present
Executive Assistant
1974.9
160,000
1971.10
2021.12- (Note 3)
Wang Xiaoqing
96.66
197,700
157,700
2023.6-2025.6
Employee Supervisor
1972.8
Male
Yang Sheng
No
129.42
158,400
127,000
2023.3-2025.6
Employee Supervisor
1970.10
Male
Cao Jian
No
162.69
169,550
133,150
Employee Supervisor
Female 1970.7
Cai Jin
1962.11
No
Wang Yungui
Male
1963.6
No
262.59
177,300
177,300
2023.10-2025.6
Executive Vice
1967.7
Male
Zhong Desheng
Committee
Party Discipline
No
Male
112.28
2023.8-present
Secretary of the
1972.3
Male
Zhao Weipeng
President
No
286.89
210,000
210,000
2019.6-2025.6
Executive Vice
56,800
Former Non-Executive 2022.10-2024.1
Male
Director
245,000
Former Executive Vice 2019.4-2023.2
1962.12
Male
Shi Shunhua
President
No
55.57
240,200
240,200
Former Executive Vice 2019.4-2023.2
1962.10
Male
Wang Jianzhong
Supervisor
No
59.35
191,800
183,000
2018.7-2023.3
Former Employee
parties
during the
reporting
period
related
thousand)
(share)
245,000
55.23
No
President
99
(8) None of the people listed in the above table holds any share options of the Company or has been granted any of its restricted shares.
(7) None of the people listed in the above table has been punished by the securities regulator(s) over the past three years.
(6) As at the end of the reporting period, the spouse of Mr. Zhou Song held 23,282 A Shares in the Company; the spouse of Mr. Yang Sheng held
143,300 A Shares in the Company; and Ms. Cai Jin held 169,550 shares in the Company, which consisted of 165,000 A Shares and 4,550 H Shares.
The shares held by others listed in the above table were all A Shares. The changes in the shareholding of the people listed in the above table during
the reporting period were all resulting from shareholding increase.
(5) The aggregate pre-tax remuneration of full-time Executive Directors, Chairman of the Board of Supervisors and senior management of the Company
is still being verified. The remaining part will be disclosed separately upon the completion of confirmation and payment.
(4) The remuneration received by the Directors, Supervisors and senior management who were newly appointed or resigned during the reporting
period was calculated based on the length of their terms of office as the Directors, Supervisors and senior management of the Company during the
reporting period.
(3) Ms. Cai Jin has tendered her resignation as an Employee Supervisor to the Board of Supervisors of the Company due to her age. In accordance with
the relevant laws and regulations and the relevant requirements of the Articles of Association of the Company, the resignation of Ms. Cai Jin will
become effective upon the election of a new Employee Supervisor by the Employee Representative Meeting of the Company to fill the vacancy.
(2) According to the Management Measures for the Independent Directors of Listed Companies, the term of office of Independent Directors shall not
exceed six years. Therefore, the actual term of office of the Independent Directors, Mr. Li Menggang and Mr. Liu Qiao, will expire earlier than the
expiration time of the Twelfth Session of the Board of Directors of the Company.
(1) Mr. Wong See Hong has tendered his resignation as an Independent Non-Executive Director to the Board of Directors of the Company due to
expiry of his term of office. In accordance with the relevant laws and regulations and the relevant requirements of the Articles of Association of
the Company, the resignation of Mr. Wong See Hong will become effective upon the election of a new Independent Non-Executive Director at the
Shareholders' General Meeting of the Company followed by the approval of the qualifications of the new Independent Non-Executive Director by
the National Financial Regulatory Administration (NFRA) to fill the vacancy.
Notes:
No
187.14
(share)
225,600
2021.7-2023.7
No
168.89
204,400
204,400
Former Executive Vice 2021.3-2023.7
President
Former Secretary of
the Party Discipline
Committee
1971.4
Male
Xiong Kai
1974.12
No
Li Delin
225,600
Yes
in ten
the period
1963.10
Male
Peng Bihong
Employee Supervisor
of Supervisors,
No
Yes
Yes
22 223 224 2
187.04
240,000
240,000
2021.8-2023.6
Director
Former Chairman
of the Board
1963.2
Male
Xiong Liangjun
Former Non-Executive 2014.9-2023.3
1968.2
Female
Su Min
Director
Former Non-Executive 2007.6-2024.1
1963.3
Hong Xiaoyuan Male
Former Shareholder
2019.6-2024.1
Yes
Supervisor
Term of
office
Title
Birth (Y/M)
1964.9
Wang Wanging Male
Gender
Name
Date of
period (RMB
at the end
beginning of
reporting
during the
of the period
Company's
received from
the Company
Shareholding
at the Shareholding
before tax remuneration
received
remuneration
not
Total
Whether or
Chapter V Corporate Governance
Annual Report 2023 (H share)
China Merchants Bank
from the
40.00
No
External Supervisor
3,036
Fuzhou
1,494
Lanzhou
916
Xining
167
Notes:
(1)
Jinan
Including complaints from credit card users.
Including complaints from Head Office departments.
4.3.6 Human resources development
In terms of recruitment management, the Company does not judge candidates on the basis of factors unrelated to
their personal qualities and working abilities, such as gender, age, ethnicity, nationality, religion, family status, and
stipulates that discriminatory descriptions such as image, gender, birthplace and marital and childbearing status are
strictly prohibited in external recruitment announcements.
In terms of remuneration management, the Company adheres to the principle of gender equality in remuneration
and benefits, and sticks to the notion that gender is not a factor affecting remuneration and benefits. The total
annual remuneration of employees includes regular remuneration, contingent remuneration and benefits. The
Company adjusts the salary standard of different posts according to the market situation and provides employees
with competitive remuneration.
In terms of career development paths, the Company has constantly improved a dual-channel development system for
employees with management capabilities or professionalism, which has changed the single and narrow management
staff promotion channel.
In terms of performance assessment and evaluation, the Company has established a "performance + ability"
two-dimensional performance assessment system covering all employees, and formed a full-process performance
management system covering goal-setting, process guidance, performance appraisal and results communication
through reasonable use of 360-degree evaluation and other assessment tools, which can evaluate employee
performance scientifically and comprehensively.
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
In terms of employee training, the Company innovated a training system with different levels and types of trainings,
adopting diversified training methods through a combination of online and offline training to meet the needs of
employees at different levels for professional development and to promote professional ability building across the
Bank. In terms of new employee training, during the reporting period, a new employee empowerment platform was
built, 11 mandatory courses for new employees were introduced, and new employees were organised to go to the
subsidiaries for field studies so as to deepen their understanding of the Company's strategy. In terms of professional
ability training for employees, the Company promoted the mechanism of "work permit", expanded the list of
professional qualification certification beyond the Bank, enhanced the professional ability of the training team,
optimised various talent development programmes, and strengthened the reserve and cultivation of international
talents. In terms of training for management staff, the Company formulated training programmes for senior
management and middle-level and front-line management staff targeting on different levels and classifications of
management staff, covering leadership enhancement, digital innovation and so on.
(2)
279
Tangshan
978
Xi'an
4,353
Suzhou
2,012
Yantai
1,041
Quanzhou
374
Tianjin
3,755
Zhengzhou
1,997
Urumqi
1,014
Wenzhou
315
Shenyang
3,130
Dalian
1,905
Shijiazhuang
4.3.7 Rural revitalisation
391
The Company continued to promote targeted rural revitalisation assistance programme, and formulated the "CMB
2023 Rural Revitalisation Work Plan"
2023 by focusing on the general
approach of "pavement for education, healthcare security, industrial support, human settlements construction",
which defines the objectives, targets of the assistance and work measures, exploring new assistance ways with the
times and consolidating and expanding the results in poverty alleviation.
3
Remuneration and Appraisal Committee
Risk and Capital Management Committee)
Audit Committee
Shareholders' General Meeting
Nomination Committee
Board of Directors
Board of Supervisors
Related Party Transactions Management and
Consumer Rights Protection Committee
Executive Office of
President
Nomination Committee
Supervisory Committee
Risk and Compliance Management
Committee
Anti-money Laundering, Sanction and
Compliance Management Committee
2022.6-2025.6
Beijing Audit Division
IT Management Committee
Audit Department
Shenzhen Audit Division
Xi'an Audit Division
Business Continuity Management
Committee
Assets and Liabilities Management
Committee
Committee
Strategy and Sustainable Development
5.1 Corporate Governance Structure
93
94
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
4.4 Governance Information
The Company continues to promote the improvement of the corporate governance mechanism, improve
the corporate governance level and adhere to the concept of stable business development and prudent risk
management. The Company proactively steps up efforts to support the real economy, serves the national strategies,
fulfills social responsibilities, and serves the transformation and upgrading of the national economy and the people's
aspirations for a better life with its own high-quality development. The core of the Company's corporate governance
mechanism is to adhere to the leadership of the Party, and integrate the leadership of the Party into all aspects of
corporate governance. The key to the Company's corporate governance mechanism is to adhere to the principle
of president assuming full responsibility under the leadership of the Board of Directors, the market-based talent
selection and employment mechanism, and the remuneration incentive mechanism. The Company has established
a complete system of discussion and management authorisation, whereby the president is responsible to the Board
of Directors and the Board of Directors is accountable to the Shareholders' General Meeting. The Company's
shareholding structure is reasonable and the shareholders' behaviours are regulated. The Shareholders' General
Meeting, the Board of Directors, the Board of Supervisors and the senior management maintain separate roles and
responsibilities, clear division of labour and close collaboration among them as well as checks and balances on the
other, which provides a fundamental guarantee for the long-term, healthy and sustainable development of the
Company.
During the reporting period, the Board of Directors of the Company proactively performed its relevant duties
in inclusive finance, green finance, data governance, human resources, consumer rights protection and social
responsibilities. The Board of Directors officially renamed the "Strategy Committee of the Board of Directors" to the
"Strategy and Sustainable Development Committee of the Board of Directors" to strengthen its role in coordinating
the fulfillment of ESG responsibilities. During the reporting period, the Board of Directors and its relevant special
committees reviewed the "2022 Sustainable Development Report", the "China Merchants Bank's '14th Five-Year'
Strategic Plan (Revised Edition)", the "Inclusive Finance Development for 2022 and Work Plan for 2023", the
"Human Resources Management and Talent Strategy Implementation Report for 2022", the "Data Governance
Work Summary for 2022 and Work Plan for 2023", the "Employee Behaviour Evaluation Report for 2022", the
"Report on the Development of Internet Loans for 2022 and Work Plan for 2023", the "Report on the Protection
of Consumer Rights and Interests for 2022", the "2022 Consumer Complaint Analysis Report", the full text and
summary of 2022 Annual Report, the full text and summary of 2023 Interim Report, and other relevant proposals to
ensure the implementation of development strategy, inclusive finance, green finance, human capital, and consumer
rights protection across the Bank. The Bank continued to deepen the practice of sustainable development, and
worked together with stakeholders to achieve high-quality development in pursuit of higher quality, more efficiency,
fairness, sustainability and security.
During the reporting period, the Board of Supervisors of the Company studied and reviewed the "China Merchants
Bank's '14th Five-Year' Strategic Plan (Revised Edition)", the "Inclusive Finance Development for 2022 and Work
Plan for 2023", the "Data Governance Work Summary for 2022 and Work Plan for 2023", the "Employee Behaviour
Evaluation Report for 2022", the "Report on the Development of Internet Loans for 2022 and Work Plan for 2023",
the "Report on the Protection of Consumer Rights and Interests for 2022", the "2022 Consumer Complaint Analysis
Report", the "2022 Sustainable Development Report", the full text and summary of 2022 Annual Report, the full
text and summary of 2023 Interim Report, and other proposals to supervise key areas including inclusive finance,
green finance, data governance, consumer rights protection and social responsibilities, while focusing on the Board
of Directors and senior management's duty performance on the aforesaid issues, effectively fulfilling its supervisory
responsibilities.
For more details on corporate governance, please refer to Chapter V.
T
www
TUTURATE
Never change our original
inspiration
We are here just for you
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China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
Corporate Governance
The Company focused on industry, education, medical treatment, ecology, talent and other areas that are related to
people's well-being. In line with the development plan of Wuding and Yongren counties in Yunnan, the Company
focused on creating a new supporting model incorporating "products + platforms + cooperatives + farmers"
and special brands such as "Sunny Yongren" and "Luowu Hometown" to help the development of characteristic
agricultural products industry. The Company also helped improving local educational conditions, actively recruiting
a team of distinguished teachers and increasing the level of education development. The Company increased the
investment in medical infrastructure in the two counties, and established a sound medical service system; carried
out the rural construction featuring "beauty of environment, production, life and culture" in seven villages; and
organised various trainings to promote the construction of a talent pool for rural revitalisation and development in
the two counties through talent assistance. During the reporting period, 65 projects were implemented in Wuding
and Yongren counties in Yunnan, with a direct investment of RMB54.5800 million.
Nanjing Audit Division
Haikou
Changchun
91
22
92
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
The distribution by region is shown in the table below.
Number of
Number of
Number of
All of the above data excludes complaints in the account management, negotiated repayment, credit reporting and billing standards.
Number of
complaints
Region
complaints
Region
complaints
Region
complaints
38,847
Qingdao
Region
Shanghai (1)
26
During the reporting period, the Company received a total of 160,33426 complaints from regulatory authorities
transfer, 95555 customer complaints channel, Credit Card Centre as well as other channels within the whole bank,
of which 45.98% of the complaints were related to debit card business, 18.73% were related to loan business,
18.19% were related to credit card business, 5.16% were related to agency businesses, and 11.94% were related
to payment and settlement, foreign exchange, precious metals, personal financial information and other business.
During the reporting period, the Company advanced its digital transformation of consumer rights protection,
introduced big data and artificial intelligence technologies to optimise the complaint monitoring system, developed
multi-dimensional data analysis reports, improved the ability to trace and rectify complaint and the ability to improve
business value; revised and issued the "Management Measures for Customer Complaint of China Merchants Bank
(Seventh Edition)" (ƑŒ()), further improved the diversified mechanism for resolving
disputes and continuously enhanced the efficiency of consumer complaint resolution.
90
China Merchants Bank
Annual Report 2023 (H share)
4.3.4
Chapter IV Environmental, Social and Governance (ESG)
For elderly customers, the Company provided convenient and caring services, and introduced a personalised service
menu and service process in 95555 hotline to help them quickly access to manual service lines for the elderly.
During the reporting period, the Company provided elderly customers with 252,300 telephone and text quick-access
services, with a dedicated telephone line access rate of 97.23% and a customer satisfaction rate of 98.63%. The
Company provided one-to-one same-screen operation guidance service for elderly customers in the CMB APP "Elder
Version" to make service more intuitive and convenient. As at the end of the reporting period, the customers using
the CMB APP "Elder Version" reached 1.0925 million.
For customers with disabilities, the Company provided sign language service in visible counter service. The customers
with disabilities can input passwords by themselves, then the special customer service personnel will verify
information and provide business consultation and handling service in sign language.
For customers working as Meituan food delivery riders, the Company, together with Meituan Financial Service
Platform, created an exclusive bank card product for riders of Meituan to enhance riders' sense of achievement.
The Company optimised the account opening process and customer information inquiry interface, and launched the
"New Citizen Financial Service" to enable riders to quickly search for convenient entries such as payment of utilities
fees, and conveniently access to wealth management, loan, insurance and other services.
Information security and privacy protection
The Information Security Management Committee of the Company is responsible for the overall planning and
organisation of network security and data security across the Bank. The Information Security Management
Committee has set up a data security team led by the Information Technology Department at the Head Office, which
is composed of the leaders in charge of data security and data security administrators from over 40 departments
at the Head Office, to oversee and implement various key areas of data security. The Information Technology
Department at the Head Office, as a leading management department for network security, is responsible for the
Group's network security management under the leadership of the Information Security Management Committee.
The Information Technology Department at the Head Office, the Risk Management Department at the Head Office
and audit departments at all levels assume the responsibilities of the first, second and third lines of defence for
network and data security management.
For retail customers, the Company attaches great importance to customer privacy protection and data security
management, and actively implements national laws and regulations such as the Personal Information Protection
Law of the People's Republic of China to make every effort to protect customer information security. In terms of the
acquisition and use of personal information, the Company adheres to the principles of legal compliance, minimum
necessity, openness and transparency, honesty and good faith, quality assurance and safety protection, and further
improves the security protection system covering the whole life cycle of personal information processing, as well as
the treatment mechanisms for supervision and inspection of personal information protection, personal information
complaint channels and others, and effectively implements the tiered and classified authorisation management
of users, strictly controlling the scope of authorisation for personal information inquiry, strengthening the safety
impact assessment and management on the use of personal information, standardising the approval management
of personal information use. The Company regularly evaluated the privacy compliance of CMB APP for individual
customers to ensure that the "Privacy Policy for Retail Business and APP Users of CMB and business practices are
in compliance with relevant laws and regulations. At the same time, the Privacy Policy is published on the relevant
service pages of official website and the CMB APP, through which the customer is clearly informed of the type
of information collected and the use of the information. In addition, the Company conducts internal control and
compliance inspection, strengthens the publicity and education on personal information protection, and carries out
emergency drills on personal information security incidents, so as to enhance the awareness of personal information
protection of customers and employees, strictly prevent the risk of data leakage, and gradually improve the
management of customer information protection.
"I
For corporate customers, the Company has formulated the "Management Measures for Users of Wholesale
Customer Relationship Management System", which requires users of wholesale customer relationship management
system (CRM) to properly use customer-related information in the system, strictly abide by relevant national laws
and regulations and the information security management system in the industry, and strictly prohibit the disclosure
to unrelated personnel; strictly control sensitive information such as customer contact information, account balance,
account transaction, customer marketing trajectory, and authorise the use of sensitive information on demand
according to different levels and classifications. In the event of data leakage that results in severe consequences,
the relevant parties will be punished according to the internal regulations, while direct supervisors will be held
accountable. The Company has formulated the "Operating Procedures for Outsourcing of Online Business for
Corporate Customers", which requires suppliers to safeguard the security of customer information. The Company
will promptly terminate cooperation when customer information is unsafe or customer rights are affected.
During the reporting period, the Company did not have any major incident of internet security, information security
or privacy leakage.
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
4.3.5 Consumer rights protection
The Company attaches great importance to the protection of consumer rights, fulfills requirements of various
laws and regulations, financial policies and regulatory bodies for the protection of consumer rights, constantly
strengthens the construction of the consumer rights protection system and mechanism, improves the complaint
handling mechanism, increases the promotion and guidance of financial knowledge, increases trainings on consumer
rights protection, and exerts itself to build the work pattern of "comprehensive consumer rights protection" to
promote the high-quality development of consumer rights protection.
During the reporting period, the Board of Directors and Related Party Transactions Management and Consumer
Rights Protection Committee of the Company organised and held meetings to consider 17 issues of consumer rights
protection, conducted one on-site investigation, reviewed reports on the development of consumer rights protection
and the management of complaints, reviewed the annual work plan of consumer rights protection, supervised the
management in implementing regulatory requirements, and continuously consolidated the management foundation
of consumer rights protection. The management incorporated the guidance on the implementation of consumer
rights protection work into the regular performance of duties, took the lead in listening to customer complaints and
promoted the traceability and rectification of problems; reviewed the Bank's problem and complaint analysis reports
monthly and held special meetings regularly to continuously promote the Company to include consumer rights
protection into corporate governance, corporate culture construction and business development strategies.
During the reporting period, the Company further improved the internal assessment mechanism for the consumer
rights protection, built a "one horizontal aspect and four vertical aspects" assessment system for the consumer
rights protection, which will be included in the comprehensive performance assessment of business organisation
horizontally and included in the assessment of the company, retail, operation, consumer rights protection and other
lines vertically, so as to carry out comprehensive, objective and fair evaluation on the consumer rights protection of
all business departments and branches across the Bank, and give full play to the pulling effect of evaluation.
During the reporting period, the Company incorporated the concept of consumer rights protection into the design
stage of products and services. Throughout the year, a total of 144,500 consumer rights protection reviews were
completed, with a coverage rate of products and services of 100% and an adoption rate of consumer rights
protection suggestions of 99.47%. The Company identified and corrected the potential issues that may harm
consumer rights in financial products and services timely before their launch, and effectively played the role in risk
prevention.
During the reporting period, the Company firmly carried out financial knowledge promotion and guidance activities,
increased the relevance of education and publicity, and improved the financial literacy of consumers through daily
and centralised promotion activities. The Company innovated working methods and reached "massive" consumer
groups through its own promotional channels with over a hundred million monthly active users. During the reporting
period, the Company carried out 18,300 online and offline promotion and guidance activities across the Bank,
reaching consumers for 555 million times.
2,847
1,067
Dongguan
Wuxi
Guangzhou
5,231
Hefei
2,292
Kunming
1,221
Guiyang
520
Nanjing
552
4,927
2,065
Taiyuan
1,169
Yinchuan
439
Hangzhou
4,509
Nanchang
2,054
Changsha
Nantong
1,227
Foshan
762
Shenzhen(2)
29,396
Chongqing
2,676
Ningbo
1,343
Hohhot
750
Beijing
13,943
Chengdu
2,557
Xiamen
1,268
Nanning
712
Wuhan
7,093
Harbin
2,322
1,388
Shenyang Audit Division
Shanghai Audit Division
Digital Transformation Committee
from the
Shareholding
at the Shareholding
the Company
Company's
during the
Date of
Name
Gender
Birth (Y/M)
received from
Title
beginning of
the period
(share)
at the end
reporting
period (RMB
of the period
(share)
in ten
thousand)
related
parties
during the
reporting
period
Tian Hongqi
Term of
office
Male
before tax remuneration
remuneration
Liu Qiao
Male
1970.5
Executive Director
Independent Non-
Executive Director
Independent Non-
Executive Director
2018.11 (Note 2)
50.00
2018.11- (Note 2)
Wuhan Audit Division
2 2 2
received
No
No
97
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China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
Whether or
Total
not
No
1957.5
Independent Non-
2019.8-2025.6
Male
1976.8
Shareholder Supervisor 2016.6-2025.6
Yes
Xu Zhengjun
Male
1955.9
External Supervisor
2019.6-2025.6
Wu Heng
40.00
Cai Hongping
Male
1954.12
External Supervisor
2022.6-2025.6
40.00
Zhang Xiang
Male
1963.12
No
Yes
Shareholder Supervisor 2022.6-2025.6
1970.9
50.00
No
Executive Director
Li Chaoxian
Male
1958.9
Independent Non-
2021.8-2025.6
50.00
No
Executive Director
Shi Yongdong
Male
1968.11
Independent Non-
2021.8-2025.6
50.00
No
Executive Director
Luo Sheng
Male
1967.4
Male
50.00
50.00
related
Date of
Name
Gender
Birth (Y/M)
Title
Term of
office
beginning of
the period
(share)
at the end
of the period
Company's
reporting
period (RMB
during the
(share)
Li Menggang
reporting
period
Miao Jianmin
Male
1965.1
Chairman
parties
2020.9-2025.6
from the
during the
Chengdu Audit Division
Fuzhou Audit Division
5.2 Overview of Corporate Governance
During the reporting period, the Company convened 1 Shareholders' General Meeting, reviewed 10 proposals and
heard 6 reports, as further described in "Information about Shareholders' General Meetings".
During the reporting period, the Company convened 19 meetings of the Board of Directors, reviewed 99 proposals
and heard 23 reports; convened 41 meetings of special committees under the Board of Directors, reviewed 133
proposals and heard 41 reports; convened 1 meeting between Independent Non-Executive Directors and the
Chairman, at which 1 report was heard. During the reporting period, the Twelfth Session of the Board of Directors
of the Company convened the 11th meeting (17 January), the 12th meeting (16 February), the 13th meeting (3
March), the 14th meeting (22 March), the 15th meeting (24 March), the 16th meeting (26 April), the 17th meeting
(28 April), the 18th meeting (31 May), the 19th meeting (19 June), the 20th meeting (30 June), the 21st meeting
(4 August), the 22nd meeting (23 August), the 23rd meeting (25 August), the 24th meeting (19 September), the
25th meeting (26 September), the 26th meeting (19 October), the 27th meeting (27 October), the 28th meeting
(1 December) and the 29th meeting (28 December), with priority giving to reviewing the Company's annual
financial report, profit appropriation plan, strategic implementation evaluation report, comprehensive risk report,
risk preference implementation report, capital adequacy report, human resources management and talent strategy
implementation report, work report of the Board of Directors, performance of duties evaluation report of the Board
of Directors and its members, work report of the President, the report on development of inclusive finance and its
work plan, data governance work summary and work plan, related party transactions management report, consumer
rights protection report, sustainable development report and other relevant proposals.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
During the reporting period, the Company convened 16 meetings of the Board of Supervisors, at which 47
proposals were reviewed and 25 reports were heard; and 10 meetings of the special committees under the Board of
Supervisors, at which 15 proposals were reviewed.
received from
Having conducted thorough self-inspection, the Company was not aware of any material non-compliance of its
corporate governance practice with laws, administrative regulations and the requirements of the CSRC regarding the
corporate governance of listed companies during the reporting period.
5.3 Information about Shareholders' General Meetings
During the reporting period, the Company convened one Shareholders' General Meeting, namely the 2022 Annual
General Meeting held in Shenzhen on 27 June 2023. The notice, convening, holding and voting procedures of
the meeting were all in compliance with the relevant provisions of the Company Law of the People's Republic of
China, the Articles of Association of China Merchants Bank Co., Ltd. and the Hong Kong Listing Rules. The meeting
reviewed and approved 10 proposals, including the 2022 Work Report of the Board of Directors, the 2022 Work
Report of the Board of Supervisors, the 2022 Annual Report (including the audited financial report), the 2022
Financial Statement Report, the 2022 Profit Appropriation Plan (including the declaration of the final dividends),
the appointment of accounting firm for the year 2023, the Related Party Transactions Report for 2022, Capital
Management Plan for 2023-2027, the election of Mr. Huang Jian as the Non-Executive Director of the Twelfth
Session of the Board of Directors of China Merchants Bank and the election of Mr. Zhu Jiangtao as the Executive
Director of the Twelfth Session of the Board of Directors of China Merchants Bank. For the relevant details of the
proposals reviewed at the meeting, please refer to the 2022 Annual General Meeting documents, meeting circulars
and the announcement of meeting resolutions and other disclosure documents published by the Company on the
websites of Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited and the Company.
5.4 Directors, Supervisors and Senior Management
Total
remuneration
Whether or
not
received
before tax remuneration
Shareholding
at the Shareholding
the Company
For details of the proposals reviewed by the meetings of the Board of Directors and the Board of Supervisors, please
refer to the disclosure documents including the announcements on resolutions published by the Company on the
websites of Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited and the Company.
Yes
in ten
thousand)
2020.9-2025.6
Yes
Yes
Yes
Zhu Jiangtao
Male
1972.12
Non-Executive Director
Executive Vice
President
煎煎煎
2023.8-2025.6
2021.9-2025.6
2020.7-2025.6
198,800
282.08
No
Chief Risk Officer
Wong See Hong
Male
1953.6
Independent Non-
2017.2-(Note 1)
198,800
Non-Executive Director 2022.10-2025.6
Executive Director
Male
Sun Yunfei
Male
1965.8
1974.12
Non-Executive Director 2022.10-2025.6
Yes
Wang Liang
1965.12
Zhou Song
Male
Male
Zhang Jian
Chen Dong
No
1972.4
300,000
300,000
345.32
Executive Director
President and Chief
Executive Officer
Non-Executive Director 2018.10-2025.6
Non-Executive Director 2016.11-2025.6
1964.10
Male
2019.8-2025.6
2022.6-2025.6
Mr. Tian Hongqi is an Independent Non-Executive Director of the Company. Mr. Tian obtained a bachelor's degree
in Finance and Accounting from the Faculty of Water Transportation Management of Shanghai Maritime University,
and is a senior accountant. He concurrently serves as the Independent Director of Nanjing Tanker Corporation (
BªÀ£Á, a company listed on Shanghai Stock Exchange). He previously served as the Chief Financial
Officer and Chief Information Officer of COSCO SHIPPING Bulk Co., Ltd., the General Manager of the Finance
Department of COSCO Container Lines Co., Ltd., the Director and the General Manager of the Financial Department
of COSCO Japan, the Chief Financial Officer of COSCO Holdings (Singapore) Pte. Ltd. (+)),
the General Manager of the Finance Department of the COSCO Container Transportation Operation Headquarter (+
****), and the Deputy Director of the Finance Department of COSCO.
Mr. Li Menggang is an Independent Non-Executive Director of the Company. Mr. Li obtained a doctoral degree
in Economics and a post-doctoral degree in both Transportation and Communication Engineering and Theoretical
Economics from Beijing Jiaotong University. He has been serving as a professor and doctoral supervisor at Beijing
Jiaotong University, the Dean of the National Academy of Economic Security (NAES) of Beijing Jiaotong University, the
Director of the China Centre for Industrial Security Research, the Director of Beijing Laboratory of National Economic
Security Pre-Warning Project and the Chief Expert of Major Bidding Projects of the National Social Science Fund. He
concurrently serves as the Vice President of Guanghua Engineering Science and Technology Award Foundation (
#INO). He served as an Independent Director of Sichuan Golden Summit (Group) Joint-stock Co.,
Ltd. (a company listed on Shanghai Stock Exchange), an Independent Non-Executive Director of Yuxing InfoTech
Investment Holdings Limited (a company listed on the Hong Kong Stock Exchange), the Chairman of the Professional
Committee of the Logistics Informatisation and Industrial Security System of the Institute of Electrical and Electronics
Engineers (IEEE), an Independent Director of Hunan Copote Science & Technology Co., Ltd. (a company listed on
Shanghai Stock Exchange), an Independent Director of Daqin Railway Co., Ltd. (a company listed on Shanghai Stock
Exchange), and an Independent Director of Huadian Power International Corporation Limited (a company listed
on the Hong Kong Stock Exchange and Shanghai Stock Exchange), the Deputy Director of the Independent Board
Committee of China Association for Public Companies, the Vice President and the Deputy Director of the Expert
Committee of China Human Resource Development Association and the Director of the Human Capital Institute.
Mr. Liu Qiao is an Independent Non-Executive Director of the Company. Mr. Liu obtained a bachelor's degree of
science in Economics and Mathematics from Renmin University of China, a master's degree in Economics from the
Institute of Finance of People's Bank of China and a Ph.D. in Economics from University of California, Los Angeles in
the United States and is a distinguished professor () of Changjiang Scholars Program. He has been serving
as the Dean at the Guanghua School of Management of Peking University, professor of Finance and Economics
and doctoral supervisor. He is also a member of Think Tank Committee of All-China Federation of Industry
and Commerce (±), the Economic Research Centre of Chinese Kuomintang Revolutionary
Committee, the expert panel of the Shenzhen Stock Exchange and the Listing Committee of ChiNext of Shenzhen
Stock Exchange; an advisor of the post-doctoral stations of the CSRC, the Shenzhen Stock Exchange, the China
Financial Futures Exchange and China Minsheng Banking Corp., Ltd. etc., the Vice Chairman of the China Enterprise
Reform and Development Society (+¥ª¾¶¤ª), and an Independent Director of Beijing Capital
Group Company Limited (a company listed on Shanghai Stock Exchange). Mr. Liu served as an assistant professor
at School of Economics and Finance of the University of Hong Kong, a consultant of the Asia-Pacific Corporate
Finance & Strategy Practice of McKinsey & Company, an assistant professor and associate professor (with tenure) at
the Faculty of Business and Economics of the University of Hong Kong, an Independent Non-Executive Director of
Zensun Enterprises Limited (formerly known as the ZH International Holdings Limited, a company listed on the Hong
Kong Stock Exchange), and Independent Non-Executive Director of CSC Financial Co., Ltd, a company listed on the
Hong Kong Stock Exchange and Shanghai Stock Exchange.
Chapter V Corporate Governance
Annual Report 2023 (H share)
104
103
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 doctorate degree in Transformational
Leadership (DTL) from Bethel Bible Seminary. He is an Independent Director of The Frasers Hospitality Assets
Management Pte., Ltd. (¥¥ª§ÂÌζ), Frasers Property Limited (a company listed on the
Singapore Stock Exchange) and EC World Asset Management Private Limited and a member of the Financial
Management Commission of the Hong Kong Administration Society (U¾ÊUEQÂ). He previously
served as the Deputy Chief Executive of BOCHK, the head, Managing Director and President for the Southeast
Asia region, and the head of the Financial Market Department in Asia (»£ÂÂÌÌÌ) of ABN AMRO
Bank, 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 (新加坡總理辦公室公務員學院), and a member of the Client Consulting Commission (客戶諮詢委員會) of
Thomson Reuters.
Mr. Li Chaoxian is an Independent Non-Executive Director of the Company. Mr. Li obtained a doctoral degree
in Industrial Economics and a master's degree in Statistics from Renmin University of China, respectively. He is
currently a professor and doctoral supervisor of Beijing Technology and Business University, and concurrently serves
as an Independent Director of China World Trade Centre Company Limited (a company listed on Shanghai Stock
Exchange). He served as the Deputy Director and Director of the Finance Department of Beijing Business School,
Deputy Dean and Dean of the School of Economics of Beijing Technology and Business University, Chief of the
Academic Affairs Office of Beijing Technology and Business University, Vice President of Beijing Technology and
Business University, and an Independent Director of Beijing HuaDaJian Ye Engineering Management Co., Ltd. (
#U¤IETER) (a company listed on the National Equities Exchange and Quotations).
Mr. Chen Dong is a Non-Executive Director of the Company. He is a senior accountant with a master's degree in
Economics from Shanghai University of Finance and Economics. He currently serves as the General Manager of the
Financial Management Division of China COSCO Shipping Corporation Limited. He concurrently serves as a Director
of COSCO SHIPPING Specialized Carriers Co., Ltd. (a company listed on the Shanghai Stock Exchange), COSCO
SHIPPING International (Hong Kong) Co., Ltd. (a company listed on the Hong Kong Stock Exchange) and COSCO
SHIPPING Ports Limited (a company listed on the Hong Kong Stock Exchange). He served as Assistant Director and
Deputy General Manager of the Finance and Accounting Department of China Shipping Development Co., Ltd.
Tanker Company, Deputy Director of Risk Control Centre of Enterprise Management Department, Deputy Director
of Risk Control Department of Accounting and Finance Department, Deputy Director of Finance Department, Senior
Manager of Finance and Tax Management Office of Finance Department, Assistant General Manager and Deputy
General Manager of Finance Department of China Shipping (Group) Company and Deputy General Manager of the
Financial Management Division of China COSCO Shipping Corporation Limited, etc.
TRA) and the Vice Chairman of China Merchants Capital Investment Co., Ltd.. He served as a General
Manager of Finance Department of China Merchants Group Ltd., a Deputy General Manager of China Merchants
Finance Holdings Company Limited, a Deputy Director (Executive) of the Executive Committee of the China
Merchants Financial Group/Platform, a Director of China Merchants Life Insurance Company Limited, and the Non-
Executive Director and Chairman of the Board of Directors of China Merchants China Direct Investments Limited (a
company listed on the Hong Kong Stock Exchange).
Exchange and Hong Kong Stock Exchange), the Chairman of China Merchants Financial Leasing Co., Ltd. (
Chapter V Corporate Governance
China Merchants Bank
Annual Report 2023 (H share)
Mr. Zhou Song is a Non-Executive Director of the Company. Mr. Zhou obtained a master's degree of World
Economics from Wuhan University. Mr. Zhou is the Chief Accountant of China National Petroleum Corporation, and
concurrently a Director of China Merchants Financial Holdings Co., Ltd., the Chairman of Shenzhen China Merchants
Ping An Asset Management Co., Ltd. (À¥ÌÂÌ϶), the Chairman of China Merchants
Group Finance Co., Ltd. (!), the Chairman of China Merchants Investment Development Co.,
Ltd. (¾§Â¬), the Chairman of the Board of Supervisors of China Merchants Shekou Industrial
Zone Holdings Co., Ltd. (a company listed on Shenzhen Stock Exchange) and the Chairman of China Merchants
Innovative Investment Management Co., Ltd.. He was the Deputy General Manager of the Planning and Finance
Department of the Head Office of China Merchants Bank, the Deputy General Manager of Wuhan Branch, the
Deputy General Manager (in charge of work) and General Manager of the Planning and Finance Department of
the Head Office, the Employee Supervisor of China Merchants Bank, the Business Director and General Manager of
the Assets and Liabilities Management Department of the Head Office, the President of the General Office of the
Financial Institution Business and concurrently the General Manager of the Assets Management Department of the
Head Office and the Business Director of the Head Office, the President of the General Office of Investment Banking
and Financial Market Business and concurrently the General Manager of the Assets Management Department of the
Head Office, the Business Director of the Head Office, and the Chief Accountant of China Merchants Group Ltd..
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 Chief Digital Officer of China
Merchants Group Ltd., the Director of the Digital Centre, the Deputy General Manager of China Merchants Financial
Holdings Co., Ltd. and a Director of China Merchants Finance Holdings Company Limited. He concurrently serves
as the Non-Executive Director of China Merchants Securities Co., Ltd. (a company listed on the Shanghai Stock
Mr. Miao Jianmin is the Chairman and Non-Executive Director of the Company. Mr. Miao obtained a doctoral
degree in Economics from Central University of Finance and Economics and is a senior economist. He is an
alternate member of the nineteenth and twentieth Central Committee of the Communist Party of China. Mr. Miao
is Chairman of China Merchants Group Ltd. and concurrently serves as Chairman of China Merchants Financial
Holdings Co., Ltd. (±) and Chairman of China Merchants Life Insurance Company Limited.
Mr. Miao was an Executive Director and the Deputy General Manager of China Insurance (Group) Limited Company
in Hong Kong, the Vice Chairman and President of China Life Insurance (Group) Company, the Chairman of The
People's Insurance Company (Group) of China Limited (a company listed on the Hong Kong Stock Exchange) and the
Chairman of PICC Property and Casualty Company Limited (a company listed on the Hong Kong Stock Exchange).
Mr. Sun Yunfei is a Non-Executive Director of the Company. He is a senior economist (researcher level) with a
master's degree in Business Administration from the School of Management of Fudan University. He currently serves
as the Deputy General Manager and Chief Accountant of China COSCO Shipping Corporation Limited. He served
as the Deputy Chief of the Economic Planning and Statistics Division, the Director of the Planning Department and
the Deputy Chief Accountant of Hudong Shipyard (), Chief Accountant of Hudong Shipbuilding (Group)
Co., Ltd. (10)ĦRA), Director and Chief Financial Officer of Hudong-Zhonghua Shipbuilding (Group)
Co., Ltd., Deputy Chief Accountant and Chief Accountant at China State Shipbuilding Corporation, Deputy General
Manager of China State Shipbuilding Corporation, etc.
Mr. Wang Liang is an Executive Director, President and Chief Executive Officer of the Company. Mr. Wang
obtained a master's degree in Economics from Renmin University of China. He is a senior economist. He joined
the Company in June 1995 and successively served as the Assistant General Manager, Deputy General Manager
and General Manager of Beijing Branch of the Bank. He successively served as the Executive Assistant President,
Executive Vice President and First Executive Vice President of the Company since June 2012, and started to preside
over overall business of the Company since 18 April 2022. He has been the President of the Bank since 15 June
2022. He concurrently serves as the Company's authorised representative in charge of matters in relation to listing
in Hong Kong, the Chairman of CMB International Capital Holdings Corporation Limited, the Chairman of CMB
International Capital Corporation Limited, Chairman of CMB Wing Lung Bank, Vice Chairman of Merchants Union
Consumer Finance Company Limited, Director of China Merchants Financial Holdings Co., Ltd., Vice President of
the Payment & Clearing Association of China, a Director of the Fourth Session of the Professional Committee for
Intermediate Business of China Banking Association and Executive Director of the Sixth Session of the Financial
Accounting Society of China, and a Deputy of the 14th Guangdong Provincial People's Congress. He had served as
the Chief Financial Officer, Secretary of the Board of Directors, and Company Secretary of the Company.
Mr. Zhu Jiangtao is an Executive Director, Executive Vice President and Chief Risk Officer of the Company. Mr.
Zhu holds a master's degree in Economics. He is a senior economist. He joined the Company in January 2003. He
successively served as Assistant General Manager and Deputy General Manager of Guangzhou Branch, General
Manager of Chongqing Branch, General Manager of Credit Risk Management Department of the Company, General
Manager of Risk Management Department of the Company between December 2007 and July 2020. He served
as Chief Risk Officer of the Company from July 2020. He has been Executive Vice President of the Company since
September 2021.
Mr. Shi Yongdong is an Independent Non-Executive Director of the Company. Mr. Shi obtained a doctoral degree
in Economics from Dongbei University of Finance and Economics and a master's degree in Applied Mathematics from
Jilin University. He is a leading talent of the national high-level special support plan, one of the Cultural Masters
and the Four First-Batch Talents, and the chief expert of the major projects under the National Social Science Fund
of China. He is currently the Dean, Professor and Doctoral Supervisor of the School of Finance and Technology of
Dongbei University of Finance and Economics, and concurrently serves as a council member of China Finance Society,
a standing council member of the Chinese Finance Annual Meeting (+) and the Chinese Financial
Projects Annual Meeting (+), and a standing council member of the International Symposium on
Financial Systems Engineering and Risk Management (HAKTIK). He served as the Deputy
Dean of the School of Finance, the Director of the Applied Finance Research Centre, Chief of the scientific research
department and the Dean of the School of Applied Finance and Behavioural Sciences in Dongbei University of
Finance and Economics, an Independent Director of Dalian Huarui Heavy Industry Group Co., Ltd. (a company listed
on Shenzhen Stock Exchange), and an Independent Director of Bank of Anshan Co., Ltd..
100
Mr. Luo Sheng is a Shareholder Supervisor of the Company. He graduated from the Business School of Nankai
University majoring in corporate governance with a doctoral degree. Mr. Luo is currently the Deputy General
Manager of Dajia Insurance Group Co., Ltd. and a Director of both Dajia Life Insurance Co., Ltd. and Gemdale
Corporation (a company listed on Shanghai Stock Exchange). He successively served as the principal staff member
of the Regulation Division under the Policy and Regulation Department, the principal staff member of the Market
Analysis Division under the Development and Reform Department, the Deputy Director and Director of the Corporate
Governance Division under the Development and Reform Department as well as the deputy director of the
Regulation Department of the China Insurance Regulatory Commission. He has also served as an Executive Director,
the Executive Vice President, Secretary to the Board of Directors, and General Manager of Shanghai Branch of China
Insurance Information Technology Management Co., Ltd., and the Deputy Director of the Development and Reform
Department of China Insurance Regulatory Commission, etc. He served as the Non-Executive Director of the Eleventh
Session of the Board of the Company from June 2019 to June 2022.
China Merchants Bank
Directors
Mr. Zhao Weipeng is the Secretary of the Party Discipline Commission of the Company. Mr. Zhao holds a
master's degree in Management and is a senior accountant and a non-practicing member of Chinese Institute of
Certified Public Accountants. He successively served as the Manager of Finance Department of China Merchants
Shipping and Enterprises Company Limited, the Manager of Planning and Finance Department of Hong Kong
Ming Wah Shipping Company Limited, the Chief Financial Officer, Deputy General Manager, Secretary of the Party
Discipline Commission, and Deputy Secretary to the Party Committee of China Merchants Zhangzhou Development
Zone Company Limited, Secretary of the Party Discipline Commission, Deputy Secretary to the Party Committee
and Executive Deputy Director of the Management Committee of Zhangzhou China Merchants Economic and
Technological Development Zone, Secretary to the Party Committee and General Manager of China Merchants
Taipingwan Development & Investment Company Limited, Deputy General Manager (General Manager Level) of
Finance Department (Property Rights Department) of China Merchants Group Ltd., Secretary to the Party committee
and General Manager of China Merchants Group Finance Co., Ltd.. He has been the Secretary of the Party Discipline
Commission of the Company since August 2023.
Mr. Wang Liang, please refer to Mr. Wang Liang's biography under the heading of "Directors" above.
Mr. Wang Yungui is an Executive Vice President of the Company. Mr. Wang obtained a master's degree from the
Party School of the Central Committee of the Communist Party of China and is a senior economist. He successively
served as the General Manager of the Department of Education and the General Manager of the Human Resources
Department of the Industrial and Commercial Bank of China from July 2008 to December 2016, and served as the
Secretary of the Disciplinary Committee of China Development Bank from December 2016 to March 2019. He has
served as an Executive Vice President of the Company since June 2019.
Senior management
Mr. Yang Sheng is an Employee Supervisor. Mr. Yang has obtained a master's degree in Economics from Renmin
University of China and is a senior economist. He is currently the Director of the General Office of Head Office of
the Company. He joined the Company in July 1998 and successively served as the Assistant General Manager, the
Deputy General Manager and the General Manager of the Human Resources Department of the Head Office of the
Company from September 2016 to November 2022.
of the Audit Department of the Company, and concurrently serves as the Supervisor of CMB Wealth Management
and a Member of the Professional Committee under the Board of Supervisors of China Association for Public
Companies. He joined the Company in August 2003 and successively served as the Assistant General Manager and
Deputy General Manager of the Audit Department of the Company. From November 2021 to March 2023, he served
as the General Manager of the Shenzhen division of the Audit Department of the Company.
Chapter V Corporate Governance
Supervisors
Annual Report 2023 (H share)
106
105
Mr. Cao Jian is an Employee Supervisor of the Company. Mr. Cao obtained a master's degree in International
Finance from the Graduate School of the Financial Research Institute of the People's Bank of China. He is a non-
practicing member of Chinese Institute of Certified Public Accountants. He currently serves as the General Manager
Ms. Cai Jin is an Employee Supervisor of the Company. Ms. Cai obtained a bachelor's degree in Finance from Hunan
University of Finance and Economics. She is an economist. She currently serves as the Inspector of the Head Office of
the Company. In August 1992, she started her career in Shashi Branch of Industrial and Commercial Bank of China
in Hubei Province. She joined the Company in May 1995. She successively served as the Assistant General Manager
of the Human Resources Department, the Deputy General Manager of the Banking Department of the Head Office,
the Deputy General Manager of the Asset Custody Department of the Head Office and the Director of the Labour
Union of the Head Office of the Company from April 2010 to January 2024.
Mr. Xu Zhengjun is an External Supervisor of the Company. Mr. Xu obtained a master's degree in Maritime
Transportation Management from Shanghai Maritime University and is a senior political engineer. He is currently
an Independent Director of China Merchants Life Insurance Company Limited, and concurrently the Director of
Shanghai Dongsheng Public Welfare Foundation. He previously served as the Section Chief and the Department
Head of Shanghai Ocean Shipping Co., Ltd., the General Manager of the crew company and land property company
of COSCO Container Lines Co., Ltd., the Assistant to General Manager of COSCO Container Lines Co., Ltd., the
General Manager of Shanghai Ocean Shipping Co., Ltd., the Secretary of the Disciplinary Committee of COSCO
Container Lines Co., Ltd., the General Manager of COSCO (HK) Industry & Trade Holdings Ltd., the Vice Chairman
of Shenzhen Guangju Energy Co., Ltd. (a company listed on Shenzhen Stock Exchange), the Vice President and
General Counsel of COSCO (Hong Kong) Group Limited and the Director of True Smart International Limited, the
General Manager and Executive Director of COSCO International Holdings Limited, the Chairman of the Corporate
Governance Committee of COSCO International and the Independent Director of Sinotrans Shipping Limited.
Mr. Cai Hongping is an External Supervisor of the Company. He obtained a bachelor's degree in Journalism
from Fudan University. He is the Chairman of AGIC Capital and concurrently serves as an Independent Director of
China Eastern Airlines Corporation Ltd. (a company listed on Shanghai Stock Exchange and the Hong Kong Stock
Exchange), Shanghai Pudong Development Bank Co., Ltd. (a company listed on Shanghai Stock Exchange), BYD
Company Limited (a company listed on Shenzhen Stock Exchange and the Hong Kong Stock Exchange) and China
Southern Airlines Company Limited (a company listed on Shanghai Stock Exchange and the Hong Kong Stock
Exchange), and was an Independent Director of China Oceanwide Holdings Limited (a company listed on the Hong
Kong Stock Exchange) and COSCO SHIPPING Development Co., Ltd. (a company listed on Shanghai Stock Exchange
and the Hong Kong Stock Exchange). From 1996 to 1997, Mr. Cai Hongping served as the Senior Vice President and
Managing Director of Peregrine Investments Holdings Limited. He served as the Chairman of China of BNP Paribas
Capital (Asia Pacific) Limited from 1998 to 2005 and served as the Chairman of UBS AG in Asia from 2006 to 2010,
and served as the Executive Chairman of Investment Banking Asia Pacific of Deutsche Bank from 2010 to 2015.
Mr. Zhang Xiang is an External Supervisor of the Company. He obtained a doctoral degree in Mechanical
Engineering from the University of California, Berkeley and a master's degree from the Department of Physics of
Nanjing University. He is an elected member of the US National Academy of Engineering, a foreign member of the
Chinese Academy of Sciences, an elected member of the Academia Sinica and the President of the University of
Hong Kong. Mr. Zhang was the inaugural Ernest S. Kuh Endowed Chair Professor at the University of California,
Berkeley, and the Director of the US National Science Foundation Nano-scale Science and Engineering Centre. He
was an assistant professor at Pennsylvania State University in 1996, an associate professor and professor at the
University of California, Los Angeles from 1999 to 2004, an associate professor and professor at the Mechanical
Engineering Department and the Institute of Applied Science and Technology of the University of California, Berkeley
from 2004 to 2018 and a director of Materials Science Division at the Lawrence Berkeley National Laboratory from
2014 to 2016.
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 is the General Manager of Finance Affairs Department of SAIC Motor Corporation Limited
(a company listed on Shanghai Stock Exchange), and concurrently serves as the General Manager of SAIC Motor
Financial Holding Management Co., Ltd., a Non-executive Director of Bank of Chongqing Co., Ltd. (a company listed
on the Hong Kong Stock Exchange and Shanghai Stock Exchange) and a Director of Wuhan Kotei Informatics Co.,
Ltd. (a company listed on Shenzhen Stock Exchange). He consecutively 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 consecutively served as a Section Chief, Assistant to
Executive Controller and the Manager of Accounting Section 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, and concurrently serving as the Director
and General Manager of Huayu Automotive Systems (Shanghai) Co., Ltd. ((LO)ORA) during the
period from May 2014 to May 2015, and the Deputy General Manager of the Finance Affairs Department of SAIC
Motor Corporation Limited from May 2015 to August 2019.
Chapter V Corporate Governance
China Merchants Bank
Annual Report 2023 (H share)
China Merchants Bank
Biography and positions of Directors, Supervisors and senior management
China Merchants Bank
Annual Report 2023 (H share)
A Share
A Share
Employee Supervisor
0.00063
0.00077
158,400
Beneficial owner
Long position
A Share
Employee Supervisor
Cao Jian
Yang Sheng
0.00002
0.00010
4,550
Beneficial owner
0.00065
0.00080
165,000
Interest of spouse
Beneficial owner
23,282
0.00011
0.00009
198,800
0.00096
Long position
Long position
0.00079
Cai Jin
Employee Supervisor
A Share
H Share
Long position
Long position
Beneficial owner
Vice President, Chief
Risk Officer
Long position
Long position
Beneficial owner
0.00096
Mr. Zhou Song serves as the Chief Accountant of China National Petroleum Corporation, and ceased to serve
as the Chief Accountant of China Merchants Group Ltd..
Mr. Wang Liang concurrently serves as the Chairman of CMB International Capital Holdings Corporation
Limited, and ceased to concurrently serve as the Chief Financial Officer and the Secretary of the Board of
Directors of the Company.
5.
4.
3.
2.
1.
5.4.2
Changes in information of Directors and Supervisors
Chapter V Corporate Governance
China Merchants Bank
Annual Report 2023 (H share)
For details of the new appointments and resignations on Directors, Supervisors and senior management, please refer
to the relevant announcements published by the Company on the websites of Shanghai Stock Exchange, Hong Kong
Exchanges and Clearing Limited and the Company.
In November 2023, the qualifications of Mr. Lei Caihua and Mr. Xu Mingjie as the Executive Assistant Presidents
were approved by the National Financial Regulatory Administration (NFRA), respectively.
In September 2023, Ms. Wang Ying and Mr. Peng Jiawen were appointed as the Executive Vice Presidents of the
Company at the 24th meeting of the Twelfth Session of the Board of Directors of the Company. In November
2023, their qualifications as the Executive Vice Presidents were approved by the National Financial Regulatory
Administration (NFRA), respectively.
In August 2023, Mr. Zhao Weipeng was appointed as the Secretary of the Party Discipline Committee.
In July 2023, Mr. Xiong Kai ceased to be the Secretary of the Party Discipline Committee of the Company due to
change of work arrangement.
109
0.00078
Interest of spouse
143,300
0.00069
0.00057
China Merchants Bank
Annual Report 2023 (H share)
197,700
Chapter V Corporate Governance
The Board of Directors is an independent policy-making body of the Company, responsible for executing resolutions
passed by the Shareholders' General Meetings; formulating the Company's major principles and policies, including
development strategy, risk preference, internal control and internal auditing systems, and remuneration regulations;
deciding on the Company's operating plans, investment and financing proposals; preparing annual financial budgets,
final accounts and profit appropriation plans; and appointing and assessing members of senior management. The
Company adopts a system in which the President assumes full responsibility under the leadership of the Board of
Directors. The 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.
The Board of Directors of the Company facilitates scientific and reasonable decision-making through the
establishment of a diversified directorship structure, and continues to improve the decision-making and operational
efficiency through promoting the effective operation of special committees. The Board of Directors focuses on key
issues, directions and strategies, and continues to strengthen the corporate philosophy of balanced, healthy and
sustainable development. The Board of Directors ensures the Company to achieve dynamically balanced development
in "Quality, Profitability and Scale" through effective management of its strategy, risks, capital, remuneration,
internal control, related party transactions and protection of consumer rights, etc., thus providing a solid basis for
the Company to enhance its operation and management capabilities.
5.5.1 Composition of the Board of Directors and diversity policy
As at the end of the reporting period, the Board of Directors of the Company has fifteen members, including seven
Non-Executive Directors, two Executive Directors, and six Independent Non-Executive Directors. All the seven Non-
Executive Directors are seasoned management personnel such as the Chairman of the Board of Directors, General
Manager, Deputy General Manager or Chief Financial Officer of large state-owned enterprises. They have extensive
experience in corporate management, finance and accounting fields. The two Executive Directors have been engaged
in financial management for a long time with extensive professional experience. Among the six Independent Non-
Executive Directors, there are renowned experts in accounting and finance, university professors and financial experts
with international vision, and they all have in-depth knowledge about the development of the banking industry at
home and abroad. One Independent Non-Executive Director from Hong Kong is proficient in International Financial
Reporting Standards and the requirements of Hong Kong capital market.
The Company attaches great importance to maintaining the diversity characteristic of the members of the Board of
Directors, and completed the revision of the Articles of Association of the Company during the year to incorporate
the diversity policy into the Articles of Association of the Company. Among them, the new responsibilities of the
Nomination Committee under the Board of Directors are to "promote the diversity of the members of the Board of
Directors, including but not limited to gender, age, culture, educational background and professional experience,
and regularly review the diversity implementation". The diversified director structure of the Company has brought
broad vision and high-level professional experience to the Board of Directors, and also maintained the independent
elements within the Board of Directors to ensure that the Board of Directors of the Company effectively make
independent judgements and scientific decisions when studying and deliberating major issues.
In March 2023, the Board of Directors of the Company received a letter of resignation from Ms. Su Min, the former
Non-Executive Director of the Company, and the Company does not have any other female Directors for the time
being following the resignation of Ms. Su Min. Pursuant to the Rule 13.92 of the Hong Kong Listing Rules, the Hong
Kong Stock Exchange does not consider diversity is achieved for a single gender board. The Board of Directors of
the Company attached high importance to promote the diversity of the Board members, including gender diversity,
actively identified potential female Director candidates, and considered and approved the Resolution on Nomination
of Ms. Li Jian as an Independent Director in August 2023, and considered and approved the Resolution on
Nomination of Ms. Shi Dai as a Non-Executive Director and the Resolution on Nomination of Ms. Liu Hui as a Non-
Executive Director in March 2024. The above Director candidates are subject to election at Shareholders' General
Meeting of the Company and the approval of their qualifications for serving as Directors by the National Financial
Regulatory Administration (NFRA) before their terms of office officially become effective. The Company intends to
complete the election of female Director candidates at the Shareholders' General Meeting in the first half of 2024,
and the Board of Directors is expected to have three female Directors upon the approval of the qualifications of the
relevant candidates for serving as Directors by the National Financial Regulatory Administration (NFRA). The Board of
Directors of the Company acknowledges that a diversified Board structure will bring wide-ranging ideas and insights
to the Board of Directors and its special committees, contribute to improving the quality of decision-making by the
Board of Directors and its special committees as well as the corporate governance level, while providing a strong
guarantee for the high-quality development of the Company. The Company will continue to promote the diversified
composition of the Board of Directors.
5.5 Board of Directors
Mr. Zhang Jian concurrently serves as the Non-Executive Director of China Merchants Securities Co., Ltd. (a
company listed on the Shanghai Stock Exchange and Hong Kong Stock Exchange) and the Vice Chairman of
China Merchants Capital Investment Co., Ltd..
5.4.4
Zhu Jiangtao
Mr. Peng Jiawen, please refer to Mr. Peng Jiawen's biography under the heading of "Senior management" above.
Ms. Ho Wing Tsz Wendy is a joint company secretary of the Company. Ms. Ho obtained an MBA degree from
the Hong Kong Polytechnic University. She is a Chartered Secretary, a Chartered Governance Professional and a
Fellow of both The Hong Kong Chartered Governance Institute and The Chartered Governance Institute in the
United Kingdom and is a council member, the Chairlady of the Professional Development Committee of The Hong
Kong Chartered Governance Institute and is a holder of the Practitioner's Endorsement issued by The Hong Kong
Chartered Governance Institute. Ms. Ho is an Executive Director of Corporate Services of Tricor Services Limited,
and her professional practice area covers business consulting, corporate services for private, offshore and listed
companies. Ms. Ho has over 25 years of experience in the corporate secretarial and compliance service field and
is currently the company secretary or joint company secretary of a few listed companies on the Hong Kong Stock
Exchange.
Joint company secretaries
Mr. Xu Mingjie is an Executive Assistant President of the Company. He obtained a bachelor's degree in Engineering
from Xi'an Jiaotong University, a bachelor's degree in Economics from Shanghai University of International Business
and Economics, and is a chartered certified accountant. He joined the Company in September 1995, and successively
served as the Assistant General Manager of Corporate Finance Product Department of the Head Office, Assistant
General Manager of Investment Banking Department of the Head Office, Deputy General Manager of Investment
Banking Department of the Head Office, General Manager of Credit Approval Department of the Head Office and
General Manager of Risk Management Department of the Head Office. Since November 2023, he has served as an
Executive Assistant President of the Company, and concurrently serves as the General Manager of Beijing Branch.
Mr. Jiang Chaoyang is the Chief Information Officer (CIO) of the Company. He obtained a master's degree in
Management Sciences from Shanghai Jiao Tong University and is a senior economist. He joined the Company in
November 2013, successively served as the General Manager of Strategic Customers Department of the Head Office,
General Manager of Retail Network Banking Department of the Head Office, Deputy General Manager and General
Manager of Wealth Management Department of the Head Office, and has been serving as the Chief Information
Officer (CIO) of the Company since November 2019.
Mr. Lei Caihua is an Executive Assistant President of the Company. He obtained a bachelor's degree in Investment
Economics from Huazhong University of Science and Technology, a master's degree in National Economics from
Zhongnan University of Economics and Law, and is an economist. He joined the Company in July 1995, and
successively served as the Deputy General Manager of Corporate Banking Department and concurrently the
General Manager of SME Finance Department of the Head Office, General Manager of Corporate Finance Product
Department of the Head Office, General Manager of Strategic Customers Department of the Head Office, General
Manager of Small Enterprise Finance Department of the Head Office, the General Manager of Chongqing Branch,
Head of Topology Bank Preparatory Team, and the General Manager of Shanghai Branch. Since November 2023, he
has served as an Executive Assistant President of the Company, and concurrently serves as the General Manager of
Shanghai Branch.
the Head Office, Deputy General Manager and Vice President of the General Office of Retail Finance of the Head
Office and concurrently General Manager of Retail Credit Business Department of the Head Office, General Manager
of Zhengzhou Branch, General Manager of Asset and Liabilities Management Department of the Head Office and the
Executive Assistant President of the Company. He has served as an Executive Vice President of the Company since
November 2023, and concurrently serves as the Chief Financial Officer and the Secretary of the Board of Directors of
the Company.
Chapter V Corporate Governance
Annual Report 2023 (H share)
China Merchants Bank
Mr. Peng Jiawen is an Executive Vice President, the Chief Financial Officer and the Secretary of the Board of
Directors of the Company. He obtained a bachelor's degree in National Economic Planning from Zhongnan University
of Economics and Law and is a senior economist. He joined the Company in September 2001, and successively
served as an Assistant General Manager and Deputy General Manager of the Planning and Finance Department of
the Head Office, Deputy General Manager and General Manager of the Overall Retail Management Department of
Ms. Wang Ying is an Executive Vice President of the Company. She obtained a master's degree in Political
Economics from Nanjing University and is an economist. She joined the Company in January 1997, successively
served as the Assistant General Manager and Deputy General Manager of Beijing Branch, General Manager of
Tianjin Branch, General Manager of Shenzhen Branch and the Executive Assistant President of the Company, and
has been serving as an Executive Vice President of the Company since November 2023.
Mr. Wang Xiaoqing is an Executive Vice President of the Company. He obtained a doctoral degree in Political
Economics from Fudan University and is an economist. He worked at PICC Asset Management Company Limited
from March 2005 to March 2020, and successively served as the Deputy General Manager of Risk Management
Department, the Deputy General Manager and General Manager of Portfolio Management Department, Assistant
President and Vice President. In March 2020, he joined the Company and successively served as the General
Manager and the Chairman of CMFM and the Executive Assistant President of the Company. He has served as
an Executive Vice President of the Company since July 2023, and concurrently serves as the General Manager of
Shenzhen Branch, the Chairman of CMFM, CIGNA & CMB Life Insurance and CIGNA & CMAM.
Mr. Zhu Jiangtao, please refer to Mr. Zhu Jiangtao's biography under the heading of "Directors" above.
Mr. Zhong Desheng is an Executive Vice President of the Company. He obtained a master's degree in the History
of Foreign Economic Thoughts from Huazhong University of Science and Technology and is a senior economist.
He joined the Company in July 1993 and successively served as an Assistant General Manager and Deputy General
Manager of Wuhan Branch, the General Manager of International Business Department of the Head Office, the
General Manager of Trade Finance Department of the Head Office and the General Manager of Offshore Finance
Centre of the Head Office, the General Manager of Guangzhou Branch, the President of the General Office of
Corporate Finance of the Head Office, the General Manager of the Strategic Customers Department and the
Executive Assistant President of the Company. He has served as an Executive Vice President of the Company since
October 2023, and he concurrently serves as the Chairman of CMB Financial Leasing.
In July 2023, Mr. Li Delin ceased to be the Executive Vice President of the Company due to change of work
arrangement.
In April 2023, Mr. Peng Jiawen was appointed as the Secretary of the Board of Directors of the Company at the 17th
meeting of the Twelfth Session of the Board of Directors of the Company. Mr. Wang Liang ceased to concurrently
serve as the Secretary of the Board of the Company due to the change in assignment in the Bank. In June 2023, the
qualification of Mr. Peng Jiawen as the Secretary of the Board of Directors was approved by the National Financial
Regulatory Administration (NFRA).
In February 2023, the qualifications of Ms. Wang Ying and Mr. Peng Jiawen as the Executive Assistant Presidents
were approved by the former CBIRC.
In February 2023, Mr. Peng Jiawen was appointed as the Chief Financial Officer of the Company at the 12th
meeting of the Twelfth Session of the Board of Directors of the Company. Mr. Wang Liang ceased to concurrently
serve as the Chief Financial Officer of the Company due to the change in assignment in the Bank.
In February 2023, Mr. Wang Jianzhong and Mr. Shi Shunhua ceased to be the Executive Vice Presidents of the
Company due to reaching the retirement age.
Chapter V Corporate Governance
Annual Report 2023 (H share)
5.4.1 New appointment and resignation of Directors, Supervisors and senior
management
Directors
In March 2023, Ms. Su Min ceased to be a Non-Executive Director of the Company due to reaching the retirement
age.
5.4.5
In June 2023, according to the resolutions passed at the 2022 Annual General Meeting of the Company, Mr. Zhu
Jiangtao was elected as the Executive Director of the Company, whose qualification as the Director was approved
by the National Financial Regulatory Administration (NFRA) in August 2023, and Mr. Huang Jian was elected as
the Non-Executive Director of the Company, and his qualification as the Director is subject to the approval of the
National Financial Regulatory Administration (NFRA).
Supervisors
In March 2023, Mr. Cao Jian was elected as the Employee Supervisor of the Company by the Employee
Representative Meeting of the Company. Mr. Wang Wanqing ceased to be the Employee Supervisor of the Company
due to his age.
In June 2023, Mr. Yang Sheng was elected as the Employee Supervisor of the Company by the Employee
Representative Meeting of the Company. Mr. Xiong Liangjun ceased to be the Chairman of the Board of Supervisors
and Employee Supervisor of the Company due to his age.
In January 2024, Mr. Peng Bihong ceased to be the Shareholder Supervisor of the Company due to change of work
arrangement.
Senior management
In January 2023, Mr. Zhong Desheng and Mr. Wang Xiaoqing were appointed as Executive Vice Presidents of
the Company at the 11th meeting of the Twelfth Session of the Board of Directors of the Company, and their
qualifications as the Executive Vice Presidents were approved by the National Financial Regulatory Administration
(NFRA) in October and July 2023, respectively.
In January 2024, Mr. Hu Jianhua and Mr. Hong Xiaoyuan ceased to be Non-Executive Directors of the Company due
to their age.
Executive Director,
Remuneration policy and evaluation and incentive system for Directors,
Supervisors and senior management
107
Non-Executive Director
Zhou Song
Executive Officer
President and Chief
0.00119
0.00145
shares (%)
issued ordinary
Percentage
of
the total
the relevant
class of shares
in issue (%)
(shares)
300,000
Capacity
Beneficial owner
No. of
Shares
Long/short
position
Long position
A Share
Executive Director,
Class of
shares
108
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
The Board of Directors of the Company evaluates the performance of the senior management according to the
"Policies on Remunerations of Senior Management of China Merchants Bank Co., Ltd." and the "Assessment
Standards of the H-Share Appreciation Rights Incentive Scheme for the Senior Management". According to the
"Measures on Evaluation of Performance of Directors and Supervisors of China Merchants Bank", the Board of
Supervisors evaluates the annual duty performance of the Directors and Supervisors through monitoring their
duty performance in the ordinary course, conducting duty performance interviews, reviewing and evaluating their
annual duty performance records (including but not limited to, attendance of meetings, participation of researches,
provision of recommendations and the term of office in the Company), the "Duty Performance Self-Evaluation
Questionnaire" completed by each Director and Supervisor, and then reports the same to the Shareholders'
General Meeting and regulatory authorities. According to the "Measures on Evaluation of Duty Performance of
Senior Management of China Merchants Bank", the Board of Supervisors evaluates the annual duty performance
of senior management through monitoring their duty performance in the ordinary course and accessing to their
duty performance information (including but not limited to, major speeches and major meeting minutes) and work
reports, and then reports the same to the Shareholders' General Meeting and regulatory authorities.
5.4.6 Securities transactions of Directors, Supervisors and relevant employees
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,
in which the relevant Directors have abstained from the discussion of their remuneration; offers remuneration to
Executive Directors, Chairman of Board of Supervisors and other senior management according to the "Policies
on Remunerations of Senior Management of China Merchants Bank Co., Ltd.". The remuneration consists of
basic remuneration and performance-based remuneration, which shall be provided by way of deferred payment in
accordance with regulatory requirements. At the same time, the Company has established a mechanism related to
performance-based remuneration deduction. The Company offers remuneration to Employee Supervisors (excluding
Chairman of Board of Supervisors) in accordance with the policies on remunerations of employees of the Company.
All of the Directors and Supervisors nominated by shareholders of the Company do not receive any remuneration
from the Company. For details of the remuneration of the Directors and Supervisors and the five highest paid
individuals of the Company, please refer to Notes 11 and 12 to the financial statements.
The Company has adopted the Model Code set out in Appendix C3 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.
According to the enquiry, to the knowledge of the Company, all Directors and all Supervisors of the Company have
been in compliance with the Model Code and the guidelines set by the Company during the reporting period.
5.4.7 Interests and short positions of Directors, Supervisors and Chief Executives
under Hong Kong laws and regulations
As at 31 December 2023, 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), which were 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 the interests and short positions which the Directors,
Supervisors and Chief Executives of the Company were taken or deemed to have under such provisions of the SFO,
or which were required to be and were recorded in the register kept by the Company 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 C3 to the Hong Kong Listing Rules, were as follows:
Percentage
of
Name
Wang Liang
Position
The Company has also set guidelines on the trading of the Company's securities by Directors, Supervisors and
relevant employees, and the contents of the guidelines are no less exacting than the Model Code.
Mr. Li Menggang serves as the Director of the China Centre for Industrial Security Research, and ceased to
concurrently serve as the Vice President and the Deputy Director of the Expert Committee of China Human
Resource Development Association and the Director of the Human Capital Institute.
A Share
A Share
China Merchants Bank
General Manager of Finance Affairs
Department
Term of office
From July 2020 up to now
From August 2018 up to
now
From October 2018 to
December 2023
From January 2019 up to
now
From September 2022 up
to now
From September 2016 up
to now
From September 2020 up
to now
From August 2019 up to
now
101
102
General Manager of Financial
Management Headquarter
Deputy General Manager
Chapter V Corporate Governance
Deputy General Manager
Chief Accountant
Name
Miao Jianmin
Sun Yunfei
Zhou Song
Zhang Jian
Name of company
China Merchants Group Ltd.
China COSCO Shipping
Corporation Limited
China Merchants Group Ltd.
China Merchants Group Ltd.
China Merchants Financial
Holdings Co., Ltd.
China COSCO Shipping
Corporation Limited
Chen Dong
Luo Sheng
Wu Heng
SAIC Motor Corporation
Dajia Insurance Group Co.,
Ltd.
Limited
Major title
Chairman
Deputy General Manager and Chief
Accountant
Chief Digital Officer and Director of
Digital Centre
5.4.3 Current positions held by Directors and Supervisors in the shareholders'
companies
Ms. Cai Jin serves as the Inspector of the Head Office of the Company and ceased to serve as the Director of
the Labour Union of the Head Office of the Company.
Hu Jianhua (resigned)
6.
7.
Evaluate, supervise and govern the risk management policies and practices of relevant overseas entities of the
Company, including those in the United States, in accordance with overseas regulatory requirements;
Any other task delegated by the Board of Directors.
In 2023, the Risk and Capital Management Committee under the Board of Directors of the Company convened nine
meetings, namely the Risk and Capital Management Committee under the Twelfth Session of the Board of Directors
convened its 5th meeting (13 March), the 6th meeting (16 March), the 7th meeting (24 May), the 8th meeting (15
June), the 9th meeting (31 July), the 10th meeting (15 August), the 11th meeting (19 September), the 12th meeting
(23 November) and the 13th meeting (22 December). The Risk and Capital Management Committee implemented
the prudent risk management concept, adhered to the risk preference targets established by the Board of Directors,
constantly strengthened the comprehensive risk management function by holding quarterly meetings, and actively
implemented the objective requirements of the Board of Directors to "outperform the market and outperform the
industry". The Risk and Capital Management Committee paid high attention to the risks and impacts associated with
real estate, agency distribution of relevant products to private banking clients, financial asset management and local
government businesses, and has carefully listened to special reports and actively advanced the risk mitigation works;
adhered to long-term and reasonable capital planning by consistently enhancing the risk compensation capability,
and regularly reviewing reports on the internal assessment on capital adequacy, capital adequacy ratio, and capital
management planning; paid close attention to the international pattern and the changes in economic and financial
situations, regularly reviewed reports on compliance with anti-money laundering and sanctions, risk assessment of
money laundering and terrorist financing and compliance work of institutions in the United States, and effectively
enhanced compliance management efforts and other various works.
Audit Committee
As of the end of the reporting period, the majority of members of the Audit Committee were Independent Non-
Executive Directors, and the committee was chaired by an Independent Non-Executive Director. The members of the
Audit Committee are Tian Hongqi (Chairman), Wong See Hong, Li Menggang, Shi Yongdong (all being Independent
Non-Executive Directors) and Zhou Song (a Non-Executive Director). None of the above persons has ever served as
a partner of the incumbent auditors of the Company. The Audit Committee is mainly responsible for examining
the accounting policies and financial position of the Company; and is responsible for the annual audit work of the
Company, proposing the appointment or replacement of external auditors and examining the status of the internal
audit and internal control of the Company.
117
118
China Merchants Bank
Chapter V Corporate Governance
Annual Report 2023 (H share)
Main authorities and duties:
1.
Arrange and instruct risk prevention works in accordance with the authorisation of the Board of Directors;
2.
4.
5.
6.
7.
8.
Audit the financial information and disclosure of such information, and is responsible for the annual audit
work, including issue of a conclusive report on the truthfulness, accuracy, completeness and timeliness of the
information contained in the audited financial statements;
Examine the accounting policies, financial reporting procedures and financial position;
Propose to engage or replace an accounting firm for regular audit of financial reports, and supervise and
evaluate its audit work;
Monitor the internal audit system and its implementation, and evaluate the work procedures and work
effectiveness of the internal audit department;
Coordinate the communications between internal auditors and external auditors;
Examine the internal control system and put forward suggestions on the improvement of internal control;
Review and supervise the mechanism for employees to whistle blow any misconduct in respect of financial
statements, 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;
Any other task delegated by the Board of Directors.
In 2023, the Audit Committee under the Board of Directors of the Company convened eight meetings, namely, the
Audit Committee under the Twelfth Session of the Board of Directors convened its 4th meeting and the meeting for
Independent Directors' work on annual reports (9 March), the 5th meeting (20 March), the 6th meeting (24 April),
the 7th meeting (18 May), the 8th meeting (11 July), the 9th meeting (21 August), the 10th meeting (18 September)
and the 11th meeting (24 October). The Audit Committee, based on the quarterly meeting mechanism and by means
of the regular report and internal and external audit work report, reviewed and approved the annual report, interim
report and quarterly report, and supervised and verified the authenticity, accuracy, completeness and timeliness
of the financial report information. The Company reviewed and passed the annual, interim and quarterly internal
audit plan and work report, the annual internal control assessment report, the engagement of accounting firms and
other proposals, reviewed the external auditor's audit plan, audit results, management recommendations and other
reports, timely targeted the problems found in internal audit, strengthened the rectification and accountability of
internal self-inspection and regulatory concerns, promoted the formation of an effective communication mechanism
between internal audit and external audit by continuously strengthening the communication with internal and
external audit. As the term of the external auditor will expire in 2024, the Audit Committee has considered the
resolutions on the proposed change of accounting firms, the "Administrative Measures on the Selection and
Appointment of Accounting Firms by China Merchants Bank", the procurement plan and bidding documents
of the project for the selection and appointment of the accounting firm for 2024, and the proposal for the
determination of the selection and engagement of the accounting firm for 2024, which fully played an important
role in supervising operation and management, revealing risks and problems and improving management level and
effectively fulfilled relevant responsibilities.
3.
5.
Submit opinions and proposals on perfecting the management of risks and capital;
4.
Any other task delegated by the Board of Directors.
In 2023, the Nomination Committee under the Board of Directors of the Company convened seven meetings,
namely, the Nomination Committee under the Twelfth Session of the Board of Directors convened its 1st meeting
(13 January), the 2nd meeting (14 February), the 3rd meeting (16 March), the 4th meeting (25 April), the 5th
meeting (29 May), the 6th meeting (21 August) and the 7th meeting (18 September), at which the resolutions
on the nomination of Mr. Huang Jian, Mr. Zhu Jiangtao and Ms. Li Jian as a Non-Executive Director, an Executive
Director and an Independent Director, respectively, and the resolutions on the nomination of Mr. Zhong Desheng,
Mr. Wang Xiaoqing, Ms. Wang Ying and Mr. Peng Jiawen as Executive Vice Presidents were successively considered
and approved. In addition, the Nomination Committee under the Board of Directors considered and approved the
resolutions on the appointment of the Chief Financial Officer and the Secretary of the Board of Directors, and
regularly reviewed the members, structure and diversity implementation of the Board of Directors and its special
committees, ensuring that the structure of the Board composition is in compliance with the relevant regulatory
requirements.
115
116
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
The specific process for the nomination and election of Directors of the Company is as follows: qualified nomination
body recommends candidates for directorship to the Company, the Nomination Committee under the Board of
Directors conducts a preliminary review of the qualifications and conditions of the candidates for directorship and
proposes the qualified candidates to the Board of Directors for consideration, and upon consideration and approval
by the Board of Directors, proposes the candidates for directorship to the Shareholders' General Meeting in a
written proposal (for details, please refer to the section of "Board of Directors" set out in the Articles of Association
of the Company). In the selection process of candidates for directorship, the Nomination Committee under the
Board of Directors takes full consideration of the compliance of the candidates with laws, regulations and other
relevant requirements, independence, cultural and educational background or professional experience, as well as
the structure, number, composition and diversity of the Board of Directors, and will make recommendations on any
proposed changes to the Board of Directors in line with the Company's strategy.
Remuneration and Appraisal Committee
As of the end of the reporting period, the majority of members of the Remuneration and Appraisal Committee
were Independent Non-Executive Directors, and the committee was chaired by an Independent Non-Executive
Director. The members of the Remuneration and Appraisal Committee currently include Li Menggang (Chairman),
Liu Qiao, Li Chaoxian (all being Independent Non-Executive Directors), Hong Xiaoyuan and Chen Dong (both being
Non-Executive Directors). The Remuneration and Appraisal Committee is mainly responsible for reviewing the
remuneration management system and policies of the Company, formulating the remuneration package for the
Directors and senior management, making proposals to the Board of Directors and supervising the implementation
of such proposals.
Main authorities and duties:
1.
2.
Study the standards for assessment of Directors and senior management and make assessments and put
forward proposals depending on the actual conditions of the Company;
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;
3.
4.
Perform relevant duties under the Advanced Measurement Approach for Capital Measurement pursuant to
the authorisation given by the Board of Directors;
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 Company in relation to credit risk,
market risk, operational risk, liquidity risk, strategic risk, compliance risk, reputational risk, country risk and
other risks;
3.
2.
1.
According to "Work Procedures on Annual Reports for Audit Committee under the Board of Directors" adopted by
the Company, the Audit Committee under the Board of Directors of the Company performed the following duties in
preparing and reviewing the annual report for 2023:
Main authorities and duties:
Chapter V Corporate Governance
China Merchants Bank
As of the end of the reporting period, the members of the Risk and Capital Management Committee were Hong
Xiaoyuan (Chairman), Zhang Jian, Chen Dong (all being Non-Executive Directors), Zhu Jiangtao (an Executive
Director), Liu Qiao and Shi Yongdong (both being Independent Non-Executive Directors). The Risk and Capital
Management Committee is mainly responsible for supervising the status of risk control by the senior management
of the Company in relation to various major risks, making regular assessment on the risk policies, risk-withstanding
ability and capital management status of the Company and submitting proposals on perfecting the management of
risks and capital of the Company.
Risk and Capital Management Committee
In 2023, the Remuneration and Appraisal Committee under the Board of Directors of the Company convened
seven meetings, namely the Remuneration and Appraisal Committee under the Twelfth Session of the Board of
Directors convened its 5th meeting (16 February), the 6th meeting (21 April), the 7th meeting (21 August), the 8th
meeting (25 September), the 9th meeting (16 October), the 10th meeting (20 November) and the 11th meeting
(23 November). The Remuneration and Appraisal Committee under the Board of Directors implements the medium-
and long-term strategic objectives formulated by the Board of Directors, and further optimises the appraisal policy
and incentive plan, guides management staff and employees to "base on the long-term development and grasp the
present opportunities", regularly reviews the performance-based remuneration recovery and deduction throughout
the Bank. The Committee deliberated and passed the proposals on the remuneration of new senior management,
the annual performance-based remuneration recovery and deduction and other proposals. According to the
provisions of the H-share Appreciation Rights Scheme, the granted appreciation rights have been subject to effective
appraisal and grant price adjustment, ensuring the continuous operation of the Company's medium- and long-term
incentive mechanism.
Review the regulations and policies in respect of remuneration of the Bank;
Any other task delegated by the Board of Directors.
Annual Report 2023 (H share)
1.
2.
3.
6/6
7/7
-222
19/19
Zhang Jian
19/19
Zhou Song
19/19
Strategy
and
Sustainable
Sun Yunfei
6/6
18/19
Miao Jianmin
Directors
Meeting
General
Protection
Committee
Management
Remuneration
Risk and
and Consumer
and
Board of Development
6/6
Nomination
Directors
Committee
Committee
Capital
Management
Committee Committee Committee
Actual times of attendance/Required times of attendance
Rights Shareholders'
Audit
Appraisal
6.
8/8
Chen Dong
The Audit Committee considered and discussed the accounting firm's audit plan for 2023 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 auditors in charge of
annual audit, the Audit Committee heard the report on the operation of the Company for 2023, exchanged
opinions on the significant matters and audit progress with the auditors in charge of annual audit, reviewed
the financial statements of the Company, and then formed written opinions on 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 2023 which was submitted to the Board of
Directors for consideration and approval. Moreover, the Audit Committee reviewed and submitted to the
Board of Directors the conclusion report prepared by the auditors in charge of annual audit in respect of the
audit work of the Company in 2023.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
Related Party Transactions Management and Consumer Rights Protection Committee
As of the end of the reporting period, the majority of members of the Related Party Transactions Management
and Consumer Rights Protection Committee were Independent Non-Executive Directors, and the committee was
chaired by an Independent Non-Executive Director. The members of the Related Party Transactions Management
and Consumer Rights Protection Committee are Li Chaoxian (Chairman), Wong See Hong and Tian Hongqi (all
being Independent Non-Executive Directors) and Zhu Jiangtao (an Executive Director). The Related Party Transactions
Management and Consumer Rights Protection Committee is mainly responsible for inspection, supervision and
review of related party transactions of the Company and protection of the legitimate rights and interests of
consumers.
Main authorities and duties:
1.
Identify related parties according to relevant laws and regulations;
2.
3.
Inspect, supervise and review the major related party transactions and continuing connected transactions,
and control the risks associated with related party transactions;
Review the administrative measures on related party transactions of the Company, and monitor the
establishment and improvement of the related party transactions management system of the Company;
4.
5.6 Board of Supervisors
In 2023, the Related Party Transactions Management and Consumer Rights Protection Committee of the Company
convened four meetings, namely, the Related Party Transactions Management and Consumer Rights Protection
Committee under the Twelfth Session of the Board of Directors convened its 4th meeting (9 March), the 5th
meeting (6 June), the 6th meeting (13 October) and the 7th meeting (25 December). The Related Party Transactions
Management and Consumer Rights Protection Committee focused on reviewing the fairness of related party
transactions, assisting the Board of Directors to ensure the legality and compliance of related party transactions
management, implementing the relevant responsibilities of consumer rights protection according to regulatory
requirements and deliberated and passed the Related Party Transactions Report for 2022, the List of Related Parties
in 2023 and other proposals, reviewed and approved the related party transactions between the Company and
Gemdale Corporation, MUCFC, CMB Financial Leasing and other related parties, reviewed and approved the "Work
Report on Consumer Rights Protection for 2022", the "2022 Consumer Complaint Analysis Report" and other
resolutions, reviewed the regulatory notification document on consumer rights protection and the Company's main
consumer rights protection system.
Any other task delegated by the Board of Directors.
8.
Supervise and evaluate the comprehensiveness, timeliness and effectiveness of the consumer rights protection
work of the Company, the duty performance of senior management in the protection of consumer rights,
and the information disclosure of consumer rights protection work;
Non-Executive
9/9
Related Party
Listen to the report on the consumer rights protection work of the Company and consider the relevant
resolution, and make recommendations to the Board of Directors on related work;
7.
6.
Review the strategies, policies and objectives of the consumer rights protection work of the Company;
5.
Review the announcements on related party transactions of the Company;
19/19
6/9
Conduct preliminary examination on the candidates for Directors and senior management and make
recommendations to the Board of Directors;
Conduct extensive searches for qualified candidates for Directors and senior management;
Li Menggang
19/19
Liu Qiao
19/19
Tian Hongqi
19/19
Li Chaoxian
19/19
6/6
Shi Yongdong
19/19
7/7
9/9
7/7
19/19
8/8
1/1
7/7
7/7
8/8
1/1
7/7
7/7
9/9
1/1
8/8
4/4
1/1
4/4
1/1
4/4
Wong See Hong
Executive Directors
Independent Non-
16/19
5/6
/
Hong Xiaoyuan
16/19
7/7
3/9
རྔུངངངངངང
0/1
1/1
1/1
1/1
(resigned)
Su Min (resigned)
4/5
45
1/1
ང>
2/2
1/1
2/2
/
7/7
8/8
7/7
Zhu Jiangtao
99
5/6
19/19
Wang Liang
Executive Directors
8/8
1/1
HH
===
As of the end of the reporting period, the members of the Strategy and Sustainable Development Committee
included Non-Executive Directors Miao Jianmin (Chairman), Hu Jianhua, Sun Yunfei, Zhou Song, Wang Liang
(Executive Director) and Li Chaoxian (Independent Non-Executive Director). The Strategy and Sustainable
Development Committee is mainly responsible for formulating the operation and management goals and the
medium- and long-term development strategies of the Company, as well as supervising and examining the
implementation of its annual operation plan, investment plan, data governance and ESG development strategy.
Main authorities and duties:
1.
Formulate the operational goals and the medium- and long-term development strategies of the Company,
and make an overall assessment on strategic risks;
Consider material investment and financing plans and make proposals to the Board of Directors;
2.
3.
Supervise and review the implementation of the annual operational and investment plans;
4.
Evaluate and monitor the implementation of the Board resolutions;
5.
Make recommendations and proposals on important issues for discussion and determination by the Board of
Directors;
6.
Formulate data governance strategy and major issues related to data governance;
7.
7/7
Review the ESG development strategy and basic management system, review the ESG-related work report,
regularly evaluate the implementation of the ESG development strategy and promote the implementation of
other ESG-related work required by the regulators;
Any other task delegated by the Board of Directors.
4.
Review the structure, size and composition of the Board of Directors (including their expertise, knowledge
and experience) on regular basis and make recommendations on any proposed changes to the Board of
Directors to implement the strategies of the Company according to the Company's business operation, asset
scale and shareholding structure of the Company;
Promote the diversity of the Board members, including but not limited to gender, age, culture, educational
background and professional experience, and review the implementation of diversity on a regular basis;
Study the standards and procedures for selection of Directors and senior management, and make
recommendations to the Board of Directors;
3.
2.
Strategy and Sustainable Development Committee
1.
As of the end of the reporting period, the majority of members of the Nomination Committee were Independent
Non-Executive Directors, and the committee was chaired by an Independent Non-Executive Director. The members of
the Nomination Committee include Wong See Hong (Chairman), Li Menggang and Liu Qiao (all being Independent
Non-Executive Directors), Miao Jianmin (a Non-Executive Director) and Wang Liang (an Executive Director). The
Nomination Committee is mainly responsible for formulating the procedures and standards for election of the
Directors and senior management, conducting preliminary verification on the qualification for appointment of the
Directors and senior management and making proposals to the Board of Directors and promoting the diversity of its
Board members.
Nomination Committee
In 2023, the Strategy and Sustainable Development Committee under the Board of Directors of the Company
convened six meetings, namely, the Strategy and Sustainable Development Committee under the Twelfth Session
of the Board of Directors convened its 4th meeting (14 February), the 5th meeting (8 March), the 6th meeting (24
March), the 7th meeting (18 August), the 8th meeting (16 October) and 9th meeting (29 December). The Strategy
and Sustainable Development Committee focused on the Company's sustainable development report, inclusive
financial development and annual work plan, human resources management and talent strategy implementation
report, the use of Fintech innovation project funds, annual financial budget and final account report, annual profit
appropriation plan, implementation of business plan, revised the "14th Five-Year" Strategic Plan (2021-2025),
Financial Innovation Award Selection Program, and Administrative Measures for Fintech Innovation Project Fund,
redefined the strategic vision of "building the best value creation bank with innovation-driven development, leading
model and distinguished features", with the building of a value creation bank as the strategic goal, managing to
maximise the comprehensive value of customers, employees, shareholders, partners and the society, aiming to
become the best bank in customer service, the best bank in employee development, the best bank in shareholders'
return, the most trusted bank by partners and the most socially responsible bank, while adjusting and optimising the
value-oriented appraisal and evaluation system as well as incentive mechanism. In addition, in order to push forward
the Company's major operation and management matters, the Strategy and Sustainable Development Committee
under the Board of Directors also considered the resolutions on the issuance of capital bonds, the selection of site
and land use for the construction of a new data centre, and the increase of the working capital of the Luxembourg
Branch.
Chapter V Corporate Governance
Annual Report 2023 (H share)
China Merchants Bank
Main authorities and duties:
5.
The composition and duties of the six special committees under the Board of Directors of the Company and their
work in 2023 are summarised as follows.
There are six special committees under the Board of Directors of the Company, namely the Strategy and Sustainable
Development Committee, the Nomination Committee, the Remuneration and Appraisal Committee, the Risk and
Capital Management Committee, the Audit Committee and the Related Party Transactions Management and
Consumer Rights Protection Committee.
Note:
During the reporting period, the Board of Directors of the Company held a total of 19 meetings, of which 6 were on-site meetings and
thirteen were meetings convened in the form of written resolutions; the special committees under the Board of Directors held a total of 41
meetings, of which 19 were on-site meetings and 22 were meetings convened in the form of written resolutions.
China Merchants Bank
Annual Report 2023 (H share)
5.5.6
Chapter V Corporate Governance
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 the relevant
requirements of the PRC banking regulatory authorities, the CSRC, Shanghai Stock Exchange and the Hong Kong
Listing Rules. All the six Independent Non-Executive Directors of the Company are not involved in the circumstances
set out in Rule 3.13 of the 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.
Therefore, the Company is of the opinion that all the Independent Non-Executive Directors have complied with
the requirement of independence. The majority of members of the Nomination Committee, the Remuneration and
Appraisal Committee, the Audit Committee and the Related Party Transactions Management and Consumer Rights
Protection 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 attendance at the
meetings, special research and investigations and conferences. They effectively performed their roles as Independent
Non-Executive Directors by diligently attending the meetings held by the Board of Directors and its various special
committees, actively expressing their opinions and suggestions and attending to the interests and requests of
minority shareholders. For details of the attendance of Independent Non-Executive Directors at the meetings
convened by the Board of Directors and its special committees, please refer to "Attendance of Directors at relevant
meetings" in this report.
During the reporting period, the Independent Non-Executive Directors of the Company expressed their independent
opinions on significant matters such as the profit appropriation plan, nomination and election of Directors and
senior management, engagement of accounting firms and related party transactions. They made no objection to the
resolutions of the Board of Directors and others of the Company during the year.
Pursuant to the Corporate Governance Code, the Company has established a mechanism within the governance
framework to ensure that the Board of Directors has access to independent views and opinions, and the
implementation and effectiveness of the mechanism have been reviewed on an annual basis. According to the
"Rules Governing Independent Directors' Work on Annual Reports" of the Company, the Independent Non-
Executive Directors of the Company listened to the reports on the operation of the Company in 2023, believing that
such reports had fully and objectively reflected the operation of the Company as well as the progress of significant
matters in 2023. They recognised and were satisfied with the work performed and the results achieved in 2023.
They also reviewed the unaudited financial statements of the Company, and discussed with the certified public
accountants in charge of annual audit in respect of major matters and formed their written opinions; they reviewed
the procedures for convening board meetings in the year, the decision-making procedures for matters on the agenda
and the adequacy of information about such meetings; they reviewed the continuing connected transactions of the
Company and made confirmations as required by the Hong Kong Listing Rules.
5.5.7 Corporate governance functions
During the reporting period, the Board of Directors has performed the following duties on corporate governance:
Formulate and evaluate the policies and practices on corporate governance of the Company and make certain
amendments as it deems necessary, so as to ensure the validity of those policies and practices;
1.
2.
3.
4.
5.
5.5.9 Special committees under the Board of Directors
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 2023 to present a true view of the operating results of the
Company. So far as the Directors are aware, there is no material uncertainty related to events or conditions that
I might have a significant adverse effect on the Company's ability of sustainable operation.
5.5.8 Statement made by the Directors about their responsibility for the financial
statements
Annual Report 2023 (H share)
Chapter V Corporate Governance
China Merchants Bank
In 2023, all the special committees under the Board of Directors of the Company gave full play to their professional
advantages and earnestly performed various duties, actively offering advices to the Board of Directors on strategic
guidance, Fintech, risk management, internal control and compliance, inclusive finance, green finance, related
party transactions management, consumer rights protection, incentive and restrictive mechanisms and construction
of the Board of Directors. During the year, these committees held a total of 41 meetings to study and review 174
significant issues, and reported their review opinions and advices to the Board of Directors by submitting meeting
minutes and giving presentations on-site at the meetings, hence fully performing their respective functions in
assisting the Board of Directors to make scientific decisions.
114
Manage, control, monitor and assess the risks of the Company and evaluate the internal control status of the
Company. The Board of Directors is of the opinion that the risk management and internal control systems of
the Company are effective.
Review the compliance of the Company with the Code of Corporate Governance and the disclosures in the
Report of Corporate Governance;
Formulate, evaluate and supervise the Code of Conduct and the Compliance Handbook applicable to the
Directors and employees of the Company;
Evaluate and supervise the policies and practices of the Company for compliance with laws and regulatory
requirements;
Evaluate and supervise the trainings and the improvement of professional competence of Directors and senior
management;
6.
113
8.
Transactions
China Merchants Bank
The Board of Supervisors is a supervisory body of the Company and is accountable to the Shareholders' General
Meetings, and effectively oversees the strategic management, financial activities, internal control, risk management,
legal operation, corporate governance, as well as the duty performance of the Board of Directors and senior
management with an aim to protect the legitimate rights and interests of the Company, its shareholders, employees,
creditors and other stakeholders.
119
Directors
Special committees under the Board of Directors
The following table sets forth the records of attendance of each Director at the meetings convened by the Board of
Directors and the special committees under the Board of Directors and at the Shareholders' General Meeting during
the reporting period. All Directors performed due diligence in their duties, capitalised on opportunities, tackled
challenges and used their professional specialties and extensive experience to contribute their intelligence and
strength to the operation and development of the Company. The Company has adopted the constructive opinions
and suggestions raised by each of the Directors in aspects including strategy guideline, wealth management, Fintech,
risk control and management, internal control and compliance, anti-money laundering, green finance development,
inclusive finance development, ESG development, related party transactions management, protection of consumer
rights and improvement of incentive and restrictive mechanisms, and no objection has been raised by any of the
Directors on the matters reviewed.
5.5.5 Attendance of Directors at relevant meetings
Annual Report 2023 (H share)
Chapter V Corporate Governance
112
111
The positions of Chairman of the Board of Directors and the President of the Company have been held by different
persons and their duties have been clearly defined in accordance with the requirements of the Hong Kong Listing
Rules. Mr. Miao Jianmin serves as the Chairman of the Company and is responsible for leading the Board of
Directors, ensuring that all the Directors are kept updated on issues arising at board meetings, managing the
operation of the Board of Directors, and ensuring that all major issues are discussed by the Board of Directors in a
constructive and timely manner. In order to enable the Board of Directors to discuss all major and relevant matters in
time, the Chairman of the Board of Directors worked together with senior management to ensure that the Directors
duly receive appropriate, complete and reliable information for their reference and review. Mr. Wang Liang serves as
the President and is responsible for the business operation of the Company and implementation of its strategies and
business plans.
5.5.4 Chairman of the Board of Directors and the President
The Company attached great importance 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 relevant laws, regulations and systems, the regulatory requirements of the PRC
banking regulatory authorities, the CSRC, Shanghai Stock Exchange and the Hong Kong Stock Exchange and the
requirements of the Articles of Association of the Company. The Company has renewed the "Insurance for Liabilities
of Directors, Supervisors and Senior Management" for all of its Directors.
The Board of Directors of the Company reviewed its work during the reporting period, believing that it has
effectively performed its duties and safeguarded the rights and interests of the Company and its shareholders. 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 opinions on the
resolutions reviewed by the Board of Directors, including offering independent written opinions on significant
matters such as the profit appropriation plan, nomination and election of Directors, engagement of accounting
firms and related party transactions. In addition, the Independent Non-Executive Directors of the Company also
gave full play to their professional advantages in the relevant special committees under the Board of Directors, and
provided professional and independent opinions regarding corporate governance and operation management of the
Company, thereby providing effective guarantee on the scientific decision-making of the Board of Directors.
During the reporting period, the Board of Supervisors of the Company made an appraisal on the annual duty
performance of the Directors, and the annual duty performance and cross-appraisal of the Independent Non-
Executive Directors, and reported the appraisal results to the Shareholders' General Meeting.
5.5.3 Responsibilities of Directors
110
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
The Nomination Committee under the Board of Directors shall evaluate the structure, number of members,
composition and diversity implementation and effectiveness of the Board of Directors (including multiple aspects
such as gender, skills, knowledge and experience) at least once a year according to the operating activities, asset
size and equity structure of the Company, and advise on any changes to the Board of Directors to coordinate with
the Company's strategy. To ensure that the Board of Directors maintains gender diversity in the long run, the
Company will seek to identify potential female Director candidates whose skills, knowledge, experience, and other
attributes satisfy the relevant requirements based on its own operating management and the structure of the Board
of Directors, establishing and maintaining communication channels with potential Director candidates to enable
timely selection when needed.
As of the end of the reporting period, all incumbent Directors of the Company cautiously, earnestly and diligently
exercised their rights under the Articles of Association of the Company and the domestic and overseas regulatory
rules, 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 other duties of diligence stipulated under 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 91.01%.
5.5.2 Appointment, re-election and removal of Directors
In accordance with the Articles of Association of the Company, the Directors of the Company shall be elected or
replaced by the shareholders at the Shareholders' General Meetings, and the term of office for the Directors shall
be three years commencing from the date on which the approval from the PRC banking regulatory authority is
obtained. A Director is eligible for re-election upon the expiry of his/her current term of office. The term of office for
a Director shall not be terminated without any justification at a Shareholders' General Meeting before expiry of his/
her term.
The list of Directors of the Company is set out in "Directors, Supervisors and Senior Management" in this report. To
comply with the Hong Kong Listing Rules, the Independent Non-Executive Directors have been clearly identified in all
the corporate communication documents of the Company which disclose their names.
A Director may be removed by an ordinary resolution at a Shareholders' General Meeting before the expiry of his/
her term of office in accordance with relevant laws and regulations (however, any claim made in accordance with
contract shall not be affected).
The term of office for the Independent Non-Executive Directors of the Company shall be the same as that for other
Directors of the Company. The term of office for the Independent Non-Executive Directors of the Company complies
with the relevant laws and the requirements of the governing authority.
The procedures for appointment, re-election and removal of Directors, candidates' qualification and other
requirements of the Company are set out in the Articles of Association and the implementation rules of the
Nomination Committee under the Board of Directors of the Company. The Nomination Committee under the
Board of Directors of the Company shall carefully consider the qualifications and experience of every candidate for
a Director and recommend suitable candidates to the Board of Directors. Upon passing the candidate nomination
proposal, the Board of Directors shall propose election of the related candidates at a Shareholders' General Meeting
and submit the relevant proposal at a Shareholders' General Meeting for consideration and approval.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
Other rights
Chapter V Corporate Governance
Annual Report 2023 (H share)
China Merchants Bank
Other rights conferred by laws, administrative regulations and the Articles of Association of the Company.
The ordinary shareholders of the Company are entitled to receive distributable profits and other forms of profit
appropriation based on their shareholdings. The preference shareholders of the Company are entitled to preferential
profit appropriation.
5.12 Profit Appropriation
If the Company fails to pay dividends on preference shares as agreed for a total of three fiscal years or two
consecutive fiscal years, the voting rights of the preference shareholders shall be restored, and the preference
shareholders shall have the right to attend the Shareholders' General Meeting and vote with ordinary shareholders
from the day following the date on which the Shareholders' General Meeting resolves not to distribute the dividends
of the preference shares as agreed for that year. The voting rights of the aforesaid preference shareholders shall
remain in effect until such time as the Company pays the dividends in full for that year.
123
Special provisions on rights of holders of preference shares
Shareholders are entitled to supervise the operation of the Company and put forward suggestions or inquiries on it,
please refer to Chapter V "Investor Inquiries" for details of the relevant contacts.
Shareholders are entitled to inquire the information on the Company in accordance with the provisions of the
Articles of Association of the Company upon the submission of written documents certifying the class and quantity
of shares of the Company held by the shareholders, on condition that the identity of whom has been verified by the
Company. For shareholders who need to inquire relevant information on the Company or have any inquiries about
their shareholdings in the Company, please refer to sections 1.1.4 and 1.1.9 in Chapter I "Company Information"
for details of the relevant contacts.
Making inquiries and suggestions to the Board of Directors
An extraordinary board meeting may be held if it is requisitioned by shareholders representing more than 10% of
the voting rights. The Chairman shall convene the extraordinary board meeting within 10 days upon receiving such
proposal requisitioned by shareholders representing more than 10% of the voting rights.
Convening of extraordinary board meeting
Chapter V Corporate Governance
5.12.1 The profit appropriation plan for 2023
In the event of any of the following circumstances, the Company shall notify the preference shareholders of the
convening of a Shareholders' General Meeting and follow the procedures for notifying the ordinary shareholders
set forth in the Articles of Association of the Company. The preference shareholders of the Company shall be
entitled to attend the Shareholders' General Meeting and the classified voting with ordinary shareholders on the
following matters: (1) amendments to the Articles of Association in relation to preference shares; (2) reduction of
the registered capital of the Company by more than 10% at one time or in the aggregate; (3) merger, division,
dissolution or change of corporate form of the Company; (4) issuance of preference shares; and (5) other
circumstances as specified by laws, administrative regulations or the Articles of Association.
Ten percent of the audited net profit of the Company for 2023 of RMB137.521 billion, equivalent to RMB13.752
billion, was allocated to the statutory surplus reserve, while 1.5% of the balance of the end-of-period assets with
the Company bearing risks and losses, equivalent to RMB7.787 billion, was appropriated to the general reserve.
2.5% of the Company's mutual fund custody fee income for 2023, equivalent to RMB68 million, was appropriated
to the risk reserve for the mutual fund custody business. 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 RMB1.972 (tax included) for every share to all shareholders of the Company whose names appear on the register,
denominated and declared in Renminbi, payable in Renminbi for holders of A Shares and in Hong Kong Dollars for
holders of H Shares. The actual appropriations amount in HKD would be calculated based on the average RMB/
HKD benchmark rate to be released by the People's Bank of China for the previous week (including the day of the
Shareholders' General Meeting) before the date of the Shareholders' General Meeting. The retained profits will be
carried forward to the next year. In 2023, the Company did not transfer any capital reserve into share capital. The
above profit appropriation plan is subject to consideration and approval at the 2023 Annual General Meeting of the
Company.
financial
statements
5.12.2 Profit appropriation of the Company for the last three years
Proportion of
for the year
(in millions of
5.6.1 Composition of the Board of Supervisors
to holders
of ordinary
shares in the
consolidated
Net profit
attributable
tax, in
millions
of RMB)
Total cash
dividends
(inclusive of
tax, in RMB) (No. of shares)
held
reserve for
every share
of surplus
Number of
shares
issued on
capitalisation
(inclusive of
share held
for every
for every share
Number of Cash dividend
bonus shares
For the other information on the closing date for registration, the period for closure of register of members and
the profit appropriation plan for the shareholders who are entitled to attend the Company's 2023 Annual General
Meeting and those who are entitled to receive the final dividends for 2023, the Company will make further
announcement(s) at appropriate times. The Company expects that the distribution of final dividends to the H
Shareholders will be completed by 30 August 2024.
As of the end of the reporting period, the Board of Supervisors of the Company consists of nine members,
including three Shareholder Supervisors, three Employee Supervisors and three External Supervisors. The proportion
of Employee Supervisors and External Supervisors in the members of the Board of Supervisors each meets the
regulatory requirements. The three Shareholder Supervisors are from large state-owned enterprises where they serve
important posts and have extensive experiences in business management and professional knowledge in finance
and accounting; the three Employee Supervisors have long participated in banking operation and management,
and thus accumulated rich professional experience in finance; and the three External Supervisors have professional
expertise and rich practical experience in corporate governance, investment management, applied science and other
areas. Members of the Board of Supervisors of the Company have professional ethics and professional competence
required for their performance of duties which ensures the effective supervision by the Board of Supervisors.
A Nomination Committee and a Supervisory Committee are established under the Board of Supervisors.
5.6.5
The Board of Supervisors performs its supervisory duties primarily by: holding regular meetings of Board of
Supervisors and its related special committees, attending Shareholders' General Meetings, board meetings and
its special committee meetings, attending major meetings on operation and management held by the senior
management, reviewing various documents of the Company, reviewing work reports and specific reports of the
senior management, conducting opinion exchanges and discussions, carrying out special investigations and surveys at
branches of the Company and having talks with Directors and the senior management over their duty performance
during the year, communicating with external auditors regularly, etc. By doing so, the Board of Supervisors
comprehensively monitors the development strategy, operation and management status, risk management status
and internal control and compliance status of the Company as well as duty performance of the Directors and the
senior management, and puts forward constructive and targeted operation and management advice and supervision
opinions.
Annual Report 2023 (H share)
Independent opinions on relevant matters from the Board of Supervisors are as follows:
Lawful Operation
During the reporting period, the business activities of the Company complied with the Company Law of the People's
Republic of China, Law of the People's Republic of China on Commercial Banks and the Articles of Association
of the Company, 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 non-disclosed behaviours
relating to the violation of relevant laws, regulations or the Articles of Association of the Company or causing
detriment to the interests of the Company and shareholders when performing their duties.
Authenticity of Financial Statements
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu separately audited the
2023 annual financial report prepared in accordance with the PRC Generally Accepted Accounting Principles and
International Financial Reporting Standards and have separately issued standard auditing reports with unqualified
opinions. The financial reports truthfully, objectively and accurately reflect the financial status and operating results
of the Company.
Use of Proceeds
During the reporting period, the use of proceeds of the Company was consistent with such usages as committed in
the Prospectus of the Company.
Purchase and Disposal of Assets
During the reporting period, the Company was not aware 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.
124
In terms of the related party transactions to be disclosed during the reporting period, the Board of Supervisors was
not aware of any conduct in contravention of the Arm's Length Principle or were detrimental to the interests of the
Company and its shareholders.
Implementation of Resolutions Passed at Shareholders' General Meeting(s)
The Board of Supervisors lodged no objections to the reports and proposals submitted by the Board of Directors to
the Shareholders' General Meeting in 2023, supervised the implementation of the resolutions of the Shareholder's
General Meeting(s), and concluded that the Board of Directors had duly implemented relevant resolutions passed at
the Shareholders' General Meeting(s).
Internal Control
The Board of Supervisors had reviewed the "Report on Assessment of Internal Control of China Merchants Bank
Co., Ltd. for 2023", and concurred with the Board of Directors' representations regarding the completeness,
reasonableness and effectiveness of the internal control system of the Company as well as its implementation.
5.7 Investigations/Surveys and Trainings Conducted by Directors and
Supervisors during the Reporting Period
Chapter V Corporate Governance
5.6.2 How the Board of Supervisors performs its supervisory duties
China Merchants Bank
121
5.6.3 Duty performance of the Board of Supervisors during the reporting period
During the reporting period, the Board of Supervisors convened a total of 16 meetings, of which three were on-site
meetings and 13 were meetings convened in the form of written resolutions. 47 proposals regarding development
strategies, business operation, financial activities, internal control, risk management, related party transactions,
consolidation management, corporate governance, data governance, social responsibilities, anti-money laundering
work, consumer rights protection, evaluation of the duty performance of Directors, Supervisors and senior
management and audit on the resignation of senior management were considered, and 25 special reports involving
implementation of risk appetite, disposal of non-performing assets, capital adequacy ratio, equity management,
internal audit, prevention and control of crimes, green finance, were delivered or reviewed at those meetings.
During the reporting period, the Company convened one Shareholders' General Meeting and six on-site board
meetings. Supervisors attended the Shareholders' General Meeting and were present at all the on-site board
meetings and supervised the legitimacy and compliance of convening the Shareholders' General Meeting and the
board meetings, voting procedures, the Directors' attendance at those meetings, expression of opinions and voting
details.
During the reporting period, all the three External Supervisors were able to perform their supervisory duties
independently. The External Supervisors discharged their supervisory duties by attending Shareholders' General
Meetings, meetings of the Board of Supervisors, and special committee meetings of the Board of Supervisors,
participating in meetings of the Board of Directors or any of its related special committees, proactively familiarising
themselves with the operation and management and the implementation of strategies of the Company, and actively
participating in studies and reviews on significant matters. During the adjournment of the meetings of the Board
of Directors and the Board of Supervisors, the External Supervisors reviewed various documents and reports of the
Company, and exchange opinions with the Board of Directors and senior management in respect of the problems
concerned in a timely manner, thereby playing an active role in enabling the Board of Supervisors to perform their
supervisory duties.
During the reporting period, the Board of Supervisors of the Company had no objection to each of the supervisory
matters.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
5.6.4
Operation of the special committees under the Board of Supervisors
The Nomination Committee and the Supervisory Committee are established under the Board of Supervisors, and
as at the end of the reporting period, each consisting of four Supervisors, and both committees were chaired by
External Supervisors.
The Nomination Committee under the Board of Supervisors
As at the end of the reporting period, the members of the Nomination Committee under the Board of Supervisors
included Cai Hongping (Chairman), Peng Bihong, Zhang Xiang and Cai Jin. 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 deliver relevant proposals
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 Directors, Supervisors and senior management, and submit reports to the Board of Supervisors;
to supervise whether the remuneration management system and its implementation among the whole Bank and the
remuneration package for its senior management are scientific and reasonable.
During the reporting period, the Nomination Committee under the Board of Supervisors held a total of two
meetings, at which it reviewed and considered the report of the Board of Supervisors on the duty performance
of the Directors, Supervisors and the senior management in 2022, and reviewed and approved the "Measures on
Evaluation of Duty Performance of Senior Management of China Merchants Bank". In addition, the Nomination
Committee under the Board of Supervisors also supervised the final accounts of total staff costs for 2022 and the
performance-based remuneration recovery and deduction for 2022.
The Supervisory Committee under the Board of Supervisors
As at the end of the reporting period, the members of the Supervisory Committee under the Board of Supervisors
included Xu Zhengjun (Chairman), Luo Sheng, Wu Heng and Cao Jian. The major duties of the Supervisory
Committee are as follows: 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 Company and conduct relevant
examinations; to supervise the adoption by the Board of Directors of prudent business philosophy and value
standards and its formulation of suitable development strategies in line with the actual situations of the Company;
to conduct supervision and assessment on the important financial decisions of the Board of Directors and the senior
management 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
their duty performance; to formulate the specific plans for reviewing the operation decisions, internal control and
risk management of the Company under the authorisation of the Board of Supervisors when necessary; to formulate
the plans for conducting resignation audit on Directors, President and other senior management when necessary.
During the reporting period, the Supervisory Committee under the Board of Supervisors convened a total of eight
meetings, at which it reviewed and considered the work plan of the Board of Supervisors for 2023 and the audit on
the resignation of senior management, amendments to the "Measures for the Audit on the Resignation of Senior
Management of China Merchants Bank" and other issues. 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 under the Board of Directors. They also reviewed the consideration
and discussion of the above special committee on the financial decisions, risk management, capital management,
internal control compliance, internal and external audit and other aspects of the Company, and offered comments
and suggestions on some of the issues.
cash dividend
to net profit
attributable
to holders
of ordinary
shares in the
consolidated
Independent opinions from the Board of Supervisors
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 of the People's Republic
of China, the Articles of Association of the Company and the supervisory duties delegated by relevant supervisory
authorities.
122
financial
statements
Related Party Transactions
held
(No. of shares)
Chapter V Corporate Governance
Year
Annual Report 2023 (H share)
China Merchants Bank
129
For other A-share shareholders (including institutional investors) who are resident enterprises under the Law of the
People's Republic of China on Enterprise Income Tax, the income tax shall be declared and paid by themselves.
о✯✯)(Cai Shui [2014] No. 81), the dividends and bonuses shall be
distributed in RMB by the Company through China Securities Depository and Clearing Corporation Limited Shanghai
Branch to the account of the nominal holder of A shares. The Company will withhold income tax at the tax rate of
10% and apply to the competent taxation authority for withholding declaration. For Northbound Trading investors
who are tax residents of other countries or regions and the income tax rate for dividends and bonuses is lower than
10% as stipulated in the tax treaty signed between its domicile country or region and China, the withholding of
enterprise income tax shall be implemented in accordance with the Announcement of the State Administration of
Taxation on Administrative Measures for Non-resident Taxpayers to Enjoy Treaty Benefits under Tax Treaty (State
Administration of Taxation Announcement No.35 of 2019) and the Notice on the Tax Policies Related to the Pilot
Program of the Shanghai-Hong Kong Stock Connect (Cai Shui [2014] No. 81).
For investors (including enterprises and individuals) of The Stock Exchange of Hong Kong Limited (SEHK) investing
in the Company's A shares listed on Shanghai Stock Exchange (referred to as Northbound Trading). According to
the Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect (
For qualified foreign institutional investor (QFII) shareholders who hold the Company's A shares, the Company shall,
in accordance with the provisions as set forth in the Notice on the Issues Concerning Chinese Resident Enterprises'
Withholding of Enterprise Income Tax for Payment of Dividends, Bonuses, and Interest to QFII (IFR^*
AQFII • FU · FU¤¾¾¾¾HUK) (Guo Shui Han [2009] No.47), the Company
shall withhold and pay the enterprise income tax at the tax rate of 10%. If qualified foreign institutional investor
(QFII) shareholders are involved in enjoying tax treaty (arrangement) treatment, the withholding of enterprise
income tax shall be implemented in accordance with the Announcement of the State Administration of Taxation on
Administrative Measures for Non-resident Taxpayers to be Entitled to Benefits under Tax Treaty (HA
R\‡ŹBÈÌ) (State Administration of Taxation Announcement No.35 of 2019)
and the Notice on the Issues Concerning Chinese Resident Enterprises' Withholding of Enterprise Income Tax for
Payment of Dividends, Bonuses, and Interest to QFII (關於中國居民企業向 QFII 支付股息、紅利、利息代扣代繳企業所
A) (Guo Shui Han [2009] No.47).
For natural person shareholders and securities investment fund shareholders holding the Company's A shares,
according to relevant provisions of the Notice on the Issues Concerning the Implementation of the Policies for
Differentiated Individual Income Tax Imposed upon the Dividends and Bonuses from Listed Companies (
✯✯HA)(Cai Shui [2012] No.85) and the Notice on the Issues
Concerning the Policies for Differentiated Individual Income Tax Imposed upon the Dividends and Bonuses from
Listed Companies (UK) (Cai Shui [2015] No.101), if the
holding period is within one month (including one month), the full amount of dividends and bonuses shall be
included in the taxable income, and the actual tax burden is 20%; if the holding period is from 1 month to 1 year
(including 1 year), 50% of the dividends and bonuses shall be included in the taxable income, and the actual tax
burden is 10%; if the holding period exceeds one year, the dividends and bonuses shall be temporarily exempted
from individual income tax.
A-share shareholders
The shareholders of the Company paid relevant taxes according to the following regulations and the tax laws
updated from time to time, enjoyed possible tax deductions as the case may be, and shall consult with its
professional tax and legal consultants for specific payment affairs. The laws, regulations, and rules cited as follows
are relevant provisions promulgated as of 31 December 2023.
5.13 Taxes and Tax Deductions
Annual Report 2023 (H share)
Chapter V Corporate Governance
China Merchants Bank
During the reporting period, the profit appropriation plan of the Company for 2022 was implemented in
strict accordance with the relevant provisions of the Articles of Association of China Merchants Bank Co.,
Ltd. It was considered and approved by the 15th meeting of the Twelfth Session of the Board of Directors
of the Company and submitted for consideration and approval at the 2022 Annual General Meeting. The
minority shareholders were afforded opportunities to fully express their views and requests. The criteria
and proportion of cash dividends 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 and its
implementation have provided adequate protection for the legitimate rights and interests of minority
investors. The profit appropriation plan of the Company for 2023 will also be implemented in strict
accordance with the relevant provisions of the Articles of Association of China Merchants Bank Co., Ltd..
It will be considered and approved by the 31st meeting of the Twelfth Session of the Board of Directors of
the Company and submitted for consideration and approval at the 2023 Annual General Meeting of the
Company.
(7) 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.
The Company shall pay cash dividends and other amounts to holders of domestic shares listed
domestically 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.
Where appropriation of the Company's fund by a shareholder, which is in violation of relevant rules,
has been identified, the Company shall make a deduction against the cash dividend to be paid to
such shareholder, and such amount shall be used as the reimbursement of the funds appropriated.
If the Board of Directors considers that the price of the shares of the Company does not match the
size of the share capital of the Company or where the Board of Directors considers necessary, the
Board of Directors may propose a profit appropriation plan in the form of shares and implement the
same upon consideration and approval at a Shareholders' General Meeting, provided that the above-
mentioned cash profit appropriation requirements are satisfied.
The Company has recorded the above-mentioned investor reception and communication activities in accordance
with relevant regulatory requirements, and has properly kept the relevant documents.
During the reporting period, the Company participated in investment strategy meetings held by a total of 48
investment banks and securities companies. The Company received 102 online researches of securities analysts and
investors and met with more than 1,200 institutional investors. The Company also answered hundreds of phone
calls from our investors and processed hundreds of messages from our investors on the Company's official website,
investors' mailbox, and "SSE E-interaction" platform.
Investor relations
Information disclosure
The Board of Directors of the Company has reviewed and inspected the implementation of shareholder
communication policies such as investor relations management and information disclosure during the reporting
period of the Company, and believes that the above work of the Company is positive and effective. As of the end
of the reporting period, the price-to-book ratio of the Company's A shares and H shares remained among the top
in the domestic banking industry. The Company has obtained the highest rating of A in the annual information
disclosure evaluation of listed companies on Shanghai Stock Exchange for the tenth consecutive year.
As a company listed on both Shanghai Stock Exchange and the Hong Kong Stock Exchange, the Company has
established a relatively sound system of information disclosure management in accordance with the domestic and
overseas regulatory rules, which provides systematic safeguards and a basis for coordinating the Group's information
disclosure work. The "Management System for Information Disclosure of China Merchants Bank Co., Ltd." and
the "Management System for Inside Information and Insiders of China Merchants Bank Co., Ltd." specify the
internal control procedures and management measures for the disclosure of relevant material information, including
inside information. Meanwhile, the Company has also established a series of targeted operation mechanisms and
workflows based on specific work requirements to ensure that internal and external information is circulated in an
efficient, orderly and confidential manner, so as to guarantee the compliant operation of information disclosure to
the greatest extent.
Investor inquiries
Annual Report 2023 (H share)
Tel: +86 755 8319 8888 (Transfer to the investor relations management team of the Office of the Board of
Directors)
Address: 7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
Office of the Board of Directors of China Merchants Bank
China Merchants Bank
120
Fax: +86 755 8319 5109
Investors may login onto the page of "CMB Info - Investor Relations
-
Contact Us" on the Company's official
website (www.cmbchina.com) and click the URL link "Email" thereon to leave a message for us.
5.11 Shareholders' Rights
Convening of extraordinary Shareholders' General Meetings
An extraordinary Shareholders' General Meeting shall be convened by the Board of Directors upon request in writing
by shareholders individually or jointly holding more than 10% of the Company's voting shares at such meeting.
The Board of Directors shall, in accordance with the laws, administrative regulations and the Articles of Association
of the Company, provide a written reply of approval or disapproval for convening an extraordinary Shareholders'
General Meeting within 10 days upon receiving the request. If the Board of Directors agrees to convene an
extraordinary Shareholders' General Meeting, a notice of such meeting shall be issued within 5 days upon the
approval for a resolution from the Board of Directors.
If the Board of Directors does not agree to convene an extraordinary Shareholders' General Meeting or fails to
make a reply within 10 days upon receiving the request, the proposers are entitled to propose to the Board of
Supervisors in writing to convene an extraordinary Shareholders' General Meeting. If the Board of Supervisors agrees
to convene an extraordinary Shareholders' General Meeting, a notice of such meeting shall be issued within 5 days
upon receiving the request. If the Board of Supervisors fails to give such notice of the meeting within the specified
timeframe, the shareholders individually or jointly holding more than 10% of the Company's voting shares for more
than 90 consecutive days may convene and preside over an extraordinary Shareholders' General Meeting on their
own.
125
126
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
Making interim proposals at the Shareholders' General Meetings
If the Company convenes a Shareholders' General Meeting, shareholders individually or jointly holding more than
3% of the total voting shares of the Company may submit interim proposals in writing to the Company at least 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 of the Shareholders' General Meeting within 2 working days upon
receiving the interim proposals, and announce the contents of such proposals.
Please refer to section 1.1.4 in Chapter I "Company Information" for the relevant contact details of making interim
proposals to the Shareholders' General Meetings.
During the reporting period, the Company strictly complied with statutory obligations of information disclosure,
and disclosed all major information in a truthful, accurate, complete, timely and fair manner. At the same time,
the Company attached importance to enhancing proactiveness and transparency in information disclosure in the
light of investors' needs and further strengthened the disclosure of information of concern to investors and hot
market issues in periodic reports. In accordance with regulatory rules and internal rules and systems, the Company
effectively managed inside information and insiders, and organised the registration of insiders and other related
work in a timely manner. In order to enhance the reading experience of investors, the Company produced a short
video named "CMB Remaining Hopeful Despite Adversity in 2022 for the annual report, which achieved good
communication effects.
The Company attaches great importance to communication with its shareholders, and has established an effective
communication mechanism with investors. The Board of Directors has always adhered to strict compliance with
regulatory requirements, performed the obligation to disclose information in compliance with the law, and constantly
improved the quality of the disclosed information of the Company. The Company provided communication channels
for investors through the Company's official website, investors' mailbox, hotline and "SSE E-interaction" platform,
and in the form of shareholders' meetings, investor briefings, results road shows, investor research, securities analyst
research, etc., which fully satisfied the needs of our investors and analysts at home and abroad to communicate
with the Company.
During the reporting period, the Company held one on-site annual general meeting, held one annual results press
conference, one interim results exchange meeting and two quarterly results exchange meetings in the form of on-
site meeting + video livestreaming; more than 4,000 investors, analysts and media reporters at home and abroad
participated in the annual results press conference in person or online. At the press conference, the Chairman
and senior management made in-depth presentations on the results achieved by the Company in constantly
realising the "Malik Curve" for transformation and development, maintaining dynamically balanced development
of "Quality, Profitability and Scale", building the three major capabilities of "wealth management, Fintech and
risk management", and consolidating the "fortress-style" balance sheet, and elaborated on the meaning of "value
creation bank". At the same time, they gave detailed answers to other market and media concerns such as the
impact of the real estate risk, credit demand and net interest margin outlook and other matters. The Company
released the records of investor exchanges on its official website in a timely manner after the meeting. During the
reporting period, the Company completely resumed offline road show activities, with senior management leading
the team to conduct overseas road shows in Europe, the United States, Singapore, the Middle East and Hong Kong,
China, as well as to conduct domestic road shows in Shenzhen, Shanghai and Beijing, so as to provide an in-depth
introduction of the Company's performance highlights, long-term strategy and investment value to domestic and
overseas investment institutions.
Chapter V Corporate Governance
5.10 Communication with Shareholders
China Merchants Bank
128
127
The profit appropriation plan for 2023 is subject to consideration and approval at the 2023 Annual General Meeting of the Company.
Note:
35.01
142,044
49,734
1.972
To further improve the corporate governance system and reflect its concept of compliance and prudent operation,
sustainable operation and quality development in a full, accurate and comprehensive manner, the Company,
according to the Company Law of the People's Republic of China, the Securities Law of the People's Republic of
China and other laws and regulations and the latest regulatory requirements of domestic and overseas regulatory
authorities, has made all-around review and revision on the Articles of Association of the Company. The amended
Articles of Association had been approved by the PRC banking regulatory authorities during the reporting period.
For details, please refer to the announcement dated 24 April 2023 published by the Company on the websites of
Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited and the Company.
2023 (Note)
33.01
132,775
43,832
1.738
33.00
116,309
38,385
1.522
2021
2022
(%)
RMB)
Chapter V Corporate Governance
5.12.3 The formulation and implementation of the Company's cash dividend policies
Annual Report 2023 (H share)
As specified in the Articles of Association of China Merchants Bank Co., Ltd., the profit appropriation policies
of the ordinary shares of the Company are:
Annual Report 2023 (H share)
China Merchants Bank
During the reporting period, the Board of Directors and the Board of Supervisors of the Company organised four
investigations/surveys, through which the duty performance, decision-making ability and effectiveness of supervision
of our Directors and Supervisors continued to improve.
During the reporting period, the Board of Directors of the Company organised three investigations/surveys for
the Directors, during which the Directors visited some of the province-level and city-level branches to have deep
understanding of the operation and management of the branches and sub-branches, reviewed reports of the
branches on operation and management, risk management and control, internal control management, cost
management and protection of consumers' rights and interests and put forward targeted opinions and suggestions.
The Board of Supervisors of the Company conducted one collective investigation, involving three branches and sub-
branches. The investigation was carried out based on the problem-oriented approach. By having deep understanding
of problems in operation faced by the branches, the Board of Supervisors provided advices to the branches on-
site, actively coordinated with the Head Office to respond to the demands of branches, and provided guidance
and supervisory opinions to the branches in terms of adhering to the guidance of Party building, deepening the
implementation of strategies, fulfilling social responsibilities and strengthening the operational management and
risk management. Through the supervisory mechanism, the Board of Supervisors provided feedback to the senior
management and the Head Office on the demands and suggestions of the branches, and promoted the resolution
of relevant issues at the system and mechanism level, thus effectively improving the quality and efficiency of the
investigation of the Board of Supervisors.
If the Company generated profits in the previous accounting year but the Board of Directors did not
make any cash profit appropriation plan 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.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
1.
The aforesaid investigation and training would be conducive to promoting the improvement of duty performance by
the Directors and Supervisors of the Company, ensuring that the Directors and Supervisors get the full picture of the
information required for their duty performance and continuing to make contributions to the Board of Directors and
the Board of Supervisors of the Company.
5.8 Company Secretary under Hong Kong Listing Rules
During the reporting period, all Directors and Supervisors of the Company participated in the training of "Anti-
Money Laundering and Sanctions Compliance" according to the requirements on duty performance, systematically
studied the external situation of anti-money laundering, risk trends of money laundering, the use of anti-money
laundering technology and new regulations on anti-money laundering, continuously enhancing the ability of
the Board of Directors and the Board of Supervisors to fulfill their duties in the areas of anti-money laundering
and sanctions compliance. The Non-Executive Directors and all Supervisors of the Company reviewed the report
on "Sustainable Information Disclosure and Governance Practices of Commercial Banks", to have an in-depth
understanding of the risks of climate changes, trends in sustainable information disclosure and the low-carbon
transition practices of industry peers, thereby enhancing their own ESG governance capabilities. The Company
conducted confidentiality training for all Directors and Supervisors to strengthen the sense of confidentiality of
Directors and Supervisors in their daily work and to implement confidentiality management requirements. The
new Directors and Supervisors of the Company attended the initial training for Directors and Supervisors held by
Shanghai Stock Exchange, during which they had systematic study on the concept of regulation of listed companies,
highlights of management of changes in shareholdings, corporate governance and duty performance to be
discharged by Supervisors, regulatory cases, etc. In addition, the Directors and Supervisors of the Company studied
the course of "Interpretation on the Reform of the Independent Director System of Public Companies" delivered
by China Association for Public Companies, so as to keep abreast of the update on the reform of the independent
director system in a timely manner.
During the reporting period, Mr. Peng Jiawen and Ms. Ho Wing Tsz Wendy attended the relevant professional
trainings for not less than 15 hours in compliance with the requirements of Rule 3.29 of the Hong Kong Listing
Rules.
(1)
Mr. Peng Jiawen and Ms. Ho Wing Tsz Wendy of Tricor Services Limited, an external services provider, were the
joint company secretaries of the Company under the Hong Kong Listing Rules. Mr. Peng Jiawen is the major contact
person of the Company on internal issues.
2.
(2)
(3)
Profit appropriation of the Company shall focus on reasonable returns on investment of shareholders,
and such policies shall maintain continuity and stability.
(5)
(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 to shareholders of ordinary shares each year in principle shall not be less than 30% of the
net profit after taxation attributable to shareholders of ordinary shares 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 authorised
by the shareholders at a Shareholders' General Meeting to approve the interim profit appropriation
plan.
5.9 Major Amendments to the Articles of Association
(4)
6-107, 6-108 1st Financial Street, Binhu
464 Fudong Road, Lucheng District,
Wenzhou
Wenzhou Branch
District, Wuxi
71,093
20
Wuxi Branch
442,813
34
Global Markets
Centre
893,692
1
686 Lai'an Road, Pudong New Area,
Shanghai
Credit Card Centre
3,182,493
1
7088 Shennan Boulevard, Futian District,
Shenzhen
Head Office
of RMB)
branches
Business address
Name of branch
Region
Head Office
No. of (in millions
Asset scale
5.16 Head Office and Branches and Representative Offices
Yangtze River Delta Shanghai Branch
156,045
Shanghai Pilot
Floor 6, Building 2, No. 1088, Lujiazui Ring
Road, Pudong New Area, Shanghai
1088 Lujiazui Ring Road, Pudong New
Area, Shanghai
36 Wansheng Street, Industrial Park,
Suzhou
Suzhou Branch
105,030
34
342 Min' an East Road, Yinzhou District,
Ningbo
Ningbo Branch
279,521
78
281,062
85
199 Lushan Road, Jianye District, Nanjing
300 Fuchun Road, Shangcheng District,
Hangzhou
10,477
4
56 Bohang Road, Pudong New Area,
Shanghai
102
977,988
1
Free Trade Zone
Branch
Nanjing Branch
Hangzhou Branch
15
Hexi District, Tianjin
Bohai Rim
Shijiazhuang Branch 172 Zhonghua South Street, Qiaoxi District,
20
36,123
Shijiazhuang
Pearl River Delta
and the Western
Taiwan Straits
Economic Zone
Tangshan Branch
Guangzhou Branch
Shenzhen Branch
45 Beixinxi Road, Lubei District, Tangshan
11
12,987
5 Huasui Road, Tianhe District, Guangzhou
2016 Shennan Boulevard, Futian District,
Shenzhen
74
267,947
121
551,106
Fuzhou Branch
316 Jiangbinzhong Boulevard, Taijiang
District, Fuzhou
41
82,835
Xiamen Branch
18 Lingshiguan Road, Siming District,
Xiamen
33
Technological Development Area, Yantai
32,305
17
117 Changjiang Road, Economic &
Nantong Branch
Beijing Branch
111 Gongnong Road, Nantong
18
38,327
156 Fuxingmen Nei Dajie, Xicheng District,
129
515,074
Beijing
Qingdao Branch
65 Hai'er Road, Laoshan District, Qingdao
39,404
54
Tianjin Branch
255 Guangdong Road and 9 Qianjin Road,
44
106,417
Chapter V Corporate Governance
Jinan Branch
7000 Jingshi Road, High-tech Zone, Jinan
64
136,831
Yantai Branch
77,123
Annual Report 2023 (H share)
Institutional Customers Department
*independent secondary department
District, Nanchang
Changsha Branch
39 Chazishan East Road, Yuelu District,
Quanzhou Branch
35
50,799
51
12 Shiyiwei Road, Heping District, Shenyang
17 Renmin Road, Zhongshan District, Dalian
3 Zhongyang Avenue, Daoli District, Harbin
9999 Renmin Avenue, Nanguan District,
Changchun
84,347
36
74,215
29
Baozhou Road, Fengze District, Quanzhou
200 Hongfu Road, Nancheng District,
Dongguan
12 Denghu Road East, Nanhai District,
Foshan
Shenyang Branch
Dalian Branch
Harbin Branch
Changchun Branch
Foshan Branch
Dongguan Branch
Northeast
•), South of Eastern Section of
32,445
17
98,245
51
1111 Huizhan Road, Honggutan New
Nanchang Branch
210,665
99
188 Yunxia Road, Jianghan District, Wuhan
Wuhan Branch
of RMB)
branches
Business address
Name of branch
Region
Central
(in millions
China SCE⚫ International Finance Centre (+
No. of
Annual Report 2023 (H share)
Chapter V Corporate Governance
China Merchants Bank
134
133
26,806
23
46,617
40
44,465
Asset scale
China Merchants Bank
Investment Management Department*
Procurement Management Department*
Information Technology Department
Audit Department
Inspection Department
Party Committee Inspection Leading Team Office
Legal Compliance Department
CMB Research Institute
Training Centre
Operation Centre*
Retail Application R&D Centre"
Wholesale Application R&D Centre*
Infrastructure R&D Centre*
Data Asset and Platform R&D Centre*
Testing Centre"
Cloud Data Centre*
Security Department*
Anti-money Laundering and
Sanction Compliance Management Centre"
Office of the Labour Union
Administration Department
Representative Offices (United States and Taipei)
Project Management Department*
Note "secondary department
Operation Management Department
Asset Security Department
Credit Approval Department
Market Risk Management Department*
Pension Finance Department
Financial Institutions Department
Transaction Banking Department
Cross-border Finance Department
Inclusive Finance Department
General Office of Investment Banking and Financial Markets
Investment Banking Department
Global Markets Centre
Asset Management Department
Asset Custody Department
Overseas Branch Management Department*
Bills Business Department
General Office of Retail Finance
Offshore Business Department*
Wealth Management Platform Department
Network Operation Service Centre*
Private Banking Department
Retail Credit Business Department
Credit Card Centre
Risk Management Department
Consumer Finance Centre*
Operational Risk Management Department*
Bill Brokerage Department*
80,627
6.13 Disciplinary Actions Imposed on the Company, Directors,
Supervisors or Senior Management
Luxembourg Branch
London Branch
1 Raffles Place, Tower 2, #32-61, Singapore
333, Section 1, Jilong Road, Xinyi District,
Taipei
Singapore Branch
61,224
1
535 Madison Avenue, 18th Floor, New
York, U.S.A
New York Branch
1
535 Madison Avenue, 18th Floor, New
York, U.S.A
USA Representative
Office
1
50
Changsha
West
Hefei Branch
Zhengzhou Branch
Taiyuan Branch
Haikou Branch
Lanzhou Branch
Xi'an Branch
Chongqing Branch
108,116
Urumchi Branch
Kunming Branch
169 Funan Road, Hefei
42
97,834
97,690
14,799
/
5.18 Internal Audit
During the reporting period, the Company organised evaluation campaigns on the status of internal control of the
whole Bank in 2023. 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 details,
please refer to the "Report of Evaluation on Internal Control of China Merchants Bank Co., Ltd. in 2023", and
the "Auditors' Report on Internal Control of China Merchants Bank Co., Ltd. in 2023" issued by Deloitte Touche
Tohmatsu Certified Public Accountants LLP with standard unqualified opinions.
During the reporting period, the Company continued to conduct educational program in respect of compliance,
case study and code of conduct while constantly strengthening employees' awareness of risks, compliance, policies
and the big picture, actively carried out the culture publicity activity of "Compliance 2023". By organising various
compliance publicity activities such as the compliance image publicity video exhibition, writing competition on
compliance, selection for excellent compliance teaching, online learning of "compliance short video", etc., the
Company further enhanced the compliance awareness and red-line mentality of all management staff and employees,
and deeply cultivated the compliance culture of "observing laws and disciplines", providing long-term compliance
guarantee for the healthy development of various businesses. Meanwhile, the Company further strengthened the
internal supervision and inspection work, organised the Head Office departments and domestic branches to prepare
annual inspection plans based on the weak management areas and problem-prone aspects while supervising the
implementation of these plans, and promoted the establishment of inspection and supervision teams at all domestic
branches to ensure that the management of branches can proactively, comprehensively and effectively grasp the
problems and deficiencies in risk management and internal control of their respective branches. In addition, the
Company fully implemented the rectification work of the problems found in the internal and external inspection and
effectively guaranteed the compliance operation and stable development of the Company's businesses.
5.17 Internal Control
Chapter V Corporate Governance
China Merchants Bank
Annual Report 2023 (H share)
10,317,223
1,935
/
/
1
Total
1
10,936
1
13,476
1
20 Boulevard Royal, L-2449, Luxembourg
18/F, 20 Fenchurch Street, London, UK
L39, GPT, 1 Farrer Place, Sydney, NSW
Taipei
Sydney Branch
31/F, Three Exchange Square, 8 Connaught
Place, Central, Hong Kong
Representative
Office
12,283
96 Nongye Road East, Zhengzhou
53
101,307
24
33,349
Nanning Branch
No. 136-5 Minzu Avenue, Qingxiu District,
Nanning
20
20
40,499
Guiyang Branch
West 2nd Tower, International Finance
18
9 Chilechuan Avenue, Saihan District,
Hohhot
34,433
Centre, Guanshanhu District, Guiyang
138 Beijingzhong Road, Jinfeng District,
15
16,982
Yinchuan
Xining Branch
79 Haiyan Road, Chengxi District, Xining
10
10,570
Overseas
Hong Kong Branch
Yinchuan Branch
Hohhot Branch
74,485
56
265 Nan Zhong Huan Road, Xiaodian
District, Taiyuan
23
37,794
1 Shimao Road North, Haikou
10
34,585
Chengdu Branch
1, the 3rd section of Renmin Road South,
Wuhou District, Chengdu
59
121,684
9 Qingyang Road, Chengguan District,
Lanzhou
45
25
43,304
1 Gaoxin No.2 Road, Gaoxin District, Xi'an
88 Xingguang Road, New North District,
Chongqing
69
141,213
53
130,442
2 Huanghe Road, Urumchi
18
34,294
1 Chongren Street, Wuhua District,
Kunming
The Company implements an independent and vertical internal audit system. The Board of Directors shall take the
ultimate responsibility for the independence and effectiveness of the internal audit, review and approve the internal
audit charter, audit organisation system, medium- and long-term audit plan and annual audit plan, appoint the
head of the Audit Department, provide necessary guarantees for the independent and objective implementation
of internal audit and assess the independence and effectiveness of internal audit. The Head Office has set up an
Audit Department to undertake specific internal audit responsibilities, accept the leadership of the Head Office
Party Committee, be responsible for and report to the Board of Directors and its Audit Committee and accept the
guidance of the Board of Supervisors. The Head Office Audit Department has nine audit divisions to strengthen the
audit, inspection and rectification follow-up of regional branches and institutions. The Head Office Audit Department
has set up nine teams to increase support and guidance to the audit division and four corresponding audit teams to
strengthen the audit of Head Office departments, overseas institutions, credit card business, etc.
During the reporting period, the Company further strengthened internal control, risk management, and internal
audit. The Company focused on the implementation of national economic and financial policies, followed the key
points of strategy, risk and supervision, adhered to the value and problem orientation, carried out audit inspection
around serving the real economy, green finance, inclusive finance and other aspects, prevented risks, promoted
rectification, consolidated the foundation, promoted the construction of digital audit, and effectively promoted the
steady development of bank-wide operation and management.
1
The Company has applied the principles set out in the Corporate Governance Code set out in Appendix C1 to the
Hong Kong Listing Rules to its corporate governance structure and practices, and the application of such principles
is set out in this report. During the reporting period, the Company had complied with the principles and code
provisions of the Corporate Governance Code and adhered to the majority of the recommended best practices
thereunder.
According to relevant provisions of the Notice on Matters Concerning the Levy and Administration of Individual
Income Tax after the Repeal of Guo Shui Fa [1993] No. 045 ([1993]045¾Ð
(Guo Shui Han [2011] No. 348) and the Notice on the Issues Concerning Chinese Resident Enterprises'
Withholding of Enterprise Income Tax for Distribution of Dividends to H-share Shareholders Who Are Foreign Non-
resident Enterprises (關於中國居民企業向境外 H 股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知)
(Guo Shui Han [2008] No.897), the Company withholds dividend income tax at the tax rate of 10% for individual
and enterprise shareholders of the Company's H shares. However, if otherwise set forth in relevant tax laws,
regulations, and treaties, the Company shall handle specifically in accordance with the collection and administration
requirements of the taxation authorities.
For investors investing in the Company's H shares through Southbound Trading, according to the relevant
requirements of the Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock
Connect (Cai Shui [2014] No. 81) and the Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-
Hong Kong Stock Connect (Cai Shui [2016] No. 127), the Company shall withhold individual income tax at the tax
rate of 20% for dividends received by individual investors in the Chinese mainland from investing in the Company's
H shares through Southbound Trading; dividends received by securities investment funds in the Chinese mainland
from investing in the Company's H shares through Southbound Trading shall be taxed as individual investors; the
Company will not withhold income tax on dividends for corporate investors in the Chinese mainland, and the tax
payable shall be declared and paid by the relevant enterprises themselves.
Shareholders of domestic preferred shares
The individual income tax payment matters related to the dividends of domestic preferred shares obtained by
individuals through non-public issuance shall be handled in accordance with relevant taxation laws and regulations
of China.
According to the Law of the People's Republic of China on Enterprise Income Tax and the Regulations for
Implementation of the Law on Enterprise Income Tax, the dividend income of domestic preferred shares among
eligible resident enterprises shall be tax-free income. The dividend income of domestic preferred shares obtained
by non-resident enterprises shall be tax-deductible, and the enterprise income tax shall be levied at the tax rate of
10%.
China Merchants Bank
Annual Report 2023 (H share)
Chapter V Corporate Governance
5.14 Information on Employees
5.19 Compliance with the Corporate Governance Code
As of 31 December 2023, the Group had a total of 116,529 employees 27 (including dispatched employees).
The classification of the Group's employees by profession is: 19,746 employees in corporate finance, 52,834
employees in retail finance, 6,844 employees in risk management, 17,377 employees in operation and management,
10,650 employees in research and development, 983 employees in administrative and logistics support and 8,095
employees in comprehensive management.
The classification of the Group's employees by educational background is: 28,352 employees with master's degrees
and above, 74,849 employees with bachelor's degrees and 13,328 employees with junior college degrees or below.
The distribution of the Group's employees by regions is: 29,066 employees in the Yangtze River Delta, 14,471
employees in the Bohai Rim, 36,176 employees in the Pearl River Delta and the Western Taiwan Straits Economic
Zone, 5,217 employees in the Northeast, 12,361 employees in the Central, 16,029 employees in the West and 3,209
employees outside the Chinese mainland.
The classification of the Group's employees in research and development by educational background is: 5,087
employees with master's degrees or above, 5,453 employees with bachelor's degrees and 110 employees with junior
college degrees or below. The age structure is as follows: 5,424 employees aged 30 and below, 4,263 employees
aged 30-40 (excluding 30, but including 40), 813 employees aged 40-50 (excluding 40, but including 50) and 150
employees aged 50-60 (excluding 50, but including 60).
The Company is committed to eliminating gender discrimination in recruitment. In terms of remuneration
management, the Company adheres to the principle of gender equality in remuneration and benefits, and provides
employees with equal training and career development opportunities. For details, please refer to 4.3.6 "Human
resources development" in this report. The Company will continue to take steps to promote diversity among
employees at all levels.
Staff remuneration policy and training
The Company's remuneration policy is in line with its cultural concepts, operation targets and corporate values.
It aims to "improve its market-based remuneration incentive and restrictive mechanisms, serve its strategic and
business development and fully mobilise the enthusiasm of its teams". The remuneration policy adheres to the
remuneration management principles featuring "value guidance, performance base, Six Can-do mechanism and risk
control" and reflects the remuneration concept of "get more pay for more work in a flexible way". At the same
time, in order to mitigate various operating and management risks, the Company has established a mechanism
related to remuneration deferred payment and performance-based remuneration recovery and deduction in
accordance with regulatory requirements and operational management needs. During the reporting period, the
Company implemented the performance-based remuneration recovery and deduction against 4,415 people, with the
performance-based remuneration recovery and deduction amount of RMB43.29 million.
The Company has established a multi-level, professional and digital talent training system, and adopts a diversified
training method that combines online and offline training. The contents of training mainly focus on knowledge of its
business and products, professional ethics and risk compliance, cultural values and leadership, covering employees'
needs for career growth at different levels.
For details of the Company's human resources development, please refer to section 4.3.6 "Human resources
development" in this report.
27
Including employees of the Company, CMB Wing Lung Bank and its subsidiaries, CMB Financial Leasing, CMB International Capital and its subsidiaries, CMB
Wealth Management, China Merchants Fund and its subsidiaries, CIGNA & CMB Life Insurance, CIGNA & CMAM, MUCFC, CMB Network Technology and
CMB YunChuang.
The classification of the Group's employees by gender is: 49,864 males and 66,665 females, with a relatively
balanced gender ratio.
131
H-share shareholders
Annual Report 2023 (H share)
Both "connected transactions" and "connected parties" in this section are terms used in Hong Kong Listing Rules.
28
During the reporting period, the continuing connected transactions between the Company and CMFM Group
amounted to RMB1,016 million.
On 28 December 2022, the Company entered into a Business Co-operation Agreement with CMFM on normal
commercial principles after arm's length negotiation for a term commencing on 1 January 2023 and expiring on
31 December 2025. CMFM Group shall calculate fees based on the rates specified in the fund offering documents
and/or the offering prospectuses, and shall pay agency service fees to the Company according to the agreement.
Meanwhile, the Company has announced the annual caps of RMB1.5 billion, RMB1.8 billion and RMB2.2 billion for
the continuing connected transactions with CMFM Group for 2023, 2024 and 2025, respectively as approved by the
Board of Directors. The annual caps for the service fees were not more than 5% of the relevant percentage ratios
calculated in accordance with Rule 14.07 of the Hong Kong Listing Rules. 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. For details, please refer to the relevant
announcement of the Company dated 28 December 2022.
As at the end of the reporting period, the Company and China Merchants Securities Co., Ltd. held 55% and 45%
of the equity interest in CMFM, respectively. Therefore, in accordance with the Hong Kong Listing Rules, CMFM
and its associates ("CMFM Group") are connected parties of the Company, and the fund agency distribution service
provided by the Company to CMFM Group constituted non-exempt continuing connected transactions of the
Company under the Hong Kong Listing Rules.
6.16.2 Non-exempt continuing connected transactions
Pursuant to Chapter 14A of the Hong Kong Listing Rules, a majority of continuing connected transactions of the
Company met de minimis exemption and the non-exempt continuing connected transactions fulfilled the relevant
reporting and announcement required by the Hong Kong Listing Rules.
6.16.1 Overview of connected transactions
6.16 Significant Connected Transactions28
According to the relevant requirements of the CSRC, the Company considered and approved the "Resolution
Regarding the Dilution of Current Returns by the Non-public Issuance of Preference Shares and the Remedial
Measures" at its 2016 Annual General Meeting, and formulated the remedial measures in respect of the dilution
of current returns of the holders of ordinary shares which may be caused by the non-public issuance of preference
shares. Meanwhile, the Directors and senior management of the Company also undertook to earnestly implement
the remedial measures. For details, please refer to the documents of the 2016 Annual General Meeting of the
Company published on the website of the Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited
and the Company. So far as the Company is aware, as at the end of the reporting period, neither the Company nor
its Directors and senior management had breached any of the aforesaid undertakings.
Chapter V Corporate Governance
In the course of the rights issue of A shares and H shares in 2013, each of China Merchants Group Ltd., China
Merchants Steam Navigation Co., Ltd. (KESĦRA) (now renamed as China Merchants Steam
Navigation Co., Ltd. () and China Ocean Shipping (Group) Company (now renamed as China
Ocean Shipping Company Limited) had undertaken that they would not seek for related party transactions on
terms more favourable 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.
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 the 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 websites of Shanghai Stock Exchange, Hong Kong Exchanges and Clearing
Limited and the Company. So far as the Company is aware, as at the end of the reporting period, the above
shareholders had not violated the aforesaid undertakings.
Chapter VI Important Events
China Merchants Bank
Annual Report 2023 (H share)
During the reporting period, there were no circumstances where the Company failed to fulfill any obligation under
effective court judgements or repay any due debt of a significant amount.
6.14 Explanation on the Integrity of the Company
During the reporting period, the Company was not subject to criminal investigations for suspected crimes. The
Company, its Directors, Supervisors and senior management members were not subject to criminal punishment, or
subject to investigations by the CSRC or administrative punishment by the CSRC for suspected violations of laws and
regulations, or subject to administrative punishments by other competent authorities that have major impact on the
operation of the Company. None of the Directors, Supervisors and senior management members of the Company
was subject to compulsory measures in accordance with the law for suspected crimes, or subject to detention by
the disciplinary inspection and supervision authorities for suspected serious violations of laws and regulations or
duty-related crimes that affected the performance of their duties, or subject to compulsory measures taken by other
competent authorities for suspected violations of laws and regulations that affected the performance of their duties.
China Merchants Bank
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 terminable by the Company
within one year without payment of compensation (excluding statutory compensation).
6.12 Contractual Rights and Service Contracts of Directors and
Supervisors
Save as disclosed herein, the Company is not aware that there has been any financial, business, kinship or other
material or connected relations among the Directors, Supervisors and senior management of the Company.
6.11 Financial, Business and Kinship Relations among Directors,
Supervisors and Senior Management
6.15 Undertakings
139
132
Chapter V Corporate Governance
Details about retirement welfare provided by the Company to its employees are detailed in Note 39 to the financial
statements.
6.7 Retirement and Welfare
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.
6.6 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
Changes in fixed assets of the Company as at the end of the reporting period are detailed in Note 28 to the
financial statements.
6.4 Fixed Assets
For details of changes in the reserve available for distribution of the Company, please refer to the "Statement of
Changes in Equity" in the financial statements.
6.3 Reserve Available for Distribution
6.8 Principal Customers
Details are set out in Chapter II Summary of Accounting Data and Financial Indicators.
The Company is engaged in banking and related financial services.
6.1 Principal Business Activities
Important Events
137
Chapter VI Important Events
Annual Report 2023 (H share)
China Merchants Bank
to grow together
Focusing on the core
needs of customers,
accompanying customers
135
6.2 Financial Highlights
China Merchants Bank
As at the end of the reporting period, the net operating income contributed by the top 5 customers of the Company
did not exceed 30% of the total net operating income of the Company.
China Merchants Bank
Annual Report 2023 (H share)
5.15 Organisational Structure of the Company as at the End of the Reporting Period
China Merchants Bank
Head Office
Branches
Sub-branches
Office of the Board of Directors
Office of the Board of Supervisors
General Office
Consumer Rights Protection Centre (Customer Service Centre)#
138
Human Resources Department
Assets and Liabilities Management Department
Financial Accounting Department
General Office of Corporate Finance
Strategic Customers Department
During the reporting period, 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.
6.10 Directors' Interests in the Businesses Competing with Those of
the Company
During the reporting period, the Company has complied in all material aspects with the relevant laws and
regulations that would have a material impact on the operations of the Company.
6.9 Compliance with Laws and Regulations
Annual Report 2023 (H share)
Chapter VI Important Events
Fintech Office
130
(4) JPMorgan Chase & Co. was deemed to hold a total of 308,250,977 H shares (long position) and 37,469,112 H shares (short position) in the
Company by virtue of its control over a number of companies. The equity interests and short positions of JPMorgan Chase & Co. in the Company
included a lending pool of 86,536,612 H shares. Besides, 13,513,059 H shares (long position) and 18,661,133 H shares (short position) were held
through derivatives as follows:
- through physically settled unlisted derivatives
-through cash settled unlisted derivatives.
H
BlackRock, Inc.
0.15
0.82
4
37,469,112
320,853
Investment manager
Short
Long
corporation
Interest of controlled
Short
1.22
6.71
4
308,250,977
86,536,612
Approved lending agent
180
37,148,259
Trustee
Short
271,479,387
- through physically settled listed derivatives
-through cash settled listed derivatives
2,868,500 H shares (long position) and 4,922,000 H shares (short position)
29,500 H shares (long position) and 782,722 H shares (short position)
2,945,279 H shares (long position) and 7,517,347 H shares (short position)
7,669,780 H shares (long position) and 5,439,064 H shares (short position)
The 477,903,500 H shares referred to in (3) and (3.1) to (3.3) above represented the same shares.
Compass Investment Company Limited was deemed to hold interests in the 477,903,500 H shares in the Company which was deemed to
be held by CNIC Corporation Limited by virtue of holding 90% interest in CNIC Corporation Limited.
Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited. Therefore, CNIC Corporation Limited was deemed to
hold interests in the 477,903,500 H shares in the Company which was deemed to be held by Verise Holdings Company 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 the 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.
(3.3)
(3.2)
(3.1)
Interest of controlled
corporation
Interest of controlled
corporation
(3) Pagoda Tree Investment Company Limited was deemed to hold interests in the 477,903,500 H shares in the Company held by China Merchants
Union (BVI) Limited by virtue of its wholly owned subsidiary Compass Investment Company Limited:
(1) For details of China Merchants Group Ltd. and its subsidiaries' interests in the Company, please refer to section 7.3.1 "Information on the
Company's largest shareholder" in this report.
Notes:
0.003
0.02
5
752,500
1.08
5.91
5
(2) New China Asset Management Co., Ltd. is the trustee of all the A shares in the Company held by Hexie Health Insurance Co., Ltd., by virtue of
which New China Asset Management Co., Ltd. was deemed to hold interests in all the A shares in the Company held by Hexie Health Insurance
Co., Ltd..
6,752,746,952
Interest of controlled
Other
ordinary
shares (%)
Percentage
of the
total issued
Percentage
of the
relevant class
of shares
in issue (%)
(shares) Notes
6,697,550,412
14,530,768
Long
A
China Merchants Group
Capacity
shares position
shareholder
No. of shares
Long/short
Class of
substantial
Name of
As at 31 December 2023, substantial shareholders had interests and short positions in the shares of the Company
under Hong Kong laws and regulations as recorded in the register required to be kept by the Company pursuant to
Section 336 of the SFO (in this report, any discrepancies between the total shown and the sum of the amounts listed
are due to rounding) as follows:
7.3.4 Substantial shareholders' interests and short positions in the Company under
Hong Kong laws and regulations
Chapter VII Changes in Shares and Information on Shareholders
Annual Report 2023 (H share)
China Merchants Bank
148
147
Ltd.
corporation
Long
Others
Long
corporation
3,408,080,075
Interest of controlled
Long
Navigation Co., Ltd.
3,289,470,337
Beneficial owner
Long
A
China Merchants Steam
149
corporation
17.57
1
806,680,423
Interest of controlled
Long
H
26.78
32.73
1
6,752,746,952
55,196,540
3.20
in shares
Company Limited
having a security interest
A
Best Winner Investment
Holdings Limited)
corporation
(former name: CMF
1.30
7.16
1
Long
328,776,923
Long
H
Company Limited
corporation
Holdings (Hong Kong)
0.23
0.28
1
Interest of controlled
58,147,140
Beneficial owner
1
4.99
6.10
1
1,258,542,349
Beneficial owner
Long
A
Shenzhen Yan Qing
58,147,140
1.30
1
328,776,923
Beneficial owner
Long
H
Limited
0.23
0.28
7.16
Investment and
Interest of controlled
China Merchants Financial A
Long
Holdings Co., Ltd.
1,147,377,415
Beneficial owner
Long
China Merchants Financial A
corporation
3.20
Interest of controlled
17.57
806,680,423
Interest of controlled
Long
H
26.78
32.73
1
As at the end of the reporting period, SAIC Motor Corporation Limited held 1.23% shares in the Company
and has appointed a Supervisor in the Company. There was no pledge of the shares of the Company. SAIC
Motor Corporation Limited was established on 16 April 1984, with a registered capital of RMB11.683 billion
as at the end of the reporting period, and its legal representative is Chen Hong. Its de facto controller is the
State-owned Assets Supervision and Administration Commission of Shanghai.
1
Long
2,260,702,660
corporation
1.30
7.16
1
328,776,923
corporation
Long
H
Interest of controlled
(former name: China
Co., Ltd.)
16.79
1
3,463,276,615
Investment Holdings
55,196,540
Other
Long
Merchants Finance
13.73
Long
Development
China Ocean Shipping
3
477,903,500
Interest of controlled
corporation
Long
Verise Holdings Company H
Limited
corporation
1.89
10.41
10.41
3
ordinary
shares (%)
in issue (%)
Notes
(shares)
of shares
No. of shares
Percentage
of the
total issued
Percentage
of the
relevant class
477,903,500
Interest of controlled
1.89
H
Long
164,968,770
Investment manager Person
Long
corporation
Long
42,214,647
Interest of controlled
China Merchants Union
Long
JPMorgan Chase & Co.
(BVI) Limited
1.89
10.41
3
477,903,500
Beneficial Owner
Long
H
Company Ltd.
Long
Capacity
Long
Pagoda Tree Investment H
Co. Ltd.
4.48
5.48
2
1,130,991,537
Beneficial owner
55,196,540
Long
Hexie Health Insurance
Company Limited
6.24
7.63
1,574,729,111
Beneficial owner
Long
A
A
CNIC Corporation Limited H
Interest of controlled
corporation
3
Long/short
position
Class of
shares
shareholder
Name of
substantial
Chapter VII Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2023 (H share)
1.89
10.41
477,903,500
3
Interest of controlled
corporation
Company Limited
Long
H
Compass Investment
(中國華馨投資有限公司)
1.89
10.41
477,903,500
As at the end of the reporting period, China Communications Construction Group Ltd. through its holding
subsidiaries, namely China Communications Construction Company Limited, CCCC Capital Holdings Limited,
CCCC Guangzhou Dredging Co., Ltd., CCCC Fourth Harbour Engineering Co., Ltd., CCCC Shanghai
Dredging Co., Ltd., Zhen Hua (Shenzhen) Engineering Co., Ltd. and CCCC Third Harbour Consultants Co.,
Ltd., indirectly held an aggregate of 1.68% shares in the Company. As at the end of the reporting period,
China Communications Construction Group has appointed a Supervisor in the Company. There was no
pledge of the shares of the Company. China Communications Construction Group Ltd. was established on
8 December 2005, with a registered capital of RMB7.274 billion as at the end of the reporting period, and
its legal representative is Wang Tongzhou. Its de facto controller is the State-owned Assets Supervision and
Administration Commission of the State Council.
China Merchants Bank
3.
25,219,845,601
18.20
4,590,901,172
100.00
81.80
25,219,845,601
20,628,944,429
100.00
25,219,845,601
Total shares
3.
18.20
4,590,901,172
(3) Foreign shares listed overseas (H Shares)
(4) Others
(2) Foreign shares listed domestically
100.00
81.80
20,628,944,429
(1) Ordinary shares in RMB (A Shares)
25,219,845,601
100.00
As at the end of the reporting period, the Company had a total of 676,450 shareholders of ordinary shares,
including 647,881 holders of A Shares and 28,569 holders of H Shares. Neither the holders of A Shares nor the
holders of H Shares are subject to trading restrictions on sales.
As at the end of the previous month prior to the disclosure date of this report (i.e., 29 February 2024), the Company
had a total of 608,227 holders of ordinary shares, including 579,752 holders of A Shares and 28,475 holders of H
Shares. Neither the holders of A Shares nor the holders of H Shares are subject to trading restrictions on sales.
Based on the publicly available information and to the knowledge of the Directors, as at the end of the reporting
period, the Company had maintained the public float in compliance with the requirement of the Hong Kong Listing
Rules.
marked or
restrictions
the reporting
pledged,
trading
Changes in
Percentage of
the total share
the end of the
Shares not subject to trading restrictions on sales
Shares held at
subject to
Number of
shares held
Number of
7.2 Top Ten Holders of Ordinary Shares and Top Ten Holders of
Ordinary Shares Whose Shareholdings Are Not Subject to Trading
Restrictions on Sales
Chapter VII Changes in Shares and Information on Shareholders
Annual Report 2023 (H share)
China Merchants Bank
shares
2.
1. Shares subject to trading restrictions on sales
(%)
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 reporting period.
6.24 Management Contracts
For the convening of its 2023 Annual General Meeting, the Company will make further announcement.
6.23 Annual General Meeting
Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu, both being the external
auditors of the Company, 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. The Audit Committee under the Board of Directors of the Company has
reviewed the Company's annual report for 2023.
6.22 Review of Annual Results
Annual Report 2023 (H share)
Chapter VI Important Events
6.25 Permitted Indemnity Provision
China Merchants Bank
141
For details of the changes of accounting policies and accounting estimates of the Company during the reporting
period, please refer to Note 3 "Application of new and amendments to IFRSS" to the financial statements.
6.21 Explanation of Changes of Accounting Policies and Accounting
Estimates
The financial statements of the Company for 2023 prepared under the PRC Generally Accepted Accounting Principles
and the internal control of the Company as at the year end of 2023 were audited by Deloitte Touche Tohmatsu
Certified Public Accountants LLP, and the financial statements for 2023 prepared under International Financial
Reporting Standards were audited by Deloitte Touche Tohmatsu. The total audit fees of the Group amounted to
approximately RMB33.75 million, among which the audit fees for internal control were approximately RMB1.59
million. The Company paid the total non-audit fees of approximately RMB18.74 million to Deloitte Touche Tohmatsu
Certified Public Accountants LLP and Deloitte Touche Tohmatsu for 2023. Deloitte Touche Tohmatsu Certified Public
Accountants LLP and Deloitte Touche Tohmatsu confirmed that the provision of such non-audit services would not
compromise their audit independence.
Upon the approval at the 2022 Annual General Meeting of the Company, the Company engaged Deloitte Touche
Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company and its domestic
subsidiaries for 2023, and engaged Deloitte Touche Tohmatsu et al., the overseas related member organisations of
Deloitte Touche Tohmatsu Certified Public Accountants LLP as the international accounting firms of the Company
and its overseas subsidiaries for 2023. The term of each of the engagements is one year. The above-mentioned
accounting firms have been engaged as auditors of the Company since 2016. Wu Lingzhi and Sun Weiqi are the
certified public accountants who signed the audit report on the Company's financial statements for 2023 prepared
in accordance with the PRC Generally Accepted Accounting Principles, who have been serving as the public
accountants signing the financial statements of the Company since 2021 and 2022, respectively. Upon completion
of the annual audit work for the year 2023 of the Company, Deloitte Touche Tohmatsu Certified Public Accountants
LLP and its overseas related member organisations Deloitte Touche Tohmatsu et al., have been providing audit
services for the Company for eight consecutive years.
6.20 Engagement of Accounting Firms
During the reporting period, no related parties used any funds of the Company for non-operating purposes, and
none of them used the funds of the Company through, among others, any related party 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.
6.19 Use of Funds by Related Parties
142
Serial No. Name of shareholders
The Company has maintained appropriate insurance coverage for the liabilities of the Directors, Supervisors and
senior management in respect of legal actions against its Directors, Supervisors and senior management arising out
of corporate activities.
The Company prepared its annual report in both English and Chinese versions in accordance with the International
Financial Reporting Standards and the Hong Kong Listing Rules, which are available on the websites of Hong Kong
Exchanges and Clearing Limited and the Company. In the event of any discrepancies in interpretation between the
English and Chinese versions, the Chinese version shall prevail.
No. of shares Percentage
(share)
(share)
period
Percentage
(%)
(share)
No. of shares
during the
reporting
31 December 2023
6.26 Publication of Annual Report
Changes in the
No. of shares
7.1 Changes in Ordinary Shares of the Company During the
Reporting Period
Changes in Shares and Information on Shareholders
Annual Report 2023 (H share)
Chapter VII Changes in Shares and Information on Shareholders
144
elderly
Improving the elderly care
service system to promote
stable happiness of the
The Company also prepared its 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.
31 December 2022
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 PRC banking regulatory
authorities, the Company did not have any other significant discloseable guarantees, nor was the Company a party
to any guarantee contract in violation of the resolution procedures of external guarantees as required by laws,
administrative regulations and the CSRC.
Type of
shareholders
capital
sales
trading restrictions on
-446,296,795
A Shares not subject to
4.20
Overseas legal 1,060,494,391
person
Company Limited
Hong Kong Securities Clearing
7
sales
products
A Shares not subject to
trading restrictions on
4.48
Domestic legal 1,130,991,537
person
Traditional Ordinary insurance
Hexie Health Insurance Co., Ltd. -
6
8
Shenzhen Chu Yuan Investment and
Development Company Ltd.
State-owned legal 944,013,171
person
3.74
(1) Shares held by HKSCC Nominees Ltd. are the total shares in the accounts of holders of H Shares of China Merchants Bank trading on the
transaction platform of HKSCC Nominees Ltd. Hong Kong Securities Clearing Company Limited is an institution designated by others to hold
shares on behalf of them as a nominal holder, and the shares held by it are the shares of China Merchants Bank acquired by investors through
Northbound Trading.
Notes:
A Shares not subject to
trading restrictions on
sales
2.76
State-owned legal 696,450,214
person
COSCO Shipping (Guangzhou) Co.,
Ltd.
10
trading restrictions on
sales
trading restrictions on
sales
-28,333,100
3.08
776,574,735
Domestic legal
person
Dajia Life Insurance Co., Ltd. -
Universal products
9
sales
trading restrictions on
A Shares not subject to
A Shares not subject to
person
A Shares not subject to
4.55
trading restrictions on
Unknown
796,918
H Shares not subject to
18.06
4,554,053,841
Overseas legal
person
HKSCC Nominees Ltd.
sales
1
(share)
(share)
Type of shares
(%)
(share)
frozen
on sales
period
(share)
period
(2) As at the end of the reporting period, among the aforesaid top ten shareholders, HKSCC Nominees Ltd. is a subsidiary of Hong Kong Securities
Clearing Company Limited; China Merchants Steam Navigation Co., Ltd., Shenzhen Yan Qing Investment and Development Company Ltd., China
Merchants Financial Holdings Co., Ltd. and Shenzhen Chu Yuan Investment and Development Company Ltd. are all subsidiaries of China Merchants
Group Ltd.; and China Ocean Shipping Company Limited and COSCO Shipping (Guangzhou) Co., Ltd. are both subsidiaries of China COSCO
Shipping Corporation Limited. The Company is not aware of any affiliated relationship or action in concert among other shareholders.
China Merchants Steam Navigation
Co., Ltd.
China Merchants Financial Holdings State-owned legal 1,147,377,415
Co., Ltd.
5
trading restrictions on
sales
A Shares not subject to
4.99
State-owned legal 1,258,542,349
person
As at the end of the reporting period, Dajia Life Insurance Co., Ltd. held 3.08% shares in the Company,
and has appointed a Supervisor in the Company. There was no pledge of the shares of the Company. The
controlling shareholder of Dajia Life Insurance Co., Ltd. is Dajia Insurance Group Co., Ltd.. Dajia Insurance
Group Co., Ltd. was established on 25 June 2019, with a registered capital of RMB20.36 billion as at the end
of the reporting period, and its legal representative is He Xiaofeng. Its controlling shareholder and de facto
controller is China Insurance Security Fund Co., Ltd..
4
2
trading restrictions on
sales
6.24
State-owned legal 1,574,729,111
person
China Ocean Shipping Company
Limited
3
trading restrictions on
sales
A Shares not subject to
13.04
State-owned legal 3,289,470,337
person
A Shares not subject to
Significant guarantees
Shenzhen Yan Qing Investment and
Development Company Ltd.
Annual Report 2023 (H share)
China Merchants Financial Holdings Co., Ltd.
100%
Navigation Co., Ltd.
China Merchants Steam
100%
China Merchants Group Ltd.
4.99%
1.89%
Shenzhen Yan Qing Investment
and Development Company Ltd
100%
China Merchants
Union (BVI) Limited
100%
50%
China Merchants Holdings
(Hong Kong) Company Limited
100%
The Company did not have any controlling shareholder and de facto controller. As at the end of the reporting
period, the equity relationship among the Company, its largest shareholder and the controlling shareholder of its
largest shareholder is illustrated as follows (in this report, any discrepancies between the total shown and the sum
of the amounts listed are due to rounding):
As at the end of the reporting period, China Merchants Group Ltd. directly holds 100% equity interests in China
Merchants Steam Navigation Co., Ltd. and is the controlling shareholder of the Company's largest shareholder,
with a registered capital of RMB16.9 billion. Its legal representative is Miao Jianmin. China Merchants Group Ltd. is
a central enterprise under the direct control of State-owned Assets Supervision and Administration Commission of
the State Council. Its predecessor, China Merchants Steam Navigation Company, was founded in 1872, when China
was in its late Qing Dynasty and was undergoing the Westernisation Movement. It 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 diversified conglomerate, with its businesses focusing on three core industries,
namely integrated transportation, featured finance and comprehensive development of cities and industrial zones. It
is realising the transformation from three main businesses to three major platforms of industrial operation, financial
services, investment and capital operation.
As at the end of the reporting period, China Merchants Group Ltd., through its subsidiaries, namely China
Merchants Steam Navigation Co., Ltd., China Merchants Financial Holdings Co. Ltd., Shenzhen Yan Qing Investment
and Development Company Ltd., Shenzhen Chu Yuan Investment and Development Company Ltd., China Merchants
Union (BVI) Limited, Best Winner Investment Limited and China Merchants Industry Development (Shenzhen) Limited,
indirectly held an aggregate of 29.97% shares in the Company. There was no pledge of the shares of the Company.
Specifically, China Merchants Steam Navigation Co., Ltd. directly held 13.04% shares in the Company, and is
the largest shareholder of the Company with a registered capital of RMB17 billion as at the end of the reporting
period, and its legal representative is Miao Jianmin. China Merchants Steam Navigation Co., Ltd. mainly engages
in passenger and cargo shipping businesses; dockyard, warehouse and vehicle transportation; investment and
management of tugboat and barge transportation business; repair, construction and trading of ships and offshore
oil drilling equipment; sale, purchase and supply of various transportation equipment, spare parts and materials; ship
and passenger/goods shipping agency; construction of water and land-based construction projects; and businesses
such as investment and management of finance, insurance, trust, securities and futures industries.
7.3.1 Information on the Company's largest shareholder
7.3 Information on Substantial Ordinary Shareholders
Annual Report 2023 (H share)
China Merchants Bank
146
145
Note:
27.59%
China Merchants Financial Holdings
(Hong Kong) Company Limited
China Merchants China
Chapter VI Important Events
2.
1.
7.3.3 Other substantial shareholders under the regulatory calibre
China COSCO Shipping Corporation Limited held 100% equity interests in China Ocean Shipping Company Limited
and is its controlling shareholder. Its de facto controller is the State-owned Assets Supervision and Administration
Commission of the State Council. China COSCO Shipping Corporation Limited was established on 5 February
2016, with a registered capital of RMB11.0 billion as at the end of the reporting period. Its legal representative is
Wan Min. The scope of its businesses includes: international shipping; ancillary business in international maritime
transportation; imports and exports of goods and technology; marine, land, aviation international freight forwarding
business; ship leasing; sales of ships, containers and steel products; offshore engineering equipment design; terminal
and port investment; communication equipment sales, information and technical services; warehousing (except
hazardous chemicals); engaged in technology development, technology transfer, technical consulting, technical
services and equity investment funds in the field of shipping and spare parts.
), COSCO Shipping (Shanghai) Co., Ltd. (TL)ĦRA), COSCO Shipping Investment
Holdings Co., Limited (ì) and Guangzhou Tri-Dynas Oil & Shipping Co., Ltd. (
BRA). There was no pledge of the shares of the Company. Specifically, China Ocean Shipping Company
Limited held 6.24% shares in the Company. China Ocean Shipping (Group) Company (the predecessor of China
Ocean Shipping Company Limited) was established on 22 October 1983. The registered capital of China Ocean
Shipping Company Limited was RMB16.191 billion as at the end of the reporting period. Its legal representative is
Wan Min. The scope of its businesses includes: international shipping; ancillary business in international maritime
transportation; acceptance of space booking, voyage charter and time charter from cargo owners at home and
abroad; leasing, construction, trading and maintenance of vessels and containers and manufacture of related
facilities; ship escrowing business; provision of ship materials, spare parts and communications services relating to
shipping business at home and abroad; management of enterprises engaging in vessel and cargo agency business
and seafarer assignment business.
As at the end of the reporting period, China COSCO Shipping Corporation Limited indirectly held an aggregate of
9.97% shares in the Company through its holding subsidiaries, namely China Ocean Shipping Company Limited,
COSCO Shipping (Guangzhou) Co., Ltd., Guangzhou Haining Maritime Technology Consulting Co., Ltd. (
7.3.2 Information on other shareholders holding more than 5% shares of the
Company
Chapter VII Changes in Shares and Information on Shareholders
China Merchants Bank
Annual Report 2023 (H share)
13.04%
0.22%
China Merchants Financial Holdings (Hong Kong) Company Limited was renamed from CMF Holdings Limited.
China Merchants Bank Co., Ltd.
1.53%
4.55%
3.74%
China Merchants Industry
Development (Shenzhen) Limited
100%
Best Winner
Investment Limited
and Development Company Ltd.
100%
Shenzhen Chu Yuan Investment
100%
Direct Investments Limited
(4) During the reporting period, the above holders of A Shares did not participate in the margin trading and short selling business. The number of
outstanding A Shares of the Company lent out through securities lending by the above holders of A Shares at the beginning and the end of the
reporting period was zero.
(3) There were no cases of proxy, trustee nor waiver of voting rights for the above holders of A Shares.
Chapter VII Changes in Shares and Information on Shareholders
140
China Merchants Bank
During the reporting period, the Company did not have any material contract signed in connection with holding
in custody, contracting, hiring or leasing of any assets of other companies outside the normal scope of banking
businesses, or vice versa.
Significant events in respect of holding in custody, contracting, hiring or
leasing of assets
6.18 Material Contracts and Their Performance
Several litigations were filed during the daily operation of the Company, most of which were filed proactively for
the purpose of recovering non-performing loans. As at the end of the reporting period, there were 288 pending on
final judgement cases (including litigations and arbitrations) in which the Company was involved, with an aggregate
principal and interest of RMB3,307 million. The Company believes that none of the above litigation and arbitration
cases would have a material adverse impact on the financial position or operating results of the Company.
6.17 Material Litigations and Arbitrations
The significant transactions between the Company and related parties are set out in note 61 to the financial
statements. These transactions were entered into between the Company and its related parties in its ordinary course
of business on normal commercial terms and with the principle of fairness, including borrowings, investments,
deposits, securities trading, agency services, custody and other fiduciary operations as well as off-balance sheet
transactions, and those which constituted connected transactions under the Hong Kong Listing Rules were in
compliance with the applicable requirements thereof.
6.16.4 Significant transactions with related parties
Regarding the disclosed continuing connected transactions, nothing of these transactions has come to the attention
of the auditor as to the circumstances described under rule 14A.56 of the Hong Kong Listing Rules. Deloitte Touche
Tohmatsu has issued an assurance letter in respect of the findings of the above continuing connected transactions.
China Merchants Bank
4.
The transactions were entered into on normal commercial terms or better terms;
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.
1. The transactions were entered into in the ordinary and usual course of business of the Company;
6.16.3 Confirmation from the Independent Non-Executive Directors and auditors
The Independent Non-Executive Directors of the Company have reviewed the above-mentioned non-exempt
continuing connected transactions between the Company and CMFM Group and confirmed that:
Chapter VI Important Events
The transactions were conducted in accordance with the terms of relevant agreements.
Furthermore, pursuant to rule 14A.56 of the Hong Kong Listing Rules, the Company has engaged Deloitte Touche
Tohmatsu to perform relevant assurance procedures on the continuing connected transactions of the Group in
accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information" and with reference to Practice Note 740 (Revised)
"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 of Directors confirmed that the auditor has reported the
results of its performing procedures to the Board of Directors.
Annual Report 2023 (H share)
(1) The shareholdings of holders of domestic preference shares are presented under separate account according to the register of members of
preference shares of the Company.
Chapter VII Changes in Shares and Information on Shareholders
Notes:
Annual Report 2023 (H share)
3.12 -31,430,000
152
151
(2) China National Tobacco (Henan Province) Company, China National Tobacco (Anhui Province) Company and China National Tobacco (Sichuan
Province) Company are all subsidiaries of China National Tobacco Corporation; there exists an affiliated relationship between "BOC Asset - Bank
of China - Bank of China Limited, Shenzhen Branch" and "BOCI Securities - Bank of China - BOCI Securities China Hong-Hui Zhong No. 32
Collective Asset Management Scheme". Save for the above, the Company is not aware of any affiliated relationship or action in concert among the
above holders of preference shares or between the above holders of preference shares and the Company's top ten holders of ordinary shares.
8,570,000
Domestic
preference
share
China Merchants Bank
(3) "Percentage of shareholdings" represents the percentage of the number of domestic preference shares held by the holders of preference shares to
the total number of domestic preference shares.
The dividends for domestic preference shares of the Company are paid once a year in cash. The domestic preference
shares adopt non-cumulative dividend payment method. After the dividends are distributed to the holders of
domestic preference shares in accordance with the agreed dividend rate, these shareholders will not participate in
the remaining profit appropriation with the ordinary shareholders. Pursuant to the terms of dividends payment for
domestic preference shares, based on the coupon dividend rate of 3.62% for domestic preference shares, the cash
dividends per preference share paid were RMB3.62 (including tax), and based on 275 million of domestic preference
shares in issue, the total amount of the dividends paid was RMB995.5 million (including tax).
Dividend distribution of domestic preference shares
In accordance with the relevant requirements under the "Resolution Regarding the Plan for the Non-public Issuance
of Domestic Preference Shares of the Company", which was considered and approved at the 2016 Annual General
Meeting, the first class meeting of the holders of A Shares for 2017 and the first class meeting of the holders of H
Shares for 2017, the Company fully paid the dividends for domestic preference shares on 18 December 2023, which
was in compliance with the relevant distribution conditions and distribution procedures.
For the details of dividend distribution for domestic preference shares, please refer to the relevant announcement
published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited
and the Company on 6 December 2023.
7.5.4
7.5.5
7.5.6
Repurchase or conversion of preference shares
Others
Restored voting rights of preference shares
During the reporting period, the voting rights of the Company's preference shares in issue had not been restored.
Accounting policies for preference shares and the reason of adoption
The Company made accounting judgements on the preference shares issued and outstanding of the Company
in accordance with the requirements of the relevant accounting principles, including the "International Financial
Reporting Standard 9 - Financial Instruments" and the "International Accounting Standard 32 - Financial
Instruments: Presentation" issued by the International Accounting Standards Board. As the preference shares
issued and outstanding of the Company carry no obligation to deliver cash and cash equivalents, nor have they
any contractual obligations to deliver a variable number of its own equity instruments for settlement, they were
therefore measured as equity instruments.
7.5.3 Dividend distribution of preference shares
During the reporting period, there were no repurchases or conversions of preference shares of the Company.
(4) No.2 Special Asset
Management Scheme of CCB
Capital
10
share
Domestic
State-owned
China National Tobacco (Sichuan
preference
legal person
Province) Company
5.45
15,000,000
share
Domestic
State-owned
China National Tobacco (Anhui
6
Branch
preference
of China Limited, Shenzhen
-9,100,000
5.78
15,900,000
Domestic
15,000,000
5.45
Province) Company
legal person
3.13 8,600,000
8,600,000
Domestic
preference
share
BOCI Securities China Hong - Hui
Zhong No. 32 Collective Asset
Others
BOCI Securities - Bank of China -
9
Asset Management
Scheme of Everbright Securities
Management Scheme
CCB Capital "Qianyuan - Private
(-)", an open private
banking RMB wealth management
product (daily calculated) of China
Construction Bank - Anxin Private
Collective Asset Management
Bank Xinyou () No. 2
Management - China Everbright
3.27
9,000,000
Domestic
Others
Everbright Securities Asset
8
preference
share
preference
share
How our audit addressed the key audit matter
As described in Note 4(1), the consolidation of structured
entities is determined based on control. Control is
achieved when the investor has power over the investee,
the investor is exposed, or has rights, to variable returns
from its involvement with the investee; and the investor
has the ability to use its power to affect its returns. When
performing the assessment on whether the Group has
control over the structured entities, the Group considers
several factors including, the scope of its decision-making
authority over the structured entities, the rights held by
other parties, the remuneration for managing the structured
entities and the Group's exposure to variability of returns
from interests that it holds in 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.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
As at 31 December 2023, as set out in Note 22(a), the
Group reported loans and advances to customers at
amortised cost of RMB5,924,766 million and expected
credit loss allowances of RMB267,620 million; in Note 23(b),
the Group reported debt investments at amortised cost of
RMB1,788,806 million and expected credit loss allowances
of RMB39,782 million; in Note 42, the Group reported the
expected credit loss allowances of financial guarantees and
loan commitments of RMB17,404 million.
We identified expected credit loss ("ECL") allowance of
loans and advances to customers at amortised cost, debt
investments at amortised cost and financial guarantees
and loan commitments as a key audit matter due to
the materiality of these items' balance and significant
management judgement and estimates involved in deriving
the ECL estimates.
Expected credit loss allowances of loans and advances
to customers at amortised cost, debt investments at
amortised cost, and financial guarantees and loan
commitments
Key audit matter
Key Audit Matters (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
Key audit matters are those matters that, in our professional judgement, 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.
Key judgements and estimates in respect of the
measurement of ECLs include: the significant management
judgement and estimates of model design and its
application; the identification of a significant increase in
credit risk (SICR); the identification of credit impairment
events; the determination of inputs used in the ECL model,
as well as the determination of the forward-looking
information to incorporate.
Key Audit Matters
Basis for Opinion
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 2023, 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.
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 160 to 303, which comprise the consolidated statement of
financial position as at 31 December 2023, 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 statement of
cash flows for the year then ended, and notes to the consolidated financial statements, including material accounting policy
information and other explanatory information.
Opinion
德勤
(A joint stock company incorporated in the People's Republic of China with limited liability)
To the shareholders of China Merchants Bank Co., Ltd.
Deloitte.
Independent Auditor's Report
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' International Code of Ethics for Professional Accountants (including International Independence Standards)
(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.
Annual Report 2023 (H share)
How our audit addressed the key audit matter
We understood management's process and tested the
design and operating effectiveness of key controls across the
processes relevant to the ECL estimation of the Group. These
controls included the development, validation and review
of the ECL model; the controls over the model data input,
including manual input controls and automated transmission
controls; the automated controls over the ECL model
calculation process; the controls over the identification of
SICR indicators and credit impairment events.
The structured entities of the Group include wealth
management products, asset management schemes, trust
beneficiary rights, assets-backed securities and funds,
as disclosed in Note 64 to the consolidated financial
statements.
We identified consolidation of structured entities as a
key audit matter since significant judgement is applied by
management to determine whether or not the Group has
control over certain structured entities.
Consolidation of structured entities
Key audit matter
Key Audit Matters (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
With the support of our internal modelling specialist, we
assessed the key definitions and application of parameters
and assumptions in the ECL model. This included
assessing stage determination, probability of default,
loss given default, exposure at default and forward-
looking information. We selected samples to check
whether the calculation in the ECL model is consistent
with the methodology. We selected samples to conduct
credit reviews in order to assess the appropriateness of
the significant judgements made by the management
regarding the occurrence of SICR and credit impairment
events, and whether the identification of such events are
proper and timely. In addition, we selected samples and
tested their data input into the ECL model to evaluate the
completeness and accuracy of the data input. For loans
and advances at amortised cost and debt investments at
amortised cost at stage 3, we selected samples to test the
reasonableness of future cash flows from the borrowers
estimated by the Group, including the expected recoverable
amount of collateral, to assess whether there were material
misstatements in credit loss allowances.
Our audit procedures in relation to the expected credit loss
allowances of loans and advances to customers at amortised
cost, debt investments at amortised cost and financial
guarantees and loan commitments included the following:
How our audit addressed the key audit matter
Expected credit loss allowances of loans and advances
to customers at amortised cost, debt investments at
amortised cost, and financial guarantees and loan
commitments
Key audit matter
Key Audit Matters (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
156
155
We assessed whether the ECL model applied by the
Group has covered all the exposures that should be taken
into consideration. In respect of different portfolios of
loans and advances to customers at amortised cost, debt
investments at amortised cost and financial guarantees
and loan commitments, we involved our internal modelling
specialist to assist us in assessing the appropriateness of
the Group's methodology of ECL modelling. We reviewed
relevant documents and evaluated the appropriateness and
application of the ECL model.
Principal accounting policies and significant accounting
estimates and judgement applied in determining the
expected credit loss allowances of loans and advances to
customers at amortised cost, debt investments at amortised
cost and financial guarantees and loan commitments are
set out in Notes 4(5) and 5(4) to the consolidated financial
statements.
Other Information
Chapter VIII Financial Statements
154
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, actions taken to eliminate threats or safeguards applied.
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.
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.
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.
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.
Conclude on the appropriateness of the directors of the Bank's 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 appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors of the Bank.
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.
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.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism
throughout the audit. We also:
The engagement partner on the audit resulting in the independent auditor's report is Shi Chung Fai.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements (continued)
Annual Report 2023 (H share)
China Merchants Bank
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, 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.
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 of the Bank 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 of the Bank 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 of the Bank 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.
Chapter VIII Financial Statements
China Merchants Bank
Deloitte Touche Tohmatsu
Hong Kong
153
304
160
154
Unaudited Supplementary Financial Information
Financial Statements and Notes Thereto
Independent Auditor's Report
Financial Statements
Chapter VIII Financial Statements
Certified Public Accountants
Annual Report 2023 (H share)
Our audit procedures in relation to consolidation of
structured entities included the following:
We understood and tested the design and operating
effectiveness of key controls over the management process
in determining the consolidation scope for interests in
structured entities as well as understood the purpose for
setting up the structured entities.
We reviewed the relevant contract terms, on a sample basis,
and assessed the power of the Group over the structured
entities, the rights of the Group to variable returns of the
structured entities and the ability of the Group to use its
power to affect its return, and evaluated management
judgement on whether the Group has control over the
structured entities and the conclusion about whether or not
the consolidation criteria are met.
157
158
China Merchants Bank
Others
159
25 March 2024
China Merchants Bank
BOC Asset Bank of China - Bank
(%)
38.55
products
Number of
shares subject
Number of
Shares held
at the end of
to trading
shares
pledged,
Percentage of
restrictions on
marked or
Serial Name of
Type of
No. shareholders
shareholders
Type of
shares
the period shareholdings
(share)
1
As at the end of the reporting period, the shareholdings of the Company's top ten holders of domestic preference
shares were as follows:
As at the end of the reporting period, the Company had a total of 22 holders of preference shares (or their
nominees), and all of them were domestic shareholders of preference shares. As at the end of the previous month
before the disclosure date of this report (i.e., 29 February 2024), the Company had a total of 22 holders of
preference shares (or their nominees), and all of them were domestic shareholders of preference shares.
7.5.2 Number of shareholders of preference shares and their shareholdings
Chapter VII Changes in Shares and Information on Shareholders
Chapter VIII Financial Statements
5
150
China Merchants Bank
Annual Report 2023 (H share)
Chapter VII Changes in Shares and Information on Shareholders
(5) BlackRock, Inc. was deemed to hold a total of 271,479,387 H shares (long position) and 752,500 H shares (short position) in the Company by virtue
of its control over a number of companies. The equity interests of BlackRock, Inc. in the Company included 2,411,500 H shares (long position) and
752,500 H shares (short position) which were held through cash settled unlisted derivatives.
China Mobile Communications
Group Co., Ltd.
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 of the Company as at 31 December 2023 as recorded in the register required to be kept by
the Company pursuant to Section 336 of the SFO.
During the reporting period, the Company did not issue any new ordinary shares. The Company did not have
any internal staff shares. Save for the disclosure related to "Preference Shares" in this chapter, no equity-linked
agreements of the Company were entered into during the reporting period or subsisted at the end of the reporting
period.
For issuance of bonds of the Company and its subsidiaries, please refer to Note 43 to the financial statements.
During the reporting period, the use of proceeds of the Company was consistent with such usages as committed in
the Prospectus of the Company.
7.5 Preference Shares
7.5.1 Issuance and listing of preference shares
Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 275,000,000
domestic preference shares on 22 December 2017. The issuance price is RMB100 each and the coupon dividend rate
per annum is 4.81% (including tax). The domestic preference shares of the issuance have been listed and traded on
the integrated business platform of Shanghai Stock Exchange since 12 January 2018 (abbreviated name of shares:
"Zhao Yin You 1 (1)"; stock code: 360028; number of listed shares: 275,000,000). The total proceeds from
the issuance of the domestic preference shares amounted to RMB27.5 billion and, after deduction of the expenses
relating to the issuance, has fully been used to replenish the Company's additional Tier 1 Capital. On 18 December
2022, five years after the issuance of the domestic preference shares, the Company adjusted the coupon dividend
rate per annum to 3.62% (including tax) in accordance with market rules. For details, please refer to the relevant
announcements published by the Company on the websites of the Shanghai Stock Exchange, Hong Kong Exchanges
and Clearing Limited and the Company, respectively.
China Merchants Bank
Annual Report 2023 (H share)
7.4 Issuance and Listing of Securities
State-owned
Annual Report 2023 (H share)
106,000,000
Domestic
20,000,000
7.27
Province) Company
legal person
preference
share
State-owned
Ping An Property & Casualty
20,000,000
7.27
Insurance Company of China, Ltd.
preference
share
- traditional - ordinary insurance
Domestic
Domestic
China National Tobacco (Henan
Others
share
Changes
(share)
3
frozen
(share)
legal person
preference
share
(share)
sales
Suyin Wealth Management Co., Ltd. Others
- No. 1 Hengyuan Rongda (
Domestic
23,000,000
8.36 23,000,000
2
preference
) of Suyin Wealth Management
(1,675)
(3,562)
(3,562)
25,220 27,468
(20)
At 31 December 2022
(1,675)
(3,562)
20
equity instruments
43,832
(43,832)
comprehensive income
value through other
designated at fair
upon disposal of
(e) Transfers within equity
perpetual bonds
92,978 65,435 11,815
(1,675)
151 94,985 132,471 449,139
- Impairment losses on loans and advances
2,009
- Impairment losses on investments and other
45,157
46,635
165,113
176,618
(vii) Distribution to
Profit before taxation
Adjustments for:
Operating activities
2022
43,832
2023
For the year ended 31 December 2023
Consolidated Statement of Cash Flows
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
166
The notes form part of these consolidated financial statements.
5,948 2,787 954,238
945,503
(Expressed in millions of Renminbi unless otherwise stated)
preference shares
(79,100)
for the year 2022 52(b)
reserve
statutory surplus
(i) Appropriations to
(d) Profit appropriations
165
(1,104) (1,104)
62(a)
perpetual debt
capital
(iv) Redemption of
(ii) Appropriations to
(6,597)
(7,196)
(10)
(7,196)
.......(10) - (1
353
1,842
(1,489)
(1,104) (7,957)
1,832
preference shares
general reserve
(iii) Dividends paid for
the year 2021
(v) Proposed dividends
62 (202) (202)
(38,664)
(279)
(38,385)
I
(38,385)
(17,183)
(12,848)
29
52(a)
51--...... 17,183
12,848
(279) (202) (44,103)
(43,622)
5,447
17,183
12,848
50
perpetual debt
capital
(iv) Distribution to
(vi) Dividends to
(599)
reserve
Share Preference Perpetual
2,709
30
17,553
17,041
29(a)
99,919
115,348
28
1,268
1,160
27
9,597
10,883
26
Intangible assets
Right-of-use assets
Property and equipment
Investment properties
Interests in associates
14,247
15,707
25
Interests in joint ventures
13,416
19,649
23(d)
comprehensive income
Equity investments designated at fair value through other
1,555,457
780,349
3,402
Goodwill
Deferred tax assets
Other assets
207,027
247,299
35
645,674
508,378
34
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
129,745
378,621
Borrowing from central banks
Liabilities
2022
2023
Notes
899,102
Annual Report 2023 (H share)
China Merchants Bank
The notes form part of these consolidated financial statements.
10,138,912
11,028,483
Total assets
55,978
53,884
33
90,848
90,557
32
9,999
9,954
31
Chapter VIII Financial Statements
23(c)
Debt investments at fair value through other comprehensive income
1,749,024
Precious metals
Cash
Assets
2022
2023
Notes
(Expressed in millions of Renminbi unless otherwise stated)
At 31 December 2023
Consolidated Statement of Financial Position
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
162
161
Balances with central banks
1,552
139,065
149,260
140,617
150,737
270
73
1,053
2,658
The notes form part of these consolidated financial statements.
Non-controlling interests
Equity holders of the Bank
Attributable to:
Total comprehensive income for the year
Non-controlling interests
1,477
Financial liabilities at fair value through profit or loss
Balances with banks and other financial institutions
Amounts held under resale agreements
23(b)
Debt investments at amortised cost
18,671
18,733
60(f)
Derivative financial assets
423,467
526,145
23(a)
Financial investments at fair value through profit or loss
5,807,154
6,252,755
22
Loans and advances to customers
Placements with banks and other financial institutions
276,676
21
264,209
287,694
20
91,346
100,769
19
587,818
667,871
18
2,329
2,321
15,209
14,931
172,246
Equity holders of the Bank
36
49,144
49,734
52(b)
449,139
518,638
132,471
141,481
51
94,985
108,737
50
151
92
49
11,815
13,656
48
65,435
65,432
47
92,978
122,978
46(b)
27,468
27,468
46(a)
120,446
150,446
46
25,220
43,832
53
2,934
2,009
Total equity attributable to equity holders of the Bank
2023
Changes in equity for the year
At 1 January 2023
For the year ended 31 December 2023
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Statement of Changes in Equity
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
164
163
Wang Liang
Director
Director
Miao Jianmin
25,220
Approved and authorised for issue by the Board of Directors on 25 March 2024.
Total equity and liabilities
10,138,912
11,028,483
954,238
1,085,729
2,787
2,838
62(a)
5,948
6,521
8,735
9,359
945,503
1,076,370
The notes form part of these consolidated financial statements.
45
Total equity
- Perpetual debt capital
Surplus reserve
Hedging reserve
Investment revaluation reserve
Capital reserve
- Perpetual bonds
- Preference shares
Other equity instruments
Share capital
Equity
Total liabilities
Other liabilities
Deferred tax liabilities
Debt securities issued
Provisions
39(a)
Lease liabilities
Tax payable
Salaries and welfare payable
7,590,579
8,240,498
38
Deposits from customers
107,093
135,078
37
Amounts sold under repurchase agreements
18,636
17,443
60(f)
Derivative financial liabilities
Contract liabilities
43,958
28,679
40
- Non-controlling interest
-
Non-controlling interests
Total equity attributable to shareholders of the Bank
Exchange reserve
Proposed profit appropriation
Retained earnings
General reserve
9,184,674
9,942,754
125,938
113,195
44
1,510
23,866
1,607
223,821
176,578
43
22,491
19,662
42
13,013
12,675
29(b)
6,679
5,486
41
19,458
13,597
32
Other equity instruments
Attributable to:
2,731
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 2023, apart from the Head Office, the Bank had 51 branches in the Chinese mainland, Hong
Kong, New York, Singapore, Luxembourg, London and Sydney. In addition, the Bank has two representative offices
in New York and Taipei.
(2) Principal activities
The principal activities of the Bank and its subsidiaries (the "Group") are providing corporate and personal banking
services, conducting treasury business, providing asset management and other financial services.
2.
Basis of preparation of consolidated financial statements
(1) Statement of compliance and basis of preparation
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 Stock
Exchange of Hong Kong Limited.
(2) Basis of measurement
These consolidated financial statements are presented in Renminbi ("RMB") and unless otherwise stated, rounded
to the nearest million. RMB is the functional currency of the domestic operations of the Group. The functional
currencies of overseas branches and subsidiaries are determined in accordance with the primary economic
environment in which they operate, and are translated into RMB for the preparation of these financial statements
according to Note 4(15).
The consolidated financial statements have been prepared on the historical cost basis except for financial instruments
that are measured at fair values at the end of each reporting period and the measurement principles as explained
below.
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 Share-based Payment, leasing transactions that are within the scope
of IFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as net
realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.
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:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
China Merchants Bank
Annual Report 2023 (H share)
2.
(2)
Chapter VIII Financial Statements
Basis of preparation of consolidated financial statements (continued)
Basis of measurement (continued)
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 3 inputs are unobservable inputs for the asset or liability.
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.
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.
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 periods are discussed
in Note 5.
3. Application of new and amendments to IFRSS
Standards and amendments to IFRSS effective in current year applied by the
Group
IFRS 17 (including the June 2020 and
December 2021 Amendments to IFRS 17)
Amendments to IAS 1 and IFRS Practice
Organisation
Organisation and principal activities
(1)
1.
Net increase/(decrease) in cash and cash equivalents
29,657
(240,815)
Cash and cash equivalents as at 1 January
567,198
801,754
Effect of foreign exchange rate changes
2,164
6,259
Cash and cash equivalents as at 31 December
55(a)
599,019
567,198
Cash flows from operating activities include:
Statement 2
Interest received
285,050
121,178
108,496
Interest paid
The notes form part of these consolidated financial statements.
167
168
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Notes to the Consolidated Financial Statements
For the year ended 31 December 2023
29,997
(Expressed in millions of Renminbi unless otherwise stated)
293,467
Amendments to IAS 8
Amendments to IAS 12
Amendments to IAS 12
94,275
84,108
Net fee and commission income
(9,097)
(8,726)
Fee and commission expense
103,372
92,834
8
218,235
214,669
(135,145)
(160,941)
7
Other net income
353,380
6
Fee and commission income
Net interest income
Interest expense
Interest income
2022
2023
Notes
For the year ended 31 December 2023
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Statement of Profit or Loss
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
160
375,610
(297,032)
9
29,705
Insurance Contracts
Disclosure of Accounting Policies
Definition of Accounting Estimates
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
International Tax Reform-Pillar Two model Rules
IFRS 17 Insurance Contracts and its amendments
IFRS 17 Insurance Contracts and its amendments ("New Insurance Contract Standard") establishes the principles
of recognition, measurement, presentation and disclosure of insurance contracts and replaces IFRS 4 Insurance
Contracts.
The definition of insurance contract has been elaborated in the New Insurance Contract Standard which specified
the combination and separation of insurance contract, introduced the concept of insurance contract group and
refined the measurement model of insurance contract. It also made an adjustment to the principle of revenue
recognition for insurance services and refined the measurement methods of contract service margins. The New
Insurance Contract Standard outlines a general model, which is modified for insurance contracts with direct
participation features, described as the variable fee approach. The general model is simplified if certain criteria are
met by measuring the liability for remaining coverage using the premium allocation approach. The general model
uses current assumptions to estimate the amount, timing and uncertainty of future cash flows and it explicitly
measures the cost of that uncertainty. It takes into account market interest rates and the impact of policyholders'
options and guarantees. The adoption of IFRS 17 has had no material impact on the financial position and financial
performance of the Group.
169
(815)
(191)
Impairment losses on other assets
(56,751)
37,825
(41,278)
Expected credit losses
220,154
215,611
Operating profit before impairment losses and taxation
(122,061)
(120,991)
10
Operating expenses
342,215
336,602
Operating income
170
967
- Disposal of financial instruments at amortised cost
14
1,323
(72,989)
(14,959)
-
Items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year after tax
Profit for the year
2022
2023
Note
For the year ended 31 December 2023
(Expressed in millions of Renminbi unless otherwise stated)
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
The notes form part of these consolidated financial statements.
5.26
5.63
17
1,282
1,404
138,012
146,602
Basic and diluted (RMB Yuan)
Earnings per share
Non-controlling interests
Equity holders of the Bank
139,294
148,006
(25,819)
(28,612)
15
-
· Share of other comprehensive income/(expense) from
equity-accounted investees
Net fair value gain/(loss) on debt instruments measured at
fair value through other comprehensive income
- Net changes in expected credit losses of debt instruments
16
Other comprehensive income for the year, net of tax
(10)
4
48
354
38
358
· Net fair value gain on equity instruments designated at
fair value through other comprehensive income
Remeasurement of defined benefit scheme
Items that will not be reclassified to profit or loss
45
(45)
- Other
4,429
165,113
983
112
(59)
- Net movement in cash flow hedge reserve
3,471
(2,045)
measured at fair value through other comprehensive income
(5,617)
3,337
(1,155)
202
1,285
2,373
139,294
148,006
- Exchange difference on translation of financial statements of
foreign operations
176,618
Attributable to:
Profit for the year
(51,146)
(78,735)
Payment for lease liabilities
55(b)
(5,053)
(4,932)
Payment for redemption of preference shares
(7,196)
Payment for redemption of perpetual debt capital
(1,104)
Distribution paid on perpetual debt capital
55(b)
(182)
(202)
55(b)
Payment for dividends distribution
(44,120)
(38,664)
Distribution paid on preference shares
Distribution paid on perpetual bonds
Interest paid on financing activities
Payment for other financing activities
55(b)
(996)
(1,675)
55(b)
(3,562)
(3,562)
55(b)
(7,482)
(12,400)
55(b)
(7,210)
55(b)
Net cash used in financing activities
Repayment of debt securities
(48,267)
Income tax
Profit before taxation
815
616
26
Share of profits of associates
1,710
1,860
25
Share of profits of joint ventures
10,279
11,008
- Depreciation of property and equipment and investment properties
(386)
(16,504)
(257)
12,409
(5,166)
Proceeds from non-controlling interests of subsidiaries
2,667
Proceeds from other financing activities
55(b)
17,303
10,796
Repayment of negotiable interbank certificates of deposit
55(b)
(112,584)
(250,996)
Repayment of certificates of deposit and other debt securities
55(b)
- Unwinding of discount on loans and advances
Non-controlling interests
Proceeds from the issuance of perpetual bonds
(37,423)
457 140,617
1,095
4,153
138,012
112
(3,212)
1,323
255
15
1,053
4,153
112
(3,212)
(1,489)
(iii) Redemption of
(8,685)
- Depreciation of right-of-use assets
4,205
4,151
- Share of profits of joint ventures
(815)
(616)
- Share of profits of associates
9,662
7,781
(65,808)
interests
(80,836)
- Interest income on investments
(14,722)
(18,149)
- Net gains on debt securities and equity investments
1,193
1,170
- Amortisation of other assets
- Interest expense on issued debt securities
non-controlling
(ii) Decrease in
shareholders
5,447
17,183 58,932
138,012
12,848
112
(3,232)
(2,088)
(6,597)
4,153 86,758
3,636 865,681
38,385 (2,144) 858,745
115,288 390,207
82,137
39
15,047
67,523
92,978
3,300
(1,860)
2,648
138,012
by non-controlling
(i) Capital invested
(2,088)
(6,597)
equity holders
(c) Capital movement from
the year
(849) 88,557
Total comprehensive income for
income for the year
(b) Other comprehensive
(a) Net profit for the year
Changes in equity for the year
At 1 January 2022
202 139,294
1,080
16
34,065
(1,710)
(168)
China Merchants Bank
(513,926)
(255,107)
(484)
(34,892)
(30,161)
(39)
The notes form part of these consolidated financial statements.
Payment for the acquisition of subsidiaries, associates or joint ventures
Payment for the purchases of property and equipment and other assets
Net cash used in investing activities
(1,898,898)
(2,282,035)
463
79,122
6,750
97,963
4,950
154
Proceeds from the disposals of subsidiaries, associates or joint ventures
Payment for the purchases of investments
Proceeds from the disposals of property and equipment and other assets
Chapter VIII Financial Statements
Annual Report 2023 (H share)
Notes
2023
21,481
25,201
55(b)
Proceeds from the issuance of debt securities
20,287
66,504
55(b)
Investment income received
other debt securities
78,666
68,608
55(b)
of deposit
Proceeds from the issuance of negotiable interbank certificates
Financing activities
2022
Proceeds from the issuance of certificates of deposit and
1,334,013
1,954,061
Proceeds from disposals and redemptions of investments
1,188,664
(135,569)
(69,249)
Amounts due to banks and other financial institutions
619,696
63,611
(5,004)
(482,711)
817
Deposits from customers
Amounts due from banks and other financial institutions with
Other assets
(48,851)
(508,891)
Balances with central banks
Changes in:
510
480
- Interest expense on lease liabilities
(282)
Loans and advances to customers
- Net gains on disposal of properties and equipment and other assets
original maturity over 3 months
(46,825)
Investing activities
570,143
357,753
Net cash generated from operating activities
Investment
Capital revaluation Hedging
(34,786)
Income tax paid
(13,744)
607,566
Cash generated from operating activities before income tax payment
(39,251)
(45,862)
Other liabilities
(30,073)
247,751
Borrowing from central banks
392,539
25,220
139,065
reserve
925
(59)
1,792
statutory surplus
(i) Appropriations to
(d) Profit appropriations
bonds
(ii) Issue of perpetual
interests
non-controlling
(i) Decrease in
equity holders
(3)
30,000
(c) Capital movement from
2,658
22
51
2,731
(3)
30,000
46(b)
(383)
(383)
29,614
(383)
the year
29,997
233
1,244
149,260
925
146,602
(59)
1,792
150,737
Total comprehensive income for
16
income for the year
1,841
(3)
30,000
449,139
132,471
94,985
151
(59)
65,435 11,815
General Retained Proposed profit Exchange
reserve earnings appropriation
reserve
reserve
reserve
capital shares bonds
25,220 27,468 92,978
Notes
Surplus
reserve
29,997
13,752 9,010
5,902
(b) Other comprehensive
(a) Net profit for the year
148,006
182
1,222
146,602
146,602
69,499
131,491
573
130,867
954,238
2,787
Subtotal interest capital Total
Non- Perpetual
controlling debt
Subtotal interest capital
5,948
43,832 2,009 945,503
925
51
29,997
Total
9,010 (77,054)
2,838 1,085,729
6,521
2,934 1,076,370
49,734
518,638
108,737 141,481
92
The notes form part of these consolidated financial statements.
27,468 122,978 65,432 13,656
At 31 December 2023
(49)
49
comprehensive income
value through other
(3,562)
(3,562)
25,220
(3,562)
China Merchants Bank
Annual Report 2023 (H share)
13,752
appropriation
controlling debt
Proposed profit Exchange
Capital revaluation Hedging Surplus General Retained
reserve reserve earnings
reserve
reserve
Chapter VIII Financial Statements
reserve
capital
Notes
Non- Perpetual
Other equity instruments
Non-controlling interests
Total equity attributable to equity holders of the Bank
2022
Share Preference Perpetual
shares bonds
(996)
Investment
(996)
(43,832)
(9,010)
9,010
(13,752)
13,752
52(a)
the year 2022
(43,832)
(iii) Dividends paid for
(ii) Appropriations to
50
reserve
(288) (182) (48,860)
(48,390)
(996)
5,902
51
(288)
general reserve
(iv) Distribution to
(49,734)
(44,120)
49,734
designated at fair
equity instruments
upon disposal of
perpetual bonds
(vii) Distribution to
(e) Transfers within equity
(vi) Dividends to
perpetual debt
for the year 2023 52(b)
(v) Proposed dividends
capital
preference shares
62 (182) (182)
Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated
to each cash-generating unit ("CGU") or group of CGUs, that is expected to benefit from the synergies of the
combination and tested at least annually for impairment (see Note 4(10)).
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.
173
China Merchants Bank
174
Chapter VIII Financial Statements
4.
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 recognised immediately in profit or loss as a gain on a bargain
purchase.
Annual Report 2023 (H share)
(5)
(ii)
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 4(4) and 4(10)).
Goodwill represents the excess of
Goodwill
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 4(5)).
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.
Investments in associates are 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 recognised immediately in profit or loss in the period in which investment is acquired.
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;
Material accounting policy information (continued)
When judging whether there is any significant influence, the Group usually considers the following cases:
Associate is an entity in which the Group has significant influence, but not control, or joint control. 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.
(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest
based on the fair value of net assets acquired in the acquiree and the fair value of the Group's previously
held equity interests in the acquiree; over
Financial instruments
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
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.
Financial assets at amortised cost
Associates
Classification and measurement of financial assets (continued)
(5) Financial instruments (continued)
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
In addition, the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria
as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective
hedging instrument.
it has been acquired principally for the purpose of selling in the near term; or
.
A financial asset is classified as held for trading if:
All other financial assets are subsequently measured at fair value through profit or loss ("FVTPL"), except that at
the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present
subsequent changes in fair value of an equity investment, which is not held for trading, in other comprehensive
income ("OCI").
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
the financial asset is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling; and
Debt instruments that meet the following conditions are subsequently measured at fair value through other
comprehensive income ("FVTOCI"):
the financial asset is held within a business model whose objective is to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding ("SPPI").
•
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
The Group classifies its financial assets into the following measurement categories at initial recognition: financial
assets at amortised cost, financial assets at fair value through other comprehensive income and financial assets at
fair value through profit or loss.
Classification and measurement of financial assets
The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability
and of allocating interest income and interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or
received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the
net carrying amount on initial recognition. When determining the effective interest rate, the Group estimates the
future cash flow on the basis of considering all contract terms of financial assets or financial liabilities, but does not
consider the expected credit loss.
At initial recognition, financial assets and financial liabilities are initially measured at fair value except for trade
receivables arising from contracts with customers which are initially measured in accordance with IFRS 15 Revenue
from Contracts with Customers. Transaction costs that are directly attributable to the acquisition or issue of financial
assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss)
are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognised immediately in profit or loss.
All regular way purchases or sales of financial assets are recognised or derecognised 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.
Initial recognition
(4)
When necessary, adjustments are made by the Group to the financial statements of subsidiaries to bring their
accounting policies in line with the Group's accounting policies.
4. Material accounting policy information (continued)
The Group can elect to apply an optional concentration test, on a transaction-by-transaction basis, that permits a
simplified assessment of whether an acquired set of activities or assets is not a business. The concentration test is
met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or
group of similar identifiable assets. The gross assets under assessment exclude cash and cash equivalents, deferred
tax assets, and goodwill resulting from the effects of deferred tax liabilities. If the concentration test is met, the set
of activities or assets is determined not to be a business and no further assessment is needed.
Optional concentration test
Business combinations or asset acquisitions
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 4(5)) or, when appropriate, the cost on initial recognition of an
investment in a joint venture (see Note 4(2)) or, an associate (see Note 4(3)).
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.
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. 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 equity holders
of the Bank. Non-controlling interests in the results of the Group are presented in 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
holders of the Bank.
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 profits
arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. If the
intra-group transaction indicates that the relevant assets have impairment losses, the losses shall be recognised in
full.
Financial statements include financial statements of the Bank and its subsidiaries. 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.
Business combination
(1)
4. Material accounting policy information
Asset acquisitions
Chapter VIII Financial Statements
China Merchants Bank
The amendments to IFRSS mentioned above are not expected to have material impact on the consolidated financial
statements in the foreseeable future.
the date to be
determined
Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
Amendments to IFRS 10 and IAS 28
1 January 2025
Lack of Exchangeability
Amendments to IAS 21
1 January 2024
Supplier Finance Arrangements
Financial assets measured at amortised cost are subsequently measured with the effective interest method, and the
gains or losses arising from amortisation or impairment are recognised in profit or loss. Interest income is calculated
by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets
that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired,
interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from
the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial
asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross
carrying amount of the financial asset from the beginning of the reporting period following the determination that
the asset is no longer credit-impaired.
Annual Report 2023 (H share)
When the Group acquires a group of assets and liabilities that do not constitute a business, the Group identifies
and recognises the individual identifiable assets acquired and liabilities assumed by allocating the purchase price
first to financial assets/financial liabilities at the respective fair values, the remaining balance of the purchase price
is then allocated to the other identifiable assets and liabilities on the basis of their relative fair values at the date of
purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.
171
172
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
When the Group ceases to have joint control over a joint venture and has no significant influence on it, 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 4(5)).
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.
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 4(4)
and 4(10)).
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 recognised immediately in profit or loss in the period in which investment is acquired.
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
ventures.
whether any party within the joint arrangement cannot control the relevant activities of the joint ventures;
whether the decisions about the joint ventures' relevant activities require the unanimous consent of the
parties sharing control.
When judging 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, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and obligation for its liabilities.
(2) Joint ventures
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 initially recognised at either fair value or
the non-controlling interests' proportionate share in the recognised amounts of the acquiree's identifiable net assets.
The choice of measurement basis is made on a transaction-by-transaction basis.
At the acquisition date, irrespective of non-controlling interests, the identifiable assets acquired and liabilities and
contingent liabilities assumed are recognised at their fair values; except that deferred tax assets or liabilities, and
assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS
12 Income Taxes and IAS 19 Employee Benefits, respectively.
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 recognised in the consolidated statement of profit or loss as incurred.
Business combination
Business combinations or asset acquisitions (continued)
Business combination (continued)
(1)
4. Material accounting policy information (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
(3)
Debt instruments classified as at FVTOCI
1 January 2024
Equity instruments designated as at FVTOCI
Specific items
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the
risk management objective for that designated hedging relationship remains the same, the Group adjusts the hedge
ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged
item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses
to hedge that quantity of hedged item.
the effect of credit risk does not dominate the value changes that result from that economic relationship;
and
there is an economic relationship between the hedged item and the hedging instrument;
•
•
For hedge effectiveness assessment, the Group considers whether the hedging instrument is effective in offsetting
changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging
relationships meet all of the following hedge effectiveness requirements:
The Group has elected to adopt the general hedge accounting in IFRS 9 Financial Instruments. This requires the
Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy
and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.
Hedge effectiveness testing
Hedge accounting (continued)
Cash equivalents
Financial instruments (continued)
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
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 hedging reserve. Any gain or
loss relating to an ineffective portion is recognised immediately in the consolidated statement of profit or loss.
For cash flow hedge of a recognised asset or liability, the associated cumulative gain or loss is reclassified from
hedging reserve to the consolidated statement of profit or loss in the same period during which the hedged cash
flows 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 hedging reserve 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 is immediately reclassified to the consolidated statement of
profit or loss.
Cash flow hedge
The carrying amount of the hedged item not already measured at fair value is adjusted for the gain or loss
attributable to the risk being hedged and is taken to consolidated statement of profit or loss. The adjustment to the
carrying amount of the hedged item is based on a recalculated effective interest rate at the date that amortisation
begins and shall be amortised to consolidated statement of profit or loss if the hedged item is a financial
instrument measured at amortised cost. Amortisation begins as soon as an adjustment exists but no later than
when the hedged item ceases to be adjusted for hedging gains and losses. If the hedged item is debt instruments
measured at FVTOCI, the amounts previously recorded as cumulative adjustments of hedging gains or losses are
amortised in similar method and recognised in the consolidated statement of profit or loss. The carrying amount of
the hedged item is not adjusted.
The gains or losses on the hedging instrument are recognised in consolidated statement of profit or loss. When the
hedging for the risk exposure relates to an non-trading equity instrument designated as at FVTOCI, the gains or
losses on the hedging instrument are recognised in other comprehensive income.
Fair value hedge
The Group designates certain derivatives as hedging instruments for fair value hedge and cash flow hedge.
The Group documents the relationship between the hedging instruments and hedged items, along with its risk
management objective and its strategy for undertaking the hedge, at the inception of a hedging relationship. The
Group also requires 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 fair values or cash
flows of hedged items attributable to the hedged risks.
Hedge accounting
(5)
Cash equivalents comprise investments that are short term, highly liquid, readily convertible into known amounts of
cash and subject to insignificant risk of changes in value, and unrestricted balances with the central banks, banks
and other financial institutions, and amounts held under resale agreements, with original maturity of 3 months or
less.
Balances and placements with banks and other financial institutions
Banks refer to those institutions approved by the People's Bank of China ("PBOC") and other authorities. Other
financial institutions represent finance companies, insurance companies, investment trust companies and leasing
companies which are registered with the National Administration of Financial Regulation ("NAFR") and under the
supervision of the NAFR and securities firms and investment fund companies which are registered with and under
the supervision of other regulatory authorities. Balances and placements with banks and other financial institutions
are measured at amortised cost.
170
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
3.
Application of new and amendments to IFRSS (continued)
Standards and amendments to IFRSS effective in current year applied by the
Group (continued)
Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities Arising from a Single Transaction
The amendments mainly relate to the scope of exemption for the initial recognition of deferred income tax in the
International Accounting Standards IAS 12 - Income Taxes, and clarifies that the individual transaction 1) that is not
arising from business combination; 2) that affects neither the accounting profit nor taxable profits (or deductible
losses) at the time of transaction; and 3) that the equivalent taxable temporary differences and deductible temporary
differences are generated due to the initially recognised assets and liabilities is not applicable to the regulations
on the exemptions from initially recognised deferred tax liabilities and deferred tax assets. With this amendment,
the Group has been required to recognise one deferred tax asset (to the extent that taxable income is likely to be
obtained to offset the deductible temporary difference) and one deferred tax liability for all deductible and taxable
temporary differences relating to right-of-use assets and lease liabilities. The adoption of the amendments to IAS 12
has had no material impact on the financial position and financial performance of the Group.
Amendments to IAS 12 - International Tax Reform-Pillar Two model Rules
IAS 12 is amended to add the exception to recognising and disclosing information about deferred tax assets and
liabilities that are related to tax law enacted or substantively enacted to implement the Pillar Two model rules
published by the Organisation for Economic Co-operation and Development (the "Pillar Two legislation"). The
amendments require that entities apply the amendments immediately upon issuance and retrospectively. The
amendments also require that entities to disclose separately its current tax expense/income related to Pillar Two
income taxes in periods which the Pillar Two legislation is in effect, and the qualitative and quantitative information
about its exposure to Pillar Two income taxes in periods in which the Pillar Two legislation is enacted or substantially
enacted but not yet in effect in annual reporting periods beginning on or after 1 January 2023. The adoption of the
amendments to IAS 12 has had no material impact on the financial position and financial performance of the Group
for the current and prior year.
The adoption of the above other amendments to IFRSS has had no material impact on the financial position and
financial performance of the Group for the current and prior year or on the disclosures set out in these consolidated
financial statements.
Amendments to IFRSS that are issued but not yet effective and have not been
adopted by the Group
Effective for
annual period
beginning on or after
Amendments to IFRS 16
Lease Liability in a Sale and Leaseback
1 January 2024
Amendments to IAS 1
Classification of Liabilities as Current or Non-current
1 January 2024
Amendments to IAS 1
Non-current Liabilities with Covenants
179
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".
Resale and repurchase agreements
Except for financial liabilities at FVTPL, financial liabilities formed by the transfer of financial assets that do not
meet the conditions for derecognition or by continued involvement in transferred financial assets and financial
liabilities, financial guarantee contract and loan commitment, other financial liabilities are classified as financial
liabilities at amortised cost, which are subsequently measured at amortised cost and the gains or losses arising from
derecognition or amortisation are included in profit or loss.
Other financial liabilities
Classification and measurement of financial liabilities (continued)
(5) Financial instruments (continued)
(5) Financial instruments (continued)
Material accounting policy information (continued)
Chapter VIII Financial Statements
4.
Annual Report 2023 (H share)
China Merchants Bank
The Group defines whether there is credit impairment based on the internal evaluation results of the credit risk
management system for relevant financial assets. The Group considers that financial assets have been credit impaired
when its loan classification is substandard, doubtful or loss or is more than 90 days overdue.
Credit-impaired financial assets
In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on
the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both
quantitative and qualitative information that is reasonable and supportable, including historical experience and
forward-looking information that is available without undue cost or effort. The assessment of whether the credit risk
has increased significantly is detailed in Note 60(a).
Significant increase in credit risk
For the above financial instruments that apply the ECL model, except for the purchased or originated credit-impaired
financial assets, an assessment of whether credit risk has increased significantly since initial recognition is performed
at each reporting period by the Group to determine whether to recognise lifetime ECL. When the credit risk of
these financial instruments does not increase significantly after the initial recognition, the Group recognises a loss
allowance for the financial instrument at an amount equal to 12-month ECL; in the event of a significant increase in
credit risk, the Group recognises a loss allowance at an amount equal to lifetime ECL. The Group recognises the loss
allowance of receivables that result from transactions that are within the scope of IFRS 15 Revenue from contracts
with customers at an amount equal to lifetime ECL.
The Group assesses the ECL of financial assets with forward-looking information. 12-month ECL ("12m ECL")
represents the portion of lifetime ECL that is expected to result from default events that are possible within 12
months after the reporting date. In contrast, lifetime ECL represents the ECL that will result from all possible default
events over the expected life of the relevant instrument. Assessment are done based on the factors that are specific
to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date
as well as the forecast of future conditions.
The Group performs impairment assessment under expected credit loss ("ECL") model on financial assets which
are subject to impairment under IFRS 9 Financial Instruments, including financial assets at amortised cost, debt
instrument assets at fair value through other comprehensive income, leases receivable, loan commitments and
financial guarantee contracts. The amount of ECL is updated at each reporting date to reflect changes in credit risk
since initial recognition.
Impairment under ECL model
(5) Financial instruments (continued)
4. Material accounting policy information (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
176
175
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as
FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting
period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or
loss includes fair value gains or losses, any dividend or interest earned on the financial asset, and is included in
"other net income".
Financial assets at FVTPL
Dividends from these investments in equity instruments are recognised in profit or loss when the Group's right
to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the
investment. Dividends are included in the "other net income" line item in profit or loss.
At the date of initial application/initial recognition, the Group may make an irrevocable election (on an instrument-
by-instrument basis) to designate investments in equity instruments which are not held for trading as at FVTOCI.
Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently,
they are measured at fair value with gains and losses arising from changes in fair value recognised in OCI and
accumulated in the investment revaluation reserve; and are not subject to impairment assessment. The cumulative
gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be transferred to
retained earnings.
Impairment under ECL model (continued)
Subsequent changes in the carrying amounts for debt instruments classified as at FVTOCI as a result of interest
income calculated using the effective interest method, foreign exchange gains and losses are recognised in profit
or loss. All other changes in the carrying amount of debt instruments are recognised in OCI and accumulated
under the heading of investment revaluation reserve. Impairment allowances are recognised in profit or loss with
corresponding adjustment to OCI without reducing the carrying amounts of debt instruments. The amounts that are
recognised in profit or loss are the same as the amounts that would have been recognised in profit or loss if debt
instruments had been measured at amortised cost. When debt instruments are derecognised, the cumulative gains
or losses previously recognised in investment revaluation reserve are reclassified to profit or loss.
Measurement and recognition of ECL
Generally, ECL is estimated as the difference between all contractual cash flows that are due to the Group in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective
interest rate determined at initial recognition.
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
178
177
it forms part of a contract containing one or more embedded derivatives, and IFRS 9 Financial Instruments
permits the entire combined contract to be designated as at FVTPL.
or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the grouping is provided internally on that basis;
such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial
recognition if:
it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective
hedging instrument.
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages
together and has a recent actual pattern of short-term profit-taking; or
it has been acquired principally for the purpose of repurchasing it in the near term; or
.
A financial liability is classified as held for trading if:
Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading (including derivatives
belonging to financial liabilities) or (ii) designated as at FVTPL. Except for hedging accounting, financial liabilities
measured at FVTPL are subsequently measured at fair value and all changes in fair value are recognised in profit or
loss.
Classification and measurement of financial liabilities
Financial liabilities at FVTPL
The loss allowance for loan commitments and financial guarantee contracts is recognised in profit or loss and
accumulated in provisions. As for debt instruments measured at FVTOCI, the loss allowance is recognised in OCI and
accumulated in the investment revaluation reserve without reducing the carrying amounts of these financial assets.
The loss allowance for other financial assets which are subject to impairment under IFRS 9 Financial Instruments is
recognised in profit or loss through a loss allowance account.
the cash flows that the Group expects to receive if the loan is drawn down.
•
if the holder of the loan commitments draws down the loan, and
For undrawn loan commitments, ECL is the present value of the difference between the contractual cash flows that
are due to the Group:
For a financial guarantee contract, the Group is required to make payments only in the event of a default by the
debtor in accordance with the terms of the instrument that is guaranteed. Accordingly, the expected credit losses is
the present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts
that the Group expects to receive from the holder, the debtor or any other party.
For a lease receivable, the cash flows used for determining the ECL is consistent with the cash flows used in
measuring the lease receivable in accordance with IFRS 16 Leases.
ECL is measured based on the probability of default, loss given default and the exposure at default. The
measurement and recognition of ECL are detailed in Note 60(a).
Amendments to IAS 7 and IFRS 7
189
186
Loans and advances to customers
Equity investments are accounted for as financial assets at fair value through profit or loss or equity investments
designated at fair value through other comprehensive income. Debt investments are classified as financial assets at
fair value through profit or loss, debt investments at amortised cost, debt investments at fair value through other
comprehensive income in accordance with the entity's business model, contractual cash flow characteristics and the
fair value option.
Financial investments
Specific items (continued)
Financial instruments (continued)
Material accounting policy information (continued)
(5)
4.
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
180
China Merchants Bank
Loans and advances directly granted by the Group to customers and finance leases receivables are accounted for as
loans and advances to customers.
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Material accounting policy information (continued)
(9) Leases (continued)
As a buyer-lessor in a sale and leaseback transactions
For a transfer of asset that does not meet the requirements of IFRS 15 Revenue from Contracts with Customers
to account for a sale of asset, the Group acting as a buyer-lessor does not recognise the transferred asset and
recognises loan and advance to customers at an amount that equals the transfer proceed within the scope of IFRS 9
Financial Instruments.
(10) Impairment on tangible and intangible assets other than impairment under
ECL model
The carrying amount of tangible and intangible assets including property and equipment, right-of-use assets,
intangible assets, investment properties, interests in joint ventures, interests in associates, goodwill and other non-
current assets are 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 flows. 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 any
indications that other assets may be impaired.
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
The recoverable amount of an asset or a CGU is the greater of its fair value less disposal expense and the
present value of future cash flows. In assessing value in use, the estimated future cash flows are discounted
to their present values 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).
Impairment losses recognised
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.
4.
Loans and advances to customers are classified as loans and advances to customers at fair value through profit or
loss (loans and advances to customers at FVTPL), loans and advances to customers at amortised cost, loans and
advances to customers at fair value through other comprehensive income (loans and advances to customers at
FVTOCI) in accordance with the entity's business model, contractual cash flow characteristics and the fair value
option.
Derivative financial instruments
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 risk management purposes.
The Group enters into derivative contracts with other banks and financial institutions that can conduct such business
to hedge against risks arising from derivative transactions undertaken for customers.
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 and liability are recognised to the extent of the Group's continuing involvement in the asset.
When the Group's continuing involvement takes the form of guaranteeing the transferred asset, the extent of
the Group's continuing involvement at the time of transfer is the lower of (i) the amount of the asset and (ii)
the guarantee amount (the maximum amount that the Group could be required to repay in the consideration
received). When the Group continues to recognise an asset to the extent of its continuing involvement, the
Group also recognises an relevant liability as the sum of the guarantee amount and the fair value of the
guarantee contract (usually the consideration received for the provision of security).
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 Group has transferred its rights to receive cash flows from the asset; or
•
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
Derecognition of financial instruments
When the Group classifies preference shares issued as an equity instrument, fees, commissions and other transaction
costs of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as
profit distribution at the time of declaration.
At initial recognition of preference shares, the Group classifies the preference shares 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.
For perpetual bonds and perpetual debt capitals issued that classified as equity instruments, any distribution
of interests during the instruments' duration is treated as profit appropriation. When the perpetual bonds and
perpetual debt capitals are redeemed, the redeemed amount is charged to equity. Relevant transaction expenses are
deducted from equity.
At initial recognition, the Group classifies the perpetual bonds and perpetual debt capitals 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.
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:
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.
Equity instruments
Specific items (continued)
Financial instruments (continued)
(5)
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 Financial
Instruments are not separated. The entire hybrid contract is classified and subsequently measured in its entirety as
either amortised cost or fair value as appropriate. Derivatives embedded in non-derivative host contracts that are not
financial assets within the scope of IFRS 9 Financial Instruments are treated as separate derivatives with the same
terms when they meet the definition of a derivative, their risks and characteristics are not closely related to those
of the host contracts and the hybrid contracts are not measured at FVTPL. 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 hedging relationship.
Embedded derivatives
Derivative financial instruments are stated at fair value. Except for the gains or losses arising from the effective
hedging portion of those derivatives in cash flow hedge and the gains or losses on the hedging instrument that
hedges an non-trading equity instrument designated as at FVTOCI are recognised in other comprehensive income, all
other gains or losses are recognised in the consolidated statement of profit or loss.
(11) Precious metals
The Group writes off a financial asset (if any) when there is information indicating that the counterparty is in
severe financial difficulty and there is no realistic prospect of recovery. A write-off constitutes a derecognition
event. Any subsequent recoveries are recognised in profit or loss.
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 realisable value. Precious metals that are related to the
Group's trading activities are initially recognised at fair value, with changes in fair value arising from remeasurement
recognised directly in the consolidated statement of profit or loss in the period in which they arise.
Annual Report 2023 (H share)
the Group's performance does not create an asset with an alternative use to the Group and the Group has
an enforceable right to payment for performance completed to date.
Otherwise, revenue is recognised at a point in time.
If the revenue is recognised over time, the Group recognises revenue in accordance with the progress towards
complete satisfaction of a performance obligation. The progress towards complete satisfaction of a performance
obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements
of the value of the goods or services transferred to the customer to date relative to the remaining goods or services
promised under the contract, that best depicts the Group's performance in transferring control of goods or services.
China Merchants Bank
Annual Report 2023 (H share)
4.
Chapter VIII Financial Statements
Material accounting policy information (continued)
(13) Income recognition (continued)
Fee and commission income (continued)
If revenue is recognised at a point in time, the Group recognises the revenue when the customer obtains control
of the distinct good or service. To determine the point in time at which a customer obtains control of a promised
service, the following indicators of the transfer of control should also be considered. They include, but are not
limited to:
•
the Group has a present right to payment for the goods or services;
or
•
•
the customer has the significant risks and rewards of ownership of the goods;
•
the customer has accepted the goods or services.
When another party is involved in providing goods or services to a customer, the Group determines whether the
nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a
principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).
The Group is a principal if it can control the goods or service before transferring it to customers. The Group is an
agent if its performance obligation is to arrange for the provision of the specified goods or service by another party.
In this case, the Group does not control the specified goods or service provided by another party before that goods
or service is transferred to the customer. When the Group acts as an agent, it recognises revenue in the amount
of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or
services to be provided by the other party.
A contract asset represents the Group's right to consideration in exchange for goods or services that the Group has
transferred to a customer that is not yet unconditional. In contrast, a receivable represents the Group's unconditional
right to consideration, i.e. only the passage of time is required before payment of that consideration is due.
A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group
has received consideration (or an amount of consideration is due) from the customer.
(14) 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.
Deferred tax is recognised 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. Such deferred tax assets and liabilities are not
recognised if the temporary difference arises from the initial recognition (other than in a business combination) of
assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit and at the time
of the transaction does not give rise to equal taxable and deductible temporary differences. 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 of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and
liabilities are not discounted.
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.
185
the Group has transferred physical possession of the goods;
the Group's performance creates and enhances an asset that the customer controls as the Group performs;
the customer simultaneously receives and consumes the benefits provided by the Group's performance as the
Group performs;
For each performance obligation identified, the Group determines at contract inception whether it satisfies the
performance obligation over time or satisfies the performance obligation at a point in time. Control is transferred
over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the
relevant performance obligation if one of the following criteria is met:
Chapter VIII Financial Statements
4. Material accounting policy information (continued)
(12) Financial guarantee issued, provisions and contingent liabilities
Financial guarantees issued
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. The provision of financial guarantees
issued is recognised in the consolidated statement of financial position in accordance with accounting policy set out
in Note 4(5).
Provisions and contingent liabilities
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 highly 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.
(13) Income recognition
Revenue is the inflow of economic benefits that the Group has formed in its daily activities that will result in an
increase in shareholders' equity and have nothing to do with the capital invested by shareholders.
Net interest income
Interest income and expense for all financial instruments except for those classified as at FVTPL are recognised in
"Interest income" and "Interest expense" in the profit or loss account using the effective interest method. Interest
on financial instruments measured as at FVTPL is included within the fair value movement during the period, which
is recognised in "Other net income".
Dividend income
Dividend income from investments is recognised when the dividend is declared and approved by the investee.
Rental income
Income derived from operating leases is recognised in the consolidated statement of profit or loss using the straight-
line method over the lease term.
187
188
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
4. Material accounting policy information (continued)
(13) Income recognition (continued)
Fee and commission income
Under IFRS 15 Revenue from Contracts with Customers, the Group 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.
A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series
of distinct goods or services that are substantially the same. For contracts that contain more than one performance
obligation, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling
price basis, except for the allocation of discounts and variable consideration.
The stand-alone selling price of the distinct goods or service underlying each performance obligation is determined
at contract inception. It represents the price at which the Group would sell a promised goods or service separately
to a customer. If a stand-alone selling price is not directly observable, the Group estimates it using appropriate
techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of
consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services
to the customer.
For contracts that contain variable consideration, the Group estimates the amount of consideration to which it will
be entitled using either (a) the expected value method or (b) the most likely amount, depending on which method
better predicts the amount of consideration to which the Group will be entitled.
The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly
probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty
associated with the variable consideration is subsequently resolved. At the end of each reporting period, the Group
updates the estimated transaction price (including updating its assessment of whether an estimate of variable
consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and
the changes in circumstances during the reporting period.
China Merchants Bank
181
(a)
China Merchants Bank
Accounting policy for any identified right-of-use asset impairment loss are disclosed in Note 4(10).
After the commencement date, the right-of-use assets are measured at cost (subject to certain exceptions)
less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability.
The Group recognises the depreciation of right-of-use assets as an operating expense on a straight-line basis.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying
asset. If a lease transfers the ownership of the underlying asset or the cost of the right-of-use asset reflects
that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the
useful life of the underlying asset.
whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the
site on which it is located or restore the underlying asset to the condition required by the terms and
conditions of the lease, a provision is recognised and measured under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. The costs are included in the related right-of-use asset, unless those
costs are incurred to produce inventories.
(d)
any lease payments made at or before the commencement date, less any lease incentives received;
any initial direct costs incurred by the lessee; and
•
•
the amount of the initial measurement of the lease liability;
•
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The right-of-use asset is initially measured at cost. This cost includes:
Right-of-use assets
(c)
Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-
line basis over the lease term.
Leasehold land and building
The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term leases (lease term of 12 months or less and
do not contain a purchase option) and leases of low value assets (the value of assets is equivalent to below
RMB35,000).
(b)
For a contract that contains a lease component and one or more additional lease or non-lease components,
the Group allocates the consideration in the contract to each lease component on the basis of the relative
stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
Allocation of consideration to components of a contract
(a)
As a lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. The Group assesses whether a contract is or contains a lease based on
the definition under IFRS 16 Leases at inception or modification date. Such contract will not be reassessed unless the
terms and conditions of the contract are subsequently changed.
182
Leases
Material accounting policy information (continued)
(9)
4.
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Short-term leases and leases of low-value assets
For payments of a property interest which includes both leasehold land and building elements, the entire
property is presented as property and equipment of the Group when the payments cannot be allocated
reliably between the leasehold land and building elements, except for those that are classified and accounted
for as investment properties.
China Merchants Bank
Annual Report 2023 (H share)
When a contract includes lease and non-lease components, the Group applies IFRS 15 Revenue from Contracts with
Customers to allocate the consideration under the contract to each component.
When the Group is a lessor of an operating lease, income derived from operating lease 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. Contingent lease income is charged to
profit or loss in the accounting period in which it is incurred.
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 the effective interest method over the lease term. Accounting
policy for impairment losses are disclosed in Note 4(5).
Leases for which the Group is a lessor are classified as finance or operating leases. When the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease.
All other leases are classified as operating leases.
As a lessor
the lease payments change due to changes in an index or rate or a change in expected payment
under a guaranteed remaining value, in which cases the lease liability is remeasured by discounting
the revised lease payments using the initial discount rate. But if the change in lease payments results
from a change in floating interest rates, the lessee shall use a revised discount rate that reflects
changes in the interest rate.
the lease term has changed or there is a change in the assessment of exercise of a purchase option, in
which case the lease liability is remeasured by discounting the revised lease payments using a revised
discount rate; or
After the commencement date, the Group remeasures the lease liability according to the present value
calculated by the revised lease payment amount and the revised discount rate and makes a corresponding
adjustment to the related right-of-use asset whenever:
After the beginning date of the lease term, the Group calculates the interest expense of the lease liability in
each period of the lease term at a fixed periodic interest rate, and recognised it in the current profit and loss
or related asset costs.
the amount expected to be payable by the lessee under remaining value guarantees.
the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to
terminate the lease; and
variable lease payments that depend on an index or rate, initially measured using the index or rate at
the commencement date;
fixed lease payments (including in-substance fixed payments), less any lease incentives;
•
•
•
•
•
Lease payments refer to the payment made by the lessee to the lessor in connection with the right to use
the leased assets during the lease term. Lease payments included in the measurement of the lease liability
comprise:
Except for short-term leases and leases of low-value asset, lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement date using lessee's incremental
borrowing rate as the discount rate.
Lease liability is presented as a separate line in the consolidated statement of financial position.
Lease liabilities
(e)
As a lessee (continued)
Leases (continued)
Material accounting policy information (continued)
Chapter VIII Financial Statements
(9)
4.
China Merchants Bank
184
Definition of a lease
Both the periods and method of amortisation are reviewed annually.
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial
position when, and only when, the Group currently has there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Offsetting financial instruments
183
Financial liabilities
(d)
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.
Sales of assets on condition of repurchase
(c)
When the securitisation results in derecognition or partial derecognition of financial assets, the Group
allocates the carrying amount of the transferred financial assets between the financial assets derecognised
and the retained interests based on their relative fair values at the date of transfer. Gains or losses on
securitisation, which is the difference between the consideration received and the allocated carrying amount
of the financial assets derecognised, are recorded in "other net income". The retained interests continue to
be recognised on the same basis before the securitisation.
(6)
When a securitisation of financial assets does not qualify for derecognition, the relevant financial assets are
not derecognised, and the consideration collected from third parties are recorded as a financial liability.
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 accounting 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:
As part of its operational activities, the Group securitises credit assets, generally through the sale of these
assets to structured entities which 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).
Securitisation
(b)
Derecognition of financial instruments (continued)
(5) Financial instruments (continued)
Material accounting policy information (continued)
4.
Annual Report 2023 (H share)
Chapter VIII Financial Statements
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 assets.
Property, equipment, investment property and depreciation
A financial liability (or part of it) is derecognised when the obligation under the liability (or part of it) is
discharged, cancelled or expired.
Depreciation is calculated to write off the cost of property, equipment and investment property over the following
estimated useful lives, after taking into account an estimated residual value on a straight-line basis:
28 years
Core deposit
2 - 20 years
Software and Other
The amortisation period of intangible assets is as follows:
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 the end of the reporting period.
Property, equipment and investment property, are stated at cost or deemed cost less accumulated depreciations and
accumulated 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.
Intangible assets
Repossessed assets of equity instruments are detailed in Note 4(5).
In the recovery of impaired loans and advances, the Group may take possession of assets held as collateral through
court proceedings or voluntary delivery of possession by the borrowers. Repossessed assets other than equity
instrument are reported in "other assets".
(8)
(7) 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 and investment property,
and are accounted for in the consolidated statement of profit or loss as they arise.
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.
Intangible assets are stated at cost less accumulated amortisation (only intangible assets with finite useful lives) and
accumulated impairment losses (see Note 4(10)). 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.
3-5 years
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.
Land and buildings
Investment properties
Computer equipment
Leasehold improvements (self-owned property)
Aircraft, vessels and professional equipment
Other
Leasehold improvements (leased property)
20 years
20 years
3 years
the estimated useful lives
the estimated useful lives
no more than 25 years
In the new year, the Bank will insist on leveraging management and innovation as the two pivotal drivers for the new model
of high-quality development. Holding strict management as a shield, the Company will strengthen the foundation,
improve quality, reduce costs, increase efficiency, and establish a standardised, refined, empowering, systematic, and
scientific management system to expand the breadth and depth of risk management, cost management, institutional
management and talent management in all aspects, and improve the level of intensive development. Upholding
fundamental principles and breaking new ground (), the Company will seize the great opportunities along the
Chinese path to modernisation, ride the wave of scientific and technological progress, and focus on the needs of the real
economy and people's livelihood to strive for breakthroughs in scientific and technological innovation, product innovation,
business innovation, model innovation, and management innovation, and create new advantages in more segment markets.
We must "attain to the broad and great while addressing the delicate and minute". Every bit of management
improvement and micro-innovation, if sustained over time, will produce a compound effect in value creation and turn
quantitative changes into qualitative changes. Lofty aspirations grounded in persevered actions will lead to great
success. High-quality development is not only extolled in the grand narrative of the revolution of the banking operational
philosophy, but also embedded in the perseverance of little efforts that lead to remarkable success. This year marks the
37th anniversary of the establishment of CMB. CMB was born out of reform and has risen with the times. Adhering to the
spirit of "making our country flourish by solid work", the courage of "breaking new ground", and the original aspiration
of "creating a real commercial bank", CMB sailed from Shekou, towards the whole country and towards the world. We
will remain true to our original aspiration and forge ahead on the path of high-quality development to achieve the strategic
goal of becoming a value creation bank and to build a world-class commercial bank. We will explore the CMB example
for financial development with Chinese characteristics, and contribute to the efforts of the construction of a financial
powerhouse.
11
25 March 2024
2
President and Chief Executive Officer
China Merchants Bank Co., Ltd.
12
President's Statement
10
China Merchants Bank
President and Chief Executive Officer
Wang Liang
President's Statement
Annual Report 2023 (H share)
China Merchants Bank
19
China Merchants Bank
Annual Report 2023 (H share)
Chapter I Company Information
Credit cost ratio = expected credit losses of loans and advances to customers/the average of total loans and advances to customers, the
average of total loans and advances to customers = (total loans and advances to customers at the beginning of the period + total loans and
advances to customers at the end of the period)/2.
Company Information
165,113
176,618
-1.64
344,740
339,078
Profit before tax
Net operating income (1)
Operating Results
+/-%
Changes
2022
2023
(in millions of RMB, unless otherwise specified)
2.1 Key Accounting Data and Financial Indicators of the Group
6.97
and Financial Indicators
Chapter II Summary of Accounting Data and Financial Indicators
Annual Report 2023 (H share)
China Merchants Bank
18
to open a new chapter by
riding on the momentum
transformation of enterprises
Facilitating digital
In December 2023, the Company won "Top 10 Best Employers 2023", "Most Socially Responsible Employer"
and "Most Admired Employer by Women" at the awards ceremony for the "Best Employer in China 2023"
jointly organised by Zhaopin.com and Institute of Social Science Survey, Peking University, and has been
shortlisted in the top 10 list of "Best Employers of the Year" for 13 consecutive years.
In November 2023, the Company ranked among China's Most Admired Companies by Fortune magazine.
In September 2023, in the selection of the "2023 China Star" organised by the US-based Global Finance
magazine, the Company was honoured with three awards, namely, "Best Wealth Management Provider",
"Best Corporate Governance Bank" and "Best Transaction Service Bank".
In August 2023, the Company was recognised as the "Best CSR Bank in China" and "Best Investment Bank
in China" at the awards ceremony for the "Best Banks in China 2023" hosted by Asiamoney.
The list of Fortune Global 500 was officially released in August 2023, on which the Company ranked 179th
and making the list for 12 consecutive years.
In July 2023, the Company ranked 11th on the list of "Top 1,000 World Banks 2023" released by The Banker
(UK), ranking first in the best performing Chinese banks for three consecutive years.
In June 2023, the US-based Institutional Investor magazine released the results of the "2023 All-Asia
Executive Team", recognising the Company as the bank with the highest overall ranking and the most
awards in the Asian region. The Company won several awards, including "Best Board of Directors", "Asia's
Most Respected Company", "Best IR Company" and "Best ESG Company".
Summary of Accounting Data
Net profit attributable to shareholders of the Bank
146,602
138,012
8,155,438
of which: total deposits from customers (3)
Total equity attributable to shareholders of the Bank
Net assets per share attributable to ordinary
shareholders of the Bank (RMB yuan)(2)
8.25
9,184,674
9,942,754
7.56
6,051,459
6,508,865
8.77
10,138,912
11,028,483
Total liabilities
of which: total loans and advances to customers(3)
Total assets
Volume Indicators
+/-%
Changes
6.22
Per Share (RMB yuan)
Basic earnings attributable to ordinary shareholders of
the Bank (2)
5.63
5.26
7.03
In March 2023, the Company was awarded the "Best Retail Bank in China" in "Asia Trailblazer Awards
2023" hosted by Retail Banker International.
Diluted earnings attributable to ordinary shareholders
of the Bank
5.26
7.03
31 December
(in millions of RMB, unless otherwise specified)
2023
31 December
2022
5.63
The Company ranked 10 th globally in "The Top 500 Banking Brands 2023" released by The Banker (UK) in
February 2023, with a brand value of USD24.536 billion.
In 2023, the Company received a number of honours and awards from organisations both at home and abroad,
including:
1.4 Honors and Awards
Hong Kong:
The Chinese mainland:
1.1.10 Newspapers and Websites Designated for Information Disclosure:
Registrar for Domestic Preference Shares: China Securities Depository & Clearing Corporation Ltd.,
Shanghai Branch
Address: Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, the PRC
Tel: +852 2862 8555
Computershare Hong Kong Investor Services Ltd.
Share Register and Transfer Office as to H Shares:
Tel: +86 4008 058 058
China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
Address: 188 South-Yanggao Road, Pudong New Area, Shanghai, the PRC
1.1.9 Registrar for A Shares:
Legal Advisor as to Hong Kong Law: Herbert Smith Freehills
1.1.8 Legal Advisor as to PRC Law: JunHe LLP
Office Address: 35th Floor, One Pacific Place, 88 Queensway, Hong Kong, the PRC
International Auditor: Deloitte Touche Tohmatsu
Office Address: 30th Floor, Bund Centre, 222 Yan'an Road East, Shanghai, China
Certified Public Accountants for Signature: Wu Lingzhi, Sun Weiqi
1.1.7 Domestic Auditor: Deloitte Touche Tohmatsu Certified Public Accountants LLP
Chapter I Company Information
Credit card complaint hotline: +86 400 820 5555-7
Annual Report 2023 (H share)
1.1.5 Principal Place of Business in Hong Kong: 31/F, Three Exchange Square, 8 Connaught Place, Central,
Hong Kong, the PRC
1.1.6 Share Listing:
A Shares: Shanghai Stock Exchange
Abbreviated Name of A Shares: CMB
"China Securities Journal" (www.cs.com.cn), "Securities Times" (www.stcn.com),
"Shanghai Securities News" (www.cnstock.com)
Stock Code: 600036
Abbreviated Name of H Shares: CM BANK
Stock Code: 03968
Domestic Preference Shares: Shanghai Stock Exchange
Abbreviated Name of Shares: Zhao Yin You 1 (1)
Stock Code: 360028
China Merchants Bank
Annual Report 2023 (H share)
H Shares: SEHK
7,535,742
website of Shanghai Stock Exchange (www.sse.com.cn)
website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk)
Annual Report 2023 (H share)
Chapter I Company Information
China Merchants Bank
16
15
Pursuing the core values and building the cultural and organisational foundation for a value creation bank.
Firstly, we will uphold and enhance China Merchants Bank's corporate culture focusing on entrepreneurship, service
quality, innovation, risk management, compliance, management excellence, and people-orientation, with an aim
to create a vibrant and evolving cultural system. Secondly, we will establish an organising team for supporting our
service strategies and creating value together, providing organisational support and talent foundations for a value
creation bank. Thirdly, we will actively implement sustainable development principles in serving the real economy,
actively fulfilling environmental and social responsibilities, and enhancing the standard of our corporate governance.
Strengthening risk management and building a fortress-style overall risk and compliance management
system. Adhering to the prudent risk management principle, using Fintech as the tool, and taking a prudent risk
appetite as a safeguard measure, we will create a "Six All" risk management system covering all risks, all branches
and subsidiaries, all customers, all assets, all processes, and all factors to support the operation of the value creation
bank.
Adhering to the concept of dynamically balanced development of "Quality, Profitability
and Scale", the Company focuses on the building of three core capacities of "wealth
management, Fintech and risk management" to promote the evolution of organisational
culture consistently. Based on the needs of the country and enterprises and the ability of
China Merchants Bank, we practically implement the ESG concept, serve the real economy
and meet the needs of people's livelihood to create a new stage for high-quality growth.
Enlarging wealth management business and accelerating the transformation of the business model. By
adopting a customer-centric approach to business operations and focusing on the value creation chain of "volume
growth - revenue growth - profit growth - value growth", the Company aims to foster a flywheel effect by fully
integrating its four major business segments: retail finance, corporate finance, investment banking and financial
markets, wealth management and asset management, and will strive to deliver sustained growth in both total assets
under management (AUM) from retail customers and the aggregate financing products to corporate customers (FPA).
Optimising Fintech and accelerating comprehensive digital transformation. Focusing on the goal of online,
data-based, intelligent, platform-based and ecological operation, we will comprehensively promote the digital
reshaping of financial infrastructure and capability system, customers and channels, businesses and products,
management and decision-making. In particular, we are actively exploring the new mode of "Al + Finance" to make
artificial intelligence a more important part of China Merchants Bank's intelligence, and build a value creation bank
through the "Digital CMB".
Being customer-centric and creating values for customers.
The Company upholds the philosophy of win-win in business and business for common
good to grow into a value creation bank in pursuit of maximising the comprehensive value
of customers, employees, shareholders, partners and the society, aiming to become a
world-class commercial bank.
Building a value creation bank.
We are committed to building the best value creation bank with innovation-driven
development, leading model and distinguished features.
Strategic focus:
Core Value:
Strategic objectives:
Strategic vision:
1.3 Development Strategies
website of the Company (www.cmbchina.com)
Place for maintenance of periodic reports: Office of the Board of Directors of the Company and principal
place of business of the Company
13
14
China Merchants Bank
Annual Report 2023 (H share)
website of the Company (www.cmbchina.com)
Chapter I Company Information
Founded in 1987, the Company headquartered in Shenzhen, China. The Company mainly focuses on the market
in China with branches primarily covering major cities in the Chinese mainland, as well as international financial
centres such as Hong Kong of China, New York, London, Singapore, Luxembourg and Sydney. The Company was
listed on the Shanghai Stock Exchange in April 2002 and the SEHK in September 2006.
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 have been well accepted by the market. Retail banking services include the account, payment and
settlement service based on the "All-in-one" multifunction debit card and credit card, segmented and classified
wealth management services including the "Sunflower Wealth Management" services and private banking services,
retail credit services, CMB APP, CMB Life APP, "All-in-one Net" comprehensive online banking service platform, and
other online services. Wholesale banking services include payment and settlement, wealth management, investment
and financing and digital services, cash management, sci-tech finance, green finance, inclusive finance, retirement
finance, digital finance, supply chain finance and cross-border finance services, asset management, asset custody
and investment banking services etc. The Company continues to tap further into the living and business circles of
customers to provide customers with customised, intelligent and comprehensive solutions for their supply chains and
investment chains.
The Company has come up with the strategic vision of "building the best value creation bank with innovation-driven
development, leading model and distinguished features" based on the internal and external situation and its own
development. In line with the trend of the acceleration in the construction of China's modern industrial system, the
Company consistently enhances its quality and efficiency in serving the real economy and social well-being, and
strives to create more value for customers, employees, shareholders, partners and society, with the aim of making
greater contributions to the modernisation process with Chinese characteristics.
China Merchants Bank
Annual Report 2023 (H share)
Chapter I Company Information
1.2 Corporate Business Overview
8.22
In July 2023, the Company received the award of "Best Bank in China" at the "2023 Awards for Excellence"
ceremony staged by Euromoney (UK) for the fifth consecutive year, marking the first "5-year championship
streak" in its awarding history, and was also the only Chinese bank to receive the "Awards for Excellence" in
that year.
945,503
percentage point
Equity to total assets
9.84
9.41
Increased by 0.43
percentage point
Asset quality indicators
Non-performing loan ratio
0.95
0.96
Decreased by 0.01
Allowance coverage ratio (5)
437.70
450.79
percentage point
Decreased by 13.09
percentage points
Allowance-to-loan ratio (6)
Increased by 0.11
4.14
17.77
Capital adequacy ratio
31 December
2023
31 December
2022
Changes over
2022 year-end
(%)
Capital adequacy indicators under the Advanced
Measurement Approach (4)
Core Tier 1 capital adequacy ratio
13.73
13.68
Increased by 0.05
percentage point
Tier 1 capital adequacy ratio
16.01
15.75
Increased by 0.26
percentage point
17.88
percentage point
4.32
Credit cost ratio (7)
Customer complaint hotline: 95555-7
Website: www.cmbchina.com
E-mail: cmb@cmbchina.com
Fax: +86 755 8319 5555
Tel: +86 755 8319 8888
Postcode: 518040
Address: 7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
1.1.4 Contact Details:
1.1.3 Registered and Office Address: 7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province,
China
Joint Company Secretaries: Peng Jiawen, Ho Wing Tsz Wendy
Securities Representative: Xia Yangfang
Secretary of the Board of Directors: Peng Jiawen
Authorised Representatives: Wang Liang, Peng Jiawen
1.1.2 Legal Representative: Miao Jianmin
Registered Company Name in English: China Merchants Bank Co., Ltd.
1,076,370
1.1.1 Registered Company Name in Chinese:
1.1 Company Profile
(7)
Decreased by 0.18
Allowance-to-loan ratio = allowances for impairment losses/total loans and advances to customers.
Allowance coverage ratio = allowances for impairment losses/balance of non-performing loans.
2023
2022
0.74
0.78
percentage point
Changes
Decreased by 0.04
percentage point
Notes:
(1)
Net interest spread = average yield of the total interest-earning assets - average cost ratio of total interest-bearing liabilities.
(2)
Net interest margin = net interest income/average balance of total interest-earning assets.
(3)
(4)
Cost-to-income ratio = operating expenses/net operating income. The numerator does not include taxes and surcharges, provisions for
insurance claims and the depreciation charges on fixed assets under operating lease and investment properties and others.
As at the end of the reporting period, the Group's Core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio
under the Weighted Approach were 11.86%, 13.82% and 14.96% respectively.
(5)
(6)
Increased by 0.08
ØRSOR(Abbreviated Name in Chinese: )
percentage point
Decreased by 0.84
2.28
percentage point
Decreased by 0.25
percentage point
Net interest margin (2)
2.15
2.40
Decreased by 0.25
percentage point
As percentage of net operating income
-
2.03
Net interest income
63.30
Increased by 0.01
percentage point
- Net non-interest income
36.69
36.70
Decreased by 0.01
percentage point
Cost-to-income ratio (3)
32.97
63.31
32.89
Net interest spread(1)
17.06
12.23
Notes:
(1)
(2)
(3)
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 joint
ventures and associates.
The Company issued non-cumulative preference shares in 2017, and issued perpetual bonds in 2020, 2021 and 2023, all of which were
classified as other equity instruments. In addition, the Company paid dividends on preference shares and interests on perpetual bonds in 2023.
Therefore, when calculating the indicators such as basic earnings per share attributable to ordinary shareholders, return on average equity
attributable to ordinary shareholders and net assets per share attributable to ordinary shareholders, dividends on the preference shares and
interests on perpetual bonds have been deducted from "net profit attributable to shareholders of the Bank", while the preference shares and
perpetual bonds shall be deducted from both the "average equity" and the "net assets".
Unless otherwise stated, the balance of the relevant financial instrument items herein and set out below exclude accrued interest.
China Merchants Bank
Annual Report 2023 (H share)
Chapter II Summary of Accounting Data and Financial Indicators
shareholders of the Bank
2.2 Financial Ratios of the Group
2023
2022
Changes
Profitability indicators
Return on average assets attributable to shareholders of
the Bank
1.39
1.42
Decreased by 0.03
Return on average equity attributable to ordinary
16.22
(%)
32.71
36.71
13.84
Peng Bihong (iv)
400
1,627
1,294
967
500
8,088
The independent non-executive directors' and supervisors' emoluments shown above were for their services as directors or
supervisors of the Bank.
Former executive, non-executive
directors and supervisors
Su Min (vii)
Xiong Liangjun (vi)
Wang Wanqing (v)
400
Subtotal
2,463
1,870
-- 593
2,463
The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
Total
4,200
12,625
16,825
197
198
China Merchants Bank
Chapter VIII Financial Statements
1,870
593
400
500
500
Luo Sheng
500
500
500
Xu Zhengjun
500
Shi Yongdong
Li Chaoxian
Tian Hongqi
Liu Qiao
Li Menggang
Cai Hongping
Zhang Xiang
Cai Jin
400
400
400
1,627
Cao Jian (v)
Yang Sheng (vi)
Subtotal
1,294
967
4,200
3,888
I
500
500
500
500
Wu Heng
500
211
Wong See Hong
Executive directors
The emoluments of the Directors and Supervisors during the year were as follows:
11. Directors' and supervisors' emoluments
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Auditors' remuneration amounting to RMB34 million for the year ended 31 December 2023 (2022: RMB31 million) is included in other general
and administrative expenses.
Note:
122,061
120,991
Total
32,319
31,321
Other general and administrative expenses (note)
360
Charge for insurance claims
229
216
Short-term leases expense and leases of low-value assets expense
4,151
4,205
Depreciation of right-of-use assets
1,061
930
Amortisation of intangible assets
10,279
11,008
Depreciation of property and equipment and investment properties
3,005
Wang Liang
Annual Report 2023 (H share)
Zhu Jiangtao (ii)
2023
directors and supervisors
Independent non-executive
The non-executive directors shown above did not receive remuneration from the Bank.
Subtotal
Chen Dong
Zhang Jian
Hong Xiaoyuan (iii)
Zhou Song
Sun Yunfei
Hu Jianhua (iii)
Miao Jianmin
Non-executive directors
The executive director's emoluments shown above were for their services in connection with the management of the
affairs of the Bank and the Group.
6,274
6,274
2,821
2,821
- 3,453
3,453
Total
RMB'000
RMB'000
scheme
contributions
bonuses
RMB'000
RMB'000
in kind
and benefits Discretionary
Directors'
fees
RMB'000
Retirement
Salaries,
allowances
Subtotal
11. Directors' and supervisors' emoluments (continued)
Directors'
fees
(i)
202
202
2,650
1,548
13,628
The independent non-executive directors' and supervisors' emoluments shown above were for their services as directors or
supervisors of the Bank.
Former executive, non-executive
directors and supervisors
Fu Gangfeng (iv)
Tian Huiyu (v)
2,963
Wang Daxiong (v)
Luo Sheng (v)
500
Guo Xikun (vi)
| | | |
Ding Huiping (vi)
Han Zirong (vi)
Subtotal
167
167
334
167
167
334
The former executive, non-executive directors' and supervisors' emoluments shown above were for their services as
directors or supervisors of the Bank.
Total
4,138
| | | |
500
500
500
2,098
7,515
3,804
1,548
2,650
202
202
400
Subtotal
Cai Jin
Wang Wanging
Zhang Xiang (iii)
Cai Hongping (iii)
Xu Zhengjun
Wu Heng
Peng Bihong
Luo Sheng (iii)
5,626
211
2,098
3,317
Xiong Liangjun
500
500
Shi Yongdong
500
500
500
500
11,140
4,678
Tian Hongqi
Li Chaoxian
Liu Qiao
bonuses
RMB'000
in kind
RMB'000
RMB'000
Discretionary
and benefits
400
Salaries,
allowances
2022
Subtotal
Executive director
Wang Liang
11. Directors' and supervisors' emoluments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
As of 31 December 2023, the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set
out in Note 39 (a)(iii).
In March 2023, Ms. Su Min retired and resigned as the Non-Executive Director of the Bank.
In June 2023, Mr. Yang Sheng was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank. At
the same time, Mr. Xiong Liangjun ceased to be the Chairman of the Board of Supervisors and Employee Supervisor of the Bank due to his
age.
In March 2023, Mr. Cao Jian was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank.
Mr. Wang Wanqing ceased to be the Employee Supervisor of the Bank due to his age.
In January 2024, Mr. Peng Bihong ceased to be the Shareholder Supervisor of the Bank due to change of work arrangement.
In January 2024, Mr. Hu Jianhua and Mr. Hong Xiaoyuan ceased to be Non-Executive Directors of the Bank due to their age.
In June 2023, according to the relevant resolution passed at the 2022 Annual General Meeting of the Bank, Mr. Zhu Jiangtao was elected as
the Executive Director of the Bank, whose qualification as the Director was approved by the NAFR in August 2023. The emolument of Mr. Zhu
Jiangtao shown above included the portion for his services before his qualification as the Director was approved by the NAFR during the year.
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.
(viii)
(vii)
(vi)
(v)
(iv)
(iii)
(!!)
Retirement
scheme
contributions
Notes:
RMB'000
(i)
Li Menggang
500
500
Wong See Hong
directors and supervisors
|| | ||
Independent non-executive
The non-executive directors shown above did not receive remuneration from the Bank.
Subtotal
Chen Dong (ii)
Su Min
Zhang Jian
Hong Xiaoyuan
Zhou Song
Sun Yunfei (ii)
Hu Jianhua (ii)
Miao Jianmin
Non-executive directors
The executive director's emoluments shown above were for his services in connection with the management of the affairs
of the Bank and the Group.
199
6,425
6,425
220
220
2,580
2,580
3,625
3,625
-
-
(i)
Total
RMB'000
Tax and surcharges
- Debt investments at FVTOCI
7,522
2023
Interest income
6.
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 CGU or
group of CGUs to which the goodwill is allocated. Estimating the recoverable amount requires the Group to make
an estimate of the expected future cash flows from CGU or group of CGUS and also to choose a suitable discount
rate in order to calculate the present value of those cash flows. Where the actual future cash flows are less than
expected, or change in facts and circumstances which results in downward revision of future cash flows or upward
revision of discount rate, a material impairment loss or further impairment loss may arise.
5. Significant accounting estimates and judgements (continued)
(7) Impairment of goodwill
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
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 reviewed 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.
(6) Income taxes
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, discounted cash flow analysis or
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 business unit 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 adjusted if necessary. If the fair value is
measured using third party information such as broker quotes or pricing services, the valuation team will evaluate
the evidence obtained from third party to support the conclusion that the relevant valuation meets the requirements
of IFRS, including the category of the relevant valuation at the appropriate level in the fair value hierarchy.
(5) Fair value of financial instruments
Loss Given Default ("LGD"): LGD is an estimate of the loss arising on default. It is based on the difference
between the contractual cash flows due and those that the lender would expect to receive, taking into
account cash flows from collateral and integral credit enhancements. Refer to Note 60(a)(iii) for more details.
2022
Probability of Default ("PD"): PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood
of default over a given time horizon, the calculation of which includes historical data, assumptions and
expectations of future conditions. Refer to Note 60(a) (iii) for more details.
Models and assumptions used: The Group uses various models and assumptions in estimating ECL. Judgement
is applied in identifying the most appropriate model for each type of asset, as well as for determining the
assumptions used in these models, including assumptions that relate to key drivers of credit risk. Refer to
Note 60(a)(iii) for more details.
Establishing groups of assets with similar credit risk characteristics: When ECLS are measured on a collective
basis, the financial instruments are grouped on the basis of shared risk characteristics. Refer to Note 60(a)(v)
for details of the characteristics considered in this judgement. The Group monitors the appropriateness of the
credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required
in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the
assets. This may result in new portfolios being created or assets moving to an existing portfolio that better
reflects the similar credit risk characteristics of that group of assets.
Significant increase in credit risk: ECL is measured as an allowance equal to 12-month ECL for stage 1 assets,
or lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased
significantly since initial recognition. In assessing whether the credit risk of an asset has significantly
increased, the Group takes into account qualitative and quantitative reasonable and supportable forward-
looking information. Refer to Note 60(a)(ii) for more details.
5. Significant accounting estimates and judgements (continued)
(4) Impairment under ECL model
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
194
193
the extent to which the associated risks and rewards of ownership of the financial assets are transferred.
Significant judgement and estimate is applied in the Group's estimation with regard to the cash flows before
and after the transfers and other factors that affect the outcomes of the Group's assessment on the extent
that risks and rewards are transferred.
whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer
qualifies for the "pass through" of those cash flows to independent third parties;
The Group analyses the contractual rights and obligations in connection with such transfers to determine whether
derecognition criteria are met based on the following considerations:
Where the Group enters into structured transactions by which it transfers financial assets to structured entities, the
Group analyses whether the substance of the relationship between the Group and these structured entities indicates
that it controls these structured entities and the Group needs to consolidate them. This will determine whether the
following derecognition analysis should be conducted at the consolidated level or at the entity level from which the
financial assets are transferred.
Forward-looking information: When measuring ECL the Group uses reasonable and supportable forward-
looking information, which is based on assumptions for the future movement of different economic drivers
and how these drivers will affect each other. Refer to Note 60(a)(iv) for more details.
Loans and advances to customers
- Corporate loans
- Retail loans
54,635
- Debt investments at amortised cost
19,654
26,201
431
-
65,808
80,836
Financial investments
4,487
3,860
Amounts held under resale agreements
7,760
10,596
Placements with banks and other financial institutions
1,242
2,101
Balances with banks and other financial institutions
8,482
10,673
7,610
168,174
166,104
86,754
94,526
265,601
268,240
Balances with central banks
- Discounted bills
In its normal course of business, the Group transfers its financial assets through various types of transactions
including regular way sales and transfers, securitisation, financial assets sold under repurchase agreements. The
Group applies significant judgement and estimate in assessing whether it has transferred these financial assets and
qualified for a full derecognition.
Derecognition of financial assets transferred
Business model assessment: Classification and measurement of financial assets of the Group involves significant
judgement on business model. The Group determines the business model at a level that reflects how groups of
financial assets are managed together to achieve a particular business objective. Specific considerations include how
the performance of the assets is evaluated and measured, the risks that affect the performance of the assets and
how these are managed and how the managers of the assets are compensated.
Classification of financial assets
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.
Post-employment benefits
Salaries, bonuses and other benefits are accrued in the period in which the associated services are rendered by
employees.
Salaries and staff welfare
(16) Employee benefits
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
On the disposal of a foreign operation, all of the exchange differences accumulated in exchange reserve in respect
of that operation attributable to the owners of the Bank are reclassified to the consolidated statement of profit or
loss.
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 exchange
reserve (and attributed to non-controlling interests as appropriate).
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.
exchange differences on transactions entered into as part of the effective portion of a hedge on certain
foreign currency risks; or
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:
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 is determined. Non-monetary items
that are measured in terms of historical cost in a foreign currency are not retranslated.
(15) Foreign currencies translations
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.
the same taxable entity; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation
authority on either:
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
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:
The Group shall recognise a deferred tax asset for all deductible temporary differences associated with investments
in subsidiaries and interests in associates and joint ventures that both of the following conditions are satisfied: the
temporary differences are likely to be reversed in the foreseeable future; and it is probably to obtain the taxable
income used to offset the deductible temporary difference in the future. The Group shall recognise a deferred tax
liability for all taxable temporary differences associated with investments in subsidiaries and interests in associates
and joint ventures, except where both of the following conditions are satisfied: the investor is able to control the
timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse
in the foreseeable future.
(14) Taxation (continued)
4. Material accounting policy information (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
190
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 from the plan or reductions in
future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any
applicable minimum funding requirements.
46,154
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.
Share-based payment
Where the Group acts as asset manager of structured entities, the Group makes judgement 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 others, 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 interests that it holds in the structured entities.
(3)
(2)
(1) Control over structured entity
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.
Significant accounting estimates and judgements
Chapter VIII Financial Statements
5.
Annual Report 2023 (H share)
China Merchants Bank
The general reserve is an integral part of equity. According to the relevant regulations, in addition to the impairment
allowances, the Bank maintains a general reserve to make up for unidentified potential losses. In principle, the
balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition, the general
reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also
includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and
regulations of their industry or region.
(21) General reserve
Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared.
(20) 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. The Group only charges a relevant
commission.
(19) Fiduciary activities
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. 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.
(18) Segmental reporting
For the purposes of these consolidated financial statements, parties are considered to be related to the Group if the
Group has the ability, directly, indirectly or jointly, 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 control,
common control or common significant influence (except that the Group and the party are subject to common
significant influence of the other party). 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.
(17) Related parties
Material accounting policy information (continued)
4.
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
192
191
The fair value of the H share appreciation rights is using Black-Scholes model, taking into account the terms and
condition upon which the H share appreciation rights were granted.
The Group offers H share appreciation rights to its employee, namely H Share Appreciation Rights Scheme for the
Senior Management ("the Scheme"), which is settled in cash. Cash-settled share-based payments are measured
at the fair value of the liabilities incurred by the Group, which are determined based on the shares. 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 reporting period end and at the date of settlement, with any changes in fair value recognised in
profit or loss for the period.
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.
6,589
Total
353,380
153
317
- dividend income from equity investments designated at FVTOCI
3,291
1,551
- of which: gain on disposal of bills
5,161
3,661
- gain on disposal of debt instruments at FVTOCI
170
967
- gain on disposal of financial assets at amortised cost
12,443
- other
14,523
18,013
19,700
Net investment income
(351)
(55)
- precious metals
(120)
104
- derivatives instruments
(2,204)
1,797
- financial instruments at fair value through profit or loss
(2,675)
- financial instruments at FVTPL
232
86
Foreign exchange gain
8,421
7,349
- Social insurance and corporate supplemental insurance
- Other
55,647
55,477
70,657
70,348
- Salaries and bonuses
Staff costs
2022
2023
10. Operating expenses
29,705
37,825
1,065
729
521
66
9,181
11,352
9,702
11,418
Total
Other
- insurance income
- rental income
Other income
3,600
4,132
1,846
Net gain/(loss) from fair value change
2022
2023
135,145
160,941
510
480
Total
Lease liabilities
9,662
7,781
Debt securities issued
1,960
2,628
Amounts sold under repurchase agreements
4,567
8,931
9,782
8,307
Deposits from banks and other financial institutions
Placements from banks and other financial institutions
2,828
4,005
Borrowing from central banks
105,836
128,809
Deposits from customers
2022
2023
Interest expense
7.
For the year ended 31 December 2023, included in the above is the interest income of RMB10,577 million accrued on loans and advances to
customers at fair value through other comprehensive income (2022: RMB12,668 million).
Note:
8.
375,610
Fee and commission income
2022
9. Other net income
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
196
195
103,372
92,834
Total
12,018
7,552
Other
5,791
5,328
5,753
4,997
Commissions from credit commitment and lending business
Commissions on custodian business
15,051
15,492
Clearing and settlement fees
21,399
19,525
Bank cards fees
12,457
11,474
Commissions from asset management
30,903
28,466
Commissions from wealth management
2023
20,387
9,977
2023
(3,169)
589
1,094
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
22. Loans and advances to customers
(a) Loans and advances to customers
2023
2022
Gross amount of loans and advances to customers at amortised cost (i)
Interest receivable
5,913,324
5,432,112
(505)
Subtotal
Less: Loss allowances of loans and advances to customers
at amortised cost (i)
Loss allowances of interest receivable
(266,805)
(815)
(254,913)
(846)
Subtotal
(267,620)
(255,759)
Loans and advances to customers at amortised cost
5,657,146
5,187,679
Loans and advances to customers at FVTOCI (ii)
11,442
5,924,766
4,263
1,094
2022
(589)
(1,094)
(148)
(216)
(441)
(878)
172,119
276,467
2022
Maturing
- Within one month (inclusive)
172,119
- Between one month and one year (inclusive)
Total
268,890
7,577
172,119
276,467
(c) Analysed by underlying assets
Bonds
Bills
Total
2023
164,702
7,417
172,119
2022
256,129
20,338
276,467
(d) Movements of allowances for impairment losses are as follows:
Balance as at the beginning of the year
Release for the year (note 14)
Balance as at the end of the year
2023
525,179
Loans and advances to customers at FVTPL (iii)
Total
70,430
614,481
4,994
Loans and advances to customers at FVTOCI
Corporate loans and advances
Discounted bills
Loss allowances
Loans and advances to customers at FVTOCI
Stage 1 (12-month ECL)
· Stage 2 (Lifetime ECL - not credit-impaired)
· Stage 3 (Lifetime ECL - credit-impaired)
2023
2022
120,762
100,430
404,417
514,051
525,179
614,481
(2,729)
(6,563)
(2,726)
(6,311)
(3)
(252)
No loss allowance is recognised in the consolidated statement of financial position for loans and advances to
customers at FVTOCI as the carrying amount is at fair value.
(iii)
Loans and advances to customers at FVTPL
Corporate loans and advances
Discounted bills
Interest receivable
Total
(ii)
277,561
5,177,199
Net amount of loans and advances to customers at amortised cost
6,252,755
5,807,154
(i)
Loans and advances to customers at amortised cost
2023
2022
Corporate loans and advances
2,475,432
2,270,323
Retail loans and advances
3,437,883
3,161,789
Discounted bills
9
Gross amount of loans and advances to customers at amortised cost
5,913,324
5,432,112
Less: Loss allowances
(266,805)
(254,913)
- Stage 1 (12-month ECL)
(165,866)
(159,932)
- Stage 2 (Lifetime ECL - not credit-impaired)
(47,729)
(44,898)
Stage 3 (Lifetime ECL - credit-impaired)
(53,210)
(50,083)
5,646,519
172,708
179
286
Maturing
- Within one month (inclusive)
- Between one month and one year (inclusive)
- Over one year
Total
2023
214,881
2022
203,014
42,041
65,651
172,840
137,363
71,366
62,401
70,625
61,880
741
521
286,247
265,415
(519)
(92)
(2,658)
(163)
(427)
(2,495)
285,728
262,757
2023
2022
(b) Analysed by remaining maturity
107,390
Net carrying amount
Less: Impairment allowances
- Banks
223
509
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
20. Placements with banks and other financial institutions
Principal (a)
Impairment allowances (a)(c)
Subtotal
Interest receivable
Total
Note:
2023
286,247
2022
265,415
(519)
(2,658)
285,728
262,757
1,452
264,209
1,966
287,694
Pursuant to the relevant provisions in the "Interim Measures for the Administration of Gold Leasing Business" (Yin Ban Fa [2022] No. 88)
issued by the General Office of the PBOC in July 2022, with respect to the gold leasing business of the Group with financial institutions since
2023, gold leased out by the Group to other financial institutions is presented under "placements with banks and other financial institutions",
a change from "precious metal" in prior years. The comparative figures are re-presented accordingly.
(a) Analysed by nature of counterparties
In the Chinese mainland
- Banks
- Other financial institutions
Outside the Chinese mainland
- Banks
- Other financial institutions
Total
- Other financial institutions
2023
3,661
66,701
68
70,430
175,523
2,815
Other financial institutions
Outside the Chinese mainland
- Banks
- Other financial institutions
Total
Less: Impairment allowances
- Banks
- Other financial institutions
Net carrying amount
(b) Analysed by remaining maturity
2023
2022
172,708
(589)
277,561
(1,094)
172,119
276,467
127
209
172,246
276,676
2023
2022
172,334
9,961
162,373
277,382
42,077
235,305
374
179
88
- Banks
90,001
158,086
In the Chinese mainland
Total
14,670
285,728
262,757
(c)
Movements of allowances for impairment losses are as follows:
2023
2022
Balance as at the beginning of the year
2,658
2,860
Release for the year (note 14)
(2,143)
(235)
Exchange difference
Balance as at the end of the year
4
33
519
2,658
205
206
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
21. Amounts held under resale agreements
Principal (a)
Impairment allowances (a)(d)
Subtotal
Interest receivable
(a) Analysed by nature of counterparties
2022
4,863
3
128
3 months
Overdue
from
3 months
up to 1 year
2023
Overdue
from
1 year up to
3 years
Overdue
more than
3 years
Total
11111
20,486
13,310
3,905
7,053
1,661
618
overdue
loans
6,971
6,133
4,638
5,157
2,571
766
1,556
1,549
1,249
39,362
19,002
17,477
6,142
Overdue
within
36,161
514,054
6,051,459
6,508,865
213,894
As at 31 December 2023, over 90% of the Group's loans and advances to customers were conducted in the Chinese
mainland (31 December 2022: over 90%).
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
22. Loans and advances to customers (continued)
(b) Analysis of loans and advances to customers (continued)
(ii)
Analysed by type of guarantees:
Credit loans
Guaranteed loans
Collateralised loans
Pledged loans
Subtotal
Discounted bills
Gross amount of loans and advances to customers
(iii)
Analysed by overdue term:
Credit loans
Guaranteed loans
Collateralised loans
Pledged loans
Gross amount of loans and advances to customers
2023
2,592,093
2022
2,219,635
836,550
2,132,337
822,059
2,244,129
379,457
6,037,738
471,127
348,883
5,537,405
237,499
23,074
5,077
2,913
1,696
15,966
Pledged loans
3,234
573
951
1,261
6,019
Gross amount of loans and advances to customers
37,207
26,669
9,810
4,599
78,285
Note: Loans are classified as overdue when the principal or interest is overdue more than one day.
Among the above-mentioned overdue loans and advances to customers, collateralised loans and pledged loans that
are overdue but not impaired at the reporting date are as follows:
Collateralised loans that are overdue but not impaired
Pledged loans that are overdue but not impaired
Total
2023
2022
5,448
4,198
2,565
1,819
8,013
6,017
209
6,177
17,671
5,180
18,413
81,983
4,360
Overdue
from
2022
Overdue
from
Overdue
within
3 months
1
year up to
Overdue
more than
Total
overdue
3 months
up to 1
year
3 years
3 years
loans
Credit loans
22,260
12,382
2,365
880
37,887
Guaranteed loans
6,533
7,537
3,581
762
Collateralised loans
Balance as at the end of the year
Gross amount of loans and advances to customers
65,928
103,998
Telecommunications, software and IT services
95,394
78,950
Finance
88,296
75,593
Water, environment and public utilities management
42,813
64,886
Mining
42,326
34,421
Other
76,400
67,677
Subtotal of corporate loans and advances
2,428,284
2,215,835
Discounted bills
471,127
514,054
Residential mortgage
1,376,815
1,379,825
Credit cards
935,777
884,395
Micro-finance loans
110,577
750,019
Construction
186,463
4,994
207
208
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
22. Loans and advances to customers (continued)
(b) Analysis of loans and advances to customers
(i)
Analysed by industry sector and category:
Operations in the Chinese mainland
2023
2022
Manufacturing
557,691
445,218
Transportation, storage and postal services
477,016
461,434
Property development
303,707
349,682
Production and supply of electric power, heating power, gas and water
259,864
203,870
Wholesale and retail
187,737
171,786
Leasing and commercial services
158,320
54,113
629,857
301,538
Leasing and commercial services
6,207
3,430
Mining
Construction
Water, environment and public utilities management
Other
Subtotal of corporate loans and advances
Residential mortgage
Credit cards
Micro-finance loans
Other
4,945
6,074
623
1,772
419
110
4,782
5,414
171,571
159,781
8,671
9,383
133
124
1,278
55,846
1,181
43,425
Subtotal of retail loans and advances
10,908
Consumer loans
8,323
8,923
202,225
Other
7,806
11,374
Subtotal of retail loans and advances
3,371,955
3,107,676
Gross amount of loans and advances to customers
6,271,366
5,837,565
Operations outside the Chinese mainland
2023
2022
Finance
45,368
36,521
Transportation, storage and postal services
36,248
30,814
Property development
22,960
26,298
Manufacturing
19,335
20,494
Production and supply of electric power, heating power, gas and water
Wholesale and retail
12,359
9,023
10,002
Telecommunications, software and IT services
11
11,326
5,443,438
Exchange difference
4
(1)
5
48
(4)
52
354
(12)
(81)
-Net fair value gain on equity instruments designated at
FVTOCI
38
40
358
(82)
440
Items that will not be reclassified to profit or loss
435
45
2
Other comprehensive income
(3,871)
(2,746)
Reclassification adjustments for amounts transferred to profit or loss
upon disposal
(1,746)
6,083
Net fair value gain/(loss) on debt instruments measured at FVTOCI
Changes in fair value recognised during the year
2022
(10)
2023
(b)
1,323
551
772
2,731
(475)
3,206
Movements relating to components of other comprehensive income are as
follows:
Net movement in investment revaluation reserve during the year
recognised in other comprehensive income
45
(45)
4,631
(2,045)
730
(2,775)
- Net changes in expected credit losses of debt instruments
measured at FVTOCI
(5,617)
1,736
(1,160)
(7,353)
(1,133)
4,470
- Net fair value gain/(loss) on debt instruments measured
at FVTOCI
1,285
553
732
2,373
3,337
(45)
3,471
(69)
- Other
4,429
4,429
983
983
- Exchange difference on translation of financial statements
of foreign operations
(1,155)
- Net movement in cash flow hedge reserve
(1,155)
202
- Share of other comprehensive income/(expense) from
equity-accounted investees
112
(23)
135
(59)
10
202
(393)
3,337
Net changes in expected credit losses of debt instruments measured at
FVTOCI
587,818
285
2022
534,232
50,846
2,455
125,878
5,054
302
667,871
2023
536,637
(ii)
(i)
The Group places statutory deposit reserves with the PBOC and overseas central banks where it has operations. The statutory deposit reserves
are not available for the Group's daily operations. The statutory deposit reserve funds of the Bank's institutions located in the Chinese
mainland are calculated at 7% and 4% of eligible RMB deposits and foreign currency deposits respectively as at 31 December 2023 (31
December 2022: 7.5% and 6% of eligible RMB deposits and foreign currency deposits respectively). Eligible deposits include deposits from
government authorities and other organisations, retail deposits, corporate deposits, and net credit balances of entrusted business and RMB
deposits placed by financial institutions outside the Chinese mainland. The amounts of statutory deposit reserves placed with the central banks
of overseas countries are determined by local jurisdictions.
Notes:
Other deposits with central banks (note (iii))
Interest receivable
Surplus deposit reserve (note (ii))
Statutory deposit reserve (note (i))
18. Balances with central banks
The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur
as of 31 December 2023 and 2022. Therefore the conversion feature of preference shares has no effect on the diluted earnings per share calculation for
both years.
The Bank issued non-cumulative preference shares in 2017 and non-cumulative perpetual bonds in 2020, 2021 and 2023. For the purpose of calculating
basic earnings per share, dividends on non-cumulative preference shares and interests on non-cumulative perpetual bonds declared during the year
should be deducted from the amounts attributable to equity holders of the Bank.
Note:
Total
5.26
Surplus deposit reserve maintained with the PBOC and central banks outside the Chinese mainland are mainly for clearing and settlement
purposes.
Other deposits with central banks primarily represent fiscal deposits and foreign exchange reserve placed with the PBOC.
Other financial institutions
- Banks
In the Chinese mainland
(a) Analysed by nature of counterparties
Total
Interest receivable
Subtotal
(iii)
Impairment allowances (a)(b)
2023
100,757
19. Balances with banks and other financial institutions
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
204
203
Principal (a)
(5,617)
5.63
25,220
(1)
112
(58)
Effective portion of changes in fair value of hedging instruments
Reclassification adjustment for realised gain to profit or loss
Net movement in cash flow hedge reserve
48
354
Net movement in hedging reserve during the year recognised in other
comprehensive income
Net movement in investment revaluation reserve during the year
recognised in other comprehensive income
354
Net fair value gain on equity instruments designated at FVTOCI
Changes in fair value recognised during the year
3,471
(2,045)
3,471
(2,045)
Changes in expected credit losses recognised during the year
Net movement in investment revaluation reserve during the year
recognised in other comprehensive income
48
25,220
(59)
China Merchants Bank
Annual Report 2023 (H share)
132,775
142,044
(3,562)
(3,562)
(1,675)
(996)
138,012
112
146,602
2023
Net profit attributable to holders of perpetual bonds
Net profit attributable to ordinary shareholders of the Bank
Weighted average number of shares in issue (in million shares)
Basic and diluted earnings per share (in RMB Yuan)
Less: Net profit attributable to preference shareholders of the Bank
Net profit attributable to equity holders of the Bank
The calculation of basic earnings per share is based on the net profit attributable to ordinary shareholders of the
Bank and the weighted average number of shares in issue for the year.
17. Earnings per share
Chapter VIII Financial Statements
2022
2,766
Items that may be reclassified subsequently to profit or loss
amount
35
Aggregate amount of relevant loans made by the Group outstanding
at year end
2022
2023
Loans to directors, supervisors and executive officers of the Group are as follows:
13. Loans to directors, supervisors and executive officers
Annual Report 2023 (H share)
34
Chapter VIII Financial Statements
During the years of 2023 and 2022, no emoluments were paid by the Group to any of the persons who are five
highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.
4,500,001 - 5,000,000
3,500,001 -4,000,000
4,000,001 -4,500,000
4
2022
12
2023
China Merchants Bank
3,000,001 3,500,000
Maximum aggregate amount of relevant loans made by the Group
outstanding during the year
47
- Debt investments at amortised cost (Note 23(b)(iii))
3,879
(218)
(3,284)
(2,935)
4,982
(3,835)
50
40,175
- Loans and advances at amortised cost (Note 22(c)(i))
- Loans and advances at FVTOCI (Note 22(c)(ii))
Amounts due from banks and other financial institutions
Financial investments
45,157
46,635
Loans and advances to customers
2022
2023
14. Expected credit losses
50,470
(1,227)
2,500,001 -3,000,000
These highest paid individuals who were neither directors nor supervisors of the Bank whose emoluments fell within
the following bands is set out below:
In June 2022, according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank, Mr. Hu Jianhua, Mr. Sun Yunfei
and Mr. Chen Dong were elected as Non-Executive Directors of the Bank, whose qualifications as the Directors were approved by the former
China Banking and Insurance Regulatory Commission (the "former CBIRC") in October 2022.
On 27 September 2023, the Board of Directors approved the discretionary bonuses of the Bank's directors, supervisors and executive officers
for 2022.
(vii)
(vi)
(v)
(iv)
(iii)
In June 2022, according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank, Mr. Luo Sheng was elected as
the Shareholder Supervisor of the Bank, and Mr. Cai Hongping and Mr. Zhang Xiang were elected as External Supervisors of the Bank.
(!!)
Notes:
11. Directors' and supervisors' emoluments (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
200
1
(i)
HKD
In November 2022, Mr. Fu Gangfeng ceased to be the Vice Chairman and Non-Executive Director of the Bank due to change of work
arrangement.
In June 2022, Mr. Guo Xikun ceased to be the Shareholder Supervisor of the Bank due to the expiry of his terms of office, and Mr. Ding
Huiping and Mr. Han Zirong ceased to serve as External Supervisors of the Bank due to the expiry of their terms of office.
20,061
8,263
Total
842
Contributions to defined contribution retirement schemes
7,455
Discretionary bonuses
In June 2022, Mr. Wang Daxiong and Mr. Luo Sheng ceased to be Non-Executive Directors of the Bank after the end of the 2021 Annual
General Meeting due to the expiry of their terms of office, and Mr. Tian Huiyu ceased to be an Executive Director of the Bank after the end of
the 2021 Annual General Meeting.
11,764
2023
RMB'000
8,263
Salaries and other emoluments
During the year ended 31 December 2023, the five highest paid individuals included five persons in total. During
the year ended 31 December 2022, the five highest paid individuals included six persons in total, two of them
were with the same emoluments and being the third highest paid individuals, and two of them were with the same
emoluments and being the fourth highest paid individuals. Of these highest paid individuals, two (2022: two) were
directors or supervisors of the Bank whose emoluments were included in Note 11 above. The aggregate emolument
of the remaining three (2022: four) highest paid individuals who were neither directors nor supervisors of the Bank
is as follows:
12. Five highest paid individuals
During the years of 2023 and 2022, there was no arrangement under which a director or a supervisor waived or
agreed to waive any remuneration.
During the years of 2023 and 2022, 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.
As of 31 December 2022, the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set
out in Note 39 (a)(iii).
2022
RMB'000
4,234
- Debt investments at FVTOCI (Note 23(c)(ii))
Financial guarantees and loan commitments.
Other
25,819
28,612
Income tax expense
264
(24)
(942)
(937)
Note:
- Tax effect of perpetual bond/perpetual debt capital interest expense
- Other
(260)
- Effects of different applicable rates in other jurisdictions
2,548
4,551
- Effects of costs, expenses and losses not deductible for tax purpose
(17,114)
(18,872)
(215)
- Effects of non-taxable income
Taxation for Hong Kong and overseas operations are charged at the applicable rates of tax prevailing in relevant regions.
202
(expense)
amount
amount
(expense)
Net-of-tax
Tax benefit/
Tax benefit/ Net-of-tax Before-tax
201
Before-tax
amount
2023
Income tax effects relating to each component of other comprehensive income
(a)
16. Other comprehensive income
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
2022
(15,459)
(15,542)
41,278
Total
Deferred taxation
Overseas
- Hong Kong
- Chinese mainland
Current income tax expense
(a) Income tax in the consolidated statement of profit or loss represents:
2023
15. Income tax
3,887
557
41,278
7,112
(2,761)
(355)
1,009
Total
56,751
2022
28,695
34,276
44,154
Tax at the PRC statutory income tax rate of 25% (2022: 25%)
Tax effects of the following items:
165,113
176,618
Profit before taxation
2022
2023
(b) A reconciliation of income tax expense in the consolidated statement of profit
or loss and that calculated at the applicable statutory tax rate is as follows:
25,819
(8,457)
(83)
28,612
170
174
973
1,155
33,133
27,366
Outside the Chinese mainland
- Banks
- Remeasurement of defined benefit scheme
509
38,376
33,778
37,872
33,390
504
388
120
91,587
(223)
(509)
(196)
(490)
(27)
(19)
100,534
91,078
(b) Movements of allowances for impairment losses are as follows:
2023
2022
Balance as at the beginning of the year
378
(Release)/charge for the year (note 14)
(287)
3,001
4,994
100,757
57,387
54,808
- Other financial institutions
Total
Less: Impairment allowances
- Banks
- Other financial institutions
2022
91,587
(223)
(509)
100,534
Net carrying amount
235
268
100,769
91,346
2023
2022
62,381
91,078
57,809
Loans and advances to customers at FVTOCI
5,177,199
7,921
111,342
(50,083)
Net amount of loans and advances to customers at
amortised cost
(254,913)
(44,898)
612,660
5,057,936
1,821
China Merchants Bank
Loss allowances of loans and advances to customers
at FVTOCI
(6,311)
(252)
(6,563)
Movements of allowance for expected credit loss
(i)
(c)
22. Loans and advances to customers (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
614,481
(159,932)
Balance as at the end of the year
58,004
8,350
5,646,519
Loans and advances to customers at FVTOCI
524,624
555
525,179
Reconciliation of allowance for expected credit loss for loans and advances to customers measured at
amortised cost:
Loss allowances of loans and advances to customers
at FVTOCI
(2,726)
(3)
(2,729)
5,432,112
2022
- Stage 2
(Lifetime
ECL - not
- Stage 3
(Lifetime
credit-
ECL - credit-
ECL)
impaired)
impaired)
Total
Loans and advances measured at amortised cost
Less: Loss allowances of loans and advances to
customers at amortised cost
5,217,868
156,240
Stage 1
(12-month
- Stage 1
(12-month
ECL)
(14,547)
- Stage 2
(Lifetime
ECL - not
Recovery of loans and advances written off
(47,922)
8,819
50,470
(47,922)
8,819
Exchange and other differences
612
91
Balance as at the end of the year
165,866
47,729
(178)
53,210
Write-offs/disposals
525
2022
- Stage 2
(Lifetime
ECL - not
- Stage 3
(Lifetime
- Stage 1
(12-month ECL)
credit-
impaired)
1,579,845
1,768,010
20,796
1,788,806
2022
2023
Debt investments at amortised cost:
Total
266,805
2023
26,982
5,274
credit-
- Stage 3
(Lifetime
ECL - credit-
impaired)
impaired)
Total
Balance as at the beginning of the year
159,932
44,898
50,083
254,913
Transfer to
18,214
- Stage 1
(7,309)
(171)
- Stage 2
(5,807)
6,382
(575)
- Stage 3
(1,625)
117,376
16,172
Charge for the year (note 14)
7,480
5,520,793
Net amount of loans and advances to customers at
amortised cost
(266,805)
1,728,620
1,536,397
215
216
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
23. Financial investments (continued)
(b) Debt investments at amortised cost (continued)
(ii) Analysed by stage of ECL:
Debt investments at amortised cost
Less: Loss allowances of debt investments
at amortised cost
Net debt investments at amortised cost
Debt investments at amortised cost
Less: Loss allowances of debt investments
at amortised cost
(32,368)
(25,711)
(960)
(486)
87,748
127,346
87,748
127,346
Total
Less: Loss allowances
Stage 1 (12-month ECL)
Net debt investments at amortised cost
Stage 2 (Lifetime ECL - not credit-impaired)
Net debt investments at amortised cost
1,768,010
1,579,845
(39,390)
(43,448)
(13,193)
(10,120)
Stage 3 (Lifetime ECL - credit-impaired)
(iii)
Movements of allowances for expected credit loss
Balance as at the beginning of the year
1,031
1,837
1,728,620
2022
- Stage 1
(12-month
- Stage 2
(Lifetime
ECL - not
credit-
1,725,752
Stage 3
(Lifetime
ECL - credit-
impaired)
impaired)
Total
1,543,652
2,073
34,120
1,579,845
ECL)
Unlisted
(39,390)
(486)
Transfer to:
- Stage 1
(12-month
credit-
2023
- Stage 2
(Lifetime
ECL - not
- Stage 3
(Lifetime
ECL - credit-
(25,711)
ECL)
impaired)
Total
1,738,945
1,517
27,548
1,768,010
(13,193)
impaired)
Subtotal
Classified by listing
648
22. Loans and advances to customers (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
210
(39,782)
1,749,024
(234)
(43,682)
1,555,457
2023
2022
Bonds:
Classified by issuer
- Government bonds
1,680,262
1,452,499
(b) Analysis of loans and advances to customers (continued)
Analysed by ECL
(iv)
- Stage 1
(12-month
credit-
(53,210)
(47,729)
(165,866)
5,913,324
61,560
165,105
5,686,659
1,179,073
Loans and advances measured at amortised cost
Less: Loss allowances of loans and advances to
customers at amortised cost
impaired)
impaired)
ECL)
ECL - credit-
- Stage 3
(Lifetime
- Stage 2
(Lifetime
ECL - not
2023
Total
993,624
- Bonds issued by policy banks
442,206
30,915
23,996
1,708,448
1,457,373
87,748
127,346
- Non-standard assets - Loans and advances to customers
Classified by underlying assets
73,709
- Non-standard assets - Creditor's beneficiary rights to other
commercial banks
3,738
- Non-standard assets - Other
9,622
5,500
12,582
- Other
679
108,616
-
Other investments:
Unlisted
394,126
Bonds issued by commercial banks and other financial institutions
51,732
56,913
Other debt securities
7,251
7,836
Fair value for the listed bonds
Classified by listing
1,452,499
Listed in the Chinese mainland
– Listed outside the Chinese mainland
1,607,814
1,395,184
41,533
33,319
1,680,262
2023
Impairment losses of principal (i)(ii)(iii)
Impairment losses of interest receivable
Debt investments at amortised cost (i)(ii)
Interest receivable
Net carrying amount of finance leases receivable
(1,368)
(1,646)
(600)
(717)
45,397
44,493
23. Financial investments
Notes
2023
Financial investments at fair value through profit or loss
23(a)
Debt investments at amortised cost
23(b)
526,145
1,749,024
· Stage 3 (Lifetime ECL - credit-impaired)
- Stage 2 (Lifetime ECL - not credit-impaired)
(1,308)
(661)
19,145
17,448
Subtotal
58,517
57,829
Unearned finance income
(10,491)
2022
423,467
1,555,457
(9,665)
48,026
48,164
Less: Impairment allowances
(392)
(2,629)
(3,671)
Stage 1 (12-month ECL)
Present value of minimum leases receivable
3,860
(43,448)
23(c)
526,145
423,467
impaired)
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
23. Financial investments (continued)
(a)
Financial investments at fair value through profit or loss (continued)
(i) Financial investments measured at FVTPL
Financial investments held for trading
2023
2022
Bonds:
(10,120)
Total
11,876
12,879
(ii)
Equity investments designated at FVTOCI
23(d)
899,102
19,649
780,349
13,416
Total
3,193,920
2,772,689
Debt investments at FVTOCI
(a) Financial investments at fair value through profit or loss
2023
2022
Financial investments measured at FVTPL
(i)
513,266
411,591
Financial assets designated at fair value through profit or loss
Notes
3,729
Over 4 years but within 5 years (inclusive)
Over 5 years
6,089
(39,016)
(71)
Write-offs/disposals
40,175
29,216
12,653
(1,694)
(Release)/charge for the year (note 14)
8,374
(4,681)
(3,693)
- Stage 3
(74)
(180)
7,879
(7,699)
(39,087)
Recovery of loans and advances written off
8,972
8,972
Exchange difference
(Release)/charge for the year (note 14)
Balance as at the beginning of the year
FVTOCI:
(ii)
Reconciliation of allowance for expected credit loss for loans and advances to customers measured at
254,913
- Stage 2
50,083
159,932
Balance as at the end of the year
330
(378)
76
632
Exchange and other differences
44,898
(2,965)
3,039
- Stage 1
22. Loans and advances to customers (continued)
(d)
Finance leases receivable
The table below provides an analysis of finance leases receivable included in loans and advances to customers for
leases of assets in which the Group is a lessor:
2023
2022
Total minimum leases receivable
Annual Report 2023 (H share)
Within 1 year (inclusive)
15,305
13,323
8,010
11,035
7,573
6,074
4,755
Over 1 year but within 2 years (inclusive)
Over 2 years but within 3 years (inclusive)
Over 3 years but within 4 years (inclusive)
Classified by issuer
Chapter VIII Financial Statements
212
Transfer to
244,523
43,169
32,007
169,347
Balance as at the beginning of the year
Total
China Merchants Bank
2022
1,581
(3,835)
4,982
1
2,729
6,563
211
6,563
- Government bonds
251,189
182,416
Total other financial investments measured at FVTPL
Total financial investments measured at FVTPL
247,111
4,228
240,864
206,415
4,362
199,725
1,683
336
1,511
817
247,111
206,415
990
330
972
653
- Unlisted
- Listed outside the Chinese mainland
- Listed in the Chinese mainland
Classified by listing
- Listed in the Chinese mainland
- Listed outside the Chinese mainland
Unlisted
7,483
18,216
2,777
1,872
359
245,149
701
Classified by underlying assets
– Equity investments
-
-
Fund investments
Wealth management products
Other
Other investments:
205,432
257,730
227,204
729
Classified by listing
12,879
11,876
- Listed in the Chinese mainland
12,637
11,656
832
Listed outside the Chinese mainland
220
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
23. Financial investments (continued)
(b) Debt investments at amortised cost
(i)
242
-
6,370
Bonds issued by commercial banks and other financial institutions
- Other debt securities
513,266
411,591
(ii)
Financial investments designated at fair value through profit or loss
2023
2022
Bonds:
7,327
Classified by issuer
11,876
Government bonds
228
218
- Bonds issued by policy banks
4,492
4,559
12,879
Subtotal
20,789
Classified by listing
12,215
2,296
2,203
Classified by underlying assets
ECL - credit-
– Equity investments
4,347
1,971
257
17
-
Fund investments
1,440
814
- Wealth management products
12,787
167,998
236,106
Other investments:
128,894
81,781
- Bonds issued by policy banks
20,502
21,871
-
- Bonds issued by commercial banks and other financial institutions
Other debt securities
1,046
40,591
61,202
42,765
Classified by listing
251,189
182,416
- Listed in the Chinese mainland
Listed outside the Chinese mainland
Unlisted
35,999
1,032
- Long position in precious metal contracts
1,604
(i) Financial investments measured at FVTPL (continued)
Other financial investments measured at FVTPL
2023
2022
Bonds:
Classified by issuer
10,619
Financial investments at fair value through profit or loss (continued)
20,789
740
-
- Bonds issued by commercial banks and other financial institutions
Other debt securities
3,781
14,039
6,098
6,750
- Bonds issued by policy banks
10,619
(a)
Annual Report 2023 (H share)
108
Classified by listing
4,347
1,971
― Listed outside the Chinese mainland
- Unlisted
1,604
134
23. Financial investments (continued)
2,743
Total financial investments held for trading
255,536
184,387
213
214
China Merchants Bank
Chapter VIII Financial Statements
1,837
(960)
(39,390)
(43,448)
6,622
6,540
2022
2023
(d) Equity investments designated at FVTOCI
Balance as at the end of the year
Exchange difference
1,009
Write-offs/disposals
Balance as at the beginning of the year
(ii)
(c) Debt investments at FVTOCI (continued)
Movements of allowances for expected credit loss
23. Financial investments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Charge/(release) for the year (note 14)
218
(355)
70
10,150
16,792
3,266
2,857
2022
2023
Total
(807)
- Listed outside the Chinese mainland
Unlisted
Classified by listing
Total
Other
Repossessed equity instruments
6,540
6,812
273
- Listed in the Chinese mainland
217
70,013
107,999
771,271
889,736
Classified by issuer
Bonds:
2022
2023
Debt investments at FVTOCI:
Government bonds
(i)
(6,620)
(6,960)
(80)
(148)
(6,540)
(6,812)
780,349
No impairment allowances are recognised in the consolidated statement of financial position for debt investments at
FVTOCI as the carrying amount is at fair value.
636,625
524,651
- Bonds issued by policy banks
- Unlisted
90,148
105,084
- Listed outside the Chinese mainland
611,110
676,653
(32,368)
771,271
889,736
Classified by listing
52,946
68,195
119,602
149,397
- Bonds issued by commercial banks and other financial institutions
- Other debt securities
74,072
35,519
19,649
13,416
926
1,412
Asset management
Chen Yisong
Xue Fei
Limited liability
Banking
100%
(note (vii))
RMB500
Beijing
Limited liability
EUR100
Limited liability
Asset management
90%
RMB5,556
Shenzhen
CMB Wealth Management Co., Ltd (note (v))
China Merchants Europe S.A. (note (vi))
Cigna & CMB Asset Management Company
Limited (note (vii))
(note (iv))
Luxembourg
Wang Xiaoqing
China Merchants Bank
Annual Report 2023 (H share)
219
Cigna & CMB Asset Management Company Limited ("CIGNA & CMAM") was registered and established on 18 October 2020 with the
approval for setting up by the former CBIRC with Yin Bao Jian Fu [2020] No. 708. CIGNA & CMAM is an indirectly controlled subsidiary of the
Bank, with 87.3458% held by CIGNA & CMB Life Insurance Co., Ltd., a joint venture of the Bank, and 12.6542% held by CMBIC, a subsidiary
of the Bank.
CMB Wealth Management Co., Ltd. ("CMBWM") is a wholly-owned subsidiary of the Bank, approved for setting up by the former CBIRC with
Yin Bao Jian Fu [2019] No. 981. It was formally established on 1 November 2019. In accordance with the approval of former CBIRC (Yin Bao
Jian Fu [2021] No. 920)", JPMorgan Asset Management (Asia Pacific) Limited (" JPMorgan Asset Management ") has subscribed for a 10%
stake in CMBWM in 2022 with an investment of RMB2,667 million. After the completion of capital injection, CMBWM's registered capital has
been increased to approximately RMB5,556 million from RMB5,000 million and the Bank's and JPMorgan Asset Management's shareholdings
are 90% and 10% respectively. The legal representative of CMBWM was changed from Chen Yisong to Wu Jianbing on 22 January 2024.
China Merchants Europe S.A. ("CMB Europe S.A.") is a wholly-owned subsidiary of the Bank approved by the former CBIRC with Yin Jian
Fu [2016] No. 460. The Bank received an approval from the European Central Bank (ECB) for the establishment of CMB Europe S.A. in
Luxembourg in May 2021. In June 2023, the Bank made an additional capital contribution of EUR 50 million in CMB Europe S.A. The capital of
CMB Europe S.A. increased to EUR 100 million, and the Bank's shareholding percentage remained unchanged.
In 2012, the Bank acquired 21.60% equity interests in China Merchants Fund Management Co., Ltd. ("CMFM"), its former associate, from
ING Asset Management B.V. at a consideration of EUR63,567,567.57. Following the settlement of the above consideration in cash, the Bank's
shareholding in CMFM increased from 33.40% to 55.00% in 2013. As a result, the Bank obtained the control over CMFM, which became
the Bank's subsidiary on 28 November 2013. In December 2017, the Bank made an additional capital contribution of RMB605 million in
CMFM, and other shareholders of CMFM also made capital contribution of RMB495 million proportionally. The capital of CMFM increased to
RMB1,310 million, and the Bank's shareholding percentage remained unchanged.
CMB Wing Lung Bank Limited ("CMB WLB") was formerly known as Wing Lung Bank Limited. On 30 September 2008, the Bank acquired
a 53.12% equity interests in CMB WLB. CMB WLB became a wholly owned subsidiary of the Bank on 15 January 2009. CMB WLB had
withdrawn from listing on the HKEx as of 16 January 2009.
CMB Financial Leasing Company Limited ("CMBFL") is a wholly-owned subsidiary of the Bank approved for setting up by the former CBIRC
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 CMBFL. The capital of CMBFL increased to RMB6,000 million and the Bank's shareholding percentage remained
unchanged. In August 2021, CMBFL converted RMB6,000 million of its retained earnings into share capital, and the capital of CMBFL increased
to RMB12,000 million. The Bank's shareholding percentage remained unchanged.
CMB International Capital Holdings Corporation Limited ("CMBIC"), formerly known as Jiangnan Finance Company Limited and CMB
International Capital Corporation Limited, is the Bank's wholly-owned subsidiary approved for setting up by the PBOC through its Yin Fu [1998]
No. 405. In 2014, the Bank made an additional capital contribution of HKD750 million in CMBIC. The capital of CMBIC increased to HKD1,000
million, and the Bank's shareholding percentage remained unchanged. The Board of Directors passed "The Resolution regarding the Capital
Increase and Restructuring of CMBIC" which agreed that the Bank made capital contribution of USD400 million (or its equivalent) to CMBIC
on 28 July 2015. The capital contribution was completed on 20 January 2016.
(vii)
(vi)
(v)
(iv)
(iii)
(ii)
(i)
Notes:
24. Particulars of principal subsidiaries of the bank (continued)
Chapter VIII Financial Statements
Wang Liang
Wang Xiaoqing
899,102
Limited liability
55%
paid up capital
(in millions)
HKD4,129
Hong Kong
CMB International Capital Holdings
Corporation Limited (note (i))
% of
ownership
held by
Particulars of
the issued and
Place of
incorporation
and operation
Name of company
the Bank Principal activities
The following list contains particulars of subsidiaries which principally affect the financial 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 4(1) and have been included in the scope of the consolidated financial statements of the
Group.
During the year ended 31 December 2023, the Group disposed part of the equity investments designated at
FVTOCI. The fair value of the equity investments disposed at the date of derecognition was RMB1,226 million (2022:
RMB2,879 million). The cumulative net of tax loss of RMB49 million (2022: cumulative net of tax gain of RMB20
million) was transferred from investment revaluation reserve to retained earnings on disposal.
13,416
19,649
9,260
9,208
2,744
9,515
24. Particulars of principal subsidiaries of the bank
Economic
nature
Legal
representative
100%
Limited liability
Banking
100%
HKD1,161
RMB1,310
Hong Kong
Shenzhen
CMB Wing Lung Bank Limited (note (iii))
China Merchants Fund Management Co., Ltd.
Zhong Desheng
Limited liability
Finance leasing
100%
RMB12,000
Shanghai
CMB Financial Leasing Company Limited
(note (ii))
management
Wang Liang
Limited liability
Investment bank
and investment
Fund management
19,294
1,599,139
Listed in the Chinese mainland
(b) Debt investments at amortised cost (continued)
Movements of allowances for expected credit loss (continued)
Write-offs/disposals
4,234
8,390
518
(4,674)
(Release)/charge for the year (note 14)
451
(298)
(153)
- Stage 3
(531)
27
- Stage 1
Transfer to:
Total
39,707
impaired)
24,021
712
14,974
credit-
impaired)
ECL)
Balance as at the beginning of the year
- Stage 3
(Lifetime
ECL credit-
- Stage 2
- Stage 2
(Lifetime
ECL - not
(531)
28
9,078
9,366
771,271
889,736
2022
2023
Total
Impairment losses of debt investments at FVTOCI (ii)
Impairment losses of interest receivable
Total
Interest receivable
Recovery of debt previously written off
Debt investments at FVTOCI (i)
43,448
32,368
960
10,120
Balance as at the end of the year
10
9
1
Exchange difference
28
(c) Debt investments at FVTOCI
2022
(27)
(iii)
(484)
- Stage 3
37
(37)
Stage 2
Stage 1
43,448
32,368
Total
impaired)
Charge/(release) for the year (note 14)
- Stage 1
(12-month
- Stage 2
(Lifetime
ECL - not
credit-
impaired)
ECL)
- Stage 1
(12-month
2023
ECL credit-
Stage 3
(Lifetime
1,536,397
1,752
1,113
1,533,532
10,120
3,111
960
484
(4,313)
(25)
23. Financial investments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
39,390
486
13,193
Balance as at the end of the year
13
25,711
(2,904)
66
10
(1)
4
Exchange difference
Recovery of debt previously written off
(1,227)
(2,910)
Write-offs/disposals
(1)
(5)
66
(79)
132
34
(159)
13
153
140
3,301
2,033
1,763
3,135
3,097
3,301
At 31 December
2023
Net carrying amount:
At 31 December
Exchange difference
Disposals
Transfers (out)/in
Depreciation
At 1 January
Accumulated depreciation:
Exchange difference
Disposals
(204)
2022
Transfers (out)/in
33
25
18,516
3,787
30,501
At 1 January 2023
Cost:
Total
Other
equipment improvements equipment
in progress
buildings
professional
Computer Leasehold
Construction
11,678
Land and
Aircraft,
28. Property and equipment
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
224
223
In estimating the fair value of the properties, the highest and best use of the properties is their current use.
5,534
2,394
3,140
Total
2,394
vessels and
85,741
5,478
155,701
1,455
5
1,356
16
23
55
Exchange difference
(10,079)
(625)
(6,983)
(82)
(2,374)
(15)
Disposals
159
(8)
380
28
(2,686)
2,445
Reclassification and transfers
29,888
360
24,689
775
1,145
2,879
40
Additions
2,394
(57)
Located overseas
3,140
79
4 year to 5 years (inclusive)
153
136
3 year to 4 years (inclusive)
184
165
2 year to 3 years (inclusive)
240
196
1 year to 2 years (inclusive)
289
227
102
Within 1 year (inclusive)
2023
The Group's total future minimum leases receivable under non-cancellable operating leases are as follows:
Investment properties of the Group mainly represent the leased properties of CMB WLB and the Bank that have
been leased out under operating leases. The fair value of the Group's investment properties is determined by the
market approach and the method of capitalisation of net rental income. As at 31 December 2023, the fair value of
these properties was RMB4,432 million (31 December 2022: RMB5,534 million).
As at 31 December 2023, no impairment allowance was considered necessary for investment properties by the
Group (31 December 2022: Nil).
At 1 January
At 31 December
1,372
1,268
1,268
1,160
2,033
1,937
105
2022
Over 5 years
225
275
Located in the Chinese mainland
2022
Level 3
Level 2
Level 1
31 December
as at
Fair Value
4,432
2,396
2,036
2,396
2,396
2,036
2,036
Total
Located overseas
Located in the Chinese mainland
2023
Level 3
Level 2
Level 1
31 December
as at
Fair Value
The fair value hierarchy of the investment properties of the Group are listed as follows:
1,243
1,028
Total
3,140
At 1 January
equipment
27. Investment properties
183
4
259
At 31 December 2023
15,984
14,582
8,946
7
16,815
60,597
Impairment loss:
At 1 January 2023
Charge
20
1,132
1,152
4,270
183
22
Exchange difference
934
5,921
541
10,868
Reclassification and transfers
204
24
43
(24)
Disposals
(10)
(2,319)
(40)
(2,400)
(595)
(5,364)
204
2,064
Disposals
183
(175)
71,498
1,134
99,919
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
28. Property and equipment (continued)
3,633
Aircraft,
Land and
Construction
Computer
Leasehold
professional
buildings
in progress
vessels and
(175)
3,725
At 1 January 2023
Exchange difference
At 31 December 2023
20
19
1,159
19
1,179
16,142
Net carrying amount:
17,022
3,980
2,756
3,821
86,829
940
115,348
At 31 December 2023
1,408
Depreciation
54,630
At 31 December 2022
5,927
17
5,454
82
113
261
30,501
Exchange difference
(643)
(7,912)
(100)
(517)
(150)
Disposals
(13)
(9,322)
(162)
3,787
11,678
Annual Report 2023 (H share)
improvements
1,286
Depreciation
46,466
4,465
9,051
18,516
7,028
12,998
At 1 January 2022
Accumulated depreciation:
155,701
5,478
2,174
85,741
12,924
122
162
(1,625)
equipment
At 31 December 2023
33,026
3,980
17,338
12,767
104,803
Other
5,210
Accumulated depreciation:
At 1 January 2023
14,339
14,791
8,045
13,111
4,344
177,124
Total
Cost:
At 1 January 2022
1,490
Reclassification and transfers
31,710
357
26,872
649
1,898
1,910
24
Additions
127,399
5,909
61,327
10,925
16,860
3,502
28,876
Cost:
3,787
(12)
China Merchants Bank
Principal activity
by the Bank
interest
paid up capital
Percentage of
ownership held
effective
Group's
Particulars of
issued and
(in millions)
Place of
incorporation
and operation
Name of joint ventures
1,710
(997)
1,860
31
14,247
2022
2023
15,707
Details of the Group's interests in major joint ventures are as follows:
Share of other comprehensive income/(expense) for the year
Economic nature
Share of profits for the year
CIGNA & CMB Life Insurance Co., Ltd. (note(i)) Limited liability
RMB2,800
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
In July 2023, MUCFC completed the registration of the change of its Chinese name from “2” to “XOA⠀✰ARGO
公司”.
In July 2021, CMB WLB transferred all its shares of MUCFC to the Bank. After the transfer, the Bank and CUNC each held 50% of equity
interests in MUCFC, and the Group's total shareholding percentage remained unchanged. In October 2021, MUCFC converted RMB1,331
million of its capital reserve and RMB4,800 million of its retained earnings into share capital, and the share capital of MUCFC increased to
RMB10,000 million after the conversion.
The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Co., Ltd., ("CIGNA & CMB Life") and Cigna Health and Life
Insurance Company ("CHLIC") holds the other 50.00% equity interests. The Bank and CHLIC share the joint venture's risk, profits and losses
based on their shareholding proportionally. The Bank's investment in CIGNA & CMB Life is accounted for as an investment in a joint venture.
CMB WLB, one of the Group's wholly-owned subsidiaries, and China United Network Communications Limited ("CUNC"), a subsidiary
of China Unicom Limited, jointly set up Merchants Union Consumer Finance Company Limited ("MUCFC"). Former CBIRC approved the
operation of MUCFC on 3 March 2015. CMB WLB and CUNC each held 50% equity interests in MUCFC and share the risks, profits and
losses proportionally based on their shareholdings. In December 2017, the Bank and CUNC made a capital contribution of RMB600 million in
MUCFC respectively. After the capital injection, the capital of MUCFC increased to RMB2,859 million, with the Bank's shareholding percentage
becoming 15%, CMB WLB's shareholding percentage becoming 35%, and the Group's total shareholding percentage remained at 50%. In
December 2018, the Bank made another capital contribution of RMB 1,000 million in MUCFC, and CUNC made the same amount of capital
injection. After that, the share capital of MUCFC has reached RMB3,869 million. The Bank and CMB WLB then held 24.15% and 25.85% of
equity interests in MUCFC, respectively, and the Group's total shareholding percentage remained at 50%.
(ii)
(i)
Shenzhen
Notes:
Life insurance
business
Consumer finance
50.00%
50.00%
RMB10,000
Shenzhen
Merchants Union Consumer Finance Company Joint stock limited
Limited (note(ii))
50.00%
50.00%
company
Share of net assets
25. Interests in joint ventures
Annual Report 2023 (H share)
935
At 31 December 2022
14,339
14,791
8,045
13,111
4,344
54,630
13
Impairment loss:
20 ---
Charge
Disposals
Exchange difference
At 31 December 2022
20
Net carrying amount:
At 31 December 2022
At 1 January 2022
686
(16)
77
Chapter VIII Financial Statements
China Merchants Bank
220
557
10,147
Reclassification and transfers
(33)
113
(113)
(33)
Disposals
(87)
(497)
(70)
(1,653)
(578)
(2,885)
Exchange difference
175
25. Interests in joint ventures (continued)
Summarised financial information with necessary adjustments in accordance with the Group's accounting policies of
the joint ventures which are individually material to the Group is as follows:
(i)
CIGNA & CMB Life:
156,054 20,367 19,602
78,027
176,421
88,211
Group's effective interest
MUCFC
2023
tax
income equivalents amortisation
Equity Revenue profit
3,600
Assets Liabilities
and cash
Net comprehensive
Cash Depreciation
Total
MUCFC:
(ii)
74 (238)
147 (475)
and Income
3,600
4,170
44
500
47
5,425
3,329
3,329
17,501
17,067
147,279
164,346
MUCFC
2022
267
22
2,085
1,800
1,800
9,801
10,184
533
བs
At 1 January 2022
536
(997)
20,331
429
9,855 40,661
4,616
165,340 155,485
82,359 77,743
Group's effective interest
CIGNA & CMB Life
2023
tax
429
(expense) equivalents amortisation
income/ and cash
Cash Depreciation
comprehensive
Total
Other
comprehensive
income/
(expense)
profit
Assets Liabilities Equity Revenue
Net
and Income
63
492
2,590
336
1,071
(1,266)
(1,996)
730
9,613 31,841
4,543 15,921
121,145
60,573
130,758
65,116
Group's effective interest
CIGNA & CMB Life
2022
(472)
75
1,295
198
31
167
(944)
149
(661)
Group's effective interest
(a)
518
1,557
12,399
8
3
13,967
Impairment loss:
At 1 January 2023
At 31 December 2023
12
59
59
59
Net carrying amount:
At 31 December 2023
4,386
12,645
2
8
17,041
59
At 1 January 2023
(2,585)
4,205
12
14
6,002
25,044
10
11
31,067
Accumulated depreciation:
(1)
1,375
182
4,018
(2,584)
12
53 II
2
12,335
2
10,953
4,566
12,973
5
10,616
9
3
9,414
1,190
At 1 January 2022
Accumulated depreciation:
29,947
Depreciation (note 10)
11
23,926
6,000
At 31 December 2022
63
48
15
Exchange difference
(2,861)
10
7
29,078
16
9
17,553
Motor
Land
use rights
Buildings
Computer
equipment
vehicles
and other
Total
Cost:
At 1 January 2022
5,985
23,070
Additions
3,656
Decrease
(2,848)
74 €
2
(3,057)
(2)
4,163
(b)
As at 31 December 2023, the Group had no significant unused property and equipment (31 December 2022: None).
(c)
As at 31 December 2023, the carrying value of mortgaged aircraft and vessels for placements from banks and other financial institutions of
the CMBFL was RMB24,508 million (31 December 2022: RMB24,512 million).
(d)
The Group's total future minimum lease receivables under non-cancellable operating leases are as follows:
2023
2022
As at 31 December 2023, the process of obtaining the registration certificate for the Group's properties with an aggregate net carrying value
of RMB2,476 million (31 December 2022: RMB1,108 million) was still in progress. Management is of the view that the aforesaid matter would
neither affect the rights of the Group to these assets nor have any significant impact on the business operation of the Group.
Within 1 year (inclusive)
2 year to 3 years (inclusive)
10,711
11,306
8,993
9,601
7,906
8,134
3 year to 4 years (inclusive).
1 year to 2 years (inclusive)
80,415
1,444
51,778
778
778
(194)
(194)
50
50
1,132
1,152
16,142
3,787
3,725
3,633
71,498
1,134
99,919
15,858
3,502
3,936
3,897
4 year to 5 years (inclusive)
Over 5 years
498
Total
7,087
Motor
Land
Computer
vehicles
use rights
Buildings
equipment
and other
At 31 December 2023
Total
23,926
10
11
29,947
-
4,161
(3,055)
2
6,000
Exchange difference
At 1 January 2023
Depreciation (note 10)
Decrease
At 31 December 2023
6,363
6,151
21,954
19,876
62,735
62,155
225
226
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
29. Lease contracts
(a)
Right-of-use assets
Cost:
At 1 January 2023
Additions
Decrease
Exchange difference
6,808
82,174
73,640
8,534
4
At 1 January 2023
At 31 December 2023
Net carrying amount:
At 31 December 2023
Exchange difference
(46)
-
11
(46)
8,172
42
600
888
Charge for the year (note 10)
Disposals
7,572
At 1 January 2023
Accumulated amortisation:
930
11,780
15
653
11,128
1,083
10,045
Exchange difference
Disposals
At 1 January 2022
Additions
Cost/appraisal value:
Total
8,418
Core deposits
Software
3,402
581
2,821
2,709
550
2,159
9,071
and other
1,203
10,577
26
As at 31 December 2023 and 2022, the leases committed but not yet commenced were not significant.
(e)
During the year of 2023, total cash outflow of the Group's leases amounted to RMB5,053 million (2022: RMB4,932
million).
Short-term lease expense and leases of low-value assets expense are disclosed in note 10. The Group entered into
short-term leases for buildings, computer equipment, motor vehicles and other.
13,013
12,675
1,178
1,082
227
4,612
3,038
3,085
3,091
2,804
591
578
503
454
4,672
228
China Merchants Bank
Chapter VIII Financial Statements
22
4
(73)
(73)
253
11,574
1,181
10,393
253
At 31 December 2023
Exchange difference
Disposals
Additions
At 1 January 2023
Cost/appraisal value:
Total
Core deposits
Software
and other
30. Intangible assets
Annual Report 2023 (H share)
347
347
(13)
(13)
45
355
355
10,177
10,177
2023
the year
the year
(45)
2022
during
during
31 December
As at
Decrease
Addition
As at
Net carrying amount
31 December
1
1
10,578
229
In assessing the impairment of goodwill, the Group assumed that the terminal growth rate is comparable to the
forecast long-term economic growth rate issued by authoritative institutions. The discount rate adopted by the
Group is the before-tax rate and reflects the specific risk associated with the CGU. A pre-tax discount rates of CMB
WLB and CMFM adopted by the Group are 10% and 9% (2022: 11% and 10%). The Group believes any reasonably
possible change in the key assumptions on which recoverable amounts are based would not cause the carrying
amounts of the CGUS 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.
Impairment test for goodwill
On 1 April 2015, CMBIC acquired the 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 RMB3 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.
On 30 December 2022, CMB Wing Lung Insurance Company Limited ("CMB WLI"), a subsidiary of CMB WLB, issued shares to purchase the
business of China Merchants Insurance Company Limited ("CMI"). On the acquisition date, the fair value of CMI 's identifiable net assets was
RMB357 million. A sum of RMB45 million, being the excess of acquisition cost of RMB402 million over the fair value of the identifiable net
assets, was recognised as goodwill. On 29 June 2023, CMI injected capital into CMB WLI. The Group's shareholding of CMB WLI changed to
45% and lost control of CMB WLI. The Group converted it into an associate and derecognised the goodwill of RMB45 million.
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 of RMB769 million over the fair value of the identifiable net assets, was recognised as goodwill. The details about CMFM are set out in
Note 24.
On 30 September 2008, the Bank acquired a 53.12% equity interests in CMB WLB. On the acquisition date, the fair value of CMB 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. The details about CMB WLB are set out
in Note 24.
(iv)
(iii)
(ii)
(i)
Notes:
9,954
(45)
(579)
(579)
9,999
10,533
(45)
Less: Impairment allowances - CMB WLB
2022
Total
CMI (note (iii))
(10)
Disposals
1,061
40
1,021
Charge for the year (note 10)
7,062
512
(10)
6,550
Accumulated amortisation:
11,574
1,181
10,393
At 31 December 2022
112
98
14
At 1 January 2022
Exchange difference
11
48
CMFM (note (ii))
CMB WLB (note (i))
31. Goodwill
Chapter VIII Financial Statements
China Merchants Bank
Annual Report 2023 (H share)
4,066
571
3,495
3,402
581
2,821
At 1 January 2022
At 31 December 2022
Net carrying amount:
8,172
600
7,572
At 31 December 2022
59
Zhaoyin Internet (note (iv))
2023
Short-term leases and leases of low-value assets
(d)
Note:
Commercial Bank
24.8559%
24.8559%
RMB 1,800
Taizhou
Joint stock limited
company
Bank of Taizhou Co., Ltd. (Note)
The Bank, which originally held a 10% stake in Bank of Taizhou, acquired a total of 14.8559% stake from Ping An Trust Co., Ltd. and Ping An
Life Insurance Company of China, Ltd. at a total consideration of RMB3,121 million on 31 May 2021. Upon the completion of the transaction,
the Bank held 24.8559% stake of Bank of Taizhou. The Bank can exercise significant influence on Bank of Taizhou and therefore this
investment is included in interests in associates.
(in millions)
Percentage of
ownership held
by the Bank
interest
paid up capital
effective
Group's
Particulars of
issued and
Place of
incorporation
and operation
Economic nature
Principal activity
Summarised financial information of the associate which is individually material to the Group is as follows:
Other
Assets Liabilities
Bank of Taizhou Co.,
Ltd.
273
522 1,099
1330
2,376
1,098
46
1,052
9,561
4,823
184
4,639
402,413 369,702 32,711 12,552
98,881 91,893 6,988 3,120
Group's effective interest
2022
Bank of Taizhou Co.,
Ltd.
2023
tax
Total Cash Depreciation
Net comprehensive comprehensive and cash
and Income
income
income equivalents amortisation
Equity Revenue profit
(158)
Group's effective interest
171
616
Other joint ventures
2022
(107)
Group's effective interest
(1,197)
Other joint ventures
2023
expense
(2,874)
Net loss
Other
Summarised financial information of the joint ventures that are not individually material to the Group is as follows:
250
24
2,713
1,665
1,665
8,751
comprehensive
Group's effective interest
(291)
Total
9,597
2022
2023
10,883
Details of the Group's interest in major associate are as follows:
Share of other comprehensive income/(expense) for the year
Share of profits for the year
Share of net assets
26. Interests in associates
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
222
221
(291)
(2,874)
(107)
(1,197)
expense
comprehensive
815
Chapter VIII Financial Statements
372,578 343,254 29,324 11,034
91,509 85,319 6,190 2,743
(138)
5
12,973
4,566
At 1 January 2022
At 31 December 2022
59
59
559
9
12,335
5
10,953
1,375
36
32
4
(2,468)
3,667
2
17,553
4,736
13,656
(c)
Interest expense on lease liabilities is set out in note 7.
Total
Over 5 years
2 years to 5 years (inclusive)
1 year to 2 years (inclusive)
3 months to 1 year (inclusive)
1 month to 3 months (inclusive)
Within 1 month (inclusive)
Analysis of the Group's lease liabilities by remaining maturity is as follows:
(b) Lease liabilities
29. Lease contracts (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
The Group mainly leases land use rights and buildings for its operations. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the
length of the non-cancellable period, the Group reassesses whether it is reasonably certain to exercise an extension
option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant
change in circumstances that is within the control of the lessee.
18,403
7
4
(1)
4,445
(2,458)
At 31 December 2022
Other associates
2023
expense
comprehensive
Total
Net loss income/(expense)
comprehensive
Other
(5,308)
Summarised financial information of the associates that are not individually material to the Group is as follows:
130
5,063
969
(35)
1,004
522 1,196
20,368
4,307
297
Group's effective interest
(436)
781
125
At 1 January 2022
Impairment loss:
At 31 December 2022
Exchange difference
Decrease
4,151
2
3
3,965
181
(12,264)
(312)
(123)
(189)
Group's effective interest
(737)
(11,527)
Other associates
2022
(4,527)
(311)
Net carrying amount:
(9)
5,027
1,103
Financial liabilities held for trading (a)
661
10,779
9,884
781
11,440
10,665
529,928
464,509
103,250
32,286
633,178
496,795
2022
2023
Total
- Other financial institutions
- Banks
Outside the Chinese mainland
Other financial institutions
In the Chinese mainland
- Banks
(a) Analysed by nature of counterparties
507,460
644,618
China Merchants Bank
Annual Report 2023 (H share)
2022
136,235
157,360
2023
Total
- Other financial institutions
- Banks
Outside the Chinese mainland
- Other financial institutions
- Banks
In the Chinese mainland
(a) Analysed by nature of counterparties
Pursuant to the relevant provisions in the "Interim Measures for the Administration of Gold Leasing Business" (Yin Ban Fa [2022] No. 88)
issued by the General Office of the PBOC in July 2022, with respect to the gold leasing business of the Group with financial institutions
since 2023, gold leased in by the Group from other financial institutions is presented under "placements from banks and other financial
institutions", a change from "financial liabilities at fair value through profit or loss" in prior years. The comparative figures are re-presented
accordingly.
247,299
Note:
Total
207,027
2022
206,015
1,012
2023
246,085
1,214
Principal (a)
Interest payable
35. Placements from banks and other financial institutions
Chapter VIII Financial Statements
1,056
645,674
2022
644,618
2023
507,460
918
508,378
Total
Other
50
50
Post-employment benefits: defined benefit plan (note 39(b))
196
7,569
7,436
Prepayment for leasehold improvement and other miscellaneous items
Premium receivables
329
Receivable from reinsurers
465
563
Guarantee deposits
456
417
Repossessed assets (a)
209
203
Prepaid lease payments
4,154
4,526
Total
155,595
21,573
21,889
55,978
Interest payable
Principal (a)
34. Deposits from banks and other financial institutions
Note: In 2023, the Group disposed of repossessed assets with a total carrying value of RMB56 million (2022: RMB44 million).
456
417
(156)
(139)
612
556
6
5
606
551
2022
2023
Net repossessed assets
Less: Impairment allowances
Other repossessed assets
Total
Land and buildings
(a) Repossessed assets
53,884
135,636
1,765
599
69
107,024
2022
2023
134,863
215
(b) Analysed by underlying assets
- Other financial institutions
Total
- Banks
Outside the Chinese mainland
- Other financial institutions
- Banks
In the Chinese mainland
(a) Analysed by nature of counterparties
Total
Interest payable
Principal (a)(b)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
234
233
30,897
135,078
758
107,093
117,668
73,335
84,438
- Government bonds
95,999
117,032
Debt securities
2022
2023
107,024
134,863
771
6,879
2,801
10,316
3,572
17,195
6
9,302
103,446
108,366
2022
103,452
2023
5,274
574
27,830
Total
Short position on bonds
Financial liabilities related to precious metal
(a) Financial liabilities held for trading
49,144
43,958
30,897
27,830
Financial liabilities designated at fair value through profit or loss (b)
Total
18,247
16,128
2022
2023
36. Financial liabilities at fair value through profit or loss
206,015
246,085
209
213
69,571
88,512
69,780
88,725
Total
As at 31 December 2023 and 2022, the difference between the fair values of the Group's financial liabilities
designated at fair value through profit or loss and the contractual payable amount at maturity is not significant. The
amounts of changes in the fair value of these liabilities that are attributable to changes in credit risk of the Group
are not significant during the years ended 31 December 2023 and 2022 and as at 31 December 2023 and 2022.
2023
15,748
380
16,128
- Other
7,709
5,179
383
212
- Debt securities issued
Certificates of deposit issued
8,850
5,965
22,047
21,865
22,047
21,865
Outside the Chinese mainland
In the Chinese mainland
- Other
2022
2023
Financial liabilities designated at fair value through profit or loss
(b)
18,247
613
2022
17,634
5,274
Continuing involvement assets
Interest receivable
15,387
(894)
(476)
(1,904)
Financial instruments at FVTPL
(1,371)
(5,487)
(2,496)
(9,985)
Financial assets at FVTOCI
qualifying amounts
Deferred tax liabilities before offsetting
97,400
393,772
98,301
397,036
Total
18,146
75,077
20,538
84,873
Salaries and welfare payable and other
(224)
3,156
Right-of-use assets
(3,133)
90,557
Deferred tax assets after offsetting qualifying amounts
(6,552)
(7,744)
97,400
98,301
Deferred tax assets before offsetting qualifying amounts
Offsetting amounts
2022
2023
(8,062)
(38,691)
(9,351)
(43,682)
Total
(3,307)
(19,669)
(3,246)
(19,476)
Other
(3,160)
(12,641)
(12,317)
90,848
12,624
12,543
difference
temporary
(taxable)
Deductible/
2023
Deferred tax assets before offsetting
(a) Deferred tax assets/(liabilities) and related temporary differences are
attributable to the following items:
89,338
(1,510)
(1,607)
88,950
90,848
2022
2023
90,557
Net amount
Deferred tax liabilities
Deferred tax assets
32. Deferred tax assets and deferred tax liabilities
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
230
2022
3,135
Deductible/
tax
Lease liabilities
461
1,839
113
451
Financial instruments at FVTPL
359
2,170
264
1,605
Financial assets at FVTOCI
75,278
302,062
74,251
297,564
customers and other assets at amortised cost
Impairment allowances on loans and advances to
qualifying amounts
tax
Deferred
(taxable)
temporary
difference
Deferred
Deferred tax liabilities before offsetting qualifying amounts
Offsetting amounts
(9,351)
(8,062)
11,863
(4)
(2,764)
1,160
Total
Other
at FVTPL
at FVTOCI
4,061
71,191
amortised cost
Financial
instruments
Note:
At 31 December 2022
Exchange difference
Recognised in other comprehensive income
Recognised in profit or loss
At 1 January 2022
Financial
assets
other assets at
customers and
on loans and
advances to
80,286
Impairment
allowances
243
8,457
13,842
Amounts pending for settlement
2022
2023
33. Other assets
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
232
231
No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group
is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not be reversed in
the foreseeable future.
89,338
14,835
237
38
(2)
14
(1,012)
26
75,278
557
(21)
578
2,993
88,950
17,294
(363)
assets
Financial
other assets at
amortised cost
on loans and
advances to
customers and
Impairment
allowances
At 31 December 2023
Exchange difference
Recognised in other comprehensive income
Recognised in profit or loss
At 1 January 2023
Movements of deferred tax
(b)
32. Deferred tax assets and deferred tax liabilities (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
(1,510)
(1,607)
Deferred tax liabilities after offsetting qualifying amounts
6,552
7,744
at FVTOCI
Financial
instruments
at FVTPL
Other
(2,232)
74,251
13
(8)
3
18
(484)
9
(493)
-
- Bonds issued by policy banks
2,450
14,835
83
89,338
237
(730)
(1,012)
(1,045)
75,278
ཀིཾ ཝུཏྟཱ ཝཱ''ནྟི
Total
(592)
17,266
37. Amounts sold under repurchase agreements
- Bonds issued by commercial banks and other financial institutions
1,971
3,032
education expenses
Labour union and employee
157
(2,318)
2,309
166
Housing reserve
12
(82)
85
9
- Maternity insurance
6
(34)
34
6
- Injury insurance
353
(3,354)
(1,361)
3,192
3,642
18,065
765
79
23
1,996
591
Total
Unemployment insurance
Basic retirement insurance
Supplementary pension
Total
Basic retirement insurance
Supplementary pension
Unemployment insurance
(ii)
39. Staff welfare scheme (continued)
(a) Salaries and welfare payable (continued)
Post-employment benefits-defined contribution plans
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
238
237
23,075
(53,724)
58,583
151
Total
515
- Medical insurance
371
for the year
Charge
2022
28,314
(33)
(56,099)
61,371
23,075
Total
4,204
(1,475)
2,037
3,642
education expenses
Labour union and employee
141
(2,618)
2,602
157
Housing reserve
11
Payment/
Beginning
arising from
Charge
(3,470)
3,311
530
Social insurance
17
(2,312)
15,330
19
18,888
(44,263)
5,540
48,682
14,318
Welfare expense
Salaries and bonus
balance
in the year
for the year
combination
balance
Ending
transfers
151
(90)
Beginning
balance
2023
(HKD)
rights
exercise price
rights
(in million)
(HKD)
exercise price
Number
of share
appreciation
average
Weighted
Number
of share
appreciation
Weighted
average
2022
2023
The number and weighted average exercise prices of share appreciation rights are as follows:
10 years
10 years
3 years after the grant date
3 years after the grant date
rights
Exercise conditions
Contract period of
share appreciation
Number of
unexercised share
appreciation rights
at the end of 2023
(in millions)
0.210
0.240
Share appreciation rights granted on 24 Aug 2016 (Phase IX)
Share appreciation rights granted on 25 Aug 2017 (Phase X)
(in million)
(2)
Outstanding as at the beginning of the year
0.61
239
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.
The share appreciation rights outstanding at 31 December 2023 had a weighted average exercise price of HKD15.11
(2022: HKD15.91) and a weighted average remaining contractual life of 3.12 years (2022: 3.70 years).
0.55
15.25
0.45
15.11
Exercisable at the end of the year
0.61
15.91
0.45
15.11
Outstanding at the end of the year
(1.15)
13.65
Forfeited during the year
(0.16)
12.81
Exercised during the year
1.76
16.21
15.91
All share appreciation rights shall be settled in cash. The terms and conditions of the Scheme are listed below:
The Group has offered 10 phases of H share appreciation rights under the Scheme, the remaining ninth to tenth
phases have not been exercised as of 31 December 2023. The share appreciation rights of the Scheme vest after 3
years from the grant date and are then exercisable within a period of 7 years. Each of the share appreciation right is
linked to one H share.
(1)
balance
in the year
for the year
balance
Ending
Payment/
transfers
Charge
Beginning
2022
361
(5,944)
21
(81)
179
(2,426)
(3,437)
3,465
1111
Ending
balance
transfers
in the year
Payment/
157
2,821
(2,827)
151
Other long-term employee benefits
(iii)
Salaries and welfare payable (continued)
(a)
39. Staff welfare scheme (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
For its employees outside the Chinese mainland, the Group participates in defined contribution retirement schemes
at funding rates determined in accordance with the local practices 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 2023, the Group's annual contributions to this plan are determined based
on 0% to 8.33% of the staff salaries and bonuses (2022: 0% to 8.33%).
Charge
for the year
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 2023, the Group's contributions to these pension schemes are determined by local governments and vary
at a range of 14% to 16% (2022: 14% to 16%) of the staff salaries and bonuses.
(5,974)
5,110
23
(67)
68
22
1,629
591
(3,080)
2,221
1,450
765
89
2,310
- Maternity insurance
235
322,860
350,730
42,490
27,788
44,732
47,694
29,366
23,843
6,888
10,792
199,384
240,613
2022
2023
12
Other
Deposit for letters of guarantee
Guarantee for issuing letters of credit
Guarantee for loans
Guarantee for acceptance bills
236
(b) The deposits taken from customers as collateral or for the purpose of
guarantees are as follows:
China Merchants Bank
Chapter VIII Financial Statements
(56,099)
61,371
23,075
Short-term employee benefits (i)
balance
subsidiaries
in the year
for the year
balance
Ending
disposal of
transfers
arising from
Payment/
Charge/
(Decrease)
Beginning
for the year
Decrease
2023
(a) Salaries and welfare payable
39. Staff welfare scheme
Annual Report 2023 (H share)
(33)
7,535,742
1,120,825
Corporate customers
(a) Analysed by nature of counterparties
Total
Interest payable
Principal (a)
38. Deposits From Customers
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
107,024
134,863
Total
11,025
17,831
Discounted bills
3,858
8,736
- Other debt securities
-
3,476
6,592
-Demand deposits
8,155,438
- Time deposits
-
1,665,304
1,983,364
1,829,612
3,104,189
3,494,916
1,668,882
2,015,837
2,762,671
2,644,685
4,431,553
4,660,522
2022
2023
54,837
7,590,579
8,240,498
7,535,742
8,155,438
85,060
2022
2023
- Time deposits
Total
- Demand deposits
Retail customers
28,314
Total
contribution plans (ii)
Salaries and bonus
balance
subsidiaries
in the year
for the year
balance
Ending
disposal of
arising from
Payment/
transfers
Charge
Beginning
for the year
Decrease
2023
Short-term employee benefits
(i)
(a) Salaries and welfare payable (continued)
39. Staff welfare scheme (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
18,888
China Merchants Bank
52,040
(33)
6
(41)
41
6
- Injury insurance
345
Post-employment benefits - defined
1,679
353
362
(1,818)
1,809
371
15
(2,885)
2,883
17
Medical insurance
Social insurance
Welfare expense
23,592
(47,303)
23,866
(1,687)
26
Charge/
(Decrease)
arising from
Beginning
for the year
Charge
2022
28,679
(33)
4
(4)
(62,047)
66,893
23,866
Total
(18)
26
- cash settled share-based transactions
Other long-term employee benefits (iii)
(5,944)
5,540
765
(59,698)
Payment/
transfers
361
balance
Ending
151
19,761
765
(5,974)
5,110
1,629
23,075
(53,724)
58,583
67
18,065
combination
151
for the year
in the year
balance
(41)
63,652
contribution plans (ii)
Other long-term employee benefits (iii)
- cash settled share-based transactions
Total
Short-term employee benefits (i)
Post-employment benefits - defined
50
Chapter VIII Financial Statements
39. Staff welfare scheme (continued)
(b)
Post-employment benefits - defined benefit plan
The Group's subsidiary CMB WLB operates a defined benefit plan (the "plan") for the staff, which includes a
defined benefit scheme and a defined benefit pension scheme. Contributions to the plan are determined based on
periodic valuations by qualified actuaries on the assets and liabilities of the plan. The plan provides benefits based
on members' final salary. The costs are solely funded by CMB WLB.
The latest actuarial valuation of the plan as at 31 December 2023 was performed by Towers Watson Hong Kong
Limited, a professional actuarial firm in accordance with IAS 19 Employee Benefits. 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 123% (2022: 121%).
The amounts recognised in the consolidated statement of financial position as at 31 December 2023 and 2022 are
analysed as follows:
Fair value of the plan assets
Net asset recognised in the consolidated statement of financial position
Present value of the funded defined benefit obligation
2023
267
50
2022
285
Annual Report 2023 (H share)
(235)
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 2024.
(217)
157
157
In 2023, senior management had exercised 0.16 million shares of appreciation rights (2022: None) and the weighted average exercise price
was HKD12.81 (2022: None).
2022
360
There was no plan amendment, curtailment or settlement impact for the years ended 31 December 2023 and 2022.
The amounts recognised in the consolidated statement of profit or loss are as follows:
Accumulated
Exercised/
Phase VIII
(in thousands)
Phase IX
(in thousands)
Phase X
(in thousands)
Total
(in thousands)
Forfeited
(in thousands)
1,230
210
240
607
203
210
240
607
1,433
China Merchants Bank
2023
Actual benefits paid
Current service cost
Actuarial gains or losses due to liability experience
(4)
Actuarial gains or losses due to financial assumption changes
(31)
Actuarial gains or losses due to demographic assumption changes
Exchange difference
4
22
(49)
Actual obligation at 31 December
235
The movements in the fair value of the plan assets during the year are as follows:
2023
2022
Fair value of the plan assets at 1 January
285
349
450
217
(33)
4
8
(8)
(9)
Net interest income
1
1
Net expense for the year included in retirement benefit costs
(7)
(8)
The actual gain on the plan assets for the year ended 31 December 2023 was RMB9 million (2022: loss of RMB42
million).
The movements in the defined benefit obligation during the year are as follows:
2023
2022
Present value of obligation at 1 January
235
284
Current service cost
8
9
Interest cost
2022
240
Exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements
of operations outside the Chinese mainland.
450
20.03
Expected volatility
Share appreciation rights remaining life (year)
Expected dividends yield
Risk-free interest rate
35.40%
35.40%
2.58
9.49
3.58
4.45%
1.43%
1.43%
2022
Phase VIII
Phase IX
Phase X
Fair value at measurement date (in RMB Yuan)
4.45%
25.80
25.80
6.34
Interest income
240
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
39. Staff welfare scheme (continued)
(a)
Salaries and welfare payable (continued)
(iii)
Other long-term employee benefits (continued)
(3)
Fair value of share appreciation rights and assumptions
The fair value of services received in return for share appreciation rights granted are measured by reference to the
fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted
is measured based on the Black-Scholes model. The contractual life of the rights is used as an input to the model.
2023
Phase IX
Phase X
Fair value at measurement date (in RMB Yuan)
Share price (in HKD)
Exercise price (in HKD)
12.74
24.94
25.27
17.75
Share price (in HKD)
Share appreciation rights 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 appreciation rights granted.
(4)
The number of share appreciation rights granted:
Wang Liang
Total
Tian Huiyu
Wang Liang
Total
Note:
2023
Accumulated
Exercised/
Phase IX
(in thousands)
Phase X
(in thousands)
Total
Forfeited
(in thousands)
(in thousands)
210
210
240
The expected volatility is based on the historical volatility (calculated based on the weighted average remaining
life of the share appreciation rights) and adjusted for any expected changes to future volatility based on publicly
available information. Expected dividend yield is based on historical dividend yields. Changes in the subjective input
assumptions could materially affect the fair value estimate.
360
1.43%
1.43%
43.30
43.30
43.30
Exercise price (in HKD)
12.81
11.38
21.92
Expected volatility
48.34%
48.34%
48.34%
Share appreciation rights remaining life (year)
Expected dividends yield
2.50
3.58
4.58
2.93%
2.93%
2.93%
1.43%
Risk-free interest rate
9
5
Expected return on plan assets
(in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million)
Fixed rate bond
Total
36 months 2 June 2021
1.38
USD600
4,166
4,166
19
19
69
69
4,254
4,254
(%)
Note:
44. Other liabilities
Clearing and settlement accounts
Salary risk allowances (note)
Continuing involvement liability
Insurance liabilities
Collecting on behalf of customers
Cheques and remittances returned
Other payable
Total
Note:
2023
2022
20,845
31,534
48,950
45,500
5,274
Financial bond issued by Legend Fortune Limited, a wholly-owned subsidiary of CMBIC, that was held by CMB WLB amounted to a total of 75
million RMB equivalent as of 31 December 2023 (31 December 2022: 74 million RMB equivalent).
balance
the year
Ending
18,378
15
655
(12,895)
52,000
Note:
Financial bonds issued by CMBFL that were held by the Bank amounted to a total of 600 million RMB equivalent as of 31 December 2023
(31 December 2022: 1,370 million RMB equivalent). Financial bonds issued by CMB International Leasing Management Limited (CMBILM), a
wholly-owned subsidiary of CMBFL, that were separately held by the Bank, CMB WLB and CMBIC amounted to a total of 3,212 million RMB
equivalent, 563 million RMB equivalent and 70 million RMB equivalent as of 31 December 2023 (31 December 2022: 2,268 million RMB
equivalent, 1,602 million RMB equivalent and Nil).
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
43. Debt securities issued (continued)
(b)
Debt securities issued (continued)
As at the end of the reporting period, debt securities issued by CMBIC's subsidiary was as follows:
Debt type
Term to
maturity
Date of
Annual
issuance
interest rate
Nominal
value
Beginning
balance
Issue
during
the year
Discount or
Repayment
premium Exchange
amortisation difference
during
5,274
45,847
2,902
827
Issuance Accounting
date
classification
Dividend
Conversion Con-
rate
Issue price
No.
Amount
Due date
conditions version
(millions of
(RMB in
shares)
Preference Shares
million)
22 Dec 2017 Equity instruments
3.62% RMB100/Share
275
27,468
Perpetual existence
Note (ii)
None
275
27,468
The changes of Preference Shares issued were as follows:
1 January 2023
No.
Increase/decrease
Domestic Preference Shares (note (i))
Total
(a)
46. Other equity instruments
Annual Report 2023 (H share)
7
39
37,454
39,862
113,195
125,938
Salary risk allowances are specific funds withheld from the employees' 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 of legal case, or a significant regulatory violation identified by any regulatory authorities, the relevant employees
will be restricted from the allocation of these allowances.
45. Share capital
By type of shares:
- A Shares
- H Shares
Total
2023 and 2022
No. of shares
(in million)
20,629
4,591
25,220
All H Shares are ordinary shares and rank pari passu with the A Shares. There is no restriction on these shares.
At 31 December 2023 and 2022
Capital
No. of shares
(in million)
Amount
25,220
25,220
245
246
China Merchants Bank
Chapter VIII Financial Statements
665
Total
3,990
355
USD103
737
27 Jun 2023
SOFR+0.70
USD50
361
10 Jul 2023
3.05
RMB700
700
16 Aug 2023
SOFR+0.95
SOFR+1.05
USD100
18 Aug 2023
SOFR+1.30
USD50
364
36 months
23 Aug 2023
SOFR+1.00
USD300
2,188
24 months
25 Aug 2023
SOFR+0.95
729
13 Jun 2023
533
USD75
RMB500
500
28 Feb 2023
SOFR+0.75
USD60
416
6 months
28 Feb 2023
SOFR+0.75
USD145
1,006
6 months
6 months
6 months
2 Mar 2023
SOFR+0.75
USD200
1,382
15 Mar 2023
SOFR+0.75
USD80
552
16 May 2023 4.40
HKD750
667
Floating rate bond
Floating rate bond
Floating rate bond
Floating rate bond
Floating rate bond
Fixed rate bond
Fixed rate bond
Floating rate bond
Fixed rate bond
24 months
36 months
6 months
18 months
24 months
60 months
31 May 2023
SOFR+1.00
USD100
729
6 months
12 months
36 months
36 months
36 months
36 months
27 Oct 2023 SOFR+0.70
10
426
51
(1,057)
71
(1,453)
31
(583)
30
(697)
(1)
532
729
(357)
700
(20)
708
(9)
353
(59)
2,122
(19)
709
142
156
2,494
348
499
31 December 2023
(443)
709
USD20
146
27 Oct 2023
SOFR+0.75
USD22
161
16 Nov 2023
2.80
RMB2,500
2,500
27 Nov 2023
30 Nov 2023
5 Dec 2023
3.35
SOFR+1.10
2.90
RMB350
350
USD50
RMB4,000
357
4,000
(10)
-E2E26E2O
31
(624)
(5)
(344)
(300)
9
(323)
11
21
Amount
(millions of
(RMB in
- Equity attributed to non-controlling holders of perpetual debt
capital (note 62(a))
2,838
2,787
47. Capital reserve
Capital reserve primarily represents share premium of the Bank.
At 1 January
Decrease
At 31 December
48. Investment revaluation reserve
2023
2022
65,435
5,948
67,523
(2,088)
65,432
65,435
2023
2022
Debt instruments measured at FVTOCI: investment revaluation reserve
Fair value gain on equity instruments designated at FVTOCI
Remeasurement of defined benefit scheme
10,596
9,319
3,009
2,606
82
78
(3)
6,521
· Equity attributed to non-controlling holders of ordinary shares
8,735
(b)
Perpetual Bonds (continued)
Notes: (continued)
Upon the occurrence of a Non-Viability Trigger Event, the Bank has the right to write off in whole or in part, without the need for the consent of the
bond holders, the principal amount of the Perpetual Bonds. A Non-Viability Trigger Event refers to the earlier of the following events: (i) NAFR having
concluded that without a write-off, the Bank would become non-viable; (ii) the relevant authorities having concluded that without a public sector
injection of capital or equivalent support, the Bank would become non-viable. The write-off will not be restored.
After deducting the issuance expenses, the funds raised by the bonds issuances have been used to supplement additional Tier 1 capital of the Bank in
accordance with applicable laws and the approval of the relevant authorities.
(c) Relative Information Attributed to Equity Instrument Holders
2023
2022
Equity attributed to shareholders of the Bank
1,076,370
945,503
- Equity attributed to ordinary shareholders of the Bank
925,924
825,057
- Equity attributed to other equity instrument holders of the Bank
Including: Net profit
150,446
120,446
4,558
5,237
Total comprehensive income
Distributions in current year
4,558
5,237
(4,558)
(5,237)
Cumulative undistributed dividends
Equity attributed to non-controlling interests
9,359
Share of other comprehensive expense of equity-accounted investees
Other
(31)
(233)
45
Statutory surplus reserve
General reserve
Dividends
- cash dividend: RMB1.972 per share (2022: RMB1.738 per share)
Total
2023
2022
132,471
115,288
9,010
141,481
17,183
132,471
2023
2022
43,832
38,385
2023
2022
13,752
12,848
9,010
17,183
49,734
43,832
72,496
73,863
2023 final dividends is proposed in accordance with the resolution passed at the meeting of the Board of Directors
held on 25 March 2024 and will be submitted to the 2023 Annual General Meeting for approval.
53. Exchange reserve
(b) Proposed profit appropriations
46. Other equity instruments (continued)
Ordinary share dividends in 2021, approved and declared:
RMB1.522 per share
(a) Dividends approved/declared by shareholders
Total
13,656
11,815
49. Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging
instruments used in cash flow hedges. Subsequent recognition of the hedged cash flow is accounted for in
accordance with the accounting policy adopted for cash flow hedge in Note 4(5).
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
50. Surplus reserve
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 of the Bank.
At 1 January
Appropriation for the year
At 31 December
2023
2022
94,985
82,137
13,752
12,848
108,737
94,985
51. General reserve
The general reserve is an integral part of equity. According to the relevant regulations, in addition to the impairment
allowances, the Bank maintains a general reserve to make up for unidentified potential losses. In principle, the
balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition, the general
reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also
includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and
regulations of their industry or region.
At 1 January
Appropriation for the year
At 31 December
52. Profit appropriations
Ordinary share dividends in 2022, approved and declared:
RMB1.738 per share
3.50
Annual Report 2023 (H share)
China Merchants Bank
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
46. Other equity instruments (continued)
(b) Perpetual Bonds
Issuance
date
Accounting
classification
Interest
rate
Conversion
Issue price
No.
Amount Due date
(millions of units) (RMB in million)
After deducting the issuance expenses from the Preference Shares above, the total net proceeds of RMB27,468 million have been included in additional
Tier 1 capital of the Bank.
conditions Conversion
9 Jul 2020
Equity instruments
Domestic Perpetual Bonds (note (ii)) 7 Dec 2021
Domestic Perpetual Bonds (note (iii)) 1 Dec 2023
Total
Equity instruments
Equity instruments
3.95% RMB100/Unit
3.69% RMB100/Unit
500
49,989 Perpetual existence
None
None
430
42,989 Perpetual existence
None
Domestic Perpetual Bonds (note (i))
The Domestic Preference Shares have no maturity date. However, after the fifth anniversary of the issuance date, subject to the satisfaction of the
redemption conditions and having obtained the prior approval of the NAFR, the Domestic Preference Shares may be redeemed in whole or in part at the
discretion of the Bank, but the Bank does not have the obligation to redeem the Preference Shares. The holders of Preference Shares do not have the
right to demand the Bank to redeem the Preference Shares and shall not expect that Preference Shares will be redeemed.
Dividends on the Domestic Preference Shares shall be paid in cash. Save for such dividend at the agreed dividend rate, the holders of the above
Preference Shares are not entitled to share the remaining profits of the Bank with the ordinary shareholders. Dividend is non-cumulative. The Bank has
the right to cancel any dividend on Preference Shares, and such cancellation shall not be deemed as a default. After the cancellation of all or part of the
dividend to preference shareholders, the Bank shall not make any ordinary shares distribution, until the Preference Shares dividend is resumed in full.
As the dividends on the Domestic Preference Shares are non-cumulative, the Bank will not distribute the dividends that were cancelled in prior years to
Preference Shares holders.
Upon the occurrence of the above mandatory conversion events, the Bank shall report to the NAFR for review and determination. The Bank
shall fulfill the relevant information disclosure requirements of the Securities Law, the CSRC and Hong Kong's relevant laws and regulations
such as making provisional reports or announcements in accordance with relevant regulatory requirements.
Issuance date
shares)
million)
No.
(millions of
shares)
Amount
(RMB in
million)
No.
(millions of
shares)
Amount
(RMB in
million)
Domestic Preference Shares (note (i))
Total
22 Dec 2017
275
27,468
275
27,468
275
27,468
275
27,468
Notes:
(i)
(ii)
Pursuant to the approvals by the relevant regulatory authorities in China, the Bank issued non-cumulative Domestic Preference Shares in
the aggregate nominal value of RMB27,500 million on 22 December 2017. Each Domestic Preference Share has a nominal value of RMB100
and 275 million Domestic Preference Shares were issued in total. The dividend rate is initially at 4.81% and subject to reset per agreement
subsequently, but not exceeds 16.68%. On 18 December 2022, five years after the issuance of the Domestic Preference Shares, the Bank
adjusted the dividend rate per annum to 3.62% in accordance with market rules.
Domestic Preference Shares have clauses that state certain events would trigger mandatory conversion, those clauses are as follows:
(1)
(2)
Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event, that is, the Core Tier-1 Capital Adequacy Ratio drops
to 5.125% or below, the Bank shall have the right to convert, without the consent of the holders of Preference Shares, all or part
of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total nominal value of the Preference
Shares in order to restore the Core Tier-1 Capital Adequacy Ratio of the Bank to above 5.125%. In the case of partial conversion, the
Preference Shares shall be converted on a pro rata basis and on identical conditions.
Upon the occurrence of a Tier-2 Capital Trigger Event, the Bank shall have the right to convert, without the consent of the holders of
Preference Shares, all or part of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total nominal
value of the Preference Shares. A Tier-2 Capital Trigger Event refers the earlier of the following events: 1) NAFR having concluded
that without a conversion or write-off, the Bank would become non-viable, and 2) the relevant authorities having concluded that
without a public sector injection of capital or equivalent support, the Bank would become non-viable.
None
3.41% RMB100/Unit
300
30,000 Perpetual existence
430
42,989
430
42,989
1 Dec 2023
300
30,000
300
30,000
930
92,978
300
30,000
1,230
122,978
Notes:
(i)
(ii)
(iii)
With the approval of the relevant regulatory authorities in China, the Bank issued RMB50,000 million of 2020 China Merchants Bank Co., Ltd.
Undated Additional Tier-1 Capital Bonds (Series 1) (the "Perpetual Bonds 2020") in the national inter-bank bond market on 9 July 2020. The
unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2020. In any coupon
rate adjusted period, the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2020 will continue to
be outstanding so long as the Bank continues to operate.
With the approval of the relevant regulatory authorities in China, the Bank issued RMB43,000 million of 2021 China Merchants Bank Co., Ltd.
Undated Additional Tier-1 Capital Bonds (the "Perpetual Bonds 2021") in the national inter-bank bond market on 7 December 2021. The unit
face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2021. In any coupon rate
adjusted period, the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2021 will continue to be
outstanding so long as the Bank continues to operate.
With the approval of the relevant regulatory authorities in China, the Bank issued RMB30,000 million of 2023 China Merchants Bank Co.,
Ltd. Undated Additional Tier-1 Capital Bonds (the "Perpetual Bonds 2023, together with Perpetual Bonds 2020 and Perpetual Bonds 2021,
Perpetual Bonds") in the national inter-bank bond market on 1 December 2023. The unit face value is RMB100. The coupon rate adjusted
period is every 5 years from the issuance of the Perpetual Bonds 2023. In any coupon rate adjusted period, the coupon rate of the Perpetual
Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2023 will continue to be outstanding so long as the Bank continues to
operate.
From the fifth anniversary since the issuance of the Perpetual Bonds, the Bank has the right to redeem in whole or in part the Perpetual Bonds on the
annual interest payment date (including the interest payment date on the fifth year since the issuance date) subject to the approval of the NAFR and the
satisfaction of the redemption preconditions. If, after the issuance, the Perpetual Bonds no longer qualify as additional Tier 1 capital as a result of an
unforeseeable change to relevant provisions of supervisory regulation, the Bank has the right to redeem the whole but not part of the Perpetual Bonds.
The investors do not have the right to sell back the Perpetual Bonds to the Bank.
The claims in respect of the Perpetual Bonds will be subordinated to the claims of depositors, general creditors, and subordinated debts that rank senior
to the Perpetual Bonds, and will rank in priority to all classes of shares held by the Bank's shareholders and rank pari passu with the claims in respect of
any other additional Tier-1 capital instruments of the Bank that rank pari passu with the Perpetual Bonds.
The coupon rate will be reset on each benchmark rate reset date (i.e. the date of every five years from the issuance date). The adjusted coupon rate
will be determined based on the benchmark interest rate at adjustment date plus the fixed spread as determined at the time of issuance. The Perpetual
Bonds do not contain interest rate step-up mechanism or any other redemption incentives. The Bank has the right to cancel, in whole or in part,
distributions on the Perpetual Bonds and any such cancellation will not constitute an event of default. The bond interests are non-cumulative, and any
cancelled distribution is not carried to the following year. The Bank will fully consider the interests of bondholders when exercising this right. The Bank
can use the cancelled bond interest for the current period at its discretion to repay other due debts. Cancellation of any distributions to the Perpetual
Bonds, no matter in whole or in part, will not impose any other restriction on the Bank, except in relation to dividend distributions to ordinary shares.
247
248
7 Dec 2021
Chapter VIII Financial Statements
49,989
49,989
None
None
1,230
122,978
The changes of Perpetual Bonds issued were as follows:
1 January 2023
Increase
No.
Amount
No.
Amount
Issuance
date
(millions of
(RMB in
(millions of
units)
million)
units)
(RMB in
million)
31 December 2023
No.
(millions of
Amount
(RMB in
units)
million)
Domestic Perpetual Bonds (note (i))
Domestic Perpetual Bonds (note (ii))
Domestic Perpetual Bonds (note (iii))
Total
9 Jul 2020
500
500
17 Feb 2023
421
EUR57
(RMB in million) (RMB in million)
(RMB in million)
6
(20,000)
6
(20,000)
(b) Debt securities issued
As at the end of the reporting period, debt securities issued by the Bank were as follows:
Debt type
Term to
maturity
Date of
issuance
(RMB in million)
Annual
interest rate
(%)
Beginning
balance
(in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million)
Issue
during
the year
Discount or
premium Exchange
amortisation difference
Repayment
during
Ending
the year
balance
Medium term note
Medium term note
Fixed rate bond
Nominal
value
balance
the year
amortisation
1,814
1,533
Total
176,578
223,821
Note:
Other debt securities issued are notes issued by overseas subsidiaries of the Bank.
(a) Subordinated bonds issued
As at the end of the reporting period, subordinated bonds issued by the Bank were as follows:
Issue
Discount or
Debt type
Term to
maturity
Date of
issuance
Annual
interest rate
Nominal
value
(%)
Fixed rate bond
Total
120 months
15 Nov 2018 4.65
Beginning
balance
(in million) (RMB in million)
RMB20,000
19,994
19,994
during
premium
Repayment
during
Ending
the year
36 months
36 months
36 months
25 Sep 2020
25 Sep 2020
3M LIBOR+0.85
0.95
Fixed rate bond
36 months
24 Aug 2021
2.90
RMB10,000
9,998
9,998
Medium term note
Medium term note
Medium term note
Fixed rate bond
60 months
24 months
36 months
36 months
1 Sep 2021
1.25
USD300
2,089
(1)
1 Sep 2021
SOFR+0.50
USD300
2,087
5
2 Mar 2022
2.00
USD400
2,798
4
19,997
15,604
2
RMB20,000
USD400
2,780
2
142
(2,924)
USD300
2,087
3
103
(2,193)
6 Nov 2020 3.48
RMB10,000
9,999
1
(10,000)
Fixed rate bond
36 months
11 Mar 2021
3.40
RMB10,000
9,998
1
9,999
Fixed rate bond
36 months
3 Jun 2021
3.18
19,995
224
34,128
65,719
100.0
As at 31 December 2023, deposit with the Bank included in the amount of the plan assets was RMB61 million (2022:
RMB58 million).
The principal actuarial assumptions adopted in the valuation are as follows:
Discount rate
- Defined benefit scheme
- Defined benefit pension scheme
Long-term average rate of salary increase for the plan
Pension increase rate for the defined benefit pension plan
2023
2022
%
%
53.7
17.5
28.8
3.1
4.1
4.6
4.5
5.0
In 2023 and 2022, there were no significant change in the amount of retirement benefit plan liabilities due to
changes in the above-mentioned actuarial assumptions.
40. Tax payable
Corporate income tax
Value added tax
Other
Total
41. Contract liabilities
2023
3.3
100.0
19.5
26.2
54.3
(47)
Actual benefits paid
Exchange difference
Fair value of the plan assets at 31 December
(33)
(49)
6
27
267
285
241
242
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
39. Staff welfare scheme (continued)
(b)
Post-employment benefits - defined benefit plan (continued)
The major categories of the plan assets are as follows:
Equities
Bonds
Cash
Total
2023
Amount
Amount
2022
7111
2022
7,301
13,392
4,035
Expected credit loss provisions
Stage 1 (12-month ECL)
Stage 2 (Lifetime ECL - not credit-impaired)
Stage 3 (Lifetime ECL - credit-impaired)
17,404
20,217
15,200
1,341
863
12,082
7,569
566
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
43. Debt securities issued
Notes
2023
2022
Subordinated bonds issued
19,994
Debt securities issued
(b)
119,193
120,971
Negotiable interbank certificates of deposit issued
21,443
2022
Certificates of deposit and other debt securities issued (note)
Interest payable
2023
22,491
4,141
2,261
1,925
13,597
19,458
2023
2022
Credit card points
4,132
5,319
Other deferred fee and commission income
1,354
1,360
Total
5,486
6,679
42. Provisions
2023
2022
Expected credit loss on provisions
17,404
20,217
Other
2,258
2,274
Total
19,662
The expected credit loss for loan commitments and financial guarantee contracts by stages are as follows:
249
42
87
3
141
Fixed rate bond
Fixed rate bond
36 months
16 Sep 2021
1.25
USD600
4,179
5
71
4,255
60 months
138
16 Sep 2021
USD300
2,081
4
35
2,120
Fixed rate bond
Fixed rate bond
Floating rate bond
Floating rate bond
36 months
16 Sep 2021
0.50
EUR100
741
1
1.75
USD20
24 Mar 2021 2.00
60 months
RMB4,000
3,996
4
4,000
60 months
4 Feb 2021
2.00
USD400
2,785
2
47
2,834
120 months
4 Feb 2021
2.88
USD400
2,765
3
47
2,815
36 months
22 Mar 2021
3.58
RMB2,000
1,998
2
2,000
47
789
24 months
22 Dec 2021
837
20
(857)
12 months
14 Sep 2022
1.95
EUR80
592
6 months
12 months
12 months
60 months
12 months
24 months
12 months
20 Oct 2022
SOFR+0.75
USD50
349
25 Nov 2022
3.21
RMB300
300
14 Dec 2022
16 Dec 2022
SOFR+0.83
USD45
314
SOFR+1.40
USD100
698
16 Dec 2022
2.90
USD120
3.60
SOFR+0.95
12 months
0.50
EUR30
222
14
(236)
12 months
2 Mar 2022
SOFR+0.80
USD115
802
(10)
(792)
12 months
6 May 2022
SOFR+0.85
USD45
314
(3)
(311)
Floating rate bond
Floating rate bond
Fixed rate bond
Floating rate bond
Fixed rate bond
Floating rate bond
Floating rate bond
Fixed rate bond
Fixed rate bond
Floating rate bond
Floating rate bond
Floating rate bond
Floating rate bond
Fixed rate bond
Floating rate bond
Floating rate bond
Floating rate bond
Fixed rate bond
Floating rate bond
12 months
6 May 2022
SOFR+1.00
USD75
523
(5)
(518)
13 Jun 2022
2,130
26 Jan 2021
Fixed rate bond
Fixed rate bond
Fixed rate bond
Fixed rate bond
Fixed rate bond
7,850
415
(17,296)
67,813
Libor represents London InterBank Offered Rate. SOFR represents Secured Overnight Financing Rate.
Note:
Financial bonds issued by the Bank that were held by CMB WLB amounted to a total of 354 million RMB equivalent as of 31 December 2023
(31 December 2022: 555 million RMB equivalent).
243
244
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
76,827
43. Debt securities issued (continued)
As at the end of the reporting period, debt securities issued by CMBFL and its subsidiary were as follows:
Debt type
Term to
maturity
Date of
Annual
issuance
interest rate
Nominal
value
Beginning
balance
Issue
during
the year
Discount or
Repayment
(b) Debt securities issued (continued)
Total
2,846
(4)
(2,179)
45
2,847
11 May 2022
2.65
RMB5,000
4,999
4,999
Fixed rate bond
36 months
1 Sep 2022
2.40
RMB10,000
9,997
9,998
Fixed rate bond
36 months
27 Mar 2023 2.77
RMB5,000
5,000
4,999
Medium term note
36 months
13 Jun 2023
SOFR+0.65
USD400
2,850
premium
amortisation difference
Exchange
during
Ending
1,994
1
1,995
60 months
12 Aug 2020
1.88
USD800
5,571
5
94
5,670
120 months
12 Aug 2020
2.75
USD400
2,771
3
47
2,821
Fixed rate bond
36 months
17 Nov 2020
3.85
RMB4,000
3,997
3
(4,000)
RMB2,000
36 months
4.25
120 months
the year
balance
(%)
(in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million)
Fixed rate bond
Fixed rate bond
Fixed rate bond
60 months
13 Mar 2019
4.00
RMB500
500
500
60 months
3 Jul 2019
3.00
USD900
6,265
11
106
6,382
120 months
3 Jul 2019
3.63
USD100
694
11
706
Fixed rate bond
Fixed rate bond
Fixed rate bond
14 Jul 2020
17
233,193
(1) Wholesale finance business
2023
The authorised capital commitments of the Group were as follows:
(b)
Capital commitments
58. Contingent liabilities and commitments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
The Group calculated the credit risk weighted amount of its contingent liabilities and commitments in accordance
with the requirements of the Administrative Measures on Capital of Commercial Banks (Provisional) issued by the
former CBIRC. The amount within the scope approved by the former CBIRC in April 2014 is calculated using the
Internal Ratings-Based Approach, and the Weighted Approach is used for those items that are not eligible for the
Internal Ratings-Based Approach.
2022
595,977
2023
650,343
Credit risk weighted amounts of contingent liabilities and commitments
Apart from the irrevocable loan commitments, the Group had loan commitments of RMB5,878,801 million at 31
December 2023 (31 December 2022: RMB5,159,127 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.
As at 31 December 2023, the Group's irrevocable letters of credit included sight letters of credit of RMB22,254
million (31 December 2022: RMB22,525 million), usance letters of credit of RMB9,361 million (31 December 2022:
RMB6,965 million), and other commitments of RMB 197,004 million (31 December 2021: RMB203,703 million).
Irrevocable loan commitments include credit limits granted to offshore customers by overseas branches, subsidiaries
and onshore and offshore syndicated loans etc.
2,575,130
857
26,360
81,470
245
81,225
2,547,913
Total
Other
1,416,609
85
9,613
1,406,911
134,740
2022
1,603
Contracted for
Total
8,025
12,859
Total
Financial lease commitments
30,519
25,816
Operating lease commitments
2022
2023
Operating lease commitments and financial lease commitments where the Group is a lessor at the end of the
reporting period are as follows:
(e) Lease commitments
The Group expects that the amount of redemption before the maturity date of these government bonds through the
Group will not be material.
2022
27,401
2023
29,144
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 make advances to bond
holders 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 nominal 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 requirements set by the
MOF or the PBOC. The redemption price may be different from the fair value of similar instruments traded at the
redemption date.
(d) Redemption obligations
At 31 December 2023, the Bank or other group entities was a defendant in certain outstanding litigations with total
gross claims of RMB3,205 million (2022: RMB1,910 million). The Group 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.
(c) Outstanding litigations
The lease commitments of the Group as a lessor are detailed in note 58(e).
559
410
189
191
370
219
Authorised but not contracted for
38,675
133,137
22,642
ECL - credit-
- Stage 3
(Lifetime
- Stage 2
(Lifetime
ECL - not
2022
credit-
impaired)
ECL)
- Stage 1
(12-month
(a) Credit commitments (continued)
58. Contingent liabilities and commitments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
258
257
2,817,969
894
16,580
2,800,495
87,523
-
156
87,367
Total
Other
1,515,674
21
6,400
impaired)
- with an original maturity over 1 year
Credit card unused commitments
Total
245,003
22,638
- with an original maturity within 1 year (inclusive)
157,382
1,607
155,775
Irrevocable loan commitments
431,383
500
3,733
427,150
Bills of acceptances
1,344
231,849
Irrevocable letters of credit
202,944
269
2,477
200,198
Non-financing letters of guarantees
52,149
3
7,341
44,805
Of which: Financial guarantees
255,093
272
9,818
Irrevocable guarantees
38,544
259
513
56,419
57,279
33,889
26,095
1,142
2,747
Retail finance business
2023
Total
2022
28,165 129,075 140,443 62,520 49,627 214,669 218,235
7,679
(9,054)
(68,631) (53,240)
0004
(6,111)
84,108
37,825
94,275
Other business
2022
2023
2022
(3,613) 214,669 218,235
10,979
11,456
2,794
863
25,540
29,705
16,710
90,459 136,754
The financial services provided to retail customers include: loan and deposit service, bank card service, wealth
management services, private banking and other services.
(3) Other Business
Other business covers investment properties, subsidiaries except for CMB WLB and CMBFL, associates and joint
ventures. None of these segments meet any of the quantitative thresholds so far for segment division.
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.
The accounting policies of the operating segments are the same as the Group's accounting policies as stated in Note
4. Operating segment income represents income generated from external customers, inter-segment transactions are
offset. No customer contributed 10% or more to the Group's revenue for 2023 and 2022. Internal transactions are
conducted at fair value.
253
254
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
56. Operating segments (continued)
(a) Segment results, assets and liabilities
External net interest income
Internal net interest income/(expense)
Net interest income
Net fee and commission income
Other net income
Operating income
Operating expenses
- Property and equipment and investment
Wholesale
finance business
2023
2022
2023
23,074
60,952
62,294
84,026
131,389
134,625
142,094
194,315 191,415
(10,640)
(22,671) (30,459)
(33,966)
(370)
(929)
(41,469)
(57,566)
Share of profits of associates and joint ventures
2,476
2,525
2,476
2,525
Reportable segment profit before taxation
72,765
67,149
99,913
94,178
3,940
3,786
176,618
165,113
Capital expenditure (note)
26,630
28,884
2,809
2,660
702
losses on other assets
Expected credit losses and impairment
215,611 220,154
2,190
7,662
8,706 336,602 342,215
properties depreciation
(7,798) (7,103) (2,771) (2,942)
(439)
(234)
(11,008) (10,279)
- Right-of-use assets depreciation
(1,610)
(1,676) (2,312)
(2,250)
(283)
(225)
1,509,253
(4,205) (4,151)
(41,812)
(43,495)
(58,860)
(58,079)
(5,106)
(6,057)
(105,778) (107,631)
Reportable segment profit before
impairment losses
83,405
89,820 130,372
128,144
1,834
- Other
Credit card unused commitments
150,018
95
"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;
"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;
"Central region" refers to branches in Henan province, Anhui province, Hunan province, Hubei province,
Jiangxi province, Shanxi province and Hainan province;
"Bohai Rim region" refers to branches in Beijing municipality, Tianjin municipality, Shandong province and
Hebei province;
"Yangtze River Delta region" refers to branches in Shanghai municipality, Zhejiang province and Jiangsu
province;
To support the Bank's operations and management's assessments, the geographical segments are defined as follows:
"Headquarter" refers to the Group headquarter, credit card centres and fund operation centres;
In presenting information on the basis of geographical segments, operating income is allocated based on the
location of the branches and subsidiaries that generate the revenue. Segment assets and non-current assets are
allocated based on the location of the underlying assets.
The Group operates principally in the PRC with branches located in major provinces, autonomous regions and
municipalities directly under the central government in the Chinese mainland. The Group also has branches
operating in Hong Kong, New York, Singapore, Luxembourg, London and Sydney, subsidiaries operating in Hong
Kong, Shenzhen, Shanghai, Beijing and Luxembourg and representative offices in New York and Taipei.
Geographical segments
(c)
56. Operating segments (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
256
255
9,184,674
63,973
1,510
19,458
13,597
1,607
65,499
9,942,754
Consolidated total liabilities
Other unallocated liabilities
Deferred tax liabilities
Tax payable
9,099,733
9,862,051
Total liabilities for reportable segments
"Overseas" refers to overseas branches in Hong Kong, New York, Singapore, Luxembourg, London, Sydney
and representative offices in New York and Taipei; and
Liabilities
"Subsidiaries" refers to subsidiaries wholly owned or controlled by the Group, including CMB WLB, CMBIC,
CMBFL, CMFM, CMBWM, CMB Europe S.A. and CIGNA & CMAM.
Total liabilities
Northeast region
4,232
4,125
1,063,334
1,156,219
2023 2022
77,737 51,396 135,401 140,083
5,774 21,578 22,939 45,485 45,768
4,354 18,801 19,759 33,583 34,105
4,187
811,449
902,114
5,995
1,283,400
52,166
54,625
2023 2022
2022
31 December
31 December 31 December
2022
2023
3,841,548
31 December 31 December
2023
2022
2023
4,985,615 4,580,315 4,107,566
1,417,890 1,304,806 1,404,463
916,860 827,394
1,166,744 1,083,521
Pearl River Delta and West Coast region
Bohai Rim region
Yangtze River Delta region
Headquarter
Geographical information
31 December
Operating income
Profit before tax
Non-current assets
Total assets
10,138,912
11,028,483
Consolidated total assets
23,844
26,590
23,844
26,590
2022
10,029,750
2023
10,920,350
1,314,820
1,325,116
2022
2023
2022
3,081,290
2023
3,358,721
2022
5,633,640
5,671,256
Reportable segment liabilities
joint ventures
Of which: Interest in associates and
6,236,513
Reportable segment assets
2023
31 December
31 December 31 December
31 December 31 December 31 December 31 December 31 December
Total
Other business
Retail finance business
Wholesale finance business
5,495,463
3,562,087
3,157,321
628,708
7,734
7,072
Other unallocated assets
581
90,848
90,557
Deferred tax assets
550
9,999
10,029,750
10,920,350
9,954
Intangible assets
Goodwill
Total assets for reportable segments
168,687
Assets
2022
342,215
165,113
2023
336,602
176,618
Total profit before income tax for reportable segments
Operating income for reportable segments
(b) Reconciliations of reportable segment revenue, profit or loss, assets, liabilities
and other material items
56. Operating segments (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Note: Capital expenditure represents the amount incurred for acquiring segment assets which are expected to be used for more than one year.
9,099,733
9,862,051
446,949
31 December 2023 31 December 2022
(2) Retail finance business
170,632
166,486
324,388
278
3,940
320,170
Irrevocable guarantees
Total
- Stage 3
(Lifetime
ECL - credit-
impaired)
impaired)
- Stage 1
(12-month
ECL)
- Stage 2
(Lifetime
ECL - not
credit-
2023
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 amounts reflected
in the table for guarantees and letters of credit represent the maximum potential loss that would be recognised at
the end of the reporting period if counterparties default.
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.
Credit commitments
(a)
58. Contingent liabilities and commitments
The transactions under repurchase or placement agreements are conducted under terms that are usual and
customary to standard borrowing and placing activities.
Assets pledged
254,090
604,300
105,531
130,616
- Loans and advances to customers
Total
25,267
41,743
- Debt investments at fair value through other comprehensive income
Of which: Financial guarantees
99,199
44,570
3
2,284
147,639
- with an original maturity over 1 year
23,560
1
23,559
- with an original maturity within 1 year (inclusive)
173,578
95
2,285
171,198
Irrevocable loan commitments
488,187
500
2,294
485,393
Bills of acceptances
228,619
1,505
227,114
Irrevocable letters of credit
278,711
275
2,836
275,600
Non-financing letters of guarantees
45,677
1,104
333,718
- Debt investments at amortised cost
24,093
801,511
Subsidiaries
618
193,651
217,502
194,412
213,303
Overseas
20,931
20,579
3,497 8,554 11,755
3,051
623,631
674,635
632,766
681,255
Western region
18,491 26,479 34,947 37,583
4,075 6,444 6,485
9,358 10,740 19,953 20,989
3,602
3,299
628,361
670,811
636,801
676,618
Central region
1,505 2,808
1,440
708,265
642,893
572,814
95,462
98,223
- Financial assets at fair value through profit or loss
245,082
521,151
107,024
134,863
8,620
2022
129,438
377,189
9,099
2023
Total
Amounts sold under repurchase agreements
Placements from banks and other financial institutions
166,551
Borrowing from central banks
57. Assets pledged as security
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
Non-current assets include interests in joint ventures, interests in associates, property and equipment, investment properties, right-of-use
assets, intangible assets and goodwill.
Note:
155,985 176,618 165,113 336,602 342,215
172,802
9,942,754 9,184,674
10,138,912
11,028,483
Total
707 2,438 2,046 4,474 3,557
80,148 16,853 15,924 35,736 32,714
The following assets have been pledged as collateral for borrowing from central banks and liabilities under
repurchase or placement arrangements:
The financial services for corporate clients, government agencies, and financial institutions include: loan and deposit
service, settlement and cash management service, trade finance and offshore business, investment banking business,
inter-bank business such as placement and repurchase, asset custody business, financial market business, and other
services.
30,141
The Group manages its businesses by divisions, which are organised by both business lines and geography.
Investment
capital
Share Preference Perpetual Capital revaluation Hedging Surplus General Retained
shares bonds reserve reserve reserve reserve reserve earnings appropriation
Proposed
profit Exchange
reserve Total
At 1 January 2023
25,220
27,468
92,978 76,082
13,144
94,985 121,230 391,579
43,832
380 886,898
Changes in equity for the year
30,000 (3)
1,210
11
13,752 7,855 61,589
5,902
(20) 120,296
Net profit for the year
137,521
137,521
Other comprehensive income for the year
1,177
11
(20) 1,168
Other equity
instruments
Total comprehensive income for the year
54. The bank's statement of financial position and changes in the
bank's equity (continued)
Annual Report 2023 (H share)
Capital reserve
76,079
76,082
Investment revaluation reserve
14,354
13,144
Hedging reserve
11
Surplus reserve
108,737
General reserve
129,085
Retained earnings
453,168
94,985
121,230
391,579
Proposed profit appropriation
Exchange reserve
Total equity
1,007,194
Total equity and liabilities
10,317,223
49,734
360
43,832
380
886,898
9,510,556
China Merchants Bank
Chapter VIII Financial Statements
Issue of perpetual bonds
Profit appropriations
Appropriation to statutory surplus reserve
Appropriation to general reserve
27,468
122,978 76,079
14,354
11 108,737 129,085 453,168
49,734
360 1,007,194
Other equity
instruments
Investment
Proposed
Share Preference Perpetual Capital revaluation
capital
shares
bonds reserve
reserve reserve reserve
At 1 January 2022
25,220
34,065
92,978 76,681
Surplus General Retained
earnings
14,866 82,137 105,941 340,271
profit Exchange
appropriation
reserve Total
38,385
144 810,688
Changes in equity for the year
(6,597)
(599)
25,220
At 31 December 2023
(33)
33
1,177
11
(20) 138,689
30,000
(3)
29,997
(48,390)
137,521
13,752
7,855 (75,899)
5,902
13,752
(13,752)
120,446
7,855 (7,855)
(43,832)
(43,832)
Proposed dividends for the year 2023
Dividends to preference shares
(49,734)
49,734
(996)
(996)
Distribution to perpetual bonds
(3,562)
(3,562)
Transfers within equity upon disposal of
equity instruments designated at FVTOCI
Dividends paid for the year 2022
Net profit for the year
150,446
25,220
Derivative financial assets
18,014
17,859
Debt investments at amortised cost
1,707,032
1,533,546
Debt investments at fair value through other comprehensive income
783,051
675,484
Equity investments designated at fair value through other
comprehensive income
10,956
10,724
Investments in subsidiaries
Interests in joint ventures
Interests in associates
Investment properties
Property and equipment
Right-of-use assets
Intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
54,731
50,767
15,111
13,341
6,991
369,391
6,190
465,708
5,916,313
250
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
54. The bank's statement of financial position and changes in the
bank's equity
Assets
2023
2022
Cash
Precious metals
Balances with central banks
Balances with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Loans and advances to customers
Financial assets at fair value through profit or loss
14,499
2,245
666,550
14,787
2,251
585,338
55,168
47,791
261,190
247,973
169,450
276,292
5,482,692
836
907
26,690
Salaries and welfare payable
23,911
19,136
Tax payable
Contract liabilities
Lease liabilities
Provisions
Debt securities issued
Other liabilities
Total liabilities
11,904
17,221
5,466
6,653
12,039
12,285
19,530
22,410
107,858
172,402
89,220
96,680
9,310,029
8,623,658
Equity
Share capital
25,220
7,327,974
7,953,958
Deposits from customers
95,970
26,541
16,321
16,764
1,720
2,422
87,177
88,056
37,470
41,440
10,317,223
9,510,556
Borrowing from central banks
378,504
Other equity instruments
129,745
484,620
621,621
Placements from banks and other financial institutions
71,077
57,489
Financial liabilities at fair value through profit or loss
21,281
25,865
Derivative financial liabilities
16,653
18,207
Amounts sold under repurchase agreements
114,008
Deposits from banks and other financial institutions
32,057
(1,722) 12,848 15,289 51,308
128,484
236
Debt
interbank
of deposit
securities
Interest
Other
certificates
issued
issued
payable
Dividend
financial
Lease
of deposit
(Note)
(Note)
on bonds
payable
liabilities
liabilities
Total
At 1 January 2022
240,284
11,092
201,142
2,104
26
Certificates
26,650
Negotiable
12,675
480
6,157
Dividend declared
48,860
48,860
Discount or premium amortisation
1,786
265
53
2,104
Fair value adjustments
3
191
(236)
(42)
Exchange difference
(152)
1,399
40
1,287
At 31 December 2023
21,443
34,340
124,372
1,814
26
32,616
227,286
13,812
495,110
Cash changes:
3,547
Fair value adjustments
(26)
(544)
Exchange difference
1,107
5,293
(9)
241
(579)
6,641
At 31 December 2022
65,719
15,987
148,674
1,533
26
22,719
13,013
267,671
Note: Including financial liabilities designated at fair value through profit or loss.
(c) Significant non-cash transactions
There were no significant non-cash transactions during the years ended 31 December 2023 and 2022.
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
56. Operating segments
The Group's principal activities are providing corporate and personal banking services, conducting treasury business,
providing asset management and other financial services.
37
31
3,479
Discount or premium amortisation
Proceeds from the issue
78,666
20,287
21,481
10,796
131,230
Repayment
(250,996)
(16,504) (78,735)
(14,959)
(4,932)
(366,126)
Interest/dividend paid
5,677
(5,714)
(44,103)
(56,503)
Non-cash changes:
Additions of lease liabilities
3,623
3,623
Accrued interest
6,115
510
6,625
Dividend declared
44,103
44,103
(6,686)
5,447
Accrued interest
4,235
(3,562)
Transfers within equity upon disposal of
equity instruments designated at FVTOCI
(30)
30
At 31 December 2022
25,220
27,468
92,978 76,082
13,144
94,985 121,230 391,579
43,832
380 886,898
251
252
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
55. Notes to consolidated cash flow statement
(a) Analysis of the balances of cash and cash equivalents (including assets with
original maturity within 3 months):
(b)
Cash and Balances with central banks
Balance with banks and other financial institutions
Placements with banks and other financial institutions
Amounts held under resale agreements
Debt securities investments and discounted bills
Total
Reconciliation of liabilities arising from financing activities
2023
(3,562)
2022
Distribution to perpetual bonds
(1,675)
76,210
128,484
Other comprehensive income for the year
Total comprehensive income for the year
(1,692)
(1,692)
236
(1,456)
128,484
236 127,028
Redemption of preference shares
(6,597)
(599)
(7,196)
Profit appropriations
Appropriation to statutory surplus reserve
12,848 15,289 (77,206)
12,848
(12,848)
5,447
(43,622)
Appropriation to general reserve
15,289 (15,289)
Dividends paid for the year 2021
(38,385)
(38,385)
Proposed dividends for the year 2022
(43,832)
43,832
Dividends to preference shares
(1,675)
140,809
66,055
84,593
15,987
148,674
1,533
26
22,719
13,013
267,671
Cash changes:
Proceeds from the issue
68,608
66,504
25,201
17,303
177,616
Repayment
(112,584)
(48,267) (51,146)
(7,210)
(5,053)
(224,260)
Interest/dividend paid
(2,086)
(5,396)
(48,860)
(56,342)
Non-cash changes:
Additions of lease liabilities
65,719
At 1 January 2023
Total
liabilities
81,928
105,953
93,704
171,542
275,051
96,122
50,460
599,019
567,198
The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were classified in the Group's
consolidated cash flows statement as cash flows from financing activities.
Negotiable Certificates
Debt
interbank
4,235
of deposit
certificates
issued
issued
of deposit
(Note)
(Note)
Interest
payable
on bonds
Other
Dividend
financial
Lease
payable
liabilities
securities
23,114
269
China Merchants Bank
Total
ECL)
impaired)
impaired)
Total
Balances with central banks
587,533
impaired)
587,533
91,574
2
11
91,587
(497)
(509)
Placements with banks and other financial institutions
Balances with banks and other financial institutions
265,415
impaired)
ECL-credit-
Stage 2
(Lifetime
Stage 3
(Lifetime
Stage 3
Stage 1
ECL-not
ECL)
(Lifetime
ECL-not
(Lifetime
(12-month
credit-
ECL-credit-
(12-month
credit-
Stage 1
Stage 2
265,415
(2,658)
357
67,549
(76,687)
- net currency option position
34,270
(13,642)
431,449
418,103
(386,228) (440,704)
Total
-forward sold
Derivatives (nominal amounts):
27,961
11,755
2,817,969
20,081
25,385
83,364
-forward purchased
(2,658)
(44,812)
20,985
Amounts held under resale agreements
277,421
140
277,561
(954)
(140)
8,220
58,294
43,144
9,525
(13,031)
(15,026)
(62,141)
37,747
60,836
34,929 918,751
(22,002) (862,576)
(4,250)
8,677
393
Expected credit loss
Principal
2022
2023
Principal
Stage 2
(Lifetime
Expected credit loss
Stage 3
Stage 2
(Lifetime
Stage 3
Stage 1
The staging analysis for loans and advances to customers and debt investments at amortised cost are disclosed in
note 22, note 23(b) and note 60(a)(xi) respectively. The staging analysis for credit commitments and the expected
credit loss allowances of financial guarantees and loan commitments are disclosed in notes 58(a) and 42 respectively.
The staging analysis for other financial instruments is as follows:
ECL - not
Stage 1
ECL-not
(Lifetime
(12-month
credit
ECL credit-
(12-month
(Lifetime
credit- ECL credit-
Credit quality of financial instruments
(a) Credit risk (continued)
- Stage 3
Balance as at the end of the year
1,543,652
(1,276)
1,276
(311)
(887)
(xii)
1,198
(550)
2,073
34,120
1,579,845
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
60. Risk management (continued)
(550)
ECL)
impaired)
impaired)
Amounts held under resale agreements
172,568
140
172,708
(449)
(140)
(589)
(519)
Debt investments at FVTOCI
390
241
889,736
(5,586)
(132)
(1,094)
(6,812)
889,105
(518)
286,247
201
Total
ECL)
impaired)
impaired)
Total
Balances with central banks
667,569
667,569
Balances with banks and other financial institutions
100,745
1
11
100,757
(211)
(223)
Placements with banks and other financial institutions
286,046
2,689,139
Credit commitments (note (ii))
Off-balance sheet position:
42,685
1,373
45,869
632,195
banks
Cash and balances with central
Assets
HKD
3,063
USD
Other
Main original currency
In RMB Equivalent
HKD
USD
RMB
2023
Assets and liabilities by original currency are shown as follows:
Total
The Group continues to strengthen banking book exchange rate risk monitoring and authorisation
management of limits to ensure that risks are controlled within a reasonable range.
682,500
1,512
18,862
6,242,060
22,151
147,467
133,774
5,938,668
Loans and advances to customers
6,468
4,316
558,381
12,757
3,919
116,308
425,397
financial institutions
Amounts due from banks and other
16,400
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 control framework, and adjusts the foreign exchange exposures based on the trend of foreign
exchange rate movements to mitigate the foreign exchange risk on its banking book.
The banking book foreign exchange risk of the Group arises from the mismatch of the non-RMB financial
assets and liabilities. The Group stringently monitors its foreign exchange risk exposures to control it within
an acceptable range.
The Group's foreign exchange risk under the banking book is centrally 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 Internal Audit Department is responsible for auditing this. The
treasurer is responsible for managing the foreign exchange risk under the banking book with a prudent
approach and compliance with the regulatory requirements, and through approaches such as transaction
limits and adjustment of plans.
(b)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
268
267
Market risk
Note: The balances disclosed above do not include interest receivable.
(1,589)
(479)
(4,472)
771,271
155
3,211
767,905
(6,540)
Market risk refers to the risk of loss due to changes in observable market factors such as interest rates, exchange
rates, commodity prices and stock prices, resulting in changes in the fair value or future cash flows of the Group's
financial instruments. 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 and positions 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 can be traded
without any restriction. The financial instruments under the banking book are assets and liabilities held by the Group
for determinable return with relative stable market value or for the purposes of hedging the risks, which include
both the Group's on-balance sheet and off-balance sheet exposure.
(i)
Foreign exchange risk
Banking book
(3)
(2)
Foreign exchange risk (continued)
(i)
Market risk (continued)
(b)
60. Risk management (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
etc.
The Group adopts quantitative indicators such as exposure indicator, market value at risk indicator (VaR,
covers interest rate, foreign exchange rate, and commodity risk factors), exchange rate scenario stress test
loss index, exchange rate sensitivity index, and cumulative loss index in its management of foreign exchange
risk. The management methods include delegation, setting limits, daily monitoring and continuous reporting,
The Group has established a market risk structure and system of the trading book, which covers exchange
rate risk, to quantify the exchange rate risk of the trading book to facilitate centralised management. The
structure, process and method of exchange rate risk management of trading book are consistent with that of
the interest rate risk of trading book.
Trading book
(1)
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 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 in USD and HKD. The Group segregates the policy setting, execution and
supervision of foreign exchange risk management, and establishes a foreign currency risk management governance
structure. This structure specifies the roles, responsibilities and reporting lines of the Board of Directors, the Board of
Supervisors, senior management, designated committees and relevant departments of the Bank in the management
of foreign exchange risk. The Group is prudent in its foreign exchange risk appetite, and would not voluntarily take
foreign exchange risk, which suits the current development stage of the Group. The current foreign exchange risk
management policies and procedures of the Group meet the regulatory requirements and the requirements of the
Group.
162,431
Debt investments at FVTOCI
Financial investments (including
2,883,787
258,062
Other liabilities (note (i))
3,708
9,514
174,764
2,075
3,366
18,858
67,474
Debt securities issued
227
1,180
61,401
203
206
8,368
101,849
52,624
7,103
285,554
8,629
(3,514) 1,085,729
38,755
61,190
989,298
Net position
188,264
1,531
84,223
67,366
170,919
597,318
9,107,151
Total
7,824
2,658
9,942,754
liabilities)
(including derivative financial
Financial liabilities at FVTPL
10,096,449
Total
17,802
16,620
362,659
12,229
16,161
658,508
117,867
Other assets (note (i))
44,888
34,502
3,182,883
13,652
40,754
244,690
216,402
209,674
63,852 11,028,483
92,852
170,253
54,247
6,252
16,624
1,265,597
8,155,438
9,581
53,976
5,676
154,568
384,719
7,562,175
Deposits from customers
117,899
1,132,441
financial institutions
amounts due to banks and other
Borrowing from central banks and
Liabilities
230,949
derivative financial assets)
260
(1,094)
ECL - credit-
111,354
4,912,836
Balance as at the beginning of the year
impaired)
impaired)
ECL)
50,862
ECL - credit-
- Stage 2
(Lifetime
ECL - not
credit-
- Stage 1
(12-month
2022
(47,922)
5,913,324
61,560
165,105
- Stage 3
(Lifetime
Net changes for the year
425,054
(27,002)
48,365
(13,117)
(35,248)
- Stage 3
(262)
103,794
(103,532)
- Stage 2
(114)
(18,644)
18,758
- Stage 1
Transfer to
Total
5,075,052
396,221
(1,831)
5,686,659
Balance as at the end of the year
(47,922)
Write-offs
5,217,868
Transfer to
Net changes for the year
Balance as at the beginning of the year
Total
impaired)
credit-
impaired)
ECL)
- Stage 3
(Lifetime
- Stage 2
(Lifetime
ECL - not
- Stage 1
(12-month
2023
25,148
20,797
2022
156,240
Write-offs
58,004
557,973
53,771
(28,910)
(24,861)
- Stage 3
(743)
95,148
(94,405)
- Stage 2
(262)
(29,822)
30,084
- Stage 1
529,134
(1,288)
(27,551)
5,432,112
2023
(145)
(39,161)
ECL)
ECL - credit-
- Stage 3
(Lifetime
-Stage 2
(Lifetime
ECL - not
credit-
- Stage 1
(12-month
2022
impaired)
(2,919)
1,768,010
1,517
1,738,945
Balance as at the end of the year
(1)
(14)
Write-offs
655
(2,904)
27,548
impaired)
Total
Balance as at the beginning of the year
- Stage 2
Write-offs
(3)
3
- Stage 1
371,036
9,395
(275)
361,916
Transfer to
Net changes for the year
1,209,359
24,077
1,962
1,183,320
(655)
- Stage 3
339
(339)
2023
Movements of loans and advances and debt investments measured at amortised cost (continued)
Debt investments at amortised cost:
(xi)
(a) Credit risk (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
266
265
5,432,112
58,004
156,240
5,217,868
Balance as at the end of the year
- Stage 1
(12-month
ECL)
(39,016)
- Stage 2
(Lifetime
ECL - not
- Stage 3
(Lifetime
ECL - credit-
- Stage 2
(1)
1
- Stage 1
Transfer to
Total
1,579,845
191,084
(4,323)
(238)
195,645
34,120
2,073
1,543,652
Net changes for the year
Balance as at the beginning of the year
impaired)
credit-
impaired)
- Loans and advances to customers
Movements of loans and advances and debt investments measured at amortised cost
Loans and advances measured at amortised cost:
Estimate of the fair value of collateral and other credit enhancements
As describe in Note 4(5), the Group recognises lifetime ECL if there are significant increases in credit risk.
Significant increase in credit risk
The Group classifies credit risk based on probability of default. The internal credit risk rating is based on the
forecasted default risk, taking into consideration qualitative and quantitative factors. For customers of wholesale
business, such factors include net profit growth rate, sales growth rate, industry, etc. For customers of retail
business, such factors include maturity, ageing, collateral ratio, etc.
Internal credit risk rating
(ii)
(i)
(a) Credit risk (continued)
60. Risk management (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
262
261
Concentration of credit risk: when certain number of customers carry out the same business activities, locate 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 factors. 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 a limit management policy to monitor and analyse its loan portfolio.
Analysis of loans and advances by industry and loan portfolio are presented in Note 22.
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 assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk
of default occurring on the financial instrument and other items at the reporting date with that at the date of initial
recognition. In making this assessment, the Group considers an actual or expected significant deterioration in the
financial instrument's internal credit risk rating (Note 60(a)(i)), as well as internal early warning signal, the result
of 5-tier classification and overdue information. The Group regularly reviews whether the evaluation criteria are
applicable to the current situation.
In respect of asset quality classification, the Group adopts a risk based asset quality classification methodology.
Currently, the Group categorises its loans on a ten-grade loan classification basis to refine internal risk classification
management (normal (grades 1-5), special mention (grades 1-2), substandard, doubtful and loss).
For wholesale business, credit risk is considered as significantly increased if any of the following conditions is met:
the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the internal credit risk rating of
the customer has been downgraded to certain level; the early warning signal of the customer has reached a certain
level; or the customer has other significant risk signals identified by the Group.
A debt instrument is determined to have low credit risk if i) it has a low risk of default, ii) the borrower has a strong
capability to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and
business conditions in the longer term may not necessarily reduce the ability of the borrower to fulfill its contractual
cash flow obligations.
Incorporation of forward-looking information
(v)
held against following financial assets
(a) Credit risk (continued)
60. Risk management (continued)
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
These figures are generally derived from internally developed statistical models and other historical data and they are
adjusted to reflect forward-looking information.
probability of default (PD): is an estimate of the likelihood of default over 12 months or lifetime horizon;
loss given default (LGD): is the proportion of the loss arising on default to the exposure at default;
exposure at default (EAD): is the risk exposure on a debt.
The key inputs used for measuring ECL are:
Measurement of ECL
(iii)
The Group considers that a debt instrument is impaired and classified as stage 3 when the debt instrument is more
than 90 days (inclusive) overdue or the 5-tier classification of this debt instrument is substandard, doubtful or loss
(these three categories include debt instruments with more than 90 days (inclusive) overdue).
For loan commitment and financial guarantee, the date when the commitment becomes irrevocable is considered as
the initial recognition date.
For retail and credit card business, credit risk is considered as significantly increased if any of the following
conditions is met: the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the customer
or the debt has credit risk early warning signal; or the customer has other significant risk signals identified by the
Group.
The Group divides financial assets into different asset groups based on their different risk characteristics. According
to the risk characteristics of the asset group, the Group collects external data released by authoritative institutions
and internal risk data without undue cost or effort for modelling. Apart from the common economic indicators
such as Gross Domestic Product ("GDP"), Consumer Price Index ("CPI"), Producer Price Index and Broad Money
Supply, various other categories of indicators such as industry index, interest and exchange rate, and survey index
are also included. Based on statistical analysis and expert judgements, the Group sets up multiple forward-looking
scenarios to predict macroeconomic indicators and risk parameters. The Group sets the forecasts issued by external
authoritative institutions as the forecasts of economic indicators under the baseline scenario, with reference to
the professionals of the Bank and the outputs of the models. For the forecasts of economic indicators under the
remaining scenarios, the Group will refer to the actual historical data for analysis and forecast. Taking GDP (year-on-
year growth rate) and CPI (month-on-month increase) as an example, the forecasts for the next year adopted by the
Group for 2024 under the baseline scenario are 4.80% (2023: 4.80%) and 1.50% (2023: 2.80%) respectively.
Combined with quantitative measurement and expert judgement, the Group sets the weighting of multiple scenarios
based on the principle of taking the baseline scenario as the main and the other scenarios as supplement. The
weight of the baseline scenario of the Group as at 31 December 2023 is the highest. According to the sensitivity
test results of the Group, when the weighting of the optimistic scenario increases by 10% and the weighting of the
baseline scenario decreases by 10%, the ECL amount at 31 December 2023 will decrease by approximately 2.8%
compared to the current result (at 31 December 2022: will decrease by approximately 3.1%). When the weighting
of the pessimistic scenario increases by 10% and the weighting of the baseline scenario decreases by 10%, the ECL
amount at 31 December 2023 will increase by approximately 5.6% compared to the current result (at 31 December
2022: will increase by approximately 5.2%).
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 risks mitigating measures. Collateral
portfolio and legal covenants are reviewed regularly to ensure that they remain sufficient for the given risks and be
consistent with market practices.
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. The Group has also
further optimised the foundation related to the implementation of ECL measures during the year in accordance with
the Implementation Rules on Expected Credit Loss Approach of Commercial Banks (Yin Bao Jian Gui [2022] No. 10).
With respect to the credit risk management of wholesale financial business, the Group formulates credit policy
guidelines, enhances the standards on credit acceptance and management requirements for corporate, interbank
and institutional clients, and implements limits in key risk areas to improve the quality of credit exposure.
(b)
(231,266)
(221,292)
2022
231,266
2023
221,292
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 through 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.
Entrusted lending business
(a)
59. Transactions on behalf of customers
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Wealth management services
With respect to credit risk management of retail financial business, the Group mainly relies on the credit assessment
of applicants as the basis for loan approval, which takes into consideration 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.
The Group's wealth management services to customers mainly represent sales of wealth management products to
corporate and personal banking customers by the Bank and CMBWM. The funds obtained from wealth management
services are invested in investment products, including government bonds, policy bank bonds, short term corporate
debt instruments and trust 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.
At the end of the reporting period, funds received from customers under unconsolidated wealth management
services were RMB2,403,038 million as at 31 December 2023 (31 December 2022: RMB2,552,408 million).
The Group designs 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.
Credit risk represents the potential losses 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 factors, which may eventually affect their repayment abilities.
(a) Credit risk
60. Risk management
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
108,868
144,963
2022
2023
Entrusted management of insurance funds
The entrusted management of insurance funds mainly refers to the business that the Group carries out investment
activities on funds entrusted by insurance companies according to the regulatory policies and the investment
guidelines from insurance companies, and charges fees for providing such services.
At the end of the reporting period, the balances of entrusted funds were as follows:
Entrusted management of insurance funds
(c)
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 received from customer for wealth
management business that yet to be invested are recorded under other liabilities.
The Group periodically forecasts macroeconomic indicators, and calculates the ECL based on a weighted 12-month
expected credit loss (stage 1) or a weighted lifetime expected credit loss (stage 2 and stage 3).
(iv)
The Group divides the primary business into wholesale business, retail business and credit card business. The models
are divided based on shared risk characteristics, and the reference indicators include the 5-tier classification, business
type and collateral type.
41,184
33,429
27,220
124,554
132,191
53,526
38,966
65,894
2,577,388
155
Groupings based on shared risk characteristics
(243)
(499)
398
2,187,978
(10,661)
(5,958)
2,833,216
(xi)
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
(x)
(a) Credit risk (continued)
Risk management (continued)
60.
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
The impairment allowances above is for debt investments at amortised cost only.
Bonds issued by the governments and policy banks held by the Group amounted to RMB2,448,279 million as at 31 December 2023 (31
December 2022: RMB2,094,902 million).
2,432,650
2,833,525
2,432,495
808
2022
309
(!!)
The carrying amount of loans and advances that were credit impaired and the terms had been renegotiated was
RMB13,007 million as at 31 December 2023 (31 December 2022: RMB12,076 million).
Renegotiated loans and advances to customers
(viii)
2023
Credit risk (continued)
(a)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
264
263
The Group's maximum exposure to credit risk without taking into account any collateral held or other credit
enhancements is the carrying amount of the relevant financial instruments as disclosed in the consolidated statement
of financial position and the contract amount of the off balance sheet items disclosed in Note 58(a). At 31 December
2023, the amount of the Group's maximum credit risk exposure was RMB13,537,727 million (31 December 2022:
RMB12,440,947 million).
Maximum exposure
(vi)
Non-performing loans
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 31 December 2023, the Group had balance of non-performing loans of
RMB61,579 million (31 December 2022: RMB58,004 million).
(vii)
Credit quality of bond investments rating results
(i)
Notes:
Total
(ix)
Impairment allowances
Unrated
Lower than A-
A+ to A-
Subtotal
AAA
Neither overdue nor impaired
Subtotal
Impairment allowances
Impaired gross amount of debt investments
At the end of the reporting period, the analysis of the credit quality of bond investments by designated external
credit assessment institution, Standard & Poor's, is as follows:
AA+ to AA-
Carrying
amount
Over
Over
2023
The following table provides an analysis of the contractual undiscounted cash flow of the non-derivative financial
assets, non-derivative financial liabilities, and loan commitments of the Group as at the end of the reporting period.
The Group's actual cash flows on these instruments may vary significantly from this analysis.
Over 1 year
(c)
Over
Total
1 month
Liquidity risk (continued)
Repayable
on demand
China Merchants Bank
1 month to
3 months
3 months
to 1 year
Over
1 year
to 5 years
Over
5 years
Indefinite Overdue
Non-derivative financial assets
Cash and balances with central
banks
682,500
3 months
Within
1 month
1 year
to 5 years
5 years
904,281
449,002
133,748
35,043
13,554
- Debt investments at amortised cost
442,138
769
5,723
158,992
99,531
42,022
79,576
4,213
derivative financial assets)
- Financial investments at FVTPL (including
52,081
2,763,222
1,536,397
6,024
238,895
5,798
15,859
18,475
15,526
10,932
36,461
- Debt investments at FVTOCI
Other assets (note (iii))
13,416
- Equity investments designated at FVTOCI
771,271
19
210,303
138,723 387,873
28,329
13,416
788
19,139
1,166,665
368,901
62,456
institutions
Amounts due from banks and other financial
602,742
535,486
1,201
84,572
66,055
Total
Overdue
Indefinite
5 years
to 5 years
1 year
3 months
Cash and balances with central banks (note (i))
99,288
15,072
13
995,867
Annual Report 2023 (H share)
372,002
105,394
99,154
4,213
assets (note (ii))
Financial investments and derivative financial
5,796,546
24,264
1,706,378
1,626,514
399,192 1,514,348
499,842
26,008
Loans and advances to customers
630,302
4,154
346,100
Total assets
195,193
5,434,251
Total liabilities
258,756
242
28,868
23,694
19,358
692,538
26,774
Other liabilities (note (iii))
222,288
27,519
89,565
73,379
27,886
3,939
159,820
571,061
1,122,739 1,273,510
90,575
278
277
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
(iii)
For financial investments at FVTPL included in financial investments, their maturity dates do not represent the Group's intention to hold them
to maturity.
For cash and balances with central banks, the amounts with indefinite maturities represent statutory deposit reserve and fiscal deposit
balances.
(ii)
(i)
Notes:
954,238
29,206
2,788,279 793,520
33,623 882,575 1,379,802
286,291
(5,239,058)
(Short)/long position
9,184,674
Debt securities issued
1 month
13,013
7,650
1,087,095
6,423
20,817
149,389
125,671
269,349
515,446
Deposits from customers
due to banks and other financial institutions
29,206 10,138,912
793,520
2,878,854
2,653,312
2,005,314
604,684
978,829
Borrowing from central banks and amounts
4,746,035
384,557
393,284
3,091
591
503
Lease liabilities
67,780
20,131
11,457
11,555
4,271
7,416
12,950
derivative financial liabilities)
Financial liabilities at FVTPL (including
7,535,742
35,082
1,115,153
861,631
1,178
on demand
Over
Over 1 year
- Debt investments at FVTOCI
1,728,620
2,306
1,003,589
554,608
96,841
41,940
14,698
29,336
544,878
9,024
36,026
159,012
59,690 140,317
138,053
2,756
- Debt investments at amortised cost
48,148
123,446
444,953
Total assets
362,659
4,485
256,260
5,155
15,266
21,518
15,382
11,473
33,120
Other assets (note (iii))
19,649
19,649
- Equity investments designated at FVTOCI
889,736
10
258,481
derivative financial assets)
279,798
-Financial investments at FVTPL (including
2,316
133,647
51,889
301,382
64,142
institutions
Amounts due from banks and other financial
682,500
7,308
539,350
223
255
140,809
Cash and balances with central banks (note (i))
Total
Overdue
Indefinite
1,863
13
558,381
Loans and advances to customers
28,673
1,298,096
1,158,573
360,604
149,778
182,087
2,756
assets (note (ii))
Financial investments and derivative financial
6,242,060
23,672
1,734,232
1,843,531
1,520,502
497,465
583,687
38,971
3,182,883
Chapter VIII Financial Statements
1,078,884
3,024,678 3,037,496
64,372
1,519,101
1,684,329
748,740
848,329
5,077,883
Total liabilities
9,942,754
272,879
31,803
45,907
18,236
31,190
145,327
Other liabilities (note (iii))
174,764
416
(Short)/long position
(4,798,085) 230,555
(34,003) 353,805
60. Risk management (continued)
Over
Over
1 month to
Within
Repayable
2022
Liquidity risk (continued)
(c)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
1,085,729
30,473
824,283
2,973,124
1,505,577
7,376
714,737 2,038,134
50,176
25,288
1,301,368
542,828
432,094
4,474,297
Deposits from customers
1,265,597
6,845
1,375,860
41,428
366,937
449,682
due to banks and other financial institutions
Borrowing from central banks and amounts
11,028,483
30,473
824,283
157,079 243,626
28,991
8,155,438
Financial liabilities at FVTPL (including
9,901
Debt securities issued
12,675
1,082
7,757
2,804
578
454
Lease liabilities
61,401
19,662
12,077
8,601
4,731
7,753
8,577
derivative financial liabilities)
82,023
3 months to
61,963
Within
(294,290)
(19,462)
(14,878)
(582,326)
(42,335)
(21,831)
- net currency option position
29,143
(32,690)
(10)
41
(3,516)
(253,696)
(4,703)
Total
56,426
(38,592)
6,937
6,007
30,778
(5,552)
7,781
Notes:
(i)
(!!)
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
Credit commitments generally expire before they are drawn down, therefore the above net position does not represent the future
cash outflows.
(11)
China Merchants Bank
- forward sold
41,486
77,895
199,228
Net position
884,264
33,483
39,469
(2,978)
954,238
4,814
44,274
Off-balance sheet position:
Credit commitments (note (ii))
29,623
2,456,047
21,961
14,504
2,575,130
11,885
24,634
Derivatives (nominal amounts):
- forward purchased
280,979
288,388
26,409
20,844
616,620
82,618
57,171 9,184,674
Annual Report 2023 (H share)
60. Risk management (continued)
According to the basic principles of risk management, the Group has built and continuously improved the
market risk management system, and established the management process of market risk identification,
measurement, monitoring, control and reporting, covering interest rate risk, exchange rate risk, commodity
and other risks involved in the trading book business. Under the market risk preference formulated by the
Board of Directors, the Group manages the trading book by clearly identifying, accurately measuring and
effectively managing the trading book market risk, to ensure that the trading book risk exposure is within an
acceptable range and achieves a reasonable balance of risk and return. The Group constantly improves the
risk-adjusted return level to maximise the shareholders' value.
The trading book market risk governance organisation structure defines the responsibilities, division of labour
and reporting lines of the Board of Directors, Risk and Capital Management Committee under the Board of
Directors, senior management and relevant departments of the Bank, and safeguards the achievement of
management objectives. The Market Risk Management Department is responsible for the Group's trading
book market risk, and undertakes the task of risk policy formulation and management.
271
272
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
60. Risk management (continued)
(b)
Market risk (continued)
(ii)
Interest rate risk (continued)
Trading book
(1)
According to the business practices and market risk governance organisation structure, the Group establishes
the trading book market risk limits management system. A top level limit is set based on the risk appetite
determined by the Board of Directors, and is transmitted from top to bottom level by level. Within the
scope of their authorisation, management departments at all levels allocate and set limits according to risk
characteristics, product types and trading strategies, etc. The business departments carry out the business
according to the authorisation and limits requirements, and the supervisory and administrative departments
at all levels continuously monitor and report according to the limits management regulations.
The trading book market risk management adopts the scale index, stop loss index, sensitivity index, value at
risk index, stress test index and other risk measurement indices as the limits index, and sets the limit value
by comprehensively considering the risk appetite, risk tolerance, business operation strategy, risk return,
management conditions and other factors.
The Group uses valuation, sensitivity analysis, value-at-risk analysis, stress test and other measurement
methods to identify and quantify risk factors in the interest rate market. The Group applies the market
risk measurement model in its daily risk management and takes market risk measurement as the basis for
business planning, resource allocation, financial market business operation and risk management.
(2)
Banking book
According to the external regulatory requirements and the internal banking book interest rate risk
management policy, the Group has built and continuously improved the banking book interest rate risk
management system, established the management process of interest rate risk identification, measurement,
monitoring, control and reporting, and covered all on- and off-balance sheet business of the Bank. The Group
clearly identifies, accurately measures and effectively manages the interest rate risk of the banking book
under the interest rate risk appetite of the banking book formulated by the Board of Directors to ensure that
the net interest income (NII) and the economic value of shareholders' equity (EVE) increase steadily within the
acceptable range of the banking book risk.
The Group's governance and management framework specifies the responsibilities, division of labor
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 rate risk of the banking
book is managed by the Asset and Liability Management Department of the Head Office. Internal Audit
Department of the Head Office is responsible for independent audit.
The preference of the Group in respect of the interest rate risk in the banking book is prudent. The Group
establishes a banking book interest rate risk limit management system based on the actual business and
the banking book interest rate risk governance structure. The quantitative index of risk appetite set by the
Board of Directors is the highest level limit, which is transmitted through the limit level from top to bottom
and level by level. Within the scope of their authorisation, all levels set limits and continuously monitor and
report according to risk tolerance, business operation strategy and risk management objectives. The Group
formulates interest rate risk management strategies and regularly tracks and reviews them based on risk
measurement and monitoring results and in combination with macroeconomic and interest rate environment.
The key measures for risk management of the Group include the adjustment in business volume, duration
structure and interest rate structure of on-balance sheet asset and liability business and off-balance sheet
derivative to offset risk exposure.
The Group has mainly adopted scenario simulation analysis, re-pricing exposure analysis and duration analysis
for the regular measurement and analysis of interest rate risk under the banking book. Stress test is a form
of scenario simulation used to assess the changes in net interest income at risk and economic value of equity
indicators when there is an extreme fluctuation in interest rates. The Group measures and monitors the
interest rate risk of banking book through the asset-liability management system, and the main models and
parameter assumptions used in the measurement process are independently verified before being adopted
and are regularly reviewed and verified after being adopted. The various indicators of interest rate risk during
the reporting period showed that the interest rate risk of banking book of the Bank was generally stable and
stay within the set limits.
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Trading book (continued)
Chapter VIII Financial Statements
(1)
Interest rate risk
(b)
Market risk (continued)
(i)
Foreign exchange risk (continued)
Sensitivity analysis
(ii)
(4)
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 profit and equity. The
following table sets forth the results of the Group's foreign exchange risk sensitivity analysis on the assets
and liabilities of all foreign currencies involved at 31 December 2023 and 31 December 2022.
2023
2022
Change in foreign currency exchange rate
Down by 1%
Interest rate risk arises from unfavourable changes in interest rates and maturity profiles which may result in loss to
the income and decline in market value of financial instruments and positions held by the Group.
Up by 1%
Up by 1%
(Decrease)/increase in net profit
(101)
101
(64)
64
(Decrease)/increase in equity
(334)
334
(284)
284
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.
Down by 1%
177,612
541,466
8,408,425
financial institutions
491,188
100,870
22,244
16,000
630,302
14,511
24,951
Loans and advances to customers
5,466,679
148,993
157,628
Amounts due from banks and other
23,246
21,433
176,812
Financial investments (including
derivative financial assets)
2,534,659
188,200
31,130
9,233
2,763,222
27,073
34,920
Other assets (note (i))
5,796,546
244,335
3,103
602,742
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
60. Risk management (continued)
(b)
Market risk (continued)
(i)
Foreign exchange risk (continued)
(3) Assets and liabilities by original currency are shown as follows: (continued)
2022
In RMB Equivalent
RMB
6,039
USD
Other
Total
Main original currency
USD
HKD
Assets
Cash and balances with central
banks
555,828
41,978
2,766
2,170
HKD
94,908
3,313
3,544
(including derivative financial
liabilities)
52,044
15,280
421
35
67,780
2,197
473
Debt securities issued
162,146
58,447
Financial liabilities at FVTPL
790
222,288
8,408
886
Other liabilities (note (i))
247,669
11,239
11,944
917
271,769
1,619
13,397
Total
905
180,029
51,967
7,535,742
346,100
13,653
3,716
Total
9,292,689
574,949
217,081
54,193
10,138,912
82,709
243,502
Liabilities
Borrowing from central banks and
amounts due to banks and other
financial institutions
982,369
95,258
3,961
5,507
1,087,095
13,704
4,443
Deposits from customers
6,964,197
361,242
160,496
49,807
60. Risk management (continued)
(b)
Market risk (continued)
(ii)
7,535,742
931,481
5,528,249
143,285
860,746
10,501
1,111,583
1,828
31,365
3,799
Financial liabilities at FVTPL
(including derivative financial
liabilities)
67,780
3,006
5,231
Deposits from customers
73
Lease liabilities
13,013
1,094
3,091
7,650
1,178
Debt securities issued
222,288
35,587
69,617
89,565
27,519
59,470
Other liabilities (note (ii))
1,087,095
amounts due to banks and other
13
Loans and advances to customers
(note (i))
5,796,546
2,234,889 3,028,371
473,932
59,354
Financial investments (including
derivative financial assets)
2,763,222
217,442
356,451
975,413
financial institutions
1,164,031
Other assets (note (ii))
346,100
346,100
Total assets
10,138,912
3,545,205
3,484,110
1,463,404
1,223,398
422,795
Liabilities
Borrowing from central banks and
49,885
258,756
203
2,752
8,586
4,118
9,477
The above-mentioned interest rate sensitivity analysis shows the changes in net interest income and equity
in the next 12 months under the assumption of changes in interest rates in the above table. As the actual
situation and assumptions may be different, the actual changes in the Group's net interest income and
equity caused by the increase or decrease in interest rates may be different from the results of this sensitivity
analysis.
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
60. Risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group is not able to obtain sufficient funds at a reasonable cost and in a timely
manner to deal with the appreciation of asset growth, to meet its maturity obligations, or to perform other payment
obligations.
According to the liquidity risk management policy, the Group segregates the policy setting, execution and supervision
of liquidity risk management, and puts in place a governance framework which defines the roles, responsibilities and
reporting lines of the Board of Directors, the Board of Supervisors, senior management, designated committees and
relevant departments to ensure the effectiveness of the liquidity risk management. The Board of Directors takes the
ultimate responsibility for liquidity risk management, ensures the Group can effectively identify, measure, monitor
and control liquidity risk and is responsible for determining liquidity risk level which the Group can tolerate. The Risk
and Capital Management Committee under the Board of Directors shall perform its responsibilities in liquidity risk
management according to the requirements of the Board of Directors. The Board of Supervisors is responsible for
the supervision and evaluation of the performance of the Board of Directors and senior management in the liquidity
risk management and reports to the general meeting of shareholders. The senior management is responsible for the
liquidity risk management work and develops a timely understanding of changes in liquidity risks, and reports the
same to the Board of Directors. The Asset and Liability Management Committee (ALCO) exercises specific liquidity risk
management functions as required by the senior management. The Assets and Liabilities Management Department
of the Head Office is a day-to-day working body of ALCO and 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 Internal Audit Department of the Head Office conducts comprehensive
audit on the Group's liquidity risk management.
The Group is prudent in managing its liquidity risk, which suits its current development stage. The Group's existing
liquidity risk management policies and systems meet regulatory requirements and suit its own management needs.
The Group's liquidity risk management is coordinated by Head Office with branches acting in concert. The Asset
and Liability Management Department acting as the treasurer of the Group is in charge of daily liquidity risk
management. According to a prudent basis under regulatory requirements, the treasurer is conducting centralised
liquidity management through limits management, budget control, initiative debt management as well as internal
fund transfer pricing.
The Group measures, monitors and identifies liquidity risk by short-term reserves as well as medium and long-term
structures. It monitors the limit indicators closely at fixed intervals.
4,412
The Group regularly conducts stress testing to assess its liquidity risk resistance under extreme circumstances. Except
for the annual stress testing required by the regulatory authorities, the Group conducts monthly stress testing on
the liquidity risk of local and foreign currencies. The Group sets up liquidity contingency plans and conducts liquidity
contingency drills to continuously improve its capability to handle any liquidity crisis.
276
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
60. Risk management (continued)
(c)
Liquidity risk (continued)
Analysis of the Group's assets and liabilities by contractual remaining maturity is as follows:
2023
Over
Over
Repayable
on demand
275
(4,412)
(8,462)
(4,118)
(9,319)
Down by 25
255,801
Total liabilities
9,184,674
6,496,614
1,079,745
1,227,282
682,500
319,070
Asset-liability gap
954,238
(2,951,409)
2,404,365
236,122
1,161,435
103,725
Notes: (i)
For loans and advances to customers, the "3 months or less" category includes overdue amounts as at 31 December 2023
and 31 December 2022 net of allowances for impairment losses. Overdue amounts represent loans of which the whole or
part of the principals or interests were overdue.
(ii)
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities"
respectively.
Sensitivity analysis
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 2023 and 31 December 2022.
2023
2022
Change in interest rates (in basis points)
(Decrease)/increase in net interest income
(Decrease)/increase in equity
Up by 25
Down by 25
Up by 25
14,059
1 month to 3 months to
99,288
630,302
3,182,883
351,796
358,289 1,104,825
1,307,233
60,740
Other assets (note (ii))
362,659
362,659
Total assets
11,028,483
3,926,389
3,568,986
derivative financial assets)
1,716,255
447,118
Liabilities
Borrowing from central banks and
amounts due to banks and other
financial institutions
1,265,597
1,013,853
Deposits from customers
8,155,438
5,450,058
231,786
1,300,112
19,670
1,373,425
1,369,735
288
Financial investments (including
605,016
Interest rate risk (continued)
(3) The following tables indicate the expected next repricing dates (or maturity dates whichever are
earlier) for assets and liabilities at the end of the reporting period.
Assets
2023
Total
3 months
or less
(include
overdue)
Over 3
months
to 1 year
Non-
Over 1 year
to 5 years
Over
5 years
interest
bearing
Cash and balances with central
banks
62,489
682,500
23,719
Amounts due from banks and other
financial institutions
558,381
418,055
133,899
6,414
13
Loans and advances to customers
(note (i))
6,242,060
2,497,757
3,076,798
658,781
28,172
3,671
Financial liabilities at FVTPL
273
274
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
60. Risk management (continued)
(b) Market risk (continued)
(ii)
Interest rate risk (continued)
(3) The following tables indicate the expected next repricing dates (or maturity dates whichever are
earlier) for assets and liabilities at the end of the reporting period. (continued)
(4)
2022
118,152
Total
Over 3
months
to 1 year
Non-
Over 1 year
to 5 years
Over
5 years
interest
bearing
Assets
Cash and balances with central
banks
602,742
575,932
26,810
Amounts due from banks and other
financial institutions
3 months
or less
(include
overdue)
1,332,817
328,966
36,918
(including derivative financial
liabilities)
61,401
588
5,321
55,492
Lease liabilities
12,675
1,032
2,804
7,757
1,082
Debt securities issued
174,764
Other liabilities (note (ii))
272,879
44,549
187
78,880
43,959
7,376
2,889
269,803
Total liabilities
9,942,754 6,510,267
Asset-liability gap
1,613,582
1,085,729 (2,583,878) 1,955,404
1,453,021
263,234
516,942
140,809
856,009
55
1,103,949
588,262
42,650 166,559
17,387
1,919,576
1,536,397
cost
-Debt investments at amortised
5,723
57,052
161,826
96,166
38,048
76,314
4,102
439,231
423,467
-Debt investments at FVTOCI
771,271
879,458
7,808 31,936
15,434
997,800 646,262 2,229,211
9,862,933 11,707,905 193,726
Total
10,381
35,078
88,792
88,792
Other assets
- Financial investments at FVTPL
13,416
13,416
at FVTOCI
- Equity investments designated
769
1989
252,649
433,932
153,114
13,416
788
19,139
1,413,650
369,164
62,467
631,756
630,302
financial institutions
Amounts due from banks and other
535,486
1,201
85,088
66,055
602,742
banks
Cash and balances with central
Non-derivative financial assets
Overdue
Indefinite
5 years
to 5 years
602,742
17,310
99,900
13
1,184,020
415,839
112,634
101,509
4,102
3,251,681
2,744,551
Financial investments
15,124
24,425
2,071,922
1,694,961
433,106
516,746
26,024
7,132,934
5,796,546
Loans and advances to customers
2,365,750
1,534
605
4,296
96,703
76,447
28,783
4,480
222,288 235,656
Debt securities issued
1,474
8,386
29,243
3,328
505
14,292
13,013
Lease liabilities
20,020
7,988
4,626
227
599
4,390
Other liabilities
62,796
255
270
279
Interest receivable and interest payable of financial instruments are included in "other assets" and "other liabilities" respectively.
Note:
1,573,991
1,573,991
Gross loan commitments
162,436 162,436
94,365
697,154
9,069,718 9,355,411 5,438,055
Total
242
31,154
28,897
11,623
27,724
571,721 1,160,252 1,393,864
to 1 year
12,085
49,144
Over
5 years
to 5 years
to 1 year
1 month to 3 months
1 year
3 months
1 month
Within
Indefinite
Total
Over
Over
Over
2022
29,367
3,780,018 558,921
3,272,600
4,154
Carrying
amount
49,336
Overdue
and lease liabilities
Financial liabilities at FVTPL
36,261
1,223,242
403,223 894,832
389,687
4,847,726
7,794,971
7,535,742
Non-derivative financial liabilities
Deposits from customers
26,391
152,122
127,266
270,368
1,087,095 1,098,720 515,448
financial institutions
amounts due to banks and other
Borrowing from central banks and
7,125
3 months
Repayable
on demand
on demand
11,445
31,314
90,873
90,873
Other assets
19,649
19,649
19,649
at FVTOCI
- Equity investments designated
10
339,046
504,793
140,137
52,440
16,810
1,053,236
15,314
20,884
1,975
427
Over
Over
3 months
1 month to
Within
Repayable
Carrying
amount
Over
2023
889,736
30,473
3,650,383
2,276,495
766,578
1,100,594
10,737,964 12,625,414 277,920
Total
4,485
5,029
3,949,919 573,052
- Debt investments at FVTOCI
2,306
1,222,706
Financial investments
602,390
38,971
6,242,060 7,530,562
Loans and advances to customers
13
7,889
52,393 136,751
3,164,150
301,674
562,870
558,381
financial institutions
Amounts due from banks and other
539,350
1 month
223
1,863
64,150
1 year
3,758,609
- Financial investments at FVTPL
50,472 133,924 712,112
33,629
1,728,620
cost
- Debt investments at amortised
9,024
36,870
156,588
2,676
2,316
23,672
2,350,857
2,267,026
1,373,493 1,598,622
539,585 1,708,061
184,830 159,063 408,936
56,151 134,875
134,391
2,676
530,575
526,145
28,673
Over
2,155,149
1 month
768,074 1,746,221
9,827,567 10,150,110 5,068,629
Total
416
31,439
44,377
18,080
30,287
1,644,097
50,536
Other liabilities
7,938
53,672
84,324
26,108
10,401
182,443
174,764
175,135 175,135
Debt securities issued
67,080
China Merchants Bank
amount
Over
Total on demand
1 year
3 months
1 month to
Within
Repayable
1,689,252 1,689,252
Carrying
Over
Over
2022
Liquidity risk (continued)
(c)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
Over
1,280
Gross loan commitments
2,880
47,192
251,248
168,105
375,736
449,843
1,265,597 1,300,017
Total
amounts due to banks and other
7,893
Borrowing from central banks and
Non-derivative financial liabilities
Overdue
Indefinite
5 years
8,461
to 5 years
to 1 year
3 months
and lease liabilities
Deposits from customers
financial institutions
7,146
586
457
12,675
Lease liabilities
19,617
13,664
2,996
1,053
4,696
8,566
44,074
43,958
Financial liabilities at FVTPL
29,936
1,496,187
1,360,396
554,142
434,432
8,155,438 8,434,777 4,559,684
143,650
98,094
(328)
250,695
1,598
Options
(3,817)
8,951
1,124
226,332
1,043
Futures
(7,304)
9,263
591,488
487
17,724
347,432
Foreign exchange swaps
Other derivatives
81
91,064
Commodity trading swaps
640
(330)
28,098
313
5,672
406
5,266
(472)
42,966
57
42,909
Equity options written
554
42,980
34
57
42,889
Equity options purchased
(856)
867
92,258
34
520
1,198
3 months
4,812
734,650
60,013
Interest rate derivatives
profit or loss
Derivatives at fair value through
Liabilities
Assets
Total
5 years
Over
Between
1 year
and 5 years
3 months
and 1 year
Within
Between
Fair value
Notional amounts with remaining life
2022
(f) Use of derivatives (continued)
60. Risk management (continued)
Credit default swaps
Annual Report 2023 (H share)
735,046
4,720
1,534,429
6,246
21,443
Forwards
(11,449)
11,348
871,405
1,198
27,320
329,319
513,568
Currency derivatives
645
409
Bond futures
(6,062)
6,246
1,534,020
4,720
735,046
734,241
60,013
Interest rate swaps
(6,062)
409
640
137
(54)
The credit risk weighted amounts in respect of these derivatives are as follows:
(f) Use of derivatives (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
284
283
There was no ineffective portion of cash flow hedges during the years ended 31 December 2023 and 2022.
(18,636)
(69)
(69)
(47)
(47)
18,671
2,509,725
6,661
767,036
728
728
728
Default risk weighted assets of counterparties
Interest rate derivatives
Currency derivatives
Other derivatives
Chapter VIII Financial Statements
The Group has established a control framework to govern the measurement of fair values. This includes a valuation
team that takes the responsibility for overseeing all significant fair value measurements including the three levels of
fair values.
Several of the Group's accounting policies and disclosure requirements stipulate the measurement of fair values, for
both financial and non-financial assets and liabilities.
Methods of determining fair value of financial instruments
(i)
Fair value information
(g)
The Group has calculated the exposure of derivatives according to the Notice of the Measures on Default Risk
Weighted Assets of Counterparties in Respect of Derivatives and the related requirements issued by the former
CBIRC. These amounts have taken the effects of bilateral netting arrangements into account. The risk weighted
amounts in respect of derivatives are calculated in accordance with the Administrative Measures on Capital of
Commercial Banks (Provisional). The amounts within the scope approved by the former CBIRC in April 2014 are
calculated using the Internal Ratings-Based Approach, and the Weighted Approach is adopted to calculate those
amounts that are not eligible for the Internal Ratings-Based approach.
3,687
4,996
728
2,410
121
123
1,242
2,375
88
1,500
2022
2023
2,586
Total
Credit valuation adjustment risk weighted assets
2,187
640
3,802
3,085
709
1,804
100
2,393
Interest rate derivatives
Cash flow hedge derivatives
(153)
28
(153)
28
228
2,097
2,097
881
781
1,316
Foreign exchange swaps
781
1,316
Currency derivatives
Fair value hedge derivatives
5,006
182
8
Interest rate swaps
3,802
717
3,085
1,068,990
667,038
Total
Foreign exchange swaps
Currency derivatives
Interest rate swaps
Interest rate derivatives
717
instruments designated at FVTPL
Derivatives managed in
20
20
Interest rate options
182
4,986
709
1,804
100
2,373
conjunction with financial
China Merchants Bank
The Group enters into interest rate, foreign currency and other financial derivative transactions for treasury business
and its assets and liabilities management purpose. The Group's derivatives can be divided into financial instruments
that are held for fair value hedge and cash flow hedging purpose and that are at fair value through profit or loss.
The Group formulates appropriate hedging strategies and uses proper tools in light of the risk profile of interest
rates or foreign exchange rates associated with its assets and liabilities, as well as its analysis and judgement
regarding future movements of interest rates or foreign exchange rates.
18,733
1
174
174
Bond futures
(5,314)
(5,314)
5,328
5,327
1,806,971
1,806,787
1,791
676,727
805,030
323,239
Interest rate swaps
1,791
676,727
805,040
323,413
Interest rate derivatives
profit or loss
Liabilities
Assets
Interest rate options
-
10
10
8,853
851,510
30,310
394,675
426,525
Foreign exchange swaps
(480)
375
53,897
1,199
Total
257
35,148
Forwards
(10,372)
11,692
1,422,980
1,199
39,675
717,287
664,819
Currency derivatives
17,293
(7,824)
Over
5 years
Between
3 months
and 1 year
(e)
60.
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
The Group manages its capital structure and adjusts 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, additional tier-1 capital instruments, eligible tier-2 capital instruments, and convertible
debentures. The Group's management regularly monitors capital adequacy ratio under the approaches stipulated by
regulators. The Group and the Bank submit required information to the NAFR every quarter.
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 for shareholders.
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 customer
pricing and decision-making, and increase capital deployment efficiency;
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;
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,
social responsibility and strategic planning implementation to achieve a comprehensive, coordinated and
sustainable growth;
The objectives of the Group's capital management are to:
(e) Capital management
In view of the challenges from internal and external operations and management, the Group will, based on its risk
appetite, continue to upgrade its risk management capabilities and strengthen operational risk monitoring and
controls, in order to prevent and reduce operational risk losses.
During the reporting period, through stepping up the identification, evaluation and monitoring of operational risk in
key areas, and by focusing on process, policy, employee system, and existing problems of critical control segments,
the Group further improves the risk management method, appraisal and assessment mechanism, and strengthens
economic capital allocation mechanism with the goal of enhancing the ability and effectiveness of operational risk's
management of the Group. All major indexes meet the requirements of the Group's risk preference.
Operational risk arises from the loss due to deficiency in internal procedures, staffing or IT structure, as well as
external events which have effect on operation, including legal risk but not strategy risk and reputation risk.
Operational risk
(d)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
Risk management (continued)
Capital management (continued)
The Group's capital adequacy ratio calculation covers the Bank and its subsidiaries. The Bank's capital adequacy ratio
calculation covers all branches of the Bank. As at 31 December 2023, the Group's subsidiaries that were within the
capital adequacy ratio calculation included: CMB WLB, CMBIC, CMBFL, CMFM, CMBWM, CIGNA & CMAM and CMB
Europe S.A.
Since 1 January 2013, the Group has calculated its capital adequacy ratio in accordance with the former CBIRC's
Administrative Measures on the Capital of Commercial Banks (Provisional) and other relevant regulations. On 18
April 2014, former CBIRC approved the Bank to adopt the Advanced Measurement Approach. Within the approved
scope, the Bank could calculate corporation and financial institutions risk exposure using the Foundation Internal
Ratings-Based Approach, retail risk exposure using the Advanced Internal Ratings-Based Approach, market risk using
the Internal Model-Based Approach, and operational risk using the Standardised Measurement Approach. At the
same time, former CBIRC implemented a transition period for commercial banks that were approved to adopt the
Advanced Measurement Approach. During the transition period, commercial banks should use both the Advanced
Measurement Approach and other approaches to calculate capital adequacy ratios, and comply with the capital floor
requirements.
3 months
Within
Fair value
Notional amounts with remaining life
2023
Derivatives at fair value through
The following tables provide an analysis of the notional amounts and the corresponding fair values of derivatives
of the Group by remaining maturities at the end of the reporting period. The notional amounts of the derivatives
indicate the transaction volume that has not been delivered at the end of the reporting period, and do not represent
the amounts at risk.
In cash flow hedges, the Group uses interest rate swaps as hedging instruments to hedge the interest rate risks
arising from RMB loans and interbank assets or liabilities. In fair value hedge, the Group uses interest rate swaps as
hedging instruments to hedge the interest rate risks arising from bond investments measured at fair value through
other comprehensive income.
Use of derivatives (continued)
(f)
Between
1 year
and 5 years
60. Risk management (continued)
Chapter VIII Financial Statements
China Merchants Bank
282
281
The Group is exposed to foreign exchange risk when assets or liabilities are denominated in foreign currencies. Such
risk can be offset through the use of foreign exchange forwards or foreign exchange options.
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 determine fair value, 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 classification of levels in the fair value hierarchy.
Derivatives include forwards, swaps and option transactions undertaken by the Group in the foreign exchange and
interest rate markets.
(f) Use of derivatives
The Group adopts the scenario simulation and stress testing methods to forecast, plan and manage its capital
adequacy ratio with considerations of factors such as strategic development planning, business expansion status,
and risk movement trends.
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 resistance. 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.
Annual Report 2023 (H share)
(17,443)
Futures
3,503
3,685
1,752
Interest rate swaps
369
2,890
3,685
1,752
Interest rate derivatives
Cash flow hedge derivatives
(295)
123
8,282
7,529
753
Foreign exchange swaps
(295)
123
8,282
7,529
753
I
2,890
369
369
8,696
3,387,252
6,232
727,386
1,528,318
1,125,316
Total
(1)
213
213
Interest rate swaps
Currency derivatives
(1)
213
Interest rate derivatives
instruments designated at FVTPL
conjunction with financial
Derivatives managed in
(38)
105
8,696
(38)
105
213
1,949
(123)
2,838
64,003
35
293
63,675
Equity options purchased
(1,300)
1,485
136,759
35
52
1,553
135,119
Other derivatives
(2,068)
2,464
512,121
9,108
301,816
201,197
Options
5,452
1,110
Equity options written
63,675
293
513
Interest rate swaps
(123)
3,351
2,838
513
Interest rate derivatives
Fair value hedge derivatives
(70)
640
3,351
640
375
8,148
52
327
649
Credit default swaps
7,769
Commodity trading swaps
(876)
63,968
(354)
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 the fair value hierarchy based on the inputs used in the valuation
techniques.
Debt investments at FVTOCI
•
120,762
Loans and advances to customers
rate
approach
at FVTPL
Discounted cash flow
3,729
Loans and advances to customers
Net asset value approach
4,525
Equity investments designated at
FVTOCI
Discounted cash flow
approach
71
Equity investments designated at
FVTOCI
Liquidity discount
Market approach
2,742
Equity investments designated at
FVTOCI
Unobservable inputs
Valuation techniques
2023
at FVTOCI
31 December
Discounted cash flow
approach
rate, cash flow
Net assets, liquidity
- Fund investments
- Fund investments
approach
Discounted cash flow
359
- Debt securities
Net asset value approach
230
- Equity investments
approach
642
- Equity investments
Market approach
1,520
- Equity investments
FVTPL
Financial investments measured at
rate
Risk-adjusted discount
Risk-adjusted discount
discount
Risk-adjusted discount
as at
Fair value
Valuation techniques used and the qualitative information of key parameters for recurring fair value
measurements categorised as Level 3:
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
During the years ended 31 December 2023 and 2022, there were no significant transfers of financial instruments
between Level 1 and Level 2 of the fair value hierarchy.
67,780
2,647
39,507
25,626
Total
18,636
18,636
Derivative financial liabilities
22,805
2,647
20,158
- Other
7,709
7,709
- Debt securities issued
(ii)
Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
(1)
Basis of determining the market prices for recurring fair value measurements categorised as Level 1
Bloomberg etc. are used for financial instruments with quoted prices in an active market.
(3)
Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
(ii)
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
288
287
1,180
1
The fair value of other financial liabilities designated at FVTPL is measured based on the net asset values of
the funds, determined with reference to observable (quoted) prices of underlying investment portfolio and
adjustments of related expenses.
The fair value of certificates of deposit issued is measured by using the comprehensive valuations on
Bloomberg.
The fair value of equity investments designated at FVTOCI is measured by using the comprehensive valuations
on Bloomberg or discounted cash flow approach using the relevant yield curve of China Bond at the end of
the reporting period.
The fair value of discounted bills at FVTOCI and at FVTPL in the Chinese mainland is measured based on
the rate of rediscounted bills announced by the Shanghai Commercial Paper Exchange Corporation Ltd.
The Group uses 10-day average discount rate as the basis for calculating the value of discounted bills; or
is measured by discounted cash flow approach. The discount rates used are determined by factors such as
credit rating of the loan customer provided by S&P, Moody's or Fitch, customer industry, term to maturity of
the loan, loan currency and the issuer credit spread.
Observable quoted price in market is used as the basis of determining the value of equity investments
measured at FVTPL, investment funds and wealth management products.
Fair value of interest rate swaps, foreign exchange swaps, and non-option commodity contracts in derivative
financial instruments is measured by discounting the expected receivable or payable amounts under the
assumption that these swaps had been terminated at the end of the reporting period. The discount rates
used are the related currency denominated swap yield curve as at the end of reporting period.
Fair value of option contracts such as foreign exchange options, commodity options and equity options are
measured by using the Black-Scholes model, based on market data such as risk-free interest rate, underlying
market prices and price volatility of foreign exchange, commodities, and equity contract. The above market
data used are quoted price in an active market, provided by Bloomberg, Refinitiv, Wind and other market
information providers.
Fair value of foreign exchange forwards contracts in derivative financial instruments is measured by
discounting the differences between the contract prices and market future 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 currency bonds without quoted prices in an active market is measured by using the
comprehensive valuations provided by Bloomberg, etc.
Fair value of RMB denominated bonds whose value is available on China Bond website on the valuation date
is measured using the latest available valuation results.
(2) Valuation techniques used and the qualitative information of key parameters for recurring fair value
measurement categorised as Level 2
The fair value of "Other" under financial investments measured at FVTPL is measured based on the net asset
values.
- Other
184
- Other
359
- Debt securities
Net asset value approach
15
- Equity investments
528
- Equity investments
Market approach
2,950
- Equity investments
FVTPL
Financial investments measured at
rate
Risk-adjusted discount
Risk-adjusted discount
discount
rate, cash flow
Net assets, liquidity
Risk-adjusted discount
Liquidity discount
Discounted cash flow
approach
at FVTOCI
Discounted cash flow
approach
- Fund investments
797
289
Net assets, liquidity
discount
Net assets
Liquidity discount
Net assets
rate
Risk-adjusted discount
discount
rate, cash flow
Net assets, liquidity
Liquidity discount
Risk-adjusted discount
100,430
Discounted cash flow
approach
Net fund value approach
2,647
Net fund value approach
64
Financial liabilities designated at
- Other
Market approach
1
- Fund investments
Net fund value approach
FVTPL
383
Loans and advances to customers
approach
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
Net assets, liquidity
discount
Liquidity discount
Risk-adjusted discount
rate, cash flow
Net assets
Net assets
rate
Risk-adjusted discount
discount
rate, cash flow
Net assets, liquidity
Liquidity discount
Risk-adjusted discount
Net fund value approach
Net fund value approach
approach
Discounted cash flow
Market approach
Net fund value approach
Discounted cash flow
FVTPL
44
1,825
Financial liabilities designated at
60. Risk management (continued)
(g) Fair value information (continued)
(ii)
Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
at FVTPL
Discounted cash flow
4,991
Loans and advances to customers
Net asset value approach
4,564
Equity investments designated at
FVTOCI
Discounted cash flow
approach
101
Equity investments designated at
FVTOCI
rate
FVTOCI
2,725
Equity investments designated at
Unobservable inputs
Valuation techniques
2022
31 December
as at
Fair value
Valuation techniques used and the qualitative information of key parameters for recurring fair value
measurements categorised as Level 3: (continued)
(3)
Market approach
The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the
lowest level of input that is significant to the entire fair value measurement. The levels are defined as follows:
383
30,897
10,006
Equity investments designated at FVTOCI
525,179
120,762
404,417
Loans and advances to customers at FVTOCI
899,102
758,233
140,869
Debt investments at FVTOCI
70,430
3,729
66,701
Loans and advances to customers at FVTPL
18,733
18,733
Derivative financial assets
12,879
12,123
756
- Debt securities
2,305
12,879
Total
1,753,307
- Debt securities issued
- Certificates of deposit issued
27,830
1,825
20,826
5,179
Financial liabilities designated at FVTPL
380
380
- Short position on bonds
15,748
15,748
- Financial liabilities related to precious metal
16,128
380
15,748
Financial liabilities held for trading
Liabilities
2,059,238
19,649
7,338
135,989
169,942
12,123
756
Financial investments designated at FVTPL
18,311
Financial investments measured at FVTPL
- Debt securities
Assets
Total
Level 3
Level 2
Level 1
2023
The following tables present the fair value information and the fair value hierarchy, at the end of the reporting
period, of the Group's assets and liabilities which are measured at fair value on a recurring basis at each reporting
date:
(ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
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.
The Group recognises transfers among levels of the fair value hierarchy at the end of the reporting period during
which the transfer takes place.
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;
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date;
490,795
4,160
513,266
14,923
336
228
108
- Other
2,729
2,729
- Wealth management products
242,304
1,181
4,485
- Other
2,392
32
- Fund investments
1,752
- Equity investments
1,604
1,604
- Long position in precious metal contracts
261,808
359
246,526
341
241,091
Derivative financial liabilities
Total
212
780,349
643,518
136,831
4,994
4,991
3
Loans and advances to customers at FVTPL
18,671
18,671
Derivative financial assets
11,876
10,928
948
- Debt securities
11,876
10,928
948
Financial investments designated at FVTPL
817
64
753
Loans and advances to customers at FVTOCI
Equity investments designated at FVTOCI
3,164
Total
2,647
613
330
20,541
7,709
Financial liabilities designated at FVTPL
283
- Short position on bonds
17,634
17,634
- Financial liabilities related to precious metal
- Other
18,247
17,917
Financial liabilities held for trading
Liabilities
1,855,378
13,416
7,390
117,525
614,481
100,430
514,051
2,862
1,580,735
157,118
330
- Certificates of deposit issued
2,543
- Wealth management products
2022
The following tables present the fair value information and the fair value hierarchy, at the end of the reporting
period, of the Group's assets and liabilities which are measured at fair value on a recurring basis at each reporting
date: (continued)
(ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
286
285
61,401
1,825
38,649
20,927
17,443
17,443
22,439
1,825
20,614
5,179
212
Level 1
Level 2
Level 3
Total
200,539
798
199,665
76
- Fund investments
4,379
3,493
392
494
- Equity investments
2,543
108
- Long position in precious metal contracts
411,591
203,205
4,714
359
187,349
15,497
- Debt securities
390,702
16,175
Financial investments measured at FVTPL
Assets
108
5,179
280
94,275
29,002
2,670,778
Demand
Deposits from corporate customers
Average
cost ratio
(%)
Interest
expense
Average
balance
Average
cost ratio
(%)
Interest
expense
balance
Time
except for percentages)
(in millions of RMB,
2022
2023
The following table sets forth the average balances, interest expense and average cost ratios of the deposits from
corporate and retail customers of the Group for the periods indicated.
During the reporting period, the Group's interest expense on deposits from customers was RMB128.809 billion,
representing a year-on-year increase of 21.71%, mainly due to the sustained rapid growth of deposits from
customers as well as the increase in the cost ratio of deposits.
Interest expense on deposits from customers
During the reporting period, the interest expense of the Group was RMB160.941 billion, representing a year-on-year
increase of 19.09%, mainly due to the increase in the scale of the interest-bearing liabilities and the increase of the
cost ratio of interest expense.
3.2.4 Interest expense
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
Average
China Merchants Bank
1,989,200
Subtotal
2.77
25,316
913,786
2.77
39,284
1,415,757
Time
0.37
6,073
0.40 1,655,088
53,186
7,337
Deposits from retail customers
1.70
74,447
2.66
46,698
1.05
27,749
1.09 2,631,389
2.67 1,755,394
1.76 4,386,783
82,188
4,659,978
1,857,291
24
23
During the reporting period, the interest income of the Group from balances and placements with banks and other
financial institutions was RMB16.557 billion, representing a year-on-year increase of 22.74%, and the average yield
of balances and placements with banks and other financial institutions was 2.80%, representing a year-on-year
increase of 71 basis points, which was primarily attributable to the increase in yield of balances and placements with
banks and other financial institutions denominated in foreign currencies because of the effect of the rate hikes by
the US Federal Reserve.
86,754
2,250,662
3.75
94,526
2,523,210
Corporate loans
yield (%)
income
balance
yield (%)
3.85
income
except for percentages)
Average
Interest
Average
Average
Interest
Average
(in millions of RMB,
2022
2023
balance
Retail loans
3,308,043
166,104
Interest income from balances and placements with banks and other financial institutions
During the reporting period, the interest income from investments of the Group was RMB80.836 billion, representing
a year-on-year increase of 22.84%, which was mainly influenced by the investment volume. The average yield of
investments was 3.22%, representing a year-on-year decrease of 2 basis points, which was mainly attributable to
the impact of the downward market interest rates.
Interest income from investments
During the reporting period, from the perspective of the maturity structure of loans and advances to customers of
the Group, the average balance of short-term loans was RMB2, 189.539 billion with the interest income amounting
to RMB102.214 billion, and the average yield reached 4.67%; the average balance of medium- and long-term
loans was RMB4, 110.366 billion with the interest income amounting to RMB166.026 billion, and the average yield
reached 4.04%. The average yield of short-term loans was higher than that of medium- and long-term loans, which
was mainly attributable to the higher yield of credit card loans and consumer loans (as short-term loans) and the
higher proportion thereof.
4.54
265,601
5,850,275
4.26
268,240
6,299,905
customers
Loans and advances to
2.09
10,673
510,242
1.62
7,610
468,652
Discounted bills
5.44
168,174
3,089,371
5.02
Subtotal
The following table sets forth the average balance (daily average balance, same as below), interest income and
average yield of each component of loans and advances to customers of the Group for the periods indicated.
3,273,048
1.42
cost ratio
Interest
cost ratio Average
Average Interest
expense
balance
except for percentages)
(in millions of RMB,
Average
Average
3.89
(%) balance
353,380
375,610
9,987,796
Total
2.09
13,489
644,938
2.80
16,557
591,320
and other financial institutions
3.76 9,081,822
Balances and placements with banks
expense
Interest-bearing liabilities
Borrowings from the central bank
2.99
9,662
322,784
3.24
7,781
240,163
Debt securities issued
1.64
16,309
(%)
996,819
19,866
950,595
and other financial institutions
Deposits and placements from banks
1.52
105,836
1.62 6,955,657
128,809
7,933,026
Deposits from customers
2.09
1.52
8,482
557,031
(in millions of RMB,
2022
2023
The following table sets out the average balances, interest income/interest expense and average yield/cost ratio of
assets and liabilities items of the Group for the periods indicated.
During the reporting period, the Group's net interest income amounted to RMB214.669 billion, representing a year-
on-year decrease of 1.63%.
3.2.5 Net interest income
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
During the reporting period, the interest expense on debt securities issued of the Group amounted to RMB7.781
billion, representing a year-on-year decrease of 19.47%, mainly due to the sound growth in deposits from
customers, resulting in the decrease in daily average scale of debt securities issued.
Average
Interest expense on debt securities issued
1.52
105,836
6,955,657
1.62
128,809
7,933,026
Total
1.22
31,389
2,568,874
Interest expense on deposits and placements from banks and other financial institutions
During the reporting period, the interest expense on deposits and placements from banks and other financial
institutions of the Group amounted to RMB19.866 billion, representing a year-on-year increase of 21.81%, which
was primarily attributable to the year-on-year increase of cost ratio of deposits and placements from banks and
other financial institutions denominated in foreign currencies resulting from the US Federal Reserve's interest rate
hike.
Interest
Average
Average
1.70
9,977
586,797
Balances with the central bank
3.24
65,808
4.54
265,601
4.26 5,850,275
3.22 2,029,578
80,836
2,509,774
Investments
268,240
6,299,905
Loans and advances to customers
Interest-earning assets
yield (%)
Average
Interest
income
yield (%) balance
income
balance
except for percentages)
46,621
186,340
During the reporting period, the interest income from loans and advances to customers of the Group was
RMB268.240 billion, representing a year-on-year increase of 0.99%.
During the reporting period, the Group recorded an interest income of RMB375.610 billion, representing a year-
on-year increase of 6.29%, mainly due to the increase in interest-earning assets. Interest income from loans and
advances to customers continued to be the largest component of the interest income of the Group.
Share capital
Year end
(in millions of RMB)
22.89
25.36
29.01
32.71
36.71
ordinary shareholders of the Bank
Year-end net assets attributable to
25,220
3.62
4.61
5.26
5.63
shareholders of the Bank
Diluted earnings attributable to ordinary
3.62
3.79
4.61
5.26
5.63
3.79
shareholders of the Bank
Total shareholders' equity
Total liabilities
Key Financial Ratios
4,490,650
5,029,128
5,570,034
6,508,865 6,051,459
Total loans and advances to customers
(%)
7,417,240
8,361,448
9,249,021
4,844,422
1,085,729
5,628,336
7,631,094
25,220
617,707
730,354
954,238
25,220
25,220
25,220
865,681
8,383,340
8,155,438 7,535,742 6,347,078
11,028,483 10,138,912
Total assets
Deposits from customers
9,942,754 9,184,674
6,799,533
Basic earnings attributable to ordinary
1.20
1.253
116,879
122,061
120,991
Operating expenses
269,788
290,279
331,407
344,740
339,078
Net operating income
102,814
Results for the year
2019
2020
2021
2022
2023
2.3 Five-year Financial Summary of the Group
Chapter II Summary of Accounting Data and Financial Indicators
Annual Report 2023 (H share)
China Merchants Bank
20
(in millions of RMB)
91,497
Impairment losses
41,469
1.522
1.738
1.972
Dividend (tax inclusive)
Per Share
(RMB yuan)
92,867
97,342
119,922
138,012
146,602
the Bank
Net profit attributable to shareholders of
117,132
122,440
148,173
165,113
176,618
Profit before tax
61,159
65,025
66,355
57,566
Return on average assets attributable to
Interest income from loans and advances to customers
shareholders of the Bank
1.42
29,705
37,825
84,108
218,235
214,669
2022
2023
Expected credit losses
Operating expenses
Other net income
(120,991)
Net fee and commission income
During the reporting period, the Group realised a profit before tax of RMB176.618 billion, representing a year-on-
year increase of 6.97%. The effective income tax rate was 16.20%, representing a year-on-year increase of 0.56
percentage point. The following table sets out the major income/loss items of the Group for the periods indicated.
(in millions of RMB)
3.2.1 Financial highlights
3.2 Analysis of Income Statement
As at the end of the reporting period, the Group had a balance of non-performing loans of RMB61.579 billion,
representing an increase of RMB3.575 billion as compared with the end of the previous year. The non-performing
loan ratio was 0.95%, representing a decrease of 0.01 percentage point as compared with the end of the previous
year. The allowance coverage ratio was 437.70%, representing a decrease of 13.09 percentage points as compared
with the end of the previous year; the allowance-to-loan ratio was 4.14%, representing a decrease of 0.18
percentage point as compared with the end of the previous year.
As at the end of the reporting period, the Group's total assets amounted to RMB11,028.483 billion, representing
an increase of 8.77% as compared with the end of the previous year. The total loans and advances to customers
amounted to RMB6,508.865 billion, representing an increase of 7.56% as compared with the end of the previous
year. Total liabilities amounted to RMB9,942.754 billion, representing an increase of 8.25% as compared with
the end of the previous year. Total deposits from customers amounted to RMB8,155.438 billion, representing an
increase of 8.22% as compared with the end of the previous year.
In 2023, the Group adhered to the concept of dynamically balanced development of "Quality, Profitability and
Scale", took the strategic target of building a value creation bank and carried out various businesses in a sound
manner. Both the scale of assets and liabilities and net profit grew steadily, and the overall asset quality was stable.
During the reporting period, the Group realised the net operating income of RMB339.078 billion, representing
a year-on-year decrease of 1.64%; realised a net profit attributable to shareholders of the Bank of RMB146.602
billion, representing a year-on-year increase of 6.22%; realised the net interest income of RMB214.669 billion,
representing a year-on-year decrease of 1.63%; and realised the net non-interest income of RMB124.409 billion,
representing a year-on-year decrease of 1.66%. The return on average asset (ROAA) attributable to shareholders of
the Bank and return on average equity (ROAE) attributable to ordinary shareholders of the Bank were 1.39% and
16.22%, down by 0.03 percentage point and 0.84 percentage point year-on-year, respectively.
3.1 Analysis of Overall Operation
Management Discussion and Analysis
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
Net interest income
China Merchants Bank
(122,061)
(56,751)
3.2.3 Interest income
During the reporting period, the Group realised net operating income of RMB339.078 billion, representing a year-
on-year decrease of 1.64%, of which net interest income accounted for 63.31% and net non-interest income
accounted for 36.69% with a year-on-year decrease of 0.01 percentage point.
3.2.2 Net operating income
Chapter III Management Discussion and Analysis
China Merchants Bank
Annual Report 2023 (H share)
Impairment losses on other assets
138,012
146,602
Net profit attributable to shareholders of the Bank
139,294
(41,278)
148,006
(25,819)
(28,612)
Income tax
165,113
176,618
2,525
2,476
Share of profits of joint ventures and associates
Profit before tax
(815)
(191)
Net profit
22
*
Piecing every small dream
together to fill-in the
development blueprint
1.16
1.07
0.91
0.96
0.95
Non-performing loan ratio
32.08
33.33
33.11
32.89
Credit cost ratio
32.97
16.84
15.73
16.96
17.06
16.22
ordinary shareholders of the Bank
Return on average equity attributable to
1.31
1.23
1.36
Cost-to-income ratio
0.74
0.78
0.70
15.54
16.54
17.48
17.77
17.88
Advanced Measurement Approach
Capital adequacy ratio under the
12.69
13.98
14.94
15.75
16.01
Advanced Measurement Approach
Tier 1 capital adequacy ratio under the
11.95
12.29
12.66
13.68
13.73
the Advanced Measurement Approach
Core Tier 1 capital adequacy ratio under
1.29
0.98
1.39
4,005
Demand
122,194
2,476
Total net non-interest income
Share of profits of joint ventures and associates
12.82
10,767
12,147
14.78
3,600
4,132
N/A
2,525
(2,675)
9.37
18,013
19,700
27.34
29,705
37,825
25.04
32,230
40,301
-10.78
1,846
94,275
-1.94
126,505
70,348
2022
2023
Total operating expenses
Taxes and surcharges
Allowances for insurance claims
Other general and administrative expenses
Depreciation, amortisation and rental expenses
Staff costs
(in millions of RMB)
124,409
The following table sets forth, for the periods indicated, the principal components of the operating expenses of the
Group.
Operating expenses
Chapter III Management Discussion and Analysis
3.2.7
Annual Report 2023 (H share)
China Merchants Bank
28
27
Fees and commissions from wealth management include income from agency distribution of funds, income from agency distribution of
insurance policies, income from agency distribution of trust schemes, income from agency distribution of wealth management products,
income from securities brokerage and income from agency distribution of precious metals. Fees and commissions from asset management
mainly include the income from the issuance and management of various asset management products such as funds, wealth management and
asset management plans of our subsidiaries, namely China Merchants Fund, CMB International Capital, CMB Wealth Management and CIGNA
& CMAM. Commissions from custody businesses include income from basic asset custody services and value-added services. Others mainly
include income from underwriting of bonds and equity, income from service fees from securitisation of credit assets, income from consultancy
and advisory services and income from other intermediate businesses.
Note:
-1.66
During the reporting period, the Group's operating expenses amounted to RMB120.991 billion, representing a year-
on-year decrease of 0.88%, among which staff costs amounted to RMB70.348 billion, representing a year-on-
year decrease of 0.44%. Other operating expenses amounted to RMB50.643 billion³, representing a year-on-year
decrease of 1.48%. The cost-to-income ratio of the Group was 32.97%, representing an increase of 0.08 percentage
point as compared with the corresponding period of the previous year. The Group has maintained the scale of
input in Fintech construction and key strategic businesses, reduced traditional costs with technological innovation,
strengthened the management and control of input-output monitoring, and improved the efficiency of the resource
usage. Furthermore, the Group adhered to cost management. Through various measures, the Group has further cut
back on venue operating costs and daily expenses, and refined the allocation of expenses and resources so as to
continuously promote the optimisation of cost structure.
84,108
-4.08
(9,097)
19,525
Bank card fees
-7.89
12,457
11,474
Fees and commissions from asset management
-7.89
30,903
28,466
-10.19
21,399
103,372
+/-%
2022
2023
Changes
Fees and commissions from wealth management
Fee and commission income (note)
(in millions of RMB, except for percentages)
In terms of business segments, the net non-interest income from retail finance amounted to RMB57.561 billion,
representing a year-on-year decrease of 4.11% and accounting for 46.27% of the Group's net non-interest income;
the net non-interest income from wholesale finance amounted to RMB50.599 billion, representing a year-on-
year decrease of 2.01% and accounting for 40.67% of the Group's net non-interest income; the net non-interest
income from other businesses amounted to RMB16.249 billion, representing a year-on-year increase of 9.47% and
accounting for 13.06% of the Group's net non-interest income.
Other net non-interest income amounted to RMB40.301 billion, representing a year-on-year increase of 25.04%,
of which net investment income amounted to RMB19.700 billion, representing a year-on-year increase of 9.37%,
which was mainly due to the increase of bond investment income; net profit from changes in fair value amounted
to RMB1.846 billion, representing a year-on-year increase of RMB4.521 billion, mainly due to the increase in fair
value of bond investment and non-money-market fund investment; the net exchange gain amounted to RMB4.132
billion, representing a year-on-year increase of 14.78%, mainly due to the increase in gains arising from the foreign
currencies transactions; and other net income amounted to RMB12.147 billion, representing a year-on-year increase
of 12.82%, mainly due to a year-on-year increase of 23.85% in income generated from operating leasing business
of CMB Financial Leasing, which amounted to RMB10.880 billion.
Net fee and commission income amounted to RMB84.108 billion, representing a year-on-year decrease of 10.78%.
Among the fee and commission income, fee and commission income from wealth management amounted to
RMB28.466 billion, representing a year-on-year decrease of 7.89%; fee and commission income from asset
management amounted to RMB11.474 billion, representing a year-on-year decrease of 7.89%; income from bank
card fees amounted to RMB19.525 billion, representing a year-on-year decrease of 8.76%; income from settlement
and clearing fees amounted to RMB15.492 billion, representing a year-on-year increase of 2.93%; commission
income from credit commitment and loan business amounted to RMB4.997 billion, representing a year-on-year
decrease of 13.14%; commission income from custody businesses amounted to RMB5.328 billion, representing a
year-on-year decrease of 8.00%; and income from others amounted to RMB7.552 billion, representing a year-on-
year decrease of 37.16%. For analysis of the main reasons for changes in fee and commission income, please refer
to "Net non-interest income" in 3.9.2 under this chapter.
92,834
-8.76
Settlement and clearing fees
15,492
(8,726)
Other net income
Net exchange gain
Net profit/(loss) from fair value change
Net investment income
Other net income
Other net non-interest income
Net fee and commission income
Fee and commission expense
-37.16
12,018
7,552
Others
-8.00
5,791
5,328
Commissions from custody businesses
-13.14
5,753
4,997
Commissions from credit commitment and loan business
2.93
15,051
70,657
During the reporting period, the Group recorded a net non-interest income of RMB124.409 billion, representing a
year-on-year decrease of 1.66%. The components are as follows:
16,359
31,321
Inter-bank transactions (2)
5.97
605,068
6.21
684,821
the central bank (2)
27.49
2,787,066
29.10
3,209,473
558,381
Investment securities and other financial assets
Cash, precious metals and balances with
5,796,546
56.60
6,242,060
Net loans and advances to customers
(2.51)
(254,913)
(2.42)
(266,805)
59.69
6,051,459
57.18
59.02
5.06
6.22
29
As at the end of the reporting period, total loans and advances to customers of the Group amounted to
RMB6,508.865 billion, representing an increase of 7.56% as compared with the end of the previous year; total loans
and advances to customers accounted for 59.02% of the total assets, representing a decrease of 0.67 percentage
point as compared with the end of the previous year. For details of the loans and advances to customers of the
Group, please refer to 3.4 "Analysis of Loan Quality" in this chapter.
Loans and advances to customers
(3) "Other assets" include fixed assets, right-of-use assets, intangible assets, investment properties, deferred tax assets, interest receivable and other
assets.
(2) "Inter-bank transactions" include deposits and placements with banks and other financial institutions and amounts held under resale agreements.
According to the relevant provisions of the Interim Measures for the Administration of Gold Leasing Business (Yin Ban Fa [2022] No. 88) issued
by the General Office of the People's Bank of China in July 2022, since 2023, for the gold leasing business carried out between the Group and
financial institutions, the lease-out side was adjusted from "precious metals" to "placements with banks and other financial institutions", and the
comparative figures are re-presented accordingly.
(1) The allowances for impairment losses on loans represent the allowance for impairment losses on loans and advances to customers measured at
amortised cost.
Notes:
100.00
10,138,912
100.00
630,302
11,028,483
3.04
309,931
2.94
323,794
0.10
9,999
0.09
9,954
Other assets (3)
Goodwill
Total assets
6,508,865
amount (%)
Amount
(2,935)
Amounts due from banks and other financial institutions
3,879
(218)
45,157
46,635
2022
2023
Financial investments
Loans and advances to customers
(3,284)
(in millions of RMB)
During the reporting period, the expected credit losses of the Group were RMB41.278 billion, representing a year-
on-year decrease of 27.26%.
Expected credit losses
3
3.2.8
122,061
120,991
3,005
2,963
360
32,319
2.15
Expected credit losses relating to financial guarantees and loan
commitments
(2,761)
7,112
amount (%)
Amount
(in millions of RMB, except for percentages)
Total loans and advances to customers
Allowances for impairment losses on loans (1)
the total
Percentage of
Percentage of
the total
31 December 2022
31 December 2023
3.3.1.1
The following table sets forth, as at the dates indicated, the components of the total assets of the Group.
As at the end of the reporting period, the total assets of the Group amounted to RMB11,028.483 billion, up by
8.77% from the end of the previous year, which was mainly attributable to the increase in loans and advances to
customers and bond investments of the Group.
3.3.1 Assets
3.3 Analysis of Balance Sheet
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
Other operating expenses include depreciation, amortisation, leases, taxes and surcharges, allowances for insurance claims and various other administrative
expenses.
According to the Recognition and Measurement Standards for Financial Instruments, the Group conducted
impairment accounting for credit risk exposures on- and off-balance sheet and recognised the allowances for
credit risk losses by using the expected credit loss model and the risk quantification parameters such as the
probability of customer defaults and the loss given defaults, after taking into consideration the adjustments in
macro perceptiveness. During the reporting period, the expected credit losses of loans and advances to customers
of the Group were RMB46.635 billion, representing a year-on-year increase of RMB1.478 billion; the total expected
credit losses relating to financial investment, amounts due from banks and other financial institutions and financial
guarantees and loan commitments amounted to RMB-5.914 billion, representing a year-on-year decrease of
RMB13.621 billion, which was due to, on the one hand, the change in the scale of assets, on the other hand,
the relative stability of the asset quality, and the decrease in the risk of individual customers and asset collection,
reversing the amount provided in the previous period. The expected credit losses relating to others amounted
to RMB557 million, representing a year-on-year decrease of RMB3.330 billion, mainly due to the relatively large
allowances for credit risk losses of assets such as lease receivable, fees receivable and other receivables in the
corresponding period of the previous year.
56,751
3,887
557
41,278
Total expected credit losses
Others
15,720
3.2.6 Net non-interest income
The following table sets forth, for the periods indicated, the principal components of expected credit losses of the
Group.
Annual Report 2023 (H share)
(196)
1,373
Borrowings from the central bank
(1,881)
807
(2,688)
Debt securities issued
3,557
4,486
(929)
1,177
institutions
22,973
1,726
21,247
Deposits from customers
Interest-bearing liabilities
22,230
(12,448)
34,678
Changes in interest income
3,068
Deposits and placements from banks and other financial
Lease liabilities
(26)
(4)
Interest-earning assets
average
yield (%)
Interest
income
Average
balance
average
yield (%)
income
balance
except for percentages)
Interest
Average
(in millions of RMB,
Annualised
Annualised
July to September 2023
October to December 2023
The following table sets out the average balances, interest income/interest expense and annualised average yield/
cost ratio of assets and liabilities items of the Group for the periods indicated.
(3,566)
25,796
6,819
(19,267)
18,977
15,701
Changes in net interest income
Changes in interest expense
(30)
4,579
Loans and advances to customers
(1,511)
Balances and placements with banks and other financial
Net interest margin
Net interest spread
218,235
214,669
Net interest income
1.61
135,145
8,410,862
1.73
160,941
2.03
2.15
9,322,842
3.80
510
13,408
3.77
480
12,718
Lease liabilities
2.31
2,828
Chapter III Management Discussion and Analysis
Total
2.28
2.40
During the reporting period, the average yield of the interest-earning assets of the Group was 3.76%, representing
a year-on-year decrease of 13 basis points; the average cost ratio of our interest-bearing liabilities was 1.73%,
representing a year-on-year increase of 12 basis points; the net interest spread was 2.03%, representing a year-on-
year decrease of 25 basis points and the net interest margin was 2.15%, representing a year-on-year decrease of 25
basis points. For the analysis of the reasons behind the decrease in the net interest margin, please refer to 3.9.1 "Net
interest margin" in this Chapter.
1,495
1,003
492
15,028
(406)
15,434
Investments
2,639
(17,624)
20,263
Net increase
(decrease)
Interest rate
Volume
Loans and advances to customers
Interest-earning assets
(in millions of RMB)
2023 compared to 2022
Increase (decrease) due to
The following table sets forth the breakdown of changes in interest income and interest expense due to changes in
volumes and interest rates of the Group for the periods indicated. Changes in volume were measured by changes
in average balances, while changes in interest rates were measured by changes in the average interest rates; the
changes in interest income and interest expense due to changes in both volumes and interest rates have been
included in the amounts of changes in interest income and interest expense due to changes in volume.
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
26
25
institutions
6,434,844
Balances with the central bank
4.08
157,011
2.15
1,350
249,237
Borrowings from the central bank
3.35
2,137
252,778
3.45
1,776
853
204,148
1.99
4,634
926,136
2.24
5,268
931,173
institutions
banks and other financial
Deposits and placements from
1.64
Debt securities issued
32,811
Lease liabilities
115
China Merchants Bank
66,170
In the fourth quarter of 2023, the net interest margin of the Group was 2.04%, representing a quarter-to-quarter
decrease of 7 basis points, and its net interest spread was 1.93%, representing a quarter-to-quarter decrease of 6
basis points.
Net interest margin
2.11
1.99
1.93
2.04
Net interest spread
53,290
52,383
12,234
Net interest income
40,551
9,303,113
1.75
42,052
9,513,589
Total
3.57
116
12,877
3.73
1.73
7,954,311
2.16
33,543
4,457
546,862
Total
institutions
banks and other financial
Balances and placements with
1.72
2,561
589,741
2,657
601,670
Balances with the central bank
3.18
20,487
2,555,495
3.21
21,151
2,611,336
Investments
4.24
1.64
67,478
6,317,543
3.23
10,194,712
1.75
average
(%)
expense
cost ratio
Interest
Average
balance
average
cost ratio
(%)
Interest
expense
Deposits from customers
94,435
except for percentages)
Average
balance
(in millions of RMB,
Annualised
Annualised
3.72
93,841
2.37
3,315
8,116,797
555,602
10,018,381
3.68
Interest-bearing liabilities
RMB
China Communications Construction Company Limited
7,274,023,830
16,165,711,425 RMB
12,000,000,000
RMB
China Communications Construction Group Limited
16,165,711,425
299,020,000
299,020,000 RMB
RMB
7,274,023,830 RMB
Shanghai Automotive Industry Corporation (Group)
SAIC Motor Corporation Limited
11,683,461,365 RMB
4,129,000,000 HKD
12,000,000,000 RMB
21,749,175,737 RMB
21,749,175,737
RMB
CMBIC
HKD
CMBFL
RMB
11,683,461,365
HKD
4,129,000,000
Guangzhou Tri-Dynas Oil & Shipping Co., Ltd.
CMB WLB
RMB
500,000,000
100,000,000 RMB
HKD
10,000,000 USD
10,000,000
1,160,950,575 HKD
USD
China Insurance Security Fund
RMB
100,000,000
Dajia Life Insurance Co., Ltd
RMB 30,790,000,000 RMB
30,790,000,000
China COSCO Shipping Corporation Limited
China Ocean Shipping Co., Ltd.
500,000,000 HKD
RMB
RMB
RMB
Guangzhou Haining Maritime Technology Consulting Co., Ltd.
RMB
COSCO Shipping (Shanghai) Co., Ltd.
RMB
11,000,000,000 RMB
16,191,351,300 RMB
3,191,200,000 RMB
52,000,000 RMB
1,398,941,000 RMB
11,000,000,000
16,191,351,300
3,191,200,000
52,000,000
1,398,941,000
COSCO Shipping Investment Holdings Co., Ltd.
COSCO Shipping (Guangzhou) Co., Ltd.
1,160,950,575
HKD
CMBWM
CIGNA & CMAM
RMB
%
note
note
%
RMB %
3,289,470,337 13.04 4,129,000,000 100.00 12,000,000,000 100.00 1,160,950,575 100.00 1,310,000,000 55.00 5,555,555,555 90.00 50,000,000 100.00 500,000,000
3,289,470,337 13.04 4,129,000,000 100.00 12,000,000,000 100.00 1,160,950,575 100.00 1,310,000,000 55.00 5,555,555,555 90.00 100,000,000 100.00 500,000,000
The Bank held by the
largest shareholder
CMSN
CMBIC
CMBFL
No. of shares %
At 1 January 2022
CMB Europe S.A.
EUR %
HKD %
RMB %
RMB %
3,289,470,337 13.04 4,129,000,000 100.00 12,000,000,000 100.00 1,160,950,575 100.00 1,310,000,000 55.00 5,000,000,000 100.00 50,000,000 100.00 500,000,000 note
The subsidiaries held by the Bank
CMFM
CMBWM
%
RMB %
RMB %
CMB Europe S.A.
EUR %
CIGNA & CMAM
At 31 December 2022
3,289,470,337 13.04 4,129,000,000 100.00 12,000,000,000 100.00 1,160,950,575 100.00 1,310,000,000 55.00 5,555,555,555 90.00 50,000,000 100.00 500,000,000 note
This information is detailed in note 24.
China Merchants Industry Development (Shenzhen) Ltd.
Note:
CMB WLB
RMB %
RMB %
%
RMB
1,310,000,000 RMB
1,310,000,000
RMB
5,555,555,555 RMB
5,555,555,555
CMB Europe S.A.
50,000,000
CIGNA & CMAM
EUR
RMB
100,000,000 EUR
500,000,000 RMB
500,000,000
The proportion of the Bank held by the largest shareholder and the portion of the subsidiaries held by the
Bank
The Bank held by the
largest shareholder
CMSN
No. of shares
At 1 January 2023
At 31 December 2023
CMBIC
CMBFL
HKD
%
The subsidiaries held by the Bank
CMB WLB
CMFM
CMBWM
HKD
CMFM
60,000
liability
USD
55% Fund Management
Subsidiary
Limited
Wang Xiaoqing
Management Co.,
million
liability
Ltd. (CMFM)
CMB Wealth Management Shenzhen
RMB5,556
90% Asset management
Subsidiary
RMB1,310
Limited
Co., Ltd
million
liability
China Merchants Europe Luxembourg
EUR100
100% Banking
Subsidiary
Limited
Xue Fei
S.A. (CMB Europe
million
liability
Chen Yisong
S.A.)
Shenzhen
liability
Wang Liang
As of 31 December 2023, other than those disclosed above, there were 92 companies that shared common
directors, supervisors and senior management including their close family members with the Bank and they can
control or exercise significant influence over these companies (31 December 2022: 142).
Holdings Corporation
million
investment managements
liability
Limited (CMBIC)
CMB Financial Leasing
Shanghai
RMB12,000
100% Finance lease
Subsidiary
China Merchants Fund
Limited
Company Limited
million
(CMBFL)
CMB Wing Lung Bank
Hong Kong
HKD1,161
100% Banking
Subsidiary
Limited
Wang Liang
Limited (CMB WLB)
million
Zhong Desheng
Cigna & CMB Asset
Beijing
RMB500
Name of related party
2023
2022
CMG
RMB
16,900,000,000 RMB
16,900,000,000
CMSN
RMB
17,000,000,000 RMB
17,000,000,000
Shenzhen Yan Qing Investment and Development Co., Ltd.
Shenzhen Chu Yuan Investment and Development Co., Ltd.
The registered capital of the Group's related parties as at 31 December 2023 and 2022 are as follows:
RMB
600,000,000
RMB
China Merchants Financial Holdings Co., Ltd.
RMB
600,000,000 RMB
7,778,000,000 RMB
600,000,000
7,778,000,000
Best Winner Investment Ltd.
USD
1 USD
1
China Merchants Union (BVI) Limited
600,000,000 RMB
Material connected person information (continued)
(a)
61. Material related party transactions (continued)
Note 24 Asset management
Subsidiary
Limited
Wang Xiaoqing
Management
Company Limited
(CIGNA & CMAM)
million
liability
Notes:
(i)
CMG held 29.97% of the Bank indirectly (31 December 2022: 29.97%) through its subsidiaries as at 31 December 2023.
(ii)
As the largest direct shareholder, CMSN, a subsidiary of CMG, holds 13.04% of the Bank as at 31 December 2023 (2022: 13.04%).
(iii)
China COSCO Shipping Corporation Ltd. holds 9.97% of the Bank (2022: 9.97%) through its subsidiaries.
(iv)
(v)
China Insurance Security Fund Co., Ltd ("China Insurance Security Fund") holds 3.08% of the Bank (2022: 3.19%) through its 98.23% holding
in Dajia Insurance Group Co., Ltd.
China Communications Construction Group Limited ("China Communications Construction Group") holds 1.68% of the Bank through its
subsidiaries (2022: 1.68%).
(vi)
Shanghai Automotive Industry Corporation (Group) ("Shanghai Automotive Industry Group") holds 1.23% of the Bank through its subsidiaries
(SAIC Motor Corporation Limited) (2022: 1.23%).
(vii)
The sum of the direct holding percentage of CMG's shareholdings in the Bank and the sum of the above-mentioned relevant percentages may
differ slightly due to rounding.
295
296
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
60,000 USD
China Merchants Bank
CMB International Capital Hong Kong
Chapter VIII Financial Statements
600
38,949
27,070
995
4,302
- Deposits from banks and other financial institutions
3,908
2,929
- Deposits from customers
20,537
14,872
27
- Financial investments
40
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
- Bills of acceptances
Interest income
Interest expense
Net fee and commission income
Operating expenses
Other net expense
(g) Subsidiaries
On-balance sheet
12,146
- Lease liabilities
8,511
- Loans and advances to customers
On-balance sheet:
Operating expenses
2023
2022
17,500
14,675
5,771
6,848
894
896
731
331
432
- Placements with banks and other financial institutions
306
(19)
2,307
2,498
(1)
(8)
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
61. Material related party transactions (continued)
(f) Other major shareholders holding more than 5% shares of the Bank and
exercising significant influence over the Bank
2023
2022
(26)
3,530
1,835
6,325
- Irrevocable guarantees
- Irrevocable letters of credit
- Bills of acceptances
Interest income
Interest expense
Net fee and commission income/(expenses)
Operating expenses
Other net income
38
1,289
4,599
1,009
Off-balance sheet
222
943
(115)
(129)
254
(93)
(1,455)
(1,797)
232
150
All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the
consolidated financial statements.
299
Limited
1,360
- Deposits from customers
5,206
6,056
5,125
1,616
913
(510)
(633)
114
2,242
(291)
(138)
(1)
2023
2022
- Balances with banks and other financial institutions
2,204
958
- Placements with banks and other financial institutions
26,404
32,438
- Loans and advances to customers
12,442
1,396
- Financial investments
3,711
3,415
- Deposits from banks and other financial institutions
3,578
4,630
Net fee and commission income
Interest expense
Interest income
- Deposits from customers
- Deposits from customers
59,227
45,342
- Lease liabilities
170
210
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
- Bills of acceptances
Interest income
Interest expense
29,726
Net fee and commission income
Other net expenses
3,510
5,087
971
318
289
285
2,364
1,848
(1,475)
(1,376)
1,282
Operating expenses
26,119
- Deposits from banks and other financial institutions
7,626
61. Material related party transactions (continued)
(b) Terms and conditions for related-party transactions
The Group enters into transactions with related parties in the ordinary course of its banking business including
lending, investing, deposit taking, securities trading, providing agency and trust services, and off-balance sheet
transactions. In the opinion of the directors, the Group enters into such material related-party transactions under
normal commercial terms. Interest rates on loans and deposits are strictly set in accordance with the deposit and
loan interest rate management regulations published by the PBOC, and such banking transactions are priced based
on the market prices at the time of transactions:
Short-term loans
Medium to long-term loans
Demand deposits
Time deposits
2023
3.55% to 3.65%
3.55% to 4.30%
0.35%
1.10% to 2.75%
2022
3.65% to 3.80%
3.65% to 4.65%
0.35%
1.10% to 2.75%
There were no loans and advances granted to related parties that were credit impaired during the year (2022:
None).
(c)
Shareholders and their related companies
The Bank's largest shareholder CMG and its related companies held 29.97% (2022: 29.97%) of the Bank's shares as
at 31 December 2023 (among them 13.04 % of the shares were directly held by CMSN (2022: 13.04%)).
The Group's transactions and balances with CMSN and its related companies are disclosed as follows:
On-balance sheet:
2023
2022
- Placements with banks and other financial institutions
2,000
- Amounts held under resale agreements
2,942
2,589
- Loans and advances to customers
46,466
40,772
- Financial investments
12,159
1,027
Annual Report 2023 (H share)
(211)
(10)
65
Off-balance sheet:
- Irrevocable guarantees
- Irrevocable letters of credit
Interest income
Interest expense
Net fee and commission income
Operating expenses
Other net expenses
310
580
6
- Lease liabilities
601
(460)
(475)
9
133
(283)
(274)
(129)
(e) Associates and joint ventures other than those disclosed in Note 61(c)
On-balance sheet:
- Placements with banks and other financial institutions
- Loans and advances to customers
- Deposits from banks and other financial institutions
1,035
13,447
12,304
Deposits from customers
297
298
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
61. Material related party transactions (continued)
(d) Companies that share common directors, supervisors or senior management
with the Bank (other than those disclosed in Note 61(c)) and they can control
or exercise significant influence over the companies
2023
2022
-
On-balance sheet:
- Placements with banks and other financial institutions
- Amounts held under resale agreements
- Loans and advances to customers
- Financial investments
- Deposits from banks and other financial institutions
2,277
3,770
HKD4,129
28,103
2,116
770
1,683
4,346
- Placements from banks and other financial institutions
300
6,047
(177)
Subsidiary
9,360
Limited
by the
Company
held by
capital
Company
Company
the Bank
Business
held by the
Relationship
with the Bank
Legal form
representative
China COSCO Shipping
Shanghai
RMB11,000
2,515,193,034
Corporation Limited.
Legal
million
paid
Company name
consulting, etc.
293
294
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
61. Material related party transactions (continued)
Registered
location
(a)
Details of the Bank's major shareholders and their parent companies are as follows: (continued)
Issued No.of shares of
and fully
the Bank
Proportion
of the
Bank held
Proportion
of the
Material connected person information (continued)
9.97%
(note(iii))
International shipping
business, supporting
Shareholder's
parent company
Guangzhou
RMB3,191
696,450,214
2.76%
Shipping business
Shareholder
Shou Jian
-COSCO Shipping
(Guangzhou) Co., Ltd.
liability
- Guangzhou Haining
Guangzhou
RMB52
103,552,616
0.41%
Business services
million
business, etc.
business, warehousing
purchasing and marketing
Limited
Wan Min
liability
services to international
shipping, imports and
exports of goods and
technology, international
freight forwarding agent,
etc.
-China Ocean Shipping Beijing
Co., Ltd.
RMB16,191 1,574,729,111
million
6.24%
Transportation business,
Shareholder
leasing business, ship
Limited
liability
Wan Min
consulting and investment
(Shenzhen) Ltd.
liability
enterprise management
liability
Development Co., Ltd.
materials supply and
marketing business, etc.
-Shenzhen Chu Yuan Shenzhen
RMB600
944,013,171
domestic commerce,
3.74%
Limited
Sun Xian
Investment and
million
domestic commerce,
liability
Development Co., Ltd.
Invest and set up industries, Shareholder
Sun Xian
Limited
Invest and set up industries, Shareholder
The largest
-China Merchants Steam Beijing
Navigation Co., Ltd.
RMB17,000 3,289,470,337
million
13.04%
(note (ii))
(CMSN)
The largest
shareholder
Limited
liability
Miao Jianmin
supply chain management
and distribution, shipping
agency services, etc.
-Shenzhen Yan Qing
Shenzhen
Investment and
RMB600 1,258,542,349
million
4.99%
materials supply and
Shareholder
marketing business, etc.
Shenzhen
British Virgin
(BVI) Limited
Islands
- China Merchants
Shenzhen
Industry Development
USD0.06
million
USD10 55,196,540
million
- China Merchants Union
477,903,500
Shareholder
Limited
liability
0.22%
Invest and set up industries, Shareholder
Limited
Wang Xiaoding
1.89%
company
limited
Islands
Financial Holdings
RMB7,778 1,147,377,415
million
4.55%
Invest and set up industries, Shareholder
Limited
Miao Jianmin
domestic commerce,
liability
Co., Ltd.
materials supply and
marketing business, etc.
- Best Winner Investment British Virgin
386,924,063
1.53%
Shareholder
Joint stock
Ltd.
- China Merchants
Limited
Chen Jianyao
Maritime Technology
1.68%
Construction Group
million
(note(v))
General contractor for
construction
Shareholder's
parent company
Limited
422,770,418
Wang Tongzhou
Limited
- China Communications Beijing
RMB16,166
201,089,738
0.80%
General contractor for
Shareholder
liability
RMB7,274
China Communications Beijing
Legal form representative
the Bank
Proportion
of the
Bank held
Proportion
of the
Company
Company name
Registered
location
paid
held by the
by the
held by
capital
Company
Company
the Bank Business
Relationship
with the Bank
Legal
Construction
and fully
million
Joint stock
limited
domestic trade business,
consulting service
-SAIC Motor Corporation Shanghai
Limited
RMB11,683
million
310,125,822
1.23%
Production and sale of
management business,
Shareholder
Chen Hong
vehicles, consulting
limited
service, imports and
company
exports
100% Investment bank and
Joint stock
(Group)
liability
parent company
Wang Tongzhou
Company Limited
and repair, technical
company
consulting service, imports
and exports, investment
and management business
Production and sale
Shanghai Automotive
Shanghai
Industry Corporation
RMB21,749
million
310,125,822
1.23%
(note(vi))
Shareholder's
Limited
Chen Hong
of vehicles, asset
construction, leasing
and facility, repair
and contracting, sales
operating management
service, etc.
Transportation, building
and repair, procurement,
Issued No.of shares of
Material connected person information (continued)
Limited
Liu Chong
business, insurance
liability
Co., Ltd.
business etc.
- Guangzhou Tri-Dynas Guangzhou
Leasing business, financing Shareholder
RMB299
0.04%
Ship purchasing and
Shareholder
Limited
Lin Rui
Oil & Shipping Co.,
million
10,121,823
0.22%
HKD500 54,721,930
million
Investment Holdings
million
liability
Consulting Co., Ltd.
- COSCO Shipping
Shanghai
(Shanghai) Co., Ltd.
RMB1,399
million
75,617,340
0.30%
Shipping business, leasing Shareholder
Limited
Zhao Bangtao
business, ship repairing
liability
and building etc.
-COSCO Shipping
Hong Kong
marketing business,
Details of the Bank's major shareholders and their parent companies are as follows: (continued)
liability
shipping agency, leasing
776,574,735
3.08%
(note(iv))
Life insurance, health
insurance, accident
insurance, and other
personal insurance
services, etc.
RMB30,790
million
Shareholder
He Xiaofeng
company
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
61. Material related party transactions (continued)
(a)
Joint stock
limited
Ltd
- Dajia Life Insurance Co., Beijing
and regulations, etc.
business, shipping
business etc.
China Insurance Security Beijing
Fund Co., Ltd
RMB100 776,574,735
million
3.08%
(note(iv))
Investing and establishing Shareholder's
Limited
Ji Yuhua
insurance companies,
parent company liability
supervising and managing
various domestic and
international businesses
of holding investment
enterprises, and
investment business
permitted by national laws
Ltd.
agency, warehousing
and storage, leasing,
manufacturing building
USD 1
the Bank Business
196,298
85
1,041
Addition for the year
(56)
51
(107)
- In other comprehensive income
364
744
(366)
(14)
- In profit or loss
Profit or loss
73,599
4,726
Total
at FVTOCI
designated
Equity
investments
Loans and
advances to
customers
at FVTOCI
56,713
Loans and
advances to
customers
at FVTPL
7,281
4,879
At 1 January 2022
at FVTPL
Assets
Financial
investments
2,527
(84)
Disposals or settlement on maturity
(2,036)
(ii)
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
(240)
(191)
(49)
consolidated statement of profit or loss for assets
held at the end of the reporting period
Total unrealised gains and losses included in the
117,525
342
215
7,390
100,430
4,991
4,714
At 31 December 2022
27
100
Exchange difference
(145)
(145)
Transfer out of level 3
199,951
(156,530)
(129)
(153,218)
(1,147)
14
(98)
Total unrealised gains and losses included in the
consolidated statement of profit or loss for assets
held at the end of the reporting period
100,430
4,991
4,714
Total
Equity
investments
designated
at FVTOCI
Loans and
advances to
customers
at FVTOCI
Loans and
advances to
customers
at FVTPL
at FVTPL
Addition for the year
- In other comprehensive income
- In profit or loss
At 1 January 2023
Assets
Profit or loss
Financial
investments
The following tables show the movements from the beginning balances to the ending balances for Level 3
financial instruments:
Valuation of financial instruments with significant unobservable inputs
Valuation techniques used and the qualitative information of key parameters for recurring fair value
measurements categorised as Level 3: (continued)
(3)
Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
(ii)
(g) Fair value information (continued)
60. Risk management (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
290
7,390
117,525
Transportation, shipping
117
68
135,989
7,338
120,762
3,729
4,160
3
2
63
At 31 December 2023
Exchange difference
(560)
(560)
Transfer out of level 3
Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring
basis (continued)
(306,977)
(304,929)
(1,451)
(596)
Disposals or settlement on maturity
326,209
77
325,509
70
553
(276)
(131)
(145)
(103)
(1)
(3)
(14)
Valuation of financial instruments with significant unobservable inputs (continued)
(a)
61. Material related party transactions
Chapter VIII Financial Statements
Annual Report 2023 (H share)
China Merchants Bank
Note: The above financial liabilities do not include interest payable.
138,708
138,708
140,965
118,924
118,924
119,193
Total
118,416
118,416
120,971
118,924
119,193 118,924
20,292
20,292
19,994
Subordinated bonds issued
Debt securities issued
Level 2 Level 3
Level 1
Fair value
Carrying
amount
Level 2 Level 3
Material connected person information
Level 1
Details of the Bank's major shareholders and their parent companies are as follows:
Issued No.of shares of
Valuation techniques used and the qualitative information of key parameters for recurring fair value
measurements categorised as Level 3: (continued)
parent company
liability
shareholder's
Miao Jianmin
Limited
Legal
representative
Legal form
Relationship
with the Bank
29.97%
(note (i)(vii))
7,559,427,375
RMB16,900
million
(CMG)
China Merchants Group Beijing
Company
Company
held by
by the
Company
Bank held
the Bank
held by the
paid
Registered
location
Company name
and fully
of the
of the
Proportion Proportion
Fair value
capital
2022
292
291
During the years ended 31 December 2023 and 2022, the Group did not change the valuation techniques for
the financial assets and liabilities disclosed above which are measured at fair value on a recurring basis.
During the years ended 31 December 2023 and 2022, there were no significant transfers among different
levels for financial instruments which are measured at fair value on a recurring basis.
148
(122)
Total unrealised gains and losses included in the consolidated
statement of profit or loss for liabilities held at the end of the
reporting period
2,647
1,825
Balance as at 31 December
241
39
(5,695)
(739)
Disposals and settlement on maturity
96
(142)
Exchange difference
Addition for the year
In loss
8,147
2,647
Balance as at 1 January
2022
2023
Carrying
amount
Financial liabilities at fair value through profit or loss
China Merchants Bank
Chapter VIII Financial Statements
(122)
94,005
Financial Liabilities
(2)
The above financial assets do not include interest receivable.
Note:
1,434,070
Level 2 Level 3
Financial liabilities that are not measured at fair value mainly include deposits from customers, amounts due
to banks and other financial institutions, amounts sold under repurchase agreements, and debts securities
issued by the Group. The carrying value of financial liabilities approximate their fair value at the end of the
reporting period, except for the financial liabilities set out below:
Level 1
41,700
Carrying
Level 3 amount Fair value
70,340 1,536,397 1,569,775
2023
Carrying
amount Fair value
Debt investments at amortised cost 1,728,620 1,791,963
2022
2023
Level 1 Level 2
61,918 1,659,705
The Level 1 fair value measurement is based on unadjusted quoted prices in active markets using Bloomberg
etc. For Level 2, the latest valuation results released by China Bond website 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 using the published comprehensive valuation by Bloomberg. The Level 3 fair value
is measured using discounted cash flow valuation technique.
60. Risk management (continued)
(g) Fair value information (continued)
(iii)
Financial assets and financial liabilities that are not measured at fair value
(1)
Annual Report 2023 (H share)
The Group's financial assets that are not measured at fair value mainly include balances with central banks,
balances and placements with banks and other financial institutions, amounts held under resale agreements,
loans and advances to customers at amortised cost and investments at amortised cost.
Except for loans and advances measured at amortised cost and debt instrument investments measured
at amortised cost, most of the financial assets not measured at fair value mature within 1 year, and their
carrying values approximate their fair values.
Loans and advances are stated at amortised costs less allowances for impairment loss (Note 22). Loans and
advances at amortised cost are mostly priced at floating rates with reference to Loan Prime Rates (LPRs) and
repriced at least annually, and impairment allowances are made to reduce the carrying amounts of impaired
loans to estimated recoverable amounts. Accordingly, the carrying value of loans and advances is close to
their fair value.
Debt investments measured at amortised cost are carried at amortised cost less allowances for impairment
losses. The fair value of the listed bonds is disclosed in Note 23(b).
The carrying value, fair value and fair value hierarchy of debt investments at amortised cost not measured at
fair value are listed as below:
Financial Assets
Small business customer
Retail deposits and deposits from
4
1,472,506
86,263
6,152
3,451,677
5
2,222,423
5,668,280
842,850
5,750
464
1,198
807,808
6
Other capital instruments
Less stable deposits
1,379,573
1,466,756
Stable deposits
3
Serial No.
1,026,779
34
Net Stable Funding Ratio (%)
85,799
Total RSF
130.72%
30 September 2023
(Expressed in millions of Renminbi except percentage)
Unweighted amount
Weighted
amount
1,026,779
1,026,779
6 months to
No maturity
< 6 months
12 months
≥ 12 months
1
Capital
1,026,779
2
Regulatory capital
Available stable funding (ASF) item
4,954
140,838
7
134,792
12
NSFR derivative liabilities
32,152
13
All other liabilities and equity not included in the
above categories
7,430
151,468
76,397
76,397
14
Total ASF
140,838
7,173,540
Required stable funding (RSF) item
15
33
16
344,456
Total NSFR high-quality liquid assets (HQLA)
102,640
2,643,869
151,468
Other liabilities
Wholesale funding
2,603,626
2,377,268
170,233
294,570
2,554,246
8
Operational deposits
2,581,665
7,430
1,290,833
Other wholesale funding
21,961
2,377,268
170,233
294,570
1,263,413
10
Liabilities with matching interdependent assets
11
9
221,955
339,288
Off-balance sheet items
6 months to
amount
Weighted
Unweighted amount
31 December 2023 (continued)
(D) Net stable funding ratio (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
Serial No.
308
189,205
54,315
180,222
122,075
Securities that are not in default and do not qualify
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities
25
24
under the Basel II standardized approach for credit
risk
With a risk weight of less than or equal to 35%
307
23
Required stable funding (RSF) item (continued)
< 6 months
25,650
NSFR derivative assets
Deposits held at other financial institutions for
22
29
283
333
200,668
1,973
2,321
No maturity
Physical traded commodities, including gold
Assets posted as initial margin for derivative contracts
and contributions to default funds of CCPS
27
101,462
34,039
73,396
10,761
Other assets
26
≥ 12 months
12 months
28
262,016
1,154,132
161,811
1,328,961
124,083
26,102
Performing loans to financial institutions secured by
18
26,166
4,820,184
3,851,064
1,197,720
7,289
2,398,056
122,075
2,186
30
Level 1 HQLA
NSFR derivative liabilities before deduction of
variation margin posted
4,889
31
All other assets not included in the above categories
8,440
73,396
34,039
75,479
191,337
32
4,889
148,674
22,301
19
25,840
Performing residential mortgages, of which:
22
189,595
under the Basel II standardized approach for credit
risk
With a risk weight of less than or equal to 35%
21
3,130,694
1,026,194 2,303,658
1,383,699
which:
loans to sovereigns, central banks and PSES, of
loans to retail and small business customers, and
Performing loans to non-financial corporate clients,
20
173,769
29,240
91,109
659,621
by non-Level 1 HQLA and unsecured performing
loans to financial institutions
Performing loans to financial institutions secured
5,947,508
operational purposes
operational purposes
17
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, such transfers may give rise to full or partial
derecognition of the financial assets concerned, and in other cases the transfers may not qualify for derecognition as
the Group retains substantially all the risks and rewards of these transferred assets. As a result, the Group continues
to recognise these transferred assets.
63. Transfers of financial assets
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
There is no maturity for the instruments and the payments of distribution can be cancelled at the discretion of
the issuer. Cancelled interest is non-cumulative. There is no contractual obligation to deliver cash to other parties.
During the years ended 31 December 2023 and 2022, CMB WLB did not cancel the payment of distribution and the
corresponding amounts were paid to the perpetual debt holders accordingly.
2,787
255
255
2,787
Securitisation of credit assets
(202)
202
202
(1,104)
3,636
3,636
(1,104)
Total
Distributions/Paid
Principal
2,838
(202)
51
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. The Group may acquire certain
investments at the subordinated tranche level and accordingly, may retain parts of the risks and rewards of the
transferred credit assets. The Group would determine whether or not to derecognise the associated credit assets by
evaluating the extent to which it retains the risks and rewards of the assets.
In the cases that the Group has neither transferred nor retained substantially all the risks and rewards of the
transferred credit assets, and for which the Group retains control, the Group recognises an asset in the consolidated
statement of financial position to the extent of the Group's continuing involvement in the transferred assets, the
remaining portion is derecognised. The extent of the Group's continuing involvement is the extent of the risks and
rewards exposed by the Group to the value changes of the transferred assets. For the year ended 31 December
2023, there were no new securitised credit assets in which the Group retained the continuing involvement (2022:
None). The carrying amount of the continuing involvement asset and the corresponding continuing involvement
liability, are recognised in other assets and other liabilities in the consolidated statement of financial position,
amounting to RMB5,274 million as at 31 December 2023 (31 December 2022: RMB5,274 million).
Total RSF
5,512,172
34
Net Stable Funding Ratio (%)
130.14%
Notes:
(i)
The Group calculates Net Stable Funding Ratio in accordance with the "Measures for the Liquidity Risk Management of Commercial Banks"
and relevant statistical regulations.
(ii)
With respect to the credit assets that are securitised and qualified for derecognition, based on the criteria set out in
Note 4(5), the Group derecognises the transferred credit assets in their entirety. During the year of 2023, the Group
transferred loans amounting to RMB22,589 million (2022: RMB17,362 million) in securitisation arrangements, as
well as substantially all the risks and rewards associated with the loans. The full amount of such securitised loans
were then derecognised.
Items to be reported in the "no maturity" time include, but are not limited to, items such as capital with perpetual maturity, non-maturity
deposits, short positions, open maturity positions, non-HQLA equities and physical traded commodities.
The item 26 "Other assets" unweighted amount in the above table does not include the item 30 "NSFR derivative liabilities before deduction
of variation margin posted".
309
Performing loans and securities
44,614
301
Transferred financial assets that do not qualify for derecognition mainly include debt securities, discounted bills held
by counterparties as collateral under repurchase agreements and 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. The Group determines that it retains substantially all the risks and rewards of these securities and
therefore does not derecognise them. Instead, it recognises a financial liability for cash received as collateral.
Repurchase transactions and securities lending transactions
During the year of 2023, in addition to securitisation transactions, the Group transferred credit assets amounting to
RMB1,107 million (2022: RMB995 million) to independent third parties directly. The Group determined that these
transferred assets qualified for full derecognition, based on the criteria set out in Note 4(5), since the Group has
transferred substantially all the risks and rewards of the transferred assets to the counterparties.
Transfers of credit assets to third parties
(iii)
51
2,838
(182)
182
2,100
(41,066)
(18,121)
18,583
38,249
37,228
2022
RMB'000
2023
RMB'000
Contributions to defined contribution retirement schemes
19,107
Share-based payment
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.
Key management personnel
(h)
61. Material related party transactions (continued)
Annual Report 2023 (H share)
Chapter VIII Financial Statements
China Merchants Bank
300
Discretionary bonuses
(i)
Total
17,866
182
(182)
2,787
Total
2,787
Principal Distributions/Paid
At 31 December 2022
Exchange difference
Paid in 2022
At 1 January 2022
Redemption in 2022
Distributions in 2022
At 31 December 2023
Exchange difference
Paid in 2023
Distributions in 2023
At 1 January 2023
CMB WLB, the Group's subsidiary, issued perpetual debt of US$400 million on 24 January 2019. Movements of
these perpetual debt capital are as follows:
(a) Perpetual debt capital
Non-controlling interests represent the interests that the Group does not hold in the subsidiaries, the Group does
not have any subsidiary with significant non-controlling interests during the reporting period.
62. Non-controlling interests
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
2023 and 2022.
Annuity scheme
The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note
39(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 4(16); and the amounts are
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.
33
44,005
219,747
Off-balance sheet items
940,280 2,295,491 3,045,537
21
With a risk weight of less than or equal to 35%
under the Basel II standardized approach for credit
risk
225,553
135,598
228,926
329,378
1,340,029
China Merchants Bank
Chapter VIII Financial Statements
(D) Net stable funding ratio (continued)
30 September 2023 (continued)
Unweighted amount
6 months to
Weighted
amount
Serial No.
Required stable funding (RSF) item (continued)
22
Annual Report 2023 (H share)
23
which:
loans to retail and small business customers, and
Performing loans and securities
101,255
7,691
2,352,104
1,092,143
4,699
3,838,101
30,547
4,708,965
18
Performing loans to financial institutions secured by
Level 1 HQLA
loans to sovereigns, central banks and PSES, of
58,340
19
Performing loans to financial institutions secured
by non-Level 1 HQLA and unsecured performing
loans to financial institutions
750,105
71,249
27,211
175,363
20
Performing loans to non-financial corporate clients,
8,751
Performing residential mortgages, of which:
With a risk weight of less than or equal to 35%
under the Basel II standardized approach for credit
risk
No maturity
< 6 months
277
235
29
20
NSFR derivative assets
33,071
919
30
NSFR derivative liabilities before deduction of
CCPs
variation margin posted
6,692
31
All other assets not included in the above categories
4,144
80,370
38,577
75,498
198,238
32
6,692
Assets posted as initial margin for derivative
contracts and contributions to default funds of
2,373
208,457
12 months
≥ 12 months
25,454
25,505
1,313,046
1,140,044
24
2228
25
26
Securities that are not in default and do not qualify
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities
Other assets
101,255
55,109
202,353
339,270
27
Physical traded commodities, including gold
6,936
2,792
80,370
38,577
108,846
5,803,725
17
178,176
302
821,466
Regulatory deductions from core tier-1 capital
13,451
22,114
Net core tier-1 capital
799,352
Additional tier-1 capital (note (ii))
150,446
120,446
Net tier-1 capital
1,057,754
919,798
920,759
Tier-2 capital:
20,000
Surplus provision for loans impairment
122,175
96,579
Qualifying portion of non-controlling interests
1,558
1,565
Total tier-2 capital
123,733
118,144
Regulatory deductions from core tier-2 capital
Net tier-2 capital
Qualifying portion of tier-2 capital instruments and their premium
Net capital
Total core tier-1 capital
16,994
Core tier-1 capital:
2023
2022
13.73%
13.68%
16.01%
15.75%
17.88%
17.77%
Qualifying portion of share capital
25,220
25,220
14,480
Qualifying portion of capital reserve
65,397
Surplus reserve
108,700
94,948
General reserve
141,184
132,451
Retained earnings
563,114
488,970
Qualifying portion of non-controlling interests
Other (note (i))
65,547
Total risk-weighted assets (taking into consideration the floor
requirements during the parallel run period)
Notes:
123,733
1,181,487
1,496,177
(13,451)
(22,114)
Other adjustments
Balance of adjusted on-balance sheet and off-balance sheet assets
12,806,260
11,569,842
Leverage ratio, net tier-1 capital, adjusted on-balance sheet and off-balance sheet exposures and other information:
31 December 2023 31 December 2022
1.
Net tier-1 capital
2.
1,742,065
1,057,754
Balance of adjusted on-balance sheet assets (excluding
derivatives and SFTs)
10,769,181
9,773,998
On-balance sheet items (excluding derivatives and securities
financing transactions (SFT))
10,782,632
9,796,112
Less: Asset amounts deducted in determining Basel III Tier 1
capital
(13,451)
(22,114)
3.
Total derivative exposures
919,798
12,444
106,847
(7,911)
118,144
1,037,942
6,608,021
5,841,685
(i) : Under former CBIRC's Administrative Measures on the Capital of Commercial Banks (Provisional), other includes investment revaluation reserve,
exchange reserve, hedging reserve in the consolidated financial statements, etc.
(ii) : The Group's additional tier-1 capital includes preference shares, perpetual bonds, etc.
In 2023, in accordance with the Advanced Measurement Approach approved by former CBIRC in April 2014, the
Bank's core tier-1 capital adequacy ratio is 13.32%, tier-1 capital adequacy ratio is 15.70%, capital adequacy ratio is
17.62%, net capital is RMB1,059,697 million and total risk-weighted assets is RMB6,015,774 million.
In 2023, by the method of calculating credit risk using the 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
11.86%, tier-1 capital adequacy ratio is 13.82%, capital adequacy ratio is 14.96%, net capital is RMB1,144,901
million and total risk-weighted assets is RMB7,652,723 million.
In 2023, by the method of calculating credit risk using the 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
11.38%, tier-1 capital adequacy ratio is 13.40%, capital adequacy ratio is 14.52%, net capital is RMB1,023,111
million and total risk-weighted assets is RMB7,046,274 million.
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
(B) Leverage ratio
In accordance with the former CBIRC's Administrative Measures on Leverage Ratio of Commercial Banks (Revision)
issued in 2015 and effective on 1 April 2015, the Group's leverage ratio is as follows. The basis used herein may
differ from those adopted in Hong Kong or other countries and regions.
The difference between regulatory items and accounting items:
Total consolidated assets as per published financial statements
Adjustments for investments in banking, financial, insurance or
commercial entities that are consolidated for accounting purposes
but outside the scope of regulatory consolidation
Adjustments for fiduciary assets
Adjustments for derivative financial instruments
Adjustment for securities financing transactions
Adjustment for off-balance sheet items
2023
11,028,483
2022
10,138,912
(55,771)
(47,666)
(1,913)
Components of capital base
16,819
Capital adequacy ratio
Core tier-1 capital adequacy ratio
investments
Maximum
cost
at FVTOCI
Total
exposure
35,275
35,275
25,204
25,204
1,073
17,983
Debt
19,376
227,477
227,477
580
580
61,368
17,983
307,912
307,912
2022
Balance
Asset management schemes
Trust beneficiary rights
19,376
Asset-backed securities
25,020
228,561
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
64. Interests in unconsolidated structured entities
The scope of the Group's consolidated financial statements is determined on a control basis. Control means that
the investor has the power over the investee, enjoys variable returns by participating in the relevant activities of the
investee, and has the ability to use the power to affect the amount of its return.
The Group has the power over structured entities, and the other investors have no substantive rights. In the
meantime, the Group is entitled to variable returns, and will consolidate entities, in which the Group has the right
to affect the amount of its return.
In addition to the above-mentioned structured entities that have been included in the Group's consolidated financial
statements, the Group's interests in structured entities which is not covered by the consolidated financial statements
is as follows:
(a)
Interests in the structured entities sponsored by third parties institutions
The Group holds interests in some structured entities sponsored by third parties through investments in the units
issued by these structured entities. Such interests include investments in wealth management products, asset
management schemes, trust beneficiary rights, assets-backed securities and fund investments, and the Group does
not consolidate these structured entities. The purpose of the Group holding these structured entities is to obtain
investment income, capital appreciation or both.
The following tables set out an analysis of the balance of interests held by the Group in the structured entities
sponsored by third parties and an analysis of the line items in the consolidated statement of financial positions as at
31 December 2023 and 31 December 2022:
2023
35,275
Asset management schemes
Trust beneficiary rights
Asset-backed securities
Wealth management products
Total
Financial
investments
at FVTPL
Balance
Debt
investments
at amortised
*
184
320
227,477
580
Fund investments
Fund investments
Financial
investments
at FVTPL
Debt
investments
at amortised
64. Interests in unconsolidated structured entities (Continued)
(b)
Interests 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 assets 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 issuance of investment products to investors. Interest of the Group in these unconsolidated structured entities is
limited to fees and commissions charged for management services provided.
As at 31 December 2023, the amount of unconsolidated non-principal-guaranteed wealth management products
sponsored by the Group was RMB2,548,929 million (31 December 2022: RMB2,667,663 million).
As at 31 December 2023, the amount of unconsolidated funds sponsored by the Group was RMB1,237,828 million
(31 December 2022: RMB1,147,030 million).
As at 31 December 2023, the amount of unconsolidated asset management schemes sponsored by the Group was
RMB289,215 million (31 December 2022: RMB262,095 million).
As at 31 December 2023, amounts held under resale agreements transacted between the Group and the non-
principal-guaranteed wealth management products sponsored by the Group were RMB25,701 million (31 December
2022: RMB17,252 million). The above transactions were conducted in accordance with normal business terms and
conditions.
As at 31 December 2023, the amount of unconsolidated non-principal-guaranteed wealth management products
held by the Group was RMB2,149 million (31 December 2022: RMB2,433 million).
As at 31 December 2023, the amount of unconsolidated funds held by the Group was RMB14,827 million (31
December 2022: RMB14,228 million).
During the year ended 31 December 2023, the amount of unconsolidated non-principal-guaranteed wealth
management products sponsored by the Group transferred to investments measured at amortised cost of the Group
was Nil (2022: RMB11,143 million).
During the year ended 31 December 2023, the amount of fee and commission income the Group received from such
non-principal-guaranteed wealth management products was RMB10,394 million (2022: RMB17,037 million).
During the year ended 31 December 2023, the amount of fee and commission income the Group received from such
unconsolidated funds was RMB5,041 million (2022: RMB5,470 million).
Chapter VIII Financial Statements
During the year ended 31 December 2023, the amount of fee and commission income the Group received from such
unconsolidated asset management schemes was RMB653 million (2022: RMB683 million).
65. Comparative figures
Certain comparative figures in the notes have been re-presented to conform to presentation in current year.
303
304
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
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 former CBIRC's Administrative
Measures on the Capital of Commercial Banks (Provisional) issued in 2012 and effective on 1 January 2013. The
bases used herein may differ from those adopted in Hong Kong or other countries and regions.
In accordance with the Advanced Measurement Approach approved by the former CBIRC in April 2014, the Group
calculates core tier-1 capital adequacy ratio, tier-1 capital adequacy ratio and capital adequacy ratio as follows:
The total amount of non-principal-guaranteed wealth management products sponsored by the Group after 1 January
2023 with a maturity date before 31 December 2023 was RMB502,145 million (2022: RMB620,318 million).
Annual Report 2023 (H share)
China Merchants Bank
The maximum exposures of investments in funds, trust beneficiary rights, asset management schemes, wealth
management products and asset-backed securities are the balance of these assets.
Debt
investments
Maximum
cost
at FVTOCI
Total
exposure
48,362
48,362
48,362
37,954
37,954
37,954
835
186,311
1,031
170
2,036
2,036
186,311
186,311
Wealth management products
Total
110
187,256
110
87,347
170
274,773
110
274,773
Tier-1 capital adequacy ratio
10,726
907,308
of eligible cash variation margin)
The Group prepared and disclosed information on Net Stable Funding Ratio in accordance with the "Measures for
the Disclosure of Information on Net Stable Funding Ratio by Commercial Banks". The Group's Net Stable Funding
Ratio at the end of the fourth quarter of 2023 was 130.72%, representing an increase of 0.58 percentage points
as compared with the previous quarter, which was maintained basically stable. The breakdown of the Group's Net
Stable Fund Ratio in the last two quarters is set out below:
31 December 2023
(Expressed in millions of Renminbi except percentage)
Unweighted amount
Weighted
amount
Serial No.
Available stable funding (ASF) item
No maturity
< 6 months
6 months to
12 months
≥ 12 months
1
(D) Net stable funding ratio
Capital
2
Regulatory capital
1,071,254
1,071,254
1,071,254
3
Other capital instruments
4
Retail deposits and deposits from
Small business customer
2,282,575
1,617,013
57,445
1,071,254
5,038
Chapter VIII Financial Statements
The high quality liquid assets in the above table are prepared based on cash and the central bank reserve available under pressure conditions,
as well as the bond in line with definition of Tier 1 and Tier 2 assets set by former CBIRC on the "Measures for the Liquidity Risk Management
of Commercial Banks".
18
Contractual inflows from fully performing loans
1,072,229
682,265
19
Other cash inflows
274,843
274,223
20
Total cash inflows
1,527,425
1,136,304
China Merchants Bank
Annual Report 2023 (H share)
Adjusted value
Total stock of high quality liquid assets
22
Net cash outflows
23
Liquidity coverage ratio (%)
Notes:
(i)
2,017,296
1,262,225
159.82%
(ii)
The domestic data in the above table is a simple arithmetic average of the 92-day value for the latest quarter and the month-end average for
the data of subsidiaries.
21
3,610,469
5
Stable deposits
11
Other liabilities
2,657
169,456
64,195
118,015
126,648
12
NSFR derivative liabilities
23,464
13
All other liabilities and equity not included in the
Liabilities with matching interdependent assets
above categories
169,456
64,195
94,551
14
Total ASF
126,648
7,409,608
Required stable funding (RSF) item
15
Total NSFR high-quality liquid assets (HQLA)
399,307
16
Deposits held at other financial institutions for
2,657
10
1,300,177
289,042
875,774
5,726
525
1,121
839,045
6
Less stable deposits
1,406,801
1,611,287
56,920
3,917
2,771,424
7
Wholesale funding
2,644,103
2,423,633
251,230
289,042
2,601,237
8
Operational deposits
Replacement cost associated with all derivatives transactions (net
1,301,060
9
Other wholesale funding
41,983 2,423,633
251,230
179,816
180,353
2,602,120
17
3,093,836
Less: Adjustments for conversion to credit equivalent amounts
(1,782,260)
(1,597,659)
6.
Balance of adjusted on-balance sheet and off-balance sheet
assets
12,806,260
11,569,842
7.
Leverage ratio
8.26%
7.95%
3,524,325
305
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
(C) Liquidity coverage ratio
The Group prepared and disclosed information on liquidity coverage ratio in accordance with the "Measures for the
Disclosure of Information on Liquidity Coverage Ratio by Commercial Banks". The basis used herein may differ from
those adopted in Hong Kong or other countries and regions. The average of liquidity coverage ratio of the Group
was 159.82% in the fourth quarter of 2023, an increase of 0.17 percentage points from the previous quarter, which
was maintained basically stable. The liquidity coverage ratio of the Group at the end of the fourth quarter of 2023
was 173.36%, which met the regulatory requirements in 2023. The breakdown of the Group's average value of
each item of liquidity coverage ratio in the fourth quarter of 2023 is set out below:
(Expressed in millions of Renminbi except percentage)
Serial No.
Stock of high quality liquid assets
Unweighted
amount
(average value)
Weighted
amount
(average value)
1
306
Off-balance sheet exposure at gross notional amount
1,496,177
1,742,065
Secured lending (including reverse repo and securities borrowing)
4,639
5,551
Add-on amounts for potential future exposure associated with all
derivatives transactions
12,180
5,175
Gross-up for derivatives collateral provided where deducted from
the balance sheet assets
Less: Deductions of receivables assets for cash variation margin
provided in derivatives transactions
Less: Exempted central counterparty leg of client-cleared trade
exposures
Effective notional amount of written credit derivatives
Less: Adjusted effective notional deductions for written credit
derivatives
4.
Total securities financing transaction exposures
278,195
288,941
171,348
276,497
Less: Netted amounts of cash payables and cash receivables of
gross SFT assets
Counterparty credit risk exposure for SFT assets
106,847
12,444
Agent transaction exposures
5.
Balance of adjusted off-balance sheet assets
Total stock of high quality liquid assets
2,017,296
Gross SFT assets (with no recognition of netting), after adjusting
for sale accounting transactions
2
Additional requirements, of which:
1,973,700
385,580
11
Cash outflows arising from derivative contract and other
276,651
276,651
transactions arising from related collateral requirements
12
Cash outflows arising from secured debt instruments funding
13
Undrawn committed credit and liquidity facilities
10
1,697,049
14
Other contractual obligations to extend funds
103,364
15
Other contingent funding obligations
3,643,112
109,469
16
Total cash outflows
2,398,529
Cash outflows
Cash inflows
108,929
13,664
103,364
9
Retail and small business customers deposits, of which:
Stable deposits
3
Secured funding
3,698,130
328,336
829,526
41,476
Less stable deposits
2,868,604
286,860
5
Unsecured wholesale funding, of which:
4,379,860
1,458,116
4
Operational deposits (excluding correspondent banks)
6
26,092
26,092
8
776,548
1,703,035
Unsecured debt issuance
Non-operational deposits (including all counterparties)
7
655,476
2,650,733
240,095
Foreign currencies transactions in the
Total
2,079
132,845
Chinese mainland
105,171
199,166
49,161
19,653
267,980
- of which attributed to Hong Kong
24,986
223,769
Other
181,581
17,202
Asia Pacific excluding the Chinese mainland
entities
Annual Report 2023 (H share)
sector
40,691
1,136
Europe
51,801
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 overseas subsidiaries.
institutions
China Merchants Bank
(F) International claims
The Group is principally engaged in business operations within the Chinese mainland, and regards all claims on third
parties outside the Chinese mainland and claims in foreign currencies on third parties within the Chinese mainland
as international claims.
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.
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.
2023
Banks
and other
Public
financial
Chapter VIII Financial Statements
19,866
156,029
21,029
Chinese mainland
89,883
4,419
250,331
Asia Pacific excluding the Chinese mainland
62,407
22,043
162,273
246,723
- of which attributed to Hong Kong
39,726
19,891
146,107
205,724
Europe
9,974
12,472
Foreign currencies transactions in the
Total
Other
entities
42,493
North and South America
68,925
119,692
17,584
206,201
Total
243,123
1,598
143,022
756,769
2022
Banks
and other
Public
financial
sector
institutions
370,624
11,325
6,195
8,943
662,946
Forward purchased
Forward written
417,752
76,916
500,863
476,337
7,311
38,999
522,647
Net option position
12,236
(79)
3,562
15,719
Net long position
1,424
90,942
18,032
553,972
Spot liabilities
1,732
(ii) By overdue period
310
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
(E) Currency concentrations other than RMB
2023
12,247
USD
Other
Total
(in millions of RMB)
Non-structural position
Spot assets
601,745
31,474
47,462
680,681
HKD
(1,290)
(2,001)
Net structural position
276,555
2,258
56,399
335,212
Forward written
305,169
17,447
18,938
341,554
Net option position
15,700
(1,122)
(695)
13,883
Net long position
Net structural position
3,672
Forward purchased
638,595
91,232
16,460
8,481
41,314
1,552
51,347
2022
USD
HKD
Other
11,670
Total
Non-structural position
Spot assets
547,489
41,714
53,176
642,379
Spot liabilities
530,903
(in millions of RMB)
20,479
2023
4,388
China Merchants Bank
Chapter VIII Financial Statements
Annual Report 2023 (H share)
(G) Further analysis on loans and advances to customers analysed by
industry sector (continued)
Operation outside the Chinese mainland
2022
54
2023
% of gross
loans and
advances
covered by
loans and
advances
% of gross
5,837,565
52
6,271,366
301,538
2
202,225
3
Others
7,806
90
11,374
93
Retail loans and advances subtotal
3,371,955
59
3,107,676
61
Gross amount of loans and advances to customers
covered by
collateral or
collateral or
Amount other security
56
20,494
39
Production and supply of electric power, heating
power, gas and water
12,359
Wholesale and retail
10,002
Telecommunications, software and IT services
8,323
Leasing and commercial services
6,207
Mining
4,945
Construction
19,335
79
Manufacturing
26,298
Amount
other security
Finance
45,368
37
36,521
23
Transportation, storage and postal services
36,248
21
30,814
19
Property development
22,960
44
37
623
629,857
750,019
17
158,320
14
Construction
110,577
22
32
103,998
Telecommunications, software and IT services
95,394
49
78,950
48
Finance
24
171,786
38
203,870
52
349,682
48
278
Production and supply of electric power, heating
47,613
power, gas and water
259,864
Wholesale and retail
187,737
35
Leasing and commercial services
186,463
27
32
88,296
17
75,593
23
Discounted bills
471,127
100
514,054
100
Residential mortgage
1,376,815
100
1,379,825
100
Credit cards
935,777
884,395
Micro-finance loans
Consumer loans
35
78
2,215,835
2,428,284
42,813
45
64,886
30
Mining
42,326
34
34,421
33
Others
76,400
31
67,677
30
Corporate loans and advances subtotal
34
Water, environment and public utilities management
Others
419
4,782
Annual Report 2023 (H share)
Chapter VIII Financial Statements
(H) Loans and advances to customers overdue for more than 90 days
(i)
By geographical segments
Headquarters
China Merchants Bank
Yangtze River Delta region
Pearl River Delta and West Coast region
Northeast region
Central region
Western region
Outside the Chinese mainland
Subsidiaries
Bohai Rim region
As at 31 December 2023, for corporate loans and advances measured at amortised cost, the fair value of collateral
held against impaired loans and advances is RMB3,810 million (31 December 2022: RMB3,206 million).
3,640
3,821
14,665
11111
Overdue loans
and advances
Impaired loans
and advances
Residential mortgage
7,342
Credit card
Micro-business loan
31,413
4,582
4,904
15,650
4,031
8,604
26,255
11,180
2,441
19,383
1,839
Total
We are here Just for you
CHINA MERCHANTS BANK
招商銀行股份有限公司
公 招商銀行
0.20%
% of total
loans and
advances
Amount
% of total
loans and
advances
2022
2023
The amount of the Group's overdue loans and advances to financial institutions for more than 90 days as at 31
December 2023 was RMB1 million (31 December 2022: RMB1 million).
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 collateral of the Group included cash deposit, shares, land use right, property, motor vehicles and other equipment, etc. The fair value
of collateral 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.
(I) Renegotiated loans and advances to customers
Renegotiated loans and advances to customers (Note)
Less:
12,076
- Stage 3
(Lifetime ECL
- credit impaired)
0.20%
13,007
The Bank is a commercial bank incorporated in the Chinese mainland with its banking business primarily conducted
in the Chinese mainland. As of 31 December 2023 and 31 December 2022, most of the Bank's exposures arose from
businesses with the Chinese mainland non-bank institutions or individuals. Analyses of various types of exposure by
counterparty have been disclosed in the notes to the financial report.
(J) Non-bank the Chinese mainland exposures
The amount of the Group's renegotiated loans and advances to financial institutions as at 31 December 2023 was
nil (31 December 2022: nil).
Represents the restructured non-performing loans.
Note:
0.11%
6,869
0.10%
6,334
- Renegotiated loans and advances to customers
overdue less than 90 days
0.09%
5,207
0.10%
6,673
Renegotiated loans and advances to customers
overdue more than 90 days
Amount
- Stage 2
(Lifetime ECL
- not credit-
impaired)
Stage 1
(12-month ECL)
2022
1,772
100
110
5,414
36
159,781
100
9,383
124
100
ཀྵ ཨྰ ཿཌ ལྐ ཿ
100
95
1,181
43,425
100
96
3,430
6,074
54,113
10,908
9,023
Corporate loans and advances subtotal
171,571
Residential mortgage
8,671
Credit cards
133
Micro-finance loans
Others
1,278
55,846
Retail loans and advances subtotal
65,928
Gross amount of loans and advances to customers
237,499
གླགླསྐལྦ⌘ge8༅ ༄ག8 ཞ
8,923
303,707
53
47
8,165
5,122
7,021
2,739
42,302
29,910
16,383
26,666
19,179
15,562
5,269
4,592
9,130
1,649
3,793
credit impaired)
213,894
impaired)
- not credit-
313
314
China Merchants Bank
Annual Report 2023 (H share)
Chapter VIII Financial Statements
(G) Further analysis on loans and advances to customers analysed by
industry sector (continued)
When the amount of loans and advances to customers for an industry/category accounts for 10% or above of
the total amount of loans and advances to customers, the amount of overdue loans, impaired loans and credit
impairment allowances in each expected credit loss stage are disclosed as follows:
2023
- Stage 2
(Lifetime ECL
Residential mortgage
Credit card
Micro-business loan
Overdue loans
and advances
Impaired loans
and advances
- Stage 1
(12-month ECL)
- Stage 3
(Lifetime ECL
Property development
Water, environment and public utilities management
461,434
11,290
-
over 12 months
22,748
14,409
45,822
41,078
Total
As a percentage of total gross amount of loans and
advances to customers:
- between 3 and 6 months (inclusive)
11,598
- between 6 and 12 months (inclusive)
Total
0.17%
0.25%
0.18%
0.19%
0.35%
0.24%
0.70%
0.68%
315
316
- over 12 months
- between 6 and 12 months (inclusive)
15,379
11,476
37
34,683
2022
13,308
11,980
7,613
7,716
4,863
4,051
5,342
4,619
1,433
967
5,307
5,239
4,538
3,653
638
395
2,780
2,458
45,822
41,078
2023
Gross amount of loans and advances to customers which have been
overdue with respect to either principal or interest for periods of:
- between 3 and 6 months (inclusive)
China Merchants Bank
Chapter VIII Financial Statements
2022
(H) Loans and advances to customers overdue for more than 90 days
Operation in the Chinese mainland
2022
2023
% of gross
% of gross
loans and
advances
covered by
collateral or
loans and
collateral or
industry sector
Amount
Amount
other security
Manufacturing
557,691
28
445,218
32
Transportation, storage and postal services
Annual Report 2023 (H share)
40
477,016
other security
(G) Further analysis on loans and advances to customers analysed by
advances
covered by
Chapter VIII Financial Statements
(iii) Collateral information
(continued)
Secured portion of overdue loans and advances
Annual Report 2023 (H share)
Unsecured portion of overdue loans and advances
Fair value of collateral held against overdue loans and advances
2023
2022
17,141
28,681
24,674
North and South America
44,948
16,404
19,809
146,738
China Merchants Bank
Total
209,710
110,175
358,590
678,475
81,981
311
312
567
1.24
47,271
81,182
Others(2)
40,495
521
0.67
1.20
3,616
0.73
1.29
4.45
Credit card loans
1.21
2,894
3.96
Discounted bills
884,519
1.75
16,383
14.38
935,910
0.35
4,904
Mining
1,389,208
22.96
73,091
0.15
333
1.07
112,114
0.37
1.85
440
0.39
Construction
111,200
1.71
0.30
105,770
1.75
435
0.41
Information transmission,
software and IT service
103,717
1.59
64,996
0.23
101
0.66
43,232
public utilities
100
environment and
0.45
406
1.48
89,858
0.73
760
Water conservancy,
5,122
1.16
1,385,486
330
4.79
289,605
0.04
119
5.13
334,150
Trade finance
1.63
14,123
14.29
864,880
1.78
14,915
0.11
12.88
Fixed asset loans
0.29
9,562
13.57
821,269
0.79
8,068
15.69
1,021,305
Working capital loans
1.26
29,961
39.26
2,375,616
838,449
21.29
Others(2)
6.24
Residential mortgage loans
0.64
4,031
10.43
631,038
0.61
4,592
11.54
751,297
Micro-finance loans
0.89
28,043
52.25
3,161,789
405,951
0.89
52.82
3,437,883
Retail loans
8.49
514,054
7.24
471,127
Discounted bills(3)
1.49
5,946
6.61
399,862
1.94
7,890
30,587
387
0.34
133,664
(2) Primarily consists of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
(3) Discounted bills will be transferred to corporate loans for accounting purposes once overdue.
(4) Primarily consists of commercial housing loans, automobile loans, house decoration loans, education loans and other personal loans secured by
monetary assets.
With regard to corporate loans, the Group focused on the national macroeconomic policies, implemented the value
creation bank strategy on a comprehensive scale, accelerated the transformation of business models, promoted
optimisation of the structure of customers, continuously strengthened the origination and investment of high-quality
assets, thereby maintaining stable asset quality. As at the end of the reporting period, the balance of the Group's
corporate loans amounted to RMB2,599.855 billion, representing an increase of 9.44% as compared to the end
of the previous year, with a proportion of corporate loans of 39.94%. As affected by significant risk exposure of
some high-debt real estate customers and individual corporate customers with poor operation and management, the
amount of non-performing corporate loans reached RMB30.992 billion, representing an increase of RMB1.031 billion
as compared with the end of the previous year; and the non-performing loan ratio of corporate loans was 1.19%,
down by 0.07 percentage point as compared with the end of the previous year.
With regard to retail loans, the Group actively carried forward the innovation of products and business models,
accelerated the origination of high-quality assets, and continuously increased credit support for small- and micro-
sized customers. The Group gave priority to customers with rigid and improving housing demands, and maintained
an overall stability in residential mortgage loans. Furthermore, the Group adhered to its "stable and low-volatility"
operational strategy by focusing on value-based customer acquisition, optimising asset structure, and steadily
developing its credit card business. As at the end of the reporting period, the balance of the Group's retail loans
amounted to RMB3,437.883 billion, representing an increase of 8.73% as compared to the end of the previous
year, with a proportion of retail loans of 52.82%, of which micro-finance loans amounted to RMB751.297 billion,
representing an increase of 19.06% as compared with the end of the previous year. As at the end of the reporting
period, the balance of non-performing retail loans amounted to RMB30.587 billion, representing an increase of
RMB2.544 billion as compared with the end of the previous year. The non-performing ratio of retail loans was
0.89%, which remained at the same level as compared to the end of the previous year, of which the balance of
non-performing credit card loans amounted to RMB16.383 billion, representing an increase of RMB733 million as
compared with the end of the previous year; and the non-performing loan ratio of credit card loans was 1.75%,
down by 0.02 percentage point as compared with the end of the previous year.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
3.4.3 Distribution of loans and non-performing loans by industry
31 December 2023
31 December 2022
Loans and
Percentage
(in millions of RMB,
advances to of the total
(1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
Non
performing
loan ratio
Loans and
advances to
except for percentages)
customers
loans (%)
loans
(%)(1)
customers
Percentage
of the total
loans (%)
Non-
Non-
Performing
performing
loan ratio
loans
Non-
Performing
(%) (1)
Notes:
58,004
1.19
14.62
15,650
1.77
Consumer loans
301,538
4.63
3,285
1.09
202,225
3.34
2,191
1.08
Others(4)
0.96
63,652
1,205
1.89
54,799
0.90
1,267
2.31
Total loans and advances to
customers
6,508,865
100.00
61,579
0.95
6,051,459
100.00
0.98
2.05
Corporate loans
39.94
electric power, heat,
gas and water
272,223
4.18
443
0.16
212,893
3.52
468
0.22
Leasing and commercial
services
192,670
2.96
Production and supply of
1,470
161,750
2.67
1,784
1.10
Wholesale and retail
197,739
3.04
1,330
0.67
180,709
2.99
1,836
1.02
Finance
0.76
2,599,855
1.03
7.70
30,992
1.19
2,375,616
39.26
29,961
1.26
Transportation, storage
and postal services
513,264
7.89
1,739
492,248
8.14
948
4,781
0.19
326,667
5.02
17,183
5.26
375,980
6.21
15,348
4.08
Manufacturing
577,026
8.87
3,063
0.53
465,712
Property development
30,992
26.32
2,599,855
143,578
232,923
252,828
494,628
503,459
1,600,274
1,944,820
31 December 2023 31 December 2022
Total bond investments
Commercial banks and other financial institutions
Others
Policy banks
Official authorities
(in millions of RMB)
The composition of the Group's total bond investments classified by the issuing entities
As at the end of the reporting period, the balance of equity investments designated at fair value through other
comprehensive income of the Group amounted to RMB19.649 billion. Such investments were mainly non-trading
equity investments held by the Group in the investees over whom the Group had no control, joint control or
significant influence. For details, please refer to Note 23(d) to the financial statements.
Equity investments designated at fair value through other comprehensive income
111,026
2,844,685
2,438,851
Note: "Official authorities" include the Ministry of Finance of the PRC, local governments and the central bank, etc.; "Others" mainly refer to
enterprises.
amount (%)
Amount
(in millions of RMB, except for percentages)
Percentage
of the total
31 December 2022
31 December 2023
The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.
As at the end of the reporting period, the total liabilities of the Group amounted to RMB9,942.754 billion,
representing an increase of 8.25% as compared with the end of the previous year, which was primarily attributable
to the steady growth in deposits from customers.
As at the end of the reporting period, the balance of debt investments at fair value through other comprehensive
income of the Group amounted to RMB889.736 billion, with interest rate bonds such as government bonds
and policy bank bonds and medium-to-high rating quality credit bonds being the major categories. This type of
investment was primarily based on the Group's research and analysis on the bond market, with the purpose of
obtaining investment return by capturing investment and allocation opportunities in the market and constantly
optimising asset allocation structure. For details, please refer to Note 23(c) to the financial statements.
3.3.2 Liabilities
Chapter III Management Discussion and Analysis
China Merchants Bank
32
31
In compliance with the International Financial Reporting Standards, at the end of the reporting period, the Group
conducted an impairment test on the goodwill arising from the acquisition of CMB Wing Lung Bank, China
Merchants Fund and other companies and determined that allowances for impairment losses were not necessary for
the reporting period. As at the end of the reporting period, the Group had a balance of allowances for impairment
losses on goodwill of RMB579 million and the carrying value of goodwill was RMB9.954 billion.
3.3.1.3 Goodwill
As at the end of the reporting period, the Group's investments in joint ventures and associates amounted to
RMB26.590 billion, up 11.52% from the end of the previous year. As at the end of the reporting period, the
balance of allowances for impairment losses on investments in joint ventures and associates of the Group was zero.
For details, please refer to Note 25 and Note 26 to the financial statements.
Investments in joint ventures and associates
Annual Report 2023 (H share)
As at the end of the reporting period, the balance of the Group's debt investments at amortised cost amounted to
RMB1,728.620 billion. Among them, the bond investments mainly involved bonds issued by government and policy
banks. This type of investment 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 banking book and liquidity management,
while taking into account returns and risks. For details, please refer to Note 23(b) to the financial statements.
Debt investments at fair value through other comprehensive income
As at the end of the reporting period, the balance of the financial investments at fair value through profit or loss
of the Group amounted to RMB526.145 billion, with bond and fund investments etc. being the major categories.
The investments were primarily made by the Group based on assessments of, among other factors, macro economy,
monetary and fiscal policies, industrial policies and market supply and demand, so as to obtain investment return by
capturing trading opportunities in the market. During the reporting period, funding was stable in general and bond
yields trended downward amid fluctuations. The Group actively expanded its bond investments while strengthening
market timing, achieving favourable returns. For details, please refer to Note 23(a) to the financial statements.
Debt investments at amortised cost
Financial investments at fair value through profit or loss
Currency derivatives
1,543,237
(5,476)
5,433
1,819,231
Interest rate derivatives
amount
Liabilities
1,431,262
Assets
Notional
amount
(in millions of RMB)
Fair value
Fair value
31 December 2022
31 December 2023
As at the end of the reporting period, the major categories and amount of derivative financial instruments held by
the Group are indicated in the following table. For details, please refer to Note 60(f) to the financial statements.
Derivative financial instruments
Notional
Amount
11,815
874,230
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
During the reporting period, the fluctuation of the RMB exchange rate increased and the interest-rate derivatives
market showed a wide range-bound feature. As an integrated market maker in the interbank RMB foreign exchange
market and a quote provider for derivatives in the local currency market, the Group was committed to providing
liquidity to the market and maintaining the stability of the market. Meanwhile, by continuously leveraging its
professional strengths in financial market derivative transactions, the Group kept up its effort in publicising the
"exchange rate risk-neutral" concept, helping customers carry out hedging transactions to improve their risk
resistance capabilities and reduce financial costs, and facilitating the high-quality development of the real economy.
The above table shows the notional amount and fair value of the Group's derivative financial instruments by their
remaining maturity on each balance sheet date. The notional amount refers only to the transaction volumes that
have not yet been due or completed on the balance sheet date, and does not represent the value at risk.
(18,636)
18,671
(856)
(10,667)
(11,671)
Liabilities
Assets
6,428
11,376
867
92,258
2,509,725
(1,300)
(17,443)
1,485
18,733
136,759
3,387,252
Total
Other derivatives
(6,109)
Percentage
of the total
amount (%)
Deposits from customers
8,155,438
58.81
4,431,553
57.15
4,660,522
Subtotal
22.15
1,668,882
24.72
Deposits from retail customers
2,015,837
36.66
2,762,671
32.43
2,644,685
Demand
Corporate customer deposits
Amount
Percentage
of the total
amount (%)
Time
Amount
Demand
22.43
Time
1,665,304
20.42
1,120,825
14.87
Subtotal
3,494,916
42.85
1,829,612
3,104,189
Total deposits from customers
8,155,438
100.00
7,535,742
100.00
In 2023, the percentage of daily average balance of the demand deposits to that of the deposits from customers of
the Group was 57.08%, representing a year-on-year decrease of 4.55 percentage points. Among these, the daily
average balance of demand deposits from corporate customers accounted for 57.31% of that of the corporate
customer deposits, representing a year-on-year decrease of 2.67 percentage points; the daily average balance
of demand deposits from retail customers accounted for 56.74% of that of the deposits from retail customers,
representing a year-on-year decrease of 7.69 percentage points. Affected by the decline in the risk appetite of
customers and insufficient liquidity activities of enterprises, customers' demand for investment in time deposit
products increased, leading to a decrease in the proportion of demand deposits.
China Merchants Bank
Annual Report 2023 (H share)
41.19
Note: Including equity investments, fund investments, wealth management products, long position in precious metal contracts and others.
(in millions of RMB, except for percentages)
Percentage
of the total
amount (%)
67,780
0.62
61,401
loss and derivative financial liabilities(1)
Financial liabilities at fair value through profit or
1.41
129,438
3.79
0.74
377,189
10.42
957,657
8.94
888,408
Inter-bank transactions (1)
82.05
7,535,742
82.02
Borrowings from the central bank
31 December 2023
Debt securities issued
1.76
31 December 2022
The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type
and customer type.
As at the end of the reporting period, total deposits from customers of the Group amounted to RMB8,155.438
billion, representing an increase of 8.22% as compared with the end of the previous year, accounting for 82.02%
of the total liabilities of the Group, which was the major funding source of the Group.
Deposits from customers
(2) "Others" include salaries and welfare payable, taxes payable, contract liabilities, lease liabilities, expected liabilities, deferred income tax liabilities,
interest payable and other liabilities.
(1) "Inter-bank transactions" include deposits and placements with banks and other financial institutions and amounts sold under repurchase
agreements. According to the relevant provisions of the Interim Measures for the Administration of Gold Leasing Business (Yin Ban Fa [2022] No.
88) issued by the General Office of the People's Bank of China in July 2022, since 2023, for the gold leasing business carried out between the
Group and financial institutions, the lease-in side was adjusted from "financial liabilities at fair value through profit or loss" to "placements from
banks and other financial institutions", and the comparative figures are re-presented accordingly.
Notes:
100.00
174,764
9,184,674
2.96
271,769
2.87
285,554
9,942,754
Total liabilities
Others(2)
2.42
222,288
100.00
39.94
100.00
100.00
16,576
0.26
22,770
0.38
21,554
0.33
23,737
0.39
23,449
0.36
11,497
0.19
Total loans and advances to customers
Non-performing loans
Note: Under the 5-tier loan classification system, non-performing loans of the Group include substandard loans, doubtful loans and loss loans.
6,508,865
61,579
100.00
Loss
Doubtful
Substandard
1.21
Distribution of loans by 5-tier loan classification
The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.
31 December 2023
31 December 2022
(in millions of RMB, except for percentages)
Amount
Percentage
of the total
amount (%)
Amount
6,051,459
Percentage
of the total
amount (%)
Special mention
6,375,958
97.95
5,919,985
97.83
71,328
1.10
73,470
Normal
100.00
0.95
58,004
performing
loan ratio
advances to
of the
total loans
Non-
Non-
Performing
performing
loan ratio
total loans
except for percentages)
(%)
loans
(%) (1)
customers
(%)
loans
(%)(1)
Corporate loans
customers
3.4 Analysis of Loan Quality
advances to
Loans and
0.96
During the reporting period, the Group insisted on strict classification of asset risks to truly reflect the asset quality
according to the new regulations on risk classification of financial assets. Affected by the unwinding of risks
among some high-debt real estate customers and risks associated with retail banking business, the balance of non-
performing loans of the Group increased as compared with the end of the previous year. As at the end of the
reporting period, the balance of the Group's non-performing loans amounted to RMB61.579 billion, representing
an increase of RMB3.575 billion as compared with the end of the previous year, with a non-performing loan ratio of
0.95%, representing a decrease of 0.01 percentage point as compared with the end of the previous year.
33
34
34
China Merchants Bank
Annual Report 2023 (H share)
3.4.2
(in millions of RMB,
Chapter III Management Discussion and Analysis
31 December 2023
31 December 2022
Percentage
Loans and
of the
Non-
Non-
Performing
Percentage
Distribution of loans and non-performing loans by product type
3.4.1
As at the end of the reporting period, the Group's equity attributable to shareholders of the Bank was
RMB1,076.370 billion, representing an increase of 13.84% as compared with the end of the previous year, among
which retained profits amounted to RMB568.372 billion, representing an increase of 15.30% as compared with the
end of the previous year; investment revaluation reserve amounted to RMB13.656 billion, representing an increase
of 15.58% as compared with the end of the previous year, mainly due to an increase in the valuation of financial
assets at fair value through other comprehensive income as compared to the end of the previous year; exchange
difference on translation of financial statements of foreign operations amounted to RMB2.934 billion, representing
an increase of RMB925 million as compared with the end of the previous year, mainly due to the fluctuations in
RMB exchange rate.
3.3.3 Shareholders' equity
(1.23)
(39,390)
- Less: allowances for impairment losses
648
0.02
679
4.55
126,698
(43,448)
2.71
52.12
1,452,499
52.36
1,680,262
- Others
- Non-standardised asset investments
- Bond investments
55.13
87,069
1,536,397
0.02
(1.56)
comprehensive income
3,209,473
other financial assets
Total investment securities and
0.86
23,844
0.83
26,590
Investments in joint ventures and associates
Debt investments at fair value through other
0.48
0.61
19,649
other comprehensive income
Equity investments designated at fair value through
27.67
771,271
27.72
889,736
13,416
2,787,066
53.86
Debt investments at amortised cost
Amount
Percentage
of the total
Percentage
of the total
amount (%)
Amount
(in millions of RMB, except for percentages)
31 December 2022
31 December 2023
The following table sets forth, as at the dates indicated, the components of investment securities and other financial
assets of the Group by line items.
amount (%)
The Group's investment securities and other financial assets consist of listed and unlisted financial instruments
denominated in RMB and foreign currencies.
3.3.1.2
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
China Merchants Bank
30
471,127
1,983,364
Chapter III Management Discussion and Analysis
Investment securities and other financial assets
1,728,620
Derivative financial assets
0.58
7.47
208,386
7.83
251,458
- Others (note)
7.72
215,081
8.57
18,733
274,687
15.19
423,467
16.40
526,145
or loss
Financial investments at fair value through profit
0.67
18,671
- Bond investments
7.24
(in millions of RMB, except for percentages)
8.49
7,624
Transportation, storage and postal services
0.14
0.78
9,205
Manufacturing
0.14
0.79
9,359
Property development
H
0.15
0.81
9,528
Transportation, storage and postal services
G
0.17
0.90
10,645
Transportation, storage and postal services
F
0.20
1.12
13,276
0.22
1.23
14,548
Transportation, storage and postal services
Transportation, storage and postal services
E
0.64
0.12
130,704
11.06
0.08
4,599
0.08
5,077
Overdue more than 3 years
0.16
9,810
0.27
17,671
Overdue from 1 year up to 3 years
0.44
26,669
0.35
23,074
D
Overdue from 3 months up to 1 year
37,207
0.56
36,161
Overdue within 3 months
loans (%)
customers
(in millions of RMB, except for percentages)
31 December 2022
Loans and Percentage
advances to of the total
customers
Percentage
of the total
loans (%)
31 December 2023
Loans and
advances to
3.4.7 Distribution of loans by overdue term
As at the end of the reporting period, the total loan of the Group's largest single borrower amounted to RMB22.280
billion, representing 1.89% of the Group's net capital under the Advanced Measurement Approach. The loan of
the Group's top ten single borrowers totalled RMB130.704 billion, representing 11.06% of the Group's net capital
under the Advanced Measurement Approach, 11.42% of the Group's net capital under the Weighted Approach, and
2.01% of the Group's total loans, respectively.
Total
2.01
0.61
Total overdue loans
0.24
15,363
0.95
61,579
100.00
6,508,865
to customers
Total loans and advances
8.49
514,054
7.24
471,127
Discounted bills
1.55
5,398
5.77
348,883
1.22
4,613
5.83
379,457
Pledged loans
0.67
14,246
35.24
2,132,337
0.63
14,091
34.48
2,244,129
Collateralised loans
6,051,459
100.00
58,004
0.96
0.29
1.60
18,876
Transportation, storage and postal services
Transportation, storage and postal services
C
0.34
1.89
22,280
Finance
AB
(%)
(%)
2023
Approach) of total loans
1.30
31 December
(in millions of RMB, except for percentages)
Top ten borrowers
Percentage
Measurement
Loans as at
Advanced
(under the
Percentage
of net capital
Loans to the top ten single borrowers
3.4.6
Chapter III Management Discussion and Analysis
China Merchants Bank
Annual Report 2023 (H share)
As at the end of the reporting period, the Group's collateralised loans and pledged loans increased by 5.74% as
compared with the end of the previous year; the guaranteed loans decreased by 1.73% as compared with the end
of the previous year, and the credit loans increased by 16.78% as compared with the end of the previous year.
Among them, the non-performing loan ratios of credit loans as well as collateralised loans and pledged loans all
decreased as compared with the end of the previous year, while the non-performing loan ratio of guaranteed loans
increased as compared with the end of the previous year.
Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
Note:
Industry
2.00
81,983
78,285
Operational risk weighted assets
-2.75
89,200
86,751
8.35
4,823,836
5,226,757
Of which: Credit risk weighted assets
Market risk weighted assets
7.80
5,491,072
5,919,504
parallel run period)
consideration the floor requirements during the
Risk-weighted assets (without taking into
13.83
1,037,942
1,181,487
Net capital
15.00
919,798
1,057,754
Net Tier 1 capital
13.51
799,352
907,308
the end of the
previous year (%)
at the end of
the current year
as compared with
Increase/decrease
31 December
2022
605,996
578,036
4.84
Risk-weighted assets (taking into consideration
39
(2) The leverage ratio shall be calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks (Revised)" promulgated
on 12 February 2015. The leverage ratio of the Group was 7.93%, 7.70% and 7.96% respectively as at the end of the third quarter, the end of the
half year and the end of the first quarter of 2023.
(1) The "Advanced Measurement Approach" refers to the advanced measurement approach set out in the "Capital Rules for Commercial Banks
(Provisional)" issued on 7 June 2012 (same as below). In accordance with the requirements of the Advanced Measurement 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 the end of the reporting period, the Group's subsidiaries for calculating its capital adequacy ratio included CMB Wing Lung Bank, CMB
International Capital, CMB Financial Leasing, CMB Wealth Management, China Merchants Fund, CIGNA & CMAM and CMB Europe S.A.. During
the parallel run period when the Advanced Measurement Approach for capital measurement is implemented, a commercial bank shall use both the
Advanced Measurement Approach and other approaches to calculate capital adequacy ratios, and comply with the capital floor requirements. The
capital floor adjustment coefficients shall be 95%, 90% and 80% respectively in the first year, the second year, and the third year (i.e. 2017) and
subsequent years during the parallel run period.
Increased by 0.31
percentage point
10.69
Notes:
11,569,842
7.95%
12,806,260
8.26%
Leverage ratio
assets
Balance of adjusted on- and off-balance sheet
Information on leverage ratio (2)
Increased by 0.11
percentage point
17.77%
31 December
2023
17.88%
percentage point
Increased by 0.26
15.75%
16.01%
Tier 1 capital adequacy ratio
percentage point
Increased by 0.05
13.12
5,841,685
13.68%
13.73%
Core Tier 1 capital adequacy ratio
6,608,021
period)
the floor requirements during the parallel run
Capital adequacy ratio
1.26
Net core Tier 1 capital
The Group
0.10
6,673
Of which: restructured loans overdue more than
90 days
0.20
advances (%)
Loan balance
12,076
loans and
of total
Percentage
31 December 2022
31 December 2023
Percentage
of total
loans and
advances (%)
0.20
13,007
Restructured loans (note)
Loan balance
(in millions of RMB, except for percentages)
514,054
3.4.8
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
China Merchants Bank
38
37
As at the end of the reporting period, overdue loans of the Group amounted to RMB81.983 billion, up by RMB3.698
billion from the end of the previous year and accounting for 1.26% of its total loans, representing a decrease of
0.03 percentage point as compared with the end of the previous year. Of the overdue loans, collateralised loans
and pledged loans accounted for 28.81%; guaranteed loans accounted for 23.18%; and credit loans accounted for
48.01% (the majority of which were overdue loans of credit cards). The Group adopted prudent asset classification
criteria for overdue loans, and the ratio of non-performing loans to the loans overdue for more than 90 days was
1.34, and the Company's ratio of non-performing loans to the loans overdue for more than 60 days was 1.19.
100.00
6,051,459
100.00
6,508,865
Total loans and advances to customers
1.29
5,207
0.09
Note:
Represents the restructured non-performing loans.
As at the end of the reporting period, the core Tier 1 capital adequacy ratio, the Tier 1 capital adequacy ratio and
the capital adequacy ratio of the Group under the Advanced Measurement Approach were 13.73%, 16.01% and
17.88% respectively, representing an increase of 0.05, 0.26 and 0.11 percentage point respectively, as compared
with the end of the previous year.
3.5.1 Capital adequacy ratio
3.5 Analysis of Capital Adequacy
Chapter III Management Discussion and Analysis
China Merchants Bank
Annual Report 2023 (H share)
The allowances for impairment losses on loans include the allowance for impairment losses on loans and advances measured at amortised cost and on loans
and advances measured at fair value through other comprehensive income.
4
The Group continued to adopt a consistent and prudent policy in respect of making allowances. As at the end of the
reporting period, the balance of allowances for impairment losses on loans of the Group amounted to RMB269.534
billion, representing an increase of RMB8.058 billion as compared with the end of the previous year. The allowance
coverage ratio was 437.70%, representing a decrease of 13.09 percentage points as compared with the end of
the previous year; the allowance-to-loan ratio was 4.14%, representing a decrease of 0.18 percentage point as
compared with the end of the previous year.
261,476
330
8,972
(39,087)
45,157
246,104
2022
Capital adequacy ratios under the Advanced
Measurement Approach (1)
8,819
(47,922)
526
269,534
46,635
2023
261,476
Foreign exchange rate and other movements
Write-offs/disposal for the period
Recovery of loans previously written off
Charge for the period
Balance as at the end of the previous year
(in millions of RMB)
The following table sets forth the changes in the allowances for impairment losses on loans of the Group.
3.4.10 Changes in the allowances for impairment losses on loans
As at the end of the reporting period, the balance of repossessed assets (other than financial instruments) of
the Group amounted to RMB556 million. After deducting the impairment allowances of RMB139 million, the
net carrying value amounted to RMB417 million. The balance of repossessed financial instruments amounted to
RMB5.404 billion.
Repossessed assets and impairment allowances
3.4.9
The Group imposed strict and prudent management and control over loan restructuring. As at the end of the
reporting period, the percentage of the Group's restructured loans to total loans was 0.20%, remained at the same
level as compared with the end of the previous year.
Balance as at the end of the period
16,698
Restructured loans
(%)(Note)
0.86
Overseas
80,336
1.23
851
1.06
78,567
1.30
544
0.69
Subsidiaries
354,942
5.45
4,346
1.22
5.49
3,790
1.14
Total loans and advances
5,468
10.46
633,129
0.85
2.60
1,862
1.10
169,566
2.80
2,020
1.19
Central China
686,673
to customers
10.55
0.95
641,554
10.60
8,048
1.25
Western China
686,701
10.55
5,820
6,514
6,508,865
100.00
61,579
Non-
performing
loan ratio
(%)
loans
Credit loans
2,592,093
39.82
24,147
0.93
31 December 2022
Percentage
of the
total loans
2,219,635
21,662
0.98
Guaranteed loans
822,059
12.63
18,728
2.28
836,550
13.82
36.68
168,929
Loans and
advances to
customers
loans
0.95
6,051,459
100.00
58,004
0.96
Notes:
(1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
(2) The Head Office includes Credit Card Centre.
The Group seized the development opportunities brought by national strategies of coordinated regional
development, focused on advantageous industries within the region, strengthened the coordination of branches
in key regions, promoted business synergy within the region, and accelerated the development of branches in key
regions. Furthermore, the Group closely monitored market changes, conducted continuous research on regional
credit policies, and implemented differentiated operational management strategies.
Non-
Performing
loan ratio
(%) (Note)
3.4.5 Distribution of loans and non-performing loans by type of guarantees
Non-
Performing
(in millions of RMB,
Loans and
advances to
of the
Non-
total loans performing
except for percentages)
customers
(%)
31 December 2023
Percentage
North-eastern China
332,147
4,673
36
China Merchants Bank
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
3.4.4
Distribution of loans and non-performing loans by region
31 December 2023
31 December 2022
Loans and
35
Percentage
Non-
Performing
Loans and
Percentage
Non-
Non-
Performing
(in millions of RMB,
except for percentages)
advances to
of the total performing
loan ratio
Non
advances to
The Group continued to improve the quality and efficiency of its services for the real economy, focused on the
development of key finance sectors, including sci-tech finance, green finance, inclusive finance, retirement finance
and digital finance, etc., improved the capabilities of customer operation, further increased the effort of loan
extension, and steadily promoted the structural adjustment of asset business. As at the end of the reporting
period, the balance of the Group's loans extended to the manufacturing industry amounted to RMB577.026 billion,
representing an increase of 23.90% as compared with the end of the previous year, accounting for 8.87% of
the total loans and advances to customers, with the proportion by 1.17 percentage points as compared with the
end of the previous year. Furthermore, the Group closely tracked changes in internal and external situations, and
continuously prevented and defused risks in key areas such as real estate and local government financing platforms.
During the reporting period, the non-performing loan ratios of the Group in terms of property development,
information transmission, software and IT service as well as transportation, storage and postal services all increased
due to the risk exposure of high-debt real estate enterprises and individual corporate customers with poor operation
and management.
(1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
Retail loans
3,437,883
52.82
30,587
0.89
0.43
52.25
28,043
0.89
(2) Primarily consists of agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.
Total loans and advances
6,508,865
100.00
61,579
0.95
6,051,459
100.00
58,004
0.96
Notes:
to customers
of the total
3,161,789
loan ratio
10,532
0.79
Bohai Rim
930,205
14.29
5,745
0.62
828,311
13.69
22.12
5,118
Pearl River Delta and
Western Taiwan Straits
Economic Zone
1,186,286
18.23
7,941
1,087,410
17.97
performing
0.62
1,338,769
0.67
10,489
0.73
loans (%)
(%)(1)
customers
loans (%)
loans
(%)(1)
Head Office (2)
973,646
loans
18,011
22.14
14.96
1,441,147
Yangtze River Delta
customers
17,811
15.57
942,006
1.89
1.85
46
The Company's capabilities of wealth management and asset management were constantly enhanced. The
Company continued to promote the development of extensive wealth management business. On the client side, as
of the end of the reporting period, the number of customers holding our wealth management products reached
51,379,500, representing an increase of 19.13% as compared with the end of the previous year, and the number
of private banking customers exceeded 140,000. On the product side, the Company carefully selected diversified
products in the whole market for customers, and enhanced the exploration of high-quality products. On the service
side, the Company further promoted the "CMB TREE Asset Allocation Service System". The number of customers
who conducted asset allocation under the system reached 9,114,500, representing an increase of 12.15% as
compared with the end of the previous year. The Company continued to build the service ecosystem with partners
and accompanied customers throughout their investment journey. As at the end of the reporting period, 152
asset management institutions have been introduced to the "Zhao Cai Hao ()", an open platform of wealth
management business of the Company. The Group's asset management subsidiaries continued to strengthen the
six major capabilities of investment research, asset origination, risk management, technology support, business
innovation and talent team. As at the end of the reporting period, the scale of assets management business
amounted to RMB4.48 trillion. The Company accelerated the exploration of the service model of asset custody
business of "service + technology + collaboration". As at the end of the reporting period, the total asset under
custody of the Company reached RMB21.12 trillion, ranking first in the industry (data from the Custody Business
Professional Committee under China Banking Association).
5
6
Represents loans granted to sci-tech enterprises such as "specialised, competitive, distinguished, and innovative ()" enterprises, high-tech enterprises
and technology-based SMEs by the Company.
Refers to the Golden card and Golden Sunflower card holders who have two or more types of wealth management products out of the four types of wealth
management products, namely, trade-ready management, protection-based management, conservative investment and aggressive investment.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
7
Promoting the construction of digital finance and pressing ahead towards
"Smart CMB ()"
The Company promoted the construction of digital finance around the transformation direction of "online, data-
based, intelligent, platform-based and ecological operation", thereby shifting from "Online CMB" towards "Smart
CMB". During the reporting period, the Company's information technology input amounted to RMB14.126 billion.
The ratio of information technology input to the Company's net operating income reached 4.60%. The Company
attached great importance to the construction of digital talent pool. As of the end of reporting period, the number
of R&D personnel of the Group reached 10,650, accounting for 9.14% of the total number of employees of the
Group. Focusing on the five major development directions of digital operation and management, cutting-edge
technology capabilities, bank-to-business ecosystem, bank-to-consumer ecosystem, innovation and incubation, the
Company continuously promoted the construction of new capabilities and the exploration of new models of Fintech
Innovation Project Fund. During the reporting period, 558 new projects were launched, and 612 new projects
were put into operation. As of the end of reporting period, the number of the Bank's Fintech innovation projects
launched and put into operation reached an aggregate of 3,800 and 3,062, respectively.
In terms of wholesale customer service, digital channel has become an important portal of customer
acquisition. Based on online operation, the Company used digital tools to improve the quality and
efficiency of services of relationship managers, and facilitated the digital transformation as well
as integrated transformation of business and finance of enterprises with products such as Treasury
Management Cloud (). During the reporting period, the Company achieved list-based high-quality
customer acquisition of 112,600 customers, representing a year-on-year increase of 28.85%; the volume of service
delivered via Enterprise WeChat exceeded 17 million times. As at the end of the reporting period, the percentage of
financing business conducted online was 92.28%, representing an increase of 10.14 percentage points as compared
with the end of the previous year, and the percentage of foreign exchange business conducted online was 75.34%,
representing an increase of 9.85 percentage points as compared with the end of the previous year. As at the end of
the reporting period, Treasury Management Cloud () accumulatively served 477,600 corporate customers,
representing an increase of 62.15% as compared with the end of the previous year.
In terms of risk management, the Company constructed the intelligent risk control engine, and
comprehensively utilised internal and external data to continuously enhance its digital risk control
capability and efficiency. During the reporting period, the intelligent pre-warning coverage rate of on- and off-
balance sheet "all businesses"7 reached 100%. "Libra ()" guarded transaction security, effectively helping
customers block telecommunications fraud, and the percentage of fraud and account takeover amounts by non-
cardholders was lowered to 0.1 in ten millionths. The corporate loans newly granted through the online risk control
platform amounted to RMB303.560 billion, representing a year-on-year increase of 53.58%. By applying digital
processes, the Company reduced the average time taken for the granting of an inclusive finance mortgage loan
from one month to 2.7 days.
Covering on- and off-balance sheet businesses such as proprietary credit extension business, asset management business, agency distribution business and
other cooperative businesses.
The leading advantages of the Company's investment banking and financial markets sector were
continuously consolidated. The Company accelerated the transformation of its investment banking business to
become a "fund originator", and continuously improved its business capabilities in terms of bond underwriting
and M&A financing. As at the end of the reporting period, the balance of the aggregate financing products to
corporate customers (FPA) contributed by the investment banking business increased by 14.91% as compared with
the beginning of the year. The self-operated investment and research systems of the financial markets business were
continuously improved, and the advantages of tradings on behalf of customers were further consolidated. During
the reporting period, the Company provided hedging services to 6,285 companies with a total transaction volume
of USD64.783 billion in derivatives from corporate customers. With the on-going improvement of the integrated
operation capability of bill business, the Company continued to enhance its bill transaction business. During the
reporting period, the number of customers of bill business of the Company was 159,700 with a year-on-year
increase of 11.38% and the volume of commercial acceptance bill discounting ranked first in the market (data from
the Commercial Bank Bill Business Association).
45
3.
In terms of retail customer service, the Company accelerated the transformation and upgrading from
"online retail ()" to "digital and intelligent retail ()", constructed the intelligent wealth
engine and intelligent customer service engine, and consolidated our digital capabilities. CMB APP further
integrated artificial intelligence, intelligent customer service and remote consultancy capabilities to launch the
brand new intelligent wealth assistant "Xiao Zhao ()", which provided one-stop wealth management services
such as financial analysis, product selection strategies, market views and yield analysis, as well as personalised and
customised advisory services. As of the end of reporting period, the monthly active users (MAU) of the CMB APP
and the CMB Life APP reached 117 million. During the reporting period, the micro-finance loans granted through
online approval accounted for 66.74% of the micro-finance loans granted through all channels, representing a year-
on-year increase of 7.13 percentage points. With the upgrading of "Wealth Alpha+" platform in respect of wealth
management business, the Company realised digital and intelligent operation of the whole process in investment
research, product selection and post-investment management, and deepened the empowerment to improve the
professionalism of key positions.
Dynamically balanced development of "Quality, Profitability and Scale"
Focusing on the value creation chain of "volume growth revenue growth - profit growth - value growth", the
Company adhered to the principle of "takes quality as the foundation and profitability as priority, while maintaining
moderate scale and reasonable structure", maintained stable asset quality, leading position in risk compensation
capacity, steady profit growth, and a relatively high level of ROAA and ROAE during the reporting period; the
business scale grew steadily, and the customer base, assets and liabilities increased in quantity and maintained in
good quality. In light of the operational structure with obvious advantages, retail finance business contributed to
more than 55% in terms of both net operating income and profit; indicators such as proportion of demand deposits,
proportion of net non-interest income and others maintained a relatively good level; and customer structure and
asset structure were continuously optimised.
Chapter III Management Discussion and Analysis
China Merchants Bank
46
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
3.7 Other Financial Disclosures under the Regulatory Requirements
3.7.1 Balance of off-balance sheet items that may have a material effect on the
financial position and operating results and the related information
The Group's off-balance sheet items include derivative financial instruments, commitments and contingent liabilities.
Commitments and contingent liabilities include credit commitments, leasing commitments, capital commitments,
securities underwriting commitments, bonds redemption commitments, outstanding litigations and disputes and
other contingent liabilities, among which the credit commitments are the primary component. As at the end of the
reporting period, the balance of credit commitments of the Group was RMB2,817.969 billion. For details of the
contingent liabilities and commitments, please refer to Note 58(a) to the financial statements.
3.7.2 Outstanding overdue debts
As at the end of the reporting period, the Group did not have any outstanding overdue debts.
The featured advantages of the Company's corporate finance sector were continuously strengthened.
Focusing on the needs of the nation and the capabilities of CMB, the Company built featured finance services,
including sci-tech finance, green finance, inclusive finance and intelligent manufacturing finance, upgraded the
customer acquisition and service model, and continued to expand the breadth and depth of customer services.
As at the end of the reporting period, the total number of corporate customers served by the Company reached
2,820,600, representing an increase of 11.66% as compared with the end of the previous year. The balance
of deposits from corporate customers amounted to RMB4,557.243 billion, representing an increase of 5.52%
as compared with the end of the previous year; and the balance of loans to corporate customers amounted
to RMB2,321.585 billion, representing an increase of 10.70% as compared with the end of the previous year.
Among them, the growth rate of loans in key areas such as sci-tech finance, green finance, inclusive finance and
manufacturing finance was significantly higher than the overall growth rate of the loans of the Company. As at the
end of the reporting period, the balance of loans extended to the sci-tech enterprises5 was RMB428.477 billion,
representing an increase of 44.95% as compared with the end of the previous year; the balance of green loans
amounted to RMB447.765 billion, representing an increase of 26.00% as compared with the end of the previous
year; the balance of SME inclusive finance loans was RMB804.279 billion, representing an increase of 18.56% as
compared with the end of the previous year; and the balance of loans extended to the manufacturing industry
amounted to RMB555.102 billion, representing an increase of 25.06% as compared with the end of the previous
year.
3.8 Implementation of Development Strategies
1.
2.
Balanced and coordinated development of our four major sectors
During the reporting period, the Company continued to promote the development of four major sectors, namely
"retail finance, corporate finance, investment banking and financial markets, wealth management and asset
management", to form a business pattern of balanced and coordinated development with distinctive features,
strengthened and enhanced the capital-heavy business, and optimised and expanded the capital-light business.
The systematic advantages of the Company's retail finance sector were further highlighted. Focusing on
the original needs of customers in "deposit, loan, and remittance (17)", the Company constantly improved the
service level through the methodology of "people + digitalisation" services. As at the end of the reporting period,
the Company's retail customers reached 197 million in total, representing an increase of 7.07% as compared with
the end of the previous year. As of the end of the reporting period, the balance of total assets under management
(AUM) from retail customers amounted to RMB13.32 trillion, representing an increase of 9.88% as compared with
the end of the previous year. The balance of deposits from retail customers amounted to RMB3,314.318 billion,
representing an increase of 12.13% as compared with the end of the previous year. The balance of retail loans
amounted to RMB3,373.633 billion, representing an increase of 8.49% as compared with the end of the previous
year. Due to continued improvement of the debit and credit card integrated customer acquisition and operating
efficiency, 65.72% of our credit card customers held both our debit cards and credit cards as of the end of the
reporting period, up by 1.62 percentage points as compared with the end of the previous year.
43
44
China Merchants Bank
Annual Report 2023 (H share)
During the reporting period, the Company focused on the strategic objective of "value creation bank", and adhered
to the priority of stability, while pursuing progress amid stability. The Company accelerated to improve its capabilities
in wealth management, Fintech and risk management, maintaining stable operating results and further enhancing
market competitiveness, so as to take solid steps on the path of high-quality development.
China Merchants Bank
Annual Report 2023 (H share)
Annual Report 2023 (H share)
In terms of operation management, the Company used data to drive operation decisions, so as to improve
the efficiency and accuracy of management decisions. During the reporting period, the Company built a
strategic operation decision-making analysis platform for retail business lines, and developed a mobile business
intelligence, a unified data reviewing portal for the Head Office and branches, and a business scenario-based data
ecosystem to improve the efficiency of operation analysis for all positions, all businesses and all scenarios. The
Company promoted the construction of a digital platform of customer relationship management (CRM) system
for wholesale business lines, which linked the whole chain of operation and management of the Head Office,
branches and sub-branches, significantly improving the digital operation and management level of corporate
business. The Company built a risk portal for risk business lines, integrated various risk data inside and outside the
Bank, and built a rich database, model library, knowledge base and application functions to provide effective data
and decision-making support for credit officers. The Company realised comprehensive operation monitoring and
intelligent reasoning analysis for the Head Office, branches and sub-branches via "Zi Zhai Tong ()" portal of
the finance and accounting business line, the closed-loop management of all online pricing process via the product
pricing management system, and integrated the New Capital Rules into the internal management system via the
capital management system, which significantly improved the efficiency of resource allocation and stimulated the
enthusiasm of frontline operations through digital tools. The Company built a digital platform for smart finance,
realising online and intelligent management of all financial processes, and building a leading financial management
system in the domestic banking industry.
3.9.1 Net interest margin
During the reporting period, the Group's net interest margin was 2.15%, representing a decrease of 25 basis points
year-on-year; the Company's net interest margin was 2.20%, representing a decrease of 24 basis points year-on-
year. Such decrease in net interest margin was mainly due to the reasons below. On the asset side, firstly, due to
the continued downturn of the LPR (Loan Prime Rate) and the insufficient effective credit demand, the pricing of
newly granted loans declined year-on-year, which led to the year-on-year decrease in the average yield of loans;
secondly, residents' consumption and their willingness to purchase houses are pending for further recovery and the
growth of loans which had relatively high yields, such as credit card loans and residential mortgage loans, remained
sluggish. On the liability side, corporate funds were insufficiently allocated to demand deposit products, and the
growth of low-cost corporate demand deposits such as corporate settlement funds deposits was restricted. Coupled
with shift of residents' investment to time deposits due to the disturbance in the capital market, customers' demand
for wealth-enhancing features in deposits was on the rise, and the proportion of demand deposits declined, with
an increase in cost ratio of liabilities. In order to maintain a relatively stable net interest margin, the Group further
strengthened the management of its asset and liability portfolio during the reporting period. On the asset side, the
Group persistently focused on loan granting while increasing asset allocation in bonds to improve the efficiency of
capital utilisation. On the liability side, the Group focused on driving growth in low-cost core deposits. The average
cost rate of customer deposits denominated in RMB of the Company during the reporting period was 1.56%,
representing a year-on-year decrease of 4 basis points.
Looking forward to 2024, The Group will actively take measures to maintain the net interest margin at a relatively
outstanding level in the industry. On the asset side, the Group will continue to prioritise category asset allocation to
promote the stable growth of credit scale and enhance the effort of retail loan extension, while reinforcing the loan
risk pricing management. At the same time, the Group will strengthen its capability in forward-looking prediction of
market interest rates, and flexibly allocate investment assets to improve overall allocation efficiency. On the liability
side, the Group will insist on focusing on the growth of low-cost core deposits, strengthen the limit control of high-
cost deposits. Meanwhile, the Group will flexibly arrange market-oriented financing and reduce the overall cost of
liabilities according to the trend of market interest rates.
3.9.2 Net non-interest income
During the reporting period, faced with challenges such as insufficient effective demand and the continued
downturn in the capital market, the Group implemented high-quality development requirements, focused on
customer needs, made efforts to support the real economy, and continuously improved the quality and efficiency
of intermediary business services. In light of the impact of short-term adverse factors, the Group actively built
differentiated competitiveness in an effort to explore growth points in segmented areas. During the reporting period,
the Group realised net non-interest income of RMB124.409 billion, representing a decrease of 1.66% year-on-year,
accounting for 36.69% of net operating income, representing a decrease of 0.01 percentage point year-on-year.
Among the Group's net non-interest income, net fee and commission income was RMB84.108 billion, representing
a decrease of 10.78% year-on-year, accounting for 67.61% of the net non-interest income; other net non-interest
income was RMB40.301 billion, representing an increase of 25.04% year-on-year. During the reporting period, the
Group's revenue contributed by extensive wealth management was RMB45.268 billion, representing a decrease of
7.90% as compared with the previous year.
9
The income from extensive wealth management includes the fee and commission income from wealth management, asset management and custody
business.
49
49
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
The major items under the Group's net fee and commission income during the reporting period are analysed as
follows. Fee and commission income from wealth management amounted to RMB28.466 billion, representing
a year-on-year decrease of 7.89%, of which income from agency distribution of insurance policies amounted to
RMB13.585 billion, representing a year-on-year increase of 9.33%. The growth rate narrowed compared with that
in the first three quarters due to fee reduction in the bancassurance channel. Income from agency distribution of
wealth management products was RMB5.424 billion, representing a year-on-year decrease of 18.37%, mainly due
to the changes in scale and structure of wealth management products. Income from agency distribution of funds
amounted to RMB5.179 billion, representing a year-on-year decrease of 21.52%, which was mainly due to the
downward trend amid volatility of the capital market, resulting in year-on-year decrease in the holding and sales
of equity funds with higher fees. Income from agency distribution of trust schemes amounted to RMB3.206 billion,
representing a year-on-year decrease of 19.43%, which was mainly due to the decrease in the holding of agency
distribution of trust. Income from securities brokerage was RMB731 million, representing a year-on-year decrease of
19.05%, which was mainly affected by the market conditions and trading activity of Hong Kong's capital market.
Fee and commission income from asset management amounted to RMB11.474 billion, representing a year-on-
year decrease of 7.89%, which was mainly due to the year-on-year decrease in the daily average scale of products
under the management of CMB Wealth Management. Commission income from custody business was RMB5.328
billion, representing a year-on-year decrease of 8.00%, which was mainly due to the decrease in income from
equity mutual funds and wealth management custody. Income from bank card fees amounted to RMB19.525
billion, representing a year-on-year decrease of 8.76%, which was mainly due to the decrease in fee income from
offline transaction of credit cards. Income from settlement and clearing fees amounted to RMB 15.492 billion,
representing a year-on-year increase of 2.93%, mainly due to the increase in e-payment income.
Looking forward to 2024, the Group will promote the high-quality growth of net non-interest income through the
following measures: the first is to continuously promote the development of extensive wealth management business,
attaching great importance to both expanding the customer base and tapping the potential of the existing wealth
management customer groups. By putting in more efforts in strengthening product innovation and tapping the
asset allocation potential of key customers, the Group will pay close attention to the opportunities amid the market
recovery, optimise the structure of insurance, funds, wealth management and other products, and enhance the
contribution of fee and commission income from wealth management by emphasising on both volume and pricing;
the second is to seize the opportunity of consumption recovery, continue to upgrade and improve basic transaction
services such as credit cards and e-payments, vigorously carry out promotion of card binding and card activation
operations, improve refined operational capabilities by leveraging on the power of Fintech and tap the potential
of transaction to increase revenue; the third is to strengthen market research and judgement and professional
capacity building, closely keep up with the needs of enterprises, make arrangements in advance, and improve the
comprehensive service system, so as to increase the contribution of corporate finance, investment banking and
financial market segments to net non-interest income.
3.9.3 Risk management and control in the real estate sector
During the reporting period, the Group followed the national policy guidance and regulatory requirements, and adhered
to the overall strategy with "clear positioning, stable scale, improved onboarding, focused regions, adjusted structure and
strict management". Under the premise of controllable risks, the Group seized structural opportunities, focused on high-
quality enterprises and high-quality regions, and selected high-quality businesses and projects that can be covered by
project cash flow, especially high-quality commodity residential projects, government-subsidised (rental) housing projects
and operating property projects, so as to support the stable and healthy development of the real estate market. At the
same time, the Group unified the risk appetite of on- and off-balance sheet businesses, implemented centralised risk
management of customers granted with large credit facility, strictly examined cash flows, and continuously strengthened
post-investment and post-loan management.
statements.
3.9 Key Business Concerns in Operation
Chapter III Management Discussion and Analysis
China Merchants Bank
48
In terms of internal operation, the Company relieved its staff from repetitive, time-consuming work
by leveraging technology and consolidated experience with data to construct the intelligent operation
engine and achieve a high-quality balance of experience, efficiency, risk and cost. During the reporting
period, "Kaiyang Portal (F)", a new generation of open operation service platform, completed the intelligent
transformation and application of over 400 operation processes, and the processing efficiency of key businesses
increased by 27%. By leveraging the intelligent application in scenarios such as the intelligent customer service,
intelligent process, quality inspection and the Conch RPA (Robot Process Automation), our staff were relieved from
repetitive, time-consuming work equivalent to a workload of over 17,000 full-time individuals.
In terms of digital infrastructure, the Company has entered into a more stable, agile and resilient "post-
cloud era". The technology middle office strengthened component governance and accelerated the establishment
and promotion of low-threshold development platform. The data middle office pushed forward the import of
external data and enterprise-level data governance and application. As of the end of the reporting period, the overall
availability of the cloud services exceeded 99.999%, while the "Project of Full-scale Cloud Deployment of CMB
Banking System" winning the first prize of Fintech Development Award of the People's Bank of China. The system
supported on-demand application expansion with minute-level flexibility, which could adjust the flexible allocation of
resources according to business needs and strategies to achieve the optimal use of resources. The technology middle
office had launched over 5,100 components, among which 1,254 components passed the quality certification of the
Bank, representing an increase of 146.85% as compared with the end of the previous year. The Company launched
5,646 applications on the low-code development platform, of which the business personnel accounted for more
than 53% of all developers. The data middle office introduced nearly 400 data sources, and the big data services
covered 60% of the employees in the Bank.
The Company grasped the definite opportunities of the large language model, and actively carried out the
construction and application of the large language model. On the one hand, the Company actively strengthened
the construction of large models, introduced large models with hundreds of billions of parameters, used its own
corpus to optimise, train and adapt to bank-wise application scenarios, and actively followed up the technological
development of open-source large models. The Company also self-developed the large models with tens of billions
of parameters in professional scenarios. On the other hand, we actively explored the application of large models in
retail business, wholesale business, middle office and back office. At the same time, the Company established the
large model experience platform, connecting to various mainstream large models in China.
8
Availability refers to the proportion of normal working conditions in a given period of time. The overall availability of the cloud platform is the arithmetic
average of the availability of each important system running on the cloud platform.
China Merchants Bank
Annual Report 2023 (H share)
4.
Chapter III Management Discussion and Analysis
5.
Chapter III Management Discussion and Analysis
To continue building a fortress-style overall risk and compliance management
system
During the reporting period, the Company continued to promote the "Six All" risk management system covering "all
risks, all branches and subsidiaries, all customers, all assets, all processes, and all factors", optimised the centralised
system of credit granting and limit management of customers granted with large credit facility, further enhanced
centralised customer management, established a domestic branch-based risk profile and classification system, and
enhanced the risk management for subsidiaries and overseas institutions. The Company actively prevented and
mitigated risks in key areas, effectively and steadily disposed a number of real estate projects associated with risk,
promoted the prudent and differentiated management of local government financing business, steadily carried out
the business of small- and medium-sized financial institutions, and continued to promote the collection of non-
performing loans. The Company promoted the dynamic rebalancing of asset business, optimised the "one branch,
one policy", list-based operation for the asset business, and optimised research policies on industrial clusters,
advantageous industries and regional economies. The Company comprehensively reinforced the internal control and
compliance management, strengthened the promotion of risk and compliance culture, strengthened the construction
of inspection and supervision team at branches, continued to strengthen the sanction and compliance management,
and continuously deepened the money laundering risk management.
To accelerate the construction of advantages in key regions
During the reporting period, the Company proactively responded to the nation's major regional development
strategy and industrial cluster development strategy, and accelerated the release of development potential of the
key branches among the Yangtze River Delta, the Pearl River Delta, Chengdu-Chongqing Region and the Western
Taiwan Straits Economic Zone in combination with the regional layout and business structure of the Company's
branches so as to adapt to local economic development. The Company carried out the "deep and intensive
cultivation" centring on regional advantageous and characteristic industries as well as customer needs, strengthened
its core competitiveness and enhanced the operating efficiency of branches in key regions by "promoting featured
services of CMB in key regions, developing region-based strategies within CMB" to develop new growth engines
for high-quality development. The development strategy of key regions has achieved initial results. As at the end of
the reporting period, the growth rates of core deposits, AUM and corporate loans of 17 branches of the Company
in key regions were higher than the average level of the Bank. As at the end of the reporting period, the balance
of corporate loans of the above 17 branches in the key regions amounted to RMB867.679 billion, representing an
increase of RMB124.941 billion as compared with the end of the previous year, accounting for 37.37% of the total
corporate loans of the Company. The increased loans accounted for 55.66% of the total incremental corporate
loans of the Company.
To comprehensively improve the level of refined management
During the reporting period, the Company insisted on building a refined and standardised management system to
improve the efficiency, effectiveness, and efficacy of value creation. By further reforming in organisational structure,
the Company steadily promoted the reform of operational system of branches, and adjusted and optimised the
structure and management model of Head Office departments, so the organisational structure became more aligned
with value creation bank. The Company also strengthened talent management, promoted the development of
talents across different organisational level, upgraded talent exchange program, enhanced the application of the
"Six Can-do" mechanism (), and comprehensively strengthened the code of conduct of employees. The
Company optimised the management of asset and liability, upgraded the asset and liability management system
and the performance management system focusing on value creation, and actively promoted the preparation for
implementation of the New Capital Rules. The Company upgraded its service management, explored the construction
of an "extensive consumer protection" working pattern, strengthened the protection of consumer rights, focused on
the traceability and rectification of key and difficult issues, created new service standards for China Merchants Bank,
and constantly improved service quality and efficiency. Therefore, the number of customer complaints was reduced
by 35% year-on-year. The Company implemented strict financial management, adhered to careful planning, and
strengthened the closed-loop management of the whole process of costs and expenses.
47
6.
For the detailed figures of the Group's business and geographical segments, please refer to Note 56 to the financial
40
344,740
Note: The "Weighted Approach" refers to the Weighted Approach for credit risk, the Standardised Measurement 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 on 7 June 2012. Same as below.
Increased by 0.28
percentage point
14.68%
14.96%
percentage point
Increased by 0.57
13.25%
13.82%
percentage point
Increased by 0.34
10.25
6,941,350
11.52%
11.86%
7,652,723
China Merchants Bank
Annual Report 2023 (H share)
12.39
1,144,901
15.00
919,798
1,057,754
13.51
799,352
907,308
at the end of
the current year
as compared with
the end of the
previous year (%)
Increase/decrease
31 December
2022
2023
31 December
Capital adequacy ratio
Tier 1 capital adequacy ratio
1,018,678
Chapter III Management Discussion and Analysis
As at the end of the reporting period, the core Tier 1 capital adequacy ratio, the Tier 1 capital adequacy ratio and
the capital adequacy ratio of the Company under the Weighted Approach were 11.38%, 13.40% and 14.52%
respectively, representing an increase of 0.41, 0.61 and 0.30 percentage point respectively as compared with the
end of the previous year.
The Company
percentage point
Increased by 0.41
10.97%
11.38%
10.27
6,390,196
7,046,274
12.61
908,572
1,023,111
15.53
817,387
944,349
14.34
701,033
801,565
the end of the
previous year (%)
(in millions of RMB, except for percentages)
Capital adequacy ratios under the Weighted
Approach
Net core Tier 1 capital
Net Tier 1 capital
Net capital
Core Tier 1 capital adequacy ratio
Risk-weighted assets
Tier 1 capital adequacy ratio
Capital adequacy ratio
Increase/decrease
at the end of
the current year
as compared with
31 December
2023
31 December
2022
Core Tier 1 capital adequacy ratio
Risk-weighted assets
Net capital
Net Tier 1 capital
7.50
4,925,532
5,295,085
parallel run period)
consideration the floor requirements during the
Risk-weighted assets (without taking into
14.21
927,881
1,059,697
Net capital
15.53
817,387
944,349
Net Tier 1 capital
14.34
701,033
801,565
40
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
As at the end of the reporting period, the core Tier 1 capital adequacy ratio, the Tier 1 capital adequacy ratio and
the capital adequacy ratio of the Company under the Advanced Measurement Approach were 13.32%, 15.70% and
17.62% respectively, representing an increase of 0.09, 0.28 and 0.11 percentage point respectively, as compared
with the end of the previous year.
The Company
(in millions of RMB, except for percentages)
Of which: Credit risk weighted assets
Market risk weighted assets
Capital adequacy ratios under the Advanced
Net core Tier 1 capital
Increase/decrease
at the end of
the current year
as compared with
31 December
2023
31 December
2022
the end of the
previous year (%)
Measurement Approach
13.40%
4,673,703
7.91
Net core Tier 1 capital
Capital adequacy ratios under the Weighted
Approach (note)
(in millions of RMB, except for percentages)
The Group
As at the end of the reporting period, the core Tier 1 capital adequacy ratio, the Tier 1 capital adequacy ratio
and the capital adequacy ratio of the Group under the Weighted Approach were 11.86%, 13.82% and 14.96%
respectively, representing an increase of 0.34, 0.57 and 0.28 percentage point respectively as compared with the
end of the previous year.
percentage point
Increased by 0.11
17.51%
17.62%
Capital adequacy ratio
percentage point
Increased by 0.28
15.42%
15.70%
Tier 1 capital adequacy ratio
percentage point
Increased by 0.09
During the reporting period, profit before tax of retail finance business of the Group amounted to RMB99.913
billion, up by 6.09% year-on-year, accounting for 56.57% of the profit before tax of the Group, representing a
year-on-year decrease of 0.47 percentage point; net operating income amounted to RMB194.315 billion, up by
1.52% year-on-year, accounting for 57.31% of the net operating income of the Group, representing a year-on-year
increase of 1.79 percentage points. During the reporting period, the cost-to-income ratio of retail finance business
of the Group was 31.96%, representing a year-on-year increase of 0.01 percentage point.
69,000
-2.69
Operational risk weighted assets
554,239
525,577
4,330,955
5.45
the floor requirements during the parallel run
period)
6,015,774
Core Tier 1 capital adequacy ratio
13.32%
5,299,237
13.23%
13.52
Risk-weighted assets (taking into consideration
12.79%
67,143
percentage point
3.6 Results of Operating Segments
334
809
302
703
1,060
541
857
period
period
Value at the end of the period
Minimum value
Average value
Maximum value
3
4
2
1
Item
253,314
38,998
42
China Merchants Bank
Annual Report 2023 (H share)
3.5.3
The major business segments of the Group include retail finance and wholesale finance. The following table
summarises the operating results of each business segment of the Group for the periods indicated.
Chapter III Management Discussion and Analysis
The Group uses mixed approaches to calculate its market risk capital requirement. Specifically, it uses the Internal
Model-based Approach to calculate the general market risk capital requirement of the Company (excluding
overseas branches), and uses the Standardised Measurement Approach to calculate the general market risk
capital requirement of overseas branches and subsidiaries of the Company as well as the specific market risk
capital requirement of the Company and its subsidiaries. As at the end of the reporting period, the market risk-
weighted assets of the Group were RMB86.751 billion, and the market risk capital requirement was RMB6.940
billion, of which the general market risk capital requirement calculated under the Internal Model-based Approach
was RMB4.528 billion, and the market risk capital requirement calculated under the Standardised Measurement
Approach was RMB2.412 billion.
The Group's market risk capital requirement under the Internal Model-based 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 the
reporting period.
No.
31 December 2023
Distressed
market risk
value during
the reporting
General
market risk
value during
the reporting
(in millions of RMB)
Measurement of market risk capital
232,634
38,019
Items
Retail finance
Increased by 0.61
165,113
339,078
176,618
11,231
3,786
10,138
3,940
142,094
67,149
134,625
72,765
191,415
94,178
194,315
99,913
Net
operating
income
Wholesale finance
Other businesses
Total
2023
Profit
2022
(in millions of RMB)
before tax
by business
Profit
before tax
operating
by business
segments
income
segments
Net
Counterparty
911
5,178,480
1,921,846
1,921,846
Qualified revolving retail
1,379,581
1,379,581
Of which: Residential mortgage
4,014,718
4,014,718
Retail
2,553,072
2,553,072
1,159,243
1,159,243
Group
Legal person
Corporate
Financial institution
Type of risk exposure
Portion covered by the
IRB approach
(in millions of RMB)
31 December 2023
During the reporting period, the credit risk of the Company under the Internal Ratings-Based approach (IRB
approach) was classified into six types of risk exposures: sovereign, financial institution, corporate, retail,
shareholding and others. As at the end of the reporting period, the balances of various risk exposures were as
follows.
3.5.2 Balance of credit risk exposures
Off-balance sheet
41
11
Increased by 0.30
14.22%
14.52%
Other retail
713,291
percentage point
Portion not covered by the IRB
approach
On-balance sheet
4,608,970
713,291
loans (%)
1,168
9,731
Others (Note)
1.31
3,946
0.51
1,539
1.09
3,285
301,538
2,097,114
Consumer loans
3.20
29,905
3.35
31,373
1.75
China Merchants Bank
Annual Report 2023 (H share)
The core deposits represent the internal management indicator for the Company's deposits, excluding large-denomination certificates of deposit, structured
deposits and other high-cost deposits.
10
As at the end of the reporting period, the balance of deposits from customers of the Company was RMB7,871.561
billion, representing an increase of RMB597.048 billion or a growth rate of 8.21% as compared with the end of the
previous year. The growth rate of deposits from customers of the Company declined compared with the previous
year, with the main reasons as follows: firstly, the growth rate of M2 declined, which was recorded as 9.7% in
2023, representing a decrease of 2.1 percentage points as compared with the previous year, and the increase in
deposits from financial institutions was less than that of the previous year; secondly, economic recovery has not met
the expectations. Enterprises experienced slower recovery than expected, and the liquidity activities of enterprises
remained at low level, with lack of willingness for investment and financing, thus generating less demand deposits.
At the same time, disturbance in the capital market and the demand for deposits from customers, especially demand
for medium- and long-term time deposits increased, resulting in an increase in the proportion of time deposits of
the Company. Facing the challenges of changes in the external environment, the Company coped with the pressure
of slowdown in deposit growth by taking various measures such as strengthening customer-centric management,
enhancing customer base expansion, reinforcing deposit classification management and cost control. During the
reporting period, the Company's average daily balance of core deposits 10 was RMB6,615.946 billion, representing
an increase of RMB758.195 billion or a growth rate of 12.94% as compared with the previous year, accounting
for 86.63% of the average daily balance of customer deposits, representing a decrease of 0.87 percentage point
as compared with the previous year. The average daily balance of demand deposits was RMB4,430.730 billion,
representing an increase of RMB268.196 billion or a growth rate of 6.44% as compared with the previous year,
accounting for 58.02% of the average daily balance of customer deposits, representing a decrease of 4.16
percentage points as compared with the previous year. As at the end of the reporting period, the balance of
structured deposits of the Company amounted to RMB262.934 billion, representing an increase of RMB20.170
billion as compared with the end of the previous year, accounting for 3.34% of the balance of deposits from
customers, which remained at the same level compared to that at the end of the previous year.
3.9.4 Deposits from customers
In the future, the Group will continue to firmly implement relevant national policies on the real estate industry,
support rigid and improving housing demands, meet the reasonable financing needs of real estate enterprises
of different ownerships with fair and equal treatment, enhance the support for non-state-owned real estate
enterprises, improve the service level to the "three major projects" such as government-subsidised housing, and
the development of the housing rental market. At the same time, the Group reasonably identified project risks of
subsidiaries and the holding companies of the groups, further strengthened centralised risk management and post-
investment and post-loan management, resolutely implemented the requirements for closed management of real
estate loans, and effectively managed and controlled risk of projects. In accordance with the principles of compliance
with laws and regulations, controllable risks and business sustainability, the Company promoted risk mitigation of
real estate enterprises, maintained the overall stability of the quality of real estate assets, endeavoured to provide
financial support to the steady and healthy development of the real estate market, and facilitated the construction
of the new development model of real estate industry.
12.00
As at the end of the reporting period, the Group's total balance of real estate related businesses which were subject
to credit risks, such as the actual and contingent credit, proprietary bond investments, and proprietary investment
of non-standardised assets, amounted to RMB398.967 billion, representing a decrease of 13.89% as compared with
the end of the previous year. The total balance of the businesses for which the Group did not assume credit risks,
such as wealth management fund financing, entrusted loans, agency distribution of trust schemes under the active
management by cooperative institutions, and debt financing instruments with the Group as the lead underwriter
amounted to RMB249.448 billion, representing a decrease of 16.95% as compared with the end of the previous
year. As at the end of the reporting period, the Company's balance of loans granted to the real estate industry
was RMB290.742 billion, representing a decrease of RMB42.973 billion as compared with the end of the previous
year, accounting for 4.71% of the Company's total loans and advances to customers, representing a decrease of
1.12 percentage points as compared with the end of the previous year. As at the end of the reporting period, the
customer and regional structure of the Company in respect of real estate related loans have remained sound, among
which the balance of loans granted to customers featuring high credit-rating accounted for over 70%; in terms of
regions where the projects were located, over 85% of the Company's balance of loans for real estate development
was located in the urban areas of first-tier and second-tier cities. As at the end of the reporting period, the
Company's non-performing loan ratio of real estate loans was 5.01%, representing an increase of 1.02 percentage
points as compared with the end of the previous year.
Annual Report 2023 (H share)
China Merchants Bank
50
26,205
935,777
16,381
Chapter III Management Discussion and Analysis
72
0.74
1,178
Non-
performing
of special-
mentioned
Percentage
of special-
mentioned
Balance of
Percentage
performing
overdue
except for percentages)
advances
loans loan ratio (%)
loans
loans (%)
loans
of overdue
Corporate loans
loans and
of non-
Chapter III Management Discussion and Analysis
Total loans and advances to
customers
6,166,345
57,233
0.93
(In millions of RMB,
66,822
73,568
1.19
31 December 2022
Balance
Balance
Balance of
1.08
12.11
Looking forward to 2024, the general keynote of the macro-economy is to adhere to the principle of making
progress amid stability, promoting stability through progress, establishing the new before abolishing the old, and
continuing to consolidate the foundation of seeking progress while maintaining stability. The proactive fiscal policy
and prudent monetary policy will continue to exert influence, and the macro-economy will further recover. The
external environment for the growth of deposits among commercial banks is expected to experience marginal
improvement, but the trend of shifting towards time deposits is likely to continue, with increasingly fierce market
competition. It is expected that the Company will continue to face pressures in both scale growth and cost control.
In order to maintain the high-quality growth of deposits, the Company will take the following measures. Firstly, the
Company will return to the origin of customers and consolidate the foundation for deposit growth through customer
base expansion. Secondly, the Company will adhere to the promotion strategy of focusing on core deposits and
expand stable and low-cost deposits through settlement services, wealth management, product innovation and other
means. Thirdly, the Company will use classified management to strengthen the control of the scale and proportion
of high-cost deposits to ensure that the deposit cost ratio remains at a satisfactory level throughout the year.
The Company continued to build the capability of asset origination and took various measures to promote the steady
growth of loans while appropriately increasing the allocation of interest rate bonds and quality credit bonds in light
of interest rate trends. As at the end of the reporting period, the Company's total loans and advances to customers
amounted to RMB6,166.345 billion, representing an increase of 7.79% as compared with the end of the previous
year, accounting for 59.77% of the total assets of the Company, representing a decrease of 0.38 percentage point
as compared with the end of the previous year. Among them, retail loans were RMB3,373.633 billion, representing
an increase of 8.49% as compared with the end of the previous year, accounting for 54.71% of the loans and
advances to customers of the Company, representing an increase of 0.35 percentage point as compared with the
end of the previous year. The growth of residential mortgage loans was relatively weak due to the adjustment and
transformation of the real estate market. The Company promoted steady growth in retail loans by increasing the
granting of high-quality micro-finance loans and consumer loans. Corporate loans amounted to RMB2,321.585
billion, representing an increase of 10.70% as compared with the end of the previous year, accounting for 37.65%
of the loans and advances to customers of the Company, representing an increase of 0.99 percentage point as
compared with the end of the previous year. The Company continued to promote the expansion of customer base
in key areas, fully met customers' credit financing needs, and continued to enhance the service support to the real
economy. As at the end of the reporting period, the Company's bonds investment amounted to RMB2,588.035
billion, representing an increase of 15.94% as compared with the end of the previous year, accounting for 25.08%
of the total assets of the Company, representing an increase of 1.61 percentage points as compared with the end of
the previous year.
0.91
48,739
1.25
1.44
47,706
1.41
30,539
Micro-finance loans
4,592
0.61
2,648
0.35
5,211
0.70
749,773
Residential mortgage loans
3,373,633
12
In 2024, the Company will keep a close eye on the changes in the macro situation, continue to enhance the
industry understanding, continue to improve the credit policies, implement the "one branch, one policy", list-based
operation for the asset business and fully promote the optimisation of customer base structure and investment in
quality assets. The Company will carry out risk management and control in key areas, strengthen the management
of special-mentioned loans and overdue loans, strictly classify assets, make adequate allowances, and effectively
prevent and dispose of potential risks; actively dispose of non-performing assets in multiple ways, persistently
dispose of risk assets to maintain overall stability of asset quality.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
3.9.7 Asset quality in key areas
During the reporting period, the Company strengthened risk control over residential mortgage loans, consumer
financing business, micro-finance loans, industries under list-based management and other key areas, and the asset
quality was generally stable. In 2024, the Company will actively respond to the changes in the external macro-
economic situation and continue to strengthen the investigation, research and judgement on the risk situation in the
key areas for better risk prevention and control. For details of the quality of real estate assets, please refer to 3.9.3
"Risk management and control in the real estate sector" in this chapter.
The following table sets out the asset quality of the Company's loans and advances by product type as of the date
indicated.
Retail loans
31 December 2023
1.15
18,071
0.78
25,862
1.11
471,127
26,694
1,376,814
5,113
0.37
loans (%)
loans
of overdue
loans (%)
2,321,585
During the reporting period, the Company played an active role in the disposal of non-performing loans, taking
various approaches to reduce and dispose of risk assets. During the reporting period, the disposal of non-performing
loans by the Company amounted to RMB58.113 billion, of which RMB22.652 billion was written off, RMB22.589
billion was securitised, RMB11.204 billion was recovered by cash collection, and RMB1.668 billion was disposed of
by other means such as repossession, transfer, restructuring, upward migration and remission.
The Company always adhered to value customer selection, optimised the asset portfolio allocation, made adequate
risk compensation and maintained strong risk resistance ability. As of the end of the reporting period, the balance
of the Company's allowances for impairment losses on loans was RMB261.402 billion, representing an increase
of RMB7.989 billion as compared with the end of the previous year. The allowance coverage ratio was 456.73%,
representing a decrease of 10.70 percentage points as compared with the end of the previous year. The allowance-
to-loan ratio was 4.24%, representing a decrease of 0.19 percentage point as compared with the end of the
previous year. During the reporting period, the credit cost ratio was 0.72%, representing a year-on-year decrease of
0.07 percentage point.
7,466
During the reporting period, the Company formed new non-performing loans of RMB60.997 billion, representing a
year-on-year decrease of RMB1.978 billion; the formation ratio of non-performing loans was 1.03%, representing
a year-on-year decrease of 0.12 percentage point. From the perspective of major business categories, the amount
of newly formed non-performing corporate loans was RMB13.124 billion, representing a year-on-year decrease of
RMB4.714 billion. The amount of newly formed non-performing retail loans (excluding credit cards) was RMB9.163
billion, representing a year-on-year increase of RMB848 million. The amount of newly formed non-performing
credit cards loans was RMB38.710 billion, representing a year-on-year increase of RMB1.888 billion. From the
perspective of regions, the formation of the Company's non-performing loans was mainly concentrated in the
Head Office (credit card loans), the Yangtze River Delta and the Pearl River Delta regions. From the perspective of
industries, the formation of the Company's non-performing corporate loans was mainly distributed in the real estate
industry, accommodation and catering industry, transportation, storage and postal services. From the perspective of
customer base, the formation of the Company's non-performing corporate loans was concentrated in medium-sized
enterprises according to national standards.
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
52
51
Looking forward to 2024, the Company will consistently strengthen the effective asset origination, improve the
service quality and efficiency to the real economy, and continuously optimise the business strategy in combination
with the changes in the New Capital Rules to promote the high-quality growth of loans. In 2024, the Company
plans to increase its loans and advances to customers by approximately 8%. In terms of retail loans, the Company
will keep up with the changes in the real estate market and push forward the steady growth of residential mortgage
loans in accordance with regional characteristics while constantly enriching personal financial products, continuously
promoting the steady growth of micro-finance loans and consumer loans under the premise of enhanced risk control
and management. In terms of corporate loans, the Company will closely follow the national strategy, focus on key
sectors including sci-tech finance, green finance, inclusive finance, retirement finance and digital finance, continue
to promote customer expansion and optimise the corporate credit structure to effectively support the real economy.
In terms of bonds investment, the Company will, taking into account the risks and returns, study and evaluate the
trend of interest rates in domestic and foreign currencies in a forward-looking manner, maintain a dynamic and
flexible asset allocation tactics, and rationalise the pace of increase in investment assets.
3.9.6 The formation and disposal of non-performing assets
loans
loans loan ratio (%)
advances
13,107
0.95
Balance of
Balance
of non-
(In millions of RMB,
except for percentages)
Corporate loans
Discounted bills
loans and
performing
Non-
performing
Balance
of special-
mentioned
Percentage
of special-
mentioned
Balance of
Percentage
overdue
3.9.5 Assets allocation
21,515
9.18
25,852
Thirdly, the Company continued to fulfill its social responsibility under the philosophy of wealth for common good.
Under the main theme of common prosperity, the Company identified the connection between customer service
and social welfare by actively responding to the needs of customers to participate in public charity and practice ESG
ideals, and promoted the implementation of charitable projects through charitable trusts and other tools. With the
release of the 2023 Charity Research Report among High-Net-Worth Individuals in China (2023 £¾»L\#
» and the establishment of a philanthropy exchange platform named "Goodwill Hall ()", the
Company has contributed to the dissemination of charity beliefs.
Secondly, the Company managed to achieve service upgrade via technology-driven innovation. In particular, it
improved the exclusive APP for private banking customers to increase the proportion of online transactions, build an
ecosystem of private equity institutions and upgrade the digital comprehensive financial services. Benefiting from the
development of a digital wealth management and asset allocation system, the Company upgraded the "one-to-one"
advisory asset allocation services with digital tools. It also sought to create an operation model driven by advanced
technology to accurately analyse and deeply understand customers' needs based on digital means.
Firstly, the Company diversified its products and services following the principle of "being customer-centric". It
focused on satisfying customers' demand for stable products based on a clear understanding of the changes in their
actual needs. Thus, the Company selected outperforming asset management institutions in the entire market with
the aim of continuously enriching its products portfolio, and developed specific accompanying service for customers
throughout their whole investment journey. Meanwhile, the Company integrated the resources of the group
members and third-party partners to deliver a "financial + non-financial" service ecosystem for customers and the
enterprises behind them.
During the reporting period, the Company continued to enhance the core competence of the private banking
business, continuously improved and upgraded the comprehensive service system of "individual, family, enterprise
and society (13 in light of customers' changing diverse demands under this system, and promoted the
steady quality development of its private banking business in a prudent manner.
As of the end of the reporting period, the Company had 148,842 private banking customers (retail customers of
the Company with minimum total daily average assets of RMB10 million per month), representing an increase of
10.42% as compared with the end of the previous year.
Chapter III Management Discussion and Analysis
Fourthly, the Company adhered to sound operation by upholding the bottom line of risk prevention. With effective
risk prediction, the Company continued to improve segmented and classified management of products available
for sale, and properly matched the products with the risk-return preferences of customers, so as to empower its
business development.
Private banking
China Merchants Bank
Fourth, the Company constantly iterated the open platform capabilities to enhance the customer's experience with
wealth management product held with the Company. The Company further optimised the service capabilities of
"Zhao Cai Hao ()", an open platform of wealth management business on CMB APP, improved the operation
and organisation mechanism, and provided customers with better wealth services. As of the end of the reporting
period, "Zhao Cai Hao ()" on CMB APP has onboarded in total 152 asset management institutions with
industrial representativeness. During the reporting period, "Zhao Cai Hao ()" provided professional investment
guidance and companion for customers on their investment journey by offering wealth information, online
interactions and organisation of events, etc.
Third, the Company constantly optimised the "CMB TREE Asset Allocation Service System" to guide customers to
make scientific asset allocation. In terms of customer service, the Company integrated its online and offline customer
services to form a service model centring on asset allocation and continuous review on re-balancing service to build
a virtuous operation cycle. In terms of capability enhancement, the Company provided its front-line team with
systematic training to improve its abilities in communication and interaction with customers, professional market
analysis and judgement, and asset allocation services, so as to help customers form a correct investment philosophy.
As of the end of the reporting period, the Company had 9,114,500 customers who conducted asset allocation under
such system, representing an increase of 12.15% as compared with the end of the previous year.
Second, the Company increased its offering of stable products in response to changes in customers' risk appetite.
In terms of wealth management products, the Company integrated the advantageous resources of its partners,
offered stable products as its core offering, and captured periodic investment opportunities. In terms of fund
products, the Company increased its offering of short-term debt and "fixed income+" products and thus improve
customers' experience in comprehensive income. In terms of insurance products, the Company has continued to
enrich its product offerings to cover major insured types such as pension, health, accident and property, so as to
satisfy customers' needs for insurance. Furthermore, the Company continued to broaden its product categories
and cooperation channels, and further explored customers' asset allocation needs, providing customers of various
channels and types with appropriate business strategies and products.
During the reporting period, in the light of customers' demands for stable-performing products, the Company
strengthened its capability of offering professional wealth management services, built an omni-channel service
system based on "people + digitalisation", and helped customers achieve asset preservation and appreciation.
First, the Company stepped up efforts in upgrading payment settlement customers to wealth management
customers for the purpose of increasing the number of customers holding our wealth products. The Company
insisted on the scenario construction of payment settlement service and continuously improved customers' service
experience in various scenarios to promote the upgrade of customers' needs from payment settlement towards
wealth management. As of the end of the reporting period, the Company had 51,379,500 customers holding our
wealth products, representing an increase of 19.13% as compared with the end of the previous year.
During the reporting period, the Company recorded a fee and commission income from retail wealth management
business of RMB27.007 billion, among which income from agency distribution of insurance policies amounted to
RMB12.743 billion, income from agency distribution of funds amounted to RMB5.457 billion, income from agency
distribution of wealth management products amounted to RMB5.291 billion, income from agency distribution of
trust schemes amounted to RMB3.175 billion, and other income amounted to RMB341 million. For details of the
reasons of changes in fee and commission income from wealth management, please refer to 3.9.2 "Net non-interest
income" in this chapter.
Annual Report 2023 (H share)
As of the end of the reporting period, the Company's balance of retail wealth management products amounted to
RMB3,499.766 billion, representing an increase of 11.51% as compared with the end of the previous year, mainly
due to the increased allocations towards stable long-term products by the Company in line with customers' needs,
resulting in an increased growth rate in the scale of wealth management products under management as compared
with the previous year. During the reporting period, the agency distribution of non-money-market mutual funds
of the Company totalled RMB296.809 billion, representing a decrease of 11.42% year-on-year. The decrease was
mainly due to further decline in customer risk appetite as the capital market remained under pressure. However,
the sales of more stable bond fund products recovered on a quarter-to-quarter basis in the second half of the year.
During the reporting period, the Company achieved the agency distribution of insurance premiums of RMB96.826
billion, representing an increase of 33.76% year-on-year. The increase was mainly due to the fact that the Company
further seized market opportunities and increased its efforts in the allocation of regular insurance, which drove
an overall increase in premiums. During the reporting period, the Company recorded RMB84.647 billion in agency
distribution of trust schemes, representing a decrease of 24.77% as compared with the corresponding period of the
previous year,
which was mainly due to the fact that the Company actively adjusted its business direction under the
policy background of "reform of trust business classification", and other policy backgrounds.
Credit cards
In terms of risk management, the Company continued to optimise its customer structure and asset portfolio under the
guidance of the operation strategy focusing on "stability and low volatility". Additionally, the Company has further
studied regional strategies with forward-looking judgement, and continued to iterate various types of quantitative
models to enhance its risk decision-making capability, while continuously upgrading the post-loan digital operations
to improve operational efficiency and collection effects. During the reporting period, the risk indicators for its credit
card business declined, indicating enhanced risk-resistant capabilities. As of the end of the reporting period, the
balance of non-performing credit card loans was RMB16.381 billion, representing a non-performing loan ratio of
credit card loans of 1.75% with a decrease of 0.02 percentage point from the end of the previous year. In view of
the current complicated external environment, the Company will prudently arrange various strategic deployments
in the next stage, continue to optimise its strategy on customer structure and asset portfolio, coordinate regional
business development based on specific local policies, explore various ways of restructuring the balance between risk
and growth under the new situation, and continue to promote high quality development of its credit card business.
Control over the risks relating to micro-finance loan business
The Company adhered to the implementation of the national strategy of vigorously supporting the development of
small- and micro-sized enterprises, accelerated the pace of retail micro-finance asset origination and loan extension,
promoted the high-quality development of micro-finance loan business, while relying on Fintech to explore product
and service innovation so as to further improve the quality and efficiency of financial services for small- and micro-
sized customers.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
As of the end of the reporting period, the non-performing loan ratio of the Company's retail micro-finance loans
was 0.61%, representing a decrease of 0.03 percentage point as compared with the end of the previous year, the
special-mentioned loan ratio was 0.35%, representing a decrease of 0.05 percentage point as compared with the
end of the previous year and the overdue loan ratio was 0.70%, representing a decrease of 0.03 percentage point
as compared with the end of the previous year.
In the future, the Company will continue to guard the risk bottom line, pay close attention to changes in the market
situation, and improve the capabilities to analyse and judge the risk situation. The Company will continuously
strengthen its quantitative risk control capabilities, improve the risk quantitative system in response to changes in
the risks of small- and micro-sized customers, enrich the risk monitoring data dimensions, identify the risks earlier,
give warnings earlier, expose the risks earlier and dispose the risks earlier, so as to maintain a relatively outstanding
level of quality of micro-finance loan assets in the industry.
As of the end of the reporting period, the Company had issued an aggregate of 97.1181 million active credit cards,
representing a decrease of 5.44% as compared with the end of the previous year, and there were 69.7404 million
active credit card users, representing a decrease of 0.37% as compared with the end of the previous year, mainly due to
the decrease in newly-acquired customers as the Company placed more emphasis on high-quality customer acquisition.
During the reporting period, the credit card transactions of the Company amounted to RMB4,814.967 billion,
representing a decrease of 0.44% as compared with the corresponding period of the previous year. Interest income from
credit cards amounted to RMB63.515 billion, representing a decrease of 0.72% as compared with the corresponding
period of the previous year. Non-interest income from credit cards amounted to RMB27.228 billion, representing a
decrease of 3.02% as compared with the corresponding period of the previous year. For details of the scale and quality
of the credit card loans of the Company, please refer to 3.9.7 "Asset quality in key areas" in this chapter.
Control over the risks relating to industries under list-based management¹¹
As of the end of the reporting period, the Company's full-calibre business financing exposure in industries under
list-based management was RMB234.160 billion 12, representing a decrease of RMB8.672 billion as compared with
the beginning of the year, mainly extended to strategic customers of the Head Office level and branch level and
whitelist customers. The non-performing loan ratio of the industries under list-based management was 0.91%,
representing a decrease of 0.39 percentage point as compared with the beginning of the year. Affected by the risk
exposure and the continuous decline of business scale of individual existing risk customers, the non-performing loan
ratio of the industries such as metal ore mining, steel trading and basic chemical industries increased as compared
with the beginning of the year, while the non-performing loan ratios of other industries remained at the same level
or decreased compared with the beginning of the year.
In view of the fact that the Company's basic customer groups of the industries under list-based management are
mainly strategic customers of the Head Office level and branch level and whitelist customers with relatively strong
capabilities to resist external risks, it is expected that the risks in this field will be generally controllable in 2024.
In the future, the Company will dynamically adjust credit policies in relevant fields according to national industrial
policies, financial supervision policies and actual market condition.
11
59
The term "individual, family, enterprise and society" specifically refers to the needs of individuals, families, enterprises and the society.
13
During the reporting period, the Company implemented differentiated management for customers in the 14
industries under list-based management that are significantly affected by supply-side structural reforms, overcapacity
or the "carbon peak and carbon neutrality” policies. In particular, for the whitelist customers and strategic
customers of the Head Office level and branch level such as leading enterprises in the industry and regional
advantageous enterprises, the Company strengthened its policy preference and provided priority support through
various resources, products and services. For other customers with relatively stable risks and fair business conditions,
on the basis of solid customer maintenance and operation as well as consolidation of the overall customer base,
the Company realised the dynamic optimisation of customer structure and asset structure through supporting
the superior, phasing out the inferior and concentrating the structure of customer base on listed companies, core
enterprises of group companies and mid-tier customers with sound performances.
Wealth management
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
During the reporting period, the Company redeemed RMB20 billion of Tier 2 capital bonds and issued RMB30
billion of undated additional Tier 1 capital bonds for the purpose of replenishing the additional Tier 1 capital of the
Company. Please refer to the relevant announcements issued by the Company on Shanghai Stock Exchange, Hong
Kong Exchanges and Clearing Limited and the Company's website for details. The Company will keep on improving
the level of shareholder returns by improving the efficiency of capital utilisation, optimising the asset-liability
structure and other ways.
The Company adhered to the principle of prudence and stability and maintained the steady growth of risk-weighted
assets under the premise of controllable risk. As of the end of the reporting period, the growth rate of risk-weighted
assets under the Advanced Measurement Approach of the Company (having taken into consideration the bottom-
line requirements of the parallel run period) was 13.52%. Under the Advanced Measurement Approach, the ratio
of risk-weighted assets (having taken into consideration the bottom-line requirements of the parallel run period)
to total assets was 58.31%. During the reporting period, the risk-adjusted return on capital (RAROC, before tax)
under the Advanced Measurement Approach was 27.47%, significantly higher than the cost of capital. As of the
end of the reporting period, the Company's core tier one capital adequacy ratio under the Advanced Measurement
Approach and the Weighted Approach increased as compared with the end of the previous year, maintaining an
endogenous growth of capital.
The Company kept on optimising its business structure and strengthening capital management. The Company met
various capital requirements of the supervisory and management bodies of the banking industry in China during the
reporting period with sufficient capital buffer.
3.9.8 Capital management
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
The Company adheres to the development strategy of marketisation, branding and internationalisation, continuously
advances the innovation and development of asset securitisation business and continuously enriches capital
management tools. During the reporting period, the Company issued eight asset securitisation projects through the
inter-bank market with a total scale of RMB2.961 billion. The underlying assets were non-performing loans.
China Merchants Bank
56
55
The statistical calibre of the industries under list-based management has been changed, and the figures at the beginning of the year have been adjusted in
accordance with the same statistical calibre.
In 2023, the Company renamed industries under classified management as industries under list-based management, and the scope of the industry was
adjusted. In 2023, the industries under list-based management include 14 industries including glass manufacturing, textile and chemical fiber, synthetic
material manufacturing, steel trade, iron and steel (long process), metal ore mining and processing, fertilizer manufacturing, basic chemical, coal chemical,
coal trade, coal, non-ferrous metal smelting and calendaring (excluding electrolysis of aluminium), financial leasing and commercial leasing.
12
0.54
56
In September 2023, the list of domestic systemically important banks in 2023 was released. The Company was still in
the third group of the list and still needed to meet additional regulatory requirements such as the additional capital
adequacy ratio of 0.75% and the additional leverage ratio of 0.375%. At present, the Company's capital adequacy
ratio, leverage ratio, liquidity and other operating indicators at all levels are maintained at a high level, which can
meet additional regulatory requirements.
In November 2023, the National Financial Regulatory Administration (NFRA) released the Rules on Capital
Management of Commercial Bank (hereinafter referred to as the "New Capital Rules"), which took effect on 1
January 2024. Under the New Capital Rules, the capital occupation of the credit business will decrease in general,
and the capital occupation of the financial market business will increase slightly. As for the Company, the New
Capital Rules will lead to increase and decrease in the capital occupation for different businesses. The Company will
optimise and adjust its business structure and operating strategies in a timely manner.
In the future, the Company will, under the guidance of the New Capital Rules and the strategic objective of building
a value creation bank, and following the business concept of the value creation chain of "volume growth - revenue
growth profit growth - value growth", continue to optimise the capital allocation tactics, strengthen the asset-
liability portfolio management, improve the capital return management mechanism, promote the dynamically
balanced development of "Quality, Profitability and Scale", so as to constantly enhance the capability of endogenous
growth of capital and ensure the smooth operation of the capital adequacy ratio.
China Merchants Bank
58
57
As of the end of the reporting period, the balance of total assets under management for retail customers of the
Company amounted to RMB13,321.131 billion, representing an increase of 9.88% as compared with the end of the
previous year. Among them, the balance of total assets under management for the customers in the level of Golden
Sunflower and above amounted to RMB10,819.744 billion, representing an increase of 9.66% as compared with the
end of the previous year. As of the end of the reporting period, the balance of deposits from retail customers of the
Company amounted to RMB3,314.318 billion, representing an increase of 12.13% as compared with the end of the
previous year. During the reporting period, the demand deposits accounted for 58.16% of the daily average balance
of deposits from retail customers of the Company.
As of the end of the reporting period, the Company had 197 million retail customers (including debit and credit card
customers), representing an increase of 7.07% as compared with the end of the previous year, among which the
number of customers in the level of Golden Sunflower and above (those with minimum daily average total assets of
RMB500,000 for each month) reached 4,640,600, representing an increase of 12.00% as compared with the end of
the previous year.
During the reporting period, in the face of the complex and volatile external situation and the increasingly fierce
competition from the banks and other financial institutions, the Company proactively promoted the strategic
deployment in key regions to explore growth potential, and further propelled business integration to strengthen
its ability to expand group finance service. The Company intensified the customer base operation, returned to the
original needs of customers in "deposit, loan, and remittance (7)" banking services, made full use of Fintech
to push forward the innovation of retail products and refined operation, and diversified the categories and offerings
of products and deepened asset allocation services catering for customers' needs. During the reporting period, the
number of retail customers and the balance of the total assets under management (AUM) from retail customers of
the Company maintained stable growth.
Retail customers and total assets under management for retail customers
During the reporting period, by adhering to its core value of "being customer-centric and creating value for
customers", the Company continued to consolidate its systematic strengths in retail finance by expanding its capital-
light businesses such as wealth management and strengthening its capital-heavy business, and continued to enhance
its value creation capability, thereby promoting the high-quality development of its retail business. Through building
the "people + digitalisation" omni-channel service system, strengthening the ecological construction of financial
scenarios, and continuously optimising the core retail finance products, the Company provided more customers with
better retail finance services to actively satisfy the needs of people's livelihood. During the reporting period, the
retail business of the Company maintained a good momentum of development.
During the reporting period, the profit before tax from the retail finance business of the Company amounted to
RMB97.292 billion, representing an increase of 4.95% as compared with the previous year. The net operating
income from the retail finance business amounted to RMB190.146 billion, representing an increase of 0.89% as
compared with the previous year and accounting for 61.86% of the net operating income of the Company. The net
interest income from the retail finance business amounted to RMB133.766 billion, representing an increase of 3.42%
as compared with the previous year and accounting for 70.35% of the net operating income from retail finance; the
net non-interest income from the retail finance business amounted to RMB56.380 billion, representing a decrease
of 4.66% as compared with the previous year while accounting for 29.65% of the net operating income from retail
finance and 56.56% of the net non-interest income of the Company. During the reporting period, the fee and
commission income from retail wealth management business of the Company was RMB27.007 billion, representing
a decrease of 8.71% as compared with the previous year and accounting for 48.80% of the net fee and commission
income from retail finance; the Company recorded a fee income of RMB19.394 billion from retail bank card
business, representing a decrease of 8.80% as compared with the previous year.
Business overview
3.10.1 Retail finance business
3.10 Business Operation
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
In the future, the Company will continue to improve the refined risk management and control strategy for consumer
credit business. On the one hand, the Company will continuously optimise the customer base and asset structure
by strictly reviewing the credit risks of customers and focusing on the customers with good credit record and stable
income source to strictly prevent the risk of "joint debts"; on the other hand, the Company will continuously
increase the access to data sources, so as to enhance the accuracy of risk identification of customer base, and at the
same time rely on big data quantitative risk control technology to closely monitor the changes in risks of customer
base, make risk pre-warning in a timely manner, actively dispose of non-performing asset, and strive to maintain a
relatively outstanding level of quality of consumer credit business assets in the industry.
1.03
As of the end of the reporting period, the non-performing loan amount of the Company's consumer credit business
(including credit cards) was RMB19.666 billion, representing an increase of RMB1.827 billion as compared with the
end of the previous year; the non-performing loan ratio was 1.59%, representing a decrease of 0.05 percentage
point as compared with the end of the previous year. The special-mentioned loan ratio was 2.66%, representing a
decrease of 0.20 percentage point as compared with the end of the previous year and the overdue loan ratio was
2.74%, representing a decrease of 0.38 percentage point as compared with the end of the previous year.
With the adjustment on the interest rates for the existing residential mortgage loans, the interest spread between
the newly-granted and existing residential mortgage loans has narrowed, which to some extent eased the trend
of prepayment. However, due to the decline in the current returns on market investment, it is expected that the
prepayment of residential mortgage loans in 2024 will remain at a high level in recent years. The Company will
continue to strictly control the onboarding of residential mortgage loan business. In terms of customer selection,
the Company will offer priority support to customers with rigid and improving housing demands, and in terms of
location, the Company will offer priority support to quality residential projects located in core districts to ensure
the healthy development of the residential mortgage loan business from the origin. In the future, under the general
trend that the government will support the smooth development of the real estate market, the Company will strive
to maintain a relatively outstanding level of quality of residential mortgage loan assets in the industry.
Risk control over consumer credit business
4,567
0.73
Residential mortgage loans
1,379,812
4,898
0.35
0.40
10,409
6,956
0.50
Credit card loans
884,394
15,648
1.77
0.75
30,201
2,515
4,027
1.23
Discounted bills
513,857
8
Retail loans
3,109,737
0.64
28,009
44,097
1.42
46,731
1.50
Micro-finance loans
629,628
0.90
3.41
31,408
3.55
0.95
65,620
1.15
72,583
1.27
Note: Primarily consists of commercial housing loans, automobile loans, house decoration loans, education loans and other personal loans secured by
monetary assets.
54,214
Risk control over residential mortgage loans
53
54
54
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
As of the end of the reporting period, the non-performing loan ratio of the Company's residential mortgage loans
was 0.37%, representing an increase of 0.02 percentage point as compared with the end of the previous year. The
special-mentioned loan ratio was 0.95%, representing an increase of 0.20 percentage point as compared with the
end of the previous year. The overdue loan ratio was 0.54%, representing an increase of 0.04 percentage point as
compared with the end of the previous year. The Company had always been regularly monitoring and revaluating
the value of the existing collaterals and adjusting the value of mortgaged assets in a timely manner. As of the
end of the reporting period, the weighted average loan-to-value ratio of residential mortgage loans was 32.93%,
representing an increase of 0.34 percentage point as compared with the end of the previous year, and the collaterals
were sufficient and stable. Therefore, the overall risk of residential mortgage loans was controllable.
The Company actively implemented the national and regional policy requirements, adhered to the implementation of
city-specific policy, actively responded to the new situation where the supply-demand relationship in the real estate
market has changed significantly, and supported customers with rigid and improving housing demands, so as to
steadily conduct residential mortgage loan business. During the reporting period, the Company further concentrated
its residential mortgage loan business to cities in which the housing prices were relatively stable, and the amount
of residential mortgage loans newly granted by the Company in the first-tier and second-tier cities accounted
for 90.25% of the total amount of residential mortgage loans newly granted by the Company, representing an
increase of 2.13 percentage points year-on-year. The closing balance of residential mortgage loans in the first-tier
and second-tier cities accounted for 87.04% of the closing balance of the Company's residential mortgage loans,
representing an increase of 0.54 percentage point as compared with the end of the previous year.
5,720,708
customers
Total loans and advances to
Consumer loans
202,225
2,191
1.08
862
0.43
2,544
1.26
Others (Note)
13,678
1,245
9.10
110
0.80
1,256
During the reporting period, the market demands steadily recovered, and the consumer market was gradually
recovering. The Company insisted on focusing on the acquisition of value customers, further exploring the upgraded
consumption scenarios and the comprehensive consumption scenarios of individuals or families encouraged by
national policies, and developing the consumer credit business in a steady manner. Thanks to the continuous
optimisation of the customer base and the asset structure and the application of various risk management strategies,
the consumer credit business maintained stable growth while the risk was generally stable.
Credit card loans
As of the end of the reporting period, the Company's total corporate loans amounted to RMB2,321.585 billion,
representing an increase of 10.70% as compared with the end of the previous year, accounting for 37.65% of the
Company's total loans and advances, representing an increase of 0.99 percentage point as compared with the end
of the previous year. Among them, the balance of medium- and long-term domestic corporate loans amounted
to RMB1,425.673 billion, representing an increase of 7.44% as compared with the end of the previous year,
accounting for 63.76% of the total domestic corporate loans, representing a decrease of 1.94 percentage points
as compared with the end of the previous year. The non-performing loan ratio of the corporate loans was 1.15%,
representing a decrease of 0.10 percentage point as compared with the end of the previous year.
During the reporting period, the Company, in response to the "Digital China (*)" campaign, not only
accelerated its own digital transformation, but also focused on the three business scenarios of corporate treasury
management, sales and procurement. The Company enhanced products innovation and deepened ecological
connection, so as to forge its two major advantages of "digital treasury management" and "digital integration
of business and finance". By actively integrating with and empowering the digital transformation of enterprises,
the Company explored new growth points for the corporate banking business. During the reporting period, the
Company officially launched the "Enterprise Digital Intelligent Finance (1)" brand, establishing three
major service systems, namely "Online Finance ()", Treasury Management Cloud ()" and
"Scenario-based Finance ()", to provide enterprises with intelligent solutions for their efficient operation,
cost reduction and efficiency enhancement.
During the reporting period, the Company accelerated the transformation of its investment banking business by
building an all-round service system for corporate investment banking and stepping up its role change from a loan
provider to a fund originator.
Investment banking business
The Company reinforced proactive management of risks in key areas and built the solid "first line of defence"
for risk management of cross-border business. It also continued to strengthen the closed-loop risk management
for products covering the full-life cycle, enhanced risk monitoring in key areas, further optimised the anti-money
laundering process, and improved the ability to prevent sanction risks.
Centring on customer group acquisition and operation, the Company made solid progress in customer group
construction. The Company established its marketing strategy led by segmentation-based management and
supplemented by classification-based management and regional division, thereby consolidating the basic customer
groups of trade in goods and consolidating our strengths in serving customers of trade in services and capital
account. At the same time, the Company extended its service coverage by leveraging the strengths in providing
integrated services at home and abroad to three major customer groups and scenarios, namely the global operation
of Chinese enterprises, the foreign invested companies "bringing in" and the overseas capital market.
The Company has fully developed the comprehensive digital and facilitated service system for the cross-border
finance business and formed differentiated competitive advantages. In addition, it continued to improve its online
service capability for the basic products, carried out the digital transformation of international trade finance
business, launched the global cash management service system, deepened the segmentation and classification-based
service mechanism in respect of international documents, efficiently operated the international business section of
CMB U-Bank and the CMB Corporate APP, and developed a one-stop service platform for its cross-border finance
business. During the reporting period, 107,206 customers visited the international business section of CMB U-Bank,
representing a year-on-year increase of 98%. The total number of online transactions was 1.5 million, among which,
the online replacement rate for key products was over 86%.
During the reporting period, the Company focused on the target customer group of cross-border business, improved
product service system, aiming to become the "principal bank for settlement" for customers of cross-border
transactions and the "global principal bank" for core customers by implementing operation and management and
solidifying foundational capacity building. During the reporting period, the Company recorded USD356.887 billion 20
of international balance of payments for corporate customers, representing an increase of 4.90% based on the same
calibre as compared with the previous year. In particular, the balance of payments for corporate customers under
trade in goods amounted to USD173.814 billion, representing a year-on-year increase of 9.92%.
Cross-border finance business
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
Also, the Company continued to innovate the "Cloud-based H2H Connection" model to expand the breadth and
depth of the connection between its digital platforms such as the Treasury Management Cloud and the digital
systems of enterprises, which facilitated rapid access to the financial services of the Company by customers of
mainstream SaaS office platforms. As of the end of the reporting period, the number of customers of the Cloud-
based H2H Connection service reached 169,800, representing an increase of 31.93% as compared with the end of
the previous year.
The Company also actively explored the comprehensive digital services for enterprises under the scenario of
"integration of business and finance", and developed the "Payment Centre (+)" for procurement scenarios
based on the whole procurement service process, providing enterprises with full-cycle digital payment service in
respect of integration of business and finance. As for the corporate sales scenarios, the Company relied on the
"Corporate Cashier ()" to offer a omni-channel and whole-process unified sales collection service,
assisting enterprises with digital upgrade of sales management. The Company developed and further promoted
the digital intelligent finance solutions for various industries such as automobile, consumption, pharmaceutical,
infrastructure and energy, and created branded services such as "Automobile Cashier ()" to contribute to
the digital transformation of the real economy. During the reporting period, the customers of corporate collection
products reached 87,100, representing a year-on-year increase of 38.92%. The transaction amount of corporate
collection products was RMB6.28 trillion, representing a year-on-year increase of 47.76%.
Based on the demand for upgrading treasury management under the multi-entity, cross-region and even global
business model gradually adopted by enterprises during their business expansion, the Company took the Treasury
Management Cloud as the digital service platform for enterprises, and developed the "Single Account Version,
Standard Version, Professional Version and Treasury Version (4Ƒ · 45 · ** · Ƒ)" to completely
cover and precisely meet the needs of treasury management and intelligent analysis and decision-making for
various enterprises and users at different stages of development, with different size of business, under different
management modes and with different roles, thus to assist enterprises in improving their efficiency in allocating
financial resources. At the same time, the Company actively responded to the needs of large enterprises to
accelerate the construction of treasury systems, built up the core functions of the Treasury Management Cloud and
innovatively launched the "consulting + finance + technology (++" treasury service model, so as to
deepen the cooperation with large conglomerates. As of the end of the reporting period, the number of customers
of Treasury Management Cloud services reached 477,600, representing an increase of 62.15% as compared with
the end of the previous year.
Relying on Fintech, the Company accelerated the online migration of whole-process of corporate banking business
and enhanced the convenience and efficiency of "Online Finance (*)" services. During the reporting period,
the online operation of the financing business of the Company was further enhanced. Based on digital risk control
technology, the Company continued to upgrade its "Flash Series ()" of domestic trade finance products
to improve the efficiency of short-term financing for enterprises. Furthermore, the Company continued to upgrade
the "people + digitalisation" whole-process companion model and explored the introduction of artificial intelligence
technology to create a "digital product manager (*)", forming a service system of instant response
to customer needs for multiple scenarios to improve service efficiency and enhance customer experience. During
the reporting period, the letters and certificates issuance business transactions of the Company amounted to
RMB488.285 billion, representing a year-on-year increase of 20.49%; the domestic trade financing business volume
amounted to RMB 1,204.238 billion, representing a year-on-year increase of 29.48%.
Transaction banking business
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
66
99
95
65
The Company keeps on implementing the rediscounting policy of the People's Bank of China, supports enterprise
financing through rediscounting, and improves the quality and efficiency of serving the real economy. During the
reporting period, the business volume of bill rediscounting amounted to RMB260.061 billion, representing a year-
on-year increase of 25.84%. As of the end of the reporting period, the Company's rediscounting balance was
RMB101.161 billion, representing an increase of 22.66% as compared with the end of the previous year, ranking
first in the market (data from the China Banking Association).
The Company keeps on improving the bill investment and research integration mechanism and the band trading
strategy and flow management, optimises the mechanism of Head Office and branch cooperation, and continues
to enhance its trading capabilities. During the reporting period, the discounted bills transferred to other financial
institutions (buy-out) amounted to RMB1,851.516 billion, representing a year-on-year increase of 27.62%, ranking
second in the market (data from the China Banking Association).
During the reporting period, the Company further deepened the transformation of comprehensive services for bill
customers, continuously improved the experience of bill customers, and continued to enhance the direct discounting
and inter-bank discounting linkage capabilities and bill transaction capabilities, and actively responded to the
changes in the external markets. During the reporting period, the number of customers of bill business of the
Company was 159,690 with a year-on-year increase of 11.38%, among which 122,800 were micro-, small- and
middle-sized customers, accounting for 76.90% of the total. The volume of direct bill discounting business was
RMB1,895.076 billion during the reporting period, representing a year-on-year increase of 24.78%, still ranking
second in the market (data from the China Banking Association), of which the volume of commercial acceptance
bill discounting business was RMB234.208 billion, ranking first in the market (data from the Commercial Bank
Bill Business Association). As of the end of the reporting period, the Company's bill discounting balance was
RMB471.127 billion, representing a decrease of 8.32% as compared with the end of the previous year, mainly due
to the active adjustment and optimisation of the Company's asset allocation due to the decrease in interest rate in
the bill market.
At the same time, the custody service has covered in depth the three-pillar pension insurance system. As of the end
of the reporting period, the pension funds under custody amounted to RMB1.05 trillion, realising an increase in both
market share and scale.
In terms of the third pillar, a total of 5,356,200 individual pension fund accounts had been opened as of the end of
the reporting period.
In terms of the second pillar, the Company strengthened the construction of core capability with distinctive services
and formed its differentiated competitive advantages. As of the end of the reporting period, the number of
enterprise annuity accounts under management reached 2,224,800.
With respect to its bond underwriting business, the Company strove to serve real economy-based enterprises in
direct financing and asset revitalisation, with dedication in green finance and sci-tech finance. During the reporting
period, the debt financing instruments with the Company as the lead underwriter amounted to RMB591.813 billion,
representing a year-on-year decrease of 5.28%, ranked third among its industry peers (based on the data from the
National Association of Financial Market Institutional Investors). In particular, the Company ranked first by the size
of perpetual bonds and sci-tech innovation notes, second by the size of green bonds and third by the size of asset-
backed notes (ABN) among its industry peers.
In terms of the first pillar, the Company offered convenient online services for insured persons such as social security
inquiry, qualification certification, annual report review and other services. As of the end of the reporting period, the
Company has issued a total of 62,586,200 electronic social security cards.
With respect to its M&A financing business, the Company actively served the industrial integration of real
economy-based enterprises and built up the ability to provide systematic services in the capital market throughout
the full-life cycle for enterprises. During the reporting period, the Company's M&A financing business volume
amounted to RMB193.348 billion, representing a year-on-year increase of 3.71%, ranking first in both book runner
and lead arranger in the Asia Pacific M&A syndicate ranking published by Bloomberg.
With respect to its market transactions (matching services) business, the Company, in collaboration with licenced
financial institutions, provided a diverse range of funding services in addition to bank credit, while focusing on the
needs of customers. During the reporting period, the Company's market transaction (matching services) amounted
to RMB371.405 billion, representing a year-on-year increase of 14.54%.
As of the end of the reporting period, the balance of loans to domestic national-standard large enterprises was
RMB1,021.981 billion, representing an increase of 9.71% as compared with the end of the previous year, accounting
for 45.70% of the domestic corporate loans, representing a decrease of 0.43 percentage point as compared with the
end of the previous year, and the non-performing loan ratio was 0.84%, representing a decrease of 0.06 percentage
point as compared with the end of the previous year. The balance of loans to domestic national-standard medium-
sized enterprises was RMB579.121 billion, representing an increase of 4.16% as compared with the end of the
previous year, accounting for 25.90% of the domestic corporate loans, representing a decrease of 1.63 percentage
points as compared with the end of the previous year, and the non-performing loan ratio was 1.91%, representing a
decrease of 0.15 percentage point as compared with the end of the previous year. The balance of domestic national-
standard small- and micro-sized enterprise loans was RMB484.632 billion, representing an increase of 25.27% as
compared with the end of the previous year, accounting for 21.67% of the domestic corporate loans, representing
an increase of 2.51 percentage points as compared with the end of the previous year, and the non-performing
loan ratio was 0.74%, representing a decrease of 0.26 percentage point as compared with the end of the previous
year. The balance of domestic loans to enterprises in other national-standard classifications 19 was RMB150.439
billion, representing an increase of 3.66% as compared with the end of the previous year, accounting for 6.73% of
the domestic corporate loans, representing a decrease of 0.46 percentage point as compared with the end of the
previous year, and the non-performing loan ratio was 1.75%, representing an increase of 0.37 percentage point as
compared with the end of the previous year.
69
According to the statistical calibre of the Custody Business Professional Committee under China Banking Association, the custody of asset management
products includes custody of securities investments funds, customer asset management of fund companies, customer asset management of securities
companies, bank wealth management, trust property, private equity investment funds, insurance assets, pension funds, QDII products, QFI products,
futures, etc.
22
Firstly, the Company continued to optimise its business structure, with significant effect in high-quality development.
As of the end of the reporting period, the Company's asset management products 22 accounted for 72.02% of its
incremental custody size, surpassing the average proportion of the industry by 3.30 percentage points. Among them,
the scales of custody of four key businesses, including mutual funds, insurance, pension and cross-border business,
increased by 15.07% as compared with the end of previous year, 2.84 percentage points higher than the average
increase of the industry.
As of the end of the reporting period, the balance of assets under custody of the Company was RMB21.12 trillion,
representing an increase of 5.28% as compared with the end of the previous year. The total scale of custody ranked
first in the industry (data from the Custody Business Professional Committee under China Banking Association).
Through perseverance with high quality development, the Company aimed to become the first choice of customers
in respect of custody banks with core competitiveness. During the reporting period, the Company's custody business
reached a new stage of development. The custody customer acquisition capability and comprehensive service
capability was continuously improved, and the custody brand influence was constantly enhanced.
Assets custody business
During the reporting period, CMB International Capital closely aligned with the Bank's strategic goal of building a
value creation bank by making active business coordination with the Bank and strengthening the linkage mechanism
of investment banking and commercial banking to jointly propel high quality development. Notwithstanding the
weak capital market in Hong Kong, CMB International Capital completed a total of 30 Hong Kong IPO projects
during the reporting period, maintaining its leading position in terms of Hong Kong IPO underwriting business.
According to the statistics of Bloomberg in respect of the market share of IPO underwriting in Hong Kong, CMB
International Capital ranked third among all the investment banks and first among the investment banks with
Chinese banking background as of the end of the reporting period. In respect of domestic asset management
business, CMB International Capital has focused on the private equity investments business as the core business to
consolidate its position in the industry. During the reporting period, four investment projects were successfully listed
domestically and overseas by CMB International Capital. Additionally, it ranked the fifth for three consecutive years
in the "Zero2IPO Group Top 100 Private Equity Investment Institutions in China (+2⠀RAAHES)"
and was considered one of the top tier companies in private equity investment industry with the best performance
among the banking PE institutions. In respect of overseas asset management business, three investment projects
with respect to CMB International Capital's private equity products completed their listing domestically or overseas
during the reporting period, and two listed projects were successfully delisted through sound trading strategies.
Meanwhile, CMB International Capital has made great efforts to develop monetary mutual funds business. During
the reporting period, the issuance of USD money market funds by CMB International Capital was approved by the
Hong Kong Securities and Futures Commission, which made the product become the Group's first mutual funds
product approved overseas.
During the reporting period, CIGNA & CMAM was positioned as a professional and stable long-term capital
management institution, adhered to the "customer-centric" value orientation, fully integrated into the Group's
strategic layout, and strove to become an asset management institution with core competitiveness. With regard to
the insurance fund fiduciary business, it viewed enhancement of fiduciary investment returns as the core objective
and survival foundation to improve the market competitiveness of insurance products. As of the end of the reporting
period, the scale of insurance funds under entrusted management was RMB144.963 billion, representing an increase
of 33.15% as compared with the end of the previous year. In terms of product creation, CIGNA & CMAM
adopted the approach of "upholding fundamental principles and breaking new ground (E)" and conquered
challenges to actively seek for new business growth points. During the year, it obtained the issuance qualification
under the insurance asset support scheme, and has basically acquired the issuance and management capability for
all types of insurance asset management products. Meanwhile, it steadily improved itself in handling the portfolio
asset management products, and as of the end of the reporting period, it ranked among the top of the industry in
terms of alternative insurance asset management products business. In terms of operation and risk management,
it proceeded with high-quality ground work, established an efficient operation and management system, continued
to improve the comprehensive risk management system, and accelerated the construction of digital infrastructure,
with steady progress achieved.
Chapter III Management Discussion and Analysis
China Merchants Bank
Annual Report 2023 (H share)
The total volume of asset management business of China Merchants Fund and CMB International Capital both included the data of their respective
subsidiaries.
During the reporting period, following the "high-quality development" requirements of mutual funds, China
Merchants Fund stabilised performance, expanded growth, improved capabilities, and upheld to the bottom line,
and recorded steady progress under the adverse environment prevailing in the fund market. As of the end of the
reporting period, the total size of non-money-market mutual funds amounted to RMB575.568 billion, representing
an increase of 2.62% as compared with the end of the previous year. In terms of improving the investment
and research capability, the organisation of industry chain research teams was optimised, the building of a digital
investment and research platform was well on track while investment and research capabilities continued to grow.
In terms of product layout, it insisted on deploying equity products amid the adverse environment, and launched
as the industry pioneer the first hybrid valuation product, the shareholder return ETF of Central state-owned
enterprises, the manager concession products and the first green bond index product, so as to satisfy the needs of
investors through business model innovation. In terms of customer operations, China Merchants Fund actively
promoted channel and customer base expansion, maintained steady operation of fund investment advisory business,
took advantage of the opportunity arising from pension business development, further engaged in customer
accompany and investor education, satisfied customers' needs and realised stable growth in business scale. In terms
of basic management, it strengthened value orientation, optimised human resource management, accelerated to
promote the digital transformation, and tightened risk control compliance and operational assurance management
to help boost the quality and efficiency of various businesses. No major risk compliance incidents occurred during
the reporting period.
During the reporting period, CMB Wealth Management promoted the efficient operation of the value cycle chain in
accordance with the business strategy of "stabilising scale, adjusting structure and enhancing capacity". In terms
of improving its investment and research capabilities, it continued to build on its capabilities in terms of asset
allocation and multi-strategy investment, while promoting the integration of investment and research, maintaining a
reasonable staff arrangement in the investment and research system and continuous improvement in the conversion
efficiency of investment and research results. In terms of increasing its efforts on product innovation, 20
investment strategies highlighting quality asset allocation have been implemented based on market demands, which
were well accepted by the channels and customers. In terms of enhancing investor experience, CMB Wealth
Management increased the business hours for wealth management products to 24 hours, extending the daily
cut-off time for redemption application of cash management products from 15:30 to 24:00, winning favourable
recognition from customers. In terms of improving risk management, CMB Wealth Management strove to
build a comprehensive risk and compliance management system in line with the rules of wealth management and
investment following the principle of prudent and sound risk management.
As of the end of the reporting period, the total asset management business of CMB Wealth Management, China
Merchants Fund, CIGNA & CMAM, and CMB International Capital all being subsidiaries of the Company, amounted
to RMB4.48 trillion 21, representing an increase of 1.59% as compared with the end of the previous year. Among
them, the balance of wealth management products under management by CMB Wealth Management amounted
to RMB2.55 trillion, representing a decrease of 4.49% as compared with the end of the previous year; the scale of
asset management business of China Merchants Fund amounted to RMB1.55 trillion, representing an increase of
4.73% as compared with the end of the previous year; the scale of asset management business of CIGNA & CMAM
amounted to RMB267.593 billion, representing an increase of 62.44% as compared with the end of the previous
year; the scale of asset management business of CMB International Capital amounted to RMB113.466 billion,
representing an increase of 8.77% as compared with the end of the previous year.
Asset Management Business
With respect to its depository service, the Company's security and future margin depository services were in stable
operation. The Company partnered with 106 securities companies in third-party depository services and 16,618,000
customers were secured at the end of the reporting period, representing an increase of 7.39% as compared with the
end of the previous year. Also, the Company entered into cooperation with 144 futures companies on fund transfer,
securing 423,200 customers at the end of the reporting period, representing an increase of 17.13% as compared
with the end of the previous year.
With respect to financial institution liability business, during the reporting period, the daily average balance of
financial institution deposits of the Company amounted to RMB565.449 billion, representing a year-on-year
decrease of 14.79%. The decrease was mainly due to corrections in the equity market, the contraction of the overall
bank wealth management market, business restructuring of the trust industry, as well as the Company's refined
management and control over the interest-bearing costs and its initiative to reduce high-priced deposits.
Financial institution business
21
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
China Merchants Bank
68
67
The data for 2023 is based on the latest calibre of the State Administration of Foreign Exchange.
20
With respect to its corporate wealth management business, the Company actively responded to fluctuations in the
fixed income market, and continued to improve the product system, thereby enhancing customer service experience.
During the reporting period, the Company's average daily balance of corporate wealth management products
was RMB306.759 billion, representing a year-on-year decrease of 20.32% due to the redemption of bank wealth
management products at the beginning of the year, with the reduction narrowed down by 6.41 percentage points
from the middle of the year.
During the reporting period, the Company actively practiced the concept of "finance for the people" and "finance
to serve the real economy", and regarded the retirement finance business as a strategic business with continuously
increased input of resources. With the aim of building its distinctive advantages in retirement finance, the Company
made overall planning in respect of top-level design of retirement finance, integrating retirement finance with non-
financial service scenarios and building a four-in-one innovative service model integrating "products + services +
channels + technology" to provide customers with all-round, one-stop, personalised and comprehensive solutions
for retirement finance. Following the national development strategy of accelerating the formation of a multi-level
and multi-pillar pension insurance system and leveraging its advantages as a fully licenced financial institution, the
Company promoted its retirement finance business into a new stage of high-quality development.
Bill business
Chapter III Management Discussion and Analysis
The Company provided three-dimensional, all-round and multi-level financing support to corporate clients with
its perspective of integrating investment banking and commercial banking based on its commitment to serving
customers' needs at all times. As of the end of the reporting period, the Company's balance of aggregate financing
products to corporate customers (FPA) was RMB5,517.537 billion 14, representing an increase of RMB429.410 billion
over the beginning of the year. Among them, the balance of traditional financing 15 was RMB3,149.757 billion,
representing an increase of RMB351.513 billion over the beginning of the year; the balance of non-traditional
financing 16 was RMB2, 367.780 billion, representing an increase of RMB77.897 billion over the beginning of the year.
The balance of non-traditional financing accounted for 42.91% of the balance of FPA, representing a decrease of
2.09 percentage points over the beginning of the year.
14
Retirement finance business
16
Since the scope of financing wealth management and matching transactions included in FPA were adjusted in this period, the same-calibre adjustment
was made to the data at the beginning of the period, with the opening balance of the adjusted FPA of RMB5,088.127 billion, of which amount of
traditional financing amounted to RMB2,798.244 billion and amount of non-traditional financing amounted to RMB2,289.883 billion.
Traditional financing comprises general corporate loans and commercial bills discounting (including transfer-out of outstanding bills), acceptance, letters
of credit, financial guarantees and non-financial guarantees.
The eight compositions of non-traditional financing include: asset operation, proprietary non-standardised corporate investments, financing wealth
management, debt financing instruments with the Company as the lead underwriter, matching transactions, financial leasing, cross-border coordination
financing and leading syndicated loans.
61
62
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
Wholesale customers
During the reporting period, the Company captured opportunities arising from the transformation of economic
growth momentum and the change of accelerated transformation and upgrading of industries, so as to proactively
strategising its business layout. The Company focused on the development of key finance sectors, including sci-tech
finance, green finance, inclusive finance, retirement finance and digital finance, etc., and continued to develop its
distinctive advantages and upgraded business models, so as to push forward the optimisation and adjustment of the
customer structure and business structure of wholesale finance, and enhance the quality and efficiency of serving
the real economy.
The Company has established a corporate customer service system with segmentation and classification-based
management for strategic customers, institutional customers, financial institution customers, cross-border customers
and basic customers. During the reporting period, the Company kept on focusing on the industry specialised
operation for strategic customers of the Head Office level and branch level, acquisition of high-quality corporate
customers and in-depth operations of existing customers. As of the end of the reporting period, the total number of
corporate customers of the Company came in at 2,820,600, representing an increase of 11.66% as compared with
the end of the previous year. The number of newly acquired corporate customers during the reporting period was
481,900, contributing daily average deposits of RMB172.744 billion.
With regard to its institutional customers, the Company continued to optimise its product systems and user
experience focusing on scenarios including government and industry funds, local government special bonds, income
and expense management of fiscal funds, tax payment and refund as well as convenient civil services, aiming
to provide differentiated services for all levels and types of institutional customers, and further tap into the full
potential of institutional customers through the service chain. In terms of serving national government institutions,
the Company was recognised as excellent agency for all the three agency qualifications in the 2023 Central Fiscal
Agency Service Assessment, and continued to strengthen the multi-dimensional cooperation in terms of policies,
qualifications, systems, data and other aspects, and to build a distinctive brand with digital services. In terms of
serving local governments and competent authorities, the Company provided customers with a package of solutions
encompassing intelligence, financing and technology service system, and established its reputation in the market for
its integrated services. As of the end of the reporting period, the Company had 50,600 institutional customers, with
an average daily deposit balance of RMB1,077.397 billion.
With regard to its financial institution customers, the Company comprehensively deepened its customer operation by
constantly improving its operation system for financial institution customers, enhanced its capabilities of the industry
specialised operation through classified operations for specific industries, and joined hands with the financial
institution customers to serve the customers, which facilitated acquisition and operation of corporate customers and
retail customers. At the same time, the Company cooperated with policy banks to carry out sub-loans services and
implemented the decisions and arrangements related to the national inclusive finance development.
With regard to cross-border customers, the Company overcame multiple challenges at home and abroad and
continued to build distinctive advantages in cross-border finance. Focusing on the acquisition and operation of
customers and strengthening its strategic organisation and professional empowerment, the Company recorded
stable growth in the cross-border business, aiming to become the "principal bank for settlement" and "first bank
to inquire" for customers of cross-border transactions business. As of the end of the reporting period, according
to the latest statistical calibre of the State Administration of Foreign Exchange, the Company had 75,601 corporate
customers in respect of international balance of payments, representing an increase of 14.03% on the same calibre
as compared with the previous year.
17
18
The number of strategic customers of the Head Office level is that of the group number as the strategic customers of the Head Office level served by
the Company. There was an adjustment to the list of strategic customers of the Head Office level in 2023, and the same-calibre adjustment was made
to the 2022 data.
The number of strategic customers of the branch level is the corporate legal entity number of strategic customers of the branch level served by the
Company. There was an adjustment to the list of strategic customers of the branch level in 2023, and the same-calibre adjustment was made to the
2022 data.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
With regard to basic customers, the Company continued to explore the "people + digitalisation" service model by
optimising the centralised operation mechanism, empowering the middle office of the Head Office and branches and
improving the comprehensive capability of its frontline teams. The Company also enhanced the effectiveness and
experience of customer services through standardisation of offline processes, online operation of customer services
and digitalised customer operation and customer contact. The Company used intelligent technologies to build big
data customer profiles and customer potential identification models, improve customer service processes, establish
a closed loop of service and operation covering all processes and the full-life cycle of services and operations, and
enhance the breadth and efficiency of services. During the reporting period, the Company served 37.0604 million
times for corporate customers through various online channels. During the reporting period, the Company had
1,197,800 corporate customers for withholding transactions, representing a year-on-year increase of 11.36%. The
transaction amount was RMB2.17 trillion, representing a year-on-year increase of 7.96%.
Corporate customer deposits
During the reporting period, the Company continued to take advantage of the business opportunities arising from
capital diversion in the key sectors of the capital market, enhanced the fund origination for trade settlement based
on the enterprise's operation scenarios, proactively expanded low-cost deposits. As of the end of the reporting
period, corporate customer deposit balance was RMB4,557.243 billion, representing an increase of 5.52% as
compared with the end of the previous year. The daily average balance was RMB4,532.794 billion, representing
an increase of 6.42% as compared with the previous year. Demand deposits accounted for 57.92% of the average
daily balance of corporate customers' deposits, representing a decrease of 2.63 percentage points as compared with
the previous year. During the reporting period, the average cost rate of corporate customer deposits was 1.75%,
representing an increase of 3 basis points as compared with the previous year.
Corporate loans
In terms of strategic customers, the Company optimised and upgraded its strategic customer service model by
enhancing industry understanding, improving capability of the industry-specialised service for strategic customers,
deepening industry chain and investment chain operations for strategic customers and leading to the innovation of
the industrial service model. As of the end of the reporting period, the Company had 32117 strategic customers of
the Head Office level, with a daily average balance of deposits of RMB1,071.146 billion, representing an increase of
2.50% on the same calibre as compared with the previous year, and the balance of loans was RMB1,118.486 billion,
representing an increase of 8.00% as compared with the beginning of the year. As of the end of the reporting
period, the number of strategic customers of the Company of the branch level was 7,01318. The daily average
balance of deposits was RMB774.371 billion, representing an increase of 6.01% on the same calibre as compared
with the previous year, and the balance of loans was RMB407.267 billion, representing an increase of 14.55% as
compared with the beginning of the year.
During the reporting period, the Company achieved profit before tax from wholesale finance of RMB69.648 billion,
representing an increase of 11.63% as compared with the corresponding period of the previous year. The net
operating income from wholesale finance of the Company was RMB119.481 billion, representing a decrease of
6.55% as compared with the corresponding period of the previous year, and accounting for 38.87% of the net
operating income of the Company. Among them, net interest income of wholesale finance business amounted to
RMB81.058 billion, representing a decrease of 6.33% as compared with the corresponding period of the previous
year, and accounting for 67.84% of the net operating income of wholesale finance business; the net non-interest
income of wholesale finance business amounted to RMB38.423 billion, representing a decrease of 7.00% as
compared with the corresponding period of the previous year, and accounting for 32.16% of the net operating
income of wholesale finance business, and 38.55% of the net non-interest income of the Company.
15
3.10.2 Wholesale finance
China Merchants Bank
Annual Report 2023 (H share)
With regard to its supply chain and scenario-based finance, the Company innovated and upgraded the supply
chain finance 3.0 service system by launching the new products such as "CMB Chain Easy Loan ()" and
the "Distribution Easy Loan ()", which further improved the supply chain product system and effectively
enhanced the efficiency of product operation and customer experience. Leveraging the advantage of "One Entire
Bank for One Customer (-)", the Company provided exclusive credit support to customers in key
industries such as automobile, green energy, medical security and healthcare, communication, power and equipment
manufacturing under the "product + customer group" scenario-based business model. During the reporting period,
the business volume of the Company's supply chain financing amounted to RMB818.733 billion, representing an
increase of 23.68% as compared with the end of the previous year. The Company served 6,556 core enterprises,
and 39,490 upstream and downstream customers.
During the reporting period, the Company implemented the policy guidance of providing financial support for
small- and micro-sized enterprises, and steadily improved the quality and efficiency of its financial services for the
real economy while maintaining stable asset quality and strengthening compliance management. As of the end of
the reporting period, the balance of loans granted by the Company to inclusive small- and micro-sized enterprises
amounted to RMB804.279 billion, representing an increase of RMB125.930 billion or 18.56% as compared with the
end of the previous year, 10.77 percentage points higher than the overall loan growth rate of the Company. The
number of inclusive small- and micro-sized enterprises with loan balance was 1,004,500, representing an increase of
13,800 as compared with the end of the previous year. During the reporting period, the Company has newly issued
inclusive loans of RMB602.821 billion for inclusive small- and micro-sized enterprises, with an average interest rate
of 4.48%, down by 67 basis points year-on-year.
Inclusive finance business
The Company has launched the sci-tech finance service brand, offering integrated service solutions for sci-tech
enterprises catering for their five core needs, namely "bank financing, treasury management, capital connection,
cross-border development, and talent retention and employment". The Company innovatively launched the exclusive
financing product "Sci-Tech Loan ()", established "six specialised (P)" working mechanism to serve
sci-tech enterprises covering teams, products, policies, institutions, assessments and processes, expanded the layout
of key branches for sci-tech finance, thereby increasing the number of key branches to 11, and carried out the bulk
acquisition and operation of sci-tech enterprise customers through major channels. As of the end of the reporting
period, the number of sci-tech enterprise customers of the Company reached 140,800, representing an increase of
42.51% as compared with the end of the previous year; and the balance of loans extended to sci-tech enterprises
amounted to RMB428.477 billion, representing an increase of 44.95% as compared with the end of the previous
year.
Sci-tech finance business
During the reporting period, the Company continued to optimise its loan structure and maintained greater support
for loan granting in sci-tech innovation, green economy, inclusive economy for small- and micro-sized enterprises,
manufacturing industry and other sectors in response to national policy guidance, and steadily and orderly
promoted the development of real estate business. For the key regulatory areas such as local government financing
platforms, the loan granting control was strictly implemented in accordance with the regulatory guidance. As of
the end of the reporting period, the balance of the corporate loans extended to the manufacturing industry was
RMB555.102 billion, representing an increase of RMB111.250 billion as compared with the end of the previous
year, accounting for 23.91% of the total corporate loans, representing an increase of 2.75 percentage points as
compared with the end of the previous year. The balance of green loans was RMB447.765 billion, representing an
increase of RMB92.408 billion as compared with the end of the previous year, accounting for 19.29% of the total
corporate loans, representing an increase of 2.34 percentage points as compared with the end of the previous
year. The balance of loans to strategic emerging industries was RMB375.097 billion, representing an increase of
RMB72.774 billion as compared with the end of the previous year, accounting for 16.16% of the total corporate
loans, representing an increase of 1.74 percentage points as compared with the end of the previous year. For loans
in key areas such as real estate, please refer to Chapter 3.9. For the details of green finance business, please refer to
Chapter 4.2.1.
Chapter III Management Discussion and Analysis
Business overview
China Merchants Bank
64
63
Such loans include loans made by domestic institutions to overseas and offshore customers, domestic non-enterprise customers and self-employed
businesses.
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
19
Annual Report 2023 (H share)
China Merchants Bank
In terms of risk management, the Company kept intensifying its risk control capabilities. First, the Company
strengthened the monitoring and prediction of market risk situations, and adjusted its risk management and control
strategies in a timely manner in line with changes in market conditions; second, the Company prioritised the
development of areas with better economic development and market potential, while adhering to the selection of
high-quality customer groups and preference for customers with good credit records and stable repayment sources
as the main business targets and selecting premium property development projects in core zones as collaterals;
third, the Company continued to strengthen its big data quantitative risk control capabilities and enhance the
digital level of risk management by leveraging Fintech, actively expanded access to data sources, continuously
enriched data tags, rapidly iterated the strategic model, deepening the application of quantitative risk control
tools in the whole process of pre-lending, lending and post-lending so as to accurately identify and control risks.
With the above initiatives, the non-performance loan ratio of retail loans of the Company remained stable. As of
the end of the reporting period, the balance of the Company's retail special-mentioned loans (excluding credit
card loans) amounted to RMB17.366 billion, special-mentioned loan ratio was 0.71%, representing an increase of
0.09 percentage point as compared with the end of the previous year. As of the end of the reporting period, the
balance of non-performing retail loans (excluding credit card loans) amounted to RMB14.158 billion, with the non-
performing loan ratio of 0.58%, representing an increase of 0.02 percentage point as compared with the end of the
previous year. Excluding credit card loans, the mortgage and pledged loans accounted for 57.98% of the Company's
new non-performing retail loans formed during the reporting period, the loan-to-value ratio of the above-mentioned
mortgage and pledged loans as at the end of the reporting period was 35.12%. Given that the vast majority of such
new non-performing retail loans were fully secured by collaterals, the risk was within a controllable range.
As of the end of the reporting period, the balance of retail loans of the Company amounted to RMB3,373.633
billion, representing an increase of 8.49% as compared with the end of the previous year and accounting for
54.71% of the Company's total loans and advances to customers, up by 0.35 percentage point as compared with
the end of the previous year. Among them, the balance of the Company's retail loans (excluding credit card loans)
reached RMB2,437.856 billion, representing an increase of 9.55% as compared with the end of the previous year,
accounting for 39.53% of total loans and advances to customers of the Company and representing an increase of
0.63 percentage point as compared with the end of the previous year.
As to business development, during the reporting period, the Company actively implemented the requirements of
national policies, adhered to the implementation of city-specific policy, proactively adapted to the major changes in
the supply and demand relationship in the real estate market, and supported rigid and improving housing demands
of housebuyers, thus achieving a healthy development of the residential mortgage loan business. Furthermore,
while maintaining proper risk control management and stable asset quality, the Company proactively adjusted its
business structure and increased the granting of micro-finance loans and consumer loans. With respect to micro-
finance loans, the Company strictly implemented various regulatory requirements, enriched its product portfolio
and enhanced policy adaptation to meet the diversified needs of micro-finance loan customers, and expanded the
coverage of micro-finance loan customers, so as to constantly improve the quality and efficiency of micro-finance
services. With respect to the consumer loan business, the Company insisted on selecting high-quality customers and
continued to build on its big data risk control capabilities. The Company carried out segmented management of
customer groups with different needs, stroke a balance between returns and risks, and reduced operating costs. As
of the end of the reporting period, the Company recorded a balance of residential mortgage loans of RMB1,376.814
billion, representing a decrease of 0.22% as compared with the end of the previous year. The balance of retail
micro-finance loans amounted to RMB749.773 billion, representing an increase of 19.08% as compared with the
end of the previous year. The balance of consumer loans amounted to RMB301.538 billion, up by 49.11% as
compared with the end of the previous year. As of the end of the reporting period, the Company had 15.5772
million retail loan (excluding credit card loans) customers, representing an increase of 28.31% as compared with the
end of the previous year. The expansion of customer base was mainly attributable to the light model of customer
acquisition through online platform.
In terms of business development, the Company adhered to the value-oriented and innovation-driven approach to
promote service and product upgrades. Firstly, the transformation of customer acquisition strategies has facilitated
the Company's high-quality customers acquisition efforts. Additionally, it has constantly enriched its card product
portfolio by launching green and low-carbon themed credit card in practicing the ESG concept, and joined hands
with Meituan and Mango TV to launch co-branded cards in satisfying the needs of young customers for online
shopping and entertainment. Particularly for female customers, the Company launched, among others, the Hello
Kitty pink graffiti card and "Free Life (±)" platinum credit card (Pink Version), enabling the Company to
further strengthen the connection with its customers. Secondly, the Company applied a combination of measures
to boost consumption, seizing the consumption hotspots of festivals and holidays and e-commerce promotions to
enhance the efficiency of marketing operations. Furthermore, it capitalised on the recovery of overseas transactions
by launching the themed marketing campaign of "Extraordinary Overseas Tours (). Thirdly, the Company
continued to focus on the operation of instalment assets and enhance the operating efficiency of bill instalments
and consumption instalments. Meanwhile, it innovated the post-loan procedure for automobile instalment loans and
enhanced service quality and efficiency through online solutions. Fourthly, it deepened the digital transformation
based on the credit card core system 3.0, upgrading business procedures and functions, creating the "people +
digitalisation" omni-channel service system and promoting the digital and intelligent transformation of customer
service. In addition, the Company has further deepened the operation of the CMB Life APP. For details of the CMB
Life APP, please refer to 3.10.3 "Distribution channels" in this chapter.
Chapter III Management Discussion and Analysis
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Retail loans
During the reporting period, the Company continued to build on its investment and research capabilities for
proprietary investment and service capabilities for trading on behalf of customers, tightened up risk management,
and strengthened Fintech application. While serving the real economy, the Company achieved high-quality
development in various businesses.
Financial markets business
Thirdly, the Company made active efforts in propelling digitalisation, aiming to enhance customers experience
through technology empowerment. The Company kept on raising digital service capabilities, and developed a
number of service platforms such as online customer service digital platform, "custody + bank and enterprise”
reconciliation platform, "custody + treasury management" cloud platform and "custody + investment" cloud
platform to broaden the boundaries of custody service.
Secondly, the Company continued to consolidate its business strengths in various segments, delivering breakthroughs
in key products. As of the end of the reporting period, the scale of pension products under the Company's custody
totalled to RMB1.05 trillion, a new breakthrough exceeding one trillion. Additionally, the Company continued to
rank first in terms of number of public REITS under its custody (data from WIND). During the reporting period, the
newly offered mutual funds under the custody by the Company ranked the first in terms of number and scale (data
from WIND). During the reporting period, the Company effectively took the market opportunity to finalise the
custody of the first batch of cross-border QDII semi-conductor ETF and the first fixed-income QDII-FOF fund.
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70
In terms of investment transactions, the Company adhered to prudent operation, actively studied and made
judgement on the economic fundamentals of the PRC and the major overseas economies, the trend of inflation
and the direction of monetary policy, continued to strengthen macro policy research and market analysis, improved
proprietary investments research and analysis framework, strengthened indicator tracking and monitoring, optimised
the portfolio structure, and enhanced investments returns. Furthermore, the Company continued to actively provide
liquidity to the market in the capacity as a market maker, and continued to strengthen the comprehensive capability
of market making and to enhance its quotation and trading services. Also, it closely followed the guidance of
national economic strategies, focused on the national industrial structure adjustment, increased its credit bond
investment in "specialised, competitive, distinguished and innovative ()" enterprises and corporate clients
in area of new growth engines, thereby assisting the development of strategic emerging industries. During the
reporting period, the transaction volume of RMB bond investments amounted to RMB2.79 trillion, representing a
year-on-year increase of 21.57%.
Chapter III Management Discussion and Analysis
In terms of business of tradings on behalf of customers, the Company continued to advocate the concept of neutral
management of exchange rate risk to corporate customers, and helped the enterprises to fully understand and
manage exchange rate risk in a scientific manner. Also, to fulfill customer needs, the Company provided solutions
against financial market risks such as exchange rate and interest rate risks faced by enterprises tailored to their main
business scenarios. During the reporting period, the Company provided hedging services to 6,285 companies with a
total transaction volume of derivatives to corporate customers amounting to USD64.783 billion.
Operational risk refers to the risk of loss arising from inappropriate or problematic internal procedures, incompetent
personnel or IT systems, or external events. In view of the various aspects and wide range of operational risks, the
Company's operational risk management will, based on the principles of cost-revenue matching and input-output
balance, vigorously strengthen the establishment of operational risk management system, implement internal control
system, continue to carry out various businesses steadily and reduce or prevent operational risk losses with a certain
level of cost. In the process of operational risk management, within the risk limits set by the Board of Directors, the
Company will, through measures such as further improving the risk management mechanism, strengthening risk
prevention and control in key areas, conducting in-depth risk monitoring and pre-warning, improving assessment
and evaluation mechanism, and cultivating operational risk prevention culture, further improve operational risk
management capabilities and effectiveness, and prevent and reduce operational risk losses.
During the reporting period, the Company continued to actively perform its duties as a market maker, and
successfully completed the first batch of standardised interest rate swap trading through National Interbank Funding
Centre, and once again received the "Northbound Top Market Maker" award from Bond Connect Company Limited.
For more information about the Company's credit risk management, please refer to Note 60(a) to the financial
statements.
Credit risk refers to the risk arising from a bank's borrowers or counterparties failing to perform their obligations
as agreed. The Company adhered to the concept of balanced returns and risks and the prudent business strategy
in which risks can be ultimately covered by capital, pursued the dynamically balanced development of "Quality,
Profitability and Scale", implemented a unified credit risk preference, optimised the full-life cycle credit risk
management process, continuously upgraded credit risk management tools, reinforced the construction of three
lines of defence and strengthened risk management capability, so as to prevent and reduce credit risk loss.
During the reporting period, the Company closely monitored the macroeconomic situation, actively responded to
the changes, rigorously upheld the bottom line and took a number of initiatives to ensure stable asset quality.
Firstly, the Company has strengthened the risk management of domestic and overseas branches and subsidiaries,
established a branch-based risk profile rating system, put in place the framework and principles for risk management
in subsidiaries, and further consolidated the risk management foundation. Secondly, the Company improved the
risk management system, tightened risk management for its off-balance sheet business in strict accordance with
regulatory requirements, optimised administrative measures such as the centralised system of credit granting and
credit facility management over group customers, and consolidated the foundation of the risk management system
for extensive wealth management. Thirdly, the Company carried out strict management in key risk areas, especially
strengthening the closed-loop management in the real estate sector. The Company conducted risk screening
targeting key industries and key customer groups and enhanced differentiated and refined risk management
capabilities. Fourthly, based on the current situation with a long-term perspective, and revolving around the strategy
of "dynamic rebalancing" of industries, regions and customer bases, the Company strengthened research on key
industries relying on industry self-organisation, built on its professional capabilities, improved policy adaptability
and promoted the implementation of "one branch, one policy" principle of list-based customer management
for assets business, so as to optimise the asset origination and support the high-quality development of the real
economy. Fifthly, the Company enhanced its efforts in disposal of non-performing loans, focused on key risk
items, implemented different measures based on different categories, expanded the channels for disposal of
non-performing assets, and improved the quality and efficiency of settlement, collection and disposal. Sixthly,
the Company enhanced the application of Fintech, optimised the risk management system, enhanced the risk
measurement capability and promoted the digital transformation of risk management.
3.11.1 Credit risk management
The Company adhered to a solid and prudent risk culture and risk appetite, and was dedicated to building a fortress-
style overall risk and compliance management system. The Risk and Compliance Management Committee of the
Head Office is responsible for reviewing and determining the most significant bank-wide risk management policies
under the framework of risk appetite, strategies, policies and authorisations approved by the Board of Directors.
During the reporting period, the Company maintained strategic determination, and continued to increase its support
to the real economy. The Company prevented and mitigated risks, consolidated management foundation, improved
digital risk control capabilities, and continued to promote the construction of a fortress-style risk and compliance
management system.
3.11 Risk Management
As of the end of the reporting period, the total assets of Merchants Union Consumer Finance amounted to
RMB176.421 billion and the net assets were RMB20.367 billion. It realised a net profit of RMB3.600 billion during
the reporting period.
Merchants Union Consumer Finance, a joint venture of the Company, was established in 2015 with a registered
capital of RMB10.0 billion. As of the end of the reporting period, the Company held 50% shares in Merchants
Union Consumer Finance and China United Network Communications Limited held the other 50% shares. Upon the
approval from regulatory authorities, Merchants Union Consumer Finance completed the registration of the change
of its Chinese name from "⠀®¬" to "S" in July 2023. Merchants Union
Consumer Finance is mainly engaged in the granting of personal consumer loans.
Merchants Union Consumer Finance
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
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75
The major joint ventures of the Company include CIGNA & CMB Life Insurance and Merchants Union Consumer Finance, and their financial data have
been adjusted in accordance with the accounting policies of the Group, where necessary.
23
As of the end of the reporting period, the total assets of CIGNA & CMB Life Insurance amounted to RMB165.340
billion, and its net assets amounted to RMB9.855 billion. During the reporting period, CIGNA & CMB Life Insurance
realised a net profit of RMB429 million.
CIGNA & CMB Life Insurance, a joint venture of the Company, was established in 2003 with a registered capital
of RMB2.8 billion. As of the end of the reporting period, the Company held 50% shares in CIGNA & CMB Life
Insurance and Cigna Health and Life Insurance Company held the other 50% shares. CIGNA & CMB Life Insurance
is mainly engaged in insurance businesses such as life insurance, health insurance, accident injury insurance and the
reinsurance of the above insurances.
CIGNA & CMB Life Insurance
3.10.6 Major joint ventures23
As of the end of the reporting period, CMB Europe S.A. had total assets of EUR118 million and net assets of EUR92
million.
CMB Europe S.A. was approved to be established in 2021 with a registered capital of EUR100 million (the Company
made an additional capital injection of EUR50 million to CMB Europe S.A. in June 2023). It is a wholly-owned
subsidiary of the Company in Europe and the regional headquarter of the Company in continental Europe. CMB
Europe S.A. will be fully integrated into the Company's extensive wealth management system and leverage its full
licence advantage to provide its customers with diversified financial products and services such as cross-border
financing, M&A finance, private banking, investment management, financial markets, bond underwriting, trade
financing, and operates and allocates the global assets of enterprises and individuals.
CMB Europe S.A.
As of the end of the reporting period, CIGNA & CMAM had total assets of RMB920 million, with net assets of
RMB713 million and a net profit of RMB108 million during the reporting period.
CIGNA & CMAM was established in 2020 with a registered capital of RMB500 million, and it is an indirectly owned
subsidiary of the Company, which is owned as to 87.3458% and 12.6542% by CIGNA & CMB Life Insurance,
a joint venture of the Company, and CMB International Capital, a subsidiary of the Company, respectively. The
business scope of CIGNA & CMAM includes entrusted management of client's funds, issuance of insurance asset
management products and asset management related consultation business.
CIGNA & CMAM
As of the end of the reporting period, the total assets of China Merchants Fund amounted to RMB14.151 billion,
and its net assets amounted to RMB9.325 billion. It realised a net profit of RMB1.753 billion during the reporting
period.
Established in 2002, China Merchants Fund has a registered capital of RMB1.31 billion. As of the end of the
reporting period, the Company and China Merchants Securities Co., Ltd. held 55% and 45% of China Merchants
Fund's shares, respectively. The business scope of China Merchants Fund covers fund establishment, fund
management and other operations approved by the CSRC.
China Merchants Fund
As of the end of the reporting period, CMB Wealth Management had total assets of RMB21.062 billion and net
assets of RMB20.135 billion. During the reporting period, the net profit was RMB3.190 billion.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
3.11.2 Management of large risk exposure
3.11.5 Operational risk management
For more information about the Company's market risk management, please refer to Note 60(b) to the financial
statements.
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 optimisation program as a scientific reference for the management's decision-making.
During the reporting period, the Company increased its efforts to monitor and analyse foreign exchange exposure
and imposed a stringent control over the scale of foreign exchange risk exposure. The Company was prudent
about the exchange rate risk. As of the end of the reporting period, the scale of foreign exchange exposure of
the Company's banking book was at a relatively low level. The exchange rate risk of the Company was generally
stable with all the core limit indicators, general scenarios and stress testing results satisfying the regulatory limit
requirement.
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. The Audit Department of the Company is responsible for auditing
of our exchange rate risk.
The Company mainly uses foreign exchange exposure analysis, scenario simulation analysis, stress test, and other
methods for measurement and analysis of exchange rate risk of its banking book. The foreign exchange exposure
measurement uses the short-sided method, the correlation approach and the aggregation approach; scenario
simulation and stress test analysis are two important exchange rate risk management tools of the Company for
managing foreign exchange rate risk, covering the standard scenario, historical scenario, forward scenario and
stress scenario, which include scenarios such as spot and forward exchange rate fluctuations and historical extreme
exchange rate fluctuations of various currencies, each scenario could simulate the impact on the Company's profit
or loss. The effects of certain scenario simulation on the profit and loss and its percentage to net capital as a limit
indicator are taken as reference in the routine management. The Company conducts back-testing and assessment on
relevant model parameters on a regular basis to verify the effectiveness of measurement models.
During the reporting period, RMB generally demonstrated a trend of "initially appreciation followed by a
depreciation", with an accumulated depreciation once by as much as over 5.5% against the U.S. dollar. The
depreciation of RMB narrowed to approximately 2.0% towards the end of the year as the US Federal Reserve
suspended interest rate hikes resulting in decline of foreign exchange rate. The Company's trading book mainly
obtained the spread income through the foreign exchange business on behalf of customers, and implemented
rigorous internal control and management through a well-established and efficient management system, and
closely monitored changes of limit indicators such as sensitivity index and stop-loss indicator. All exchange rate risk
indicators of the Company's trading book were within the target range as of the end of the reporting period.
Banking book
Chapter III Management Discussion and Analysis
China Merchants Bank
Annual Report 2023 (H share)
The Company uses risk exposure indicator, market risk value indicator (VaR, covering foreign exchange rate risk
factors of various currencies related to transactions on the trading book), the exchange loss indicator under
stress test, option-sensitive indicator and accumulated loss indicator to conduct risk measurement and monitoring
management. As for risk measurement, the selected exchange rate risk factor is applied on spot prices, forward
prices and volatilities 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 every transaction currency against
RMB, and changed volatility of foreign exchange options. Major option-sensitive indicators include Delta, Gamma,
Vega and other indicators. For routine management, we set annual 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 of the Board of Directors, and delegated the Market Risk Management
Department to perform routine monitoring and on-going reporting.
In terms of digital transformation, the Company continued to promote the in-depth integration of technology and
business, and continued to deepen the application of digital technology in its financial markets business. In terms
of digital investment and research, the Company has initially studied and developed a multi-factor trading strategy
covering bonds, foreign exchange and precious metals, formed a multi-dimensional investment decision-making
system covering fundamental, policy and sentiment perspectives and achieved positive progress in the development
of its self-developed digital trading platform. The monitoring signals of its self-developed bond investment credit
risk management system were increasingly diversified, which effectively improved the foresight and effectiveness of
risk identification. The Company accelerated the building of online platforms for business of tradings on behalf of
customers, diversified online products, and enhanced the convenience of corporate business processing. During the
reporting period, the Company provided online derivative trading services to 5,287 corporate clients, with a total
transaction volume of USD22.661 billion.
Exchange rate risk management
Adhering to a neutral and prudent interest rate risk preference, the Company pays close attention to changes in
the external environment and internal interest rate risk exposure structure, predicts and analyses interest rate trends
based on macro-quantitative models and experts' research and judgement, prospectively deploys active interest
rate risk management strategies and adjusts them flexibly. During the reporting period, the Company constantly
monitored and analysed various interest rate risks, especially the gap risk in the context of the LPR downturn and
the benchmark risk caused by inconsistent changes of deposit and loan interest rates, and adjusted the structure of
assets and liabilities on the balance sheet and hedged interest rate derivatives off the balance sheet to manage risks.
As of the end of the reporting period, the Company's on- and off-balance-sheet management measures were carried
out as planned, the interest rate risk level was controlled within the annual interest rate risk control target range,
and various indicators including the stress test results were kept within the limits and warning values. The banking
book interest rate risk was generally controllable.
In accordance with external regulatory requirements and internal banking book interest rate risk management
policies, the Company has established and continuously improved the banking book interest rate risk management
system, clarified the interest rate risk governance structure and established the management process of interest rate
risk identification, measurement, monitoring, control and reporting. The Company mainly adopts the re-pricing gap
analysis, duration analysis, benchmark-correlated analysis, scenario simulation and other methods to measure and
analyse the 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 Bank as a whole; 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-
correlated 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 comprises a number of 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 in history, and the most possible changes in interest rates in
the future as judged by experts and other scenarios. The net interest income (NII) for the future one year and the
changes in economic value of equity (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 Bank. In addition, the internal limit indicator system is included into the
standardised measurement indicators set out in the Guidelines on the Management of Interest Rate Risk of Banking
Book of Commercial Banks (Revised).
Banking book
CMB Wealth Management was officially opened in 2019, and its business scope includes issuing wealth management
products, providing wealth management advisory and consulting services and other businesses approved by
regulatory authorities. As of the end of the reporting period, the registered capital of CMB Wealth Management was
approximately RMB5.556 billion. The Company and JPMorgan Asset Management (Asia Pacific) Limited hold 90%
and 10% of its shares respectively.
During the reporting period, the Sino-US interest rate spread inverted under the weight of continued interest rate
hikes by the US Federal Reserve, with the RMB interest rate demonstrating an overall downward trend, while the U.S.
dollar interest rate fluctuated with an upward trend and remained at high levels. The scope of investment in the
Company's trading books mainly covered RMB bonds. The Company generally adopted a prudent trading strategy
and prudent risk control measures to ensure that all interest rate risk indicators of the trading book remained within
the target range.
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The Company uses volume indicators, market risk value indicators (VaR, covering interest rate risk factors of various
currencies and durations relating to trading book business), interest rate stress testing loss indicators, interest rate-
sensitive indicators and accumulative loss indicators, to measure, monitor and manage the interest rate risk of
trading book. The interest rate risk factors used for risk measurement cover all businesses under the trading book,
and are comprised of around 200 interest rate indicators or bond yield curves. VaR includes general VaR and stressed
VaR, which are both calculated using the historical simulation method 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 scenarios include
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 them, the extreme interest rate
scenario may move up to 300 basis points and cover the extremely unfavourable conditions of the market. Major
interest rate sensibility indicator reflects the duration of bonds and the change in the market value of bonds and
interest rate derivatives PV01 (when an interest rate fluctuates unfavourably by 1 basis point). As for routine risk
management, the annual scope of authorisation and the market risk limits for the interest rate risk businesses under
the trading book 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 routine
monitoring and continuous reporting.
Trading book
Interest rate risk management
The Company's market risk arises from trading book and banking book, and the interest rate risk and exchange rate
risk are the major market risks faced by the Company.
3.11.4 Market risk management
During the reporting period, the global geopolitical conflict continued. In the face of increasingly complex and
volatile international political and economic situation, the Company dynamically updated the country risk rating
according to the risk changes, tightened the monitoring and limit control of country risk and strictly restricted
the growth of business in high-risk countries. At of the end of the reporting period, the Company's country risk
exposure was mainly concentrated in relatively-low-risk countries or regions. The country risk would not have a
significant impact on the Company's business operation.
The Company strictly implemented relevant regulatory requirements and followed the principles of soundness and
prudence, established a country risk management system compatible with strategic objectives, risk profile and
complexity, and incorporated country risk management into its overall risk management system so as to promptly
identify, measure, evaluate, monitor, report, control and mitigate country risks, assess the country risk ratings in
a regular manner and implement limit management, while guiding business to tilt in favour of relatively-low-risk
countries or regions. Major matters involving country risk management strategies and policies were submitted to the
Board of Directors for consideration and approval.
Country risks represent the risks of political, economic, social changes and incidents in a country or region that may
cause debtors in that country or region to be unable or unwilling to fulfill their obligations to banks, or incur losses
to commercial presences of the Company in that country or region, or other losses to the Company in that country
or region.
3.11.3 Country risk management
In accordance with the Rules on Large Exposure of Commercial Banks (★¤ªMART), large
exposure refers to the credit risk exposure (including various credit risk exposures in the banking book and trading
book) to a single customer or a group of related customers of a commercial bank that exceeds 2.5% of its net
Tier 1 capital. The Company has incorporated large risk exposure management into its overall risk management
system, continued to improve customer credit management requirements, continued to streamline risk exposure
measurement rules, dynamically monitored changes in large risk exposures by way of Fintech, and reported regularly
on large risk exposure indicators and related management work to regulatory authorities, so as to effectively
control customer concentration risks. As of the end of the reporting period, other than customers with regulatory
exemption, single non-financial institution customers, group non-financial institution customers, single financial
institution customers and group financial institution customers of the Company that reached the standards of large
risk exposure were all in compliance with the regulatory requirements.
Chapter III Management Discussion and Analysis
CMB Wealth Management
Trading book
China Merchants Bank
Annual Report 2023 (H share)
3.10.4 Overseas branches
During the reporting period, the Company focused on the enterprises' demands for digital transformation, adopted
"Treasury Management Cloud +" as the main interface to deliver the "Enterprise Digital Intelligent Finance (**
)" scenario-based services, and transformed the comprehensive customer-oriented product services towards
scenario-based turnkey (1) solutions. Firstly, the Company built the Treasury Management Cloud (Single
Account Version) to explore a batch operation model comprising online marketing, online delivery and online
operation of digital products for corporate customers, making the treasury management services accessible to
large conglomerates as well as individual start-up enterprises, so as to take the leading position in digital services.
Secondly, with the two major service channels of CMB Corporate U-Bank and CMB Corporate APP, the Company
continued to upgrade its channel service capability. During the reporting period, the Company launched the
upgraded 6.0 version of the Mobile Treasury on CMB Corporate APP catering to the core needs of legal persons,
executives and other key personnel of enterprises, and provided them with convenient treasury management service
via the mobile terminals. Thirdly, highlighting core financial scenarios such as cross-border, Special Service Section
for Specific Scenario, financing and wealth management, the Company built "Treasury Management Cloud + Special
Service Section for Specific Scenario (+%%¥6&¾)" based on customers' perspective. As of the end
of the reporting period, the Company had 2,713,700 wholesale customers on the online channels, representing
an increase of 13.43% as compared with the end of previous year. The coverage rate of wholesale customers on
the online channels was 96.21%, representing an increase of 1.50 percentage points as compared with the end of
previous year. The Company had 1,696,900 monthly active customers of wholesale online channels, representing
a year-on-year increase of 11.68%; the total number of wholesale online channel transactions handled by the
Company reached 412 million, representing a year-on-year increase of 26.38%; and the total value of wholesale
online channel transactions amounted to RMB210.22 trillion, representing a year-on-year increase of 20.37%.
Major wholesale online channels
In terms of credit card intelligent service system, during the reporting period, the Company continued to push
forward the digital and intelligent transformation of customer service for credit card business and improve
development of intelligent service management system, so as to enhance comprehensive customer service
capabilities. On the one hand, the Company managed to build a new-generation customer contact centre to
enhance customer interaction experience and operational efficiency through continuous promotion of service
channel synergy and digital services. On the other hand, CMB Life APP "Xiao Zhao ()" assistant, through real-
time prediction of users' needs, offered new accompanying service with the service image of "Xiao Zhao Miao (
"as the core, reshaping intelligent services and interaction patterns.
In terms of debit card intelligent service system, during the reporting period, the Company continued to optimise
the intelligent service network of the CMB APP, and further integrated its artificial intelligence, intelligent customer
service and remote consultancy service capabilities to launch the brand new intelligent wealth assistant "Xiao Zhao
()" with effective conversation and interaction features, which made it capable of providing customers with
one-stop wealth management service such as financial analysis, product selection strategy and yield analysis, etc.,
supporting for troubleshooting consultation for various business scenarios. Furthermore, "Xiao Zhao ()" can be
also linked with remote relationship managers to provide customers with customised consultancy services.
Smart Service System
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
China Merchants Bank
72
71
The Company continued to enrich the service mode and provided a more intuitive service experience by means
of images, videos, the same-screen services and other modes to solve complex operational issues. The Company
optimised the response speed and processing efficiency in handling "business that are urgent, complicated,
distressing and waiting for help" by intelligent dispatch, which made the issues solved in a more efficient manner.
The Company further intensified the customised service and warm service for elderly customers to duly fulfill its
social responsibilities. During the reporting period, the remote online omni-channel manual service connection rate
was 97.26%, the remote online omni-channel manual service response rate within 20 seconds was 92.52%, and
the remote online omni-channel customer satisfaction rate was 99.10%. With "people + digitalisation" as the core
driving force, the Company fully leverage on Fintech, continued to enhance the service level of intelligent robots,
and provided the most suitable solutions for customers through intelligent dispatch.
The Company's Network Operation Service Centre provides real-time, comprehensive, prompt, and professional
services to its customers via telephone, network, video, etc. and applies intelligent technology to link such services
with the processing interface of the CMB APP directly, making the services more convenient.
Network Operation Service
Hong Kong Branch
As of the end of the reporting period, the cumulative number of users of CMB Life APP amounted to 144 million.
During the reporting period, the maximum number of daily active users of CMB Life APP reached 6,792,300 and the
number of monthly active users was 41,975,500 as of the end of the period. In terms of user engagement, CMB Life
APP was in the front rank among other credit card APPS in the banking industry.
)" were launched, to build up and continuously improve the ability to mobilise large-scale online and offline
During the reporting period, the Company continued to further enhance the customer service and mobilisation
capabilities of the CMB Life APP. Focusing on high-frequency consumption scenarios and connecting with quality
partners, the Company enriched the online service ecosystem. Also, the Company enhanced interaction efficiency
and customer experience with upgraded search, recommendation and other intelligent service capabilities.
Furthermore, a series of marketing campaigns such as "618 Save Money to Spend (618 XE)", "Exceptional
Hainan ()", "Cashback ()" and "Welcome to the New Year with Credit Cards (,
CMB Life APP for Credit Card
As of the end of the reporting period, the cumulative number of users of CMB APP amounted to 207 million. During
the reporting period, the maximum number of daily active users of CMB APP reached 21,638,200. The number of
monthly active users was 75,054,300 as of the end of the reporting period.
During the reporting period, the Company continued to deepen its core financial scenario services around extensive
wealth management, focusing on the "people + digitalisation" service model, and continuously improving the
customer experience of the CMB APP. It also innovatively launched customised wealth products based on users'
needs and professional services to further improve the self-service model of online wealth management. The reach
of account management services has been expanded revolving around the purpose of becoming customers' principal
bank of main accounts, thus improving the account management experience.
CMB APP
Major online channels for retail
Online channels
The Company's business is mainly in the market of China, and its distribution network is mainly distributed in
major central cities in the Chinese mainland and some international financial centres such as China's Hong Kong,
New York, London, Singapore, Luxembourg and Sydney. As of the end of the reporting period, the Company
has 143 branches and 1,781 sub-branches in China, two branch-level specialised institutions (a credit card centre
and a global markets centre), 2,226 self-service banks, 5,281 cash self-service devices and 7,603 visual counters.
The Company has a Hong Kong branch in Hong Kong, China, a representative office in Chinese Taipei, a New
York branch and a representative office in the United States, a London branch in the UK, a Singapore branch in
Singapore, a Luxembourg branch and a Sydney branch in Australia.
3.10.3 Distribution channel
Chapter III Management Discussion and Analysis
Annual Report 2023 (H share)
China Merchants Bank
Chapter III Management Discussion and Analysis
customers.
Established in 2002, the Hong Kong Branch of the Company is the first branch duly established overseas by the
Company, which can engage in comprehensive commercial banking businesses. With regard to corporate banking
business, the Hong Kong Branch provides diversified corporate banking products and services, such as deposit-
taking, settlement, trade financing, bilateral loans, syndicated loans, cross-border M&A comprehensive solutions,
asset management and asset custody, and engages in transaction of funds, bond trading and foreign exchange
trading with financial institutions, and conducts funds clearing and asset transfer with financial institution
customers. With respect to retail banking, the Hong Kong Branch can provide personal banking services and private
wealth management services for customers. Featured products include "Hong Kong All-in-one Card" and "Hong
Kong Bank-Securities Express".
The Company provides products and services via multiple online and offline distribution channels.
Offline channels
China Merchants Bank
Annual Report 2023 (H share)
As of the end of the reporting period, the total assets of CMB International Capital amounted to HKD69.714 billion,
and its net assets amounted to HKD13.146 billion. During the reporting period, it realised a net profit of HKD1.152
billion.
During the reporting period, the Hong Kong Branch optimised its business structure, focused on customer group
construction, continuously innovated and developed featured businesses while expanding and strengthening its
traditional banking business, and increased investment in quality assets by capitalising on the interest rate hike,
enhanced compliance and risk management, and achieved stable growth in efficiency while maintaining good
control over asset quality. During the reporting period, the Hong Kong Branch achieved a net operating income of
HKD3.552 billion.
Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong with
a registered capital of HKD4.129 billion. At present, the business scope of CMB International Capital and its
subsidiaries mainly covers corporate finance, asset management, wealth management, global market business and
structured finance.
CMB International Capital
CMB Financial Leasing is a wholly-owned subsidiary established by the Company in 2008 with a registered capital
of RMB12 billion. It meets the needs of lessees to purchase equipment, promote sales, revitalise assets, balance tax
burden and improve financial structure through 10 major financial solutions relating to aviation, shipping, energy,
infrastructure, equipment manufacturing, environment, health, culture and tourism, public transportation and
logistics, intelligent interconnect and integrated circuit and leasing industry, etc.
CMB Financial Leasing
As of the end of the reporting period, the total assets of CMB Wing Lung Group amounted to HKD426.640 billion.
Total equity attributable to shareholders amounted to HKD46.392 billion. During the reporting period, CMB Wing
Lung Group realised a net profit attributable to shareholders of HKD1.605 billion. For detailed financial information
on CMB Wing Lung Group, please refer to the 2023 annual results of CMB Wing Lung Bank, which is published on
the website of CMB Wing Lung Bank (www.cmbwinglungbank.com).
Founded in 1933, CMB Wing Lung Bank has a registered capital of HKD1.161 billion, and it is a wholly-owned
subsidiary of the Company in Hong Kong. CMB Wing Lung Bank provides customers with diversified banking
products and services, including retail and private banking, corporate banking and other banking businesses. CMB
Wing Lung Bank also provides asset management and insurance brokerage services through its subsidiaries..
CMB Wing Lung Bank
The Company exercises the rights of shareholders in compliance with the law, keeps on strengthening the
comprehensive control over the corporate governance, capital management, risk management, financial
management and other aspects of its subsidiaries, and capitalises on the synergy of comprehensive operation to
enhance the Group's capabilities of providing comprehensive financial services to customers while achieving their
own high-quality growth.
3.10.5 Major subsidiaries
During the reporting period, the Sydney Branch promoted the balanced business development with origination of
high-quality asset. During the reporting period, the Sydney Branch achieved a net operating income of AUD58.3127
million.
The Sydney Branch of the Company was established in 2017 and is the first branch approved to be established in
Australia among all Chinese joint-stock commercial banks. Based on the overall requirement of "steady growth,
improved quality and efficiency, enhanced foundation, featured business and risk prevention", the Sydney Branch
adheres to the high-quality development path guided by our values and managed to get a foothold in businesses
derived from China-Australia economic, trade and investment exchanges. The Sydney Branch focuses on the needs
of the strategic customers and top-tiered customers of Australia and New Zealand, creating value for customers
through providing two-way cross-border financial services. The main services and products of the Sydney Branch
include: settlement, foreign exchange transactions, trade financing, M&A financing and commitment business,
project financing, syndicated loans and fund financing. At the same time, the branch actively builds a global service
network for private banking customers and provides high-quality non-financial value-added services for high-net-
worth private banking customers.
Chapter III Management Discussion and Analysis
Sydney Branch
As of the end of the reporting period, the total assets of CMB Financial Leasing were RMB290.794 billion and the
net assets were RMB33.111 billion. During the reporting period, the net profit was RMB3.675 billion.
I
China Merchants Bank
Annual Report 2023 (H share)
New York Branch
Established in 2008, the New York Branch of the Company is the first branch of Chinese banks approved in the
U.S. since the implementation of U.S. Foreign Bank Supervision Enhancement Act in 1991. The New York Branch is
located in the global financial centre and is committed to establishing a cross-border financial platform characterised
by coordination between China and the U.S., so as to offer diversified and all-round banking services for the
companies in China and the U.S. Such services and products mainly include: deposit-taking, settlement, foreign
exchange transactions, international documents, trade financing, bilateral loans, syndicated loans, working capital
financing, M&A financing, privatisation financing, fund financing, etc. At the same time, the New York Branch
actively builds a global service network for private banking customers and provides high-quality non-financial value-
added services for high-net-worth private banking customers.
Singapore Branch
Established in 2013, the Singapore Branch of the Company is positioned as a significant cross-border finance
platform in Southeast Asia. Based in Singapore and expanding to Southeast Asia, the Singapore Branch takes
cross-border finance and wealth management as its core businesses. In terms of cross-border finance business, the
Singapore branch strives to provide all-round one-stop solutions to the Chinese companies "going global" and
the foreign companies "brought in" located in Singapore and other Southeast Asian countries. The main services
and products of the Singapore Branch include: deposit-taking, settlement, foreign exchange transactions, trade
financing, syndicated loans, M&A financing and delisting financing. In terms of wealth management business, the
Private Banking (Singapore) Centre provided private banking products and value-added services with integrated
investment and financing services, such as cash management, asset allocation and wealth inheritance to high-net-
worth customers.
During the reporting period, the Singapore Branch has practiced the strategy of "building a value creation bank"
and broadened the range of its customer services focusing on strategic customers "going global", while assisting
the branch's characteristic operation with regional advantages, to create value in diversified businesses. During the
reporting period, the Singapore Branch achieved a net operating income of USD22.4820 million.
Luxembourg Branch
During the reporting period, the New York Branch achieved notable results regarding customer base expansion,
origination of quality asset, and digital transformation. During the reporting period, the New York Branch achieved
a net operating income of USD91.7710 million.
During the reporting period, the Luxembourg Branch clarified its strategic orientation, optimised its customer
structure, and cemented its business roots. During the reporting period, the Luxembourg Branch achieved a net
operating income of EUR36.8897 million.
74
The Luxembourg Branch of the Company, established in 2015, is positioned as an important cross-border financial
platform in the continental Europe, providing comprehensive cross-border one-stop financial solutions to Chinese
companies "going global" and the companies "brought in" located in Europe. Its main services and products
include: deposit-taking, lending, project financing, trade financing, M&A financing, M&A consulting, bond
underwriting and asset management. The branch is also committed to building a business platform in Europe by
combining the advantages of the Bank and European characteristics.
73
During the reporting period, the London Branch adhered to a value-oriented strategy by emphasising on origination
of quality asset and building a value-based customer group, deepening business restructuring and optimising
customer structure, and solidifying the foundations of risk and compliance management, therefore achieving steady
progress in its overall business operations amid stability. During the reporting period, the London Branch achieved a
net operating income of USD19.6287 million.
Chapter III Management Discussion and Analysis
Established in 2016, the London Branch of the Company is the first branch approved to be established in the United
Kingdom among all Chinese joint-stock commercial banks, providing comprehensive cross-border one-stop financial
solutions to Chinese companies "going global" and leading companies "brought in" located in the UK. The main
services and products of the London Branch include: deposit-taking, settlement, foreign exchange transactions, trade
financing, bilateral loans, syndicated loans and M&A financing. At the same time, the London Branch actively builds
a global service network for private banking customers and provides high-quality non-financial value-added services
for high-net worth private banking customers.
London Branch
According to the current policies and economic expectations analysis, the Company plans to increase loans and
advances to customers by 8% approximately and customer deposits by around 10% in 2024.
In 2024, challenges and opportunities in the external environment coexist. The Company will maintain its strategic
development focus, while accurately identifying changes, scientifically making response, and proactively seeking
transformation. The Company will continue to promote the strategy of building a value creation bank with
adherence to the development goal of creating greater value for customers, employees, shareholders, partners and
the society, insist on the development philosophy which "takes quality as the foundation and profitability as priority,
while maintaining moderate scale and reasonable structure" as well as differentiated and characteristic development
path, accelerate the establishment of a new high-quality development model driven by strict management and
securing growth while upholding fundamental principles and breaking new ground (), so as to strive for
a world-class value creation bank, and make contribution to the development of financial industry with Chinese
characteristics.
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
The first is to enhance the quality and efficiency of serving the real economy and to firmly adhere to the
direction for high-quality development. By adapting to the shift in China's economic growth momentum and
the acceleration of modern industrial system formation, the Company will boost its support for key areas and weak
areas in the real economy. Focusing on the sci-tech finance, green finance, inclusive finance, retirement finance and
digital finance, the Company will accelerate the systematic deployment and enhance the market competitiveness
to achieve volume growth and quality improvement. Based on China's national strategy to promote coordinated
development of regional economies, the Company will promote the enhancement of service quality and efficiency
of branches in key regions. In the course of serving the demand of the real economy and people's livelihood, the
Company will continue to optimise its customer structure, business structure and asset structure.
The second is to push forward balanced and coordinated development of the four major business segments
and to forge advantages in high-quality development. Adhering to the positioning of retail finance as the
"comprehensive platform of the wealth ecosystem, ballast stone of asset business, driving force of the flywheel
effect and pilot of value creation", the Company will consolidate and expand the advantages of retail finance
systemisation, and play the strategic main role of retail finance to a further extent. The Company will continue
to develop featured financial services of corporate banking business, upgrade customer operation and service
models, thereby enhancing differentiated competitive advantages. The Company will promote the improvement of
capabilities of investment banking and financial market business and reinforce specialised, systematic and ecological
services, while stepping up transformation and upgrading of the wealth management and asset management
segment to accelerate the shaping of Malik growth curve.
The third is to consolidate a fortress-style overall risk and compliance management system to strengthen
the guarantee for high quality development. The Company will continuously improve mechanism construction,
constantly consolidate the "Six All" comprehensive risk management system, strengthen forward-looking judgement
of risks, and smoothly operate the prompt response mechanism from risk identification to risk disposal. The
Company will also strengthen the prevention and mitigation of risks in key areas and weak areas such as real estate,
local debts as well as small- and medium-sized financial institutions. The Company will enhance management
empowerment, and carry out differentiated empowerment based on the actual risk management situation of its
domestic and overseas branches and subsidiaries. The Company will also intensify internal control compliance
management, make increasing efforts to develop compliance culture and improve its management capability in
respect of sanction and money laundering risks.
The fourth is to uphold fundamental principles and break new ground (E) and to enhance the
momentum for high-quality development. Focusing on the needs of the nation and the needs of customers, with
technology and talents as the engine, the Company will promote the generation, implementation and upgrading of
more innovative achievements. The Company will continue to build a "Digital CMB", and accelerate the transition
from "Online CMB" to "Smart CMB". Focusing on "technology + products", "people + digitalisation" and "Al +
finance", the Company will accelerate the promotion of product innovation, business innovation, model innovation
and management innovation, consolidate the existing advantages and create new advantages in more segments, so
as to achieve differentiated and featured development.
The fifth is to strengthen strict management and build on the capability for high-quality development. The
Company will establish and improve a standardised, refined, empowering, systematic and scientific management
system to create an intensive development mode, so as to provide guarantee for the construction of a world-class
commercial bank with first-class management standards. The Company will carry forward strict and standardised
management culture adhering to the principle of "all business activities must be governed by policies, all policies
must be implemented with inspections, and all inspections must be followed by accountability investigations", so
as to strengthen management standardisation. By attaining to the broad and great while addressing the delicate
and minute, thorough consideration and pursuit of excellence, the Company will strengthen its management of
cost, assets and liabilities as well as subsidiaries, so as to enhance management refinement. By improving working
style and transforming management concept, the Company will enhance its support and assistance to the frontline,
so as to enhance management empowerment. By establishing systematic thinking and improving comprehensive
policy implementation capability, the Company will balance its multiple objectives, so as to enhance systematic
management. The Company will incorporate long-term principle, strategy orientation, problem orientation and
objective orientation into all aspects of operation management, so as to enhance scientific management level.
China Merchants Bank
25
Resolutely
implementing
ESG philosophy to make
the beautiful world
sustainable
24
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
Environmental, Social and Governance (ESG)
4.1 ESG Review
On the domestic front, the economic growth momentum is expected to improve and stabilise in 2024. The growth
rate of fixed assets investment is expected to further increase, consumption will be steadily restored, and the
momentum will return to the potential level. The export is expected to grow moderately. Macroeconomic policies
will intensify counter-cyclical and cross-cyclical adjustments. Fiscal policies will be moderately strengthened and
improved in terms of quality and efficiency. Monetary policies will be flexible, appropriate, accurate and effective.
The innovation and coordination of policy tools will be strengthened to stabilise expectations, growth and
employment, thereby bringing development opportunities to the banking industry.
83
Looking forward to 2024, the economic growth of the Europe and the U.S. may slow down slightly as compared
with 2023. Among which, the U.S. economy will still remain resilient, leading to a possible marginal fall in the
inflation, and the end of interest rate hike cycle of the U.S. dollar with limited rate cuts.
3.11.7 Reputational risk management
3.12 Outlook and Coping Tactics
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China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
During the reporting period, by striving for the goal of preventing losses arising from systematic operational risk
and major operational risk, the Company continued to improve its operational risk management system. Firstly, the
Company carried out the implementation of the new Basel III operational risk standards at the group level, took the
contents of the Basel III reform plan as a benchmark, and further improved the level of operational risk management.
Secondly, the Company strengthened risk prevention and control in key areas, carried out special investigation on
agency clearing and settlement and other businesses and put forward management measures and suggestions.
Thirdly, the Company kept improving the operational risk management system, carried out system platform
reconstruction and development and data migration, launched the new operational risk portal system within the
Group in a comprehensive manner, continued to strengthen the construction and application of system tools and
accelerated the digitalisation process of the operational risk management. Fourthly, the Company strengthened
the second line of defence of information technology risk and business continuity management, and carried
out informational technology process inspection, external events analysis and organised business continuity risk
assessment. Fifthly, the Company arranged for the Head Office, branches and subsidiaries to carry out centralised
training for operational risk management and organising corresponding examination for the personnel holding
relevant positions of operational risk management throughout the Bank, and issuing newsletters on operational
risk management, so as to enhance the awareness of operational risk prevention at the Head Office, branches and
subsidiaries.
3.11.6 Liquidity risk management
Liquidity risk refers to the risk that the Company is unable to obtain sufficient funds at a reasonable cost in a
timely manner to grow its assets, pay maturing debts and perform other payment obligations. The liquidity risk
management of the Company is based on the principles of prudence, foresight and comprehensiveness, which is
more appropriate for the current development stage of the Company. The current liquidity risk management policies
and systems of the Company have satisfied the regulatory requirements and its own management needs.
Based on the principle of separating policy-making, strategy implementation and supervision of liquidity risk
management, the Company has established a liquidity risk management governance structure under which the roles,
responsibilities and reporting lines of the Board of Directors, the Risk and Capital Management Committee, the
Board of Supervisors, senior management, special committees and relevant departments are segregated to ensure
the effectiveness of liquidity risk management.
During the reporting period, the central bank kept on adopting a prudent monetary policy, and the inter-bank
market maintained reasonable and sufficient liquidity. Based on the analysis of macroeconomic and market trends,
the Company dynamically quantified and forecasted the future risk situation, and proactively laid out the asset
liability management strategy to achieve the balance between risk and yield. Firstly, the Company constantly
promoted the steady growth of customer deposits with multiple measures adopted to enhance the origination and
support of assets, constantly optimised the asset-liability structure, realising the smooth operation of assets and
liabilities. Secondly, the Company strengthened forward-looking forecasts of liquidity indicators, flexibly carried
out active liability management of treasury based on the operation of deposit and loan business and indicators,
expanded diversified financing channels, stabilised the sources of long-term liabilities through bond issuance
and other means. Thirdly, the Company strengthened the management of monetary market trading strategies to
maintain sufficient liquidity reserves, actively conducted open market transactions and played the role of a primary
dealer. Fourthly, the Company strengthened liquidity risk monitoring and management for business lines, overseas
branches and subsidiaries with reasonable control of maturity mismatches. Fifthly, the Company continued to carry
out emergency management, tested and improved the liquidity emergency plan and effectively improved the ability
to respond to liquidity risk events through regular liquidity risk emergency drills.
As of the end of the reporting period, all liquidity indicators of the Company met the regulatory requirements
and the Company had sufficient funding sources to meet the needs of sustainable and healthy development of its
business. In accordance with the requirements of the PBOC, the Company's RMB statutory deposit reserve ratio was
7%, and the foreign exchange statutory deposit reserve ratio was 4%. The Company's liquidity indicators operated
well. Deposits maintained steady growth. Liquidity reserves were sufficient and overall liquidity was at a safe level.
For more information about the Company's liquidity risk management, please refer to Note 60(c) to the financial
statements.
China Merchants Bank
Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
The Company adheres to the concept of social responsibility of "originating from society and repaying society",
takes "being committed to sustainable finance, promoting sustainable value and contributing to sustainable
development" as the sustainable development goal, integrates the concept of Environmental, Social and Governance
(ESG) into the daily operation and management of the Company, constantly improves the sustainable development
management mechanism, fully communicates with stakeholders, effectively fulfills corporate social responsibility and
continuously promotes high-quality financial development.
Reputational risk refers to the risk that the Company might be negatively evaluated by relevant stakeholders,
the public and the media due to behaviours of the Company and its employees or external incidents, which is
detrimental to the brand value and normal operation of the Company, or, to the extent, be exposed to the risks
involving market and social stability. 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 has established and formulated the reputational risk
management rules and system by taking the initiatives to effectively prevent the reputational risk and coping with
any incidents in relation to reputation, so as to reduce loss and negative impact to the greatest extent.
During the reporting period, the Company strictly fulfilled the requirements of the Rules on Reputational Risk
Management of Banking and Insurance Institutions, further developed the reputational risk management system
following the management principles of forward-looking, full-coverage, matching and effectiveness, and enhanced
its capability of managing reputational risk. Firstly, by implementing the requirements of "stability", the Company
adhered to the reputational risk management concept of prevention comes first and strengthened inspection,
early warning and prompting to reduce potential reputational risks at source. Secondly, the Company enhanced
the precision and frequency of public opinion events, aiming to realise early intervention in public opinion and to
stop the fermentation of reputational risk events. Thirdly, the Company established a mechanism to analyse the
causes of problems at source on the basis of proper handling of public opinion, and promoted the improvement of
operation and management by virtue of such public opinion. Fourthly, the Company strengthened empowerment
and improved the reputational risk management abilities of branches and subsidiaries through online training, case
promotion, emergency drills and other means.
3.11.8 Compliance risk 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 Company set
up three lines of defence for compliance risk management comprising business lines, compliance management
department and auditing department through the establishment of a reticulate management structure comprising
the Risk and Capital Management Committee under the Board of Directors, the risk and compliance management
committee, heads of compliance, compliance officers as well as compliance supervisors of the Head Office and
its branches, thereby forming a compliance management organisational system with sound organisation, clearly-
defined rights and responsibilities, reasonable work allocation and mutual coordination and collaboration.
Meanwhile, through system management, compliance risk assessment and monitoring, construction of compliance
culture, management of employees behavior and system building, the Company continuously improved compliance
risk management techniques and optimised management procedures and established a complete and effective
compliance risk management system to achieve effective control of compliance risks.
During the reporting period, the Company strictly complied with relevant laws and regulations and continued to
consolidate its "fortress-style" internal control and compliance management system through various measures.
The Company effectively identified, evaluated and prevented the compliance risk of new products, new businesses
and major projects, continued to strengthen the interpretation and conveyance of the new regulations, and carried
out the internalisation of external regulations in a timely manner. The Company further promoted compliance
culture, and carried out "Compliance for 2023" culture promotion activity. The Company tightened up supervision,
inspection, rectification and accountability procedures by setting up inspection and supervision teams in the
Legal Compliance Department of branches and assigning additional inspectors. The Company empowered digital
transformation of internal control and compliance management with technology, laying a solid foundation for the
high-quality development of the Company.
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Annual Report 2023 (H share)
Chapter III Management Discussion and Analysis
3.11.9 Money laundering risk management
Money laundering risk refers to the risk that the Company may be exposed to because of being used by the three
types of activities, namely "money laundering", "terrorist financing" and "proliferation financing" in the course of
conducting business and managing operations. The Company has established a relatively sound money laundering
risk management mechanism, including a money laundering risk management structure with clear responsibilities
assumed by the Board of Directors, the Board of Supervisors, senior management, functional departments, branches
and subsidiaries, an anti-money laundering system with comprehensive coverage, an effectively operated risk
assessment and dynamic monitoring mechanism, scientific and reasonable anti-money laundering data governance,
targeted management of customers and businesses associated with high risks, advanced and efficient IT system
support, independent inspection and auditing, as well as continuous anti-money laundering training and promotion,
so as to provide compliance guarantee for the Company's stable operations.
During the reporting period, the Company proactively fulfilled its anti-money laundering obligations and constantly
improved the quality and effectiveness of its money laundering risk management. The Company optimised the
money laundering risk management policies and procedures, and improved the anti-money laundering mechanism
in strict compliance with the laws and regulations and regulatory requirements in relation to anti-money laundering.
The Company continued to strengthen the money laundering risk management for customers and products,
focusing on the identification, assessment and management of customers and products associated with high risk.
The Company improved the tools for monitoring suspicious transactions and endeavoured to enhance the quality
and efficiency of suspicious transaction monitoring and analysis. The Company continued to increase technology
input in key anti-money laundering fields, and continued to promote the implementation of the Group's anti-money
laundering system in the overseas branches and subsidiaries, so as to safeguard the unified implementation of the
Group's anti-money laundering policies in the overseas branches and subsidiaries.
In 2023, against the backdrop of economic recovery, while facing the pressure of weakening expectations,
insufficient demand and declining interest rate spreads, China's banking industry adhered to carrying out sound
operations, actively implementing macroeconomic control policies, increasing efforts to serve the real economy,
maintaining a rapid growth of asset scale, while the net operating income was under pressure. China's banking
industry also focused on mitigating risks in key areas, maintaining stable asset quality, while holding the bottom line
to avoid systemic financial risks.
In 2023, the Company's MSCI ESG rating remained grade A. In 2023, the Company achieved the social contribution
value of RMB17.04 per share 24 (calculated on the Group's statistical calibre), and the total amount of external
donations of the Company was RMB115 million.
In terms of green wealth management, as of the end of the reporting period, the Company had a total of 7 existing
ESG-themed wealth management products from its agency distribution, with a balance of RMB3.718 billion. CMB
Wealth Management, a subsidiary of the Company, issued 4 ESG-concept wealth management products in total,
with an existing fund size of RMB1.730 billion.
4.2 Environmental Information
China Merchants Bank
Chapter IV Environmental, Social and Governance (ESG)
4.3 Social Responsibility Information
4.3.1 Serving the real economy
In promoting coordinated regional development, the Company took the initiative to serve the national major
strategies for regional development by relying on the "One Entire Bank for One Customer (-)" cross-
regional synergy mechanism, improving the credit policy for industries with regional advantages, strengthening
coordinated regional exchanges, and establishing green channels for major projects, so as to enhance the efficiency
of services for key customers and projects in key regions, and to promote the economic development of key regions
such as Beijing-Tianjin-Hebei region, the Yangtze River Delta region, the Chengdu-Chongqing Economic Circle, and
the Guangdong-Hong Kong-Macao Greater Bay Area.
The Company took Fintech as the main direction of serving the real economy, further focusing on serving sci-tech
enterprises and making significant achievements in Fintech. As of the end of the reporting period, the balance
of the loans extended to the manufacturing industry of the Company was RMB555.102 billion, representing an
increase of RMB111.250 billion as compared with the end of the previous year, accounting for 23.91% of the total
corporate loans, representing an increase of 2.75 percentage points as compared with the end of the previous
year. The balance of loans to strategic emerging industries was RMB375.097 billion, representing an increase of
RMB72.774 billion as compared with the end of the previous year, accounting for 16.16% of the total corporate
loans, representing an increase of 1.74 percentage points as compared with the end of the previous year. As of the
end of the reporting period, the Company served 140,800 customers of sci-tech enterprises, with the balance of
loans to sci-tech enterprises amounting to RMB428.477 billion, representing an increase of 44.95% as compared
with the end of the previous year.
The Company continued to optimise the top-level design for inclusive finance development, constructed a long-
term mechanism for inclusive finance development and reinforced its financial support for private small- and
micro-sized enterprises. As of the end of the reporting period, the balance of the Company's inclusive small- and
micro-sized enterprises loans was RMB804.279 billion, representing an increase of 18.56% as compared with the
end of the previous year; and the number of inclusive small- and micro-enterprises with loan balance was 1,004,500,
representing an increase of 13,800 as compared with the end of the previous year.
The Company actively supported the comprehensive promotion of rural revitalisation by increasing its grants
in agriculture-related loans to promote the integrated development of urban and rural areas. As of the end of
the reporting period, the balance of the Company's agriculture-related loans amounted to RMB269.282 billion,
representing an increase of 15.43% as compared with the end of the previous year, of which the balance of
inclusive agriculture-related loans amounted to RMB17.821 billion, representing an increase of 29.73% as compared
with the end of the previous year.
CMB Wealth Management, a subsidiary of the Company, continuously directed the capital flows towards the real
economy, especially to support the financing of enterprises in scientific and technological innovation, infrastructure
and energy fields that are in line with economic transformation and upgrading. As of the end of the reporting
period, the business balance of CMB Wealth Management's wealth management investment assets supporting the
real economy amounted to RMB1.88 trillion.
CMB International Capital, a subsidiary of the Company, made full use of its differentiated professional advantages
to provide corporate clients with comprehensive financial services such as sponsoring and underwriting of listing in
Hong Kong, placing and rights issue of listed companies, bond issuance, asset management and financial advisory,
contributing to the high-quality development of the real economy.
CMB Financial Leasing, a subsidiary of the Company, fully implemented the integration of industry and finance,
cooperated with a number of shipyards and local shipbuilding enterprises under the three major state-owned
shipbuilding groups in China, namely China Merchants Industry Holdings Co., Ltd., China State Shipbuilding
Corporation Limited and COSCO SHIPPING Heavy Industry Co., Ltd., and built a total of more than 100 ships, with a
balance of assets of approximately RMB18.0 billion, actively supporting the development of shipbuilding enterprises
in China.
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China Merchants Bank
Annual Report 2023 (H share)
4.3.2 Support the improvement of people's livelihood
The Company is committed to helping solve the shortcomings in education, housing, old-age care, medical care and
other areas of people's livelihood, and investing financial resources in key areas that people attach great importance
to.
In the field of education, the Company will continuously provide agency settlement services for students with locally-
granted student loan from China Development Bank for 5 years from 2022, including online account opening, loan
issuance, identity verification for renewal application, loan repayment, etc., so as to build a full-process, full-cycle,
omni-channel service system for the locally-granted student loan project of China Development Bank. During the
reporting period, the Company granted national student loans exceeding RMB10 billion to over a million students.
In the field of housing, the Company actively cooperated with various provinces and cities on the contribution to
the housing provident fund for flexible employment personnel, assisted in the establishment of the contribution and
loan system, information system and business process applicable to flexible employment personnel, aiming to benefit
more people with housing provident fund system. As at the end of the reporting period, the Company cooperated
with 22 housing provident fund centres on the contribution to the housing provident fund for flexible employment
personnel. At the same time, the Company actively built Al intelligent customer service, intelligent approval platform,
business fund management and other digital products and services, helping local housing provident fund centres to
improve their digital and intelligent level of operation, service and management, and providing 7×24 uninterrupted
services to employees who make contributions to housing provident fund. As at the end of the reporting period, the
Company engaged in digital cooperation with 96 housing provident fund centres. As one of the banks cooperating
with the Ministry of Housing and Urban-Rural Development on the National Housing Provident Fund Mini
Programme, the Company served 6.12 million users during the reporting period.
In the field of medical security, the Company promoted the application of medical insurance code and upgraded the
service experiences, such as the QR code display by long-pressing the CMB APP icon, inquiries for designated medical
institutions and designated pharmacies and account transaction notification. As the first batch of cooperative banks
for the medical insurance API interface, the Company completed the development and launch of new functions
to enhance online service capability of medical insurance for the convenience of the public. As at the end of the
reporting period, a total of 24.9681 million electronic medical insurance vouchers were activated, serving 14.2350
million insured persons.
Please refer to section 3.10.2 "Retirement finance business" of this report for details of retirement finance business.
4.3.3 Accessibility to financial services
The Company continuously iterated and upgraded the "people + digitalisation" service model, improved the
customer service system and focused on meeting the financial and non-financial needs of people in areas where
offline outlets are unable to cover by further promoting the service capacity construction of online tools, such as
CMB APP and CMB Life APP.
The Company adopted "control over total number of branches and optimisation of existing branches" as the
strategy and policy of its domestic branches layout. During the reporting period, the number of business outlets
increased by 25. The Company has now 1,924 domestic business outlets, including 128 business outlets in rural and
county areas and 134 community and small-sized sub-branches. Meanwhile, more than 70 existing business outlets
were relocated for optimisation to further stimulate the vitality of existing outlets, expand the service coverage of
outlets and improve financial service capabilities.
The Company paid attention to the needs of the elderly, disabled and other special groups. All domestic business
outlets supported barrier-free services and deployed convenient service facilities, providing services for special groups
by setting up ramps for the disabled, barrier-free access telephone signs, one-click call buttons, wheelchairs for the
disabled and other measures.
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Chapter IV Environmental, Social and Governance (ESG)
87
In terms of waste management, the Company has set up various treatment methods for different types of wastes
to ensure that wastes are treated in a timely and scientific manner. During the reporting period, the Company
standardised the garbage storage sites on the office floors of the Head Office Tower to achieve full-process
compliance management of garbage classification at the Head Office Tower; advocated the "Clean Your Plate"
campaign and promoted the "Against Food Waste" work. During the reporting period, food waste for the five
restaurants at the Head Office decreased by 9.81% year-on-year.
In terms of paper management, the Company actively carried out daily paper-saving publicity campaign, advocated
double-sided printing, adopted shared printers monitoring and other measures to reduce paper-wasting behaviours;
reduced the consumption of all kinds of materials for meetings, such as disposable paper cups and tissues; and used
big data and cloud storage instead of paper archives, and reduced the use of paper documents through system
module construction. During the reporting period, through continuously promoting straight-through business
processes and digitalisation of counter service agreements, the Company saved approximately 69.96 million pieces
of paper, achieving energy saving and carbon emission reduction of 181.90 tonnes.
The Company keeps on promoting green finance and green operation and building a green home. During the
reporting period, the Company did not have any environmental violations.
4.2.1 Green finance
The Company actively integrated itself into the national green development strategy. During the reporting period,
the Company released the "CMB Green Finance" brand, which is in line with the green development of the
Company, with an aim to realise green value creation. In addition, it published the "Sustainable Finance Report
under 'Dual Carbon' Goal" (""X%\D]# to provide guidance on implementing the green
finance business strategy. Moreover, the Company incorporated green finance concept into the main direction of the
Company's financial development, with a view to building a green financial service system to help achieve the "dual
carbon" goal in China. During the reporting period, the Company further increased the provision of green financial
services focusing on green deposits, green credits, ESG bonds, green wealth management, green investment, green
consumption and others.
In terms of green deposit and green credit, the Company launched innovative green deposit products, while
increasing the funds allocation to the green sector, with a focus on energy conservation and environmental
protection, clean production, clean energy, ecological environment, green upgrade of infrastructure, green services
and other sectors. During the reporting period, the Company's green deposits 25 amount was RMB917 million with
a closing balance of RMB420 million. As of the end of the reporting period, the Company's balance of green loans
was RMB447.765 billion, representing an increase of 26.00% as compared with the end of the previous year. During
the reporting period, the Company granted RMB370 million of carbon emission reduction-linked loans. During the
reporting period, CMB Financial Leasing, a subsidiary of the Company, granted loans of RMB54.721 billion in green
leasing, accounting for 49.67% of the total loans granted by CMB Financial Leasing, with a closing balance for
green leasing of RMB121.500 billion, representing an increase of 15.31% as compared with the end of the previous
year.
Social contribution value per share = basic earnings per share + (taxes paid + employee expenses + interest expenses + total external donations)/total
share capital of ordinary shares at the end of the period.
Green deposit is a green finance product that raises funds for sustainable projects of green economy, helping drive the economic transition to low
carbon, climate change adapted and sustainable development.
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China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
With respect to ESG bonds, during the reporting period, the Company issued the world's first floating-rate blue
bond overseas with an issuing scale of USD400 million. The proceeds raised will be applied to support sustainable
water resources management and offshore wind power projects, contributing to water ecological protection, marine
renewable energy and marine economic construction. As of the end of the reporting period, the balance of the
Company's existing domestic green bonds amounted to RMB15.000 billion, and the balance of existing overseas ESG
bonds amounted to USD1.900 billion. During the reporting period, the Company served as leading underwriter for
41 green bonds and underwrote RMB27.073 billion in those bonds. During the reporting period, CMB International
Capital, a subsidiary of the Company, assisted 11 enterprises to issue 11 green bonds, with a fundraising scale of
USD5.980 billion.
In terms of green investment, the Company's subsidiaries effectively practised the ESG investment philosophy.
CMB Wealth Management prioritised the investment in green finance products such as green finance bonds, green
enterprise bonds, green debt financing instruments and green asset-backed securities, with a balance of green
bonds investment of RMB29.286 billion as of the end of the reporting period. China Merchants Fund insisted on
taking social responsibility, ESG guidelines and "dual carbon" strategy as the main direction of product deployment,
and constantly improved the product spectrum of ESG funds. During the reporting period, it focused on the issuance
of China Merchants Social Responsibility Mixed Fund and China Merchants CFETS Green Bond Index Fund, the
first green bond index product in the industry. As of the end of the report period, China Merchants Fund had a
total of 10 existing ESG-related products, with an existing fund size of RMB9.321 billion, representing an increase
of 154.53% as compared with the end of the previous year. CMB International Capital actively promoted the
transformation, upgrading and sustainable development of the green industry, and invested in 8 green finance
industry projects with an amount of totalling RMB735 million during the reporting period.
In terms of promoting green consumption, the Company strengthened proactive marketing to customers in
environmental-friendly and green properties, advanced the granting of green micro-finance loans, and proactively
explored green consumption business innovation. During the reporting period, the Company issued the green
and low-carbon themed credit card which is integrated with a number of exclusive rights and interests regarding
environmental protection. The Company also increased its financial support to new energy vehicles, created
the "e-second car purchase" green finance product, simplified the application process for new energy vehicle
instalments, pioneered the dedicated service model for new energy business, and worked with new energy vehicle
shops to provide customers with one-stop services from shop entry to vehicle delivery and vehicle registration, so as
to facilitate green consumption.
4.2.2
Green operation
The Company continued to promote the establishment of smart service system. By strengthening smart service
capabilities, enriching online services, and optimising service points, the Company provided convenient digital
financial services to hundred-million customers to effectively reduce the frequency of customers going to physical
outlets for business, thereby decreasing carbon emissions from customer travel. The Company encouraged credit
card customers to accept electronic bills and continued to upgrade and optimise reconciliation across various online
channels, as well as guided customers to check their accounts quickly through self-service channels. As of the end of
the reporting period, with the proportion of credit card electronic bill reaching 99.57%, the Company saved more
than 1.893 billion pieces of paper in billing during the reporting period.
China Merchants Bank
Annual Report 2023 (H share)
Chapter IV Environmental, Social and Governance (ESG)
The Company adhered to the concept of "green operation", striving to reduce the impact of operation on the
environment. During the reporting period, starting with sorting out our carbon footprint to identify carbon
emission sources, the Company conducted a comprehensive inventory of all carbon emission sources of over 1,900
organisations across the Bank over the past three years benchmarking against general international standards,
and grasped the energy management mechanism and consumption of each organisation. The Company assessed
the potential for carbon emission reduction based on the results of the inventory, so as to formulate carbon
emission reduction measures. From the perspectives of energy management, water resources management, paper
management, waste management and other dimensions, the Company implemented various emission reduction
measures according to local conditions, and effectively promoted the green transformation of its operations.
•
In terms of energy management, as of the end of the reporting period, the online energy management platform
achieved automatic collection and real-time monitoring of the power energy consumption data of 54 Head Office
and branch office buildings and 172 sub-branch offices. Through a series of energy-saving measures and continuous
refinement of management, the energy consumption per square metre of the Head Office Tower was 118.98kwh/
(m² a) in 2023, which was reduced to below the constraint value as published in the "Guangdong Province Standard
for Energy Consumption of Public Buildings", and successfully passed the assessment of "Three-Star Green Property
Management Project" in Shenzhen. The Pinghu Data Centre in Shenzhen and Zhangjiang Data Centre in Shanghai
reduced power consumption by about 10.82 million kWh a year through various measures such as Al controlled
tuning of the chilled water system, use of natural cooling sources, highly airtight cold and hot aisles, intelligent
speed-regulated operation of precision air conditioners, and intelligent lighting.
In terms of water resources management, the Company earnestly carried out water conservation publicity campaign
and water conservation sign posting; completed direct drinking fountain renovation in the break room and
removed barrelled water; reduced the use of bottled water during meetings and receptions; installed additional air-
conditioning condensate recycling equipment with the processed air-conditioning condensate as a source of water
for the atrium pool; adopted infrared-detecting human-sensor faucets and water-saving toilets; and used high-
pressure scrubbers and sweeping robots to sweep the floor of the plaza and lobbies to enhance the efficiency of
water resource utilisation.
For further information on the ESG of the Company, please refer to China Merchants Bank Co., Ltd. Sustainability
Report 2023 published on the websites of the Shanghai Stock Exchange, Hong Kong Exchanges and Clearing Limited
and the Company.
Annual Report 2023 (H share)