Hankou Bank Co., Ltd. 2018 Annual Report

Hankou Bank Co., Ltd.

2018 Annual Report

2018 Annual Report of Hankou Bank Co., Ltd.

I

Contents

Chapter I Important Notice ................................................................................................................ 1

Chapter II Basic Information ............................................................................................................. 2

I. Terms and Definitions ...................................................................................................................................... 2

II. Company Profile ............................................................................................................................................. 2

III. Organizational Chart of the Company ........................................................................................................... 4

Chapter III Summary of Accounting & Business Data .................................................................... 5

I. Major Financial Data for the Reporting Period ................................................................................................ 5

II. Major Accounting Data and Financial Indicators for the Three Years before the End of the Reporting

Period ................................................................................................................................................................... 6

III. Return on Equity and Earnings per Share ...................................................................................................... 7

IV. Supplementary Financial Data for the Three Years before the End of the Reporting Period ......................... 8

V. Supplementary Financial Indicators for the Three Years before the End of the Reporting Period .................. 9

VI. Changes in Shareholder’s Equity during the Reporting Period ................................................................... 10

VII. Composition of Capital and Its Changes ..................................................................................................... 11

VIII. Liquidity Coverage Ratio at the End of the Period ................................................................................... 12

Chapter IV Report of the Board of Directors ................................................................................. 13

I. Management Discussion and Analysis ........................................................................................................... 13

i. Business review during the reporting period .......................................................................................... 13

ii. Analysis of financial position and operating results during the reporting period .................................. 20

iii. Assets and liabilities during the reporting period ................................................................................. 24

iv. Analysis of investment status ................................................................................................................ 30

II. Business Overview ........................................................................................................................................ 31

i. Institution setup ...................................................................................................................................... 31

ii. Loan quality analysis ............................................................................................................................. 32

iii. Group customer credit business and its risk management .................................................................... 34

iv. NPA changes and management measures ............................................................................................. 35

v. Impairment provisions for repossessed assets and other prime assets ................................................... 35

vi. Categories, average balances and average interest rates of major deposits and loans at the end of the


II

reporting period ......................................................................................................................................... 35

vii. Debt securities investment ................................................................................................................... 36

viii. Items designated at fair value ............................................................................................................. 38

ix. Foreign-currency financial assets/liabilities held.................................................................................. 38

x. Bad debt provisions for interest receivable and other receivables ......................................................... 39

xi. Balances and risk management of major off-balance-sheet items ........................................................ 39

III. Risk Exposures and Countermeasures of the Bank ..................................................................................... 40

i. Credit risk ............................................................................................................................................... 40

ii. Market risk............................................................................................................................................. 41

iii. Operational risk .................................................................................................................................... 41

iv. Compliance risk .................................................................................................................................... 42

v. Liquidity risk .......................................................................................................................................... 42

vi. Reputational risk ................................................................................................................................... 43

IV. Changes in the Business Environment and Macro Policies, Laws and Regulations and Influences thereof 43

i. Influence of macro control ...................................................................................................................... 43

ii. Impact of reform in financial supervision ............................................................................................. 44

V. Outlook .......................................................................................................................................................... 44

i. Industry development pattern and trend ................................................................................................. 44

ii. Possible external risks in future operation ............................................................................................. 45

iii. Challenges and opportunities in future operation ................................................................................. 45

iv. Operating plan ....................................................................................................................................... 45

VI. Work of the Board of Directors during the Reporting Period ...................................................................... 48

i. Meetings of the Board of Directors and resolutions during the reporting period ................................... 48

ii. Implementation of the resolutions of Shareholders’ General Meeting by the Board of Directors ......... 51

iii. Performance of duties by the special committees of the Board of Directors........................................ 52

iv. Performance of strategic management functions by the Board of Directors ........................................ 55

v. Development of policies and procedures of the Board of Directors ...................................................... 56

VII. Profit Distribution Plan during the Reporting Period ................................................................................. 56

Chapter V Report of the Board of Supervisors ............................................................................... 57


III

I. Work of the Board of Supervisors during the Reporting Period ..................................................................... 57

i. Meetings of the Board of Supervisors and Resolutions .......................................................................... 57

ii. Performance of duties by the special committees of the Board of Supervisors ..................................... 59

iii. Supervisors’ attendance of the general meetings and the meetings of the Board of Directors as

non-voting delegates .................................................................................................................................. 62

iv. Supervision of duty performance .......................................................................................................... 62

v. Special audits ......................................................................................................................................... 62

vi. Studies and discussions ......................................................................................................................... 63

vii. Thematic studies .................................................................................................................................. 63

II. Independent Opinions of the Board of Supervisors on Relevant Issues ....................................................... 63

i. Compliant operation of the Company ..................................................................................................... 63

ii. Authenticity of the financial statements of the Company ...................................................................... 63

iii. Acquisitions and sales of assets ............................................................................................................ 63

iv. Related party transactions ..................................................................................................................... 63

v. Implementation of resolutions made by the general meetings ............................................................... 63

vi. Risk Management and Internal Control ................................................................................................ 63

Chapter VI Significant Events .......................................................................................................... 64

I. Material Legal Proceedings and Arbitrations ................................................................................................. 64

II. Increase or Decrease of Registered Capital, Split-off and Merger ................................................................ 64

III. Material Asset Acquisition and Sale, Merger and Acquisition .................................................................... 64

IV. Related Party Transactions ........................................................................................................................... 64

i. Related parties ........................................................................................................................................ 64

ii. Related party transactions ...................................................................................................................... 66

V. Material Contracts and Performance of Obligations thereunder ................................................................... 69

i. Material trusts, sub-contracts and leases ................................................................................................. 69

ii. Material guarantees ............................................................................................................................... 69

iii. Other material contracts and performance of obligations thereunder ................................................... 69

VI. Engagement and Dismissal of the Accounting Firm ................................................................................... 69

VII. Regulatory Penalties on Directors, Supervisors and Senior Executives of the Company .......................... 69


IV

VIII. Other Important Information Necessary to Inform the Public .................................................................. 69

i. Acquisition of business access qualifications ......................................................................................... 69

ii. Establishment of institutions ................................................................................................................. 70

iii. Other important information ................................................................................................................. 70

Chapter VII Share Capital Changes and Shareholders ................................................................. 72

I. Share Changes ................................................................................................................................................ 72

i. List of share changes .............................................................................................................................. 72

ii. Share offerings in the three years before the end of the reporting period .............................................. 72

II. Shareholders .................................................................................................................................................. 72

i. Total number of shareholders ................................................................................................................. 72

ii. Major equity transfers ............................................................................................................................ 72

iii. Shareholdings of the top 10 shareholders and changes thereof as at the end of the reporting period .. 72

iv. Substantial shareholders ........................................................................................................................ 73

Chapter VIII Directors, Supervisors, Senior Executives and Employees ..................................... 76

I. Directors, Supervisors and Senior Executives ................................................................................................ 76

i. Basic information on the members of the Fifth Board of Directors and Board of Supervisors and senior

executives during the reporting period ...................................................................................................... 76

ii. Posts of directors and supervisors in shareholder entities and related enterprises ................................. 77

iii. Major work experience and posts of directors, supervisors and senior executives at the end of the

reporting period ......................................................................................................................................... 78

iv. Changes in directors, supervisors and senior executives during the reporting period .......................... 82

II. Remunerations of Directors, Supervisors, Senior Executives and Key Management Personnel .................. 82

III. Employees of the Bank ................................................................................................................................ 84

Chapter IX Corporate Governance Practice................................................................................... 86

I. Corporate Governance during the Reporting Period ...................................................................................... 86

i. About shareholders and the Shareholders’ General Meeting .................................................................. 86

ii. About directors, the Board of Directors and special committees........................................................... 87

iii. About supervisors, the Board of Supervisors and special committees ................................................. 87

iv. Abut information disclosure and investor relations management ......................................................... 88

II. Duty Performance of Independent Directors and External Supervisors ....................................................... 88


V

i. Attendance of independent directors at Board of Directors’ meetings ................................................... 88

ii. Attendance of external supervisors at Board of Supervisors’ meetings ................................................. 89

iii. Objections raised by independent directors and external supervisors to relevant matters of the

Company .................................................................................................................................................... 89

III. Operation Decision-making System of the Company.................................................................................. 89

IV. Assessment, Incentive and Constraint Mechanism for Senior Executives ................................................... 89

Chapter X Internal Control .............................................................................................................. 91

I. Statement of the Board of Directors on Internal Control Responsibilities ..................................................... 91

II. Basis of Internal Control over Financial Reporting and Internal Control System Development .................. 91

i. Basis of establishing internal control over financing reporting .............................................................. 91

ii. General plan on the establishment of internal control ........................................................................... 91

iii. Establishment and improvement of internal control system ................................................................. 92

iv. Operation of internal control supervision mechanism .......................................................................... 92

v. Internal control self-assessment ............................................................................................................. 92

vi. Development and improvement of internal control .............................................................................. 93

Chapter XI Financial Report ............................................................................................................ 94

Chapter XII List of Documents for Reference ................................................................................ 94

Chapter XIII Annexes ........................................................................................................................ 94

Written Confirmation of Directors of Hankou Bank Co., Ltd. on the Company’s 2018 Annual

Report.................................................................................................................................................. 95

2018 Auditor’s Report of Hankou Bank Co., Ltd. .......................................................................... 96


1

Chapter I Important Notice

The Board of Directors, and the Board of Supervisors, as well as the directors, supervisors and senior executives

of the Company warrant that the information contained herein does not contain any false records, misleading

statements or material omissions, and shall bear the joint and several liabilities for the authenticity, accuracy and

integrity of its contents.

The 2018 Annual Report of the Company and its summary were reviewed and approved at the Third Meeting of

the Sixth Board of Directors of the Company on 24 April 2019. Nine directors attended the meeting in person, and

one director entrusted another director to vote on his behalf. Seven supervisors of the Company attended the

meeting as non-voting delegates.

The annual financial report of the Company has been audited by Union Power Certified Public Accountants LLP

in accordance with the PRC Auditing Standards with a standard unqualified auditor’s report issued.

The Board of Directors of Hankou Bank Co., Ltd.

Chen Xinmin, Chairman, Ruan Xuzhou, Vice President & Financial Controller, and Li Daquan, Principal of the

Planning and Finance Department, warrant the authenticity and integrity of the financial report herein.


2

Chapter II Basic Information

I. Terms and Definitions

i. The Company, the Bank or Hankou Bank: Hankou Bank Co., Ltd.

ii. The Group: Hankou Bank Co., Ltd. and its subsidiaries

iii. Articles of Association: Articles of Association of the Company

iv. Shareholders’ General Meeting: The Shareholders’ General Meeting of the Company

v. Board of Directors: The Board of Directors of the Company

vi. Board of Supervisors: The Board of Supervisors of the Company

II. Company Profile

i. The Company’s legal Chinese name: 汉口银行股份有限公司

Legal English name: Hankou Bank Co., Ltd. (“HKB” in short)

ii. Legal Representative of the Company: Chen Xinmin

iii. Board Secretary: Ding Rui

Address: 933 Jianshe Road, Jianghan District, Wuhan City, Hubei Province

Postal code: 430015

Tel: 027-82656263

Fax: 027-82656099

iv. Registered/office address: 933 Jianshe Road, Jianghan District, Wuhan City, Hubei Province

Postal code: 430015

Office phone: 027-82656263

Fax: 027-82656099

Customer service hotline: 96558 (Wuhan), 4006096558 (Nationwide)

Website: http://www.hkbchina.com

Email: [email protected]

v. Newspaper designated for information disclosure: Financial Times

Website designated for publication of annual report: http://www.hkbchina.com

Place where the Annual Report can be obtained: Office of the Board of Directors of the Company

http://www.hkbchina.com/


3

vi. Other relevant information:

Date of first registration: 15 December 1997

Date of change of registration: 26 December 2012

Place of initial registration: 21 Jianghan Road, Jianghan District, Wuhan City

Place of registration changed to: 933 Jianshe Road, Jianghan District, Wuhan City

Unified Social Credit Code: 91420100300248067P

Name of domestic accounting firm engaged: Union Power Certified Public Accounts LLP

Office address: Building 3, Donghu Office Zone, Zhiyin Group, 169 Donghu Road, Wuchang District, Wuhan

City

vii. This report is prepared in both Chinese and English. The Chinese version shall prevail in case of any

discrepancy between the two versions.


4

III. Organizational Chart of the Company1

1 The Sixth Board of Directors of the Bank established an additional special committee, the Consumer Protection Committee, in March 2019.


5

Chapter III Summary of Accounting & Business Data

I. Major Financial Data for the Reporting Period

(Unit: RMB1,000)

Item Consolidated Parent Company

Total profits (before tax) 1,715,761 1,737,377

Net profit attributable to common shareholders of the Company 1,891,963 1,902,528

Net profit attributable to common shareholders of the Company

with deduction of non-recurring profit and loss

1,841,902 1,852,707

Profit from principal operation 1,704,740 1,725,353

Operating profit 1,715,883 1,737,249

Profit from other operations 11,144 11,896

Investment income 1,370,103 1,371,003

Net non-operating income/expenses -123 128

Cash outflows from operating activities, subtotal 12,718,627 13,037,621

Net increase in cash and cash equivalents -2,526,375 -2,488,746

Notes: 1. The non-recurring profit and loss are recognized and calculated in accordance with the Announcements for the Explanation

on the Information Disclosure by Companies that Offer Securities to the Public No.1-Non-recurring Gain and Loss (Announcement

No. 43 of China Securities Regulatory Commission (CSRC) in 2008).

2. Non-recurring profit and loss during the reporting period are presented below:

(Unit: RMB1,000)

Non-recurring profit and loss Consolidated Parent Company

Gains/losses on disposal of non-current assets, including the offset

part of allowance for impairment losses on assets set aside

-3,185 -3,185

Government subsidy recognized in the current profit or loss,

excluding the government subsidy closely relating to the

Company's normal business operation, complying with national

policies and enjoyed by the Company at a fixed amount or

quantity according to certain standards

6,749 6,003


6

Non-recurring profit and loss Consolidated Parent Company

Amounts recovered in current year on the assets written off in

previous years

64,785 64,760

Other non-operating income and expenses -144 106

Income tax effects of non-recurring gains or losses 18,008 17,864

Net non-recurring profit and loss 50,197 49,821

Less: net effect of non-recurring profit and loss attributable to

minority shareholders (after tax)

136 0

Non-recurring profit and loss attributable to

common shareholders of the Company

50,061 49,821

II. Major Accounting Data and Financial Indicators for the Three Years before

the End of the Reporting Period

(Unit: RMB1,000)

Item

Consolidated Parent Company

2018 2017 2016 2018 2017 2016

Operating income 6,076,107 5,802,988 5,121,787 6,030,548 5,763,219 5,089,883

Net profit attributable to

common shareholders of

the Company

1,891,963 1,691,224 1,516,276 1,902,528 1,688,504 1,511,592


common shareholders of

the Company with

deduction of

non-recurring profit and

loss

1,841,902 1,633,975 1,422,776 1,852,707 1,632,037 1,420,591

Total assets 319,295,909 281,077,036 211,666,540 318,471,383 280,077,198 210,825,642

Total liabilities 299,253,630 263,070,054 194,801,636 298,501,765 262,163,626 194,049,378

Shareholders’ equity 20,042,279 18,006,982 16,864,904 19,969,618 17,913,571 16,776,264

Cash outflows from

operating activities,

12,718,627 26,286,307 -6,266,458 13,037,621 26,121,571 -6,495,012


7

Item


2018 2017 2016 2018 2017 2016

subtotal

Basic earnings per share

(RMB) 0.46 0.41 0.37 0.46 0.41 0.37

Net assets per share

(RMB) 4.86 4.36 4.09 4.84 4.34 4.06

Net cash flows from

operating activities per

share (RMB)

3.08 6.37 -1.52 3.16 6.33 -1.57

Note: Relevant indicators are calculated in accordance with Article 21 of the Standards for Content and Format of Information

Disclosure by Companies Offering Securities to the Public No.2: Content and Format of Annual Report (2017 Revision) and the

provisions under the Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No.9: Calculation

and Disclosure of Return on Equity and Earnings per Share (2010 Revision). Where, basic earnings per share = P0÷S, S=S0＋S1＋

Si×Mi÷M0– Sj×Mj÷M0-Sk

Where: In the equation, P0 denotes the net profit attributable to the common shareholders or the net profit excluding non-recurring

items attributable to the common shareholders; S denotes the weighted average number of common shares outstanding; S0 denotes the

total number of shares at the beginning of the period; S1 denotes the increased shares as a result of recapitalization of public reserve

fund or the allotment of stock dividends during the reporting period; Si denotes the increased shares as a result of issue of new shares

or debt-for-equity swap during the reporting period; Sj denotes the decreased shares due to repurchase during the reporting period; Sk

denotes the number of shares downsized during the reporting period; M0 denotes the number of months of the reporting period; Mi

denotes the accumulative number of months from the next month of increase of shares to the end of the reporting period; Mj denotes

the accumulative number of months from the next month of reduction of shares to the end of the reporting period.

III. Return on Equity and Earnings per Share

Consolidated

Item

Profit for the

reporting period

(RMB1,000)

Weighted average

ROE

(%)

Basic earnings per

share

(RMB yuan)

Diluted earnings per

share

(RMB yuan)


common shareholders of the

Company

1,891,963 9.96% 0.46 0.46



Company with deduction of

1,841,902 9.70% 0.45 0.45


8

non-recurring profit and loss

Parent Company

Item

Profit for the

reporting period

(RMB1,000)

Weighted average

ROE

(%)

Basic earnings per

share

(RMB yuan)

Diluted earnings per

share

(RMB yuan)



Company

1,902,528 10.03% 0.46 0.46



Company with deduction of

non-recurring profit and loss

1,852,707 9.76% 0.45 0.45

Note: Relevant indicators are calculated in accordance with the provisions in the Compilation Rules for Information Disclosure by

Companies Offering Securities to the Public No. 9: Calculation and Disclosure of Return on Equity and Earnings per Share (2010

Revision).

IV. Supplementary Financial Data for the Three Years before the End of the

Reporting Period

(Unit: RMB1,000)

Item


2018 2017 2016 2018 2017 2016

Total liabilities 299,253,630 263,070,054 194,801,636 298,501,765 262,163,626 194,049,378

Total deposits 202,019,724 175,765,692 142,861,453 201,051,872 174,880,342 142,100,458

Due to banks and

other financial

institutions

1,504,290 1,625,404 24,561 1,504,290 1,625,404 24,561

Total loans 137,188,020 114,916,650 98,701,530 136,563,754 114,381,736 98,241,272

Notes: 1. Total deposits include savings deposits, corporate deposits, margin deposits, remittances outstanding and temporary deposits,

principal-guaranteed wealth management liabilities and large-value certificates of deposit issued;

2. Total loans include personal loans, corporate loans, discounts, import & export bill advances, trade finance, advances and

overdue loans.


9

V. Supplementary Financial Indicators for the Three Years before the End of the

Reporting Period

(In %)

Item Regulatory

standard


2018 2017 2016 2018 2017 2016

Capital adequacy ratio ≥10.5% 13.60 12.80 13.14 13.57 12.69 13.13

Liquidity ratio RMB ≥25% 76.13 59.73 47.31 76.10 59.72 47.31

Foreign

currency ≥60%

174.22 127.57 236.14 174.22 127.57 236.14

Loan-to-deposit ratio

RMB ≤75%

66.69 64.81 68.32 66.70 64.83 68.36

Foreign

currency ≤85%

69.74 42.43 7.54 69.74 42.43 7.54

Percentage of

inter-bank placements

Borrowing

≤4%

0.74 0.92 0.02 0.75 0.93 0.02

Lendings to

banks and other

financial institutions

≤8%

0.25 0.18 0.70 0.25 0.18 0.70

NPL ratio ≤5% 2.11 2.14 1.98 2.10 2.13 1.98

Percentage of loans to

single largest

customer

≤10% 6.72 6.04 6.87 6.76 6.08 6.91

Provision coverage

ratio ≥150% 158.23 176.17 206.34 158.71 176.54 206.64

Cost-to-income ratio 34.04 34.30 36.33 33.86 34.09 36.15

Return on assets 0.63 0.69 0.77 0.64 0.69 0.77

Return on capital 9.89 9.72 9.29 10.04 9.73 9.28

Leverage ratio ≥4% 5.90 5.59 6.46 5.88 5.56 6.44

Net tier-1 capital

(RMB1,000) 20,013,663 17,886,362 16,788,983 19,882,576 17,734,536 16,668,160

Balance of

consolidated assets on

and off the balance

sheet (RMB1,000)

338,960,513 320,256,589 259,821,781 338,079,044 318,997,845 258,923,942

Notes: 1. The above indicators except return on assets and return on capital are calculated on the basis of year-end balances. Return on

assets = Net profit/[(total assets at the beginning of the period + total assets at the end of the period)/2], and return on capital = Net

profit/[(net assets at the beginning of the period + net assets at the end of the period)/2];


10

2. NPL ratio = (Substandard loans + doubtful loans + loss loans)/loan balance;

3. Calculated capital adequacy ratios in accordance with the Regulation Governing Capital of Commercial Banks (Provisional);

4. Percentage of loans to single largest customer = Balance of loans to single largest customer/net capital;

5. For the loan-to-deposit indicator, the denominator “deposits” is calculated under the statistical approach of the credit receipts

and payments table of the People’s Bank of China, including corporate and personal principal-guaranteed wealth management

liabilities; and the numerator is the original value of loans not deducting the allowance for impairment losses on loans.

6. Leverage ratio, net tier-1 capital and balance of consolidated assets on and off the balance sheet are disclosed under the

Measures for Management of Leverage Ratio of Commercial Banks (Revised) (CBRC [2015] No. 1 Decree).

VI. Changes in Shareholder’s Equity during the Reporting Period

(Unit: RMB1,000)

Consolidated

Item Share

capital

Capital

reserve

Other

comprehen

sive income

Surplus

reserves

General

reserve

Retained

profit

Minority

interest

Total

shareholders’

equity

Beginning

balance

4,127,846 3,259,204 -202,086 1,379,550 3,870,216 5,505,555 66,696 18,006,982

Increase

during the

period

0 0 566,304 190,253 333,139 955,786 0 2,045,482

Decrease

during the

period

0 0 0 0 0 0 10,185 10,185

Ending

balance

4,127,846 3,259,204 364,218 1,569,803 4,203,355 6,461,342 56,511 20,042,279

(Unit: RMB1,000)

Parent Company

Item Share

capital

Capital

reserve

Other

comprehensi

ve income

Surplus

reserves

General

reserve Retained profit

Total

shareholders’

equity

Beginning

balance

4,127,846 3,258,594 -202,086 1,379,550 3,870,216 5,479,451 17,913,571


11

Increase

during the

period

0 0 566,304 190,253 333,139 966,351 2,056,047

Decrease

during the

period

0 0 0 0 0 0 0

Ending

balance

4,127,846 3,258,594 364,218 1,569,803 4,203,355 6,445,802 19,969,618

Note: Changes in the shareholders’ equity are mainly due to the increase of profit during the reporting period, the changes in the fair

value of the available-for-sale financial assets and the withdrawal of general reserve.

VII. Composition of Capital and Its Changes

(Unit: RMB1,000)

Item


2018 2017 2018 2017

Net capital

Net core tier-1 capital 20,012,176 17,884,841 19,882,576 17,734,536

Net tier-1 capital 20,013,663 17,886,362 19,882,576 17,734,536

Total net capital 26,702,732 24,762,603 26,561,713 24,600,154

Credit risk weighted assets

On-balance-sheet risk weighted assets 172,586,998 168,290,144 172,044,293 168,700,125

Off-balance-sheet risk weighted assets 12,928,415 14,888,391 12,928,415 14,888,391

Total credit risk weighted assets: 185,515,412 183,178,535 184,972,708 183,588,516

Market risk weighted assets 252,871 297,063 252,871 297,063

Operational risk weighted assets 10,625,549 10,045,611 10,553,443 9,975,529

Total risk weighted assets before

application of capital bottom line:

196,393,832 193,521,209 195,779,022 193,861,107

Total risk weighted assets after application

of capital bottom line:

196,393,832 193,521,209 195,779,022 193,861,107

Core tier-1 capital adequacy ratio (%) 10.19% 9.24% 10.16% 9.15%


12

Item


2018 2017 2018 2017

Tier-1 capital adequacy ratio (%) 10.19% 9.24% 10.16% 9.15%

Capital adequacy ratio (%) 13.60% 12.80% 13.57% 12.69%

Note: The capital adequacy ratio, tier-1 capital adequacy ratio and core tier-1 capital adequacy ratio are calculated according to the

Regulation Governing Capital of Commercial Banks (Provisional) (CBRC [2012] No. 1 Decree).

VIII. Liquidity Coverage Ratio at the End of the Period

Item Consolidated Parent Company

Liquidity coverage ratio (%) 136.67% 135.82%

Eligible high-quality liquid assets (RMB1,000) 51,210,264 51,203,275

Ending value of net cash outflows over the next

30 days (RMB1,000)

37,468,820 37,698,187


13

Chapter IV Report of the Board of Directors

I. Management Discussion and Analysis

i. Business review during the reporting period

1. Scope of principal operations

Principal operations of the Company are deposits taking, extension of short, medium and long-term loans, domestic

settlement, bill discounting, issuance of financial bonds, commissioned issuance, honoring and underwriting of

government bonds, trading over government bonds, interbank lending, provision of security, agency

collection/payment and insurance, provision of safety deposit box services, entrusted deposits and loans on behalf

of local public finance, foreign exchange deposits, foreign exchange loans, foreign exchange remittance, foreign

currency conversion, foreign exchange guarantee, credit reference, inquiry and witness services, international

settlement, interbank foreign exchange lending, foreign exchange settlement, foreign exchange sales, foreign

exchange trading on its own behalf and as an agent, foreign exchange borrowings, trading or agency trading over

non-stock foreign currency securities, policy-related housing finance services, and other services approved by the

CBRC Hubei Office and the State Administration of Foreign Exchange.

2. Performance review during the reporting period

In 2018, the Bank forged ahead under the plan to “fight three critical battles, enhance three capabilities”, made

solid moves and accomplished tasks on a strong footing and to a high standard. All main operating indicators beat

the annual targets.

2.1 Fulfillment of operating targets across the Bank

At the end of 2018, the Bank’s total assets reached RMB318,471 million, an increase of RMB38,394 million or

13.71% over the previous year. The balance of deposits amounted to RMB201,052 million1, an increase of

RMB26,172 million or 14.97% over the previous year. The balance of loans amounted to RMB136,564 million, an

increase of RMB21,889 million or 19.09% over the previous year. The balance of net assets totaled RMB19,970

million, an increase of RMB2,056 million or 11.48% over the previous year.

In 2018, the Bank reported a net profit of RMB1,903 million, an increase of RMB214 million or 12.68% over

previous year.

Accumulated intermediary business income registered RMB689 million, accounting for 11.42% of net operating

income.

As at the end of the reporting period, the balance and ratio of non-performing loans were RMB2,867 million and

2.10% respectively. Provision coverage ratio was 158.71%, better than regulatory standard.

2.2 The Bank shouldered the local financial mission with enhanced ability to serve the real economy

A series of events were held to support development of the real economy. Symposiums were held to discuss how to

1Including RMB13.2 billion in outstanding principal-guaranteed wealth management liabilities.


14

serve private small and micro businesses and serve private technological firms. The Bank continued to increase

credit support for green development of the Yangtze River Economic Belt, new growth drivers and key local

infrastructure projects. The small and micro credit increment plan was developed separately, with on-lending funds

supporting small enterprises fully and properly utilized. Balance of small and micro loans stood at RMB37.73

billion, up 21.97% year-on-year, 2.88 percentage points higher than the growth rate of total loans.

2.3 The Bank made further progress in high-quality development by fighting three critical battles on the

transformation, quality and compliance fronts.

First, the battle for transformation. Corporate deposits and corporate loans (including discounts) in Wuhan moved

up one spot in the market share ranking. The Bank got approved as Class B independent lead underwriter. Either

balance of or average daily increase in personal financial assets exceeded RMB10 billion for three years in a row.

Savings deposits and consumer credit saw a bigger market share by both balance and increment. Specifically,

incremental savings deposits in Wuhan ranked second, incremental consumer credit ranked fifth and entrusted

loans under personal housing provident funds ranked third, all going significantly up the ranking. Second, the fight

for quality. The strictest ever loan accountability rules of Hankou Bank were promulgated. The quick

accountability mechanism was activated to determine liabilities quickly for 17 corporate loans. The “Four Tens”

quality objectives were fully accomplished. Third, the fight for compliance. The Bank carried out the “Year of

Deepening Internal Control & Compliance Management” campaign. The Bank cooperated in a series of regulatory

inspections including “Economic Liability Audit”, “Banking Market Irregularities” and “Internal Control and Case

Prevention”. The Bank passed PBOC’s MPA assessment for four quarters in a row.

2.4 The persistent efforts on innovation-driven growth further vitalized the business of the Bank

The innovative “Jiu Tong Investment Attraction Promotion” was rolled out to serve investment promotion. The

online small and micro credit products “e Loan with House Mortgage” and BOC “Insurance Policy Loan” were

successfully launched. The “Hundred, Thousand and Ten Thousand” FinTech Program was kicked off. The Bank

created the Investment-Loan Alliance together with a number of well-known investment organizations. Integration

of online-offline innovations in neighborhood finance was deepened. The “financial online service platform” was

granted a “Patent for Utility Model Certificate”. The online housing provident fund withdrawal via direct banking

and the mobile “Wuhan Pass” services were launched to provide the public with more convenience in everyday life.

The Huang He Lou and Wushang Group smart parking project went online successfully. The Bank provided

settlement service for 3,872 designated drug stores for medical insurance under the “Internet + Government +

Bank” cooperation model. The Bank innovatively launched the mobile convenience service model for social

security cards, markedly improving the efficiency of third-generation social security card issuance. “HKB Caring

Stations” were set up at 103 outlets in Wuhan to serve sanitation workers. “Jiu Tong Benefit Deposit” and “Jiu

Tong” online loan series were launched to broaden the financial product line designed to improve the wellbeing of

general people. The Bank developed the financial institution information sharing system to fill the gap in the

mobile terminal of the central bank’s website. Transformation to smart outlets was furthered. Explorations for

full-service tellers were made on a pilot scale.

2.5 The working style and morale were further improved through team building and cultural development.

Seven regulations on selection and appointment of officers were issued. 13 general managers or officers of the

same rank were appointed through internal promotion or external hiring. 11 managers or equivalent officers were

sent from the Head Office to branches or sub-branches for on-the-job training. “Talent inventory” was taken to


15

create a talent list for future targeted training. Policies were utilized fully and flexibly to improve the remuneration

and benefits of employees. Employee training was provided with higher quality and efficiency. The number of

trainees and programs implemented in the year rose by 20% year-on-year. Giving full play to mass organizations,

the Bank endeavored to build “HKB Hiking”, “HKB Joy Reading” and other mass event brands. The Bank

improved the meeting management and document management systems, with the number of meetings and issued

documents of the Head Office down 10% year-on-year.

3. Operation of main businesses

3.1. Corporate banking

3.1.1 Corporate business

During the reporting period, the Bank aligned itself with the new regulatory situation, continuously explored new

ideas, and worked in a customer-centric, benefits-oriented, innovation-driven and “asset-light bank”-themed

manner. The Bank managed to improve the quality and performance, improve the structure and accelerate the

transformation of corporate banking with a focus on “controlling risks strictly, returning to the original mission and

serving the real economy”.

(1) Corporate deposits: As at the end of the reporting period, the balance of the Bank’s corporate deposits

(including the principal-guaranteed wealth management products) reported RMB132,818 million, an increase of

RMB12,191 million or 10.11% over the beginning of the year. Among those, the balance of deposits from small

and micro enterprises reached RMB18,109 million, an increase of RMB1,784 million or 10.93% over the beginning

of the year.

(2) Corporate loans: As at the end of the reporting period, the balance of the Bank’s corporate loans reported

RMB101,594 million, an increase of RMB10,993 million or 12.13% over the beginning of the year. Among those,

the balance of loans to small and micro enterprises reached RMB33,417 million, an increase of RMB5,688 million

or 20.51% over the beginning of the year.

(3) International banking: As at the end of the reporting period, the Bank reported an international settlement

volume of USD2,194 million, an increase of USD640 million or 41.18% over the beginning of the year.

(4) Intermediary business income: As at the end of the reporting period, the Bank generated an intermediary

corporate business income of RMB336 million, an increase of RMB33 million or 10.89% over the previous year.

3.1.2 Investment banking

During the reporting period, the investment banking business closely focused on various development strategies

and directions of the Bank, acted as the engine of fueling corporate business transformation and upgrading and

adhered to the development path of “light capital, high efficiency, and all-round development”. It continued to

innovate services and products, enriched service methods, enhanced integrated service capabilities, and effectively

and efficiently promoted collaboration with multiple lines in the Bank. At the end of the reporting period, balance

of investment banking assets stood at RMB30.482 billion. The investment banking granted RMB11.3 billion of

credit facilities in the year, pushing the balance of investment banking assets up by RMB7.594 billion and further

boosting the Bank’s ability to serve the local real economy.

3.2. Retail banking


16

3.2.1 Personal deposits

In the reporting period, the Bank continued to enhance its deposit taking capacity by providing distinctive products

and services, maintaining stable growth in personal deposits. As at the end of 2018, the balance of the Bank’s

personal deposits stood at RMB68,285 million, an increase of RMB13,907 million or 25.57% over the previous

year. Specifically, demand deposits grew by 10.45% and time deposits increased by 39.49%.

3.2.2 Personal consumption loans

In the reporting period, the Bank integrated online and offline development of consumer loans to serve the diverse

consumer needs. As at the end of 2018, the balance of the Bank’s personal consumption loans amounted to

RMB28.27 billion, an increase of RMB10.183 billion or 56.3%, over the previous year. The Bank implemented the

real estate market regulation requirements of the State, strictly implemented the differentiated housing credit policy

and gave priority to the needs of first-time homebuyers. As at the end of 2018, the balance of the Bank’s personal

housing loans amounted to RMB21.77 billion, an increase of RMB7.63 billion or 54% over the previous year. The

Bank innovatively developed the online consumer loan business, with the balance of online consumer loans

standing at RMB3.139 billion.

3.2.3 Credit cards

In the reporting period, the Bank strengthened cross-selling of credit cards to target customers to develop a credit

card installment business with its unique characteristics. As at the end of 2018, credit card overdrafts amounted to

RMB2.644 billion, an increase of RMB892 million or 50.88% over the previous year.

3.2.4 Debit cards

In the reporting period, the Bank sped up payment service development, provided quick payment service for

small-value transactions without a password or signature and kept the debit card business on track for stable growth.

As of the end of 2018, the Bank had issued 10,549,800 financial IC debit cards, an increase of 2,305,700 or 27.96%;

debit card-based transactions amounted to RMB21.613 billion, an increase of 2.96%.

3.2.5 Entrusted loans under housing provident funds

In the reporting period, the Bank persistently regarded entrusted loans under housing provident funds as a service

for people’s wellbeing, introduced innovative service models, improved business processes and improved the

quality and efficiency of service. As at the end of 2018, the balance of entrusted loans under housing provident fund

amounted to RMB3.568 billion, an increase of RMB1.108 billion or 45%.

3.3 Financial market business

3.3.1 Main operating results

During the reporting period, the Bank’s financial market business was sound and developed in compliance with

regulations. While continuing to develop bond investment, interbank investment, wealth management agency,

foreign exchange, bills, etc., the Bank also integrated market channel resources, optimized the structure of assets

and liabilities, and strengthened internal control & compliance efforts. In the complex and ever-changing financial

market environment, the Bank ensured continuous improvement in operating capacity and market influence.

(1) Interbank business


17

In the reporting period, the Bank completed RMB3,921.7 billion in settlement of bond repurchases in the interbank

market. It invested in a total of 24 innovative financial assets, including bond funds, worth RMB14.9 billion, issued

163 interbank certificates of deposit totaling RMB92.31 billion and conducted foreign exchange transactions of

USD538 million in the year. The Bank became qualified as a distributor of bonds issued by the Export-Import Bank

of China. Against the backdrop of rising market volatility and tightening credit environment, the Bank gradually

established an investment research system, a business decision making mechanism and risk management rules

appropriate for business development needs and made preliminary explorations for the roadmap to management of

financial institution customers. The Bank stays true to the “profit + platform” strategic approach to development

and remains dedicated to improving “qualifications + qualities”. In the reporting period, the Bank managed to

forestall major risks and delivered good operating results.

(2) Asset management business

During the reporting period, the Bank’s wealth management business delivered a sound performance. At the end of

2018, the balance of wealth management products was RMB55.932 billion, of which the balance of personal wealth

management products stood at RMB54.054 billion, representing 96.64%.

(3) Bills business

During the reporting period, the Bank registered nearly RMB600 billion in bills business transactions, representing

a return on economic capital of 30.15%, its strongest ever performance making the Bank a vibrant city commercial

bank in the bills market. The “Discounting-Counter-discounting Link” and “Discounting-Rediscounting Link”

products were employed to break barriers to the discounting, counter-discounting and re-discounting markets and

promote all-round development of the bills business. ABS investment was carried out to diversify the bills finance

models. The market research capability was enhanced to increase the yield of bills business. Dual control (over

front and middle offices) was adopted to ensure timely adjustments to business strategies. The Bills Appraisal

Committee mechanism fully functioned to share team wisdom and risk insights. Systems were upgraded, with the

commercial paper exchange’s paper-electronic integration and trading direct link projects completed and put online.

The Bank further improved policies and procedures and strengthened risk screening and training to ensure adequate

risk prevention and control. While keeping the record of six zeros (zero case, zero incident, zero fake bill, zero

non-performing asset, zero advance and zero penalty), the Bank has boosted the efficiency and realized

transformation of the bills business.

3.4. Characteristic businesses -- technology finance

3.4.1 Operating results

As of the end of the reporting period, the Bank had served 2,265 high-tech firms, including 460 credit customers.

The balance of loans (including discounted bills) to high-tech enterprises reached RMB10.766 billion, an increase

of RMB2.449 billion or 29.45% over the beginning of the year. In the reporting period, the Bank launched the

action plan for the “Hundred, Thousand and Ten Thousand” FinTech program, established the “Venture Loan”

cooperation platform and conducted the research titled “Identify Talents - Hankou Bank’s Innovations and Practices

in Solving Financing Difficulties of Tech Startups”, which was recognized by CBIRC as Class I deliverables of

banking IT risk management researches in 2018.

3.4.2 Business development initiatives

(1) The action plan for the “Hundred, Thousand and Ten Thousand” Hi-tech Program was launched. The Action


18

Plan for the “Hundred, Thousand and Ten Thousand” FinTech Program of Hankou Bank Co., Ltd. was formulated

and issued to specify the overall roadmap, objectives and measures for FinTech development in the five years

ahead.

(2) The FinTech team building was strengthened. The Administrative Measures for Operating Entities for FinTech

of Hankou Bank was formulated to establish a “One Specialized, Multiple Distinctive” FinTech framework of the

Bank. The Administrative Measures for the Hierarchy of FinTech Customer Managers of Hankou Bank was issued,

with an independent team of FinTech customer managers established.

(3) The research and development of new products were strengthened. The Bank launched the innovative “Set Sail

Loans” to cater for enterprises’ specific financing needs in terms of the new technology research and development,

new product launch and commercialization of new research findings. This product has enriched the service

solutions for startups and growth businesses and clarified matching model for short-term and long-term credit

products. The pilot program on guarantee insurance loans for technology firms was upgraded to “Insured Tech

Loans”, extended from East Lake High-tech Development Zone to the larger Wuhan City.

3.5 Distribution channels

The Bank rendered products and services through a variety of channels which mainly consist of physical outlets

and e-banking means.

3.5.1 Physical outlet channels

(1) Establishment of institutions

As at the end of the reporting period, the Bank had established 173 institutions, including the Banking Department

of the Head Office, 14 branches, 16 tier-1 sub-branches, one sub-branch directly under the Head Office, two

specialized institutions and 139 tier-2 sub-branches (27 of which were community sub-branches). So far, the Bank

had its outlet layout almost cover the entire Hubei Province and set up a branch in Chongqing.

(2) New institutions and changes in existing ones

During the reporting period, the Bank established 18 institutions in total, among which eight were sub-branches in

Wuhan: Xingye Road Sub-branch, Hanxi Sub-branch, Fangcao Road Sub-branch, Lvdi Sub-branch, Yangyuan

Sub-branch, Bairuijing Sub-branch, Beihua Sub-branch and Jianghan University Sub-branch; there were 10 new

sub-branches established beyond Wuhan: Xiantao Sub-branch (sub-branch directly under the Head Office),

Gong’an Sub-branch, Jingzhou Shashi Sub-branch, Yidu Sub-branch, Shiyan Maojian Sub-branch, Hanchuan

Sub-branch, Xiaogan Xiaonan Sub-branch, Jingmen Duodao Su-branch, Jianshi Sub-branch and Enshi Economic

Development Zone Sub-branch. During the reporting period, Yichang Dongshan Sub-branch beyond Wuhan was

renamed Hubei Free Trade Zone (Yichang) Branch; Luoshi Road Sub-branch in Wuhan was relocated and renamed

Hongxia Sub-branch, and Dongrun Shangyu Community Sub-branch was closed down.

3.5.2 E-banking channels

(1) Operating results

As at the end of the reporting period, personal Internet banking customers reached 1.803 million, an increase of

14.8%; mobile banking customers reached 1.693 million, an increase of 8.9%; corporate Internet banking

customers reached 54,200, an increase of 15.57%; and new direct banking customers increased by 560,000. The


19

transaction volume of e-banking reached RMB1.94 trillion, an increase of 15.48%. In the year, the replacement rate

of counter-based transactions by e-banking arrived at 89.73%. Each self-service equipment recorded 149

transactions and a transaction value of RMB152,400 per day, and the power-on ratio of self-service equipment was

98.32%. There were 1,057 self-service equipment across the Bank, 146 units more than the beginning of the year.

The Bank established a total of 188 self-service banks, an increase of 13 over the beginning of the year.

(2) Channel innovation

During the reporting period, the Bank accelerated the innovation and upgrading of channels and promoted

transformation of Internet finance. 29 innovations were completed in E-channel and Internet finance, with the

versions of personal Internet banking, mobile banking and direct banking updated 37 times. The transaction volume

of mobile banking increased by 37.5% year-on-year, and the transaction value grew by 62.36% year-on-year. The

Bank brought online a range of new services and functions including online housing provident funds via direct

banking, mobile Wuhan Pass, online security deposit, ZhongAn Direct Finance loan and “HB Micro Credit”,

thereby effectively enhancing the capability of online customer services.

In the reporting period, the Bank deepened the online and offline channels to build a financial service system for

people’s wellbeing. The housing provident fund inquiry via direct banking, endowment insurance account and

medical insurance account services were rolled out. Direct-banking local government services were realized, with

online pension examination put online. The “Direct Banking Online Security Deposit Service” went online to

enable quick online processing of all steps for homebuyers’ security deposit. The Mobile Wuhan Pass Card, Mobile

Wuhan Pass top-up, utility bill payment and other small-value, high-frequency payments were enabled online.

Mobile banking enabled online video services through multiple channels, added over 40 business features and

enriched the online service application scenarios. The Bank also extended its E-banking-based everyday financial

services beyond Wuhan, including online bill payments for public rental housing and water in Xianning City.

In the reporting period, the Bank stepped up outreach efforts for the payment settlement market, pressing forward

with the public convenience model program. The Bank provided parking fee collection service for six shopping

malls of Wushang Group, completing 1,223,300 transactions in total. The integrated payment service platform went

live, settling over RMB20 million of online payments from 19,000 students at 29 schools. The Bank partnered with

Bestpay, Meituan and Didi to diversify its debit and credit card scenarios. The Bank partnered with Wuhan

Municipal Human Resources and Social Security Bureau and Alipay in settling medical insurance payments and

deductibles payments for designated drug stores for medical insurance in Wuhan. Now the Bank has 3,872

drugstore merchants. The Bank completed China UnionPay’s Cloud QuickPass app access and online application

features to implement PBOC’s requirements on advancing the public convenience model program, with 36,000

bank cards registered for Cloud QuickPass cumulatively.

During the reporting period, the Bank optimized its self-service channels and accelerated the intelligent

transformation of outlets. The innovative mobile service model for social security cards was launched. The

“Neighborhood Treasure” mobile terminals and the social security card reissue machine were combined to enable

issue of third-generation social security cards in four minutes, and also provide over 70 service items including

subscription, transfer and “Four Benefits, One Big”. A complete electronic service system is in place for social

security cards. The Bank continued to strengthen diversion of counter-based service for passbook holders to

self-service facilities. Self-service equipment handled 636,200 passbook-based cash withdraw transactions in the

year, replacing 42.16% of over-the-counter passbook-based cash withdrawal transactions. As the only financial

institution running passbook-based cash self-service facilities extensively in Wuhan, the Bank has effectively


20

diverted low-efficiency over-the-counter businesses, broadly recognized among medium- to old-age customers.

4. Categories of principal operation income

(Unit: RMB1,000)

Income category

Amount during the reporting period


Loan interest income 5,519,282 5,473,831

Interest income from due from central banks 391,232 389,858

Interest income from interbank business (including due

from banks and other financial institutions, assets

purchased under resale agreements and placements)

759,461 750,817

Bond investment income (including interest income,

spread income and dividends during the holding period)

5,206,348 5,198,240

Interest income from principal-guaranteed wealth

management products

608,038 608,038

Fee and commission income 688,905 688,890

Total 13,173,266 13,109,674

5. Market shares of main products or services

According to the statistics in RMB terms from the Operation Management Department of Wuhan Branch of the

People’s Bank of China, at the end of 2018, the Bank accounted for 7.71% of the total RMB deposits in Wuhan,

ranking the fourth in the banking industry. Specifically, the Bank’s market share in the corporate deposit segment

was 7.41%, ranking the ninth; the market share in the savings deposit segment was 8.06%, ranking the sixth. The

Bank accounted for 4.55% of the total RMB loans in Wuhan, ranking the eighth. The market share in the corporate

loan segment was 3.58%, ranking the ninth; the market share in discounting segment was 27.35%, ranking the first;

and the market share in personal loan market segment was 4.01%, ranking the 9th.

ii. Analysis of financial position and operating results during the reporting period

1. Changes in major financial indicators and reasons

(Unit: RMB1,000)

Item


Main reason 31

December

2018

31

December

2017

Change

31

December

2018

31

December

2017

Change

Total

assets

319,295,909 281,077,036 13.60% 318,471,383 280,077,198 13.71% Increase in loans

and investments


21

Total

liabilities

299,253,630 263,070,054 13.75% 298,501,765 262,163,626 13.86% Increase in deposits

Sharehold

ers’ equity

20,042,279 18,006,982 11.30% 19,969,618 17,913,571 11.48% Increase in net

profit

Total

profit

1,715,761 1,856,595 -7.59% 1,737,377 1,848,000 -5.99% Basically the same

Net profit 1,882,378 1,694,009 11.12% 1,902,528 1,688,504 12.68% Increase in

operating income

2. Items with 30% or more changes in the financial report and reasons

(Unit: RMB1,000)

Item


Main reason 31

December

2018

31

December

2017

Change

31

December

2018

31

December

2017

Change

Assets:

Deposits with

banks and other

financial

institutions

1,072,991 3,390,629 -68.35% 929,158 3,268,557 -71.57%

Matured general

deposits with

banks and other

financial

institutions

Lendings to

banks and other

financial

institutions

500,000 317,493 57.48% 500,000 317,493 57.48%

Increase in

placements with

banks

Held-to-maturit

y investments

41,149,070 25,556,330 61.01% 41,149,070 25,556,330 61.01%

Increase in

held-to-maturity

investment assets

Construction

in progress 36,370 1,183 2,974.13% 29,860 1,183 2423.87%

Increase of

construction in

progress

Other assets 4,074,952 2,323,597 75.37% 4,064,941 2,308,679 76.07%

Increase in

non-recourse

factoring;

investment

expansion

increased interest

receivable

Liabilities:

Borrowings

from central

banks

1,700,000 60,200 2,723.92% 1,650,000 0 —

Increase in

on-lending

supporting small

enterprises

Payroll

payable 406,046 238,008 70.60% 404,722 236,496 71.13%

Performance pay

for 2017 was

paid in advance


22

Item


Main reason 31

December

2018

31

December

2017

Change

31

December

2018

31

December

2017

Change

in the year, while

performance pay

for 2018 was

paid in the next

year.

Taxes

payable 150,507 485,081 -68.97% 150,502 484,817 -68.96%

Increase of

tax-free income,

decrease in

corporate income

tax payable

Deferred

income tax

liabilities

122,432 7,771 1,475.60% 122,432 7,771 1,475.60%

Increase in

changes in fair

value of

available-for-sale

financial assets

Shareholders’

equity:

Other

comprehensive

income

364,218 -202,086 -280.23% 364,218 -202,086 -280.23%

Increase in fair

value of

available-for-sale

financial assets

Items on income

statement:

Investment

income (Loss is

presented with

“-”)

1,370,103 581,397 135.66% 1,371,003 582,162 135.50%

Scale-up of

available-for-sale

securities funds

Where:

Investment

income on

associates and

joint ventures

24,434 13,209 84.97% 24,434 13,209 84.97%

Increase in

investment

income from

Aerospace

Science &

Industry

Financial Leasing

Co., Ltd.

Net gain on

changes in fair

value (Loss is

presented with

“-”)

60,020 -17,537 -442.26% 60,020 -17,537 -442.26%

Increase in fair

value of

held-for-trading

financial assets

Exchange

gain (Loss is

presented with

“-”)

19,490 -10,972 -277.63% 19,490 -10,972 -277.63% Exchange rate

changes

Other

operating

income

7,703 4,777 61.23% 9,201 6,276 46.61% Increase in rental

income

Gain on

disposal of -3,206 61,689 -105.20% -3,206 61,689 -105.20% Less

compensation for


23

Item


Main reason 31

December

2018

31

December

2017

Change

31

December

2018

31

December

2017

Change

assets (Loss is

presented with

“-”)

housing

demolition

Other gains 6,749 6,210 8.68% 6,003 4,345 38.15%

Increase in

incentive

earnings

Other

operating costs 102 2,012 -94.93% 102 2,012 -94.93%

Less expenses on

postage and

electronic

remittance &

transfer fees

Add:

non-operating

income

7,619 2,178 249.89% 7,577 2,147 253.01%

Increase in

cleanup of

income from

unclaimed funds

Less:

Non-operating

expenses

7,742 3,746 106.69% 7,449 3,702 101.25%

Increase in

spending on

damages and

penalties

Less: Income

tax expense -166,617 162,585 -202.48% -165,150 159,497 -203.54%

Increase of

tax-free income

Minority

profit or loss -9,585 2,786 -444.09% 0 0 —

Decrease of net

profit of

subsidiaries

VI. Other

comprehensive

income after

tax, net

566,304 -220,969 -356.28% 566,304 -220,969 -356.28%

Increase in fair

value of

available-for-sale

financial assets

ii. Other

comprehensive

income that will

be reclassified

into profit or

loss

566,304 -220,969 -356.28% 566,304 -220,969 -356.28%

Increase in fair

value of

available-for-sale

financial assets

2. Gains or

losses on

changes in fair

value of

available-for-sal

e financial

assets

566,304 -220,969 -356.28% 566,304 -220,969 -356.28%

Increase in fair

value of

available-for-sale

financial assets

VII. Total

comprehensive

income

2,448,682 1,473,041 66.23% 2,468,831 1,467,535 68.23%

Increase in fair

value of

available-for-sale

financial assets,

increase in net

profit


24

iii. Assets and liabilities during the reporting period

1. Assets

1.1 Loans

(1) Loan structures in the three years before the end of the reporting period

(Unit: RMB1,000)

Item


31 December

2018

31 December

2017

31 December

2016

31 December

2018

31 December

2017

31 December

2016

Corporate

loans and

advances

101,851,286 91,398,912 80,932,362 101,594,053 91,093,493 80,619,453

Where:

Loans 73,266,363 71,872,923 62,897,326 73,016,020 71,572,881 62,586,637

Discounts 24,375,970 16,407,588 14,952,300 24,369,080 16,402,211 14,950,080

Advances 379,084 1,106,319 1,963,280 379,084 1,106,319 1,963,280

Personal loans 35,336,734 23,517,738 17,769,168 34,969,701 23,288,243 17,621,819

Total 137,188,020 114,916,650 98,701,530 136,563,754 114,381,736 98,241,272

(2) Distribution of loans and advances

A. Top 10 borrower industries and their percentages at the end of the reporting period

(Unit: RMB1,000)

Industry


Balance of loans Percentage (%) Balance of loans Percentage (%)

Wholesale and retail 17,743,801 12.93% 17,716,136 12.97%

Real estate 14,219,433 10.36% 14,219,433 10.41%

Manufacturing 12,966,285 9.45% 12,840,802 9.40%

Financial industry 12,743,056 9.29% 12,743,056 9.33%

Leasing and commercial services 12,565,110 9.16% 12,542,110 9.18%

Others 10,501,512 7.65% 10,501,511 7.69%

Construction 8,920,116 6.50% 8,900,769 6.52%


25

Industry



Water, environment and public utility

management 3,974,539 2.90% 3,968,539 2.91%

Power/heat/gas/water production and supply 2,617,055 1.91% 2,617,055 1.92%

Personal loans and advances: 35,336,734 25.76% 34,969,701 25.61%

B. Loan distribution by geographical area at the end of the reporting period

(Unit: RMB1,000)

Consolidated

Area Balance of loans Percentage (%)

Wuhan 111,221,758 81.07%

Ezhou 1,431,151 1.04%

Yichang 4,030,556 2.94%

Huangshi 4,130,084 3.01%

Jingmen 1,960,281 1.43%

Xiangyang 1,877,636 1.37%

Jingzhou 1,344,043 0.98%

Enshi 1,648,941 1.20%

Shiyan 1,052,131 0.77%

Xiaogan 1,458,275 1.06%

Xianning 460,932 0.34%

Huanggang 187,564 0.14%

Chongqing 6,384,668 4.65%

C. Loan distribution by guarantee mode at the end of the reporting period

(Unit: RMB1,000)

Item




26

Item



Unsecured loans 21,102,365 15.38% 21,066,107 15.43%

Guaranteed loans 27,379,390 19.96% 27,101,025 19.84%

Mortgage loans 56,022,731 40.84% 55,750,927 40.82%

Pledge loans 32,683,534 23.82% 32,645,695 23.91%

Total 137,188,020 100.00% 136,563,754 100.00%

(3) Balance and percentage of 10 largest borrowers at the end of the reporting period

(Unit: RMB1,000)

Consolidated & Parent Company

Borrower Balance of loans Percentage (%)

Customer A 1,794,906.40 1.31%

Customer B 1,530,821.90 1.12%

Customer C 1,500,000.00 1.10%

Customer D 1,500,000.00 1.10%

Customer E 1,239,750.00 0.91%

Customer F 1,192,000.00 0.87%

Customer G 1,041,000.00 0.76%

Customer H 998,800.00 0.73%

Customer I 997,000.00 0.73%

Customer J 940,000.00 0.69%

1.2 Financial assets purchased under resale agreements

(Unit: RMB1,000)


Item Ending balance Percentage (%) Beginning balance Percentage (%)

Bonds 3,510,200 87.53 5,113,687 98.08


27



Bills 0 0.00 100,000 1.92

Interbank CDs 500,000 12.47 0 0.00

Total 4,010,200 100.00 5,213,687 100.00

1.3 Investments

A. Investment by accounting item

(Unit: RMB1,000)

Consolidated


Financial assets designated

at fair value through profit or

loss

13,042,298 8.81% 13,258,475 10.32%

Available-for-sale financial

assets 57,161,098 38.61% 46,602,789 36.29%

Held-to-maturity

investments 41,149,070 27.79% 25,556,330 19.90%

Investment with receivables 35,920,612 24.26% 42,251,591 32.90%

Long-term equity investment 787,643 0.53% 763,209 0.59%

Total 148,060,721 100.00% 128,432,394 100.00%

(Unit: RMB1,000)

Parent Company


Financial assets designated

at fair value through profit or

loss

13,042,298 8.81% 13,258,475 10.34%


assets 57,161,098 38.60% 46,602,789 36.36%

Held-to-maturity

investments 41,149,070 27.79% 25,556,330 19.94%

Investment with receivables 35,890,612 24.24% 41,931,591 32.72%

Long-term equity investment 844,583 0.57% 820,149 0.64%

Total 148,087,661 100.00% 128,169,334 100.00%


28

B. Investment by investor

(Unit: RMB1,000)

Consolidated


Government bonds 47,132,295 31.83% 20,083,507 15.64%

Financial institution bonds 20,370,020 13.76% 18,264,114 14.22%

Corporate bonds 10,839,209 7.32% 10,966,283 8.54%

Securities investment funds 30,047,802 20.29% 35,298,441 27.48%

Others 39,671,395 26.79% 43,820,049 34.12%

Total 148,060,721 100.00% 128,432,394 100.00%

(Unit: RMB1,000)

Parent Company


Government bonds 47,132,295 31.83% 20,083,507 15.67%

Financial institution bonds 20,370,020 13.76% 18,264,114 14.25%

Corporate bonds 10,839,209 7.32% 10,966,283 8.56%

Securities investment funds 30,047,802 20.29% 35,298,441 27.54%

Others 39,698,335 26.81% 43,556,989 33.98%

Total 148,087,661 100.00% 128,169,334 100.00%

Note: Others include wealth management products purchased from financial institutions and equity investments measured at cost.

2. Liabilities

2.1 Loan structures in the three years before the end of the reporting period

(Unit: RMB1,000)

Item


31 December

2018

31 December

2017

31 December

2016

31 December

2018

31 December

2017

31 December

2016

Demand

deposits: 107,711,523 99,793,721 76,690,939 107,453,187 99,530,303 76,450,052


29

Item


31 December

2018

31 December

2017

31 December

2016

31 December

2018

31 December

2017

31 December

2016

Corporate

customers 87,732,106 81,482,714 60,721,196 87,530,173 81,260,222 60,509,675

Personal

customers 19,979,417 18,311,007 15,969,743 19,923,014 18,270,081 15,940,377

Time deposits: 66,964,221 55,280,001 50,317,145 66,297,758 54,696,051 49,832,208

Corporate

customers 29,219,566 22,913,847 24,351,134 29,087,107 22,786,585 24,217,130

Personal

customers 37,744,654 32,366,154 25,966,011 37,210,650 31,909,466 25,615,078

Margin deposits 7,854,304 7,691,565 6,490,099 7,811,302 7,653,583 6,454,927

Other deposits 19,489,676 13,000,405 9,363,270 19,489,625 13,000,405 9,363,271

Total 202,019,724 175,765,692 142,861,453 201,051,872 174,880,342 142,100,458

Note: Time deposits include principal-guaranteed wealth management liabilities.

2.2 Due to banks and other financial institutions

(Unit: RMB1,000)

Item


31 December

2018

31 December

2017

31 December

2016

31 December

2018

31 December

2017

31 December

2016

Demand

deposits from

domestic

banks

110,749 118,399 66,259 349,333 175,241 135,488

Time deposits

from domestic

banks

1,100,013 3,000,013 12 1,150,013 3,000,013 12

Demand

deposits from

domestic

non-banking

financial

institutions

991,893 351,799 629,719 991,893 351,799 629,719

Time deposits

from domestic

non-banking

financial

institutions

2,597,149 1,142,711 295,515 2,597,149 1,142,711 295,515

Total 4,799,804 4,612,922 991,505 5,088,388 4,669,764 1,060,734

2.3 Financial assets under repurchase agreements


30

(Unit: RMB1,000)


Item 31 December 2018 31 December 2017 31 December 2016

Securities under repurchase

agreements:

Financial bonds 1,608,000 2,365,980 300,000

Government bonds 4,007,100 6,646,760 1,895,650

Subtotal 5,615,100 9,012,740 2,195,650

Bills under repurchase

agreements:

Bank acceptance bills 11,881,138 6,110,655 7,441,666

Subtotal 11,881,138 6,110,655 7,441,666

Interbank CDs under

repurchase agreements 0 98,000 0

Total 17,496,238 15,221,395 9,637,316

iv. Analysis of investment status

1. Use of raised funds

The Bank did not raise any funds during the reporting period.

2. External equity investments

During the reporting period, the balance of the Bank’s external equity investments was RMB860,165,000, up

RMB24,434,000 over the beginning of the year, as detailed below.

(Unit: RMB1,000)

Name Accounting

method

Book value

at period

beginning

Change

Book value

at period

end

Shareholding

ratio

Accounting item

HB Zhijiang Rural Bank Co.,

Ltd. Cost method 25,500 — 25,500 51.00%

Long-term equity

investment

HB Yangxin Rural Bank Co.,

Ltd. Cost method 31,440 — 31,440 60.00%

Long-term equity

investment

Aerospace Science & Industry

Financial Leasing Co., Ltd.

Equity

method 763,209 24,434 787,643 25.00%

Long-term equity

investment

Urban Commercial Bank

Clearing Center Cost method 400 — 400 1.33%

Available-for-sale

financial assets

Wuhan Steel Electricity Co.,

Ltd. Cost method 8,030 — 8,030 0.88%

Available-for-sale

financial assets


31

China UnionPay Co., Ltd. Cost method 7,152 — 7,152 0.27% Available-for-sale

financial assets

Total 835,731 24,434 860,165

II. Business Overview

i. Institution setup

S/N Institution Address Number of institutions

1 Head Office 933 Jianshe Road, Jianghan District, Wuhan City 1

2 Banking Department

of the Head Office 933 Jianshe Road, Jianghan District, Wuhan City 1

3 Chongqing Branch Building 1, 11 East Honghu Road, Yubei District, Chongqing

City 9

4 Huangshi Branch 861 Huangshi Avenue, Huangshigang District, Huangshi City,

Hubei Province 3

5 Xiangyang Branch 8 Chunyuan Road, Xiangyang City High and New Technology

Development Zone, Hubei Province 2

6 Jingzhou Branch 280 Jiangjin West Road, Jingzhou City, Hubei Province

(Hengyuan Hotel) 5

7 Yichang Branch Tourism Square, 25 Yunji Road, Yichang City, Hubei Province 6

8 Shiyan Branch Wanlong Plaza, 9 Chaoyang Middle Road, Maojian District,

Shiyan City, Hubei Province 3

9 Xiaogan Branch 51, Beijing Road, Xiaonan District, Xiaogan City, Hubei

Province 3

10 Jingmen Branch 21 Changning Avenue, Jingmen City, Hubei Province 4

11 Ezhou Branch 59 Wenxing Avenue, Echeng District, Ezhou City, Hubei

Province 2

12 Huanggang Branch 55 Building, Feicui Yipin, No. 76 Chibi Avenue, Huangzhou

District, Huanggang City, Hubei Province 1

13 Xianning Branch Yangguang Weina International Celebrity Plaza, 25 Ganhe

Avenue, Xianning City, Hubei Province 1

14 Enshi Branch 67 Shizhou Avenue (Jinlin Mansion), Enshi City, Hubei

Province 4

15 Xiantao Sub-branch No. 11-6, Xiantao Avenue, Xiantao City, Hubei Province 1

16 Optical Valley Branch 1 Minzu Avenue, East Lake High-tech Development Zone,

Wuhan City 3

17

Hubei Pilot Free

Trade Zone Wuhan

Area Branch

Building A5, Optical Valley Software Park, Te 1 Guanshan

Avenue, Donghu New Technology Development Zone, Wuhan

City

1

18 Jiang’an Sub-branch Building 1, Tower B, Sanyang Jincheng, 1541 Zhongshan

Avenue, Jiang’an District, Wuhan City 15


32

S/N Institution Address Number of institutions

19 Jianghan Sub-branch Floors 1-2, Te 8, Xinhuaxia Road, Jianghan District, Wuhan

City 14

20 Qiaokou Sub-branch 160 Qiaokou Road, Qiaokou District, Wuhan City 10

21 Hanzheng Street

Sub-branch 107-109 Liji South Road, Hankou, Wuhan City 7

22 Hanyang Sub-branch Te 1 Cuiwei Road, Hanyang District, Wuhan City 8

23 Wuchang Sub-branch 440 Zhongshan Road, Wuchang District, Wuhan City 14

24 Shuiguohu

Sub-branch 33 Hongshan Road, Wuchang District, Wuhan City 11

25 Qingshan Sub-branch 5 Yangang Road, Qingshan District, Wuhan City 6

26 Hongshan Sub-branch 586 Wuluo Road, Wuchang, Wuhan City 13

27 Caidian Sub-branch 208 Caidian Avenue, Caidian District, Wuhan City 2

28 Jiangxia Sub-branch Zhongbei Jiangxia Shopping Center, Wenhua Road, Jiangxia

District, Wuhan City 3

29 Huangpi Sub-branch 387 Huangpi Avenue, Huangpi District, Wuhan City 4

30 Dongxihu Sub-branch 288 Wuzhong Road, Wujiashan, Dongxihu District, Wuhan

City 5

31

Wuhan Economic &

Technological

Development Zone

Sub-branch

10 Chuangye Road, Plot 1C1, Wuhan Economic &

Technological Development Zone, Wuhan City 3

32

Yangluo Economic

Development Zone

Sub-branch

Te 1 Hanshi Road, Yangluo Economic Development Zone,

Wuhan City 4

33 Jiutong (Hong Kong

Road) Sub-branch

Floor 1 (Floors 1-12), 160 Qiansanyanqiao, Jiang’an District,

Wuhan City 2

34 Xinlu Sub-branch Floor 1, Building A, Yongsheng Tower, Shengli Street, Yiyuan

Street, Jiang’an District, Wuhan City 1

35

Small and Micro

Enterprise Service

Center

Floor 3, Zone B, Hankou Bank, No. 933 Jianshe Avenue,

Jianghan District, Wuhan City 1

36 Technology Finance

Service Center

Building A5, Optical Valley Software Park, Donghu New

Technology Development Zone, Wuhan City 1

Total: 173 branches and sub-branches (including specialized institutions, tier-2 sub-branches in Wuhan, sub-branches beyond

Wuhan directly under the Head Office and sub-branches under non-Wuhan branches). Xinlu Sub-branch is the Bank’s Assets

Preservation Department. The Small and Micro Enterprise Financial Service Center is the Bank’s specialized institution engaged in

providing financial services for small and micro enterprises. The Technology Finance Service Center is the Bank’s specialized

institution engaged in providing financial services for technological enterprises.

ii. Loan quality analysis

1. Five-category loan classification at the end of the reporting period


33

(1) Five-category loan classification method

The Bank formulated the Administrative Measures for Risk Classification of the Credit Assets of Hankou Bank and

classified loans into five categories and 12 grades. It established the management mechanism of real-time and

dynamic classification, and the classification results reflected the risks that the Bank’s credit assets were exposed to

on a true, comprehensive and accurate basis.

(2) Five-category loan classification

(Unit: RMB1,000)

Parent Company

Five-category

classification

Loan balance at

the end of the

period

Percentage (%)

Loan balance at

the beginning of

the period

Percentage (%) Change

Pass 123,092,056 90.14% 101,464,823 88.48% 21,627,233

Special

mention 10,604,669 7.77% 10,766,244 9.39% -161,575

Sub-standard 1,996,452 1.46% 1,299,562 1.13% 696,891

Doubtful 802,858 0.59% 1,069,065 0.93% -266,207

Loss 67,719 0.05% 74,675 0.07% -6,957

Total 136,563,754 100.00% 114,674,369 100.00% 21,889,386

2. Provisioning and write-off of allowance for impairment losses on loans

(Unit: RMB1,000)

Item


2018 2017 2018 2017

Beginning balance 4,341,694 4,051,262 4,313,314 4,026,807

Accrued during the

reporting period 2,208,581 1,780,348 2,168,429 1,775,009

Transfer-out during the

reporting period 0 0 0 0

Written off during the

reporting period 2,024,479 1,501,028 1,996,770 1,499,614

Reversed during the period 65,221 11,112 65,196 11,112

Ending balance 4,591,017 4,341,694 4,550,169 4,313,314

Note: The foregoing balance of provisions excludes general reserves allocated on an after-tax basis. No special reserves are set aside at


34

present.

3. Overdue loans

(Unit: RMB1,000)

Consolidated

Item Ending balance Beginning

balance

Change during

the period (+,

-)

Change (%) Reasons for the change

Overdue

loans 3,111,457 6,002,574 -2,891,117 -48.16%

Multi-pronged approaches

taken to reduce overdue loans

vigorously and effectively.

Note: Overdue loan means the principal amount of the loans of which principal or interest has become overdue. As for loans repaid by

installments, as long as the principal or interest on any installment has become overdue, the principal amount of other non-defaulted

installments shall also be included in overdue loans.

4. Interest-subsidized loans

The Bank had the outstanding interest-subsidized loans of RMB163 million during the reporting period.

iii. Group customer credit business and its risk management

The Bank formulated the management measures for group credit business, effectively prevented and controlled the

risks arising from the credits extended to group customers, and promoted the healthy growth of the group customer

credit business in accordance with the Guideline for Risk Management of Group Customer Credits Granted by

Commercial Banks and its actual conditions in group customers.

1. The Bank defined the group customer identification criteria and procedures as well as the responsibilities for

managing such customers, put all group customers under uniform management, and prevented the occurrence of

multi-lenders.

2. The Bank intensified the investigation into shareholder background, equity ties and relations of key persons as

well as included the enterprises with which the Bank shares jointly controlled parties and material influences into

the group customer credit management based on the principle of substance over form, in a bid to prevent the

occurrence of excess credit.

3. The on and off-balance-sheet credit business, various investment businesses like bonds, and derivative trading

business where risk incurred shall be taken by the Bank as well as the full margin, CD pledge and other businesses

shall be brought under uniform credit management, based on the relevant principle.

4. The Bank strictly observed the criteria on group customer credit concentration. If the concentration limit was

exceeded or the credit line granted to a group customer was deemed to be over high, concentration risk was

prevented by means of syndicated lending, joint lending or loan transfer.

5. The Bank improved the credit granting processes for group customers and issued the Notice on Improving the

Credit Review Processes for Group Customers. The credit service efficiency for group customers was further

increased by streamlining credit review processes, such as intra-group credit limit reallocations of group customers

and other adjustments involving no escalation of material credit risk.


35

iv. NPA changes and management measures

During the reporting period, the Bank worked harder to strictly control new loans and strengthen the disposal of

outstanding risky loans. The Bank made solid progress in the asset quality enhancement campaign, with the quality

of credit assets improved in general and NPL ratio reduced slightly. As at the end of the reporting period, the

balance and ratio of non-performing loans were RMB2.867 billion and 2.1%.

The Bank acted upon economic and financial policies and requirements on the “three critical battles”, aligned its

activities with local economic development to serve the real economy and kept improving the structure of credit

customers. It controlled risks in new credits through strict authorization and prudent underwriting. It strengthened

risk monitoring, early warning and activity supervision and gave timely warning against and addressed risks in

outstanding loans. A range of measures were taken to strengthen the disposal and recovery of risky loans. The

credit risk system and team building were strengthened to further fortify the foundation of credit business

management and effectively boost the quality of credit assets and improve the ability to forestall credit risks.

v. Impairment provisions for repossessed assets and other prime assets

(Unit: RMB1,000)

Item


31 December

2018

31 December

2017

Increase/

decrease

31 December

2018

31 December

2017

Increase/

decrease

Repossessed assets

pending disposal: 224,294 146,913 77,381 223,557 146,913 76,645

Allowance for

impairment losses 0 0 0 0 0 0

Investment with

receivables 35,920,612 42,251,591 -6,330,979 35,890,612 41,931,591 -6,040,979

Allowance for

impairment losses 1,047,153 1,044,059 3,095 1,047,153 1,044,059 3,095

Due from banks: 1,072,991 3,390,629 -2,317,638 929,158 3,268,557 -2,339,398

Allowance for


Placements with

banks: 500,000 317,493 182,507 500,000 317,493 182,507

Allowance for


vi. Categories, average balances and average interest rates of major deposits and loans at the

end of the reporting period

(Unit: RMB1,000)

Parent Company

Category Average balance Average interest rate (%)


36

Corporate loans 92,880,068 4.94

Personal loans 28,965,250 4.81

Corporate deposits 117,600,386 1.69

Personal deposits 62,992,666 2.38

Note: Corporate loans include trade financing, discounts and rediscounts, and personal loans include credit card business.

1. Structures, average balances and average interest rates of major deposits

(Unit: RMB1,000)

Parent Company

Item Average balance Average interest rate (%)

Corporate demand deposits 82,022,822 1.00

Corporate time deposits 35,577,565 3.28

Personal demand deposits 20,823,334 0.43

Personal time deposits 42,169,331 3.35

Total 180,593,052 1.93

Note: Demand deposits include call deposits, while time deposits include margin deposits, principal-guaranteed wealth management

liabilities and large-value CDs issued.

2. Structures, average balances and average interest rates of major loans

(Unit: RMB1,000)

Parent Company

Item Average balance Average interest rate (%)

Corporate loans (short term, due within one year) 51,980,166 4.64

Corporate loans (medium and long term) 40,899,902 5.33

Personal loans 28,965,250 4.81

Total 121,845,317 4.91

Note: Corporate loans include trade financing, discounts and rediscounts, and personal loans include credit card business.

vii. Debt securities investment

1. Types and amounts of financial bonds held by the Bank at the end of the reporting period

(Unit: RMB1,000)


37


Item Face value

Government bonds 46,974,700

Financial institution bonds 11,850,000

Central bank bills —

Corporate bonds 3,744,500

Subordinated bonds —

Other bonds 2,310,000

Total 64,879,200

2. Top five government bonds held by the Bank at the end of the reporting period


Bond name Code Face value

(RMB1,000) Coupon rate (%) Maturity

18 Coupon-bearing

T-bond 23 180023 2,590,000 3.29 18 October 2023

18 Hubei Bond 03 1805099 2,000,000 3.79 19 June 2023

17 Coupon-bearing

T-bond 14 170014 1,850,000 3.47 13 July 2022

15 Coupon-bearing

T-bond 26 150026 1,440,000 3.05 22 October 2022

18 Coupon-bearing

T-bond 01 180001 1,400,000 3.81 18 January 2023

3. Top five central bank bills held by the Bank at the end of the reporting period

The Bank did not hold any central bank bills at the end of the reporting period.

4. Top five financial bonds held by the Bank at the end of the reporting period




18 CDB 05 180205 2,400,000 4.88 9 February 2028

18 Eximbank 10 180310 1,520,000 4.89 26 March 2028

17 Harbin Bank Green 1720022 800,000 4.75 10 May 2022


38




Finance 03

18 Eximbank 09 180309 750,000 4.37 19 June 2023

18 CDB 10 180210 550,000 4.04 6 July 2028

viii. Items designated at fair value

(Unit: RMB1,000)


Item Beginning

balance

Profit/loss on

changes in fair

value during

the period

Accumulated

changes in fair

value recognized

into equity

Impairment

provisions

set aside

during this

period

Ending

balance

Financial assets

Where: 1. Financial assets

designated at fair value through

profit or loss

13,258,475 129,060 0 0 13,042,298

Where: Derivative

financial assets 0 0 0 0 0

2. Available-for-sale

financial assets 46,602,789 0 566,304 0 57,161,098

Sub-total of financial assets 59,861,264 129,060 566,304 0 70,203,396

Financial liabilities designated at

fair value through profit or loss 13,003,858 -69,040 0 0 13,190,558

Investment properties 0 0 0 0 0

Productive biological assets 0 0 0 0 0

Others 0 0 0 0 0

ix. Foreign-currency financial assets/liabilities held

(Unit: RMB1,000)


Item Beginning

balance

Profit/loss on

changes in fair

value during the

period

Accumulated

changes in fair

value recognized

into equity

Impairment

provisions set

aside during this

period

Ending balance


39

Financial assets

Where: 1. Financial assets

designated at fair value

through profit or loss

0 0 0 0 0

Where: Derivative


2. Loans and

receivables 0 0 0 0 0

3. Available-for-sale


4. Held-to-maturity

investments 0 0 0 0 0

Sub-total of financial assets 0 0 0 0 0

Financial liabilities 0 0 0 0 0

x. Bad debt provisions for interest receivable and other receivables

In accordance with the Accounting Rules for Financial Corporations issued by the Ministry of Finance, the Group

did not set aside bad debt provisions for loan interest receivable. If loan interest receivable or the corresponding

loan principal is 90 days overdue, interest receivable shall be recorded off balance sheet to offset interest income

during the same period. For other receivables confirmed to be unrecoverable, the Group set aside bad debt

provisions using the specific identification method.

(Unit: RMB1,000)

Item


31 December

2018

31 December

2017

Increase/

decrease

31 December

2018

31 December

2017

Increase/

decrease

Other

receivables 1,353,664 244,526 1,109,138 1,352,828 243,134 1,109,694

Bad debt

provisions 4,368 992 3,376 4,368 992 3,376

xi. Balances and risk management of major off-balance-sheet items

Off-balance-sheet items of the Bank are incorporated in the Bank’s unified credits to the customers and deemed to

be on-balance-sheet items for management. They must conform to management procedures and requirements

including due diligence, examination, approval, contract execution, disbursement, post-disbursement and guarantee

or collateralization. For each type of off-balance-sheet items, dedicated management policies have been placed with

specified regulatory requirements. In addition to the “three investigations” into the authenticity of trade background,

the Bank maintained a reasonable level of margin ratios by applying percentage and limit management to

off-balance-sheet exposures.

As at the end of the reporting period, the balances of the Bank’s major off-balance-sheet items were as follows:

(Unit: RMB1,000)


40


Item 31 December 2018 31 December 2017 31 December 2016

Bank acceptance bills 16,233,495 18,464,131 17,730,375

Letters of guarantee 1,562,158 1,234,268 869,849

Letters of credit 2,836,565 1,530,073 346,367

III. Risk Exposures and Countermeasures of the Bank

i. Credit risk

Credit risk means the risk of economic losses caused to the creditor or financial instrument holder as a result of the

debtor or counterparty failing to perform contract or due to changes in credit quality, which affects the value of

financial products. The Bank’s on and off-balance-sheet credit assets and non-credit assets with counterparties are

all exposed to credit risk. During the reporting period, the Bank took the following measures to control credit risk:

1. The Bank tightened credit orientation and improved credit customer structure. The Bank formulated the 2018

Credit Orientation Policy and Guideline of Hankou Bank, effectively implemented regulatory requirements, fought

the three critical battles with strong resolve, stepped up support for the real economy, pursued continuous

improvements in the Bank’s credit structure and achieved high-quality development of the Bank’s credit business.

It gave priority to support industries related to national economy and people's livelihood, strategic emerging

industries, less procyclical industries such as education and health care, green financial industry, modern logistics,

cultural industry, modern tourism and modern agriculture; it extended prudent support for the construction industry,

real estate industry, etc.; it gradually reduced the lending to industries featuring extensive energy consumption,

heavy pollution and excess capacity; and it strictly controlled the credit exposures to steel, cement, electrolytic

aluminum, shipbuilding, flat glass, paper-making and coal chemical industries.

2. The Bank stepped up its policy guidance for credit review and review. It established the 2018 Guidance of

Hankou Bank on Review of Corporate Credit Grants, implemented the principle of differentiated treatment

(increasing or decreasing) based on the customers' actual conditions; it strictly followed the principle of

“unification, appropriateness and early warning” to carry out credit extension to and credit management of group

customers; and it strengthened cash flow management and strictly managed “naked loans” in accordance with

credit management requirements to improve credit review quality and efficiency.

3. The Bank stressed early warning against credit risk. It embedded the credit work supervision and processing flow

into the credit risk pre-warning and management information system so that valid warming signals could be

forwarded automatically to the credit business handlers, a move that enabled credit granting, disbursement and

other links to be put under joint management.

4. The Bank evaluated the quality of credit assets more frequently. During the reporting period, the Bank stepped

up its monitoring and inspection of credit asset risks and evaluated the quality of credit assets every month; it

classified credit assets into five tiers and 12 grades so as to timely and accurately understand the risk status of credit

assets. The Bank regularly classified its non-credit risk assets, and timely classified, regularly monitored and

effectively managed all risk assets.


41

ii. Market risk

Market risk means the risk of potential loss on future earnings or cash flows arising from changes in the value of

financial instruments due to movements of market prices (interest rate, exchange rate, stock price and commodity

price, etc.). The market risk exposure of the Bank is mainly divided into interest rate risk and exchange rate risk.

The Bank has separated the front, middle and back offices of treasury operation and established a mutual check and

restraint mechanism by manual prevention and machine-based control. Risk measurement level was enhanced,

market risk capital occupancy was regularly calculated, monitoring functions were improved, the reporting

mechanism was standardized and the market risk profile was reported regularly.

1. Interest rate risk

With regard to the interest rate risk in the trading book, the Bank monitored market risk limits on a daily basis

mainly through the treasury operation management system, conducted market value reassessment and VaR

measurement over the trading book and gradually strengthened combined operations and interest rate risk control

for the trading book using such parameters as maturity, convexity and basis point value, having regard to the

market environment.

The banking book market risk mainly arises from the mismatch of agreed-upon maturity date and re-pricing date

between interest-generating assets and interest-bearing liabilities. The Bank regularly monitored re-pricing maturity

gaps of assets and liabilities sensitive to interest rates using gap analysis and other methods and effectively

managed banking book interest rate risk by using FTP to actively adjust the percentages of short-term and

long-term, variable-rate and fixed-rate assets and liabilities.

2. Exchange rate risk

The Bank’s foreign currency assets represent a small part of total assets. Foreign exchange exposures are mainly

denominated in US dollars. The exchange rate risk the Bank takes mainly arises from price movements of foreign

exchange in stock and foreign exchange trading. The Bank reasonably controlled foreign exchange exposure

position to the extent permitted by policies according to its risk appetite and operation level and strictly controlled

exchange rate risk by proactively adjusting the mix of foreign currencies and the structure of assets and liabilities in

line with market conditions.

iii. Operational risk

Operational risk is defined as the risk that causes losses through imperfect or faulty internal procedures, employees

and IT systems, as well as external events. The Bank took the prevention and control of operational risk as an

important part of daily operations. Through performing uninterrupted and cyclical inspections across the Bank,

addressing both the symptoms and root causes, combining punishment and prevention, the Bank was able to

identify and rectify various types of violations and non-compliances, thereby improving the policies and processes,

ameliorating internal controls and ensuring the continuous reasonable and steady development of all businesses.

During the reporting period, the Bank took the following key measures to control operational risk: First, the Bank

implemented the 72 special inspection plans of the Head Office’s departments and 25 self-inspection plans of

branches and sub-branches for internal control and case prevention formulated at the beginning of the year. Second,

the Bank organized internal control and case prevention inspections over branches and sub-branches, with a focus

on urging the heads of outlets to fulfill the “Ten Musts” for case prevention. Third, the Bank organized screening of


42

unusual employee behaviors, applied list-based management to employees with unusual behaviors and maintained

ongoing follow-up investigation and took effective management measures.

iv. Compliance risk

Compliance risk refers to the risk of exposing a commercial bank to legal punishment, regulatory penalty, material

financial loss and reputation damage due to the failure to comply with laws, regulations and rules. During the

reporting period, the Bank took the following measures to control compliance risk:

1. Further efforts were made to build the compliance culture Annual compliance education was focused on internal

control and case prevention policies and procedures, “dos and don’ts” and typical cases. The Internal Control and

Compliance Management Column” was remodeled to encourage employees to share their compliance ideas and

compliance management practices, thereby serving as a battlefield for compliance culture building and showcasing

the Bank’s compliance performance. All employees’ awareness of compliance was boosted continuously through

compliance education exams, “Compliance Knowledge Forum” training, solicitation of compliance writings and

shooting of compliance mini-films.

2. Internal control policies and procedures were improved continuously. The Bank formulated an annual plan for

policies and procedures in accordance with new regulations and its own development plan and business

development needs, reviewed and improved the existing policies and procedures comprehensively. The Bank

continued to fortify the foundation for internal control management taking opportunity of the “Month of Internal

Control and Compliance Policy Improvements” campaign organized by regulators.

3. The AML work mechanism was run effectively. The Bank made continuous improvements in the AML work

system, implemented the full-scale reform for central AML processing and improved the AML work quality.

Intensive AML inspections were conducted to urge timely correction of problems. AML business raining was

strengthened to boost all employees’ awareness of AML responsibility and capability of preventing and controlling

money laundering risks in day-to-day work.

v. Liquidity risk

Liquidity risk means the risk that occurs when a commercial bank cannot obtain sufficient funds in time at a

reasonable cost, to repay matured debts, perform other payment obligations and meet the other fund needs for

normal business operation. It requires commercial banks must hold certain current assets or have smooth fund

borrowing channels. Main factors that may have an effect on the liquidity risk of the Bank include radical changes

in domestic and overseas interest rates, difficult access to financing in the money market, substantial drop in

deposits and non-recovery of matured loan.

The Bank has in place a governance structure fit for its objectives of liquidity risk management. Specifically, the

Bank maintains a decision-making system composed of the Board of Directors and its special committees, the

senior management and the Asset and Liability Committee; the Planning and Finance Department takes overall

charge of liquidity management. The Financial Market Department, branches and sub-branches are implementing

bodies for day-to-day liquidity management; the Board of Supervisors, the Risk Management Department, the

Internal Control & Compliance Department and the Audit Department together constitute an internal supervision

system; the Operation Department and the Information Technology Department are supporting departments.

Under the principle of prudence and its liquidity risk policy and management objectives, the Bank strikes a

dynamic balance in yield of funds and liquidity needs from time to time according to changes in market liquidity


43

demands at home and abroad. During the reporting period, the Bank’s liquidity status was good, liquidity indicators

outperformed regulatory requirements, main indicators showed better performance than one year earlier and

liquidity management kept improving.

The Bank mainly took the following measures: First, risks were monitored and reported. The Bank improved the

work management mechanism for liquidity gap and stratification analysis, researched, developed and optimized

relevant statistical analysis reports on management and monitoring and managed to increase the efficiency and

precision of monitoring. The liquidity analysis reports were submitted regularly to regulators and the senior

management of the Bank, with timely adjustments made to the liquidity risk management strategy. Second, limit

management was implemented. A system of liquidity risk limit indicators covering regulatory, monitoring and

internal management dimensions was established based on the Bank’s liquidity risk appetite and risk policy. Third,

the liquidity management was strengthened proactively. The Bank strengthened the management of inter-bank

clearing deposits, applied actively for on-lending supporting small enterprises and organized bidding for national

and provincial treasury time deposits to expand the stable sources of liquidity. The Bank strengthened market

analysis, dynamically adjusted the Bank’s investment and financing plans, effectively tackled the liquidity impact

of the macro monetary policy, point-of-time factors and seasonal factors and properly controlled the progress and

structure of financing. The Bank improved the internal fund transfer pricing mechanism and took the initiative in

adjusting the structure of assets and liabilities to reduce the risk of maturity mismatches. Fourth, emergency

management of risks was carried out. The Bank step up the reserve pooling of high-quality liquid assets, conducted

emergence drills on liquidity risk, actively utilized the central bank’s liquidity management tools and the mutual

liquidity aid alliance’s liquidity support, comprehensively reviewed the models and scenarios for liquidity risk

stress testing, introduced multi-scenario stress testing and enhanced the Bank’s capability of liquidity management

under complex stress scenarios.

vi. Reputational risk

Reputational risk is the risk of negative comments made on a commercial bank by its stakeholders due to any

operating, managerial or external events of the commercial bank. The Bank attached great importance to

reputational risk management and strengthened employee education on compliance management. It reinforced the

reputational risk management mechanism and took solid actions to address the root causes of potential risks. It

strengthened collaboration in prevention of public opinion crisis, took the initiative in screening risk areas and

reduced potential reputational risks. It organized fruitful professional training. It implemented a routine public

opinion monitoring process, continued to step up positive publicity using modern multimedia techniques, cemented

the good long-term partnership with the media and created good atmosphere for the high-quality development of

the Bank. No material reputational risk events took place during the reporting period.

IV. Changes in the Business Environment and Macro Policies, Laws and

Regulations and Influences thereof

i. Influence of macro control

In 2018, the global economy continued to grow mildly with slowing momentum. The US economy manifested

stronger performance than market expectations and increasingly higher capacity utilization. Eurozone economy

kept growing steadily, led by German and France as main engines. The Japanese economy was still expanding.


44

India showed strong economic growth. Russia, Brazil and other major exporters of energy resources remained in an

economic recovery. As no major breakthroughs have been made in the ongoing round of technological revolution

and industrial revolution, major economies have grown to their fullest potential. Moreover, the rise of protectionism

has weakened the performance in international trade and cross-border investment.

In 2018, in the context of complicated international environment and formidable domestic tasks for reform,

development and stability, China pursued the general principle of seeking progress while keeping performance

stable. It endeavored to innovate and improve macroeconomic regulation, continued to take the supply-side

structural reform as the principal task, adhered to new development concepts, vigorously promoted reform and

opening-up, fostered new growth drivers and maintained the economy in a reasonable range. China made a good

start in preventing and addressing major risks, reducing and eliminating poverty in a targeted way, and preventing

and controlling pollution. The macro-economy maintained medium-to-high growth overall as expected. The

Chinese economy showcased further improvements in growth quality and efficiency, continued shift from old to

new growth drivers, accelerated upgrading of economic structure and marked boost in the overall capacity and

efficiency of innovation. China further improved its opening-up landscape, delivered remarkable achievements in

ecological conservation and gained stronger growth momentum.

ii. Influence of reform in financial supervision

Since the breakout of the global financial crisis, banking regulators of different countries have carried out a large

number of reform measures, introduced more stringent regulatory standards in capital, leverage ratio, liquidity and

other fields. Similarly, the Chinese financial sector has also taken on a tendency of “strict and strong supervision”.

In 2018, the State Council established its new session of the Financial Stability and Development Committee. The

China Banking and Insurance Regulatory Commission was inaugurated. Financial regulators emphasized

comprehensive supervision, optimized the allocation of regulatory resources and improved the coordinated

supervision of important financial institutions. Financial regulators worked to address such problems as ambiguous

regulatory duties, cross-supervision and regulatory loopholes, strove to build a strong, effective modern financial

regulatory framework aligned with modern financial characteristics and featuring coordinated supervision and

managed to forestall systemic financial risks. In general, financial regulation was still stringent and tight, with a

series of “strong regulation” measures implemented on an ongoing basis. The prevention of risks has achieved

positive results, and the capabilities of finance to serve the real economy have been continuously enhanced.

V. Outlook

i. Industry development pattern and trend

China’s macro-economy has entered a “new normal” now featuring deepening of reform, structural adjustments

and higher quality and efficiency. As an important part of China’s financial system, the banking sector has made

steady improvements in assets and profitability, giving a significant boost to the economic growth of China.

Against the backdrop of slowing economic growth and accelerating financial reforms, China will show the

following trends in banking development and reform:

First, the commercial banking regulatory system will continue to improve. CBIRC will continue to improve its

supervisory philosophy, strengthen its supervisory skills and diversify its supervision tools to effectively forestall

systemic risks and safeguard soundness of the financial system.


45

Second, retail banking will grow rapidly. The personal demand for financial products will continue to be brought

out by rising household income, consumption structure upgrades and consumption model transformation. The

demand for personal credit products and non-interest-income products and services will expand fast.

Third, financial services for small and micro enterprises will become an important driver of growth. The banking

regulators have issued a series of policy measures encouraging commercial banks to increase credit support for

small and micro enterprises. On the other hand, as small and micro businesses grow fast, the demand for financing

keeps expanding. Financial services for small and micro enterprises have become a field no bank can afford to

ignore.

Fourth, Internet finance will grow rapidly. Internet finance products have penetrated into general everyday life,

posing a strong cross-sector competition with conventional commercial banks. In the future, the in-depth

integration of Internet technology and finance will become a major trend in China’s banking sector.

Fifth, the income structure will continue to diversify. As commercial banks’ intermediate business pricing models

are becoming increasingly market-based and banks offer an expanding range of products and services, fee-based

income will become a new driver of banks’ profit growth. It will help improve the structure and stability of banks’

income.

ii. Possible external risks in future operation

The external risks faced by the Bank in its future operation will mainly come from the changes in economic

situation and financial policy. The acceleration of interest rate liberalization, slowdown of domestic and foreign

economic growth, uncertainty over US-China trade frictions, deepening of supply-side reform, tightening of capital

supervision, fierce horizontal competition and rapid rise of internet finance will have an impact on commercial

banks’ operating pattern and profitability.

iii. Challenges and opportunities in future operation

In the foreseeable future, the domestic and overseas situations will remain complicated and economic development

and restructuring will face challenges. The quality and profitability of banking assets will remain under pressure in

the short term.

First, the risks continue to emerge in some sectors, likely to increase credit risk. Second, banks might see their

interest spread and interest margin further narrowing. Third, market competition will intensify as Internet finance,

mixed operation and other new forms of business are mushrooming.

Challenges are accompanied by opportunities. First, the State requires banks to return to their founding mission,

suggesting massive opportunities in the real economy financing chains. Second, FinTech application is going

broader and deeper, helping the Bank realize targeted marketing, fine-grained management, professional operation

and effective risk control with higher quality and efficiency. Third, service areas are economically growing fast,

national policies such as the Wuhan Metropolitan Area interact positively with each other and Hubei Province and

Chongqing show stronger economic growth than national average.

iv. Operating plan

1. Business development guidelines for 2019

Under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, we will


46

thoroughly implement the spirits of the 19th CPC National Congress, the second and third plenary sessions of the

19th CPC Central Committee, the central, provincial and municipal economic working conferences and the

regulators' annual working conferences, adhere to the guiding principle of pursuing progress while ensuring

stability, stay on the track of development led by Party building, focus on serving the real economy and the

supply-side structural reform, take leading peers as benchmark, work hard on “transformation, quality and

compliance”, make all-round and solid efforts on high-quality development of the Bank and deliver outstanding

operation results and management performance in celebration of the 70th anniversary of founding of the new China.

2. Major operating targets for 2019

(1) Asset and liability indicators

Total assets are expected to increase by RMB32.5 billion or 10.22% from the beginning of the year to RMB351

billion. Of them, the balance of loans will reach RMB154.6 billion, up RMB18 billion or 13.18%.

Total liabilities are expected to increase by RMB30.9 billion or 10.34% from the beginning of the year to

RMB329.4 billion. Of them, the balance of loans will reach RMB223.1 billion, up RMB22 billion or 10.96%.

(2) Asset quality indicators

NPL ratio will be controlled within 1.8% at the end of 2019 and the provision coverage ratio will exceed 180%.

(3) Financial result indicator

Net profit after tax will reach RMB2.152 billion, a year-on-year increase of RMB250 million or 13.13%.

(4) Capital adequacy indicator

Capital adequacy ratio will remain above 12% at the end of 2019.

3. Major working measures for 2019

(1) Deepen transformation of the development model

The Bank will unswervingly strive for a stronger “mega legal person”. The Bank will cement and boost retail

banking, consolidate asset and liability businesses, enhance tiered services and increase the productivity of

community banking outlets. The Bank will create a multi-channel product support system, establish an “online +

offline” integrated product system, adjust the structure of some products and expand the Internet finance product

line. A diverse external cooperation platform will be built. The Bank will make explorations for advanced credit

management models, move credit management to earlier stages, step up market research, implement “open review”,

endeavor to create a credit enhancement mechanism and explore to create a scientific credit approval system of the

Bank.

(2) Boost profitability

The Bank will underscore the strategic position of intermediate business in the Bank’s transformation. The Bank

will make breakthroughs in expanding sources of fee-based income from transactional banking, bond underwriting

and distribution, agency services and wealth management and work hard on product innovation. The Bank will

increase the contribution of financial market business, tap deep into the bills business and boost the pricing capacity.

With the aim of increasing interest rate spread and narrowing the gap with peers, the Bank will dynamically

determine deposit rates in line with the lending rate hikes and keep improving The Bank also will strengthen


47

non-credit asset management and deepen cost management.

(3) Step up development of the comprehensive risk management system

The Bank will deepen the battle for quality to ensure the quality of credit assets keep improving. The Bank will

deepen the battle for compliance and exert every effort to improve the quality of compliance management. The

Bank will enhance the compliance philosophy, improve the quality of compliance management, make active

explorations for compliance culture and establish a management mechanism for routine assessment of internal

control and compliance policies and procedures. The Bank will step up development of the comprehensive risk

management system. The Bank will introduce advanced ideas, cutting-edge methods and forward-looking

techniques for comprehensive risk management to step up comprehensive risk prevention and control and make

explorations for reform in the audit management system. The Bank will carry out case-based warning and

education campaigns effectively. The Bank will intensify accountability and improve relevant rules.

(4) Promotion coordinated regional development

The Bank will formulate a three-year action plan for coordinated regional development. The Bank will strengthen

coordinated regional planning for outlets and boost the quality of institutional management to a higher standard.

The Bank will issue administrative measures for improving the service functions of outlets and launch the “Outlet

Enhancement Program”. The Bank will explore graded management of outlets to boost the grades of existing

outlets. Based on graded management, the Bank will carry out classified management according to scale indicators,

development speed and other factors, which are linked to such resources as number of posts and performance pay.

(5) Unleash the leading role of FinTech

The Bank will accelerate development of the FinTech system. The Bank will streamline the decision-making and

organizational relations the Strategy Committee of the Board of Directors and the senior management’s Information

Technology Committee, the Business Development and Innovation Committee and the Financial Review

Committee to foster synergies in work. The Bank will set up the Data Governance Committee, formulate a

bank-wide data governance strategy and set up a data governance system. Solid progress will be made in FinTech

planning. The Bank will incorporate FinTech in its overall strategic plan, formulate an industry-leading FinTech

development plan and make solid progress in its implementation. FinTech investment will be increased.

(6) Lay a solid foundation for operation

Security support for operation will be improved in every respect. Under the fundamental principle of “consolidating

processes, streamlining steps”, the Bank will comprehensively review and improve business handling and approval

processes for all business lines and enhance the quality and efficiency of serving customers, outlets and employees

in every respect. A diverse brand landscape will be built. The Bank will enhance and promote the brand value,

boost the influence of outlet service brands and further vitalize mass group brands. The Bank will fully explore

advanced corporate culture. The Bank will integrate the innovation-centered development culture, prudent credit

culture, fine-grained management-based compliance culture and people-oriented humanistic culture to form a

bank-wide corporate culture system, and make explorations for a modern financial corporation management culture

with distinctive Hankou Bank characteristics.


48

VI. Work of the Board of Directors during the Reporting Period

i. Meetings of the Board of Directors and resolutions during the reporting period

The Board of Directors held 10 meetings in 2018.

1. The 20th Meeting of the Fifth Board of Directors of the Bank was held on 29 January 2018 in a live and

tele-conference form. Of the eight directors supposed to attend the meeting, five directors were present in person,

and the other three attended by proxy. Supervisors and senior executives of the Bank were also present as

non-voting delegates. The following proposals were reviewed and approved at the meeting:

(1) Proposal on the Application by Wuhan Credit Risk Management Co., Ltd. for Pledging the Bank’s Shares;

(2) Proposal on Formulating the Risk Appetite Management Measures of Hankou Bank;

(3) Proposal on Formulating the Concentration Risk Management Measures of Hankou Bank;

(4) Proposal on Formulating the Management Measures on Identification and Assessment of Main Risks of Hankou

Bank;

(5) Proposal on Formulating the Comprehensive Risk Management Policy of Hankou Bank;

(6) Proposal on Amendments to the Stress Testing Management Measures of Hankou Bank Co., Ltd.;

2. The 21st Meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 13 April 2018. Of the

nine directors supposed to attend the meeting, seven directors were present in person, and the other two attended by

proxy. Supervisors and senior executives of the Bank were also present as non-voting delegates. The following

proposals were reviewed and approved at the meeting:

(1) Proposal on the 2017 Work Report of the Board of Directors of Hankou Bank Co., Ltd.;

(2) Proposal on the 2017 Work Report of the President of Hankou Bank Co., Ltd.;

(3) Proposal on the 2017 Annual Report and Summary of Hankou Bank Co., Ltd.;

(4) Proposal on the 2017 Final Accounts and 2018 Financial Budget of Hankou Bank Co., Ltd.;

(5) Proposal on the 2017 Profit Distribution Plan of Hankou Bank Co., Ltd.;

(6) Proposal on the 2018 Operating Plan of Hankou Bank Co., Ltd.;

(7) Proposal on the Engagement of the Accounting Firm for Hankou Bank Co., Ltd. in 2018;

(8) Proposal on the 2017 Comprehensive Risk Management Report of Hankou Bank Co., Ltd.;

(9) Proposal on Amendments to Basic Standards for Internal Control of Hankou Bank Co., Ltd.;


(11) Proposal on 2017 IT Risk Management Report of Hankou Bank Co., Ltd.;

(12) Proposal on Granting of Credit to Wuhan Financial Holdings (Group) Co., Ltd. by Hankou Bank Co., Ltd.;

(13) Proposal on Anticipated Limits of Routine Transactions with Selected Related Parties of Hankou Bank Co.,

Ltd. in 2018;

(14) Proposal on the Special Report on the Management of Related Party Transactions of Hankou Bank Co., Ltd. in

2017;

(15) Proposal on the 2018 Risk Appetite Statement of Hankou Bank Co., Ltd.;

(16) Proposal on the 2017 Internal Control Self-assessment Report of Hankou Bank Co., Ltd.;

(17) Proposal on the 2017 Internal Audit Work Report of Hankou Bank Co., Ltd.;

(18) Proposal on the 2018 Internal Audit Plan of Hankou Bank Co., Ltd.;

(19) Proposal on Amendments to the Capital Management Measures of Hankou Bank Co., Ltd.;

(20) Proposal on Formulating the Banking-book Interest Rate Risk Management Policy of Hankou Bank Co., Ltd.;


49

(21) Proposal on the 2017 Internal Capital Adequacy Assessment Report of Hankou Bank Co., Ltd.;

(22) Proposal on the 2018 Capital Management Plan of Hankou Bank Co., Ltd.;

(23) Proposal on Formulating the Country Risk Management Policy of Hankou Bank Co., Ltd.;

(24) Proposal on Formulating the Capital Contingency Plan of Hankou Bank Co., Ltd.;

(25) Proposal on the 2017 Capital Adequacy Ratio Report of Hankou Bank Co., Ltd.;

(26) Proposal on the 2018 Institutional Development Plan of Hankou Bank Co., Ltd.;

(27) Proposal on the 2017 Director Duty Performance Assessment Report of Hankou Bank Co., Ltd.;

(28) Proposal on the Performance-based Remuneration Allocation of Senior Executives of Hankou Bank Co., Ltd.

in 2017;

(29) Proposal on the 2017 Social Responsibility Report of Hankou Bank Co., Ltd.

The following reports were debriefed:

(1) Report on Adjusting Identified Related Parties of Hankou Bank Co., Ltd.;

(2) Report of Hankou Bank Co., Ltd. on Changes in Shareholders’ Equity in 2017;

(3) Report on the Implementation of the 2016-2018 Strategic Development Plan of Hankou Bank Co., Ltd.;

(4) Report on the Program of Hankou Bank Co., Ltd. on Implementing the Strategic Plan in 2018;

(5) Report on Consumer Protection Work by Hankou Bank Co., Ltd. in 2017;

(6) Report on the Management of Assets & Liabilities by Hankou Bank Co., Ltd. in 2017;

(7) Report on Implementation of the Capital Adequacy Assessment and Third Pillar Disclosure Consulting Project

of Hankou Bank Co., Ltd.

3. The 22nd Meeting of the Fifth Board of Directors of the Bank was held in an offsite form on 16 May 2018. All of

the eight directors supposed to attend the meeting were present in person. The Proposal on the Application of

Wuhan Dongchuang Investment & Guarantee Co., Ltd. for Pledge of Shares in the Bank was reviewed and

approved at the meeting.

4. The 23rd Meeting of the Fifth Board of Directors of the Bank was held in an offsite form on 5 June 2018. All of

the nine directors supposed to attend the meeting were present in person. The Proposal on Holding the 2017 Annual

General Meeting of Hankou Bank Co., Ltd. was reviewed and approved and the Report on Retirement of Li Ling

was heard at the meeting.

5. The 24th Meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 6 July 2018. Of the

nine directors supposed to attend the meeting, seven directors were present in person, and the other two attended by

proxy. Supervisors and senior executives of the Bank attended meetings as non-voting delegates. They reviewed

and approved the proposal on removing Xu Xin from the office of Assistant President and heard the following

reports: Report on Adjusting Identified Related Parties of Hankou Bank Co., Ltd., and Proposal on the Capital

Adequacy Ratio Disclosure Report of Hankou Bank Co., Ltd. for the First Quarter of 2018.

6. The 25th Meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 26 September 2018.

Of the nine directors supposed to attend the meeting, seven directors were present in person, and the other two

attended by proxy. Supervisors and senior executives of the Bank were also present as non-voting delegates. The

following proposals were reviewed and approved at the meeting:

(1) Proposal on Batch Transfer and Write-off of Non-performing Loans of Hankou Bank Co., Ltd. in 2018;

(2) Proposal on Related Party Transactions between Lenovo Mobile Inc and Hankou Bank Co., Ltd.;

(3) Proposal on Related Party Transactions between Motorola (Wuhan) Mobile Technology Communication Co.,

Ltd. and Hankou Bank Co., Ltd.;


50

(4) Proposal on Related Party Transactions between Wuhan Jinkong New-Energy Vehicle Lease Co., Ltd. and

Hankou Bank Co., Ltd.;

(5) Proposal on Related Party Transaction between Wuhan Trade State-owned Holding Group Co., Ltd. and


(6) Proposal on Related Party Transactions between Humanwell Healthcare Group Corporation and Hankou Bank

Co., Ltd.;

(7) Proposal on the 2018H1 Comprehensive Risk Management Report of Hankou Bank Co., Ltd.;

(8) Proposal on the 2018H1 Case Prevention Report of Hankou Bank Co., Ltd.;

(9) Proposal on the Anti-money Laundering Management Reform Report of Hankou Bank Co., Ltd.



(2) Report on the Three-year Action Plan for Comprehensive Risk Management of Hankou Bank Co., Ltd.

(2018-2020);

(3) Report on the Action Plan for the FinTech “Hundred, Thousand and Ten Thousand” Program of Hankou Bank

Co., Ltd.;

(4) Report on the 2018H1 Management of Assets & Liabilities of Hankou Bank Co., Ltd.;

(5) Audit Report on Departure of Vice President Li Ling of Hankou Bank Co., Ltd.;

(6) Special Audit Report on the Liquidity Risk Management of Hankou Bank Co., Ltd.;

(7) Proposal on the Capital Adequacy Ratio Disclosure Report of Hankou Bank Co., Ltd. for the First Half of 2018;

(8) Notice of Onsite Corporate Governance Examination Opinions of Hubei CBRC Office.

7. The 26th Meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 23 November 2018.

Of the nine directors supposed to attend the meeting, seven directors were present in person, and the other two



(1) Proposal on Replacement of Some Directors;

(2) Proposal on Re-engaging Xu Jinming to be Vice President of Hankou Bank Co., Ltd.;

(3) Proposal on Amendments to the Articles of Association of Hankou Bank Co., Ltd.;

(4) Proposal on Amendments to the Equity Management Measures of Hankou Bank Co., Ltd.;

(5) Proposal on Amendments to the Management Measures on Related Party Transactions of Hankou Bank Co.,

Ltd.;

(6) Proposal on Delegation of Authority to President by the Board of Directors of Hankou Bank Co., Ltd. in 2018;

(7) Proposal on Holding the First Extraordinary General Meeting of Hankou Bank Co., Ltd. in 2018.

8. The 27th meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 4 December 2018. All

of the seven directors supposed to attend the meeting were present in person. The Proposal on Chairman Chen

Xinmin Acting as President Concurrently was reviewed and approved, and the Report on Retirement of Vice

Chairman, Executive Director and President ZhuYongtong was heard at the meeting.

9. The 28th Meeting of the Fifth Board of Directors of the Bank was held in an onsite form on 24 December 2018.

Of the six directors supposed to attend the meeting, five directors were present in person, and the other one



(1) Proposal on Write-off of Loans to 87 Borrowers including Hubei Xingyu Garment Liability Co., Ltd.;

(2) Proposal on the Application by Good First Group Co., Ltd. for Pledging the Bank’s Shares.


51


(1) Special Audit Report on the Anti-Money Laundering Management of Hankou Bank Co., Ltd.;

(2) Special Audit Report on the Remuneration Management of Hankou Bank Co., Ltd.;

(3) Report on Onsite Corporate Governance Examination Opinions of Hubei CBRC Office and Corrective Actions;

(4) Report on Onsite Market Irregularities Examination Opinions of Hubei CBRC Office and Corrective Actions;

(5) Report on Onsite Examination Opinions of Hubei CBRC Office on Credits to Big Client Hubei United

Investment Group Co., Ltd. and Its Member Entities and Corrective Actions;

(6) Report on Onsite Examination Opinions of Hubei CBRC Office on Sales Activity on Business Premises and

Corrective Actions.

10. The 29th Meeting of the Fifth Board of Directors of the Bank was held on 29 December 2018 in a live and

tele-conference form. Of the six directors supposed to attend the meeting, six directors were present in person.

Supervisors and senior executives of the Bank were also present as non-voting delegates. The following proposals

were reviewed and approved at the meeting:

(1) Proposal on Exemption of Time Limit on Notification of the 29th Meeting of the Fifth Board of Directors;

(2) Proposal on Nominating Chen Xinmin as Candidate for Executive Director of the Sixth Board of Directors of


(3) Proposal on Nominating Ruan Xuzhou as Candidate for Executive Director of the Sixth Board of Directors of


(4) Proposal on Nominating Zhou Min as Candidate for Shareholder Director of the Sixth Board of Directors of


(5) Proposal on Nominating Wen Fu as Candidate for Shareholder Director of the Sixth Board of Directors of


(6) Proposal on Nominating Yao Ke as Candidate for Shareholder Director of the Sixth Board of Directors of


(7) Proposal on Nominating Shao Bo as Candidate for Shareholder Director of the Sixth Board of Directors of


(8) Proposal on Nominating Guo Li as Candidate for Independent Director of the Sixth Board of Directors of


(9) Proposal on Nominating Hou Chengqi as Candidate for Independent Director of the Sixth Board of Directors of


(10) Proposal on Nominating Zhang Yabing as Candidate for Independent Director of the Sixth Board of Directors

of Hankou Bank Co., Ltd.;

(11) Proposal on Nominating Wu Bin as Candidate for Independent Director of the Sixth Board of Directors of


(12) Proposal on Acquisition of Shares of the Bank by Wuhan Financial Holdings (Group) Co., Ltd.

(13) Proposal on Holding the First Extraordinary General Meeting of Hankou Bank Co., Ltd. in 2019.

ii. Implementation of the resolutions of Shareholders’ General Meeting by the Board of

Directors

The Bank held two general meetings in 2018.

1. The Bank held the 2017 Annual General Meeting on 26 June 2018 and reviewed and approved the following

proposals:


52

(1) Proposal on the 2017 Work Report of the Board of Directors of Hankou Bank Co., Ltd.;

(2) Proposal on the 2017 Work Report of the Board of Supervisors of Hankou Bank Co., Ltd.;





(7) Proposal on Anticipated Limits of Routine Transactions with Selected Related Parties of Hankou Bank Co., Ltd.

in 2018.

All resolutions made at this general meeting have been fully implemented.

2. The Bank held the 2018 First Extraordinary General Meeting on 10 December 2018 which reviewed and

approved the following proposals:

(1) Proposal on Changes in Some Directors;

(2) Proposal on Amendments to the Articles of Association of Hankou Bank Co., Ltd.;

(3) Proposal on Amendments to the Equity Management Measures of Hankou Bank Co., Ltd.;


Ltd.

All resolutions made at this general meeting have been fully implemented.

iii. Performance of duties by the special committees of the Board of Directors

Strategy Committee

The Strategy Committee held one meeting in 2018:

1. The Strategy Committee of the Fifth Board of Directors held its 12th meeting on 13 April 2018, and reviewed and


(1) Proposal on the 2018 Operating Plan of Hankou Bank Co., Ltd.;

(2) Proposal on the 2018 Institutional Development Plan of Hankou Bank Co., Ltd.


(1) Report on the Implementation of the 2016-2018 Strategic Development Plan of Hankou Bank Co., Ltd.;

(2) Report on the Program of Hankou Bank Co., Ltd. on Implementing the Strategic Plan in 2018;

(3) Report on Consumer Protection Work by Hankou Bank Co., Ltd. in 2017.

Audit Committee

The Audit Committee held three meetings in 2018:

1. The Audit Committee of the Fifth Board of Directors held its 13th meeting on 13 April 2018, and reviewed and







(6) Proposal on the 2018 Internal Audit Plan of Hankou Bank Co., Ltd.

2. The Audit Committee of the Fifth Board of Directors held its 14th meeting on 26 September 2018 and heard the


53

following reports:


(2) Special Audit Report on the Liquidity Risk Management of Hankou Bank Co., Ltd.

3. The Audit Committee of the Fifth Board of Directors held its 15th meeting on 24 December 2018 and heard the

following reports:


(2) Special Audit Report on the Remuneration Management of Hankou Bank Co., Ltd.

Risk and Related Party Transactions Control Committee

The Risk and Related Party Transactions Control Committee held six meetings in 2018:

1. The Risk and Related Party Transactions Control Committee of the Fifth Board of Directors held its 12th meeting

on 29 January 2018 and reviewed and approved the following proposals:



(3) Proposal on Formulating the Management Measures on Identification and Assessment of Main Risks of Hankou

Bank;




on 13 April 2018, and reviewed and approved the following proposals:





(5) Proposal on Adjusting Identified Related Parties of Hankou Bank Co., Ltd.;

(6) Proposal on Granting of Credit to Wuhan Financial Holdings (Group) Co., Ltd. by Hankou Bank Co., Ltd.;

(7) Proposal on Anticipated Limits of Routine Transactions with Selected Related Parties of Hankou Bank Co., Ltd.

in 2018;

(8) Proposal on the Special Report on the Management of Related Party Transactions of Hankou Bank Co., Ltd. in

2017;







(15) Proposal on Formulating the Strategic Risk Management Policy of Hankou Bank Co., Ltd.;


(17) Proposal on the 2017 Capital Adequacy Ratio Report of Hankou Bank Co., Ltd.





54



on 6 July 2018, and reviewed and approved the Proposal on Adjusting Identified Related Parties of Hankou Bank

Co., Ltd.


on 26 September 2018 and reviewed and approved the following proposals:


(2) Proposal on Related Party Transactions between Lenovo Mobile Inc and Hankou Bank Co., Ltd.;

(3) Proposal on Related Party Transactions between Motorola (Wuhan) Mobile Technology Communication Co.,

Ltd. and Hankou Bank Co., Ltd.;

(4) Proposal on Related Party Transactions between Wuhan Jinkong New-Energy Vehicle Lease Co., Ltd. and


(5) Proposal on Related Party Transaction between Wuhan Trade State-owned Holding Group Co., Ltd. and


(6) Proposal on Related Party Transactions between Humanwell Healthcare Group Corporation and Hankou Bank

Co., Ltd.;

(7) Proposal on Adjusting Identified Related Parties of Hankou Bank Co., Ltd.;






(2018-2020);

(2) Report on the 2018H1 Management of Assets & Liabilities of Hankou Bank Co., Ltd.


on 23 November 2018 and reviewed and approved the following proposals:


Ltd.;

(2) Proposal on Delegation of Authority to President by the Board of Directors of Hankou Bank Co., Ltd. in 2018;

(3) Proposal on Adjusting Identified Related Parties of Hankou Bank Co., Ltd.


on 24 December 2018, and reviewed and approved the Proposal on Write-off of Loans to 87 Borrowers including

Hubei Xingyu Garment Liability Co., Ltd.


(1) Report on Onsite Corporate Governance Examination Opinions of Hubei CBRC Office and Corrective Actions;

(2) Report on Onsite Market Irregularities Examination Opinions of Hubei CBRC Office and Corrective Actions;

(3) Report on Onsite Examination Opinions of Hubei CBRC Office on Credits to Big Client Hubei United

Investment Group Co., Ltd. and Its Member Entities and Corrective Actions;

(4) Report on Onsite Examination Opinions of Hubei CBRC Office on Sales Activity on Business Premises and

Corrective Actions.

Nomination and Compensation Committee


55

The Nomination and Compensation Committee held three meetings in 2018:

1. The Nomination and Compensation Committee of the Fifth Board of Directors held its 11th meeting on 13 April

2018, and reviewed and approved the following proposals:

(1) Proposal on the 2017 Director Duty Performance Assessment Report of Hankou Bank Co., Ltd.;

(2) Proposal on the Performance Assessment Results of Senior Executives of Hankou Bank Co., Ltd. in 2017;

(3) Proposal on the Performance Remuneration Allocation of Senior Executives of Hankou Bank Co., Ltd. in 2017.

2. The Nomination and Compensation Committee of the Fifth Board of Directors held its 12th meeting on 23

November 2018, and reviewed and approved the following proposals:

(1) Proposal on Replacement of Some Directors;

(2) Proposal on Re-engaging Xu Jinming to be Vice President of Hankou Bank Co., Ltd.

3. The Nomination and Compensation Committee of the Fifth Board of Directors held its 13th meeting on 29

December 2018, and reviewed and approved the following proposals:

(1) Proposal on Nominating Chen Xinmin as Candidate for Executive Director of the Sixth Board of Directors of


(2) Proposal on Nominating Ruan Xuzhou as Candidate for Executive Director of the Sixth Board of Directors of


(3) Proposal on Nominating Zhou Min as Candidate for Shareholder Director of the Sixth Board of Directors of


(4) Proposal on Nominating Wen Fu as Candidate for Shareholder Director of the Sixth Board of Directors of


(5) Proposal on Nominating Yao Ke as Candidate for Shareholder Director of the Sixth Board of Directors of


(6) Proposal on Nominating Shao Bo as Candidate for Shareholder Director of the Sixth Board of Directors of


(7) Proposal on Nominating Guo Li as Candidate for Independent Director of the Sixth Board of Directors of


(8) Proposal on Nominating Hou Chengqi as Candidate for Independent Director of the Sixth Board of Directors of


(9) Proposal on Nominating Zhang Yabing as Candidate for Independent Director of the Sixth Board of Directors of


(10) Proposal on Nominating Wu Bin as Candidate for Independent Director of the Sixth Board of Directors of


iv. Performance of strategic management functions by the Board of Directors

In 2018, the Board of Directors continued to push forward strategy management work, improved the strategic

management system by participating in the decision-making process for significant strategic issues and leveraging

on the core functions of strategic decision-making, thereby promoting another round of leap-forward development

of the Bank.

1. The Board of Directors heard the reports on strategic plan implementation. On April 13, the Bank organized the

Fifth Board of Directors to convene its 21st meeting where the Report on the Implementation of the 2016-2018

Strategic Development Plan of Hankou Bank Co., Ltd. and the Report on the Program of Hankou Bank Co., Ltd. on


56

Implementing the Strategic Plan in 2018 were debriefed.

2. The Board of Directors turned the bank-wide strategy projects into reality effectively. Specifically, it introduced

a strategy implementation and management mechanism where the Board of Directors, the senior executives,

various functional departments, and all outlets worked together efficiently, specified the division of responsibilities

at different levels, and advanced various tasks and measures steadily. The Board of Directors crafted the strategic

development plan and oversaw how it was executed. The Strategy Committee of the Board of Directors studied and

drafted overall strategic plans as well as supportive strategies and measures for the Bank over different periods, and

submitted the same to the Board of Directors for deliberation; it evaluated how the Bank’s strategic plans were

implemented, and reported the findings to the Board of Directors for deliberation; it studied the issues concerning

the Bank’s operational and long-term development strategies.

v. Development of policies and procedures of the Board of Directors

In order to guarantee the smooth and efficient operation of mechanisms, the Board of Directors continuously

improved policies and procedures and standardized corporate governance behaviors according to regulatory

requirements and the Bank’s corporate governance conditions. In the reporting period, the Board of Directors

organized the formulation of relevant corporate governance policies and procedures. First, the Delegation of

Authority to President by the Board of Directors of Hankou Bank Co., Ltd. in 2018 and other corporate governance

policies were formulated. Second, the Articles of Association of Hankou Bank Co., Ltd., the Equity Management

Measures of Hankou Bank Co., Ltd. and the Administrative Measures for the Connected Transactions of Hankou

Bank Co., Ltd. were revised in a timely manner in accordance with relevant regulatory requirements, playing a

positive role in further improving corporate governance of the Bank.

VII. Profit Distribution Plan during the Reporting Period

According to the standard unqualified auditor’s report issued by Union Power Certified Public Accountants LLP,

the Company’s profit available for distribution at the end of 2018 was RMB6,969,194,060.13. The preliminary plan

for profit distribution for 2018 is set as follows:

1. Set aside 10% or RMB190,252,772.96 as statutory surplus reserve;

2. In accordance with the Accounting Rules for Financial Corporations (MOF Order No.42) and the Administrative

Measures for Bad Debt Provisioning of Financial Corporations (C.J. [2012] No.20), RMB333,138,995.67 will be

set aside as general risk reserve;

3. Allot cash dividends of RMB0.11 (pre-tax) per share, totaling RMB454,063,038.88, based on the Company’s

outstanding 4,127,845,808.00 shares in 2018. The Company’s retained profit of RMB5,991,739,252.62 after the

profit distribution will be carried over the next year.

Year Dividend per share (RMB) Total outstanding shares

(100 million)

Total dividends (RMB100

million)

2016 0.08 41.28 3.30

2017 0.10 41.28 4.13

2018 0.11 41.28 4.54


57

Chapter V Report of the Board of Supervisors

I. Work of the Board of Supervisors during the Reporting Period

i. Meetings of the Board of Supervisors and Resolutions

The Board of Supervisors held eight meetings in 2018.

1. The 16th Meeting of the Fifth Board of Supervisors of the Bank was held on 29 January 2018. Of the eight

supervisors supposed to attend the meeting, five supervisors were present in person, and the other three attended

by proxy. The meeting reviewed and approved the following proposals:



(3) Proposal on Formulating the Management Measures on Identification and Assessment of Main Risks of

Hankou Bank;



2. The 17th Meeting of the Fifth Board of Supervisors of the Bank was held on 13 April 2018. Of the eight

supervisors supposed to attend the meeting, eight supervisors were present in person. The meeting reviewed and


(1) Proposal on the 2017 Work Report of the Board of Supervisors of Hankou Bank Co., Ltd.;










Ltd. in 2018;

(11) Proposal on the Special Report on the Management of Related Party Transactions of Hankou Bank Co., Ltd.

in 2017;












58


(23) Proposal on the 2017 Supervisor Duty Performance Assessment Report of Hankou Bank Co., Ltd.;

(24) Proposal on the 2017 Director Duty Performance Assessment Report by the Board of Supervisors of Hankou

Bank Co., Ltd.;

(25) Proposal on the Report on 2017 Senior Executives Duty Performance Assessment by the Board of Supervisors


(26) Proposal in Relation to the Report on Assessment of the Board of Directors’ and the Senior Executives’

Performance of Liquidity Risk Management Functions in 2017 by the Board of Supervisors of Hankou Bank Co.,

Ltd.






(4) Report on the Follow-up Auditing of the Audit Projects Organized by the Board of Supervisors of Hankou

Bank in 2017.

3. The 18th Meeting of the Fifth Board of Supervisors of the Bank was held in an offsite form on 5 June 2018. The

following reports were heard at the meeting:

(1) Report on Retirement of Ms. Li Ling;

(2) Report on the Implementation Plan for Departure Audit of Ms. Li Ling.

4. The 19th Meeting of the Fifth Board of Supervisors of the Bank was held on 6 July 2018. Of the eight

supervisors supposed to attend the meeting, seven supervisors were present in person and one absent. The

following reports were debriefed:


(2) Proposal on the Capital Adequacy Ratio Disclosure Report of Hankou Bank Co., Ltd. for the First Quarter of

2018;

5. The 20th Meeting of the Fifth Board of Supervisors of the Bank was held on 26 September 2018. Of the eight

supervisors supposed to attend the meeting, seven supervisors were present in person, and the other one attended

by proxy. The meeting reviewed and approved the following proposals:








(2018-2020);




(6) Proposal on the Capital Adequacy Ratio Disclosure Report of Hankou Bank Co., Ltd. for the First Half of

2018;


59

(7) Notice of Onsite Corporate Governance Examination Opinions of Hubei CBRC Office.

6. The 21st Meeting of the Fifth Board of Supervisors of the Bank was held on 23 November 2018. Of the eight

supervisors supposed to attend the meeting, seven supervisors were present in person, and the other one attended

by proxy. The Proposal on Amendments to the Management Measures on Related Party Transactions of Hankou

Bank Co., Ltd. was reviewed and approved at the meeting. The following reports were debriefed:


(2) Proposal on the Capital Adequacy Ratio Disclosure Report of Hankou Bank Co., Ltd. for the Third Quarter of

2018;

(3) Report on the Opinion of Hubei CBRC Office on Acceleration of Disposal of Credit Risk Assets and Its

Implementation;

(4) Special Audit Report on Collateral Management of Branches of Hankou Bank Co., Ltd. outside Wuhan;

(5) Special Audit Report on the Remuneration Management of Hankou Bank Co., Ltd.;

7. The 22nd Meeting of the Fifth Board of Supervisors of the Bank was held on 24 December 2018. Of the eight

supervisors supposed to attend the meeting, eight supervisors were present in person. The Proposal on Write-off of

Loans to 87 Borrowers including Hubei Xingyu Garment Liability Co., Ltd. was reviewed and approved at the

meeting. The following reports were debriefed:


(2) Report on Onsite Corporate Governance Examination Opinions of Hubei CBRC Office and Corrective

Actions;

(3) Report on Onsite Market Irregularities Examination Opinions of Hubei CBRC Office and Corrective Actions.

8. The 23rd Meeting of the Fifth Board of Supervisors of the Bank was held on 29 December 2018. Of the eight

supervisors supposed to attend the meeting, eight supervisors were present in person. The meeting reviewed and


(1) Proposal on Exemption of Time Limit on Notification of the 23rd Meeting of the Fifth Board of Supervisors;

(2) Proposal on Nominating Yuan Wenjian as Candidate for Shareholder Supervisor of the Sixth Board of

Supervisors of Hankou Bank Co., Ltd.;

(3) Proposal on Nominating Zhang Li as Candidate for Shareholder Supervisor of the Sixth Board of Supervisors


(4) Proposal on Nominating Guo Tianyong as Candidate for External Supervisor of the Sixth Board of Supervisors


(5) Proposal on Nominating Cui Baoshun as Candidate for External Supervisor of the Sixth Board of Supervisors


(6) Proposal on Nominating Guo Wei as Candidate for External Supervisor of the Sixth Board of Supervisors of


ii. Performance of duties by the special committees of the Board of Supervisors

Supervision Committee

The Supervision Committee held five meetings in 2018:

1. On 29 January 2018, the Supervision Committee of the Fifth Board of Supervisors held its 14th meeting and

reviewed and approved the following proposals:



60


(3) Proposal on Formulating the Management Measures on Identification and Assessment of Main Risks of

Hankou Bank;



2. On 13 April 2018, the Supervision Committee of the Fifth Board of Supervisors held its 15th meeting and











Ltd. in 2018;

(10) Proposal on the Special Report on the Management of Related Party Transactions of Hankou Bank Co., Ltd.

in 2017;












(22) Proposal in Relation to the Report on Assessment of the Board of Directors’ and the Senior Executives’

Performance of Liquidity Risk Management Functions in 2017 by the Board of Supervisors of Hankou Bank Co.,

Ltd.;





(3) Report on the Follow-up Auditing of the Audit Projects Organized by the Board of Supervisors of Hankou

Bank in 2017.

3. On 26 September 2018, the Supervision Committee of the Fifth Board of Supervisors held its 16th meeting and




61



(4) Proposal on the Anti-money Laundering Management Reform Report of Hankou Bank Co., Ltd.;





4. On 23 November 2018, the Supervision Committee of the Fifth Board of Supervisors held its 17th meeting. The

proposal on revising the Administrative Measures for Related Party Transactions of Hankou Bank Co., Ltd. was

reviewed and approved at the meeting. The following reports were debriefed:

(1) Special Audit Report on Collateral Management of Branches of Hankou Bank Co., Ltd. Outside Wuhan;

(2) Special Audit Report on the Remuneration Management of Hankou Bank Co., Ltd.

5. On 24 December 2018, the Supervision Committee of the Fifth Board of Supervisors held its 18th meeting, and

reviewed and approved the Proposal on Write-off of Loans to 87 Borrowers including Hubei Xingyu Garment

Liability Co., Ltd. and the Special Audit Report on the Anti-Money Laundering Management of Hankou Bank Co.,

Ltd.

Nomination Committee

The Nomination Committee held two meetings in 2018:

1. On 13 April 2018, the Nomination Committee of the Fifth Board of Supervisors held its seventh meeting and


(1) Proposal on the 2017 Supervisor Duty Performance Assessment Report of Hankou Bank Co., Ltd.;

(2) Proposal on the 2017 Director Duty Performance Assessment Report by the Board of Supervisors of Hankou

Bank Co., Ltd.;

(3) Proposal on the Report on 2017 Senior Executives Duty Performance Assessment by the Board of Supervisors


2. On 29 December 2018, the Nomination Committee of the Fifth Board of Supervisors held its eighth meeting

and reviewed and approved the following proposals:

(1) Proposal on Nominating Zhang Li as Candidate for Shareholder Supervisor of the Sixth Board of Supervisors


(2) Proposal on Nominating Yuan Wenjian as Candidate for Shareholder Supervisor of the Sixth Board of

Supervisors of Hankou Bank Co., Ltd.;

(3) Proposal on Nominating Guo Tianyong as Candidate for External Supervisor of the Sixth Board of Supervisors


(4) Proposal on Nominating Cui Baoshun as Candidate for External Supervisor of the Sixth Board of Supervisors


(5) Proposal on Nominating Guo Wei as Candidate for External Supervisor of the Sixth Board of Supervisors of



62

iii. Supervisors’ attendance of the general meetings and the meetings of the Board of Directors

as non-voting delegates

During the reporting period, supervisors attended the 2018 Annual General Meeting and the 2018 First

Extraordinary General Meeting, attended seven onsite meetings of the Board of Directors as non-voting attendees,

and oversaw offsite meetings of the Board of Directors.

iv. Supervision of duty performance

1. The Board of Supervisors assessed the duty performance of supervisors by means of supervisor self-assessment,

peer review and assessment by the Board of Supervisors according to the 2017 records on duty performance of

supervisors, supervisors’ duty performance reports as well as reading of and feedbacks to the information provided

by the Bank. The 2017 Supervisor Duty Performance Assessment Report was prepared and deliberated and

approved by the Board of Supervisors and the Annual General Meeting.

2. The Board of Supervisors conducted total-process supervision over decision making of the Board of Directors

and duty performance of directors by attending meetings of the Board of Directors and reviewing meeting

materials and minutes of the Board of Directors and its special committees. The Report on 2017 Director Duty

Performance Assessment by the Board of Supervisors was prepared according to the personal performance reports

of directors and the 2017 Director Duty Performance Assessment Report issued by the Board of Directors and

submitted to the Board of Supervisors and the Annual General Meeting for review and approval. The Report on

2017 Senior Executives Duty Performance Assessment by the Board of Supervisors was prepared according to the

implementation of resolutions of the Board of Directors by the senior management, management performance and

operating results of the Bank in 2017, taking into account senior executives’ personal work reports, and submitted

to the Board of Supervisors and the Annual General Meeting for review and approval.

3. The Board of Supervisors organized an assessment of the Board of Directors’ and the Senior Executives’

performance of liquidity risk management duties in 2017 in accordance with the CBRC Liquidity Risk

Management Measures of Commercial Banks (Trial) and the Liquidity Risk Management Policy of Hankou Bank

(Revised). The assessment report was reviewed and approved by the Board of Supervisors and presented to the

Annual General Meeting.

4. In accordance with the regulatory guidelines and the Bank’s policies, employee supervisors of the Bank made a

work report on duty performance to the Employees’ Congress. Chairman of the Board of Supervisors, on behalf of

the employee supervisors of the Fifth Board of Supervisors, presented the Report on Duty Performance of

Supervisors of the Fifth Board of Supervisors of Hankou Bank in 2017 to the Fourth Plenary Session of the Third

Employees’ (Members’) Congress of the Bank.

5. The Board of Supervisors authorized the Audit Department to conduct departure audit of two senior executives.

v. Special audits

First, the Bank conducted five special audits (i.e. collateral management audit, remuneration management audit,

liquidity risk management audit, anti-money laundering audit and internal control management audit) of branches

beyond Wuhan and related rectification follow-up audits, with reports presented to the Board of Supervisors.

Second, eight field surveys were conducted over Xianning Branch, Ezhou Branch, county-level sub-branches, free

trade zone branches, village bank’s microloan project, liquidity management, capital management and anti-money

laundering. Supervisory opinions and suggestions were given based on survey findings.


63

vi. Studies and discussions

In the reporting period, supervisors participated in corporate governance training organized by regulators and

studied six issues of 26 papers on regulatory rules, policy and industry developments and important speeches of

officials by a combination of massed learning and self-study.

vii. Thematic studies

In the reporting period, the Board of Supervisors conducted thematic studies on the influence of FinTech on

conventional banking and on how to boost the effectiveness of the supervisory work of the Board of Supervisors.

The Board of Supervisors extensively collected and collated inputs from within the Bank, peers and regulatory

bodies, communicated with relevant departments and prepared study reports.

II. Independent Opinions of the Board of Supervisors on Relevant Issues

The Board of Supervisors supervised the Company in accordance with the Company Law and the Articles of

Association of the Company and issued the following opinions:

i. Compliant operation of the Company

In the reporting period, the Bank operated in compliance with the Company Law, the Articles of Association and

other laws and regulations. The decision-making procedures were lawful and valid. No violation of the Articles of

Association of the Bank or laws or regulations or impairment of interests of shareholders was found.

ii. Authenticity of the financial statements of the Company

Union Power Certified Public Accountants LLP has audited the Bank in accordance with the new accounting

standards for business enterprises and issued a standard unqualified auditor’s report. The auditor’s report

authentically, objectively and fairly represent the Bank’s financial position and operating results.

iii. Acquisitions and sales of assets

The Company had no material acquisitions or sales of assets during the reporting period.

iv. Related party transactions

During the reporting period, related party transactions of the Company were fair and reasonable and found no

detrimental to the interests of shareholders or the Company.

v. Implementation of resolutions made by the general meetings

The Board of Supervisors raised no objection to reports and proposals submitted by the Board of Directors to the

general meetings during the reporting period. The Board of Supervisors supervised the implementation of

resolutions made by the general meetings and believed that the Board of Directors of the Company could

implement resolutions made by the general meetings earnestly.

vi. Risk management and internal control

In the reporting period, the Bank continued to strengthen risk management and internal control, further improved

the comprehensive risk management and internal control system, fostered a total compliance atmosphere and

enhanced the ability to identify, measure, monitor and control risks.


64

Chapter VI Significant Events

I. Material Legal Proceedings and Arbitrations

As at the end of the reporting period, the Bank was involved in 49 pending lawsuits of equal to or more than

RMB10 million each as plaintiff, totaling about RMB1,745,022,700.

II. Increase or Decrease of Registered Capital, Split-off and Merger

During the reporting period, the Company did not increase or decrease registered capital or had any split-off or

merger.

III. Material Asset Acquisition and Sale, Merger and Acquisition

The Company had no material asset acquisition or sale, merger or acquisition during the reporting period.

IV. Related Party Transactions

i. Related parties

In accordance with the Company Law, the Accounting Standard for Business Enterprises: Disclosure of Related

Party Relationships and Transactions, the Administrative Measures for the Connected Transactions between the

Commercial Banks and Their Insiders and Shareholders issued by CBRC and the Administrative Measures for

Related Party Transactions of Hankou Bank Co., Ltd., the Bank’s related parties include related natural persons

and related legal persons or other organizations.

The related natural persons of the Bank include the insiders of the Bank; major natural person shareholders of the

Bank, and close relatives of the Bank’s insiders and major natural person shareholders; the related legal persons of

the Bank or holding natural person shareholders, directors and key executives of other organizations related to the

Bank. The related legal persons or other organizations exclude the legal persons or other organizations that can be

directly, indirectly or jointly controlled or be greatly influenced by the Bank’s insiders, major natural person

shareholders and their close relatives; and other natural persons who have a significant influence on the Bank.

Related legal persons and other organizations of the Bank include major non-natural shareholders of the Bank;

legal persons or other organizations directly or indirectly controlled by the same enterprise as the Bank; legal

persons or other organizations directly or indirectly controlled, or under common control by or subject to

significant influence of the Bank's insiders and major natural person shareholders as well as their close relatives;

other legal persons or other organizations who may directly, indirectly or jointly control the Bank or have a

significant influence on the Bank; and the Bank's subsidiaries and associate.

1. Shareholders holding 5% or more shares of the Bank as at 31 December 2018:


65

Shareholder

company

Related party

relationship Company type Place of registration

Legal

representative

Business

nature

Registered

capital

(Unit:

RMB1,000)

Legend Holdings

Corporation Shareholder

Other limited

company

(listed)

Room 1701, 17F,

Building 1, Yard 2,

Kexueyuan South

Road, Haidian

District, Beijing

Liu Chuanzhi Investment 2,356,231

Wuhan Iron and

Steel Group

Corporation

Shareholder

Limited

liability

company (sole

proprietorship

of legal person

invested or

controlled by a

non-natural

person)

Changqian, Qingshan

District, Wuhan City,

Hubei Province

Guo Bin Investment 4,739,610

Wuhan

Development and

Investment Co.,

Ltd.

Shareholder

Limited

liability

company

(wholly-state-o

wned)

F20 & 21, Xinhe

Building, No. 618,

Jianshe Avenue,

Jiang'an District,

Wuhan City, Hubei

Province

Tang Wu Investment 3,000,000

2. Disclosure of information on subsidiaries of the Bank

Subsidiary Type Company

type

Place of

registration

Legal

Represe

ntative

Business

nature

Registered

capital

(RMB10,000)

Combined

shareholding

percentage

(%)

Combined

percentage

of voting

shares held

(%)

Unified

Social

Credit Code

HB Zhijiang

Rural Bank

Co., Ltd.

Control

led

subsidi

ary

Limited

liability

company

Hubei Ba Jun Financial

industry 5,000 51% 51% 9142050058549827XY

HB Yangxin

Rural Bank

Co., Ltd.

Control

led

subsidi

ary

Limited

liability

company


industry 5,000 60% 60% 91420200594244829H

3. Disclosure of information on associate of the Bank

Associate

name

Associate

type

Company

type

Place of

registration

Legal

Representative

Business

nature

Registered

capital

(RMB10,000)

Combined

shareholding

percentage

(%)

Combined

percentage

of voting

shares held

(%)

Unified Social

Credit Code

Aerospace

Science &

Industry

Financial

Leasing

Co., Ltd.

Associate

Limited

liability

company

Hubei Li Dongfeng Financial

industry 300,000 25% 25% 91420112MA4KTG0Q7G


66

ii. Related party transactions

Related party transactions of the Company are conducted in compliance with laws, administrative regulations,

unified accounting policy of the State and relevant banking regulatory rules, and are on normal commercial

principles that are not superior to similar transactions with non-related parties.

1.Credits to related legal persons or other organizations

(1) Balance of credits to related legal persons or other organizations

(Unit: RMB1,000)

S/N Name of customer Balance of on-balance-sheet and

off-balance-sheet credit at the end

of the reporting period

Net on-balance-sheet and



1 Wuhan Iron and Steel Group

Corporation 200,000 200,000

2 Wuhan Development and

Investment Co., Ltd. 600,000 600,000

3 JC International Finance & Leasing

Co., Ltd. 74,256 74,256

4 Legend Insurance and Investment

Group Limited 170,000 170,000

5 Zhengqi Supply Chain Management

Co., Ltd. 45,000 45,000

6 Gain Cold Chain (Wuhan) Co., Ltd. 21,250 17,999

7 Motorola (Wuhan) Mobile

Technology Communication Co.,

Ltd.

37,944 30,355

8 Lenovo Mobile Inc. 593,241 474,593

9 Wuhan Iron & Steel Group Echeng

Iron & Steel Co., Ltd. 409,000 249,510

10 Wuhan Iron and Steel Resources

Group Corporation 2,230 1,561

11 Wuhan Iron and Steel Green City

Construction and Development Co.,

Ltd.

320,224 320,224

12 Wisco Packaging Materials Plant 13,000 10,000

13 Wuhan Gangye Xincheng

Maintenance Services Co., Ltd. 22,000 15,000

14 Wuhan Financial Holdings (Group) 1,098,000 1,098,000

15 Wuhan Jinkong New-Energy

Vehicle Lease Co., Ltd. 197,500 197,500

16 Wuhan Youyi Non-Staple Food

Commerce Co., Ltd. 34,000 34,000

17 Wuhan Non-Staple Food

Commercial Reserves Co., Ltd. 20,000 20,000

18 Wuhan Yangtze Shaou Vegetable

Oil Co., Ltd. 37,500 15,000

19 Hubei Yujiatou Group Co., Ltd. 360,000 360,000


67

S/N Name of customer Balance of on-balance-sheet and






20 Wuhan Guochuang Capital

Investment Co., Ltd. 1,400,000 1,400,000

21 Wuhan Optics-Valley Finance

Leasing Co., Ltd. 435,892 435,892

22 Shanghai Optics-Valley Finance

Leasing Co., Ltd. 47,500 47,500

23 Humanwell Healthcare Group

Corporation 448,500 448,500

24 Aerospace Science & Industry

Financial Leasing Co., Ltd. 847,400 777,920

Total 7,434,436 7,042,809

(2) Group credits to main related parties

Group of related parties



of the reporting period (RMB100

million)

% of net capital

Wuhan Financial Holdings (Group) Co.,

Ltd. and its related parties 23.25 8.80%

Wuhan State-owned Assets Management

Co., Ltd. and its related parties 18.83 7.13%

Legend Holdings and its related parties 8.12 3.08%

Wuhan Iron and Steel Group and its related

parties 7.96 3.02%

Other related parties 12.26 4.64%

Total 70.43 26.67%

(3) Major related party transactions of the Bank in the reporting period

(Unit: RMB1,000)

S/N Name of de-facto borrower Category

Balance of

investment at the

end of the

reporting period

Value date Maturity Credit enhancement

for risk exposures

1 Wuhan Financial Holdings (Group) Entrusted

loans 900,000 2018/4/28 2019/4/27 Third-party guarantee

2. Balance of on-balance-sheet and off-balance-sheet credit

(Unit: RMB1,000)


68

Category 31 December 2018 31 December 2017

Related legal persons or other

organizations (on balance sheet) 5,537,621 3,514,797


organizations (off balance sheet) 1,896,814 1,208,390

Related natural persons (including

credit card overdrafts) 33,200 46,986

3. Balance of deposits

(Unit: RMB1,000)



organizations 4,528,187 2,243,678

Related natural persons 48,044 35,217

4. Loan interest income

(Unit: RMB1,000)



organizations 120,500 107,475

Related natural persons 1,323 945

5. Deposit interest expense

(Unit: RMB1,000)



organizations 37,644 13,466

Related natural persons 59 59

6. Off-balance sheet positions, net

(Unit: RMB1,000)



organizations 905,187 1 ,698,728

Related natural persons 0 0

7. Remunerations paid to key executives


69

The Bank had 23 key management members as at 31 December 2018, and 27 key management members as at 31

December 2017. The remunerations paid to them are as follows:

(Unit: RMB1,000)

Related party 31 December 2018 31 December 2017

Key executives 7,927 19,299

V. Material Contracts and Performance of Obligations thereunder

i. Material trusts, sub-contracts and leases

During the reporting period, the Company had not entered into any material trusts, sub-contracts or leases.

ii. Material guarantees

During the reporting period, the Company did not have any other material guarantees necessary for disclosure

except for the financial guarantees within the business scope as approved by CBIRC.

iii. Other material contracts and performance of obligations thereunder

During the reporting period, contracts of the Company were normally performed without occurrence of any major

contract disputes.

VI. Engagement and Dismissal of the Accounting Firm

During the reporting period, the Company engaged Union Power Certified Public Accounts LLP to audit the

financial statements. The auditor’s fee was RMB950,000.

VII. Regulatory Penalties on Directors, Supervisors and Senior Executives of the

Company

During the reporting period, no directors, supervisors or senior executives of the Company were subject to any

regulatory penalties.

VIII. Other Important Information Necessary to Inform the Public

i. Acquisition of business access qualifications

1. In the reporting period, the Bank got approved as Class B independent lead underwriter. In 2018, the National

Association of Financial Market Institutional Investors (NAFMII) granted the Bank the qualification for Class B

independent lead underwriter of debt financing instruments of non-financial enterprises, approving the Bank to

independently carry out the lead underwriting of debt financing instruments of non-financial enterprises in Hubei

Province.


70

2. During the reporting period, two new institutions of the Bank, 43 ones in total, were permitted to provide

exchange settlement and sales service to the corporate customers; two new institution of the Bank, 70 ones in total,

were permitted to provide exchange settlement and sales service to the personal customers.

ii. Establishment of institutions

During the reporting period, the Bank established 18 institutions in total, among which eight were sub-branches in

Wuhan: Xingye Road Sub-branch, Hanxi Sub-branch, Fangcao Road Sub-branch, Lvdi Sub-branch, Yangyuan

Sub-branch, Bairuijing Sub-branch, Beihua Sub-branch and Jianghan University Sub-branch; there were 10 new

sub-branches established beyond Wuhan: Xiantao Sub-branch (sub-branch directly under the Head Office),

Gong’an Sub-branch, Jingzhou Shashi Sub-branch, Yidu Sub-branch, Shiyan Maojian Sub-branch, Hanchuan

Sub-branch, Xiaogan Xiaonan Sub-branch, Jingmen Duodao Su-branch, Jianshi Sub-branch and Enshi Economic

Development Zone Sub-branch. During the reporting period, Yichang Dongshan Sub-branch beyond Wuhan was

renamed Hubei Free Trade Zone (Yichang) Sub-Branch; Luoshi Road Sub-branch in Wuhan was relocated and

renamed Hongxia Sub-branch, and Dongrun Shangyu Community Sub-branch was closed down.

iii. Other important information

1. The “venture loan” business was furthered. In 2018, the Bank pursued breakthroughs in the external “Venture

Loan” mechanism while keeping an eye on and pushing for the setup of a venture capital subsidiary. It built an

innovative “Investment-Loan Alliance” cooperation platform led by banks and also joined by securities companies

and investment organizations. The Bank held a number of banker-investor-business starter matchmaking events

together with Huatai Securities, Fortune Capital and Heaven-Sent Capital Management. It also explored and

established easily duplicable business cooperation models such as “loan-led investing” and “investment-led

lending”. Four banker-investor-business starter matchmaking meetings were held in the year, helping connect 13

branches and sub-branches to 51 participating enterprises and further enhancing the FinTech service capability

through “equity + debt” combination.

2. Financial support for the Belt and Road Initiative. At the invitation of Hubei Province’s Office of the Leading

Group on Promoting the Belt and Road Initiative (BRI), the Bank became one of the first group of banks to enter

the BRI Public Service Platform of Hubei Province on October23. The BRI Public Service Platform of Hubei

Province is a provincial public service platform serving enterprises at home and abroad, focusing its work on

facilitating “onshoring” of overseas businesses and “offshoring” domestic enterprises go global. Helping Hubei

Province’s participation in the BRI drive is a key task of the platform. The first group of financial service

institutions to appear on the platform includes the Bank, Hubei Branch of China Development Bank, Hubei

Branch of the Export-Import Bank of China and Jianghan Sub-branch of the Industrial and Commercial Bank of

China.

3. The Bank became a model bank for on-lending and re-discounting. After comprehensive assessment by Wuhan

Branch of PBOC, 29 banks in Hubei Province were named “on-lending model banks” and 17 as “re-discounting

model banks”. The Bank is the only model bank for both on-lending and re-discounting. In 2018, the Bank fully

implemented the policies of PBOC and made fruitful efforts to serve micro and small businesses and private

enterprises. The Bank completed two issues of on-lending supporting small enterprises in a total amount of

RMB1.65 billion, accounting for 14.78% of the provincial total and saving over RMB15 million of financing costs

for small and micro businesses. The Bank led four issues of re-discounting in a total amount of RMB293 million,

accounting for 3.36% of the provincial total, saving RMB3 million of financing costs for small and micro


71

businesses.

4. “Cloud Technology-based Wuhan Citizens” won further awards and honors. The “Cloud Technology-based

Wuhan Citizens” project sponsored by Wuhan Cyberspace Administration and carried out by the Bank won the

“Award of Excellence in 2018 New-type Smart City Innovation” and included in the Whitepaper of New-type

Smart City Innovation Results. “Cloud Technology-based Wuhan Citizens” went live in December 2015 and was

officially opened for external use in 2016. It connects 20 municipal government agencies and district government

service centers, including Wuhan Citizens’ Home, Public Security Bureau and Qiaokou District Government

Service Center. Innovative services such as online annual pension review, push notification of social security and

housing provident fund receipts and online business processing were launched to create new smart city ports,

recognized by central and provincial government officials.

5. The Bank won many awards and honors in the reporting period, including CBIRC’s “Class I Deliverables of

2018 Banking IT Risk Management Researches”, Financial Times’ “Most Innovative Small and Medium-sized

Banks in 2018”, Best Banking Brands in 2018, Top 10 Retail Banking of City Commercial Banks in 2018, “Most

Distinctive Direct Banking Award in 2018” from China Financial Certification Authority (CFCA), Outstanding

Contribution Award for FinTech Product Innovation in 2018, “Banking Dealers of the Year 2018” named by

Shanghai Commercial Paper Exchange and Outstanding Organization in Anti-Money Laundering in Hubei

Financial Sector 2018 named by Wuhan Branch of PBOC.


72

Chapter VII Share Capital Changes and Shareholders

I. Share Changes

i. List of share changes

See below for the changes in shares as at the end of 31 December 2018:

Item

At the end of the period At the beginning of the period

Quantity (shares) Percentage (%) Quantity (shares) Percentage (%)

State shares 123,369,000 2.99 123,369,000 2.99

Legal-person shares 3,846,150,727 93.17 3,846,150,727 93.17

Natural-person shares 158,326,081 3.84 158,326,081 3.84

Total share capital 4,127,845,808 100.00 4,127,845,808 100.00

ii. Share offerings in the three years before the end of the reporting period

The Bank did not issue any new shares in the three years before the end of the reporting period.

II. Shareholders

i. Total number of shareholders

The Bank had 4,319 shareholders at the end of the reporting period, including 260 state shareholders and

legal-person shareholders, and 4,059 natural-person shareholders.

ii. Major equity transfers

The Bank had no major equity transfers during the reporting period.

iii. Shareholdings of the top 10 shareholders and changes thereof as at the end of the reporting

period

(Unit: share)

S/N Shareholder name

Number of shares

at the end of the

period

Percentage

(%)

Number of

shares at the

beginning of the

period

Percentage

(%)

Number of shares

pledged or locked up

1 Legend Holdings Corporation 633,000,000 15.33 633,000,000 15.33

2 Wuhan Iron and Steel Group

Corporation 550,600,000 13.34 550,600,000 13.34


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S/N Shareholder name

Number of shares

at the end of the

period

Percentage

(%)

Number of

shares at the

beginning of the

period

Percentage

(%)

Number of shares

pledged or locked up

3 Wuhan Development and

Investment Co., Ltd. 337,500,000 8.18 337,500,000 8.18

4 Wuhan Triumphal Conch

Investment Management Co., Ltd. 200,000,000 4.85 200,000,000 4.85

5 Good First Group Co., Ltd. 200,000,000 4.85 200,000,000 4.85 Pledged

99,000,000

6 Wuhan Huahan Investment

Management Co., Ltd. 176,000,000 4.26 176,000,000 4.26

7 Wuhan Credit Risk Management

Co., Ltd. 150,988,499 3.66 150,988,499 3.66

Pledged

112,500,000

8 Wuhan Bureau of Finance 123,369,000 2.99 123,369,000 2.99

9 Wuhan Department Store Group

Co., Ltd. 100,295,200 2.43 100,295,200 2.43

10 Shanghai High Gain Industrial

Limited 100,000,000 2.42 100,000,000 2.42

10 National Trust Co., Ltd. 100,000,000 2.42 100,000,000 2.42

10 Hainan Chuangqi Properties Co.,

Ltd. 100,000,000 2.42 100,000,000 2.42

Note: Connected relations among the above-mentioned shareholders

(1) As at the end of the reporting period, Wuhan Development Investment Co., Ltd. is the wholly-owned subsidiary of Wuhan

Financial Holdings (Group) Co., Ltd., Wuhan Credit Risk Management Co., Ltd. is the controlled subsidiary of Wuhan Financial

Holdings (Group) Co., Ltd. Therefore, Wuhan Development Investment Co., Ltd. and Wuhan Credit Risk Management Co., Ltd. have

become related parties under the same controller.

(2) Wuhan Huahan Investment Management Co., Ltd. and Wuhan Department Store Group Co., Ltd. are controlled by Wuhan

State-owned Assets Management Co., Ltd. Thus, the two have become related parties under common control.

iv. Substantial shareholders

1. Shareholders holding 5% or more shares

(1) Legend Holdings Corporation, with its Unified Social Credit Code being 911100001011122986, legal

representative Liu Chuanzhi, registered capital RMB2,356,230,900 and date of establishment 9 November 1984.

Scope of business: Project investment; investment management; asset management; economic and trade advisory

services; investment advisory services; business management advisory services; technology development, transfer

and promotion; property management; sale of industrial chemicals (excluding hazardous chemicals and Class I

precursor chemicals); mineral products; import and export of goods, import and export of technologies and import

and export agency services; computer system services; data processing. Legend Holdings Corporation has no

controlling shareholder or de-facto controller. The final beneficiary of shares held in the Bank is Legend Holdings

Corporation. There is no person acting in concert with it. At the end of the period, Legend Holdings Ltd. held a

15.33% interest in the Bank and pledged no shares in the Bank.


74

(2) Wuhan Iron and Steel Group Corporation, with its Unified Social Credit Code being 914201001776819133,

legal representative Guo Bin, registered capital RMB4,739.61 million and date of establishment 9 January 1990.

Scope of business: Intelligent equipment manufacturing; smart city development; logistics services; software

development and information technology services; energy conservation, environmental protection and civil

construction; elder service enterprise management; metallurgical products and their byproducts, metallurgical

mine products and extended steel products, chemical products (excluding hazardous chemicals), building materials,

metallurgical auxiliary materials, metallurgical plants, electromechanical equipment design and manufacturing;

sales of automobile (excluding sedans); gas production and supply; industrial technology development and

advisory services. The controlling shareholder and de-facto controller of Wuhan Iron and Steel Group Corporation

is China Baowu Iron and Steel Group Corp, and the final beneficiary is Wuhan Iron and Steel Group Corporation.

Persons acting in concert with it include Wuhan Iron and Steel Jiangbei Group Corporation and Wisco Industrial

Company, which together held a 13.35% interest in the Bank at the end of the period, and had pledged no shares in

the Bank.

(3) Wuhan Development and Investment Co., Ltd., with its Unified Social Credit Code being

91420100717953714H, legal representative Tang Wu, registered capital RMB3 billion and date of establishment

21 January 2000. Scope of business: Investment in energy resources, environmental protection, high and new

technology, urban infrastructure, real estate, ecological agriculture, commerce, trade and tourism; research and

development of energy-efficient new materials and technologies; machining; retail and wholesale of machinery,

electric appliances, general merchandise and hardware & electric materials; other approved activities (subject to

special regulations of the State, if any). The controlling shareholder and de-facto controller of Wuhan

Development Investment Co., Ltd. is Wuhan Financial Holdings (Group) Co., Ltd. The ultimate beneficiary is

Wuhan Development Investment Co., Ltd. At the end of the period, It held an 8.18% interest in the Bank and

pledged no shares in the Bank.

2. Other substantial shareholders defined by the Provisional Measures for Equity Management of

Commercial Banks

(1) Wuhan Financial Holdings (Group), with its Unified Social Credit Code being 91420100778164444G, legal

representative Chen Zanxiong, registered capital RMB4 billion and date of establishment 8 August 2005. Its main

scope of business includes: Financial-sector equity investment and management; investment in energy,

environmental protection, high and new technologies, urban infrastructure, agriculture, manufacturing, logistics,

real estate, commerce and trade, tourism, hotels and other fields related to industry structure adjustments; building

decoration materials, metallic and nonmetallic materials, agricultural and sideline products and wholesale and

retail sales of machinery and electric appliances; warehousing services; non-financial equity investment and

management; investment management advisory services; business management services; and financial information

and technology research.

The controlling shareholder and de-facto controller of Wuhan Financial Holdings (Group) Co., Ltd. is State-owned

Assets Supervision and Administration Commission of Wuhan Municipal Government. The ultimate beneficiary is

Wuhan Financial Holdings (Group) Co., Ltd. Wuhan Financial Holdings (Group) Co., Ltd. may acquire shares in

Wuhan Credit Risk Management Co., Ltd., Wuhan Triumphal Conch Investment Management Co., Ltd., National

Trust Co., Ltd., Wuhan Construction and Investment Co., Ltd. and Wuhan Changxin Asset Management Co., Ltd.

After the acquisition, Wuhan Financial Holdings (Group) Co., Ltd. will have a direct interest on 11.44% in the

Bank. In addition, Wuhan Development and Investment Co., Ltd. continued to hold a 8.18% interest in the Bank.


75

(2) Wuhan State-owned Assets Management Co., Ltd., with its Unified Social Credit Code being

91420100177758917D, legal representative Wang Dasheng, registered capital RMB4,138,564,000 and date of

establishment 12 August 1994. Its main scope of business includes: State-owned assets management within

mandate; ownership and equity investment (including capital increase, fund investment and securities investment);

merger, acquisition and reorganization of businesses (assets); trading in ownership of state-owned assets;

information consulting, agency and intermediary services.

The controlling shareholder and de-facto controller of Wuhan State-owned Assets Management Co., Ltd. is

State-owned Assets Supervision and Administration Commission of Wuhan Municipal Government. The ultimate

beneficiary is Wuhan State-owned Assets Management Co., Ltd. Persons acting in concert are Wuhan Zhongnan

Commercial (Group) Co., Ltd., Wuhan Wushang Group Co., Ltd., Wuhan Huahan Investment Management Co.,

Ltd. and Wuhan Dongchuang Investment & Guarantee Co., Ltd. At the end of the period, Wuhan State-owned

Assets Management Co., Ltd. and persons acting in concert with it together held a 8.30% interest in the Bank.

Wuhan Dongchuang Investment & Guarantee Co., Ltd. pledged 10,000,000 shares in the Bank, accounting for

0.24% of the share capital of the Bank.

(3) Good First Group Co., Ltd., with its Unified Social Credit Code being 91310000612260305J, legal

representative Wu Di, registered capital RMB133 million and date of establishment 2 May 1995. Its main scope of

business includes: High-tech product research, development and sales; industrial investment; investment in

education, agriculture, industrial entertainment and health products; sales of photography and new building

materials; wholesale and retail sale of industrial chemicals (excluding hazardous chemicals and chemical subject

to control), knit goods, textile products, hardware & electric materials, general merchandise, metallic materials,

building materials, automobile (excluding passenger vehicles) and parts, ordinary machinery, electronic products

and communication equipment and mineral products licensed by the State.

The controlling shareholder of Good First Group Co., Ltd. is Huang Xi. The de facto controller is Huang Xi. The

final beneficiary is Huang Xi. There is no person acting in concert. At the end of the period, Good First Group Co.,

Ltd. held a 4.85% interest in the Bank and pledged 99,000,000 shares in the Bank, accounting for 2.40% of the

share capital of the Bank.

(4) Wuhan Bureau of Finance. Wuhan Municipal Bureau of Finance is a department of Wuhan Municipal

Government. It takes charge of public finance management in Wuhan, including formulating and organizing the

implementation of Wuhan’s fiscal development strategy, program and reform plans, managing the non-tax

revenues of the government and managing government-managed funds and managing all municipal government

revenues and expenditures. It is also responsible for formulating and organizing implementation of the annual

municipal budget and financial accounts, reviewing and approving the annual budget and final accounts of

departments (or entities) directly managed by the municipal government, organizing formulation of the treasury

management policy and the central treasury receipts and payments management policy, implementing the

regulations on state-owned assets of government agencies and public institutions and participating in the

formulation of regulations on budgeting of state-owned capital management.

Wuhan Bureau of Finance had no person acting in concert. As at the end of the reporting period, Wuhan Bureau of

Finance held a 2.99% interest in the Bank.


76

Chapter VIII Directors, Supervisors, Senior

Executives and Employees

I. Directors, Supervisors and Senior Executives

i. Basic information on the members of the Fifth Board of Directors and Board of Supervisors

and senior executives during the reporting period1

Name Post Gender Age Tenure Shareholding

(shares) Paid or not (√)

Chen Xinmin Chairman Male 55 21 July 2014 to present 0 √

Zhu

Yongtong2 Vice Chairman/President Male 60

21 July 2014 to 28

November 2018 500,000 √

Ruan Xuzhou Director/Vice

President/Financial Controller Male 55 21 July 2014 to present 500,000 √

Zhou Min Director Male 42 23 June 2017 to present 0

Zhu Yonghong Director Male 49 21 July 2014 to 10

December 2018 0

Wen Fu Director Male 41 10 December 2018 to

present 0

Gao Zhichao Director Male 48 23 June 2017 to present 0

Wang

Zhenglan Director Female 54

21 July 2014 to 10

December 2018 0

Shao Bo Director Female 37 10 December 2018 to

present 0

Gao Debu Independent Director Male 63 21 July 2014 to present 0 √

Xie Huobao Independent Director Male 51 21 July 2014 to present 0 √

Gan Fang Independent Director Female 51 21 July 2014 to present 0 √

1As at the end of the reporting period, directors Gao Zhichao and Zhao Xin’ge were still pending qualification approval by the regulatory authority.

2019 First Extraordinary General Meeting of the Bank was held on 15 January 2019. Chen Xinmin, Ruan Xuzhou, Zhou Min, Wen Fu, Yao Ke, Shao

Bo, Guo Li, Hou Chengqi, Zhang Yabing and Wu Bing were elected as directors to the Sixth Board of Directors, and Yuan Wenjian, Zhang Li, Guo Tianyong, Cui Baoshun and Guo Wei were elected as supervisors to the Sixth Board of Supervisors. The Six Plenary Session of the Third Employees’

(Members’) Congress of the Bank was held on 10 January 2019. Bai Junwei, Sun Zhiqiang and Yang Can were elected as employee supervisors to the

Sixth Board of Supervisors. The first meeting of the Sixth Board of Directors of the Bank was held on 15 January 2019. Sun Zhengbai, Ruan Xuzhou, Lei Fengxin, Ding Rui, Xu Jinming and Zhan Tianle were engaged as senior management members.

2 On 28 November 2018, Zhu Yongtong ceased to serve as President of Hankou Bank Co., Ltd. due to arrival at the retirement age. After review at

the 27th meeting of the Fifth Board of Directors, Chairman Chen Xinmin was approved to act as President concurrently.


77

Name Post Gender Age Tenure Shareholding

(shares) Paid or not (√)

Zhao Xin’ge Independent Director Male 48 13 June 2016 to present 0

Bai Junwei

Employee

Supervisor/Chairman of the

Board of Supervisors

Male 54 21 July 2014 to present 500,000 √

Yuan Wenjian Shareholder Supervisor Male 47 21 July 2014 to present 0

Zhang Li Shareholder Supervisor Male 54 21 July 2014 to present 0

Guo Tianyong External Supervisor Male 50 21 July 2014 to present 0 √

Tu Yibin External Supervisor Male 56 21 July 2014 to present 0 √

Cui Baoshun External Supervisor Male 54 13 June 2016 to present 0 √

Chang

Guangwei

Employee Supervisor/General

Manager of Retail Banking

Department

Male 54 21 July 2014 to present 0 √

Zhao Jing Employee Supervisor/Director

of the Supervision Office Female 48

6 December 2015 to

present 469,000 √

Sun Zhengbai Vice President Male 50 21 July 2014 to present 0 √

Li Ling Vice President Female 60 21 July 2014 to 9 May

2018 500,000 √

Lei Fengxin Vice President Male 53 21 July 2014 to present 500,000 √

Ding Rui Board Secretary Male 54 21 July 2014 to present 500,000 √

Xu Jinming1 Vice President Male 41 15 September 2017 to

present 0

Zhan Tianle Chief Risk Officer Male 54 15 December 2014 to

present 500,000 √

ii. Posts of directors and supervisors in shareholder entities and related enterprises

Name Shareholder entity Post

Zhou Min Legend Holdings Corporation Executive Director of Financial Services &

Investment Department

Wen Fu Wuhan Iron and Steel Group Corporation General Manager of Operation and Finance

Department

1 According to the central arrangements made by the Wuhan Municipal Committee of CPC for secondment of 100 Central Government and

provincial officers to Wuhan City, Mr. Xu Jinming served as Vice President of the Bank with the approval of the Board of Directors of the Bank.


78

Name Shareholder entity Post

Gao Zhichao

Wuhan Development and Investment Co., Ltd. Director

Wuhan Credit Risk Management Co., Ltd. Director

Shao Bo Wuhan State-owned Assets Management Co., Ltd. Manager of Strategic Research Department

Yuan Wenjian

Good First Group Co., Ltd. Deputy General Manager of Science and

Technology Undertaking Department

Good First Financial Holding Co., Ltd. Chief Fund Officer

Zhang Li Wuhan Bureau of Finance Chief of the Financial Division

iii. Major work experience and posts of directors, supervisors and senior executives at the end


1. Directors

Chen Xinmin, holder of doctoral degree and a senior accountant, is currently Chairman & Party Committee

Secretary of Hankou Bank. He formerly served as the deputy chief of the Banking Department of Shishou County

Sub-branch, Hubei Branch, Industrial and Commercial Bank of China; cadre, chief section member, deputy

division chief, deputy division chief of the Planning Department, head and Secretary of Party Committee of

Xiantao Sub-branch, Hubei Branch, Industrial and Commercial Bank of China, head and Secretary of Party

Committee of Huangshi City Branch, Hubei Branch, Industrial and Commercial Bank of China; Assistant

President, Deputy Head and member of Party Committee of Hubei Branch, Industrial and Commercial Bank of

China. He was Chairman of the Third/Fourth Board of Directors of Hankou Bank.

Ruan Xuzhou, holder of master’s degree and an economist, is currently Director, Vice President, Financial

Controller & Party Committee Member of Hankou Bank. Prior posts included Senior Staff Member and Principal

Staff Member of the Financial Management Division of Wuhan Branch of the People's Bank of China; Chief of the

Comprehensive Team of the Wuhan City Cooperative Bank Preparatory Office; and General Manager of the

Treasury Department, General Manager of the Credit Fund Management Department, and Vice President and Party

Committee Member of Wuhan City Commercial Bank. He was Chairman of the First Board of Supervisors and

served on the Second, the Third and the Fourth Board of Directors of Wuhan City Commercial Bank (Hankou

Bank).

Zhou Min, holder of a master’s degree from Cambridge University, is currently an executive director of the

Financial Services & Investment Department of Legend Holdings Ltd. He was a business director and business

manager of Legal Department of PICC Property and Casualty Company Limited, a division manager, a division

manager (in charge of work) of Legal and Compliance Department and Assistant to General Manager of the Credit

Credibility Assessment of The People’s Insurance Company (Group) of China Limited, and investment director of

the Financial Services & Investment Department of Legend Holdings Ltd.

Wen Fu, bachelor’s degree and accountant, is currently General Manager of the Operation and Finance

Department (Investment Management Department) of Wuhan Iron and Steel Group Corporation. Previously he

was Staff Member, Senior Staff Member and Principal Staff Member of the Cost Division and Budget Division of

the Planning and Finance Department at WISCO, Deputy Chief of the Price Investigation Division of the


79

Financial and Assets Department at China Iron and Steel Industry Association, Head of the Asset Management

Division of the Planning and Finance Department at WISCO, Senior Manager (Capital and State-owned Assets

Management) of the Operation and Finance Department at WISCO, and Chief Accountant at Wuhan Iron & Steel

Group Echeng Iron & Steel Co., Ltd.

Shao Bo, master’s degree, is currently Manager of the Strategic Research Department (Board Office) at Wuhan

State-owned Assets Management Co., Ltd. Previously he served as Legal Secretary and Manager of Legal Affairs

Department of China Eastern Airlines Corporation Limited, Director of President Office and Manager of Legal

Department at Orientlucky Horse Industry Ltd. and Senior Executive and Vice Director of Executive Office (in

charge) of Wuhan State-owned Assets Management Co., Ltd.

Gao Debu, holder of master’s degree and a PhD of economics, is currently a professor and a doctoral supervisor at

the School of Economics of Renmin University of China. He served as Assistant of the Department of Social

Science of Inner Mongolia Agricultural University, and Lecturer, Associate Professor, Professor, Deputy Head of

Faculty of Economics and Deputy Dean of School of Economics of Renmin University of China, and Independent

Director of the Fourth Board of Directors of Hankou Bank.

Xie Huobao, a postgraduate of accounting, a PhD of economics, an accounting postdoctorate and a doctoral

supervisor, is currently a professor of the Department of Accounting of Wuhan University and an independent

director of such listed companies as Zhongnan Commercial (Group) Co., Ltd., Humanwell Health Care Group Co.,

Ltd. and Xiong Tao Co., Ltd. His research fields mainly include accounting standards, accounting information

quality and corporate value management. He served as teaching assistant, lecturer and associate professor of

Wuhan University, and acted as a doctoral supervisor in accounting since 2008. He was also Independent Director

of the Fourth Board of Directors of Hankou Bank.

Gan Fang, a PhD of economics and a senior economist, is currently Director and General Manager of Guangdong

Hongde Investment Management Co., Ltd. She served as Deputy General Manager of the Investment Banking

Unit and General Manager of the International Business Department of China Merchants Securities Co., Ltd.;

Director and Deputy General Manager of China Merchants Securities (HK) Co., Ltd.; Director on China Business

of Sun Hung Kai Financial; and Assistant to General Manager of China Everbright Limited; and Independent

Director of the Fourth Board of Directors of Hankou Bank.

2. Supervisors

Bai Junwei, holder of bachelor’s degree and master candidate, is currently Chairman of the Board of Supervisors

(President Level) and Party Committee Member of Hankou Bank. He was Deputy Secretary of Youth League

Committee of Jiangxi Agricultural University (Deputy Division Chief Level) and Manager of the state-owned

Jiangxi Umbrella Factory and worked for Jiangxi Branch of the People’s Bank of China as Senior Supervisor of

the Supervision Office and Deputy Division Chief of the Investigation and Statistics Division, Deputy Division

Chief of the Statistics and Investigation Division of Wuhan Branch of the People’s Bank of China, Deputy Head

of Xinyu Central Sub-branch of the People’s Bank of China, Deputy Division Chief and Division Chief of the

Non-banking Financial Institution Supervision Division of Wuhan Branch of the People’s Bank of China, Division

Chief of the Joint-stock Bank Supervision Division and City Commercial Bank Supervision Division of Hubei

Banking Regulatory Bureau. He was Chairman of the Third/Fourth Board of Supervisors of Hankou Bank.

Yuan Wenjian, master’s degree, is currently Deputy General Manager of Science and Technology Undertaking

Department of Good First Group Co., Ltd. and Chief Fund Officer of Good First Financial Holding Corporation.


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He formerly served as a dealer of the Securities Department of Trust and Investment Company of Xiamen Branch

of Industrial and Commercial Bank of China, Deputy Manager of the Securities Department of Fujian Jiuzhou

(Group) Co., Ltd., Senior Manager of the Investment Banking Department of Tiantong Securities, Manager of the

Securities Department of Xiongzhen Industrial, Chairman of the Board of Supervisors of Chengtun Mining Group

Co., Ltd., Assistant President of the Financial Undertaking Department of Good First Group, and Shareholder

Supervisor of the Fourth Board of Supervisors of Hankou Bank.

Zhang Li, postgraduate of a Party school, currently serves as Chief of the Financial Division of Wuhan Finance

Bureau. In Wuhan Finance Bureau, he was ever Section Staff, Deputy Section Chief, Section Chief and Deputy

Division Chief of the Industrial and Transport Division, Deputy Division Chief and Division Chief of the Statistical

Evaluation Division, Chief of Administrative and Public Institution Assets Management Division and Deputy

Secretary of Party Membership Committee.

Guo Tianyong, holder of master’s degree and a PhD of finance, is currently Professor and Doctoral Supervisor of

the School of Finance of Central University of Finance and Economics, and Director of China Banking Research

Center of this University. He ever worked in Yantai Branch of the People’s Bank of China.

Cui Baoshun, holder of a master’s degree and a senior lawyer of China, is currently Director and Secretary of

Party General Branch of Hubei Rui Tong Tian Yuan Law Firm, expert member of the Committee for Selection of

Judges and Prosecutors of Hubei Province, the Standing Director of Wuhan Lawyers Association, Chairman of the

Committee for Rights Protection and Disciplinary Punishment of Lawyers of Wuhan, Arbitrator of the Wuhan

Arbitration Committee, Part-time Professor of Law School of Jianghan University and Visiting Professor of Hubei

University of Police.

Tu Yibin, holder of bachelor’s degree and MBA of Wuhan University, senior accountant, senior international

business operator, senior economist, senior Chinese CPA, Chinese certified cost engineer, Chinese certified tax

agent and judicial authenticator, is currently Chairman of Wuhan Hongxin Co., Ltd. He ever worked in Hubei

Farm, Industry and Commerce Company as its Finance Section Chief, in Hubei Farms Agribusiness Corp. as

Deputy Head of its Audit Office, in Hubei Baiyun Audit Office as its Director, in China State Farms Agribusiness

(Group) Corporation Wuhan Branch as its Vice General Manager and in Hankou Bank as External Supervisor of

its Third Board of Supervisors.

Chang Guangwei, holder of bachelor’s degree, economist, is currently General Manager of the Retail Banking

Department of Hankou Bank. He served as Chief of the Chezhan Road Savings Office of Wuhan Branch of

Industrial and Commercial Bank of China, a clerk of the Savings Section of Jiang’an Sub-branch of Wuhan

Branch of Industrial and Commercial Bank of China, Deputy Section Chief (in charge) and Section Chief of the

Savings Department of the Banking Department of Wuhan Branch of Industrial and Commercial Bank of China,

Chief of Yangtze River Daily Representative Office of the Banking Department of Wuhan Branch of Industrial and

Commercial Bank of China, Chief of the Office Building Repair and Renovation Office of the Banking

Department of Wuhan Branch of Industrial and Commercial Bank of China, Deputy Head of Hankou Sub-branch

of Wuhan Branch of Industrial and Commercial Bank of China, Deputy Division Chief (in charge), Division Chief

and General Manager of Personal Banking Department of the Banking Department of Hubei Branch, General

Manager of the Retail Banking Department of Hankou Bank, General Manager of Retail Banking Department &

of Bank Card and Electronic Channel Department of Hankou Bank, General Manager of the Risk Management

Department & Head of Xinlu Sub-branch of Hankou Bank, General Manager of the Audit Department of Hankou

Bank & President of HB Yangxin Rural Bank Co., Ltd. (acting), and Employee Supervisor of the Fourth Board of


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Supervisors of Hankou Bank.

Zhao Jing, self-taught bachelor’s degree and EMBA of Huazhong University of Science and Technology, is

currently Director of the Inspection Office of Hankou Bank. Previously, she was Accountant of Banking

Department of PBC Wuhan Branch, member of the Accounting & Audit Team for preparation of Wuhan

Cooperative Bank, member of the Accounting & Audit Team, Vice General Manager of the Audit Department,

Vice President of Beihu Sub-branch (in charge of work) and Assistant General Manager of the Corporate Banking

Department of Wuhan City Commercial Bank, Assistant General Manager of the Corporate Banking Department,

Assistant General Manager of the Corporate Banking Department and Vice President of Dongxihu Sub-branch

(acting), Vice General Manager of the Retail Banking Department and Director of Customer Service Center, Vice

General Manager of Housing Finance and Personal Loan Department (in charge of work), Vice General Manager

(GM Level) of the Retail Banking Department and Vice General Manager of the Personal Consumption Credit

Department, Xiaogan Branch Preparation Team Leader (GM Level) of Hankou Bank and President and Party

Committee Secretary of Xiaogan Branch of Hankou Bank.

3. Other senior executives

Sun Zhengbai, graduate degree and master’s degree, senior economist, is now Vice President (President Level)

and Party Committee Member of Hankou Bank. He acted as Senior Staff Member of the Management Committee

of Wuhan Economic and Technical Development Zone, Senior Staff Member, Principal Staff Member, Deputy

Division Chief and Division Chief of the Cadre Education Division, Division Chief of the Economic Cadre

Division, Associate Inspector and Division Chief of the Economic Cadre Division of the Organization Department

of CPC Wuhan Municipal Party Committee.

Lei Fengxin, holder of a master’s degree and a senior economist, is currently Vice President, Party Committee

Member and Chairman of the Labor Union of Hankou Bank. He previously worked for Zhongnan University of

Finance and Economics as a lecturer, for the People's Bank of China as a General Office member and a senior staff

member and principal staff member in the Policy Research Office of Wuhan Branch, for Wuhan Urban

Cooperative Bank as Head of the Asset Verification Team of the Preparatory Office, for Wuhan City Commercial

Bank as General Manager of the Market Development Department, President and Chief of the Executive Office of

Hongshan Road Sub-branch, Assistant President, Chief of Executive Office, General Manager of Development

Planning Department and Deputy Head and Party Committee Member and for Hankou Bank as Vice President,

Party Committee Member and Director of the General Office and General Manager of the Mass Affairs

Department. He was member of the Second Board of Directors and Board Secretary of Wuhan City Commercial

Bank.

Ding Rui, master’s degree and economist, is currently Board Secretary (Vice President Level) and Party

Committee Member of Hankou Bank. He formerly worked as a teacher and Deputy Chief of the Executive Office

of the Training Center of Hubei Provincial Planning Commission, General Secretary to the General Affairs Group

of Wuhan Urban Cooperative Bank and Chief of the Executive Office, General Manager of the Technology

Department and Board Secretary of Wuhan City Commercial Bank. He formerly served as Board Secretary of the

Second, the Third and the Fourth Board of Directors of Wuhan City Commercial Bank (Hankou Bank).

Xu Jinming, master’s degree and a senior economist, is currently Vice President and Party Committee Member of

Hankou Bank. He was deputy chief (in charge) of the Risk Management Division of the Corporate Annuity Center

(Pension Business Department) of ICBC Head Office, deputy chief (in charge) of the Research & Development


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Division and deputy chief (in charge) of Business Development Division of the Corporate Annuity Center of

ICBC Head Office, senior manager (in charge) of the Business Development Division of Pension Business

Department of ICBC Head Office, and chief of the Business Development Division of the Pension Business

Department of ICBC Head Office.

Zhan Tianle, holder of college degree, master’s degree and an economist, is currently Chief Risk Officer (Vice

President Level) of Hankou Bank. He served as Senior Staff Member and Principal Staff Member of the Planning

and Fund Division of Wuhan Branch of the People’s Bank of China; Director of Wuhan Changjiang Urban Credit

Cooperatives, as well as Director of Tangjiadun Sub-branch, Head of Dadongmen Sub-branch, General Manager

of the Credit Fund Management Department, General Manager of the Credit Management Department and

General Manager of the Asset Risk Control Department of Wuhan City Commercial Bank. He also took the

positions of Chief Risk Officer (Assistant President level) & General Manager of the Risk Management

Department, as well as Chief Risk Officer (Assistant President level) & Head of Honggangcheng Sub-branch,

Assistant President & Head of Qingshan Sub-branch of Hankou Bank, and Assistant President & General Manager

of Risk Management Department.

iv. Changes in directors, supervisors and senior executives during the reporting period

Changes in directors, supervisors and senior executives of the Bank during the reporting period are detailed below:

1. The Bank accepted the proposed change of director appointed by shareholder Wuhan Iron and Steel Group

Corporation, removing Zhu Yonghong from the office of director and nominating Wen Fu to be a candidate for

director for the Bank’s Fifth Board of Directors. The accepted the proposed change of director appointed by

shareholder Wuhan State-owned Assets Management Co., Ltd., removing Wang Zhenglan from the office of

director and nominating Shao Bo to be a candidate for director for the Bank’s Fifth Board of Directors. On 10

December 2018, the 2018 First Extraordinary General Meeting of the Bank adopted a resolution in respect of the

Proposal on Changes in Some Directors, electing Wen Fu and Shao Bo as shareholder directors to the Fifth Board

of Directors.

2. On 28 November 2018, Zhu Yongtong ceased to serve as Vice Chairman, Executive Director, President and

Deputy Secretary of the Party Committee due to arrival at the retirement age.

3. On 9 May 2018, Li Ling ceased to serve as Vice President and Member of the Party Committee of the Bank due

to arrival at the retirement age.

4. On 6 July 2018, the Board of Directors of the Bank removed Xu Xin from the office of Assistant President of

the Bank.

5. On 18 December 2018, Yan Jun ceased to serve as Assistant President of the Bank.

II. Remunerations of Directors, Supervisors, Senior Executives and Key

Management Personnel

1. Management structure, decision-making procedure and basis of determination of remuneration

The Shareholders’ General Meeting of the Bank sets the policy, determination methods and payment methods for

the remuneration of directors and supervisors The Board of Directors is responsible for designing the remuneration


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management policies and procedures in accordance with relevant laws and regulations and assumes the ultimate

responsibility for remuneration management. The Nomination and Compensation Committee of the Board of

Directors carries out performance assessment and remuneration management of directors and senior executives of

the Bank and organizes research on the policy, plan and other issues regarding remuneration of directors and

senior executives of the Bank (in the reporting period, the Nomination and Compensation Committee of the Bank

consists of five directors, including three independent directors, and is chaired by an independent director). The

senior management of the Bank organizes the implementation of the Board of Directors’ resolutions on

remuneration management. The Human Resources Department of the Bank is responsible for implementing

specific matters. The risk control, compliance and planning and finance departments participate in and supervise

the execution of the remuneration mechanism and provide feedback for improvements. The audit department

conducts special audits over the design and execution of the remuneration system and reports findings to the

Board of Directors and the banking regulatory authority.

The Nomination and Compensation Committee of the Bank formulates the rules for remuneration of directors of

the Bank, submits them to the Board of Directors for review and approval and then reports them to the

Shareholders’ General Meeting for final approval. The Nomination Committee of the Board of Supervisors of the

Bank formulates the rules for remuneration of supervisors, submits them to the Board of Supervisors for review

and approval and then reports them to the Shareholders’ General Meeting for final approval. The Nomination and

Compensation Committee of the Bank formulates the rules for remuneration of senior executives and submits

them to the Board of Directors for review and approval.

The remuneration of directors, supervisors and senior executives of the Bank was determined in accordance with

the Policy on Remuneration of Directors and Supervisors of Hankou Bank Co., Ltd., the Policy on Allowances to

Independent Directors of Hankou Bank Co., Ltd., the Policy on Allowances to External Supervisors of Hankou

Bank Co., Ltd. and the Administrative Measures for Remunerations of Senior Executives of Hankou Bank Co., Ltd.

For senior executives of the Bank who are officers in charge of financial corporations directly appointed and

managed by the Wuhan Municipal Committee of CPC (“Officers in Charge of Party-managed Financial

Corporations”), the remuneration payment standards, performance assessment methods as well as the composition

and payment methods of remuneration and benefits are determined in accordance with the Provisional Measures

for Management of Party-managed Financial Corporations in Wuhan and Remuneration of Officers in Charge.

The remuneration of Officers in Charge of Party-managed Financial Corporations consists of basic annual salary,

annual performance pay and incentives pay linked to in-tenure performance assessment. Specifically, basic annual

pay is determined according to the average wages of in-service employees of municipal state-owned enterprises in

the previous year, while performance pay is linked to the annual performance evaluation results.

2. Remunerations of directors, supervisors and senior executives during the reporting period

During the reporting period, the Company paid allowances of RMB990,000 (before tax) to incumbent independent

directors and external supervisors. The directors and supervisors appointed by shareholder entities were not paid

by the Company but received remunerations and allowances from their own employers. During the reporting

period, the directors, supervisors and senior executives of the Company received total annual remunerations of

RMB6.937 million (before tax) from the Company (excluding the above RMB990,000 allowances to independent

directors and external supervisors).


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III. Employees of the Bank

1. Staff structure

At the end of the reporting period, the Bank had 3,994 employees, including eight senior executives and 173

middle-level officers. Among the employees, 12.9% have received master’s degree or above, 74.4% have received

bachelor’s degree and 12.7% have received junior college degree or below. At the end of the reporting period, 32

employees retired.

2. Total annual remuneration, beneficiaries and remuneration structure

Remuneration at the Bank consists of short-term compensation and defined contribution plan. Short-term

compensation items are listed below. For defined contribution plan items, please see notes to the auditor’s report.

Beneficiaries of remuneration include employees and other statutory beneficiaries.

(Unit: RMB1,000)

Item Provisioning during the

reporting period

Contribution during the

reporting period

Wages, bonus, allowances and subsidies 823,389 683,964

Staff benefits 44,902 44,947

Social security contributions 82,391 71,778

Where: Medical insurance 78,044 67,435

Industrial injury insurance 1,343 1,341

Birth insurance 3,004 3,002

Housing provident funds 66,001 66,142

Labor union funds and staff education funds 34,649 24,596

Total 1,051,332 891,427

3. Standards for remuneration and performance measurement and risk adjustments

The Bank keeps improving the remuneration assessment system according to its operation and development

strategy, adheres to the basic remuneration principle of combining incentives with constraints and matching

compliance with value of post, remains oriented to operating results and links remuneration to performance

assessment to further boost the increase motivation of institutions and employees in workplace. With risk

indicators incorporated in the performance assessment system, the Bank conducts a comprehensive assessment of

operating results using a multi-dimensional indicator system and plays the constraint role of remuneration in risk

management in a bid to promote prudent operation and sustainable development of the Bank.

4. Deferred payment of remuneration and non-cash remuneration


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In accordance with the Supervisory Guidelines on Sound Remuneration of Commercial Banks and other relevant

laws, regulations and policies, the Bank defers the payment of the performance-linked remunerations middle-level

executives, risk managers, credit review managers, customer managers and other personnel in positions which can

exert significant influence on risks and defines the rules about how to make deferred payment of

performance-linked remunerations, deferred recourse and charge-back, etc. The performance-linked remunerations

subject to deferred payment are pegged to the roles & responsibilities and the risks exposed in subsequent years

and they are paid by installments in subsequent years. At the end of the period, the Bank recorded RMB101.03

million in balance of deferred payment. Senior executives of the Bank who are Officers in Charge of

Party-managed Financial Corporations are entitled to in-tenure incentives pursuant to requirements of regulatory

authority. However, those who fail the comprehensive in-tenure assessment in the three-year assessment period

will be disqualified for in-tenure incentives income.

The Bank has paid for employees the contributions to endowment insurance, medical insurance, unemployment

insurance, work-related injury insurance, maternity insurance and housing provident funds, implemented the paid

leave system for employees and further improved the corporate annuity management system to safeguard the basic

interests of employees.

5. Others

(1) The Bank formulated the administrative measures for remunerations of Hankou Bank and the rules for deferred

payment of performance pay and had them reviewed and approved at the Employees’ Congress Senior executives

of the Bank who are Officers in Charge of Party-managed Financial Corporations are assessed in accordance with

the Provisional Measures for Management of Party-managed Financial Corporations in Wuhan and

Remuneration of Officers in Charge.

(2) In the reporting period, the Bank had no exceptions to its original remuneration plan.


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Chapter IX Corporate Governance Practice

I. Corporate Governance during the Reporting Period

The Bank established a modern and effective corporate governance framework consisting of the Shareholders’

General Meeting (the highest power organ), the Board of Directors (the decision-making organ), the Board of

Supervisors (the supervisory organ) and the management (the executive organ) in accordance with the Company

Law, the Commercial Bank Law, the Guidelines on Corporate Governance of Commercial Banks and other

applicable laws, regulations and normative documents. During the reporting period, the Bank made continuous

improvements in the corporate governance level in strict compliance with regulatory requirements.

i. About shareholders and the Shareholders’ General Meeting

The Bank held two annual general meetings during the reporting period.

1. Annual General Meeting for 2017

According to the resolution adopted at the 23rd Meeting of the Fifth Board of Directors of the Bank, the Board of

Directors of the Bank published an announcement on the general meeting on the Bank’s website and the Hubei

Daily on 6 June 2018. The Bank convened the 2017 Annual General Meeting on the 28th Floor of Hankou Bank

Mansion on 26 June 2017. The meeting reviewed and approved through open vote 7 proposals including on 2017

work report of the Board of Directors, 2017 work report of the Board of Supervisors, 2017 Annual Report and its

summary, 2017 final accounts and 2018 financial budget and 2017 profit distribution plan. 33 shareholders and

proxies attended the 2016 Annual General Meeting, representing 2,968,286,102 shares or 71.91% of total shares.

Chairman Chen Xinmin presided over the meeting. Some directors, supervisors and senior executives of the Bank

were present at the meeting.

2. The First Extraordinary General Meeting in 2018

According to the resolution adopted at the 26th Meeting of the Fifth Board of Directors of the Bank, the Board of

Directors of the Bank published an announcement on the notice of a general meeting on the Bank’s website and

the Hubei Daily respectively on 24 November 2018. The Bank convened the 2018 First Extraordinary General

Meeting on the 28th Floor of Hankou Bank Mansion on 10 December 2018. The meeting reviewed and approved

through open vote the Proposal on Replacement of Selected Directors, the Proposal on Amendments to the

Articles of Association of Hankou Bank Co., Ltd., the Proposal on Amendments to the Equity Management

Measures of Hankou Bank Co., Ltd., the Proposal on Amendments to the Administrative Measures for the

Connected Transactions of Hankou Bank Co., Ltd. 26 shareholders and proxies attended the 2018 First

Extraordinary General Meeting, representing 2,877,069,848 shares or 69.70% of total shares. Chairman Chen

Xinmin presided over the meeting. Some directors, supervisors and senior executives of the Bank were present at

the meeting.

The notification, convening, holding and voting procedures of two annual general meetings conformed to the

Company Law and the Articles of Association of the Bank to ensure all shareholders equally and fully exercise the

right to be informed of, take part in and vote on significant corporate matters. Lawyers from King & Wood

Mallesons witnessed the entire process of and issued a legal opinion for the above meetings.


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ii. About directors, the Board of Directors and special committees

The director qualifications and selection procedures of the Bank comply with the provisions of the Company Law,

the Commercial Bank Law and the regulatory rules, and the quorum and composition of the Board of Directors

satisfy the requirements of relevant laws, regulations and the Articles of Association. Directors possess the

knowledge and quality necessary for performance of their duties and meet conditions required by regulators.

The Board of Directors held 10 meetings, reviewed and approved 70 proposals and heard 29 reports during the

reporting period.

The Board of Directors of the Bank consisted of 11 members, including four independent directors three of whom

have ever attended the board meetings actually during the reporting period.

The Fifth Board of Directors of the Bank had five special committees with the following memberships at the end of

the reporting period:

Members of the Strategy Committee: Chen Xinmin (chairman), Zhu Yongtong, Zhao Xin’ge, Zhou Min and Zhu

Yonghong

Members of the Technology Finance Committee: Chen Xinmin (chairman), Zhu Yongtong, Gao Debu and Gan

Fang

Members of the Audit Committee: Xie Huobao (chairman), Gan Fang, Zhao Xin’ge, Gao Zhichao and Wang

Zhenglan

Members of the Risk and Related Party Transactions Control Committee: Gao Debu (chairman), Xie Huobao, Gan

Fang, Gao Zhichao and Ruan Xuzhou

Members of the Nomination and Compensation Committee: Gan Fang (chairman), Zhu Yongtong, Gao Debu, Xie

Huobao and Zhou Min

During the reporting period, the Strategy Committee held one meeting, reviewed and approved two proposals, and

heard three reports; the Audit Committee held three meetings, reviewed and approved six proposals and heard four

reports; the Risk and Related Party Transactions Control Committee held six meetings, reviewed and approved 37

proposals and heard eight reports; the Nomination and Compensation Committee held three meetings, reviewed and

approved 15 proposals.

iii. About supervisors, the Board of Supervisors and special committees

The supervisor qualifications and selection procedures of the Bank comply with the provisions of the Company

Law, the Commercial Bank Law and the regulatory rules, and the quorum and composition of the Board of

Supervisors satisfy the requirements of relevant laws, regulations and the Articles of Association. The supervisors

possess the knowledge and quality required for duty performance, and meet the conditions prescribed by the

regulatory authorities.

The Board of Supervisors of the Bank consisted of eight members, including two shareholder supervisors, three

external supervisors and three employee supervisors. The Board of Supervisors of the Bank has two special

committees.

During the reporting period, the Board of Supervisors held seven meetings, and reviewed and approved 43


88

proposals and heard 23 reports; the Supervision Committee held five meetings, reviewed and approved 33

proposals and heard nine reports; the Nomination Committee held two meetings, and reviewed and approved eight

proposals.

Members of committees of the Fifth Board of Supervisors were listed below:

Members of the Supervision Committee: Tu Yibin (chairman), Zhang Li, Cui Baoshun and Chang Guangwei;

Members of the Nomination Committee: Guo Tianyong (chairman), Yuan Wenjian and Zhao Jing

iv. Abut information disclosure and investor relations management

The Bank has continuously increased the timeliness, accuracy and completeness of information disclosure in

accordance with regulators’ requirements on information disclosure of commercial banks and with reference to

standards on listed banks, having regard to its particular conditions, thereby ensuring all shareholders have equal

access to information. In 2018, the Board of Directors prepared the 2017 Annual Report of Hankou Bank Co., Ltd.

in both Chinese and English in accordance with the CBRC rules on information disclosure and the Information

Disclosure Management Measures of the Bank, published the summary of the annual report on the Financial Times,

published the full text of the annual report on the website of the Bank (www.hkbchina.com) and kept a copy of the

2017 Annual Report at the Board of Directors’ Office of the Bank for review by investors and stakeholders.

Information disclosure was accurate, authentic and complete. The Bank attached great importance to maintaining

and improving the investor relations box of its official website and maintained communication with small and

medium investors online. In addition, the Bank safeguarded the interests of all shareholders, especially small and

medium investors, though reasonable response to letters, calls, visits and inquires from shareholders and

stakeholders in accordance with relevant policies.

II. Duty Performance of Independent Directors and External Supervisors

During the reporting period, the Bank’s independent directors and external supervisors diligently performed their

duties and attended meetings, aired professional opinions and exercised their voting rights as required. Those

unable to attend meetings in person all appointed proxies to attend and vote at the meetings on behalf of them.

Independent directors and external supervisors leveraged their expertise to fulfill duties as chairmen of special

committees, presided over or carried out work of special committees, provided independent professional opinions

on material related party transactions, internal audit and supervision and non-performing asset disposal of the Bank,

etc. and helped improve the efficiency and quality of decision making by the Board of Directors and supervision by

the Board of Supervisors.

i. Attendance of independent directors at Board of Directors’ meetings

Independent director Number of meetings to be

attended this year

Attendance in

person

Attendance by

proxy

Absence Remarks

Gao Debu 10 9 1 0

Xie Huobao 10 9 1 0

Gan Fang 10 8 2 0


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ii. Attendance of external supervisors at Board of Supervisors’ meetings

External supervisor Number of meetings to

be attended this year

Attendance in

person

Attendance by

proxy Absence Remarks

Tu Yibin 7 7 0 0

Guo Tianyong 7 6 1 0

Cui Baoshun 7 7 0 0

iii. Objections raised by independent directors and external supervisors to relevant matters of

the Company

During the reporting period, neither independent directors nor external supervisors of the Bank raised any

objection to the Company’s proposals to the Board of Directors/Supervisors and other significant matters.

III. Operation Decision-making System of the Company

The Bank implements a system of “Level-one legal person, unified accounting”. The Shareholders’ General

Meeting is the Bank’s highest authority, the Board of Directors performs the decision-making and management

functions and the Board of Supervisors performs the supervision function. The President, appointed by the Board

of Directors, assumes the overall responsibility for day-to-day operation management of the Bank.

IV. Assessment, Incentive and Constraint Mechanism for Senior Executives

The Bank kept improving the performance assessment system and the incentive and constraint mechanism for

senior executives. The performance and remuneration of senior executives of the Bank are carried out in

accordance with the relevant rules of Wuhan City for remuneration management of Officers in Charge of

Party-managed Financial Corporations. The remuneration consists of annual base salary, annual performance pay

and incentives pay linked to in-tenure performance assessment. Annual base salary is determined according to the

average wages of in-service employees of municipal state-owned enterprises in the previous year. The annual

performance pay of senior executives of the Bank is income linked to the annual performance assessment results

of senior executives. Taking annual base salary as the base for calculation, it is determined at an annual

performance pay adjustment coefficient according to the performance assessment score, assessment type and

results of internal annual performance assessment Annual performance pay is controlled within 1.5 times the

annual base salary. The Bank’s operating performance assessment indicators include profitability indicators,

development transformation indicators, risk management indicators, compliance indicators and social

responsibility indicators. The annual performance pay adjustment coefficient is determined according to the job

rank, functional nature of company and duty performance of senior executives of the Bank.

The in-tenure incentives income of senior executives of the Bank is income linked to the in-tenure assessment

results of senior executives in an assessment period of three years. The senior executives who fail the

comprehensive in-tenure assessment in the three-year assessment period will be disqualified for in-tenure

incentives income. Taking the aggregate annual salary of senior executives during their tenure as base for


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calculation, the in-tenure incentives income is determined according to the in-tenure performance assessment

results, subject to a maximum of 30% of the aggregate annual salary in the tenor.


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Chapter X Internal Control

I. Statement of the Board of Directors on Internal Control Responsibilities

The Board of Directors and all directors of the Bank warrant that the information contained herein does not

contain any false records, misleading statements or material omissions, and shall bear the joint and several

liabilities for the authenticity, accuracy and integrity of its contents.

It is the responsibility of the Board of Directors to establish, improve and effectively implement internal control;

the Board of Supervisors shall supervise the establishment and implementation of internal control by the Board of

Directors; the management is responsible for organizing and leading the daily operations of the Bank’s internal

control.

The objectives of the Bank’s internal control are to ensure the implementation of national laws and regulations and

the Bank’s rules and regulations; ensure that the Bank’s development strategy and business objectives are fully

implemented and fully realized; ensure the effectiveness of the risk management system, risk prevention and

protection of asset safety; ensure the timeliness, truthfulness, completeness and reliability of business records,

financial information and other management information; and ensure that the Bank’s business management meets

the prudential supervision requirements of regulatory authorities. Due to inherent limitations of internal control,

only reasonable assurance can be provided for the above target.

II. Basis of Internal Control over Financial Reporting and Internal Control

System Development

i. Basis of establishing internal control over financing reporting

The Bank has established a system of internal control over financing reporting on the basis of the Accounting Law,

the Accounting Standards for Business Enterprises, the Basic Standard for Internal Control of Business

Enterprises and applicable normative documents of regulatory authorities. The internal control over financial

reporting for the year did not have any material deficiencies.

ii. General plan on the establishment of internal control

The Bank has established an internal control system commensurate with the development strategy, business

size, scope of business, and risk characteristics in accordance with regulatory requirements on internal

control of commercial banks. The internal control system plays a positive role in maintaining continuity and

stability of business development and preventing financial risks. The Bank has long been dedicated to

improving and developing its internal control system and mechanism.

In the reporting period, the Bank combined the work on the “Year of Internal Control & Compliance

Enhancement Management” initiated by regulators with the Bank’s work on internal control and compliance

management and case prevention and also with the “Employee Conduct Education and Regulation

Campaign”, made solid progress in the development of internal control policies and procedures, compliance

education of all employees, inspection of internal control case prevention and employee conduct


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management and continuously increased the reasonableness and effectiveness of internal control.

iii. Establishment and improvement of internal control system

In accordance with the supervisory standards on internal control, the Bank has comprehensively diagnosed

and assessed the overall situation of internal control, improved internal control policies, streamlined business,

management and supporting processes, established the compliance review and post-assessment mechanism

for policies and procedures and regularly evaluated and improved internal control policies and procedures.

The policy management system launched the non-Wuhan branches’ policies management features to enable

total-process management of branches’ work on policies and procedure by the Head Office.

iv. Operation of internal control supervision mechanism

In the reporting period, the Bank carried out comprehensive, in-depth audit work in accordance with the work

plans of the Board of Directors and the Board of Supervisors and regulatory requirements of the PBOC and

CBIRC on a risk- and problem-oriented basis, with a focus on key work items of external supervisors and the

Bank. The Bank effectively played the role of internal audit as the “third line of defense” and practiced the

concept of “auditing creates value”.

During the reporting period, the Bank mainly carried out the following internal supervision activities: First, with a

focus on key institutions, key businesses, internal control and compliance, corporate governance and information

technology, the Bank completed over 20 internal audit projects in the year, including general audits, special audits

and follow-up audits, and also conducted 81 economic liability audits. Second, the Audit Opinions, Audit

Recommendations and Risk Reminders were given to audited entities against problems found in audits. Relevant

audit opinions and recommendations have been well considered and adopted by audited entities to help enhance

the operation management capabilities across the Bank. Third, the Bank strengthened the utilization of internal and

external supervisory inspection findings in every respect to urged corrective actions to boost compliance of

operation management activities of the Bank. Fourth, the Bank gave full play to the bridge role of

regulator-auditor interaction, provided coordination and support for 22 major work items of regulators, including

PBOC, audit bureau and local CBIRC office and ensured timely response to and communication of regulatory

requirements. Fifth, the Bank carried out the conduct crackdown campaign, established two inspection groups and

conducted special inspections over the Party conduct and integrity, implementation of key annual work and

progress of conduct enhancement work of branches, sub-branches and departments of the Head Office. Sixth, the

Bank supervised the implementation of “bans”, conducted inspections of banned employee behaviors and

organized comprehensive self-examination and screening of 58 entities across the Bank to plug loopholes and

prevent risks. Seventh, the Bank strengthened accountability for non-compliances and imposed penalties on

persons held liable for violation of regulations and discipline.

v. Internal control self-assessment

The Bank’s Board of Directors authorized the internal audit body to be responsible for specific organization and

implementation of internal control assessment, addressing internal control environment (including corporate

governance, organizational framework, development strategy, human resources, corporate culture and social

responsibilities), risk identification and assessment, internal control activities, information exchange and

communication, and internal supervision. The 2018 Internal Control Self-assessment Report of Hankou Bank Co.,

Ltd. was thus developed and submitted to the Board of Directors for review and approval.


93

vi. Development and improvement of internal control

In 2019, the Bank, on the basis of development strategies, in combination with the changes in organizational

framework and business process, will steadily push forward specialized and centralized risk management, improve

internal control organizational structure and working mechanism, gradually develop a comprehensive risk

management system covering all the employees, all the aspects and the entire process, further enhance the

adequacy and effectiveness of internal control, further reinforce the anti-risk capacity, guarantee the safe and

sound operation, and drive the Bank’s healthy and sustainable development.


94

Chapter XI Financial Report

The 2018 financial report of the Company has been audited by Union Power Certified Public Accountants LLP

under the Chinese auditing standards and signed by CPAs Zhu Ye and Xia Caiqu. A standard unqualified auditor’s

report (Z.H.S.Z. [2019] No. 010835) (see Annex) was issued.

Chapter XII List of Documents for Reference

I. Financial statements bearing the signatures and seals of the legal representative, accounting supervisor and

principal of the accounting institution of the Company;

II. Original auditor’s report affixed with the stamp of the accounting firm as well as the signatures and seals of the

CPAs;

III. Articles of Association of the Bank.

Chapter XIII Annexes

The 2018 Auditor’s Report and Notes to the Financial Statements of the Company.

Chairman: Chen Xinmin


24 April 2019

Written Confirmation of Directors of Hankou Bank

Co., Ltd. on the Company’s 2018 Annual Report

As directors of Hankou Bank Co., Ltd., we hereby issue the following opinions after full understanding and

review of the Company’s 2018 Annual Report:

1. The Company operates in strict compliance with the Accounting Standards for Business Enterprises,

Accounting System for Enterprises and Accounting Rules for Financial Enterprises. The Company’s 2018 Annual

Report fairly reflects the Company’s financial position and operating results for this year.

2. The 2018 financial report of the Company has been audited by Union Power Certified Public Accountants LLP

under the Chinese Auditing Standards, which has issued a standard unqualified auditor’s report.

3. We believe that the procedures of preparing and reviewing the Company’s 2018 Annual Report comply with the

laws and regulations and regulatory provisions, and that the information contained herein does not include any

false records, misleading statements or material omissions, and bear the joint and several liabilities for the

authenticity, accuracy and integrity of its contents.

Signatures of Directors:

Chen Xinmin Ruan Xuzhou

Zhou Min Wen Fu

Yao Ke Shao Bo

Guo Li Hou Chengqi

Zhang Yabing Wu Bin


24 April 2019

Auditors’ Report, page 1 of 3

Auditors’ Report

Z.H.S.Z. (2019) No. 010835

To all the shareholders of Hankou Bank Co., Ltd.:

I. Opinion

We have audited the accompanying financial statements of Hankou Bank Co., Ltd., which

comprise the consolidated and parent company’s balance sheets as at 31 December 2018 and the

consolidated and parent company’s income statements, consolidated and parent company’s

statements of cash flows and consolidated and parent company’s statements of changes in equity

for the year then end and notes to financial statements.

In our opinion, the accompanying financial statements have been prepared in all material respects

in accordance with the Accounting Standards for Business Enterprises and presented fairly the

consolidated and parent company’s financial position of Hankou Bank Co., Ltd. as at 31

December 2018 and the consolidated and parent company’s operating results and cash flows for

the year then ended.

II. Basis for Our Audit Opinion

We conducted our audit in accordance with the Auditing Standards for Chinese Certified Public

Accountants. The section “CPA’s Responsibility for Audit of the Financial Statements” in the

Auditor’s Report further described our responsibility under the Auditing Standards. According to

the China Code of Ethics for Certified Public Accountants, we are independent from Hankou Bank

Co., Ltd., and has performed other responsibilities in respect of the code of ethics. We believe that

the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

opinion.

III. Other Information

The management of Hankou Bank Co., Ltd. is responsible for other information, which include

the information contained in the 2018 Annual Report of Hankou Bank Co., Ltd. but exclude those

contained in the financial statements and our auditor’s report. The 2018 Annual Report of Hankou

Bank Co., Ltd. is expected to be provided to us after the date of our auditor’s report.

Our audit opinion on the financial statements does not cover other information, and we do not

issue any forms of assurance conclusion on any other information.

In combination with our audit of the financial statements, our responsibility is to read the

above-mentioned other information when we get access to the same, during which process we

shall consider whether there is any material inconsistency between other information and the

financial statements or what we have learned during our audit or whether there seems to be any

material misstatement.

If we confirm the existence of a material misstatement in the 2018 Annual Report of Hankou Bank

Co., Ltd. after reading it, the Auditing Standards requires us to communicate with those charged

with governance on such material misstatement and take the following actions: If other


information is corrected, a necessary procedure will be implemented in light of the specific

circumstances; if other information is not corrected after communication with those charged with

governance, we will take the legitimate rights and obligations of those charged with governance

into consideration and take appropriate measures in order to remind the users of the Auditor’s

Report of paying due attention to the material misstatement not corrected.

IV. Responsibility of the Management and Those Charged with Governance for the

Financial Statements

The management of Hankou Bank Co., Ltd. is responsible for the preparation of the financial

statements in accordance with the Accounting Standards for Business Enterprises. This

responsibility includes fairly presenting the financial statements, and designing, implementing and

maintaining internal control relevant to the preparation and fair presentation of the financial

statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management is responsible for assessing the ability of

Hankou Bank Co., Ltd. to continue as a going concern, disclosing, as applicable, matters related to

going concern and using the going concern basis of accounting unless the management either

intends to liquidate Hankou Bank Co., Ltd. or to cease operations, or have no realistic alternative

but to do so.

Those charged with governance is responsible for overseeing the financial reporting process of


V. CPA’s Responsibility for Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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. Reasonable assurance is a high level of assurance, but is not a

guarantee that an audit conducted in accordance with the auditing standards 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 financial statements.

As part of an audit in accordance with the auditing standards, we exercise professional judgment

and maintain professional skepticism throughout the audit. We also:

i. Identify and assess the risks of material misstatement of the 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.

ii. 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 internal control.

iii. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the management.

iv. Conclude on the appropriateness of the going-concern assumption used by the management.

And, based on the audit evidence obtained, draw a conclusion that whether a material uncertainty

exists in events or conditions that may cast significant doubt on the ability of Hankou Bank Co.,


Ltd. 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 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 Hankou Bank Co., Ltd. to cease to continue as a going concern.

v. Evaluate the overall presentation, structure and content of the financial statements (including the

disclosures) and whether the financial statements represent the underlying transactions and events

in a manner that achieves fair presentation.

vi. Obtain sufficient and appropriate audit evidence on the financial information of the entity or

business activity of Hankou Bank Co., Ltd. in order to issue our audit opinion on the financial

statements. We are responsible for instructing, overseeing and performing the group audit, and

assume all the responsibilities for the 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.

Union Power Certified Public Accounts Chinese CPA: Zhu Ye

(Special General Partnership) Chinese CPA :Xia Caiqu

Wuhan, China 24 April 2019

Consolidated Balance Sheet (Assets) H.S.Y. Table 01

Prepared by Hankou Bank Co., Ltd. Unit: RMB1,000

Assets Note 31-Dec-18 31-Dec-17

Assets:

Cash and balances with central banks (VIII) 1 26,913,543 28,794,513

Deposits with banks and other financial institutions (VIII) 2 1,072,991 3,390,629

Precious metals

Lendings to banks and other financial institutions (VIII) 3 500,000 317,493

Financial assets designated at fair value through profit or loss (VIII) 4 13,042,298 13,258,475

Derivative financial assets

Financial assets under reverse repurchase agreements (VIII) 5 4,010,200 5,213,687

Loans and advances (VIII) 6 132,597,003 110,574,956

Available-for-sale financial assets (VIII) 7 57,161,098 46,602,789

Held-to-maturity investments (VIII) 8 41,149,070 25,556,330

Investment with receivables (VIII) 9 34,873,459 41,207,532

Long-term equity investment (VIII) 10 787,643 763,209

Investment properties

Fixed assets (VIII) 11 1,474,700 1,557,171

Construction in progress (VIII) 12 36,370 1,183

Intangible assets (VIII) 13 71,614 78,403

Goodwill

Deferred income tax assets (VIII) 14 1,530,968 1,437,067

Other assets (VIII) 15 4,074,952 2,323,599

Total assets 319,295,909 281,077,036

Legal representative: Chen Xinmin Person in charge of accounting: Ruan Xuzhou Head of accounting department: Li Daquan

Page 1 of 177

Consolidated Balance Sheet (Liabilities and Shareholders’ Equity) H.S.Y. Table 01


Liabilities and shareholders’ equity Note 31-Dec-18 31-Dec-17

Liabilities:

Borrowings from central banks (VIII) 17 1,700,000 60,200

Deposits from banks and other financial institutions (VIII) 18 4,799,804 4,612,922

Borrowings from banks and other financial institutions (VIII) 19 1,504,290 1,625,404

Financial liabilities designated at fair value through profit or loss (VIII) 20 13,190,558 13,003,858

Derivative financial liabilities

Financial assets under repurchase agreements (VIII) 21 17,496,238 15,221,395

Customer deposits (VIII) 22 188,829,166 162,761,834

Payroll payable (VIII) 23 406,046 238,008

Taxes payable (VIII) 24 150,507 485,081

Estimated liabilities

Bonds payable (VIII) 25 67,408,116 61,179,594

Deferred income tax liabilities (VIII) 14 122,432 7,771

Other liabilities (VIII) 26 3,646,473 3,873,987

Total liabilities 299,253,630 263,070,054

Shareholders’ equity:

Share capital (VIII) 27 4,127,846 4,127,846

Other equity instruments

Incl.: Preference shares

Perpetual bonds

Capital reserve (VIII) 28 3,259,204 3,259,204

Less: Treasury stock

Other comprehensive income (VIII) 29 364,218 -202,086

Surplus reserves (VIII) 30 1,569,803 1,379,550

General risk reserve (VIII) 31 4,203,355 3,870,216

Retained profit (VIII) 32 6,461,342 5,505,556

Total equity attributable to owners of the parent company 19,985,768 17,940,286

Minority interest 56,511 66,696

Total shareholders’ equity 20,042,279 18,006,982

Total liabilities and owners’ equity 319,295,909 281,077,036


Page 2 of 177

Consolidated Income Statement H.S.Y. Table 02

Prepared by Hankou Bank Co., Ltd. Unit: RMB1,000 Item Note 2018 2017

I. Operating income 6,076,108 5,802,988

Net interest income (VIII) 33 4,001,505 4,324,621

Interest income (VIII) 33 11,140,093 9,933,816

Interest expense (VIII) 33 7,138,588 5,609,195

Net fee and commission income (VIII) 34 613,744 852,802

Fee and commission income (VIII) 34 688,905 919,736

Fee and commission expense (VIII) 34 75,161 66,934

Investment income (Loss is presented with “-”) (VIII) 35 1,370,103 581,397

Incl.: Investment income on associates and joint ventures 24,434 13,209

Net gain on changes in fair value (Loss is presented with “-”) (VIII) 36 60,020 -17,537

Exchange gain (Loss is presented with “-”) 19,490 -10,972

Other operating income (VIII) 37 7,703 4,778

Gain on disposal of assets (Loss is presented with “-”) (VIII) 38 -3,206 61,689

Other gains (VIII) 39 6,749 6,210

II. Operating expenses 4,360,224 3,944,826

Business taxes and surcharges (VIII) 40 66,502 60,538

General and administrative expenses (VIII) 41 2,068,042 1,988,426

Impairment losses on assets (VIII) 42 2,225,578 1,893,850

Other operating costs (VIII) 37 102 2,012

III. Operating profit (Loss is presented with “-”) 1,715,884 1,858,162

Add: non-operating income (VIII) 43 7,619 2,178

Less: Non-operating expenses (VIII) 44 7,742 3,746

IV. Total profit (Total loss is presented with “-”) 1,715,761 1,856,594

Less: Income tax expense (VIII) 45 -166,617 162,585

V. Net profit (Net loss is presented with “-”) 1,882,378 1,694,009

i. By operation continuity: 1,882,378 1,694,009

1. Net profit under going-concern (Net loss is presented with “-”) 1,882,378 1,694,009

2. Net profit under discontinued operation (Net loss is presented with “-”)

ii. By attribution of ownership: 1,882,378 1,694,009

1. Minority interest (Net loss is presented with “-”) -9,585 2,785

2. Net profit attributable to equity holders of the parent company (Net loss is presented with “-”) 1,891,963 1,691,224

VI. Other comprehensive income after tax, net 566,304 -220,969

i. Other comprehensive income that cannot be reclassified into profit or loss

1. Changes in net liabilities or net assets of defined benefit plans re-measured

2. Shares of other comprehensive income that cannot be reclassified into profit or loss in investees under the equity method

ii. Other comprehensive income that will be reclassified into profit or loss 566,304 -220,969

1. Shares of other comprehensive income that will be reclassified into profit or loss in investees under the equity method

2. Gains or losses on changes in fair value of available-for-sale financial assets(VIII) 46 566,304 -220,969

3. Gains or losses on held-to-maturity investment reclassified into available-for-sale financial assets

VII. Total comprehensive income 2,448,682 1,473,040

VIII. Earnings per share:

i. Basic earnings per share (RMB) 0.46 0.41

ii. Diluted earnings per share (RMB) 0.46 0.41

Legal representative: Chen Xinmin Person in charge of accounting: Ruan Xuzhou Head of accounting department: Li DaquanPage 3 of 177

Consolidated Statement of Cash Flows H.S.Y. Table 03


I. Cash flows from operating activities Net increase in customer deposits and due from banks and other financial institutions 26,143,837 37,320,190 Net increase in borrowings from central banks 1,639,800 -489,800 Net increase in placements from other financial institutions 2,105,322 7,181,403 Interest, fees and commissions received 12,571,388 10,820,577 Cash received from other operating activities (VIII) 47 60,848 9,103 Cash inflows from operating activities, subtotal 42,521,195 54,841,473 Net increase in loans and advances to customers 25,306,083 17,932,063 Net increase in deposits with central banks and other financial institutions -2,693,213 4,719,076 Net increase in placements with other financial institutions Interest, fees and commissions paid 4,371,941 3,369,631 Cash paid to and for employees 984,347 1,059,708 Taxes and surcharges paid 867,006 901,063 Cash paid for other operating activities (VIII) 47 966,403 573,625 Cash outflows from operating activities, subtotal 29,802,567 28,555,166 Cash outflows from operating activities, subtotal (VIII) 47 12,718,628 26,286,307

II. Cash flows from investing activities Cash received from disposal of investments 833,089,418 432,306,736 Return on investment 1,345,669 568,249 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 1,401 61,864 Net cash received from disposal of subsidiaries and other operating institutions Cash received from other investing activities Cash inflows from investing activities, subtotal 834,436,488 432,936,849 Cash paid for acquisition of investments 852,688,710 479,590,472 Cash paid for purchase and construction of fixed assets, intangible assets and other long-term assets 140,855 86,216 Net cash paid for acquisition of subsidiaries and other operating institutions Cash paid for other investing activities Cash outflows from investing activities, subtotal 852,829,565 479,676,688 Net cash flows from investing activities -18,393,077 -46,739,839

III. Cash flows from financing activities: Cash received from investors Incl.: Cash received from equity investment of minority shareholders attracted by subsidiaries Cash received from bond issue 89,731,560 96,977,758 Cash received from other financing activities Cash inflows from financing activities, subtotal 89,731,560 96,977,758 Cash repayment of debts 83,684,950 74,429,685 Dividend and profit distributed or interest paid 2,898,571 1,161,712 Incl.: Cash dividend paid to minority shareholders by subsidiaries 300 Cash paid for other financing activities Cash outflows from financing activities, subtotal 86,583,521 75,591,397 Net cash flows from financing activities 3,148,039 21,386,361

IV. Effect of exchange rate changes on cash and cash equivalents 35 50

V. Net increase in cash and cash equivalents (VIII) 47 -2,526,375 932,879 Add: Cash and cash equivalents at the beginning of the period 12,966,470 12,033,591

VI. Cash and cash equivalents at the end of the period (VIII) 47 10,440,095 12,966,470


Page 4 of 177

Consolidated Statement of Changes in Equity H.S.Y. Table 04


Item Note

2018 Total equity attributable to shareholders of the parent company

Minority interest

Total shareholders’

equity Share capital Capital reserve

Less: Treasury

stock

Other comprehensive

income

Surplus reserves

General risk reserve Retained profit

I. Balance at the end of last year 4,127,846 3,259,204 -202,086 1,379,550 3,870,216 5,505,556 66,696 18,006,982 Add: 1. Retroactive adjustment generated from business combinations under the same control 2. Changes in accounting policies 3. Correction of previous errors 4. OthersII. Balance at the beginning of the year 4,127,846 3,259,204 -202,086 1,379,550 3,870,216 5,505,556 66,696 18,006,982 III. Increase/decrease for the year (Decrease is presented with “-”) 566,304 190,253 333,139 955,786 -10,185 2,035,297 i. Net profit 1,891,963 -9,585 1,882,378 ii. Other comprehensive income 566,304 566,304 1. Net change in fair value of available-for-sale financial assets 755,072 755,072 (1) Amount recognized into shareholders’ equity 752,525 752,525 (2) Amount transferred to profit or loss 2,547 2,547 2. Effect of changes in other owners' equity of investees under the equity method 3. Effect of income tax relating to items recognized into shareholders' equity -188,768 -188,768 4. Others

Subtotal of i and ii 566,304 1,891,963 -9,585 2,448,682 iii. Owners’ contribution and capital decrease 1. Owners’ contribution 2. Share-based payment recognized into shareholders’ equity 3. Others (share premium) iv. Profit distribution 190,253 333,139 -936,177 -600 -413,385 1. Appropriation to surplus reserve (VIII) 32 190,253 -190,253 2. Appropriation to general risk reserve (VIII) 33 333,139 -333,139 3. Distribution to owners (or shareholders) -412,785 -600 -413,385 4. Others v. Carry-forward of owners’ equity 1. Transfer of capital reserve to capital (or share capital) 2. Transfer of surplus reserve to capital (or share capital) 3. Surplus reserve for offsetting losses 4. General risk reserve for offsetting losses 5. Other vi. OthersIV. Balance at the end of the year 4,127,846 3,259,204 364,218 1,569,803 4,203,355 6,461,342 56,511 20,042,279


Consolidated Statement of Changes in Equity H.S.Y. Table 04


Item Note

2017 Total equity attributable to shareholders of the parent company

Minority interest

Total shareholders’

equity Share capital Capital reserve

Less: Treasury

stock

Other comprehensive

income

Surplus reserves

General risk reserve Retained profit

I. Balance at the end of last year 4,127,846 3,259,204 18,883 1,210,700 2,842,477 5,341,149 64,646 16,864,905 Add: 1. Retroactive adjustment generated from business combinations under the same control 2. Changes in accounting policies 3. Correction of previous errors 4. OthersII. Balance at the beginning of the year 4,127,846 3,259,204 18,883 1,210,700 2,842,477 5,341,149 64,646 16,864,905 III. Increase/decrease for the year (Decrease is presented with “-”) -220,969 168,850 1,027,739 164,407 2,050 1,142,077 i. Net profit 1,691,224 2,785 1,694,009 ii. Other comprehensive income -220,969 -220,969 1. Net change in fair value of available-for-sale financial assets -294,625 -294,625 (1) Amount recognized into shareholders’ equity -363,252 -363,252 (2) Amount transferred to profit or loss 68,627 68,627 2. Effect of changes in other owners' equity of investees under the equity method 3. Effect of income tax relating to items recognized into shareholders' equity 73,656 73,656 4. Others

Subtotal of i and ii -220,969 1,691,224 2,785 1,473,040 iii. Owners’ contribution and capital decrease 1. Owners’ contribution 2. Share-based payment recognized into shareholders’ equity 3. Others (share premium) iv. Profit distribution 168,850 1,027,739 -1,526,817 -735 -330,963 1. Appropriation to surplus reserve (VIII) 32 168,850 -168,850 2. Appropriation to general risk reserve (VIII) 33 1,027,739 -1,027,739 3. Distribution to owners (or shareholders) -330,228 -735 -330,963 4. Others v. Carry-forward of owners’ equity 1. Transfer of capital reserve to capital (or share capital) 2. Transfer of surplus reserve to capital (or share capital) 3. Surplus reserve for offsetting losses 4. General risk reserve for offsetting losses 5. Other vi. OthersIV. Balance at the end of the year 4,127,846 3,259,204 -202,086 1,379,550 3,870,216 5,505,556 66,696 18,006,982


Balance Sheet (Assets) H.S.Y. Table 01


Assets Note 31-Dec-18 31-Dec-17

Assets:

Cash and balances with central banks (IX) 1 26,813,564 28,706,185

Deposits with banks and other financial institutions (IX) 2 929,158 3,268,557

Precious metals

Lendings to banks and other financial institutions (IX) 3 500,000 317,493

Financial assets designated at fair value through profit or loss (IX) 4 13,042,298 13,258,475


Financial assets under reverse repurchase agreements (IX) 5 4,010,200 5,213,687

Loans and advances (IX) 6 132,013,585 110,068,422

Available-for-sale financial assets (IX) 7 57,161,098 46,602,789

Held-to-maturity investments (IX) 8 41,149,070 25,556,330

Investment with receivables (IX) 9 34,843,459 40,887,532

Long-term equity investment (IX) 10 844,583 820,149

Investment properties

Fixed assets 1,473,703 1,556,153

Construction in progress 29,860 1,183

Intangible assets 71,614 78,358

Goodwill

Deferred income tax assets 1,524,250 1,433,206

Other assets (IX) 11 4,064,941 2,308,679

Total assets 318,471,383 280,077,198


Page 7 of 177

Balance Sheet (Liabilities and Shareholders’ Equity) H.S.Y. Table 01


Liabilities and shareholders’ equity Note 31-Dec-18 31-Dec-17

Liabilities:

Borrowings from central banks (IX) 12 1,650,000

Deposits from banks and other financial institutions (IX) 13 5,088,388 4,669,764

Borrowings from banks and other financial institutions (IX) 14 1,504,290 1,625,404

Financial liabilities designated at fair value through profit or loss (IX) 15 13,190,558 13,003,858


Financial assets under repurchase agreements (IX) 16 17,496,238 15,221,395

Customer deposits (IX) 17 187,861,314 161,876,484

Payroll payable 404,722 236,496

Taxes payable 150,502 484,817

Estimated liabilities

Bonds payable 67,408,116 61,179,594

Deferred income tax liabilities 122,432 7,771

Other liabilities (IX) 18 3,625,205 3,858,043


Shareholders’ equity:

Share capital 4,127,846 4,127,846

Other equity instruments

Incl.: Preference shares

Perpetual bonds

Capital reserve 3,258,594 3,258,594


Other comprehensive income 364,218 -202,086

Surplus reserves 1,569,803 1,379,550

General risk reserve 4,203,355 3,870,216

Retained profit 6,445,802 5,479,452

Total shareholders’ equity 19,969,618 17,913,572

Total liabilities and owners’ equity 318,471,383 280,077,198


Page 8 of 177

Income Statement H.S.Y. Table 02


I. Operating income 6,030,548 5,763,219

Net interest income (IX) 19 3,954,251 4,284,453

Interest income (IX) 19 11,076,517 9,876,272

Interest expense (IX) 19 7,122,266 5,591,819

Net fee and commission income (IX) 20 613,786 852,802

Fee and commission income (IX) 20 688,890 919,733

Fee and commission expense (IX) 20 75,104 66,931

Investment income (Loss is presented with “-”) (IX) 21 1,371,003 582,162

Incl.: Investment income on associates and joint ventures 24,434 13,209

Net gain on changes in fair value (Loss is presented with “-”) 60,020 -17,537

Exchange gain (Loss is presented with “-”) 19,490 -10,972

Other operating income 9,201 6,277

Gain on disposal of assets (Loss is presented with “-”) -3,206 61,689

Other gains 6,003 4,345

II. Operating expenses 4,293,299 3,913,664

Business taxes and surcharges 66,326 60,394

General and administrative expenses (IX) 22 2,041,565 1,962,754

Impairment losses on assets (IX) 23 2,185,306 1,888,504

Other operating costs 102 2,012

III. Operating profit (Loss is presented with “-”) 1,737,249 1,849,555

Add: non-operating income 7,577 2,147

Less: Non-operating expenses 7,449 3,702

IV. Total profit (Total loss is presented with “-”) 1,737,377 1,848,000

Less: Income tax expense -165,150 159,497

V. Net profit (Net loss is presented with “-”) 1,902,527 1,688,503

i. Net profit under going-concern (Net loss is presented with “-”) 1,902,527 1,688,503

ii. Net profit under discontinued operation (Net loss is presented with “-”)

VI. Other comprehensive income after tax, net 566,304 -220,969

i. Other comprehensive income that cannot be reclassified into profit or loss

1. Changes in net liabilities or net assets of defined benefit plans re-measured 2. Shares of other comprehensive income that cannot be reclassified into profit or loss in investees under the equity method

ii. Other comprehensive income that will be reclassified into profit or loss 566,304 -220,969 1. Shares of other comprehensive income that will be reclassified into profit or loss in investees under the equity method

2. Gains or losses on changes in fair value of available-for-sale financial assets 566,304 -220,969

3. Gains or losses on held-to-maturity investment reclassified into available-for-sale financial assets

VII. Total comprehensive income 2,468,831 1,467,534

VIII. Earnings per share:

i. Basic earnings per share (RMB)

ii. Diluted earnings per share (RMB)


Page 9 of 177

Statement of Cash Flows H.S.Y. Table 03


I. Cash flows from operating activities

Net increase in customer deposits and due from banks and other financial institutions 26,290,363 37,188,529

Net increase in borrowings from central banks 1,650,000 -500,000

Net increase in placements from other financial institutions 2,105,322 7,181,403

Interest, fees and commissions received 12,501,672 10,767,288

Cash received from other operating activities (IX) 24 61,560 8,707

Cash inflows from operating activities, subtotal 42,608,917 54,645,927

Net increase in loans and advances to customers 25,188,312 17,855,993

Net increase in deposits with central banks and other financial institutions -2,764,253 4,809,150

Net increase in placements with other financial institutions

Interest, fees and commissions paid 4,355,561 3,352,250

Cash paid to and for employees 974,186 1,050,375

Taxes and surcharges paid 863,157 897,030

Cash paid for other operating activities (IX) 24 954,333 559,558


Net cash flows from operating activities (IX) 24 13,037,621 26,121,571

II. Cash flows from investing activities

Cash received from disposal of investments 832,137,784 431,082,372

Return on investment 1,346,569 569,014

Net cash received from disposal of fixed assets, intangible assets and other long-term assets 1,401 61,689

Net cash received from disposal of subsidiaries and other operating institutions

Cash received from other investing activities

Cash inflows from investing activities, subtotal 833,485,754 431,713,075

Cash paid for acquisition of investments 852,027,075 478,281,107

Cash paid for purchase and construction of fixed assets, intangible assets and other long-term assets 133,420 86,099

Net cash paid for acquisition of subsidiaries and other operating institutions

Cash paid for other investing activities

Cash outflows from investing activities, subtotal 852,160,495 478,367,206

Net cash flows from investing activities -18,674,741 -46,654,131

III. Cash flows from financing activities:

Cash received from investors

Incl.: Cash received from equity investment of minority shareholders attracted by subsidiaries

Cash received from bond issue 89,731,560 96,977,758

Cash received from other financing activities

Cash inflows from financing activities, subtotal 89,731,560 96,977,758

Cash repayment of debts 83,684,950 74,429,685

Dividend and profit distributed or interest paid 2,898,271 1,160,977

Incl.: Cash dividend paid to minority shareholders by subsidiaries

Cash paid for other financing activities

Cash outflows from financing activities, subtotal 86,583,221 75,590,662

Net cash flows from financing activities 3,148,339 21,387,096

IV. Effect of exchange rate changes on cash and cash equivalents 35 47

V. Net increase in cash and cash equivalents (IX) 24 -2,488,746 854,583

Add: Cash and cash equivalents at the beginning of the period 12,837,360 11,982,777

VI. Cash and cash equivalents at the end of the period (IX) 24 10,348,614 12,837,360


Statement of Changes in Equity H.S.Y. Table 04


Item Note

2018

Share capital Capital reserve


Other comprehensive

income

Surplus reserves

General risk reserve Retained profit Total shareholders’

equity

I. Balance at the end of last year 4,127,846 3,258,594 -202,086 1,379,550 3,870,216 5,479,452 17,913,572 Add: 1. Changes in accounting policies2. Correction of previous errors3. OthersII. Balance at the beginning of the year 4,127,846 3,258,594 -202,086 1,379,550 3,870,216 5,479,452 17,913,572 III. Increase/decrease for the year (Decrease is presented with “-”) 566,304 190,253 333,139 966,350 2,056,046 i. Net profit 1,902,527 1,902,527 ii. Other comprehensive income 566,304 566,304 1. Net change in fair value of available-for-sale financial assets 755,072 755,072 (1) Amount recognized into shareholders’ equity 752,525 752,525 (2) Amount transferred to profit or loss 2,547 2,547 2. Effect of changes in other owners’ equity of investees under the equity method3. Effect of income tax relating to items recognized into shareholders' equity -188,768 -188,768 4. OthersSubtotal of i and ii 566,304 1,902,527 2,468,831 iii. Owners’ contribution and capital decrease1. Owners’ contribution2. Share-based payment recognized into shareholders’ equity3. Othersiv. Profit distribution 190,253 333,139 -936,177 -412,785 1. Appropriation to surplus reserve 190,253 -190,253 2. Appropriation to general risk reserve 333,139 -333,139 3. Distribution to owners (or shareholders) -412,785 -412,785 4. Othersv. Carry-forward of owners’ equity1. Transfer of capital reserve to capital (or share capital)2. Transfer of surplus reserve to capital (or share capital)3. Surplus reserve for offsetting losses4. General risk reserve for offsetting losses5. Othersvi. OthersIV. Balance at the end of the year 4,127,846 3,258,594 364,218 1,569,803 4,203,355 6,445,802 19,969,618


Page 11 of 177

Statement of Changes in Equity H.S.Y. Table 04


Item Note

2017

Share capital Capital reserve


Other comprehensive

income

Surplus reserves

General risk reserve Retained profit Total shareholders’

equity

I. Balance at the end of last year 4,127,846 3,258,594 18,883 1,210,700 2,842,477 5,317,765 16,776,265 Add: 1. Changes in accounting policies2. Correction of previous errors3. OthersII. Balance at the beginning of the year 4,127,846 3,258,594 18,883 1,210,700 2,842,477 5,317,765 16,776,265 III. Increase/decrease for the year (Decrease is presented with “-”) -220,969 168,850 1,027,739 161,687 1,137,307 i. Net profit 1,688,503 1,688,503 ii. Other comprehensive income -220,969 -220,969 1. Net change in fair value of available-for-sale financial assets -294,625 -294,625 (1) Amount recognized into shareholders’ equity -363,252 -363,252 (2) Amount transferred to profit or loss 68,627 68,627 2. Effect of changes in other owners’ equity of investees under the equity method3. Effect of income tax relating to items recognized into shareholders' equity 73,656 73,656 4. OthersSubtotal of i and ii -220,969 1,688,503 1,467,534 iii. Owners’ contribution and capital decrease1. Owners’ contribution2. Share-based payment recognized into shareholders’ equity3. Othersiv. Profit distribution 168,850 1,027,739 -1,526,816 -330,227 1. Appropriation to surplus reserve 168,850 -168,850 2. Appropriation to general risk reserve 1,027,739 -1,027,739 3. Distribution to owners (or shareholders) -330,227 -330,227 4. Othersv. Carry-forward of owners’ equity1. Transfer of capital reserve to capital (or share capital)2. Transfer of surplus reserve to capital (or share capital)3. Surplus reserve for offsetting losses4. General risk reserve for offsetting losses5. Othersvi. OthersIV. Balance at the end of the year 4,127,846 3,258,594 -202,086 1,379,550 3,870,216 5,479,452 17,913,572


Page 12 of 177

Page 13 of 177

Notes to Financial Statements

(31 December 2018)

I. Company Profile:

Hankou Bank Co., Ltd. (the “Bank”) was a joint-stock bank incorporated in December 1997 with

the approval (Document Y.F. [1997] No. 156) of the People’s Bank of China (“PBOC”) and the

approval of the Wuhan Administration for Industry and Commerce, formerly known as Wuhan

Urban Cooperative Bank. In 1998, Wuhan Urban Cooperative Bank was renamed Wuhan

Commercial Bank Co., Ltd. with the approval (Document W.Y.Y.G. [1998] No. 64) of PBOC

Wuhan Branch; in May 2008, Wuhan Commercial Bank Co., Ltd. was renamed Hankou Bank Co.,

Ltd. with the approval (Y.J.F. [2008] No. 181) of China Banking Regulatory Commission

(“CBRC”). Currently the Bank has a Unified Social Credit Code of 91420100300248067P and a

PRC Financial Service License No. of B0187H242010002.

As at 31 December 2018, the Bank recorded a registered capital of RMB4,127,845,808.00 and a

paid-up capital of RMB4,127,845,808.00. Please refer to Note XIII.29 for particulars of the

paid-up capital (shareholders).

1. Place of registration, form of organization and address of headquarters of the Bank

Form of organization: a joint-stock company

Place of registration: 933 Jianshe Road, Jianghan District, Wuhan City, Hubei Province

Office address of headquarters: 933 Jianshe Road, Jianghan District, Wuhan City, Hubei Province

2. Business nature and main activity of the Bank

The Bank operates in the financial industry. Its main operating activities include: deposits taking,

extension of loans on a short-term, medium-term and long-term basis, domestic settlement, bill

discounting, issuance of financial bonds, commissioned issuance, encashment and underwriting of

government bonds, trading of government bonds, interbank lending, provision of security, agency

payment and insurance, provision of safety deposit box services, entrusted deposits and loans on

behalf of local public finance, foreign exchange deposits, foreign exchange loans, foreign

exchange settlement, foreign exchange sales, foreign exchange trading on its own behalf and as an

agent, foreign exchange borrowings, trading or agency trading of non-stock foreign currency

securities, policy-directed housing finance services, and other services approved by the CBRC

Hubei Office and the State Administration of Foreign Exchange.

Business scope of the Bank and its subsidiaries (collectively the “Group”): Commercial banking

services approved by PBOC.

3. Name of the parent company and the ultimate parent company of the Group

The Group has no ultimate parent company.

4. Who and when approved the disclosure of the financial statements

Page 14 of 177

The Sixth Board of Directors of Hankou Bank approved the disclosure of the financial statements

at its third meeting on 24 April 2019.

II. Scope of Consolidated Financial Statements for the Year and Its Changes

As at the end of the reporting period, total two subsidiaries were incorporated into the scope of

consolidated financial statements. See Note X.1 for details.

There was no change in the scope of consolidated financial statements in the reporting period.

III. Basis for Preparation of Financial Statements:

Financial statements of the Group were prepared on a going concern basis according to

transactions and matters that had occurred, with all items measured and recognized in accordance

with the Accounting Standard for Business Enterprises-Basic Standard and other applicable

accounting standards.

IV. Statement on Compliance with Accounting Standards for Enterprises

The financial statements prepared by the Group truly and completely represent the financial

position, results of operations and cash flows of the Bank and the Group in compliance with the

Accounting Standards for Business Enterprises.

The Board of Directors and the Board of Supervisors of the Group and all directors, supervisors

and senior management members undertake that there are no false records or misleading

statements contained in, or material omissions from, this report, and severally and jointly accept

responsibility for the authenticity, accuracy and completeness of the information contained in this

report.

V. Major Accounting Policies and Accounting Estimates

1. Accounting period

The accounting period of the Group is a calendar year, i.e. from 1 January to 31 December each

year.

2. Bookkeeping base currency

RMB is the Group’s bookkeeping base currency.

3. Accounting for business combinations under the same control and not under the same control

Page 15 of 177

(1) Any business combination involving entities under the same control within the reporting

period was accounted for using the pooling of interest method. The assets and liabilities that the

combining party obtains in a business combination shall be measured on the basis of the combined

party’s carrying amount in the consolidated financial statements of the ultimate controller on the

combining date. As for the balance between the carrying amount of the net assets obtained by the

combining party and the carrying amount of the consideration paid by it (or the total par value of

the shares issued), the additional paid-up capital shall be adjusted. If the additional paid-up capital

is not sufficient to be offset, the retained earnings shall be adjusted. The direct cost for the

business combination of the combining party shall, including the audit fees, assessment and legal

services paid, be recorded into profit or loss. The bonds issued for a business combination or the

fees, commissions and other expenses for assuming other liabilities shall be recorded into the

amount of initial measurement of the bonds or other debts. The fees, commissions and other

expenses for the issuance of equity securities for the business combination shall be offset against

the premium income on equity securities; if the premium income is not sufficient, the retained

earnings shall be offset. Where a relationship between a parent company and a subsidiary

company is formed due to a business combination, the consolidated financial statements will be

prepared in accordance with the accounting policy on “Consolidated Financial Statements”

formulated by the Group. The period for adjusting comparative data of the consolidated financial

statements shall be no earlier than the later time when the combining party or combined party is

under the control of ultimate controller.

(2) Any business combination involving entities not under the same control within the reporting

period was treated using the purchase method. The combination costs shall be determined

respectively in light of the following circumstances: (i) For a business combination realized by a

transaction of exchange, the combination costs shall be the fair value, on the acquisition date, of

the assets given, the liabilities incurred or assumed and the equity securities issued in exchange for

the control on the acquiree. (ii) For a business combination realized by two or more transactions of

exchange, accounting treatment of shares held in the acquiree prior to the acquisition date should

be distinguished between individual financial statements and consolidated financial statements.

A. In the individual financial statements, the sum of the carrying amount of the equity investment

regarding original shareholdings in the acquiree and the additional investment cost are recognized

as initial cost of such investment which is changed to be calculated at the cost method. For other

comprehensive income recognized for equity investment held prior to the acquisition date due to

the adoption of the equity method, the disposal of such investment is accounted for adopting the

same basis for direct disposal of relevant assets or liabilities by the acquiree. The equity

investment held prior to the acquisition date shall be accounted for in accordance with the

Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement of

Financial Instruments, and the accumulated changes in fair value originally recognized in other

comprehensive income shall be transferred to profit or loss when they are changed to be calculated

at the cost method.

B. In the consolidated financial statements, shares held in the acquiree prior to the acquisition date

should be re-measured at their fair value on the acquisition date, with the difference between fair

value and carrying amount recorded in investment income. If shareholdings in the acquiree prior

to the acquisition date involve other comprehensive income under the equity method, such other

comprehensive income concerned will be transferred to investment income for the period on the

acquisition date. The Group discloses in notes the fair value of its shareholdings in the acquiree

prior to the acquisition date and re-measures relevant gain or loss at fair value.

(iii) Intermediary expenses incurred in connection with business combination, including charges

on audit, assessment and legal services and other administrative expenses concerned will be

recorded in profit or loss when incurred; the transaction cost of equity securities or debt securities

issued as the consideration of combination will be included in the initially recognized amount of

equity securities or debt securities. (iv) Where the combination contract or agreement covers

future matters that may influence the combination cost, the acquirer should include in the

Page 16 of 177

combination cost the future matters that are likely to take place and whose influence on the

combination cost is reliably measurable.

The Group, on the acquisition date, measures the assets given and liabilities incurred or assumed

by an enterprise for a business combination at their fair value, and records the difference between

their fair value and carrying amount into profit or loss.

The Group allocates the combination costs on the acquisition date, and recognizes all identifiable

assets, liabilities and contingent liabilities it obtains from the acquiree as required. (i) The positive

balance between the combination costs and the fair value of the net identifiable assets it obtains

from the acquiree will be recognized as goodwill. (ii) If the combination costs are lower than the

fair value of the net identifiable assets it obtains from the acquiree, the Group will check the

measurement of fair value of the identifiable assets, liabilities and contingent liabilities it obtains

from the acquiree as well as the combination costs. If, after the check, the combination costs are

still less than fair value of the net identifiable assets it obtains from the acquiree, the Group will

record the difference into profit or loss.

Where a relationship between a parent company and a subsidiary company is formed due to a

business combination, the parent company shall prepare accounting books for future reference,

which shall record fair values of the identifiable assets, liabilities and contingent liabilities it

obtains from the subsidiary company on the acquisition date. When consolidated financial

statements are prepared, financial statements of the subsidiary company will be adjusted based on

fair values of identifiable assets, liabilities and contingent liabilities determined on the acquisition

date in accordance with the accounting policy of the Group on Consolidated Financial Statements.

4. Preparation method of consolidated financial statements

(1) Scope of consolidation

The scope of consolidated financial statements shall be confirmed base on the control, including

the annual financial statements of the Bank and all subsidiaries by the year ended 31 December

2018. Subsidiary refers to the subject controlled by the Bank (including the dividable part in the

enterprise and investee, and the structured subject controlled by the Bank). Control means an

investor has the right on the investee, can enjoy variable return by participating the relevant

activities of investee and is capable to affect the return amount through its right on the investee.

(2) Preparation method of consolidated financial statements

The Bank prepared consolidated financial statements based on the financial statements of the Bank

and its subsidiaries, and other relevant materials.

When formulating consolidated financial statements, the Bank deems the whole enterprise group

as an accounting subject, and reflects the financial position, business performance and cash flows

of the enterprise group according to the requirements about the identification, measurement and

presentation of relevant accounting standard for business enterprises and the unified accounting

policies.

In case of any difference between the accounting policies or accounting periods adopted by the

Bank and its subsidiaries during the preparation of consolidated financial statements, the financial

statements of subsidiaries shall be adjusted based on the accounting policies and accounting

periods of the Bank. The financial statements of the subsidiary obtained not through business

combination under the same control shall be adjusted based on the recognizable fair value of net

Page 17 of 177

assets on the acquisition date.

(3) Presentation of minority interests and profit or loss

The owners’ equity of subsidiaries not attributable to the parent company is presented as “minority

interests” under the owners’ equity in the consolidated balance sheet.

Net profit or loss of subsidiaries attributable to minority interests are presented as “minority profit

or loss” under the net profit in the consolidated income statement.

(4) Treatment of excess losses

In the consolidated financial statements, losses attributed to minority shareholders of a subsidiary

in excess of minority shareholders’ share in owners’ equity of the subsidiary at the beginning of

the reporting period should still be offset against minority interests.

(5) Subsidiaries added to or removed from consolidated financial statements

Where a subsidiary is added due to a business combination involving entities under the same

control in the reporting period, the beginning balance of the consolidated balance sheet should be

adjusted when it is prepared. Where a subsidiary is added due to a business combination involving

entities not under the same control, the beginning balance of the consolidated balance sheet should

not be adjusted when it is prepared. Where a subsidiary is disposed of in the reporting period, the

beginning balance of the consolidated balance sheet should not be adjusted when it is prepared.

Where a subsidiary is added due to a business combination involving entities under the same

control in the reporting period, income, expenses and profit of the subsidiary from the beginning

of the combination period to the end of the reporting period should be included in the consolidated

income statement, and cash flows of the subsidiary from the beginning of the combination period

to the end of the reporting period should be included in the consolidated statement of cash flows.

Where a subsidiary is added due to a business combination involving entities not under the same

control, income, expenses and profit of the subsidiary from the beginning of the combination

period to the end of the reporting period should be included in the consolidated income statement,

and cash flows of the subsidiary from the acquisition date to the end of the reporting period should

be included in the consolidated statement of cash flows. Where a subsidiary is disposed of in the

reporting period, income, expenses and profit of the subsidiary from the beginning of the reporting

period to the disposal date should be included in the consolidated income statement, and cash

flows of the subsidiary from the beginning of the period to the disposal date should be included in

the consolidated statement of cash flows.

When the control on the original subsidiary is lost due to the disposal of partial equity investment

or other reasons, the residual equity investment after disposal shall be re-measured at its fair value

on the date of losing control. The difference after the sum of consideration obtained in disposal of

equity and fair value of residual equity minus portions of net assets of the original subsidiary

calculated continuously from the acquisition date, which shall be enjoyed as calculated by the

original shareholding percentage, is recognized in investment income for the period of losing

control. Other comprehensive income relating to the original equity investment in the subsidiary

should be transferred to investment income for the period when losing control.

For any difference between the long-term equity investment obtained in acquisition of minority

interest and net identifiable assets of the subsidiary that shall be enjoyed as calculated by the

added shareholding percentage, as well as any difference between the proceeds obtained due to the

disposal of partial equity investment in the subsidiary without losing control and net assets of the

subsidiary that shall be enjoyed as corresponding to the disposal of long-term equity investment,

Page 18 of 177

the share premium of capital reserve in the consolidated balance sheet should be adjusted. In case

of insufficient share premium of capital reserve for offset, retained earnings should be adjusted.

(6) Consolidated statement treatment of disposal of equity by step to loss of control

If transactions incurred in the disposal of equity investment in the subsidiary by step to loss of

control belong to a package of transactions, these transactions shall be treated in accounting as one

transaction of disposal of the subsidiary to loss of control. However, the difference between each

disposal consideration before the loss of control and net assets of the subsidiary that shall be

enjoyed corresponding to the disposal of investment should be recognized as other comprehensive

income in the consolidated financial statements and transferred to profit or loss for the period of

losing control upon loss of control. If these transactions do not belong to a package, before and

when losing control, accounting treatment shall be conducted in accordance with the accounting

policy for partial disposal of equity investment in the subsidiary without loss of control and the

policy for loss of control on the original subsidiary.

When terms & conditions and economic impact of transactions involved in the disposal of equity

investment in the subsidiary meet one or more circumstances, these transactions shall be treated as

a package: (i) these transactions are concluded at the same time or based on the consideration of

mutual effect; (ii) only the whole of these transactions can reach a complete commercial result; (iii)

one transaction depends on at least one of other transactions; and (iv) one transaction

independently is not economical, but together with other transactions it becomes economical.

The disposal of equity by step to loss of control in some financial statements is treated in

accordance with the accounting policy for the disposal of long-term equity investment.

5. Preparation method of consolidated financial statements of the Bank

The bank-wide consolidated financial statements of the Bank were prepared according to financial

statements and relevant materials of the Head Office, branches, the Banking Department of the

Head Office and sub-branches of the Bank. Material transactions inside the Bank and their

balances were offset against each other during consolidation.

6. Basis of bookkeeping and principle of pricing

The Group adopts the accrual basis of accounting. Except for some financial instruments, the

Bank adopts the historical cost principle for pricing. Allowance for impaired assets is set aside in

accordance with relevant rules.

7. Cash and cash equivalents

Cash and cash equivalents refer to cash on hand, deposits that can be used for payment at any time,

and short term investments with high liquidity, which are readily convertible into known amounts

of cash and subject to an insignificant risk of changes in value. Cash equivalents include

non-restricted balances with central banks, as well as deposits with banks and other financial

institutions, lendings to banks and other financial institutions and reverse repurchase agreements

with an original maturity of up to three months and bond investments with high liquidity in the

short term, that are readily convertible to cash in known amounts, exposed to an insignificant risk

Page 19 of 177

of value change and due within three months as from purchase date.

8. Foreign currency translation

The Group maintains separate accounts for each foreign currency. Foreign currency transactions

are recorded in the original currency when they take place.

Monetary items denominated in foreign currencies are translated on the balance sheet date at spot

exchange rate. Translation differences arising from items other than monetary securities classified

as available-for-sale are recorded in the income statement. Translation differences of monetary

securities measured in foreign currencies and classified as available-for-sale should be separated

into translation differences arising from changes in amortized cost and translation differences

arising from changes in other carrying amounts. Translation differences arising from changes in

amortized cost are recorded in the income statement, while translation differences arising from

changes in other carrying amounts are recorded in “Reserve for fair value changes in

available-for-sale financial assets” under other comprehensive income.

Non-monetary items denominated in foreign currencies that are measured at historical cost are

translated at the spot exchange rate applicable on the transaction date, with the amounts in

bookkeeping base currency remaining unchanged. Non-monetary items measured at fair value are

translated at the spot exchange rate applicable on the date of fair value determination, with

differences between amounts in bookkeeping base currency and amounts in original currency: in

the case of available-for-sale financial assets, recorded into “Reserve for fair value changes in

available-for-sale financial assets” under other comprehensive income; or in the case of financial

assets and financial liabilities designated at fair value through profit or loss, recorded into “Gains

or losses on changes in fair value” in the income statement.

9. Recognition and measurement of financial instruments

(1) Recognition of financial instruments

A financial asset or financial liability is recognized when the Group becomes a party to a financial

instrument contract.

(2) Classification and measurement of financial assets

(i) The Group, based on risk management, investment strategy, purpose for holding financial

assets and other reasons, classifies financial assets held into financial assets designated at fair

value through profit or loss, held-to-maturity investments, loans and receivables and

available-for-sale financial assets.

A. Financial assets designated at fair value through profit or loss

Financial assets designated at fair values through profit or loss, including held-for-trading

financial assets and financial assets designated at fair value through profit or loss.

Held-for-trading financial assets refer to those meet one of the following conditions: The purpose

to acquire the financial assets is mainly for selling in the short run; financial assets are a part of

recognizable combination of financial instruments which are managed in a centralized way and for

Page 20 of 177

which there is objective evidence proving that the enterprise may manage the combination by way

of short-term profit making in the near future; financial assets are derivative instruments, except

the designated derivative instruments which are effective hedging instruments, or derivative

instruments to financial guarantee contracts, and the derivative instruments which are linked with

the equity instrument investments for which there is no quoted price in the active market, whose

fair value cannot be reliably measured, and which shall be settled by delivering the said equity

instruments.

Financial assets that meet one of the following conditions can be financial assets designated at fair

value through profit or loss upon initial measurement: the designation is able to eliminate or

obviously reduce the discrepancies in the recognition or measurement of relevant gains or losses

arisen from the different basis of measurement of the financial instruments; the official written

documents on risk management or investment strategies have recorded that the combination of

said financial instruments will be managed and evaluated on the basis of their fair values and be

reported to the key management personnel; the financial assets have one or more hybrid

instruments with an embedded derivative instrument, except when the embedded derivative

instrument does not significantly change the cash flow of hybrid instrument, or the embedded

derivative shall obviously not be split from relevant hybrid instruments; the financial assets have

the hybrid instruments with the embedded derivative instrument that needs to be split but cannot

be independently measured when it is obtained or subsequently on the balance sheet date.

The equity instrument investments for which there is no quoted price in the active market and

whose fair value cannot be reliably measured cannot be designated at fair value through profit or

loss.

B. Held-to-maturity investments

Held-to-maturity investments refer to non-derivative financial assets that have fixed or

determinable payments, a fixed maturity and the Group has the positive intention and ability to

hold to maturity.

C. Loans and receivables

Loans and receivables refer to non-derivative financial assets without quoted price in the active

market or with fixed or fixable recovery amount.

D. Available-for-sale financial assets

Available-for-sale financial assets refer to non-derivative financial assets designated as available

for sale upon initial recognition and financial assets other than the abovementioned types.

Some financial assets classified into financial assets designated at fair value through profit or loss

upon initial recognition by the Group cannot be reclassified as other financial assets; and other

financial assets cannot be reclassified into financial assets designated at fair value through profit

or loss, either.

(ii) Financial assets are measured at fair value upon initial recognition Transaction costs relating to

financial assets designated at fair value through profit or loss are directly recognized in profit or

loss. Transaction costs relating to other financial assets are included in initially recognized

amounts.

(iii) Subsequent measurement of financial assets

A. Financial assets designated at fair value through profit or loss, including held-for-trading

Page 21 of 177

financial assets and financial assets designated at fair value through profit or loss, are subsequently

measured at fair value. Gains or losses on changes in fair value are recorded in profit or loss.

B. Held-to-maturity investments are subsequently measured at amortized cost using the effective

interest method. Any gain or loss arising from derecognition, impairment or amortization is

recorded in profit or loss.

C. Loans and receivables are subsequently measured at amortized cost using the effective interest

method. Any gain or loss arising from derecognition, impairment or amortization is recorded in

profit or loss.

D. Available-for-sale financial assets are subsequently measured at fair value. Any change in their

fair value is recorded in other comprehensive income and transferred to profit or loss when such

available-for-sale financial assets are impaired or derecognized. Any interest or cash dividend

realized during the holding period of available-for-sale financial assets is recorded in profit or loss.

Impairment losses on investments in equity instruments that do not have a quoted price in an

active market and whose fair value cannot be measured reliably, and derivative financial assets

linked to these equity instruments and settled through delivery of these equity instruments, are

measured at cost.

(iv) Allowance for impairment losses on financial assets

A. The Group checks carrying amount of financial assets other than financial assets designated at

fair value through profit or loss. If there is any objective evidence proving a financial asset is

impaired, impairment losses shall be recognized and the related allowance shall be set aside.

B. Objective evidences proving the impairment of the financial asset determined by the Group

include:

a) A serious financial difficulty occurs to the issuer or debtor;

b) The debtor breaches any contractual provisions, such as failing or delaying to pay interest or the

principal;

c) The creditor makes a concession to the debtor that is financially troubled due to economic or

legal considerations;

d) The debtor is likely to become bankrupt or enter into financial reorganizations in any other

form;

e) The financial asset can no longer continue to be traded in an active market due to serious

financial difficulties of the issuer;

f) Public data available show that, though it is impossible to identify whether the cash flow of a

certain asset within a portfolio of financial assets has decreased or not, an overall assessment finds

that the predicted future cash flow of the said portfolio of financial assets has indeed decreased

since it was initially recognized and such decrease is measurable, for example, the ability of the

debtor of the said portfolio of financial assets worsens gradually, the unemployment rate in the

region where the debtor is situated increases, the prices of collaterals drop markedly, or the sector

of the debtor in question is in slump;

g) Any material adverse change has occurred to the technical, market, economic or legal

environment where the debtor operates its business, which makes the investor in an equity

instrument unable to recover investment cost;

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h) The fair value of investment in an equity instrument declines seriously or non-temporarily;

i) Other objective evidences showing the impairment of the financial asset.

C. Measurement of impairment losses on financial assets

a) Measurement of impairment losses on held-to-maturity investments, loans and receivables

Allowance for impairment losses on held-to-maturity investments, loans and receivables (financial

assets subsequently measured at amortized cost) shall be set aside based on the difference of the

present value of expected future cash flows of the said financial asset lower than its carrying

amount and recorded in profit or loss.

The Group separately conducts impairment tests on financial assets in a significant amount

individually, and includes financial assets in an insignificant amount individually into a portfolio

of financial assets having similar credit risk characteristics for impairment tests. Financial assets

found unimpaired in separate impairment tests, no matter in significant or insignificant amount

individually, should be retested in a portfolio of financial assets having similar credit risk

characteristics. Financial assets whose impairment losses have been recognized separately should

not be tested for impairment in a portfolio of financial assets having similar credit risk

characteristics.

After the Bank recognizes impairment losses on a financial asset measured at amortized cost, if

there is an objective evidence proving the value of the said financial asset is restored, which is

objectively related to matters occurred after the recognition of the impairment losses, the formerly

recognized impairment losses should be reversed and recorded into profit or loss.

b) Available-for-sale financial assets

The Group conducts impairment tests on available-for-sale financial assets as single investments.

On the balance sheet date, the fair value of available-for-sale financial assets should be judged

whether dropped significantly or not temporarily: if the fair value of a single available-for-sale

financial asset drops by more than 50% of its cost or maintains falling for above one year, the said

available-for-sale financial assets can be identified as impaired, allowance for impairment losses

should be set aside based on the difference between its cost and fair value, and impairment losses

should be recognized. The cost of available-for-sale financial assets at the end of the period is the

amortized cost initially measured at the investment cost upon acquisition and calculated by the

weighted average method upon sale.

Where the fair value of an available-for-sale financial asset declines not temporarily, even if the

financial asset is not derecognized, the accumulative loss arising from the decline in fair value that

has been directly recorded in other comprehensive income should be transferred to profit or loss.

When available-for-sale investments in equity instruments that do not have a quoted price in an

active market and whose fair value cannot be measured reliably, or derivative financial assets

linked to these equity instruments and settled through delivery of these equity instruments are

impaired, the Group recognizes the difference between the carrying amount of the investment in

equity instrument or derivative financial asset and present value determined by discounting future

cash flows at the market yield rate of similar financial assets at that time as impairment losses and

records the difference in profit or loss.

After impairment losses are recognized for an available-for-sale debt instrument, if there is an

objective evidence proving the value of the said financial asset is restored, which is objectively

related to matters occurred after the recognition of the impairment losses, the formerly recognized

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impairment losses should be reversed and recorded into profit or loss.

Any impairment losses on an available-for-sale investment in equity instrument should not be

reversed through profit or loss. Meanwhile, impairment losses on investments in equity

instruments that do not have a quoted price in an active market and whose fair value cannot be

measured reliably, or derivative financial assets linked to these equity instruments and settled

through delivery of these equity instruments, should not be written back.

(3) Classification and measurement of financial liabilities

(i) Financial liabilities held by the Group are classified into financial liabilities designated at fair

value through profit or loss and other financial liabilities.

Financial liabilities designated at fair values through profit or loss, including held-for-trading

financial liabilities and financial liabilities designated at fair value through profit or loss upon

initial recognition.

Held-for-trading financial liabilities refer to those meet one of the following conditions: The

purpose to acquire the financial liabilities is mainly for repurchase in the short run; financial

liabilities are a part of recognizable combination of financial instruments which are managed in a

centralized way and for which there is objective evidence proving that the enterprise may manage

the combination by way of short-term profit making in the near future; financial assets are

derivative instruments, except the designated derivative instruments which are effective hedging

instruments, or derivative instruments to financial guarantee contracts, and the derivative

instruments which are linked with the equity instrument investments for which there is no quoted

price in the active market, whose fair value cannot be reliably measured, and which shall be

settled by delivering the said equity instruments.

Financial liabilities that meet one of the following conditions can be financial liabilities designated

at fair value through profit or loss upon initial measurement: the designation is able to eliminate or

obviously reduce the discrepancies in the recognition or measurement of relevant gains or losses

arisen from the different basis of measurement of the financial instruments; the official written

documents on risk management or investment strategies have recorded that the combination of

said financial instruments will be managed and evaluated on the basis of their fair values and be

reported to the key management personnel; the financial assets have one or more hybrid

instruments with an embedded derivative instrument, except when the embedded derivative

instrument does not significantly change the cash flow of hybrid instrument, or the embedded

derivative shall obviously not be split from relevant hybrid instruments; the financial assets have

the hybrid instruments with the embedded derivative instrument that needs to be split but cannot

be independently measured when it is obtained or subsequently on the balance sheet date.

Some financial liabilities classified into financial liabilities designated at fair value through profit

or loss upon initial recognition by the Group cannot be reclassified into other financial liabilities;

and other financial liabilities cannot be reclassified into financial liabilities designated at fair value

through profit or loss, either.

(ii) Financial liabilities are measured at fair value upon initial recognition. Transaction costs

relating to financial liabilities designated at fair value through profit or loss are directly recorded

in profit or loss. Transaction costs relating to other financial liabilities are included in initially

recognized amounts.

(iii) Subsequent measurement of financial liabilities

A. Financial liabilities designated at fair value through profit or loss, including held-for-trading

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financial liabilities and financial liabilities designated at fair value through profit or loss, are

subsequently measured at fair value. Gains or losses on changes in fair value are recorded in profit

or loss.

B. Other financial liabilities are subsequently measured at amortized cost using the effective

interest rate method.

(4) Recognition basis and measurement of financial assets transfer

When the Group transfers almost all risks and benefits arising from the ownership of a financial

asset to the transferee, the said financial asset will be derecognized. Where the overall transfer of

the financial asset meets the derecognition conditions, the Group recognizes the difference

between the following two items in profit or loss:

(i) Carrying amount of the financial asset transferred;

(ii) Sum of the consideration received due to transfer and the accumulated changes in fair value

formerly recognized in other comprehensive income (where the financial asset transferred is

available-for-sale financial asset).

Where partial transfer of the financial asset of the Group meets derecognition conditions, the

overall carrying amount of the financial asset transferred shall be amortized at its relative fair

value respectively between the derecognized part and not derecognized part. The difference

between the following two items shall be recognized in profit or loss:

(i) Carrying amount of the derecognized part;

(ii) Sum of the consideration of the derecognized part and the amount corresponding to the

derecognized part in accumulated changes in fair value formerly recognized in other

comprehensive income (where the financial asset transferred is available-for-sale financial asset).

The amount corresponding to the derecognized part in accumulated changes in fair value formerly

recognized in other comprehensive income shall be determined after being amortized at the

relative fair values of the derecognized part and not derecognized part of the financial asset.

Where transfer of the financial asset does not meet derecognition conditions, the recognition of the

overall financial asset transferred shall be continued and the consideration received shall be

recognized as a financial liability.

For transfer of the financial asset under the continued involvement conditions, the Group

recognizes the relevant financial asset or liability based on the continued involvement degree of

the financial asset transferred, to completely reflect its reserved right and assumed obligation.

(5) Derecognition of financial liabilities

A financial liability cannot be derecognized in part or in whole until current obligations of the

Group under the liability is terminated in part or in whole. Where the Group and the creditor signs

an agreement to replace the existing financial liability by the way of assuming new financial

liability and the latter is substantially different from contract clauses of the existing one, the

existing financial liability shall be derecognized and the new financial liability shall be recognized

at the same time.

Where the financial liability is derecognized in whole or in part, the difference between the

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carrying amount of derecognized part and the consideration paid (including non-cash assets

transferred out or new financial liability assumed) shall be recognized in profit or loss.

(6) Offset of financial assets and financial liabilities

Financial assets and financial liabilities are presented separately on the balance sheet and cannot

be offset with each other. But whenever the following conditions are met at the same time, they

shall be presented on the balance sheet at the net amount after offsetting: the Group has the legal

right to offset recognized amount and is able to execute this legal right; the Group plans to make

the settlement at a net amount or liquidate the financial assets at the same time of paying off the

financial liabilities. If the transfer of financial assets does not satisfy the conditions of

derecognition, transferrer is not allowed to offset the transferred financial assets and financial

liabilities.

(7) Asset securitization

As part of business activities, for credit asset securitization, the Group generally sells the assets to

the structured subject that issues the securities to investors. Please see the above paragraph for the

preconditions of derecognition of financial assets. For the credit asset securitization that does not

satisfy the derecognition conditions, the relevant financial assets shall not be derecognized and

funds raised from the third-party investors shall be treated as financing funds; for the credit

securitization that satisfies some derecognition conditions, the Group reserves some rights of

financial assets and classifies them into available-for-sale financial assets. The overall carrying

amount of the financial assets transferred shall, between the part derecognized and the part not

derecognized, be apportioned based on their respective fair value, and the difference between the

carrying amount of derecognized part and the consideration shall be recognized into profit or loss.

10. Renegotiated loans

If conditions permit, the Group will strive to restructure loans instead of obtaining the ownership

of collaterals. This might involve the extended repayment and the new loan conditions. Once the

terms and conditions are re-negotiated, the loan will not be deemed as overdue. The Management

continues to review the restructured loans so that they could satisfy all conditions and the

following payment is likely to happen. Such loans continue to be assessed for impairment

individually or collectively and measured for allowance for impairment losses by adopting initial

effective interest rate.

11. Derivative financial instruments and embedded derivative financial instruments

Derivative financial instruments include financial forward contracts, financial futures contracts,

financial swap and options and instruments combining any one or more features of financial

forward contracts, financial futures contracts and financial swap and options. Derivative financial

instruments have the following common characteristics:

(1) Their values vary with specific interest rate, price of financial instruments, commodity price,

exchange rate, price index, rate index, credit rating, credit index or similar variables;

(2) No initial net investment is required, or, as compared to contracts of other types with similar

responses to market changes, small initial net investment is required; and

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(3) To be settled on a future date.

Such derivative financial instruments are initially recognized at fair value on the date when a

derivative contract is entered into and are subsequently re-measured at fair value. Changes in fair

value of derivative financial instruments are included in the gains or losses on changes in fair

value, and reflected in “derivative financial assets” or “derivative financial liabilities” on the

balance sheet.

Embedded derivative financial instruments are derivative financial instruments embedded into a

non-derivative contract (the “master contract”) that cause adjustments to cash flows of the master

contract, in part or in whole, to reflect changes in specific interest rate, price of financial

instruments, exchange rate, price index or rate index, credit rating or credit index or changes in

similar variables, such as conversion options embedded into the convertible corporate bonds

purchased. When an embedded derivative financial instrument is not tightly closed to the master

contract in respect of economic features and risks, the Bank removes it from the master contract as

an independent derivative financial instrument that is initially recognized and subsequently

measured at fair value.

After the embedded derivative financial instrument is removed from the master contract, the

master contract, if it is a financial instrument, is accounted for as financial asset or liability in the

relevant category.

12. Financial assets under reverse repurchase agreements and financial assets under repurchase

agreements

Financial assets under reverse repurchase agreements mean relevant assets (bonds, notes and loans)

are purchased by the Bank from the counterparty at a certain price pursuant to contract or

agreement and will be resold to counterparty at agreed price on the date specified in the contract or

agreement. Financial assets under reverse repurchase agreements are accounted for in the amounts

actually paid upon purchase and reflected on the balance sheet. Underlying assets that have

purchased under resale agreements are not recognized on the balance sheet.

Financial assets under repurchase agreements refer to financing in which relevant assets (including

bonds, notes and loans) are sold by the Bank and its subsidiaries to the counterparty at a certain

price pursuant to contract or agreement and will be repurchased from the counterparty at agreed

price on the date specified in the contract or agreement. Financial assets under repurchase

agreements are accounted for in the amount actually received upon sale and reflected on the

balance sheet.

The bid-ask spread between reverse repurchase agreements and repurchase agreements is

amortized using the effective interest during the relevant transaction period and recognized

interest income or expense.

13. Measurement of long-term equity investment

Long-term equity investment includes equity investment in subsidiaries, joint ventures and

associates.

(1) Initial measurement

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Long-term equity investment is initially measured by the Group as follows:

(i) The initial cost of a long-term equity investment acquired through a business combination

should be determined as follows:

A. For a business combination involving enterprises under the same control, if the consideration of

the combination is satisfied by paying cash, transfer of non-cash assets or assumption of liabilities

by the combining party, the initial cost of the long-term equity investment should be the combined

party’s share of carrying amount of the owners’ equity in the consolidated financial statements of

the ultimate controller on the combination date. The difference between the initial cost and the

carrying amount of cash paid, non-cash assets transferred and liabilities assumed should be

adjusted to capital reserve. If the balance of capital reserve is not sufficient, any excess should be

adjusted to retained earnings. The direct cost for the business combination of the combining party

should, including the expenses for audit, assessment and legal services, be recorded into the profit

or loss.

If the consideration of the combination is satisfied by the issue of equity securities, the initial cost

of the long-term equity investment should be the combined party’s share of carrying amount of the

owners’ equity in the consolidated financial statements of the ultimate controller on the

combination date. The aggregate face value of the shares issued should be accounted for as share

capital. The difference between the initial investment cost and the aggregate face value of the

shares issued should be adjusted to capital reserve. If the balance of capital reserve is not sufficient,

any excess should be adjusted to retained earnings. The fees, commissions and other expenses

arising from the issuance of equity securities during the business combination should be offset

against the issue premium income from equity securities, and any insufficiency of the issue

premium income should be offset against retained earnings.

B. In a business combination involving entities not under the same control, the Group determines

the combination cost as follows:

a) For a business combination realized by a transaction of exchange, the combination costs should

be fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the

equity securities issued in exchange for the control on the acquiree.

b) For a business combination realized by multiple transactions of exchange in steps, the initial

cost of such investment should be the sum of the carrying amount of equity investment held in the

acquiree prior to the acquisition date and the new investment cost on the acquisition date.

c) Intermediary expenses incurred by the acquirer in connection with business combination,

including charges on audit, assessment and legal services and other administrative expenses

concerned should be recorded in profit or loss when incurred; the transaction cost of equity

securities or debt securities issued by the acquirer as the consideration of combination should be

included in the initially recognized amount of equity securities or debt securities; and

d) Where the combination contract or agreement covers future matters that may influence the

combination cost, the acquirer should include in the combination cost the future matters that are

likely to take place and whose influence on the combination cost is reliably measurable.

(ii) The initial cost of a long-term equity investment acquired other than through a business

combination should be determined as follows:

A. For a long-term equity investment acquired by paying cash, the initial cost should be the actual

purchase price paid. Initial investment cost includes the costs, taxes and other necessary

expenditures directly attributable to the acquisition of the long-term equity investment.

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B. For a long-term equity investment acquired by the issue of equity securities, the initial

investment cost should be the fair value of the equity securities issued, excluding declared but

unpaid cash dividend or profit collected from the investee. Transaction costs incurred upon issue

or acquisition of its own equity instruments that can be directly attributable to the equity

transaction will be deducted from the equity.

C. For a long-term equity investment acquired through an exchange of non-monetary assets, the

initial investment cost should be determined in accordance with the Accounting Standard for

Business Enterprises No.7 - Exchange of Non-Monetary Assets.

D. For a long-term equity investment acquired through debt restructuring, the initial investment

cost should be determined in accordance with the Accounting Standard for Business Enterprises

No.12 - Debt Restructurings.

(iii) Where a long-term equity investment is acquired by any means, the share of cash dividend or

profit declared but unpaid by the investee, which is included in the consideration paid when the

investment is acquired, should be separately accounted for as a receivable item and should not

constitute the initial cost of long-term equity investment.

(2) Subsequent measurement

Long-term equity investment that can exert control on the investee shall be accounted for based on

the cost method in some financial statements. Long-term equity investment that does not exert

joint control or significant influence on the investee shall be accounted for based on the equity

method.

(i) The long-term equity investment accounted for based on the cost method shall be priced based

on the initial investment cost. If there are additional investments or recovered investments, the

cost of the long-term equity investment shall be adjusted. The cash dividend or profit which has

been declared to distribute by the investee shall be included into the investment income for the

period.

(ii) If the initial cost of a long-term equity investment is more than the Group’s attributable share

of the fair value of the investee’s identifiable net assets for the investment, the initial cost of the

long-term equity investment may not be adjusted. If the initial cost of a long-term equity

investment is less than the Group’s attributable share of the fair value of the investee’s identifiable

net assets for the investment, the difference shall be included into the profit or loss and the cost of

the long-term equity investment shall be adjusted simultaneously.

After the Group obtains a long-term equity investment, it shall, in accordance with the attributable

share of the net profit or loss of the investee and other comprehensive income, recognize the

investment income and other comprehensive income respectively, and adjust the carrying amount

of the long-term equity investment. The Group shall, in the light of the profit or cash dividend

declared to distribute by the investee, calculate the proportion it shall obtain, and shall reduce the

carrying amount of the long-term equity investment correspondingly; Where any change is made

to the owner’s equity other than the net profit or loss, other comprehensive income and profit

distribution of the investee, the carrying amount of the long-term equity investment shall be

adjusted and be included in the owner’s equity. The Group shall, on the ground of the fair value of

all identifiable net assets of the investee when it obtains the investment, recognize the attributable

share of the net profit or loss of the investee after it adjusts the net profit of the investee. If the

accounting policies and accounting periods adopted by the investee are different from those

adopted by the Group, an adjustment shall be made to the financial statements of the investee in

accordance with the accounting policies and accounting periods of the Group and recognize the

investment income and other comprehensive income. The Group shall recognize the net losses of

the investee until the carrying amount of the long-term equity investment and other long-term

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rights and interests which substantially form the net investment made to the investee are reduced

to zero, unless the Group has the obligation to undertake extra losses. If the investee realizes any

net profit later, the Group shall, after the amount of its attributable share of profit offsets against

its attributable share of the un-recognized losses, resume to recognize its attributable share of

profit.

When the Group calculates and identifies attributable share of the net profit or loss of the investee,

the unrealized profit or loss of internal transactions with associates and joint venture shall offset

the part attributable to the Group according to the attributable share and the investment return shall

be identified accordingly. If the unrealized losses of internal transactions between the Group and

the investee are included into impairment losses, they shall be fully identified.

If some part of the equity investment in associates is indirectly held by the Group through the

venture capital institution, mutual fund, trust company or similar subjects including

investment-linked insurance fund, the Group shall record this part at fair value through profit or

loss and account the remaining part based on the equity method based on the provisions in the

Accounting Standards for Enterprises No.22-Recognition and Measurement of Financial

Instruments no matter whether the above subjects exert significant influence on this part of

investment.

(iii) When the Group disposes a long term equity investment, the difference between the carrying

amount of the said equity investment and the proceeds from its disposal should be recorded in

profit or loss. The disposal of the long-term equity investment calculated at the equity method,

shall be on the same basis for direct disposal of relevant assets or liabilities by the investee, and

the part formerly recognized in other comprehensive income shall be accounted for based on the

corresponding proportion.

(iv) In case of decreased shareholding ratio by the Group due to capital increase by other investors

in its subsidiaries, causing the Group to lose control but can still carry out joint control or exert

great influence, long-term equity investment shall be accounted for using the equity method

instead of the cost method in the individual financial statements. First, it shall be recognized the

difference between the attributable share of the investor in increased net assets of the original

subsidiary due to capital increase based on the new shareholding ratio and the carrying amount of

the long-term equity investment corresponding to the decrease in shareholding ratio that shall be

carried forward, with such difference recorded in profit or loss; then, deemed as the equity method

has been adopted in accounting since the investment was obtained, adjustment shall be made

according to the new shareholding ratio.

(3) Basis for determination of joint control or significant influence over the investee

Joint control refers to common control over certain arrangement as agreed, and relevant activities

of such arrangement cannot be decided unless being agreed unanimously by all participants to the

joint control right. Relevant activities refer to activities that have significant influence on the

return of certain arrangement. Significant influence means the investor has the power to

participate in the decision-making for financial and operating polices of the investee but is unable

to control or jointly control with other parties the preparation of these policies.

(4) Impairment testing methods and impairment provisioning methods

The impairment testing methods and impairment provisioning methods shall be implemented in

accordance with the accounting policy on “Impairment of Assets” prepared by the Group.

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14. Recognition and measurement of investment properties

(1) Investment properties of the Group refer to properties held for the purpose of earning rentals or

capital appreciation, or both of them, mainly including:

(i) Land use rights already leased;

(ii) Land use rights held for the purpose of transfer after appreciation; and

(iii) Buildings leased.

(2) An investment property of the Group that meets both of the following conditions should be

recognized:

(i) Financial benefits relating to the investment property are likely to flow into the Company; and

(ii) The cost of the investment property is reliably measurable.

(3) Initial measurement

An investment property is initially measured at cost.

(i) The cost of a purchased investment property comprises purchase price, relevant taxes and other

expenses directly attributable to the asset;

(ii) The cost of an investment property constructed at own cost comprises expenses incurred

necessary for the asset to reach the predefined serviceable condition;

(iii) The cost of acquired investment properties acquired by other means is determined pursuant to

relevant accounting standards.

(4) Subsequent measurement

Investment properties of the Group are measured at cost. An investment property measured at cost

is depreciated or amortized using the same method as for fixed assets and intangible assets.

When the Group has strong evidence to show a change in the property purpose, i.e. changing a

property for self-use or inventory to an investment property or changing an investment property to

a property for self-use, the book value before change will be booked as the value after change.

An investment property measured at cost is valuated at the lower of cost and recoverable amount

at the end of the reporting period. If the recoverable amount is lower than the cost, allowance for

impairment losses is set aside for the difference between them. Any allowance for impairment

losses set aside should not be reversed.

15. Recognition and measurement of fixed assets

Fixed assets of the Group refer to tangible assets held for production of cargoes, provision of

services, leasing or operation and with a service life of more than a fiscal year.

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(1) A fixed asset that meets both of the following conditions is initially measured at cost:

(i) Financial benefits relating to the fixed asset are likely to flow into the Company; and

(ii) The cost of the fixed asset is reliably measurable.

(2) Depreciation of fixed assets

Subsequent expenses relating to fixed assets are recorded in the cost of fixed assets if they meet

the conditions set for recognition of fixed assets, or recorded directly in profit or loss upon

occurrence if they do not meet the conditions set for recognition of fixed assets.

Fixed assets of the Group are depreciated using the straight-line method.

The service life, residual value and annual depreciation rate of fixed assets are listed in the table

below:

Category Service life Estimated net residual

value

Annual depreciation

rate

Buildings and

structures 20-50 years

3% 4.85%-1.94%

Transporting vehicles 6 years 1% 16.50%

Electronic equipment 3-5 years 0-3% 33.33%-19.80%

Furniture 5 years 1% 19.80%

The Group reviews the service life, estimated net residual value and depreciation method of fixed

assets at the end of each fiscal year. Where the service life is different from the previous estimate,

the service life of fixed assets should be adjusted; where the estimated net residual value is

different from the previous estimate, the estimated net residual value should be adjusted; where

there is any significant change in the way the economic benefits relating to fixed assets are

anticipated to be realized, the depreciation method of fixed assets should be changed. Changes in

the service life, estimated net residual value and depreciation method of fixed assets should be

deemed changes in accounting estimates.

(3) Fixed assets acquired through finance leasing

Where the Group substantially transfers all risks and benefits arising from a fixed asset leased to it,

leasing of the fixed asset is deemed finance leasing.

The cost of the fixed asset acquired through financial leasing should be the lower of fair value of

the leased asset on the start date of lease and present value of the minimum lease payment.

Fixed assets acquired through financial leasing are depreciated using the same method as for

owned depreciable assets. Where there is a reasonable ground to believe that the ownership of a

leased asset is obtainable upon the expiration of lease, the leased asset should be depreciated over

its useful life; where there is a no reasonable ground to believe that the ownership of a leased asset

is obtainable upon the expiration of lease, the leased asset should be depreciated over the shorter

of the lease term and its useful life.

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(4) Impairment of fixed assets should be accounted for in accordance with the Group’s accounting

policy on “Impairment of Assets”.

16. Accounting for construction in progress

(1) Pricing of construction in progress: The cost should be determined based on expenses actually

incurred. The cost of construction in progress should also include capitalized loan expenses and

exchange gains or losses.

(2) Construction in progress of the Group is transferred to fixed assets when it reaches the

predefined serviceable condition. Fixed assets that have been constructed to the predefined

serviceable condition but whose final accounts of completion are not conducted should be

recognized as fixed assets at estimated value and depreciated; after the final accounts are

completed, the original estimated value should be adjusted according to the actual cost, without

any adjustment made to depreciation.

(3) Impairment of construction in progress should be accounted for in accordance with the

Group’s accounting policy on “Impairment of Assets”.

17. Recognition and measurement of intangible assets

“Intangible assets” of the Group refer to the identifiable non-monetary assets without any physical

shape possessed or controlled by the Group.

(1) Recognition of intangible assets

An intangible asset is recognized by the Group when it meets both of the following conditions:

(i) Financial benefits relating to the intangible asset are likely to flow into the Company; and

(ii) The cost of the intangible asset is reliably measurable.

(2) Measurement of intangible assets

(i) Intangible assets of the Group are initially measured at actual cost.

(ii) Subsequent measurement of intangible assets

A. For an intangible asset with a limited service life, the Group determines its service life upon

acquisition and subsequently amortizes it with the straight-line depreciation method over its

service life, with amortized amount recorded into the relevant costs and expenses. An intangible

asset with an uncertain service life should not be amortized.

At the end of the reporting period, the service life and amortization method of intangible assets

with a limited service life will be reviewed. Any change in the same will be treated as a change in

the accounting estimates. In addition, the service life of intangible assets with an uncertain service

life will be reviewed. If there is any evidence proving that the period for such intangible asset to

bring economic benefits for the enterprise is foreseeable, its service life will be estimated and it

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will be amortized based on the amortization policy for intangible assets with a limited service life.

The amortization period of the Group’s intangible assets with a limited service life is as follows:

Land use rights are averagely amortized over residual statutory service life starting from the

month of acquisition; software expenses are averagely amortized over 5 years starting from the

month of acquisition; other intangible assets are averagely amortized over 5-10 years starting from

the month of acquisition; and the Bank has no intangible assets with an uncertain service life.

B. Impairment of intangible assets should be accounted for in accordance with the Group’s

accounting policy on “Impairment of Assets”.

(3) Research and development expenses

The internal research and development expenses of the Group are divided into expenses incurred

at the research stage and expenses incurred at the development stage. Research means innovative

and planned research carried out to obtain and understand new scientific or technical knowledge.

Development means to apply research results or other knowledge to a plan or design before the

commercial production or use, so as to produce new or make substantial improvement to materials,

equipment and products etc.

Expenses incurred at the research stage are recorded into profit or loss upon occurrence.

Expenses incurred at the development stage which meet the following conditions are recognized

as intangible assets, but those which cannot meet the following conditions are recorded into profit

or loss:

(i) The technical feasibility of completing the intangible asset so that it will be available for use or

sale;

(ii) Its intention to complete the intangible asset and use or sell it;

(iii) How the intangible asset will generate probable future economic benefits; among other things,

the Company can demonstrate the existence of a market for the output of the intangible asset or

the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

(iv) There are adequate technical, financial and other resources to complete the development and

to use or sell the intangible asset; and

(v) Its ability to measure reliably the expenses attributable to the intangible asset during its

development.

Where expenses incurred at the research stage and expenses incurred at the development stage

cannot be distinguished between each other, all research and development expenses incurred will

be recorded into profit or loss.

18. Accounting for other assets

(1) Accounting for long-term deferred expenses

The Group recognizes the improvement expenses and other expenses of fixed assets rented in

through commercial lease which have incurred and have an amortization period of more than one

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year to be amortized in the current year and over the following periods as long-term deferred

expenses. Long-term deferred expenses are recorded into the amount actually incurred and

averagely amortized over the benefit period.

Expenses arising from the improvement of fixed assets acquired through operating leasing are

averagely amortized over the shorter of lease term and five years.

Where long-term deferred expenses do not produce any benefit in subsequent fiscal years, the

amortized value should be fully recorded in profit or loss.

(2) Accounting for other receivables

Other receivables are accounted for according to specific items and corporate (or individual)

counterparties. The Group regularly analyzes recoverability of other receivables. Where the

recoverable amount of receivables is lower than their carrying amount, allowance for bad debts is

set aside and recorded in profit or loss.

(3) Repossessed assets

Repossessed assets are initially recognized at their fair value and subsequently measured at the

lower of carrying amount and recoverable amount. For the repossessed assets with the recoverable

amount lower than the carrying amount, the allowance for impairment losses should be set aside.

19. Impairment of long-term assets

The following circumstances may constitute a sign of possible asset impairment:

(1) The current market price of an asset declines sharply, and the price drop is obviously higher

than the expected drop over time or due to the normal use;

(2) The economic, technological or legal environment in which the Group conducts its business

operations, or the market where an asset is located has or will have any significant change in the

current period or in the near future, and thus has or will have an adverse impact on the Group;

(3) The market interest rate or any other market investment return rate has risen in the current

period, and the enterprise’ discount rate for calculating the present value of the expected future

cash flows of the asset is affected and thus leads to a large fall in recoverable amount of the asset;

(4) Any evidence shows that an asset has become obsolete or it has been damaged substantially;

(5) An asset has been or will be left unused, or the use of an asset has been or will be terminated,

or an asset has been or will be disposed of ahead of schedule;

(6) Any evidence in the internal report of the Group shows that the economic performance of an

asset has been or will be lower than the expected performance, for example, net cash flows created

by an asset or business profit (or loss) realized (incurred) by an asset is lower (higher) than the

excepted amount, etc.; and

(7) Other evidence that indicates that an asset impairment has probably occurred.

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The Group judges the assets applicable to the Accounting Standards for Business Enterprises No.

8-Asset Impairment like long-term equity investment, fixed assets, engineering materials,

construction in progress, intangible assets (except those with an uncertain service life on the

balance sheet date), conducts the impairment test and evaluates its recoverable amount in case of

impairment signs. The recoverable amount is the higher of the fair value of assets less disposal

costs or the present value of expected future cash flows of assets. Where the recoverable amount

of an asset is lower than its carrying amount, the Group writes down its carrying amount to the

recoverable amount, recognizes the written down amount as impairment losses on assets and

records it in profit or loss, and sets aside the relevant allowance for impairment losses on assets.

When there is a sign showing that the impairment of an asset has probably occurred, the Group

estimates the recoverable amount of the asset individually. Where it is difficult to estimate the

recoverable amount of an individual asset, the recoverable amount of the asset group including the

asset is estimated.

The asset group refers to the minimum combination of assets that may be recognized by the Group

and the cash inflow generated by which shall be generally independent from those generated by

other assets or asset groups. The asset group is composed of assets generating the cash inflow. An

asset group is identified based on whether the main cash inflow from the asset group is

independent of cash inflows from other assets or asset groups.

The Group conducts an impairment test on the goodwill formed by merger of enterprises and

intangible assets with an uncertain useful life every year, no matter whether or not there is any

sign of possible impairment. The impairment test on the business reputation is conducted together

with relevant asset group or combination of asset groups.

Once recognized, the foregoing impairment losses on assets should not be reversed in subsequent

fiscal years.

20. Bonds payable

Bonds payable of the Group comprise general financial bonds, subordinated bonds and interbank

CDs.

Bonds payable are recorded at fair value, i.e. amounts received (fair value of consideration

received) less transaction costs. Bonds payable are measured at amortized cost using the effective

interest rate method, i.e. the difference between the net amount received and the amount repayable

when due is amortized over the borrowing period using the effective interest rate method, with the

amortization amount recorded in profit or loss.

21. Staff compensation

Staff compensation refers to all kinds of payments and other relevant expenditures given by the

Group in exchange of the services offered by the staff or for terminating the labor relationship.

The staff compensation shall include short-term compensation, welfare after resignation, dismiss

welfare and other long-term staff benefits. It also includes the benefits offered by the Group for

spouse, children, supported person of staff, family dependents and other beneficiaries of deceased

staff.

(1) Short-term compensation

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The Group shall recognize the actual short-term compensation as liabilities during the accounting

period when the staff provide services and record it into current profit or loss or relevant asset

cost.

(2) Welfare after resignation

The Group classifies the welfare after resignation into defined contribution plan and defined

benefit plan. Welfare plan after resignation refers to the agreement about the welfare after

resignation concluded between the Group and staff or the regulations or measures formulated by

the Group about the welfare after the resignation of staff. Defined contribution plan refers to the

welfare plan after resignation where the Group does not assume the payment obligation after

contributing fixed fee to an independent fund; defined benefit plan refers to the welfare plan after

resignation except defined contribution plan.

A. Defined contribution plan

The Group recognizes the amount payable calculated based on the defined contribution plan as

liabilities during the accounting period when the staff provide services and record it into profit or

loss or relevant asset cost.

B. Defined benefit plan

The Group has not defined benefit plan or other long-term staff benefits satisfying the conditions

of defined benefit plan.

(3) Dismissal welfare

When providing dismiss welfare for staff, the Group recognizes the staff compensation due to

dismiss welfare as liabilities in the following circumstances whichever occurs earlier, records it in

profit or loss: When the Group is not allowed to unilaterally cancel the dismiss welfare due to

labor relationship removal plan or the lay-off proposal;

When the Group recognizes the cost or fee related to the reorganization involving the payment of

dismiss welfare.

(4) Other long-term staff benefits

The other long-term staff benefits provided by the Group that meet the conditions of defined

contribution plan are treated based on the above accounting policies of defined contribution plan,

while the net liabilities or net assets of others are recognized and measured based on the above

account policies of defined benefit plan.

22. Accounting for income taxes

Income taxes of the Group are treated using the balance sheet liability approach.

(1) Deferred income tax assets

(i) Where there is a deductible temporary difference between the carrying amount of an asset or

liability and its tax base, the deferred income tax asset arising from deductible temporary

difference should be calculated and recognized at the tax rate applicable in the period of

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anticipated recovery of the asset or discharge of the liability, subject to a maximum of the taxable

income that is likely to be available in future periods to offset the deductible temporary difference.

(ii) Where there is irrefutable evidence that sufficient taxable income is likely to be available in

future periods to offset the deductible temporary difference, deferred income tax assets that are not

recognized in previous periods should be recognized on the balance sheet date.

(iii) The carrying amount of deferred income tax assets is reviewed on the balance sheet date.

Where it is likely that insufficient taxable income will be available in future periods to offset the

deductible temporary difference, the carrying amount of the deferred income tax assets should be

written down. The written down amount should be reversed when sufficient taxable income

becomes likely to be available.

(2) Deferred income tax liabilities

Where there is a deductible temporary difference between the carrying amount of an asset or

liability and its tax base, the deferred income tax liability arising from deductible temporary

difference should be recognized at the tax rate applicable in the period of anticipated recovery of

the asset or discharge of the liability.

23. Estimated liabilities

(1) Criteria for recognizing estimated liabilities

If any obligation relevant to the contingent matters meets the following conditions, the Group will

recognize it as estimated liabilities:

(i) It is a current obligation of the Group;

(ii) Performance of the obligation will likely lead to the outflow of economic benefit from the

Group;

(iii) The amount of the obligation can be reliably measured.

(2) Measurement of estimated liabilities

The estimated liabilities are initially measured in accordance with the best estimate of the

necessary expenses for the performance of the current obligation. If there is a sequent range for the

necessary expenses and if all the outcomes within this range are equally likely to occur, the best

estimate is determined in accordance with the median estimate within the range. In other cases, the

best estimate shall be conducted in accordance with the following situations, respectively:

(i) If the contingencies concern a single item, it shall be determined in the light of the most likely

outcome.

(ii) If the contingencies concern two or more items, the best estimate should be calculated and

determined in accordance with all possible outcomes and the relevant probabilities.

To determine the best estimate, the Group takes into full consideration of the risks, uncertainties,

time value of money, and other factors pertinent to the contingencies. If the time value of money is

of great significance, the best estimate shall be determined after discounting the relevant future

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outflows of cash.

When all or some of the expenses necessary for the liquidation of estimated liabilities of the

Group is expected to be compensated by a third party, the compensation should be separately

recognized as an asset only when it is virtually certain that the reimbursement will be obtained.

The amount recognized for the reimbursement should not exceed the carrying amount of the

estimated liabilities.

The Group checks the carrying amount of the estimated liabilities on the balance sheet date. If

there is any irrefutable evidence indicating that the carrying amount cannot truly reflect the current

best estimate, the Group adjusts the carrying amount in accordance with the current best estimate.

24. Principles for recognition of income

Income of the Group is recognized under the following principles when economic benefits relating

to transactions are likely to flow into the Group and the amount of relevant income is reliably

measurable:

(1) Interest income and expense

For a financial instrument measured at amortized cost, its interest income or expense is measured

at the effective interest rate. The effective interest rate refers to the rate that exactly discounts

estimated future cash inflows or outflows over the expected life of a financial instrument or a

shorter period, where appropriate, to the net carrying amount of the financial asset or financial

liability. The calculation of interest income should take into account contract provisions of the

financial instrument and include all expenses attributable to effective interest rate components and

all transaction costs, yet exclusive of future loan losses. Where the Bank changes its estimate of

future income or expenses, the carrying amount of financial assets or liabilities may be adjusted

accordingly. As adjusted carrying amount is calculated at the original effective interest rate,

changes are also recorded in interest income or interest expense.

(2) Fee and commission income and other income

Fee and commission income and other income are recognized when relevant services are rendered

and the amounts receivable can be reasonably estimated. Fee and commission income and other

income are recognized on an accrual basis when relevant services are rendered.

(3) Dividend income

Dividend income is recognized when the Bank acquires the right to receive dividend and recorded

in profit or loss.

(4) Rental income

Rental income from investment properties relating to operating leasing is recorded in profit or loss

on a straight line basis over the lease term.

25. Recognition and measurement of government subsidies

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The Group’s government subsidies are divided into government subsidies relating to assets and

ones relating to income. Government subsidies relating to assets refer to government subsidies

obtained by the Group for purchasing and building long-term assets or forming long-term assets

by other ways. Government subsidies relating to income refer to government subsidies other than

those relating to assets. If government subsidy document does not clearly define the subsidy

recipients, the Group will make judgment on the basis of the basic conditions necessary to get the

subsidiary, recognize those subsidies the basic conditions of which are forming long-term assets

by purchase, construction or other methods as the assets-related government subsidies and all the

other subsidies as the income-related government subsidies.

(1) Recognition of government subsidies

The monetary assets or non-monetary assets received by the Group from governments for free are

recognized as government subsidies in case of meeting the following conditions:

(i) Meet the conditions attached to the government subsidy;

(ii) Be able to receive the government subsidy.

(2) Measurement of government subsidies:

(i) Where the government subsidy is monetary asset, it is measured at the amount received or

receivable. Where the government subsidy is non-monetary asset, it is measured at fair value. In

case the fair value cannot be reliably obtained, it is measured at nominal amount.

(ii) Government subsidies relating to assets are recognized as deferred income upon acquisition by

the Group. When the relevant asset comes to the useful status intended, it shall be recorded into

profit or loss in different periods in reasonable and systematic ways within the service life of the

asset. Where relevant asset is sold, transferred, retired or damaged before the end of its service life,

related deferred income balance not distributed shall be transferred to profit or loss of the disposal

period.

Government subsidies relating to income for compensating relevant cost expenses or losses in the

subsequent periods are recognized as deferred income upon acquisition and recorded into profit or

loss for the period of relevant expenses or losses. Government subsidies relating to income for

compensating relevant cost expenses or losses incurred are directly recorded into profit or loss

upon acquisition.

Government subsidies relating to daily activities are recorded into other income; and those not

relating to daily activities are recorded into non-operating income and expenses.

(iii) Recognized government subsidies to be refunded are treated as follows:

A. Where there is any deferred income, write down its carrying amount and the excess part is

recorded in profit or loss.

B. Where there is no deferred income, they are directly recorded into profit or loss.

26. Accounting treatments for operating leases and finance leases

(1) Operating leases

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As the lessee, the Group records the rents of the operating leases in the relevant asset cost or profit

or loss by using the straight-line method over each period of the lease term; the initial direct costs

incurred by a lessee are recognized into profit or loss; the contingent rents are recorded into profit

or loss in which they actually arise.

As the lessor, the Group includes the assets subject to operating leases in relevant items of its

balance sheets in light of the nature of the asset; the rents from operating leases are recorded in

profit or loss by using the straight-line method over each period of the lease term, unless there are

other more reasonable methods; the initial direct costs incurred are recorded into profit or loss; as

for the fixed assets subject to operating leases, the Group calculates its depreciation by adopting

depreciation policy for similar assets; as for other leased assets, systematic and reasonable

methods are adopted for its amortization; the contingent rents are recorded in profit or loss when

they actually arise.

(2) Finance leases

As the lessee, the Group records the lower one of the fair value of the leased asset and the present

value of the minimum lease payments on the lease beginning date as the bookkeeping value in an

account, recognizes the amount of the minimum lease payments as the bookkeeping value in an

account of long-term account payable, and treats the balance between the recorded amount of the

leased asset and the long-term account payable as unrecognized financing charges; the initial

direct costs such as commissions, attorney fees and traveling expenses, stamp duties directly

attributable to the leased item incurred during the process of lease negotiating and signing the

leasing agreement are recorded in the asset value; the unrecognized financing charge is amortized

to each period during the lease term. The Group adopts the effective interest rate method to

calculate and recognizes the financing charge in the current period; the contingent rents are

recognized into profit or loss when they are actually incurred.

When the Group calculates the present value of the minimum lease payments, if it can obtain the

lessor’s interest rate implicit in the lease, it adopts the interest rate implicit in the lease as the

discount rate. Otherwise, it adopts the interest rate provided in the lease agreement as the discount

rate. In case the Group cannot obtain the lessor’s interest rate implicit in the lease and no interest

rate is provided in the lease agreement, the Group adopts the loan interest rate of the bank for the

same period as the discount rate.

In depreciating a leased asset, the Group adopts a depreciation policy for leased assets consistent

with that for self-owned fixed assets. Where there is a reasonable ground to believe that the

ownership of a leased asset is obtainable upon the expiration of lease, the leased asset should be

depreciated over its useful life; where there is a no reasonable ground to believe that the

ownership of a leased asset is obtainable upon the expiration of lease, the leased asset should be

depreciated over the shorter of the lease term and its useful life.

As the lessor, the Group recognizes the sum of the minimum lease receipts on the lease beginning

date and the initial direct costs as the bookkeeping value in an account of the financing lease

values receivable, and records the unguaranteed residual value at the same time. The balance

between the sums of the minimum lease receipts, the initial direct costs and the unguaranteed

residual value, and the sum of their present values is recognized as unrealized financing income;

the unrealized financing income is allocated to each period during the lease term. The Group

calculates the financing income at the current period by adopting the effective interest rate method;

the contingent rents are recorded into profit or loss when they actually arise.

27. Trustee services

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The Group acts as an agent to hold and manage assets of customers. Assets involved in such

activities and relevant profit or loss do not belong to the Bank. Trustee services of the Group

mainly include entrusted loans and entrusted wealth management.

Entrusted loans means funds supplied by the customer (as trustor) and lent by the Group (as

trustee) to such borrower for such purposes, in such an amount, for such a term and at such an

interest rate as determined by the trustor, and overseen and recovered by the Bank on behalf of the

trustor, at the risk of the trustor. Funds supplied by the trustor are recorded in entrusted funds in

the amount received by the Group, and recorded in entrusted loans in the amount lent or invested

when the Group extends the loan at the will of the trustor. The Group only charges fees when

transacting entrusted loans, without advancing any payment for customers or taking any credit

risk.

28. Contingent liabilities

A contingent liability is a possible obligation that arises from past transactions or events and

whose existence will be confirmed only by whether one or more uncertain future events beyond

the control of the Bank occur or not. A contingent liability may also be a current obligation arising

from past events that is not recognized because the obligation is unlikely to result in outflows of

economic benefits or its amount is not reliably measurable. Such contingent liabilities are only

disclosed in notes.

29. Related parties

When a party separately or jointly controls or exerts significant influence over another party, or

two or more parties are controlled separately or jointly by a person, these parties constitute related

parties.

30. Profit distribution

The Bank distributes profit, allocates statutory surplus reserves and general reserve in accordance

with the Company Law and its Articles of Association.

In accordance with the Notice concerning Issuance of the Administrative Measures for Setting

Aside Reserve Funds of Financial Enterprises [C.J. (2012) No. 20], general reserve means reserve

set aside by a financial corporation in proportion to its net profit for the purpose of covering

unidentified possible losses. Setting aside general reserve is deemed profit distribution and

constitutes part of the owners’ equity. General reserve is set aside in proportion to the balance of

assets that assume risks and losses. In principle, the balance of general reserve should not be lower

than 1.5% of the balance of risk assets at the end of the reporting period. If the proportion of

general reserve of financial enterprises to the balance of risk assets at the end of the period is

difficult to reach 1.5%, it can be put in place over years (not exceeding 5 years in principle).

31. Changes in major accounting policies and accounting estimates

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(1) Changes in accounting policies

Pursuant to the Circular on Issuance of the Amended Format of Financial Statements of General

Enterprises for 2018 (C.K. [2018] No. 15) issued by the Ministry of Finance in December 2018,

financial statements shall be prepared in the amended format for general enterprises for fiscal

years after 1 January 2018. The Group does not need to restate comparable data in previous

periods. The above amendments have no significant impact on the Group’s financial position,

operating results or cash flows. The specific impact is that “interest receivable” or “interest

payable” will no longer be stated separately and instead will be included in “other assets” or

“other liabilities”.

(2) Changes in accounting estimates

The Group made no changes in accounting estimates in the reporting period;

32. Segmental reporting

The Group identifies the business segments based on the internal organizational structure,

management requirements and internal reporting regulations, and accordingly identifies the report

segments and discloses the segment information.

Business segments refer to the components in the Group that satisfy the following conditions: (1)

these components can generate income and incur expenses during the daily activities; (2) the

Management of the Group can regularly evaluate the business performance of these components to

allocate the resources and evaluate their performance; (3) the Group can obtain the financial

position, operating results, cash flow and other accounting information of these components. Two

or more business segments with similar economic features can be consolidated into one business

segment as long as some conditions are met.

VI. Significant Accounting Estimates and Judgments

The Group makes the following uncertain estimates at the end of the reporting period according to

historical experience and reasonable anticipation of future events and will make ongoing

assessment of them subsequently.

1. Allowance for impairment losses on loans and receivables.

The Group regularly evaluates impairment losses on loan portfolios, in addition to separate

evaluations on impairment losses on identified loans impaired. For a loan portfolio composed of

loans not found to decrease in cash flows in an individual test, the Group makes judgment on

whether any sign exists to indicate decrease in anticipated future cash flows of the portfolio, so as

to determine the necessity of setting aside allowance for impairment losses on loans. Signs of

decrease in anticipated cash flows include deterioration in debt service ability of borrowers in the

loan portfolio or adverse changes in the economic environment where borrowers operate that

cause default of borrowers in the portfolio. The Bank makes impairment estimates on loan

portfolios showing signs of impairment based on historical losses on asset portfolios with similar

credit risk characteristics. For methods and assumptions used to estimate the timing and amount of

anticipated future cash flows, the Group makes regular assessments to reduce difference between

actual impairment losses on loans and estimated loss.

2. Impairment losses on other assets

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The Group regularly assesses impairment on assets other than loans and advances and checks

them for any impairment loss. If any impairment loss is discovered, the Group will set aside

allowance for impairment losses and record it in profit or loss.

3. Fair value of financial instruments

Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants on the measurement date. The Group measures

the assets or liabilities at fair value by taking into account the features of the assets or liabilities; it

assumes that the market participant sells an asset or transfer a liability in an orderly transaction on

the current market on the measurement date; it assumes that the orderly transaction where an asset

is sold or a liability is transferred is conducted on the main market of relevant asset or liability;

where there is no such main market, it assumes that the transaction is conducted on the most

advantageous market of relevant asset or liability. The Group uses the assumptions that market

participants would use to achieve the maximum economic benefits when pricing the asset or

liability.

The Group judges whether the fair value equals to the transaction price during the initial

recognition based on the transaction nature and features of relevant assets or liabilities; where the

transaction price does not equal to the fair value, it records relevant gains or losses into profit or

loss, except as otherwise provided in the accounting standards.

The Group adopts the valuation technique applicable in the current circumstance and with

adequate available data and other information support. The valuation technique used mainly

includes market-based approach, income approach and cost approach. During the application of

valuation technique, the Group gives the highest priority to observable inputs and uses

unobservable inputs only when the observable inputs cannot be obtained or the obtaining of

observable inputs is not feasible.

The Group categorizes into three levels the inputs used to measure fair value and gives the highest

priority to Level-1 inputs and the lowest priority to Level-2 inputs. Level-1 inputs are quoted

prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at

the measurement date. 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-3 inputs are

unobservable inputs for the asset or liability.

In the measurement of non-financial assets at fair value, the Group considers the ability of the

market participant to make the best use of asset and generate the economic benefits, or to sell the

asset to other market participant who can make the best use of asset to generate the economic

benefits. In the measurement of liabilities at fair value, the Group assumes that the liability is

transferred to other market participant on the measurement date, the liability remains outstanding

and the market participant transferee is required to fulfill the obligation. In the measurement of its

own equity instrument, the Group assumes that its own equity instrument is transferred to other

market participant on the measurement date, its own equity instrument remains outstanding and

the market participant transferee would take on the rights and responsibilities associated with the

instrument.

4. Held-to-maturity investments

Held-to-maturity investments refer to non-derivative financial assets that have fixed or

determinable payments, a fixed maturity and the Group has the positive intention and ability to

hold to maturity. The Management needs to make significant judgments when assessing whether a

financial asset is classified as held-to-maturity investments. Where any deviation takes place from

the judgment that the Group has the explicit intention and ability to hold an investment to maturity,

the investment portfolio including the investment will be reclassified as available-for-sale

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financial assets and measured at fair value other than at amortized cost.

5. Judgment about the control on the investment target

The Management judges whether the Group controls securitization instrument,

non-principal-guaranteed wealth management product, special asset management plan and

asset-backed financing based on the control elements presented in Note V.4.

(1) Securitization instrument

The Group initiates and establishes some securitization instruments that are operated based on the

established contract during the initiation. The Group obtains variable returns by issuing bonds

through some securitization instruments and performs the daily management of assets of

securitization instruments based on the loan service contract. Generally, other parties need to be

involved in the key decision-making only when there is default on the asset. Therefore, the Group

judges whether these securitization instruments are controlled by considering whether it is able to

use the rights of these instruments to affect its variable returns.

(2) Non-principal-guaranteed wealth management products, special asset management plans and

asset-backed financing

The Group manages or invests many non-principal-guaranteed wealth management products,

special asset management plans and asset-backed financing. For the judgment on whether the

structured subject is controlled, the Group mainly evaluates the overall economic benefits it enjoys

in the structured subject (including benefits out of direct holding and expected management fee)

and the extent of decision-making authority on the structured subject. The Group’s overall

economic benefits are insignificant in the structured subject. Meanwhile, according to the laws and

supervision regulations, the initiation, sale and management behaviors of the decision maker about

the structured subject should be strictly controlled in the investment agreement. Therefore, the

Group believes that as the agent instead of major responsible person, it does not need to include

the structured subject into the consolidated financial statement.

Please refer to Note X. 2 for the securitization instruments, non-principal-guaranteed wealth

management products, special asset management plans and asset-backed financing where the

Group has beneficial interest or acts as an initiator but that have not been included in the

consolidated financial statements.

6. Income tax

The deferred income tax assets arising from deductible temporary differences are recognized to

the extent of the taxable income likely to be available for offsetting deductible temporary

differences. The Group checks the carrying amount of deferred income tax assets on the balance

sheet date. Where it is likely that insufficient taxable income will be available in future periods to

offset deductible temporary differences, the carrying amount of the deferred income tax assets

should be written down. Therefore, the Group needs to make significant judgments on tax-related

treatment of relevant transactions in accordance with relevant tax laws and regulations and make

significant estimates on the likelihood of sufficient taxable income available to offset deferred

income tax assets.

VII. Taxes

1. The VAT rate is 6% of operating income.

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2. The urban maintenance and construction tax rate is 7% of turnover tax payable.

3. The education surcharge rate is 3% of turnover tax payable.

4. Local education surcharges are 1.5% of turnover tax payable in Hubei, and 2% of turnover

tax payable in Chongqing.

5. Corporate income tax: The corporate income tax rate applicable to the Group is 25%.

VIII. Notes to Main Items of Consolidated Financial Statements

(Amounts in thousands of RMB unless otherwise stated)

1. Cash and balances with central banks

Item 31 December 2018 31 December 2017

Cash 757,835 570,468

Balances with central banks 26,155,708 28,224,045

Legal reserve 21,888,315 24,474,863

Excess reserve 4,159,069 3,674,192

Public finance reserve 108,324 74,990

Total 26,913,543 28,794,513

Note: (1) The Group deposited legal reserve with PBOC, which should not be used for daily

business operation of the Group.

As at 31 December 2018, the Group’s ratio of legal reserve was:


Ratio of RMB legal reserve 12% 14.5%

Ratio of foreign-currency legal

reserve 5% 5%

Note: (2) Excess reserve with central banks is mainly used for fund clearing.

2. Deposits with banks and other financial institutions


Clearing deposits with banks and

other financial institutions 609,897 936,140

General deposits with banks and

other financial institutions 130,000 2,220,005

Deposits with overseas banks and


Subtotal 1,072,991 3,390,629

Less: Allowance for bad debts with

banks and other financial institutions

Carrying amount of balances with

banks and other financial institutions 1,072,991 3,390,629

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Note: The 2018 balances with banks and other financial institutions fell by 68.35% over the 2017

figure due to the maturity of general deposits with banks and other financial institutions.

3. Lendings to banks and other financial institutions


Placements with domestic banks and


Placements with overseas banks and

other financial institutions

Placements with domestic

non-banking financial institutions 101,864

Subtotal 500,000 317,493

Less: Allowance for losses on

lendings to banks and other financial

institutions

Carrying amount of lendings to

banks and other financial institutions 500,000

317,493

4. Financial assets designated at fair value through profit or loss


Held-for-trading bond investment

(Classified by issuer):

Governments and central banks 315,205

Policy banks 166,302

Banks and other financial

institutions 49,732

Enterprises 231,536

Subtotal 231,536 531,239

Financial assets measured at fair

value through profit or loss



Policy banks 1,296,199 942,134

Banks and other financial

institutions 5,587,083 7,774,075

Enterprises 5,849,660 4,011,027

Subtotal 12,810,762 12,727,236

Total 13,042,298 13,258,475

Note: The foregoing financial assets are subject to no significant restrictions on investment

disposal.

5. Financial assets under reverse repurchase agreements


Classified by collateral:

Page 47 of 177


Bonds under reverse repurchase

agreements 3,510,200

5,113,687

Incl.: Government bonds 1,300,000 1,327,800

Financial bonds 2,210,200 3,785,887

Corporate bonds

Bills under reverse repurchase

agreements

100,000

Incl.: Bank acceptance bills 100,000

Commercial acceptance bills

Interbank CDs under reverse

repurchase agreements 500,000

Total financial assets under reverse

repurchase agreements 4,010,200

5,213,687

Less: Allowance for bad debts of

financial assets under reverse

repurchase agreements

Carrying amount of financial

assets under reverse repurchase

agreements

4,010,200

5,213,687

Classified by counterparty:

Non-banking financial institutions 675,000 2,451,087

From banks 3,335,200 2,762,600

Total financial assets under

reverse repurchase agreements 4,010,200

5,213,687


financial assets under reverse


Carrying amount of financial


agreements

4,010,200

5,213,687

6. Loans and advances

(1) Loans and advances by personal and corporate borrowers are presented as follows:


Personal loans and advances: 35,336,734 23,517,738

Personal consumption loans 25,249,545 14,600,719

Personal business loans 7,442,801 7,164,474

Advance expenditure of credit

cards 2,644,388 1,752,545

Corporate loans and advances: 101,851,286 91,398,912

Loans 73,266,363 71,872,923

Discounts 24,375,970 16,407,588

Page 48 of 177


Advances 379,084 1,106,319

International trade finance 1,001,502 813,916

Domestic trade finance 2,828,367 1,198,166

Total loans and advances 137,188,020 114,916,650

Less: Allowance for impairment

losses on loans 4,591,017 4,341,694

Incl.: Individually assessed 1,989,989 2,132,854

Collectively assessed 2,601,028 2,208,840

Carrying amount of loans and

advances 132,597,003 110,574,956

Notes: (1) As at 31 December 2018, the Group did not use the foregoing assets as collateral when

entering into repurchase agreements with other financial institutions.

(2) For the loan balance of shareholders holding 5% or more voting shares in the Bank, please

refer to Note XV. 2 (1).

(2) Discounting of bills by type:


Bank acceptance bills 22,867,182 15,636,580

Commercial acceptance

bills 1,508,788 771,008

Total 24,375,970 16,407,588

(3) Advances by type:


Guaranteed advances

Acceptance advances 379,084 1,106,319

Other deposits

Total 379,084 1,106,319

(4) Loans and advances by industry sector:



Manufacturing 12,966,285 12,920,607

Page 49 of 177


Wholesale and retail 17,743,801 16,363,345

Transport, storage and post 2,463,749 2,676,782

Farming, forestry, animal husbandry and

fishery 762,076 710,092

Power/heat/gas/water production and

supply 2,617,055 2,169,702

Real estate 14,219,433 15,581,286

Public administration and social

organizations

Construction 8,920,116 8,320,240

Education 3,000 3,841

Financial industry 12,743,056 1,428,060

Neighborhood services and others 112,253 256,439

Scientific research, technical services and

geological prospecting


management 3,974,539 1,979,762

Public health, social security and social

welfare 300

Culture, sports and entertainment 330,862 837,783

Information transmission, computer

service and software 1,566,802 977,511

Lodging and catering services 800 1,100

Leasing and commercial services 12,565,110 13,217,073

Mining 360,837 782,647

Others 10,501,512 13,172,342



Less: Allowance for impairment losses on

loans 4,591,017

4,341,694



Carrying amount of loans and advances 132,597,003 110,574,956

(5) Loans and advances by the mode of guarantee are presented as follows:


Unsecured loans 21,102,365 17,891,495

Guaranteed loans 27,379,390 23,732,728

Collateralized loans 88,706,265 73,292,427

—Loans secured by mortgages 56,022,731 49,392,455

—Pledged loans 32,683,534 23,899,972


Page 50 of 177



losses on loans 4,591,017

4,341,694




advances 132,597,003

110,574,956

(6) Loans and advances by geographical distribution are presented as follows:


Wuhan 111,221,758 88,815,686

Ezhou 1,431,151 1,349,995

Yichang 4,030,556 3,676,046

Huangshi 4,130,084 3,925,724

Jingmen 1,960,281 2,106,625

Xiangyang 1,877,636 3,059,188

Jingzhou 1,344,043 918,814

Enshi 1,648,941 1,285,780

Shiyan 1,052,131 1,033,850

Xiaogan 1,458,275 1,149,209

Xianning 460,932 262,421

Huanggang 187,564

Chongqing 6,384,668 7,333,312



losses on loans 4,591,017

4,341,694




advances 132,597,003

110,574,956

(7) Overdue loans are presented as follows:

Item

31 December 2018

Overdue for

less than 3

months

Overdue for

3-12 months

Overdue for

1-3 years

Overdue

for over 3

years

Total

Unsecured loans 15,309 15,836 59,337 30,745 121,227

Guaranteed loans 23,385 88,710 217,080 1,060,968 1,390,143

Collateralized

loans

——Loans 167,681 106,307 301,274 736,439 1,311,701

Page 51 of 177

Item

31 December 2018

Overdue for

less than 3

months

Overdue for

3-12 months

Overdue for

1-3 years

Overdue

for over 3

years

Total

secured by

mortgages

——Pledged loans 3,674 7,945 25,412 251,355 288,386

Total loans and

advances 210,049 218,798 603,103 2,079,507 3,111,457

Item

31 December 2017

Overdue for

less than 3

months

Overdue for

3-12 months

Overdue for

1-3 years

Overdue

for over 3

years

Total

Unsecured loans 18,210 80,726 3,369 29,999 132,304

Guaranteed loans 84,099 171,838 1,845,227 188,063 2,289,227

Collateralized loans

——Loans secured

by mortgages 114,398 147,743 2,277,518 369,108 2,908,767

——Pledged loans 6,600 8,089 424,101 233,486 672,276

Total loans and

advances 223,307 408,396 4,550,215 820,656 6,002,574

(8) Changes in allowance for impairment losses on loans:


Beginning balance 4,341,694 4,051,262

Provisioning during the period 2,208,581 1,780,348

Transfer-out during the period

Write-off during the period 2,024,479 1,501,028

Reversed during the period 65,221 11,112

——Loans and advances written off in

previous years and recovered during the

period

64,785 11,258

——Reversed due to rise in discounted

value

——Exchange gains or losses and other

adjustments 436 -146

Ending balance 4,591,017 4,341,694


Allowance for impairment losses on

corporate loans: 3,756,580 3,888,676

Individually assessed 1,935,207 2,132,854


Page 52 of 177



personal loans: 834,437 453,018

Individually assessed 54,782

Collectively assessed 779,655 453,018

Total 4,591,017 4,341,694

(9) Write-off of non-performing loans and off-balance-sheet accrued interest receivable:

Item 2018 2017

Loan principal written off 2,024,479 1,501,028

Off-balance-sheet accrued interest

receivable written off

1,002,280 714,036

Total 3,026,759

2,215,064

7. Available-for-sale financial assets

(1) Classification of available-for-sale financial assets

Item 31 December 2018

Book balance Allowance

for

impairment

losses

Carrying

amount

Available-for-sale debt instruments 57,145,516 57,145,516

Available-for-sale equity instruments 15,582 15,582

Incl.: Equity instruments at fair value

Equity instruments at cost 15,582 15,582

Total 57,161,098 57,161,098


Book balance Allowance for

impairment losses

Carrying

amount

Available-for-sale debt instruments 46,587,207 46,587,207

Available-for-sale equity instruments 15,582 15,582

Incl.: Equity instruments at fair value

Equity instruments at cost 15,582 15,582

Total 46,602,789 46,602,789

(2) Available-for-sale financial assets at fair value at the period end

Classification of available-for-sale financial

assets

Available-for

-sale equity

instruments

Available-for-

sale debt

instruments

Total

Amortized cost 56,659,892 56,659,892

Fair value 57,145,516 57,145,516

Changes in fair value accumulatively recognized

in other comprehensive income

485,624 485,624

Impairment amount set aside

Page 53 of 177

(3) Available-for-sale financial assets at cost at the period end

For the equity investment without quoted price in an active market and its fair value cannot be

reliably measured, the Group measures it at cost and has no disposal plan for relevant equity

investment in the foreseeable future. As at the end of the reporting period, the equity investment

measured at cost is presented as follows:

Name of investee

Book balance

Shareholding

percentage in

investee (%)

31 December

2017

Increase

during

the

period

Decrease

during

the

period

31

December

2018


Ltd.

8,030 8,030 0.88

China UnionPay Co., Ltd. 7,152 7,152 0.27


Clearing Center 400

400 1.33

Total 15,582 15,582

Name of investee

Allowance for impairment losses Cash

dividend

during the

period

31

December

2017

Increase

during the

period

Decrease

during the

period

31

December

2018


Ltd.

522

China UnionPay Co., Ltd. 880


Clearing Center

Total 1,402

Notes: (1) As at 31 December 2018, available-for-sale financial assets held by the Group had not

been impaired, so no allowance for impairment losses was set aside for available-for-sale financial

assets.

(2) As at 31 December 2018, of the available-for-sale financial assets held by the Group, bonds

with a par value of RMB1,025,000,000 were pledged for handling pledge-type repurchase

business, time deposit business of treasury bonds and borrowings from central banks.



Government bonds 33,892,122 18,446,223


Bonds of policy banks 3,213,148 3,557,557

Bank bonds 910,000 910,000

Interbank CDs

Corporate bonds 1,704,626 1,569,064

Subordinated bonds 249,908

Other bonds 1,429,174 823,578

Page 54 of 177


Total 41,149,070 25,556,330


losses on held-to-maturity

investments

Carrying amount of held-to-maturity

investments 41,149,070 25,556,330

Notes: (1) As at 31 December 2018, held-to-maturity bonds held by the Bank had not been

impaired, so no allowance for impairment losses was set aside for held-to-maturity investments.

(2) As at 31 December 2018, of the held-to-maturity financial assets held by the Group, bonds



(3) The balance of held-to-maturity investments for 2018 increased by 61.01% as compared to

2017, mainly due to increased holdings in government bonds.

9. Investment with receivables


Government bonds 28,088 33,911

Subordinated bonds

Wealth management products 30,000 3,470,000

Asset management plans and fund

trust plans 35,661,360 38,246,516

Asset-backed securities 200,000 500,000

Other investments 1,164 1,164

Total 35,920,612 42,251,591


losses on receivables investment 1,047,153 1,044,059

Investment with receivables 34,873,459 41,207,532

Changes in allowance for impairment losses on receivables investment:


Beginning balance 1,044,059

937,144

Provisioning during the period 3,094

106,915


Write-off during the period

Reversed during the period

Ending balance 1,047,153

1,044,059

10. Long-term equity investment

Page 55 of 177

Investee 31 December 2018 31 December 2017

Book

balance

Allowance

for

impairment

losses

Carrying

amount

Book

balance

Allowance

for

impairment

losses

Carrying

amount

Associate:

Aerospace Science & Industry

Financial Leasing Co., Ltd.

787,643 787,643 763,209 763,209

Total 787,643 787,643 763,209 763,209

(Continued)

Investee Change during the period

Additional

investment

Reduced

investment

Investment

gain or loss

recognized

under equity

method

Other

comprehensive

income

adjustments

Other

equity

changes

Announced

payment of

cash

dividend or

profit

Allowance

for

impairment

losses set

aside

Others

Associate:

Aerospace

Science &

Industry

Financial

Leasing Co.,

Ltd.

24,434

Total 24,434

Detailed information on the associate:

Company

name

Shareholding

percentage

(%)

Voting

right

percentage

(%)

Place of registration Business

nature

Registered

capital

Aerospace

Science &

Industry

Financial

Leasing Co.,

Ltd.

25 25 F/4 & 5, Wealth Plaza, 18

Jinyinhu Road, Dongxihu

District, Wuhan City (11)

Financial

leasing

3,000,000

Note: Please refer to Note X.2 for information on equity in the associate.

11. Fixed assets, accumulated depreciation and allowance for impairment losses on fixed assets

Item Buildings and

structures

Transporting

vehicles

Electronic

equipment

Furniture Total

I. Original book value

1. Beginning balance 1,952,749 26,475 519,360 38,982 2,537,566

2. Increase during the

period

3,663 1,441 34,849 2,251 42,204

(1) Purchases 3,663 1,441 34,849 2,251 42,204

(2) Transfer-in of

construction in

progress

(3) Increase in business

combination

Page 56 of 177

Item Buildings and

structures

Transporting

vehicles

Electronic

equipment

Furniture Total

3. Decrease during the

period

2,189 4,814 712 7,715

Disposal or

retirement

2,189 4,814 712 7,715

4. Ending balance 1,956,412 25,727 549,395 40,521 2,572,055

II. Accumulated

depreciation

1. Beginning balance 552,937 23,806 369,061 33,104 978,908


period

61,201 1,304 59,609 2,474 124,588

Provisions 61,201 1,304 59,609 2,474 124,588


period

2,167 4,769 692 7,628

Disposal or

retirement

2,167 4,769 692 7,628

4. Ending balance 614,138 22,943 423,901 34,886 1,095,868

III. Allowance for

impairment losses

1. Beginning balance 1,487 1,487


period

Provisions


period

Disposal or

retirement

4. Ending balance 1,487 1,487

IV. Carrying amount

1. Ending carrying

amount

1,340,787 2,784 125,494 5,635 1,474,700

2. Beginning carrying

amount

1,398,325 2,669 150,299 5,878 1,557,171

Notes: (1) As at 31 December 2018, no fixed assets of the Group were from significant leases in

lieu of purchase or finance leases.

(2) Fixed assets without title deed in place:

As at 31 December 2018, the Group had four real properties without title deed due to problems

left over from history, with original value being RMB17,653,000 and carrying amount being

RMB1,177,000. The foregoing matters do not affect the Group’s rights in these properties.

12. Construction in progress

(1) Basic information on construction in progress

Item

Ending balance Beginning balance

Book

balance

Allowance

for

impairment

losses

Net

carrying

amount

Book

balance

Allowance

for

impairment

losses

Net

carrying

amount

Page 57 of 177

House

properties 36,038 36,038 1,183 1,183

Software 332 332

Total 36,370 36,370 1,183 1,183

(2) Changes in important projects under construction

Name of

project

Beginning

balance

Increase

during the

period

Transferred to

fixed assets

during the

period

Other

decreases

Ending

balance

Interest

capitalization

ratio (%)

House

properties 1,183 34,855 36,038

Software 332 332

Total 1,183 35,187 36,370

Notes: (1) There was no interest capitalization expense during construction in progress.

(2) As at 31 December 2018, no construction in progress of the Group had been impaired.

13. Intangible assets

Details of intangible assets (a):

Item Software Land use rights Total

I. Original book value

1. Beginning balance 114,556 76,276 190,832


period

5,415 5,415

(1) Purchases 5,415 5,415

(2) In-house research

and development

(3) Increase in

business combination


period

Disposal

4. Ending balance 119,971 76,276 196,247

II. Accumulated

amortization

1. Beginning balance 91,016 21,413 112,429


period

8,342 3,862 12,204

Amortization 8,342 3,862 12,204


period

Disposal

4. Ending balance 99,358 25,275 124,633

III. Allowance for

impairment losses

Page 58 of 177

Item Software Land use rights Total

1. Beginning balance


period

Provisions


period

Disposal

4. Ending balance

IV. Carrying amount

1. Ending carrying

amount

20,613 51,001 71,614

2. Beginning carrying

amount

23,540 54,863 78,403

Details of intangible assets (b):

Item

Way of

acquisition

Original

value

Accumulated

amortization

Remaining

amortization period

Software Purchase 119,971 99,358 2-5 years

Land use rights Purchase 76,276 25,275 33 years

Total 196,247 124,633

14. Deferred income tax assets and deferred income tax liabilities

(1) Recognized deferred income tax assets and deferred income tax liabilities:

Item 31 December

2018

31 December

2017

I. Deferred income tax assets

1. Allowance for losses on loans 1,046,526 1,040,340

2. Allowance for impairment losses on assets 263,252 261,635

3. Changes in fair value of available-for-sale financial

assets

67,362

4. Losses on changes in fair value of financial assets

designated at fair value through profit or loss

31,239

5. Difference in amortization years of long-term deferred

expenses

57 84

6. Difference in amortization years of intangible assets 9,251 9,706

7. Gains on changes in fair value of financial liabilities


9,489

8. Others 202,393 26,701

Total 1,530,968 1,437,067

II. Deferred income tax liabilities

Gains on changes in fair value of financial liabilities


7,771

Gains on changes in fair value of financial assets


1,026

Unrealized gains on available-for-sale financial assets 121,406

Total 122,432 7,771

Page 59 of 177

Note: Balance of deferred income tax liability in 2018 rose by 1,475.50% from 2017 due to

increase in changes in fair value of available-for-sale financial assets.

(2) Asset or liability items giving rise to temporary differences

Item Temporary difference

Amount on

31 December

2018

Amount on

31 December

2017

I. Deductible temporary difference items giving rise to deferred

income tax assets

1. Allowance for losses on loans 4,186,102 4,161,358

2. Allowance for impairment losses on assets 1,053,008 1,046,538

3. Changes in fair value of available-for-sale financial assets 269,448

4. Losses on changes in fair value of financial assets designated at

fair value through profit or loss

124,955

5. Deductible temporary differences arising from different

amortization periods of long-term deferred expenses

227 337

6. Deductible temporary differences arising from different

amortization periods of intangible assets

37,004 38,824

7. Gains on changes in fair value of financial liabilities designated

at fair value through profit or loss

37,958

8. Others 809,572 106,809

Total 6,123,871 5,748,269

II. Taxable temporary difference items giving rise to deferred

income tax liabilities

Gains on changes in fair value of financial liabilities designated at


31,082

Gains on changes in fair value of financial assets designated at


4,105

Unrealized gains on available-for-sale financial assets 485,624

Total 489,729 31,082

15. Other assets

Page 60 of 177

Other assets are presented by item as follows:


Deferred expenses 57,406 51,690

Dividend payable 522 522

Other receivables 1,349,296 243,535

Repossessed assets 224,294 146,913

Long-term deferred expenses 117,335 103,689

Agency securities 13,069 27,888

Deposits with correspondent banks 29,804

Interest receivable 2,289,154 1,717,968

Others 23,876 1,590

Total 4,074,952 2,323,599

Note: Balance of other assets in 2018 rose by 75.37% over 2017 due to increase in non-recourse

factoring and inclusion of interest receivable in other assets under the amended standard format of

financial statements for financial enterprises.

(1) Other receivables

A. Other receivables are presented by item as follows:


Factoring receivable (domestic

factoring without recourse)

1,088,996 110,942

Other current account and temporary

payment

263,638 132,193

Refundable deposits 1,030 1,392

Subtotal 1,353,664 244,527

Less: Bad debt provisions 4,368 992

Carrying amount of other receivables 1,349,296 243,535

B. Changes in allowance for impairment losses on other receivables

Item 2018 2017

Beginning balance 992 906

Provisioning during the year 13,903 6,587

Reversed during the year 1,790 124

Write-off during the year 12,317 6,625

Transfer-in after reclassification

Ending balance 4,368 992

Note: As at 31 December 2018, other receivables had no arrears of shareholders holding 5% or

more shares of the Bank.

C. Other receivables are presented by account age as follows:


Page 61 of 177

Within 1 year 1,277,702 195,104

1-2 years 39,894 25,811

2-3 years 19,501 11,702

Over 3 years 16,567 11,910

Subtotal 1,353,664 244,527

Less: Bad debt provisions 4,368 992

Carrying amount of other

receivables

1,349,296 243,535

D. Details of other receivables in significant amounts:

Name Amount Time Nature or description

Wuhan Equity Exchange Co., Ltd. 55,340 December 2018 Dividend distribution

House Expropriation and Management

Office of Hanyang District, Wuhan 5,904 December 2016

House removal

expropriation fund

Hangzhou Bohang Gold & Jewelry Co.,

Ltd. 2,040 August 2016 Advances

Wuhan Guochuang Financial Services Co.,

Ltd. 1,865 April 2013

Rent and electricity

deposit

Finance Bureau of Qingshan District,

Wuhan 1,540 January 2018

Discounting account

of small-sum

guaranteed loan

(2) Long-term deferred expenses

Item Beginning

balance

Increase

during the

period

Amortization

during the

period

Other

decreases

Ending

balance

Reason

for other

decreases

Renovation

and

improvement

expenses

103,689 58,052 44,406 117,335

Total 103,689 58,052 44,406 117,335

(3) Agency securities


Securities issued on an agency basis -33,473 -42,967

Securities cashed on an agency basis 46,632 70,944

Others -90 -89

Total 13,069 27,888

(4) Interest receivable


Interest receivable from bonds 1,504,605 1,137,422

Interest receivable from loans and

advances 290,141 205,090

Page 62 of 177


Interest receivable from financial


agreements

818 4,368

Interest receivable from

principal-guaranteed wealth

management products

465,299 350,925

Interest from transactions with

financial institutions 28,291 20,163

Total 2,289,154 1,717,968

Note: The 2018 balance of interest receivable rose by 33.25% over that of 2017 because of the

larger investment volume and rising interest receivable.

Changes in interest receivable

Item 2018 2017

Beginning balance 1,717,968 919,668

Provisioning during the year 11,140,809 9,933,816

Received during the year 10,569,623 9,135,516

Ending balance 2,289,154 1,717,968

16. Allowance for impairment losses on assets

Item

31

December

2017

Provisioning

during the

period

Reversed

during

the

period

Write-off

during the

period

31

December

2018

Allowance for losses on loans

and advances 4,341,694 2,208,581 65,221 2,024,479 4,591,017

Bad debt provisions 992 13,903 1,790 12,317 4,368

Allowance for impairment

losses on receivables

investment

1,044,059 3,094 1,047,153

Allowance for impairment

losses on fixed assets 1,487 1,487

Total 5,388,232 2,225,578 67,011 2,036,796 5,644,025

17. Borrowings from central banks


Borrowings from central banks 1,700,000 60,200

Total 1,700,000 60,200

Note: The balance of borrowings from central banks at the end of 2018 increased by 2,723.92% as

compared to 2017 due to increase in the Group’s relending supporting small enterprises.

18. Deposits from banks and other financial institutions

Page 63 of 177


Money for clearing from domestic

banks

110,749 118,399

General deposits from domestic banks 1,100,013 3,000,013


non-banking financial institutions

991,893 351,799

General deposits from domestic


2,597,149 1,142,711

Total 4,799,804 4,612,922

19. Borrowings from banks and other financial institutions


Placements from domestic banks and

other financial institutions 1,500,000 1,500,000

Placements from overseas banks and


Total 1,504,290 1,625,404

From banks 1,504,290 1,625,404

From securities companies

From other non-banking financial

institutions

Total 1,504,290 1,625,404

20. Financial liabilities designated at fair value through profit or loss


Principal-guaranteed wealth management

products issued 13,190,558 13,003,858

Total 13,190,558 13,003,858

Note: Principal-guaranteed wealth management products issued by the Group and financial assets

invested by it constitute a part of financial instrument portfolio managed at fair value, and are

recognized as financial liabilities and financial assets designated at fair value through profit or loss,

respectively. As at 31 December 2018, the fair value of the abovementioned wealth management

products issued was RMB226,814,000 lower than the amount payable to the holders on the

contract due date.

21. Financial assets under repurchase agreements


Securities under repurchase agreements:



Subtotal 5,615,100 9,012,740

Bills under repurchase agreements:


Subtotal 11,881,138 6,110,655

Page 64 of 177


Interbank CDs under repurchase

agreements

98,000

Subtotal 98,000

Total 17,496,238 15,221,395

22. Customer deposits

(1) Customer deposits are presented by deposit type as follows:


Demand deposits: 107,711,523 99,793,721

Corporate customers 87,732,106 81,482,714

Personal customers 19,979,417 18,311,007

Time deposits: 53,773,663 42,276,143



Margin deposits 7,854,304 7,691,565

Other deposits 19,489,676 13,000,405

Total 188,829,166 162,761,834

Note: For the deposit balance of shareholders holding 5% or more voting shares in the Group,

please refer to Note XV.2(2).

(2) Details of margin deposits received that are included in the customer deposits are presented as

follows:


Margin on acceptance bills 5,063,324 5,804,409

Margin on L/C issuance 346,424 156,549

Margin on guarantee 462,723 469,357

Other margins 1,981,833 1,261,250

Total 7,854,304 7,691,565

(3) Customer deposits are presented by geographical distribution as follows:


Wuhan 162,757,085 139,982,316

Huangshi 3,317,988 2,644,357

Yichang 4,798,239 3,704,954

Ezhou 1,616,904 1,956,128

Page 65 of 177

Jingmen 1,221,150 1,582,762

Xiangyang 686,210 1,864,783

Jingzhou 4,130,281 2,979,396

Enshi 2,216,791 1,491,736

Shiyan 1,253,350 946,847

Xiaogan 1,140,658 966,211

Xianning 703,838 393,477

Huanggang 460,649 4,224

Xiantao 13,289

Chongqing 4,512,734 4,244,643

Total 188,829,166 162,761,834

23. Payroll payable

(1) Classification of payroll payable

Item Beginning

balance

Increase

during the

period

Decrease

during the

period

Ending

balance

I. Short-term compensation 237,711 1,051,332 891,427 397,616

II. Welfare after resignation – Defined

contribution plan 297 157,214 149,081 8,430

Total 238,008 1,208,546 1,040,508 406,046

(2) Presentation of short-term compensation

Item Beginning

balance

Increase

during the

period

Decrease

during the

period

Ending

balance

1. Wages, bonus, allowances

and subsidies 163,409

823,389 683,964 302,834

2. Staff benefits 45 44,902 44,947

3. Social security contributions 28,361 82,391 71,778 38,974

Incl.: Medical insurance 28,035 78,044 67,435 38,644

Industrial injury insurance 324 1,343 1,341 326

Birth insurance 2 3,004 3,002 4

4. Housing provident funds 553 66,001 66,142 412

5. Labor union funds and staff

education funds 45,343

34,649 24,596 55,396

Total 237,711 1,051,332 891,427 397,616

(3) Presentation of defined contribution plan

Item Beginning

balance

Increase

during the

period

Decrease

during the

period

Ending

balance

1. Basic endowment insurance 154 91,860 91,815 199

2. Unemployment insurance 112 3,301 3,298 115

3. Enterprise annuity

contribution 31

62,053 53,968 8,116

Page 66 of 177

Item Beginning

balance

Increase

during the

period

Decrease

during the

period

Ending

balance

Total 297 157,214 149,081 8,430

Notes: (1) As at 31 December 2018, payroll payable excluded any payables in arrears.

(2) Balance of payroll payable at the end of 2018 rose by 70.60% from 2017 due to the

payment of performance pay for 2017 in advance in the year and the payment of performance pay

for 2018 in the next year.

24. Taxes payable


VAT payable 124,264 90,875

Surcharges payable 9,961 9,772

Property tax payable 3,216 3,023

Land use tax payable 293 81

Land appreciation tax payable 7,700 9,233

Personal income tax payable 4,587 17,952

Corporate income tax payable 353,790

Others 486 355

Total 150,507 485,081

25. Bonds payable

Bond name 31 December 2018 31 December 2017


Tier-2 capital bonds 4,995,998 4,995,606

Interbank CDs 58,413,417 52,186,003

Total 67,408,116 61,179,594

Bond name Date of issue Term

Interest

rate

Total par

value

Issued

amount

16 Hankou Bank MSE

01 22 August 2016 3 years 3.05% 500,000 499,921

16 Hankou Bank MSE

02 22 August 2016 5 years 3.40% 1,500,000 1,499,390

16 Hankou Bank MSE

03 6 September 2016 3 years 3.12% 900,000 899,847

16 Hankou Bank MSE

04 6 September 2016 5 years 3.40% 1,100,000 1,099,543

16 Hankou Bank

Tier-2 23 December 2016 10 years 4.50% 2,000,000 1,998,058

17 Hankou Bank

Tier-2 27 April 2017 10 years 5.00% 3,000,000 2,997,940

Page 67 of 177


Interest

rate

Total par

value

Issued

amount

18 Hankou Bank

CD003 10 January 2018

12

months 5.02% 250,000 238,050

18 Hankou Bank


12

months 5.02% 450,000 428,490

18 Hankou Bank


12

months 5.08% 150,000 142,748

18 Hankou Bank


12

months 5.20% 300,000 285,094

18 Hankou Bank


12

months 5.20% 890,000 846,007

18 Hankou Bank

CD023 5 February 2018

12

months 5.15% 600,000 570,154

18 Hankou Bank

CD025 8 February 2018

12

months 5.10% 300,000 285,329

18 Hankou Bank

CD037 19 March 2018

12

months 5.20% 1,000,000 950,570

18 Hankou Bank

CD038 21 March 2018

12

months 5.10% 1,000,000 951,475

18 Hankou Bank

CD041 27 March 2018

12

months 4.72% 1,000,000 954,927

18 Hankou Bank

CD042 27 March 2018

12

months 4.72% 1,000,000 954,927

18 Hankou Bank

CD046 30 March 2018

12

months 4.85% 120,000 114,420

18 Hankou Bank

CD047 4 April 2018 9 months 4.68% 140,000 135,232

18 Hankou Bank

CD049 8 April 2018 9 months 4.68% 220,000 212,507

18 Hankou Bank

CD051 9 April 2018

12

months 4.75% 50,000 47,733

18 Hankou Bank

CD052 10 April 2018

12

months 4.75% 1,000,000 954,654

18 Hankou Bank

CD055 11 April 2018 9 months 4.70% 940,000 907,852

18 Hankou Bank

CD056 11 April 2018

12

months 4.78% 1,000,000 954,381

18 Hankou Bank

CD062 8 May 2018 9 months 4.50% 100,000 96,710

18 Hankou Bank

CD064 9 May 2018

12

months 4.60% 290,000 277,247

18 Hankou Bank

CD067 11 May 2018

12

months 4.68% 540,000 515,731

18 Hankou Bank

CD071 15 May 2018

12

months 4.70% 980,000 936,008

18 Hankou Bank

CD074 16 May 2018

12

months 4.70% 220,000 210,124

18 Hankou Bank

CD075 17 May 2018

12

months 4.72% 900,000 859,434

18 Hankou Bank

CD079 19 June 2018

12

months 4.80% 720,000 687,023

18 Hankou Bank

CD080 22 June 2018

12

months 4.80% 770,000 734,548

18 Hankou Bank

CD081 22 June 2018

12

months 4.80% 530,000 505,598

18 Hankou Bank 25 June 2018 12 4.80% 850,000 811,068

Page 68 of 177


Interest

rate

Total par

value

Issued

amount

CD082 months

18 Hankou Bank

CD084 9 July 2018 9 months 4.25% 810,000 784,956

18 Hankou Bank

CD085 9 July 2018

12

months 4.30% 320,000 306,807

18 Hankou Bank

CD087 11 July 2018

12

months 4.25% 200,000 191,847

18 Hankou Bank

CD088 12 July 2018 6 months 4.10% 720,000 705,264

18 Hankou Bank

CD089 12 July 2018 9 months 4.20% 200,000 193,887

18 Hankou Bank

CD090 13 July 2018 6 months 4.12% 370,000 362,432

18 Hankou Bank

CD091 13 July 2018

12

months 4.30% 250,000 239,639

18 Hankou Bank

CD093 16 July 2018 9 months 4.30% 1,000,000 968,730

18 Hankou Bank

CD094 16 July 2018

12

months 4.35% 300,000 287,494

18 Hankou Bank

CD096 17 July 2018 9 months 4.30% 500,000 484,365

18 Hankou Bank

CD097 17 July 2018

12

months 4.35% 340,000 325,826

18 Hankou Bank

CD098 18 July 2018

12

months 4.35% 700,000 670,819

18 Hankou Bank

CD099 19 July 2018

12

months 4.36% 1,000,000 958,222

18 Hankou Bank

CD100 20 July 2018

12

months 4.35% 1,000,000 958,095

18 Hankou Bank

CD101 20 July 2018 6 months 4.12% 500,000 489,773

18 Hankou Bank

CD102 23 July 2018

12

months 4.20% 800,000 767,754

18 Hankou Bank

CD103 25 July 2018

12

months 4.05% 500,000 480,538

18 Hankou Bank

CD105 3 August 2018 6 months 3.45% 500,000 491,088

18 Hankou Bank

CD106 3 August 2018 9 months 3.88% 500,000 485,899

18 Hankou Bank

CD107 3 August 2018

12

months 3.88% 500,000 481,226

18 Hankou Bank

CD109 8 August 2018

12

months 3.42% 600,000 580,159

18 Hankou Bank

CD110 10 August 2018 9 months 3.25% 50,000 48,813

18 Hankou Bank

CD111 15 August 2018 9 months 3.55% 100,000 97,414

18 Hankou Bank

CD112 15 August 2018 6 months 3.37% 80,000 78,664

18 Hankou Bank

CD113 17 August 2018

12

months 3.85% 400,000 385,093

18 Hankou Bank

CD115 20 August 2018 6 months 3.55% 300,000 294,726

18 Hankou Bank

CD116 20 August 2018 9 months 3.80% 1,200,000 1,166,837

Page 69 of 177


Interest

rate

Total par

value

Issued

amount

18 Hankou Bank

CD119 22 August 2018 6 months 3.70% 200,000 196,338

18 Hankou Bank

CD120 24 August 2018 6 months 3.82% 1,000,000 981,006

18 Hankou Bank

CD121 30 August 2018 6 months 3.70% 500,000 490,943

18 Hankou Bank

CD122 30 August 2018 6 months 3.70% 500,000 490,943

18 Hankou Bank

CD123 30 August 2018 6 months 3.70% 1,000,000 981,885

18 Hankou Bank

CD124 31 August 2018 6 months 3.65% 700,000 687,555

18 Hankou Bank

CD125 31 August 2018 9 months 3.78% 300,000 291,752

18 Hankou Bank

CD126 3 September 2018 9 months 3.78% 120,000 116,701

18 Hankou Bank

CD127 4 September 2018

12

months 3.80% 650,000 626,204

18 Hankou Bank


12

months 3.85% 150,000 144,439

18 Hankou Bank


18 Hankou Bank


12

months 3.73% 100,000 96,404

18 Hankou Bank


18 Hankou Bank


12

months 3.85% 250,000 240,683

18 Hankou Bank


18 Hankou Bank


18 Hankou Bank

CD135 12 October 2018 6 months 3.40% 730,000 717,830

18 Hankou Bank

CD136 12 October 2018

12

months 3.70% 900,000 867,719

18 Hankou Bank


18 Hankou Bank


12

months 3.80% 120,000 115,607

18 Hankou Bank


18 Hankou Bank

CD140 25 October 2018 3 months 3.25% 1,000,000 991,875

18 Hankou Bank


18 Hankou Bank


18 Hankou Bank


18 Hankou Bank


12

months 3.85% 1,500,000 1,444,390

18 Hankou Bank

CD145 1 November 2018 9 months 3.75% 1,500,000 1,459,075

18 Hankou Bank 1 November 2018 12 3.83% 1,500,000 1,444,669

Page 70 of 177


Interest

rate

Total par

value

Issued

amount

CD146 months

18 Hankou Bank

CD147 1 November 2018 6 months 3.60% 570,000 559,949

18 Hankou Bank


18 Hankou Bank

CD149 2 November 2018

12

months 3.83% 30,000 28,888

18 Hankou Bank


18 Hankou Bank


18 Hankou Bank


18 Hankou Bank


12

months 3.83% 1,500,000 1,444,670

18 Hankou Bank


12

months 3.82% 210,000 202,273

18 Hankou Bank


18 Hankou Bank

CD156 9 November 2018 9 months 3.75% 1,000,000 972,717

18 Hankou Bank


12

months 3.85% 660,000 635,403

18 Hankou Bank


12

months 3.85% 700,000 674,049

18 Hankou Bank


18 Hankou Bank


18 Hankou Bank


12

months 3.75% 1,300,000 1,253,011

18 Hankou Bank

CD162 6 December 2018 3 months 3.30% 150,000 148,789

18 Hankou Bank


18 Hankou Bank

CD164 7 December 2018 3 months 3.35% 1,000,000 991,807

18 Hankou Bank


18 Hankou Bank

CD166 10 December 2018 9 months 3.66% 1,170,000 1,138,714

Total 69,380,000 67,408,116

Notes: (1) Description on financial bonds:

The Group was approved to issue subordinated bonds by the official document

Y.SH.CH.X.ZH.Y.Z. [2016] No. 104 issued by the People’s Bank of China and the document

Y.J.F. [2015] No. 413 issued by CBRC in 2016. The details are as follows:

On 22 August 2016, Hankou Bank Co., Ltd. issued 3-year financial bonds with a fixed interest

rate. The bond name is 16 Hankou Bank MSE 01 with a par value of RMB500 million, the issue

expenses of RMB325,000 and an annual interest rate of 3.05%. Interest will be paid regularly

every year.

Page 71 of 177

On 22 August 2016, Hankou Bank Co., Ltd. issued 5-year financial bonds with a fixed interest

rate. The bond name is 16 Hankou Bank MSE 02 with a par value of RMB1.5 billion, the issue


every year.

On 6 September 2016, Hankou Bank Co., Ltd. issued 3-year financial bonds with a fixed interest

rate. The bond name is 16 Hankou Bank MSE 03 with a par value of RMB900 million, the issue


every year.

On 6 September 2016, Hankou Bank Co., Ltd. issued 5-year financial bonds with a fixed interest

rate. The bond name is 16 Hankou Bank MSE 04 with a par value of RMB1,100 million, the issue


every year.

(2) Description on tier-2 capital bonds:

The Group was approved to issue financial bonds by the official documents Y.SH.CH.X.ZH.Y.Z.

[2016] No. 233 issued by the People’s Bank of China and the document E.Y.J.F. [2016] No. 205

issued by CBRC Hubei Office in 2016. The details are as follows:

On 23 December 2016, Hankou Bank Co., Ltd. publicly issued tier-2 capital bonds with a fixed

interest rate on the interbank bonds market. The bond name is 16 Hankou Bank Tier-2 with a par

value of RMB2.0 billion, the issue expense of RMB1,995,000 and the bond term of 10 years.

These bonds are accompanied with the redemption right of issuer at the end of the fifth year. The

interest rate of these bonds is 4.50% and the interest will be paid regularly every year.

The Group was approved to issue tier-2 capital bonds by the official documents

Y.SH.CH.X.ZH.Y.Z. [2016] No. 233 issued by the People’s Bank of China in 2016 and the

document E.Y.J.F. [2017] No. 9 issued by CBRC Hubei Office in 2017. The details are as follows:

On 27 April 2017, Hankou Bank Co., Ltd. publicly issued tier-2 capital bonds with a fixed interest

rate on the interbank bonds market. The bond name is 17 Hankou Bank Tier-2 with a par value of

RMB3.0 billion, the issue expense of RMB2,400,000 and the bond term of 10 years. These bonds

are accompanied with the redemption right of issuer at the end of the fifth year. The interest rate of

these bonds is 5.00% and the interest will be paid regularly every year.

(3) Description on interbank CDs:

The Group issued the document S.L.F. [2014] No. 4 based on the market interest rate pricing

self-discipline mechanism in 2014, deciding to include Hankou Bank as its basic member to issue

interbank CDs. The details are as follows:

On 10 January 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on

the interbank bond market. The bond name is 18 Hankou Bank CD003 with a par value of

RMB100 each, totaling RMB250 million, and the issue price of RMB95.2200. Its value date is 10

January 2018 with a term of 1 year and the interest will be paid upon maturity.






Page 72 of 177












On 5 February 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



February 2018 with a term of 1 year and the interest will be paid upon maturity.

On 8 February 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



February 2018 with a term of 1 year and the interest will be paid upon maturity.

On 19 March 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on


RMB100 each, totaling RMB1 billion, and the issue price of RMB95.0570. Its value date is 19

March 2018 with a term of 1 year and the interest will be paid upon maturity.

















On 4 April 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on the

interbank bond market. The bond name is 18 Hankou Bank CD047 with a par value of RMB100

each, totaling RMB140 million, and the issue price of RMB96.5941. Its value date is 4 April 2018

with a term of 9 months and the interest will be paid upon maturity.

Page 73 of 177








with a term of 1 year and the interest will be paid upon maturity.



each, totaling RMB1 billion, and the issue price of RMB95.4654. Its value date is 10 April 2018




each, totaling RMB940 million, and the issue price of RMB96.5800. Its value date is 11 April

2018 with a term of 9 months and the interest will be paid upon maturity.



each, totaling RMB1 billion, and the issue price of RMB95.4381. Its value date is 11 April 2018


On 8 May 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on the


each, totaling RMB100 million, and the issue price of RMB96.7104. Its value date is 8 May 2018






















Page 74 of 177

On 19 June 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on the


each, totaling RMB720 billion, and the issue price of RMB95.4198. Its value date is 19 June 2018




each, totaling RMB770 million, and the issue price of RMB95.3959. Its value date is 22 June 2018










On 9 July 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on the


each, totaling RMB810 million, and the issue price of RMB96.9082. Its value date is 9 July 2018


























Page 75 of 177



each, totaling RMB1 billion, and the issue price of RMB96.8730. Its value date is 16 July 2018






































On 3 August 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



August 2018 with a term of 6 months and the interest will be paid upon maturity.

Page 76 of 177








August 2018 with a term of 1 year and the interest will be paid upon maturity.



























RMB100 each, totaling RMB1.2 billion, and the issue price of RMB97.9534. Its value date is 20




RMB100 each, totaling RMB200 million, and the issue price of RMB98.1689 Its value date is 22






Page 77 of 177



















RMB100 each, totaling RMB300 million, and the issue price of RMB97.2505. Its value date is

31August 2018 with a term of 9 months and the interest will be paid upon maturity.

On 3 September 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs

on the interbank bond market. The bond name is 18 Hankou Bank CD126 with a par value of


September 2018 with a term of 9 months and the interest will be paid upon maturity.




September 2018 with a term of 1 year and the interest will be paid upon maturity.

















Page 78 of 177













On 12 October 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



October 2018 with a term of 6 months and the interest will be paid upon maturity.




October 2018 with a term of 1 year and the interest will be paid upon maturity.

























Page 79 of 177









On 1 November 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



November 2018 with a term of 9 months and the interest will be paid upon maturity.




November 2018 with a term of 1 year and the interest will be paid upon maturity.





























Page 80 of 177

















On 12 November 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs
















On 6 December 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs on



December 2018 with a term of 3 months and the interest will be paid upon maturity.








December 2018 with a term of 3months and the interest will be paid upon maturity.

Page 81 of 177





On 10 December 2018, Hankou Bank Co., Ltd. made public issue of zero-coupon interbank CDs




26. Other liabilities


Outward remittance 13,982 91,461

Other payables 225,932 431,113

Dividend payable 55,641 24,047

Deposits from correspondent

banks

3,378

Interest payable 3,192,044 3,249,646

Other current liabilities 155,496 77,720

Total 3,646,473 3,873,987

(1) Other payables are presented by content as follows:


Fund clearing payable 13,376 171,766

Clearing funds to be transferred 64,788 55,065

Financial payables 29,560 41,546

Accrued expenses 70,066 53,032

Others 48,142 109,704

Total 225,932 431,113

Note: Other payables at the end of the year included no amounts owed to corporate shareholders

holding 5% or more voting shares in the Group.

Details of other payables in significant amounts:

Item Amount Nature or description

Wuhan Yintong Decoration Co., Ltd. 1,437

Project final payment and

quality assurance deposit to

be paid

Wuhan Youshang Engineering Technologies Co. Ltd. 1,348



be paid

Hubei Chenfa Fire Control Decoration Engineering

Co., Ltd. 1,102



be paid

Wuhan Royam Information Technology Co. Ltd. 823



be paid

Hubei Liangliang Fire Control Decoration

Engineering Co., Ltd. 766



be paid

Page 82 of 177

(2) Dividend payable

Main investor 31 December 2018 31 December 2017 Reason for

non-payment

Corporate

shareholders

54,480 23,039 Unclaimed

Natural person

shareholders

1,161 1,008 Unclaimed

Total 55,641 24,047

Note: The 2017 Annual General Meeting of the Group was held on 26 June 2018, at which the

Proposal on 2017 Profit Distribution Plan was reviewed and approved. Based on a total of

4,127,846,000 shares as at 31 December 2017 and a cash dividend of RMB0.10 (pre-tax) per share,

RMB412,785,000 of cash dividend was distributed in total.

(3) Interest payable


Interest payable on customer deposits 1,484,344 1,857,661

Interest payable on financial assets under

repurchase agreements 2,799 14,550

Interest on amounts due to banks and other


Bond interest payable 148,510 148,510

Interest payable on interbank CDs 1,002,385 844,667

Interest payable on borrowings from central

banks 1,801 24

Interest payable on principal-guaranteed

fixed-income wealth management liabilities 117,157 117,686

Other interest 413,364 172,525

Total 3,192,044 3,249,646

Changes in interest payable

Item 2018 2017



Paid during the year 7,196,906 4,424,711

Ending balance 3,192,044 3,249,646

(4) Other current liabilities


Agency payroll service 60,801 30,780

Deferred income 93,414 45,100

Others 1,281 1,840

Total 155,496 77,720

Page 83 of 177

27. Share capital

Name of

investor 31 December 2017

Increase

during the

period

Transfer-out

during the

period 31 December 2018

Non-natural

person

shareholders 3,969,520 3,969,520

Natural person

shareholders 158,326 158,326

Total 4,127,846 4,127,846

Particulars on shareholders holding 5% or more shares of the Group:

Name of shareholder

31 December 2018 31 December 2017

Amount

Shareholding

percentage (%) Amount

Shareholding

percentage (%)

Legend Holdings Ltd. 633,000 15.33 633,000 15.33

Wuhan Iron and Steel Group

Corporation 550,600 13.34 550,600 13.34

Wuhan Development and

Investment Co., Ltd. 337,500 8.18 337,500 8.18

Total 1,521,100 36.85 1,521,100 36.85

28. Capital reserve

Item 31 December 2017 Increase during

the period

Decrease

during the

period

31 December 2018

Share

premium 3,259,204

3,259,204

Total 3,259,204 3,259,204

29. Other comprehensive income (equity)

Item 31

December

2017

Increase

during the

period

Amount

transferre

d to profit

or loss

during the

period

31

December

2018

Other comprehensive income that will be

reclassified into profit or loss:

Gains or losses on changes in fair value of

available-for-sale financial assets

-202,086 564,394 -1,910 364,218

Total -202,086 564,394 -1,910 364,218

30. Surplus reserves


Increase

during the

period

Decrease

during the

period

31 December 2018

Statutory

surplus reserve 1,379,550 190,253 1,569,803

Page 84 of 177

Total 1,379,550 190,253 1,569,803

Notes: (1) In accordance with the Company Law of the People’s Republic of China, the Articles of

Association of the Group and resolutions adopted by the Board of Directors of the Group, the

Group set aside 10% of net profit under Chinese accounting standards as statutory surplus reserve.

Statutory surplus reserve may not be charged further when the Group’s total surplus reserves

reached 50% of its share capital. Upon approval by the General Meeting of Shareholders, the

statutory surplus reserve of the Group may be used for loss recovery or conversion to share capital.

After conversion of surplus reserve to share capital, the retained statutory surplus reserve shall not

be less than 25% of share capital.

(2) The Group set aside 10% of net profit under PRC GAAP as statutory surplus reserve, totaling

RMB190,253,000 in 2018. Statutory surplus reserve was set aside on the basis of annual after-tax

profit. No discretionary surplus reserve was set aside by the Group.

31. General reserve

Item 31 December 2017 Increase

during the

period

Decrease

during the

period

31 December 2018

General

reserve

3,870,216 333,139 4,203,355

Total 3,870,216 333,139 4,203,355

Note: In accordance with the Notice concerning Issuance of the Administrative Measures for

Setting Aside Reserve Funds of Financial Enterprises [C.J. (2012) No. 20], general reserve means

reserve set aside by a financial corporation in proportion to its net profit for the purpose of

covering unidentified possible losses. Setting aside general reserve is deemed profit distribution

and constitutes part of the owners?ˉ equity. General reserve is set aside in proportion to the

balance of assets that assume risks and losses. In principle, the balance of general reserve should

not be lower than 1.5% of the balance of risk assets at the end of the reporting period. If the

proportion of general reserve of financial enterprises to the balance of risk assets at the end of the

period is difficult to reach 1.5%, it can be put in place over years (not exceeding 5 years in

principle). On 31 December 2018, the Group set aside general risk reserve of 1.5% of balance of

risk assets at the end of reporting period.

32. Retained profit

Item Distribution policy Amount

Retained profit at 31 December 2017 5,505,556

Add: Adjustments to retained profit at the

year beginning

Retained profit after retrospective

adjustments 5,505,556

Add: Net profit transferred in during the

year 1,891,963

Less: Statutory surplus reserve set aside 10% of net profit 190,253

General risk reserve set aside 333,139

Discretionary surplus reserve set

aside

Common share dividend payable 412,785

Common share dividend converted to

share capital

Retained profit at 31 December 2018 6,461,342

Page 85 of 177

Note: The 2017 Annual General Meeting of the Group was held on 26 June 2018, at which the

Proposal on 2017 Profit Distribution Plan was reviewed and approved. Based on a total of

4,127,846,000 shares as at 31 December 2017 and a cash dividend of RMB0.10 (pre-tax) per share,

RMB412,785,000 of cash dividend was distributed in total.

33. Net interest income

Item 2018 2017

Interest income:

1) Balances with central banks 391,232 370,810

2) Deposits with banks and other financial institutions 17,894 19,681

3) Lendings to banks and other financial institutions 23,374 5,049

4) Financial assets under reverse repurchase agreements 207,643 195,418

5) External rediscount interest income 510,549 381,157

6) Other interbank interest income 28

7) Loans and advances 5,519,282 4,706,602

—Corporate loans 3,711,568 3,459,320

—Personal loans 1,418,636 909,452

—International trade finance 25,857 14,762

—Domestic trade finance 68,428 46,926

—Advances 54,043 21,287

—Discounting 236,652 244,469

—Income from recovery of written-off bad debts 4,098 10,386

8) Bond investments 3,862,081 3,889,538

9) Interest income from principal-guaranteed wealth

management products 608,038 365,533

Total interest income 11,140,093 9,933,816

Interest expense:

1) Borrowings from central banks 26,892 17,666

2) Deposits from banks and other financial institutions 167,919 167,413

3) Borrowings from banks and other financial

institutions 76,889 26,440

4) Financial assets under repurchase agreements 507,083 376,316

5) Customer deposits 2,900,925 2,377,454

6) Bonds payable 372,839 426,180

7) Rediscount interest expense 23,337

8) Interest expense from interbank CDs 2,483,572 1,882,331

9) Interest expense from principal-guaranteed wealth

management products 602,469 312,058

Total interest expenses 7,138,588 5,609,195

Net interest income 4,001,505 4,324,621

By geographical distribution:

Page 86 of 177

Item 2018 2017

Interest income Interest expense Interest income Interest expense

Wuhan 9,798,595 6,793,480 8,694,260 5,248,388

Ezhou 63,106 17,244 65,281 22,667

Yichang 220,292 78,151 163,851 64,893

Huangshi 217,412 44,639 186,245 35,788

Jingzhou 67,422 48,408 40,995 33,471

Jingmen 95,897 18,319 104,096 20,795

Xiangyang 159,159 13,793 173,322 13,600

Enshi 87,973 24,084 80,080 20,633

Shiyan 56,656 9,848 50,985 6,852

Xiaogan 67,547 16,919 47,670 20,556

Xianning 17,860 6,421 4,757 2,535

Huanggang 4,331 5,816

Xiantao 1 28

Chongqing 283,842 61,438 322,274 119,017

Total 11,140,093 7,138,588 9,933,816 5,609,195

34. Net fee and commission income

Item 2018 2017

Fee and commission income:

Settlement fee income 20,594 24,590

Entrustment service fee income 124,345 123,851

Agency service fee income 235,133 494,167

Bank card service fee income 93,504 97,975

Securities service fee income 63,897 61,942

Financing consulting and advisory service fee

income

83,027 38,575

Other fee income 68,405 78,636

Total fee and commission income 688,905 919,736

Fee and commission expenses:

Settlement fee expense 5,919 1,402

Agency service expense 594 139

Other fee expenses 68,648 65,393

Total fee and commission expenses 75,161 66,934

Net fee and commission income 613,744 852,802

35. Investment income

Source 2018 2017

Investment income from financial assets designated at fair value

through profit or loss during their holding period -12,723 -20,579

Price difference earnings of held-to-maturity investments 109

Investment income from long-term equity during the holding period 24,434 13,209

Investment income from available-for-sale financial assets during their

holding period 1,358,392 588,658

Total 1,370,103 581,397

Page 87 of 177

36. Gains or losses on changes in fair value

Source of gains on fair value changes 2018 2017

Financial assets designated at fair value through profit or

loss

129,060 -39,234

Financial liabilities designated at fair value through profit

or loss

-69,040 21,697

Total 60,020 -17,537

37. Other operating income and other operating costs

(1) Other operating income

Item 2018 2017

Rental income from properties 5,221 3,593

Others 2,482 1,185

Total 7,703 4,778

(2) Other operating costs

Item 2018 2017

Others 102 2,012

Total 102 2,012

38. Gain on disposal of assets

Item 2018 2017

Gain on disposal of non-current assets (“-” for

loss) -3,206

61,689

Total -3,206 61,689

39. Other gains

(1) Classification of other gains

Item 2018 2017 Amount recognized into current-period

non-recurring profit or loss

Government

subsidies 6,749 6,210 6,749

Total 6,749 6,210 6,749

(2) Government subsidies recognized into current-period profit or loss

Subsidy item 2018 2017 Assets/income-related

Subsidy fund for fixed-purpose fees of

financial institutions 1,845 Income-related

Award for increase in

agriculture-related loans of financial

institutions

578 264 Income-related

Page 88 of 177

Subsidy item 2018 2017 Assets/income-related

Rental subsidies and tax contribution

award of financial institutions 696 50 Income-related

Policy-related subsidies for

development zones 1,157 1,070

Income-related

Interest subsidies for poverty

alleviation loans 150 Income-related

Government’s employment

stabilization subsidies 3,030 2,850 Income-related

Individual income tax refund 1,118 Income-related

Others 2 131 Income-related

Total 6,749 6,210

Notes: (1) The incremental incentive policy for financial institutions’ agricultural loans is based on

the notice of the Ministry of Finance on printing and distributing the Administrative Measures for

Special Funds for Development of Inclusive Finance (C.J. [2016] No. 85): Article 8 The financial

department may reward qualifying county-area financial institutions (the three types of rural

financial institution approved by the China Banking Regulatory Commission, i.e. village banks,

loan companies and rural mutual cooperatives) at a ratio of not more than 2% of the portion which

is 13% year on year higher than the average balance of agricultural loans in the year, but gives no

reward to the county-area financial institutions that have a non-performing loan ratio of more than

3% at the end of the year and the non-performing loan ratio of which records a year-on-year

increase.

(2) According to the reply of Xianning Municipal Bureau of Finance to the Request for the

Municipal Government’s Approval for Rent Subsidy to Hankou Bank Xianning Branch and

Article 3 of the Xianning Municipal Government’s Reply to the Request for Policy Support for

Hankou Bank Xianning Branch, which reads that “an annual subsidy equal to 50% of the housing

rent will be granted for three consecutive years in accordance with the Opinions of the Municipal

Government on Accelerating Development of the Hesheng Financial Town (X.Z.B.F. [2016] No.

14)”, Xianning Municipal Bureau of Finance has approved RMB696,000 of rent subsidy to be

granted.

(3) According to the notice issued by the Management Commission of Wuhan East Lake

High-tech Development Zone on the Implementation Measures of the East Lake Independent

Innovation Demonstration Zone on Promoting the Development of Specialized Financial Services

Providers for SMEs, the Technology Finance Service Center of Hankou Bank as an outstanding

financial institution in building a capital zone in the East Lake National Independent Innovation

Demonstration Zone in 2017 is entitled to the government subsidy set forth in the Implementation

Measures of the East Lake Independent Innovation Demonstration Zone on Promoting the

Development of Specialized Financial Services Providers for SMEs. The East Lake Development

Zone has approved a subsidy of RMB1,157,000.

(4) According to the notice by Wuhan Municipal Bureau of Human Resources and Social Security

and Wuhan Municipal Bureau of Finance on issuing the Measures for the Implementation of an

Employment Stabilization Subsidy in Wuhan City, (W.R.S.F. [2015] No. 82) a company that

complies with the regulations and did not lay off employees in the previous year can be granted

the employment stabilization subsidy which is equal to 50% of total unemployment insurance fees

paid by the company and its employees in the previous year; a company that complies with the

regulations but laid off employees in the previous year at a rate lower than the city’s registered

unemployment rate can be granted the employment stabilization subsidy which is equal to 40% of

total unemployment insurance fees paid by the company and its employees in the previous year.

(5) According to the notice by the Department of Human Resources and Social Security and the

Department of Finance of Hubei Province on issuing the Measures for the Implementation of an

Employment Stabilization Subsidy in Hubei Province, a company that complies with the

regulations and did not lay off employees in the previous year can be granted the employment

Page 89 of 177

stabilization subsidy which is equal to 50% of total unemployment insurance fees paid by the

company and its employees in the previous year; a company that complies with the regulations

but laid off employees in the previous year at a rate lower than regional registered unemployment

rate can be granted the employment stabilization subsidy which is equal to 40% of total

unemployment insurance fees paid by the company and its employees in the previous year.

(6) According to the notice by Zhijiang Municipal Bureau of Human Resources and Social

Security on Application for Subsidies for Employment Stabilization Posts of Enterprises in 2018

(Z.R.S.F. [2018] No. 18) a company that complies with the regulations and did not lay off

employees in the previous year can be granted the employment stabilization subsidy which is

equal to 70% of total unemployment insurance fees paid by the company and its employees in the

previous year; a company that complies with the regulations but laid off employees in the previous

year at a rate lower than the city’s registered unemployment rate (2.38%) can be granted the

employment stabilization subsidy which is equal to 50% of total unemployment insurance fees

paid by the company and its employees in the previous year.

40. Business taxes and surcharges

Item 2018 2017 Rate

Urban maintenance and

construction tax 24,554 22,918

7% of turnover tax payable

Educational surcharges 10,525 9,783 3% of turnover tax payable

Local education surcharges 5,367 4,933 2% of turnover tax payable

Stamp tax 3,606 3,094

House property tax 16,599 13,864

Vehicle and vessel use tax 54 54

Land use tax 506 415

Disabled person security 5,291 5,477

Total 66,502 60,538

Note: According to the document E.C.Z.F. [2015] No. 39, Hubei Province suspended the

collection of urban embankment charges from 1 October 2015.

41. General and administrative expenses

Item 2018 2017

Staff costs 1,208,546 1,100,972

Operating expenses 678,298 688,121

Depreciation of fixed assets 124,588 130,368

Amortization of intangible assets 12,204 14,496

Amortization of long-term deferred expenses 44,406 54,469

Total 2,068,042 1,988,426

42. Impairment losses on assets

Item 2018 2017

Page 90 of 177

Item 2018 2017

Impairment losses/allowance reverse on loans and

advances

2,208,581 1,780,348

Bad debt losses/allowance reverse 13,903 6,587

Allowance for impairment losses/allowance reverse on

receivables investment

3,094 106,915

Total 2,225,578 1,893,850

43. non-operating income

Item 2018 2017

Settlement fines and penalty income 910 584

Income from unclaimed funds 2,958 1,342

Incentive earnings 18

Excess income 44 12

Gains on overage 3,663

Others 26 240

Total 7,619 2,178

44. Non-operating expenses

Item 2018 2017

Expenditure on unclaimed funds 551 400

Donation expense 1,351 1,059

Fines expense 1,148 1,291

Shortfall expense 2 1

Spending on damages and penalties 1,585

Others 3,105 995

Total 7,742 3,746

45. Income tax expense

Item 2018 2017

Income tax calculated under tax laws and relevant regulations 1,390 500,287

Add: Deferred income tax expense (gains are presented with “-”) -168,007 -337,702

Income tax expense -166,617 162,585

Profit before tax 1,715,761 1,856,594

Income tax at statutory rate 428,940 464,149

Tax adjustments:

Page 91 of 177

Item 2018 2017

Effects of different tax rates applicable to subsidiaries

Effects of adjustments to income taxes for previous periods 58

Effects of tax-free income -614,187 -311,305

Effects of non-deductible costs, expenses and losses 14,849 9,741

Effects of using deductible losses of unrecognized deferred income tax

assets for previous periods

Effects of deductible temporary difference or deductible losses of

unrecognized deferred income tax assets for the period

3,723

Other effects

Income tax expense -166,617 162,585

Note: Income tax expenses fell by 202.48% in 2018 from 2017, mainly due to increase in

tax-exempt income;

46. Other comprehensive income (income statement)

Item 2018 2017

Amount

before

tax

Income

tax

Net

amount

after tax

Amount

before

tax

Income

tax

Net

amount

after tax

i. Other comprehensive income that

cannot be reclassified into profit or

loss

ii. Other comprehensive income that

will be reclassified into profit or loss

1. Gains or losses on changes in fair

value of available-for-sale financial

assets

752,525 188,131 564,394 -363,252 -90,813 -272,439

Less: Amount transferred into profit

or loss from other comprehensive

income recognized in previous

periods

-2,547 -637 -1,910 -68,627 -17,157 -51,470

Subtotal 755,072 188,768 566,304 -294,625 -73,656 -220,969

Total 755,072 188,768 566,304 -294,625 -73,656 -220,969

47. Supplementary data for the statement of cash flows

(1) Net profit adjusted to cash flows from operating activities

Item 2018 2017

Net profit 1,882,378 1,694,009

Add: Impairment losses on assets 2,225,578 1,893,850

Depreciation of fixed assets and investment properties 124,588 130,368



Page 92 of 177

Item 2018 2017

Losses on disposal of fixed assets, intangible assets and other

long-term assets (gains are presented with “-”)

3,206 -61,689

Losses on retirement of fixed assets (gains are presented with

“-”)

Losses on changes in fair value (gains are presented with “-”) -60,020 17,537

Investment loss (income is presented with “-”) -1,370,103 -581,397

Interest expense on bonds issued 2,856,411 2,308,511

Decrease in deferred income tax assets ((increase is

presented with “-”)

-161,263 -410,488

Increase in deferred income tax liability (decrease is

presented with “-”)

-6,744 -870

Decrease in operating receivables (increase is presented with

“-”)

-22,647,141 -23,025,161

Increase in operating payables (decrease is presented with

“-”)

29,815,128 44,252,672

Provisioning for estimated liabilities


(2) Net changes in cash and cash equivalents

Item 2018 2017

Cash at the end of the period 757,835 570,468

Less: Cash at the beginning of the period 570,468 631,412

Add: Cash equivalent at the end of the period 9,682,260 12,396,002

Less: cash equivalents at the beginning of the period 12,396,002 11,402,179

Net increase in cash and cash equivalents -2,526,375 932,879

(3) Cash and cash equivalents

Item 2018 2017

A. Cash 757,835 570,468

B. Cash equivalents 9,682,260 12,396,002

Incl.: Balances with central banks available for payment 4,159,069 3,674,192

Original maturity no more than three months: Deposits

with banks and other financial institutions 1,012,991 3,190,629

Original maturity no more than three months: Placements

with banks 500,000 317,494

Original maturity no more than three months: assets

under reverse repurchase agreements 4,010,200 5,213,687

Original maturity no more than three months: Bond

investments

Cash and cash equivalents at the end of the period 10,440,095 12,966,470

(4) Cash received from other operating activities

Item 2018 2017

Income from disposal of repossessed assets 7,750

Rental income 5,221 3,593

Other income 47,877 5,510

Page 93 of 177

Item 2018 2017

Total 60,848 9,103

(5) Cash paid for other operating activities

Item 2018 2017

Non-operating expenses 2,501 2,350

Other expenses 963,902 571,275

Total 966,403 573,625

IX. Notes to main items of parent company financial statements

(Amounts in thousands of RMB unless otherwise stated)

1. Cash and balances with central banks


Cash 750,187 563,431


Legal reserve 21,795,985 24,393,572

Excess reserve 4,159,069 3,674,192

Public finance reserve 108,323 74,990

Total 26,813,564 28,706,185

Note: (1) The Bank deposited legal reserve with PBOC, which should not be used for daily

business operation of the Bank.

As at 31 December 2018, the Bank’s ratio of legal reserve was:


Ratio of RMB legal reserve 12% 14.5%

Ratio of foreign-currency legal

reserve 5% 5%

(2) Excess reserve with central banks is mainly used for fund clearing.

2. Deposits with banks and other financial institutions


Clearing deposits with banks and

other financial institutions 596,064

834,073

General deposits with banks and


2,200,000

Deposits with overseas banks and

other financial institutions 333,094

234,484

Subtotal 929,158 3,268,557

Less: Allowance for bad debts with


Carrying amount of balances with

banks and other financial institutions 929,158

3,268,557

Page 94 of 177

Note: The 2018 balances with banks and other financial institutions fell by 71.57% over the 2017

figure due to the maturity of general deposits with banks and other financial institutions.

3. Lendings to banks and other financial institutions


Placements with domestic banks and


500,000 215,629

Placements with overseas banks and


Placements with domestic


101,864

Subtotal 500,000 317,493

Less: Allowance for losses on

lendings to banks and other financial

institutions

Carrying amount of lendings to


500,000 317,493

Note: The balance of lendings to banks and other financial institutions for 2018 increased by

57.48% as compared to 2017, due to the structural adjustment in interbank business and the

increase in lendings to banks and other financial institutions.

4. Financial assets designated at fair value through profit or loss


Held-for-trading bond investment



Policy banks 166,302

Banks and other financial institutions 49,732

Enterprises 231,536

Subtotal 231,536 531,239

Financial assets measured at fair value through

profit or loss



Policy banks 1,296,199 942,134

Banks and other financial institutions 5,587,083 7,774,075

Enterprises 5,849,660 4,011,027

Subtotal 12,810,762 12,727,236

Total 13,042,298 13,258,475

Note: The foregoing financial assets are subject to no significant restrictions on investment

disposal.

5. Financial assets under reverse repurchase agreements

Page 95 of 177


Classified by collateral:

Bonds under reverse repurchase

agreements 3,510,200

5,113,687

Incl.: Government bonds 1,300,000 1,327,800


Corporate bonds

Bills under reverse repurchase

agreements

100,000

Interbank CDs under reverse repurchase

agreements 500,000


repurchase agreements 4,010,200

5,213,687

Less: Allowance for bad debts of financial

assets under reverse repurchase agreements

Carrying amount of financial assets under


5,213,687

Classified by counterparty:

Non-banking financial institutions 675,000 2,451,087

Banking institutions 3,335,200 2,762,600


repurchase agreements 4,010,200 5,213,687


financial assets under reverse repurchase

agreements

Carrying amount of financial assets under


5,213,687

6. Loans and advances

(1) Loans and advances by personal and corporate borrowers are presented as follows:



Personal consumption loans 25,125,945 14,571,135

Personal business loans 7,199,368 6,964,563

Credit cards 2,644,388 1,752,545

Others


Loans 73,016,020 71,572,881

Discounts 24,369,080 16,402,211

Advances 379,084 1,106,319

International trade finance

Domestic trade finance

1,001,502 813,916

2,828,367 1,198,166



losses on loans

4,550,169 4,313,314




advances

132,013,585 110,068,422

Page 96 of 177

As at 31 December 2018, the Bank did not use the foregoing assets as collateral when entering

into repurchase agreements with other financial institutions.

For the loan balance of shareholders holding 5% or more voting shares in the Bank, please refer to

Note XV.2(1).

(2) Discounting of bills by type:



Commercial acceptance bills 1,508,788 771,008

Total 24,369,080 16,402,211

(3) Loans and advances by industry sector:



Manufacturing 12,840,802 12,773,311

Wholesale and retail 17,716,136 16,332,995

Transport, storage and post 2,447,049 2,660,502

Farming, forestry, animal husbandry and

fishery 732,369 654,990

Power/heat/gas/water production and

supply 2,617,055 2,165,102

Real estate 14,219,433 15,581,286

Public administration and social

organizations

Construction 8,900,769 8,308,740

Education

Financial industry 12,743,056 1,422,060

Neighborhood services and others 112,173 256,339

Scientific research, technical

services and geological prospecting


management 3,968,539 1,973,762

Public health, social security and social

welfare

Culture, sports and entertainment 330,862 837,783

Information transmission, computer

service and software 1,566,802 977,511

Lodging and catering services

Leasing and commercial services 12,542,110 13,204,573

Page 97 of 177


Mining 355,387 772,197

Others 10,501,511 13,172,342



Less: Allowance for impairment losses on

loans 4,550,169 4,313,314



Net carrying amount of loans and

advances 132,013,585 110,068,422

(4) Loans and advances by the mode of guarantee are presented as follows:


Unsecured loans 21,066,107 17,879,993

Guaranteed loans 27,101,025 23,441,542


—Loans secured by mortgages 55,750,927 49,196,388

—Pledged loans 32,645,695 23,863,813



losses on loans 4,550,169 4,313,314




advances 132,013,585 110,068,422

(5) Loans and advances by geographical distribution are presented as follows:


Wuhan 111,221,758 88,815,686

Ezhou 1,431,151 1,349,995

Yichang 3,677,675 3,385,056

Huangshi 3,858,699 3,681,800

Jingmen

Xiangyang

1,960,281 2,106,625

3,059,188 1,877,636

Jingzhou 1,344,043 918,814

Enshi 1,648,941 1,285,780

Shiyan 1,052,131 1,033,850

Xiaogan 1,458,275 1,149,209

Xianning 460,932 262,421

Huanggang 187,564

Page 98 of 177


Xiantao

Chongqing 6,384,668 7,333,312



losses on loans 4,550,169 4,313,314




advances 132,013,585 110,068,422

(6) Overdue loans are presented as follows:


Overdue for

less than 3

months

Overdue for

3-12 months

Overdue

for 1-3

years

Overdue

for over 3

years

Total

Unsecured loans 15,289 15,792 59,336 30,000 120,417

Guaranteed loans 13,919 87,384 213,369 1,057,115 1,371,787


——Loans secured

by mortgages

164,481 94,693 294,614 730,014 1,283,802

——Pledged loans 1,564 7,945 25,412 251,355 286,276

Total loans and

advances

195,253 205,814 592,731 2,068,484 3,062,282

Item

31 December 2017

Overdue for

less than 3

months

Overdue for

3-12 months

Overdue for

1-3 years

Overdue

for over 3

years

Total

Unsecured loans 18,144 80,725 2,623 30,000 131,492

Guaranteed loans 78,047 165,604 1,818,692 187,635 2,249,978


- Loans secured by

mortgages 114,308 133,643 2,261,775 368,819 2,878,545

- Pledged loans 6,600 8,051 424,101 233,486 672,238

Total loans and

advances 217,099 388,023 4,507,191 819,940 5,932,253

(7) Changes in allowance for impairment losses on loans:


Page 99 of 177



Provisioning during the period 2,168,429 1,775,009


Write-off during the period 1,996,770 1,499,614

Reversed during the period 65,196 11,112

- Loans and advances written off in previous

years and recovered during the period 64,760 11,258

- Reversed due to rise in discounted value

- Exchange gains or losses and other

adjustments 436 -146

Ending balance 4,550,169 4,313,314



corporate loans: 3,732,256 3,868,254

Individually assessed 1,917,642 2,118,529



personal loans: 817,913 445,060

Individually assessed 47,419

Collectively assessed 770,494 445,060

Total 4,550,169 4,313,314

(8) Write-off of non-performing loans and off-balance-sheet accrued interest receivable:

Item 2018 2017

Loan principal written off 1,996,770 1,499,614

Off-balance-sheet accrued interest

receivable written off 984,967 714,036

Total 2,981,737 2,213,650

7. Available-for-sale financial assets

(1) Classification of available-for-sale financial assets


Bond investment measured at fair

value


Governments and central banks 13,134,265 1,288,168

Page 100 of 177


Policy banks 7,106,676 937,563

Banks and other financial institutions 2,256,914 3,676,843

Enterprises 3,053,387 5,386,192

Funds 30,047,802 35,298,441


trust plans 1,257,856

Asset-backed securities 288,616

Subtotal 57,145,516 46,587,207

Equity investment measured at cost 15,582 15,582


losses on available-for-sale financial

assets

Subtotal 15,582 15,582

Carrying amount of

available-for-sale financial assets 57,161,098

46,602,789

(2) Available-for-sale financial assets at fair value at the period end

Classification of available-for-sale financial

assets

Available-for

-sale equity

instruments

Available-for-

sale debt

instruments

Total

Amortized cost 56,659,892 56,659,892

Fair value 57,145,516 57,145,516

Changes in fair value accumulatively recognized

in other comprehensive income

485,624 485,624

Impairment amount set aside

(3) Available-for-sale financial assets at cost at the period end

For the equity investment without quoted price in an active market and its fair value cannot be

reliably measured, the Group measures it at cost and has no disposal plan for relevant equity

investment in the foreseeable future. As at the end of the reporting period, the equity investment

measured at cost is presented as follows:

Name of investee

Book balance

Shareholding

percentage in

investee (%)

31 December

2017

Increase

during

the

period

Decrease

during

the

period

31

December

2018


Ltd.

8,030 8,030 0.88

China UnionPay Co., Ltd. 7,152 7,152 0.27


Clearing Center 400

400 1.33

Total 15,582 15,582

Page 101 of 177

Name of investee Allowance for impairment losses Cash

dividend

during the

period

31

December

2017

Increase

during the

period

Decrease

during the

period

31

December

2018


Ltd.

522

China UnionPay Co., Ltd. 880


Clearing Center

-

Total 1,402

Notes: (1) As at 31 December 2018, available-for-sale financial assets held by the Bank had not

been impaired, so no allowance for impairment losses was set aside for available-for-sale financial

assets.

(2) As at 31 December 2018, of the available-for-sale financial assets held by the Group, bonds







Interbank CDs

Corporate bonds 1,704,626 1,569,064

Subordinated bonds 249,908

Other bonds 1,429,174 823,578

Total 41,149,070 25,556,330

Less: Allowance for impairment losses

on held-to-maturity investments

Carrying amount of held-to-maturity

investments 41,149,070 25,556,330

Notes: (1) As at 31 December 2018, held-to-maturity bonds held by the Bank had not been

impaired, so no allowance for impairment losses was set aside for held-to-maturity investments.

(2) As at 31 December 2018, of the held-to-maturity financial assets held by the Group, bonds



9. Investment with receivables


Government bonds 28,088 33,911

Wealth management products 3,150,000


trust plans 35,661,360 38,246,516

Page 102 of 177



Other investments 1,164 1,164

Total 35,890,612 41,931,591


losses on receivables investment 1,047,153 1,044,059


Changes in allowance for impairment losses on receivables investment:



Provisioning during the period 3,094 106,915


Write-off during the period

Reversed during the period

Ending balance 1,047,153 1,044,059

10. Long-term equity investment


Book

balance

Allowance

for

impairment

losses

Carrying

amount

Book

balance

Allowance

for

impairment

losses

Carrying

amount

Investment in

subsidiaries 56,940

56,940

56,940 56,940

Investment in

associate 787,643

787,643

763,209 763,209

Total 844,583 844,583 820,149 820,149

(1) Investment in subsidiaries

Investee Beginning

balance

Increase

during

the

period

Decrease

during

the

period

Ending

balance

Allowance

for

impairment

losses set

aside during

the period

Ending

balance of

impairment

losses

1. Zhijiang HB Rural

Bank Co., Ltd.

25,500 25,500

2. Yangxin HB Rural

Bank Co., Ltd.

31,440 31,440

Total 56,940 56,940

(2) Investment in associate

Investee Ending balance

Book balance Allowance for

impairment

losses

Carrying

amount

Page 103 of 177

Aerospace Science & Industry Financial

Leasing Co., Ltd.

787,643 787,643

Total 787,643 787,643

(Continued)

Investee Change during the period

Additional

investment

Reduced

investment

Investment

gain or loss

recognized

under equity

method

Other

comprehensive

income

adjustments

Other

equity

changes

Announced

payment of

cash

dividend or

profit

Allowance

for

impairment

losses set

aside

Others

Aerospace

Science &

Industry

Financial

Leasing Co.,

Ltd.

24,434

Total 24,434

Notes: (1) As at 31 December 2018, the Bank’s long-term equity investments had not been

impaired, so no allowance for impairment losses was set aside for long-term equity investments.

(2) As at 31 December 2018, the Bank had no significant restrictions on inward remittance of

gains on and proceeds from disposal of long-term equity investments.

(3) Please refer to Note X.1 and Note X.2 for information on equity stakes in the subsidiaries and

associate.

11. Other assets


Deferred expenses 56,130 50,119

Dividend payable 522 522

Other receivables 1,348,460 242,144

Long-term deferred expenses 115,098 100,482

Repossessed assets 223,557 146,913

Agency securities 13,069 27,888

Deposits with correspondent banks 29,804


Others 22,916 876

Total 4,064,941 2,308,679

(1) Interest receivable:


Interest receivable from bonds 1,504,605 1,137,422

Page 104 of 177


Interest receivable from loans and

advances 287,780 203,524

Interest receivable from financial


agreements

818 4,368

Interest from transactions with

financial institutions 26,687

13,692

Interest receivable from


management products

465,299

350,925

Total 2,285,189 1,709,931

Changes in interest receivable



Received during the year 10,501,259 9,082,800

Ending balance 2,285,189 1,709,931

Note: The 2018 balance of interest receivable rose by 33.64% over that of 2017 because of the

larger investment volume and rising interest receivable.

12. Borrowings from central banks


Borrowings from central banks 1,650,000

Total 1,650,000

Note: The balance of borrowings from central banks at the end of 2018 increased by 100% as

compared to 2017 due to increase in relending supporting small enterprises.

13. Deposits from banks and other financial institutions



banks 349,333 175,241

General deposits from domestic banks 1,150,013 3,000,013


non-banking financial institutions 991,893 351,799

General deposits from domestic

non-banking financial institutions 2,597,149 1,142,711

Total 5,088,388 4,669,764

14. Borrowings from banks and other financial institutions


Placements from domestic banks and

other financial institutions 1,500,000 1,500,000

Page 105 of 177


Placements from overseas banks and


Incl.: 1,625,404

From banks 1,625,404

Total 1,504,290 1,625,404

15. Financial liabilities designated at fair value through profit or loss


Wealth management products issued 13,190,558 13,003,858

Total 13,190,558 13,003,858

16. Financial assets under repurchase agreements


Securities under repurchase agreements:



Subtotal 5,615,100 9,012,740

Bills under repurchase agreements:


Subtotal 11,881,138 6,110,655

Interbank CDs under repurchase

agreements

98,000

Subtotal 98,000

Total 17,496,238 15,221,395

17. Customer deposits


Demand deposits: 107,453,187 99,530,303



Time deposits: 53,107,200 41,692,193



Margin deposits received 7,811,302 7,653,583

Other deposits 19,489,625 13,000,405

Total 187,861,314 161,876,484

Note: For the deposit balance of shareholders holding 5% or more voting shares in the Bank,

please refer to Note XV.2.

Details of margin deposits received that are included in the customer deposits are presented as

follows:


Page 106 of 177


Margin on acceptance bills 5,063,324 5,804,409

Margin on L/C issuance 346,424 156,549

Margin on guarantee 419,721 469,357

Other margins 1,981,833 1,223,268

Total 7,811,302 7,653,583

Customer deposits are presented by geographical distribution as follows:


Wuhan 162,757,085 139,982,316

Ezhou 1,616,904 1,956,128

Yichang 4,187,903 3,163,961

Jingmen 1,221,150 1,582,762

Xiangyang 686,210 1,864,783

Huangshi 2,960,472 2,300,000

Jingzhou 4,130,281 2,979,396

Enshi 2,216,791 1,491,736

Shiyan 1,253,350 946,847

Xiaogan 1,140,658 966,211

Xianning 703,838 393,477

Huanggang 460,649 4,224

Xiantao 13,289

Chongqing 4,512,734 4,244,643

Total 187,861,314 161,876,484

18. Other liabilities


Outward remittance 13,982 91,461

Other payables 222,424 429,624

Dividend payable 55,341 24,047

Deposits from correspondent

banks 3,378

Interest payable 3,175,376 3,235,474

Other current liabilities 154,704 77,437

Total 3,625,205 3,858,043

(1) Interest payable:

Page 107 of 177


Interest payable on customer deposits 1,466,347 1,843,496

Interest payable on financial assets under

repurchase agreements 2,799 14,550

Interest on amounts due to banks and other


Bond interest payable 148,510 148,510

Interest payable on interbank CDs 1,002,385 844,667

Interest payable on borrowings from central

banks 1,777

Interest payable on principal-guaranteed

fixed-income wealth management liabilities 117,157 117,686

Other interest 413,364 172,515

Total 3,175,376 3,235,474

Changes in interest payable

Item 2018 2017



Paid during the year 7,182,364 4,412,056

Ending balance 3,175,376 3,235,474

19. Net interest income

Item 2018 2017

Interest income:

1) Balances with central banks 389,858 369,541

2) Deposits with banks and other


9,250 17,671

3) Lendings to banks and other


23,374 5,049

4) Financial assets under reverse


207,643 195,418

5) External rediscount interest

income

510,549 381,157

6) Other interbank interest income 28

7) Loans and advances 5,473,832 4,671,329

—Corporate loans 3,692,726 3,438,398

—Personal loans 1,392,350 895,215

—International trade finance 25,857 14,762

—Domestic trade finance 68,428 46,926

—Advances 54,043 21,287

—Discounting 236,330 244,355

—Income from recovery of

written-off bad debts

4,098 10,386

Page 108 of 177

Item 2018 2017

8) Bond investments 3,853,973 3,870,546

9) Interest income from


management products

608,038 365,533

Total interest income 11,076,517 9,876,272

Interest expense:

1) Borrowings from central banks 24,878 15,889

2) Deposits from banks and other


172,050 168,154

3) Borrowings from banks and


76,889 26,440

4) Interest expense from interbank

CDs

2,483,572 1,882,331

5) Financial assets under


507,083 376,316

6) Customer deposits 2,882,486 2,361,114

7) Bonds payable 372,839 426,180

8) Rediscount interest expense 23,337

9) Interest expense from


management products

602,469 312,058

10) Interest expense from

transactions with other financial

institutions

Total interest expenses 7,122,266 5,591,819

Net interest income 3,954,251 4,284,453

By geographical distribution:

Item 2018 2017


Wuhan 9,798,595 6,793,480 8,694,260 5,248,387

Ezhou 63,106 17,244 65,281 22,667

Yichang 184,759 65,520 132,092 51,880

Huangshi 189,369 40,948 160,460 31,426

Jingmen 95,897 18,319 104,096 20,795

Xiangyang 159,159 13,793 173,322 13,600

Jingzhou 67,422 48,408 40,995 33,471

Enshi 87,973 24,084 80,080 20,633

Shiyan 56,656 9,848 50,985 6,852

Xiaogan 67,547 16,919 47,670 20,556

Xianning 17,860 6,421 4,757 2,535

Huanggang 4,331 5,816

Xiantao 1 28

Page 109 of 177

Item 2018 2017


Chongqing 283,842 61,438 322,274 119,017

Total 11,076,517 7,122,266 9,876,272 5,591,819

20. Net fee and commission income

Item 2018 2017

Fee and commission income:

Settlement fee income 20,590 24,587

Entrustment service fee income 124,345 123,851

Agency service fee income 235,133 494,167

Bank card service fee income 93,493 97,975

Securities service fee income 63,897 61,942

Financing consulting and advisory

service fee income 83,027 38,575

Other fee income 68,405 78,636

Total fee and commission income 688,890 919,733

Fee and commission expenses:

Settlement fee expense 5,914 1,400

Agency service expense 594 139

Other fee expenses 68,596 65,392

Total fee and commission expenses 75,104 66,931

Net fee and commission income 613,786 852,802

21. Investment income

Source 2018 2017

Investment income from financial assets designated at fair value

through profit or loss during their holding period -12,723 -20,579

Price difference earnings of held-to-maturity investments 109

Investment income from long-term equity during the holding period 25,334 13,974

Investment income from available-for-sale financial assets during

their holding period 1,358,392 588,658

Total 1,371,003 582,162

Note: The 2018 investment income rose by 135.50% as compared with 2017 mainly because of

the scale-up of available-for-sale securities funds.

22. General and administrative expenses

Item 2018 2017

Staff costs 1,198,573 1,091,055

Page 110 of 177

Item 2018 2017

Operating expenses 663,756 674,632

Depreciation of fixed assets 124,069 129,742



Total 2,041,565 1,962,754

23. Impairment losses on assets

Item 2018 2017

Impairment losses/allowance reverse on loans and

advances 2,168,429 1,775,009

Bad debt losses/allowance reverse 13,783 6,580

Allowance for impairment losses/allowance reverse on

receivables investment 3,094 106,915

Total 2,185,306 1,888,504

24. Supplementary data for the statement of cash flows

(1) Net profit adjusted to cash flows from operating activities

Item 2018 2017

Net profit 1,902,527 1,688,503

Add: Impairment losses on assets 2,185,306 1,888,504

Depreciation of fixed assets and investment properties 124,069 129,742



Losses on disposal of fixed assets, intangible assets and

other long-term assets (gains are presented with “-”)

3,206 -61,689

Losses on retirement of fixed assets (gains are presented

with “-”)

Losses on changes in fair value (gains are presented with

“-”) -60,020

17,537

Investment loss (income is presented with “-”) -1,371,003 -582,162

Interest expense on bonds issued 2,856,411 2,308,511

Decrease in deferred income tax assets ((increase is

presented with “-”) -158,406

-410,503

Increase in deferred income tax liability (decrease is

presented with “-”) -6,744

-870

Decrease in operating receivables (increase is presented

with “-”) -22,229,795

-23,034,335

Increase in operating payables (decrease is presented with

“-”) 29,736,903

44,111,008

Provisioning for estimated liabilities


Page 111 of 177

(2) Net changes in cash and cash equivalents

Item 2018 2017

Cash at the end of the period 750,187 563,431

Less: Cash at the beginning of the period 563,431 628,182

Add: Cash equivalent at the end of the period 9,598,427 12,273,929

Less: cash equivalents at the beginning of the period 12,273,929 11,354,595

Net increase in cash and cash equivalents -2,488,746 854,583

(3) Cash and cash equivalents

Item 2018 2017

A. Cash 750,187 563,431

B. Cash equivalents 9,598,427 12,273,929

Incl.: Balances with central banks available for payment 4,159,069 3,674,192

Original maturity no more than three months: Deposits

with banks and other financial institutions 929,158 3,068,557

Original maturity no more than three months: Placements

with banks 500,000 317,493

Original maturity no more than three months: assets

under reverse repurchase agreements 4,010,200 5,213,687

Cash and cash equivalents at the end of the period 10,348,614 12,837,360

(4) Cash received from other operating activities

Item 2018 2017

Income from disposal of repossessed assets 7,750

Rental income 5,221 3,593

Other income 48,589 5,114

Total 61,560 8,707

(5) Cash paid for other operating activities

Item 2018 2017

Non-operating expenses 2,458 2,307

Other expenses 951,875 557,251

Total 954,333 559,558

X. Equity in Other Subjects

1. Equity in subsidiaries

(1) Composition of the enterprise group

Subsidiary Principal

place of Place of registration

Business

nature

Shareholding

percentage (%) Voting

right

Way of

acquisition

Page 112 of 177

business Direct Indirect

percentage

(%)

HB Zhijiang Rural

Bank Co., Ltd.

Zhijiang

City,

Hubei

Province

34 Tuanjie Road,

Zhijiang City, Hubei

Financial

industry

51 51 Establishment

HB Yangxin Rural

Bank Co., Ltd.

Yangxin

County,

Hubei

Province

15, Lingyuan

Avenue, Xingguo

Town, Yangxin

County, Hubei

Financial

industry

60 60 Establishment

(2) Important non-wholly-owned subsidiaries

Equity held by minority shareholders of important non-wholly-owned subsidiaries and their profit

or loss is as follows: (Unit: RMB1,000 and %)

Subsidiary Shareholding

percentage of

minority

shareholders (%)

Profit or loss

attributable to

minority

shareholders for

the period

Dividend

declared to

minority

shareholders for

the period

Equity balance

of minority

shareholders at

the period end

HB Zhijiang Rural

Bank Co., Ltd.

49 -10,262 25,431

HB Yangxin Rural

Bank Co., Ltd.

40 677 600 31,080

(3) Main financial information on non-wholly-controlled key subsidiaries

31 December 2018

Item HB Zhijiang Rural Bank

Co., Ltd. HB Yangxin Rural Bank

Co., Ltd.

Cash and balances with central banks 56,829 43,150

Deposits with banks and other


Loans and advances 329,195 254,222

Investment with receivables 30,000

Total assets 678,351 493,122

Borrowings from central banks 50,000

Customer deposits 610,336 357,516

Total liabilities 626,450 415,423

Paid-up capital 50,000 50,000

Retained profit -9,553 17,914

Total owners’ equity 51,901 77,699

31 December 2017


Co., Ltd.

HB Yangxin Rural Bank

Co., Ltd.

Page 113 of 177


Co., Ltd. HB Yangxin Rural Bank

Co., Ltd.

Cash and balances with central banks 49,162 39,167



25,384 153,578

Loans and advances 276,928 229,606

Investment with receivables 275,000 45,000

Total assets 637,058 476,640

Borrowings from central banks 10,200 50,000

Customer deposits 540,994 344,357

Total liabilities 564,213 399,135

Paid-up capital 50,000 50,000

Retained profit 11,390 17,890

Total owners’ equity 72,845 77,505

2. Equity in associates

(1) Basic information on key associate

Name of investee Principal

place of

business

Place of

registration

Business

nature

Shareholding

percentage (%)

Accounting

treatment

method

Direct Indirect

Aerospace Science

& Industry Financial

Leasing Co., Ltd.

Wuhan F/4 & 5, Wealth

Plaza, 18

Jinyinhu Road,

Dongxihu

District, Wuhan

City (11)

Financial

leasing

25 Equity

method

(2) Main financial information on key associate

Item Aerospace Science & Industry Financial

Leasing Co., Ltd.

Ending balance Beginning balance

Bank deposit 749,351 48,639

Deposits with banks and other financial

institutions 1,150,000 988,000

Financial lease receivable 11,978,903 4,399,248

Total assets 14,702,775 5,779,047

Borrowings 8,740,000 1,280,000

Deposits from banks and other financial

institutions 910,000

800,000


Paid-up capital 3,000,000 3,000,000

Retained profit

Total owners’ equity 3,150,573 3,052,837

3. Equity in the structured subjects that are not included in the consolidated financial statement

Page 114 of 177

(1) Equity in the structured subjects initiated and established by the third-party institutions

The Group enjoys the equity in the structured subjects initiated and established by the third-party

institutions through direct holding of investment. Those structured subjects that are not included in

the consolidated financial statement of the Group mainly include investment fund, wealth

management products, special asset management plans and asset-backed financing bonds. The

nature and objective of these structured subjects are mainly to manage the investor’s assets and

earn the management fee and the financing method is issuing investment products to investors.

Below is the carrying amount of assets and liabilities and maximum loss exposure related to the

equity due to the Group in the structured subjects initiated and established by the third-party

institutions through direct holding of investment: (Unit: RMB1,000)

Item

31 December 2018

Carrying amount

Maximum

loss

exposure

Held-to-

maturity

investments

Available-

for-sale

financial

assets

Investment

with

receivables

Financial

assets

measured at

fair value

through

profit or

loss

Total

Funds 30,047,80

2

30,047,802 30,047,802

Wealth

management

products

30,000 12,810,762 12,840,762 12,840,762

Asset

management

plans and fund

trust plans

1,257,856 35,661,360 36,919,216 36,919,216

Asset-backed

securities

288,616 200,000 488,616 488,616

Total 31,594,27

4

35,891,360 12,810,762 80,296,396 80,296,396

Item

31 December 2017

Carrying amount

Maximum

loss

exposure

Held-to-

maturity

investm

ents

Available-for-

sale financial

assets

Investment

with

receivables

Financial

assets

measured at

fair value

through profit

or loss

Total

Funds 35,298,441 35,298,441 35,298,441

Wealth

management

products

3,470,000 12,727,236 16,197,236 16,197,236

Asset

management

plans and

fund trust

38,246,516 38,246,516 38,246,516

Page 115 of 177

Item

31 December 2017

Carrying amount

Maximum

loss

exposure

Held-to-

maturity

investm

ents

Available-for-

sale financial

assets

Investment

with

receivables

Financial

assets

measured at

fair value

through profit

or loss

Total

plans

Asset-backed

securities

500,000 500,000 500,000

Total 35,298,441 42,216,516 12,727,236 90,242,193 90,242,193

The maximum loss exposure of wealth management products and special asset management plans

is their fair value on the reporting date. The maximum loss exposure of asset-backed financing

bond is its amortized cost or fair value on the reporting date based on its category recognized on

the balance sheet.

(2) Equity in the structured subjects initiated by the Group but not included in the consolidated

financial statement

A. The structured subjects initiated and established by the Group but not included in the

consolidated financial statement are mainly the non-principal-guaranteed wealth management

product issued by the Group. The nature and objective of these structured subjects are mainly to

manage the investor’s assets and collect the management fee and the financing method is issuing

investment products to investors. The equity due to the Group in the structured subjects that are

not included in the consolidated financial statement mainly includes directly holding investment or

charging management fee by managing these structured subjects. As at 31 December 2018, the

Group had insignificant carrying amount of assets in the balance sheet due to direct holding of

investment and fee receivable.

As at 31 December 2018, the balance of non-principal-guaranteed asses initiated and established

by the Group but not included in the consolidated financial statement was RMB42,778,966,000.

B. Structured subjects initiated and established by the Group but not included in the consolidated

financial statement and where the Group did not enjoy equity from 31 December 2018. In 2018,

the commission and fee income earned by the Group from the non-principal-guaranteed wealth

management products was RMB180,410,000.

XI. Segmental reporting

The Management of the Group assesses the performance results of corporate banking business,

personal banking business and treasury operation business respectively. Segment income,

operating result and assets presented in the business segments are directly attributable to all

segments and relevant items allocated to segments based on reasonable standards. As a part of

asset and liability management, the Group measures transactions between segments at actual

transaction price. Interest rate is determined by adding a certain interest spread to weighted

average financing cost when funds are allocated across business segments. In addition, there is no

significant income or expenses between business segments. These internal transactions have been

offset in preparing the statements.

Banking services the corporate banking segment provides to corporate customers include

corporate loans, bills issued, trade finance, corporate deposits and remittance.

Page 116 of 177

Banking services the personal banking segment provides to personal customers include retail loans,

savings deposits, credit card business and remittance.

The treasury operation segment includes held-for-trading financial instruments, bond investment,

repurchases and resale and inter-bank lending.

Other businesses refer to those that have not formed a separate segment to be presented or that are

unable to be allocated based on the reasonable standards.

The Management of the Group monitors operating results of all business segments, so as to decide

resources allocated to them and assess their performance.

The preparation of segment information adopts the same accounting policy as the preparation of

financial statements by the Group.

Consolidated:

2018

Corporate

banking

Personal

banking

Treasury

operation Others Total

I. Operating income 4,128,530 1,523,551 413,509 10,416 6,076,006

Net interest income -

external 3,865,539 159,542 -23,576 4,001,505


internal -71,403 1,169,831 -1,098,428

Net interest income 3,794,136 1,329,373 -1,122,004 4,001,505

Net fee and

commission income 329,025 193,187 91,532 613,744


Gains or losses on

changes in fair value 60,020 60,020

Exchange gains or

losses 5,369 263 13,858 19,490

Other net operating

income/expenses 7,601 7,601

Gain on disposal of

assets -3,206 -3,206

Other gains 728 6,021 6,749

II. Operating expenses 2,776,216 1,412,665 158,638 12,603 4,360,122

Operating expenses 1,064,812 901,586 155,543 12,603 2,134,544

Impairment losses on

assets 1,711,404 511,079 3,095 2,225,578

III. Operating profit 1,352,314 110,886 254,871

-2,187 1,715,884

Net non-operating

income/expenses -123 -123

IV. Total profit 1,352,314 110,886 254,871

-2,310 1,715,761

Income tax — — — — — — — — -166,617

V. Net profit — — — — — — — — 1,882,378

Page 117 of 177

Corporate

banking

Personal

banking

Treasury


31 December 2018

Segment assets 116,804,922 56,231,558 140,964,410 5,295,019 319,295,909

Segment liabilities 133,512,967 70,558,684 94,375,634 806,345 299,253,630

2017

Corporate

banking

Personal

banking

Treasury




external 2,250,708 78,430 1,995,483 4,324,621


internal 970,161 785,235 -1,755,396

Net interest income 3,220,869 863,665 240,087 4,324,621

Net fee and


Investment income 582,162 -765 581,397

Gains or losses on

changes in fair value 16,786 -34,323 -17,537

Exchange gains or

losses 6,130 285 -17,387 -10,972

Other net operating


Gain on disposal of

assets 61,689 61,689

Other gains 1,245 4,965 6,210

II. Operating expenses 2,728,321 927,956 274,124 12,413 3,942,814



assets 1,667,948 118,987 106,915 1,893,850

III. Operating profit 774,260 478,017 583,966 21,919 1,858,162

Net non-operating

income/expenses -20 -1,548 -1,568

IV. Total profit 774,240 478,017 583,966 20,371 1,856,594

Income tax — — — — — — — — 162,585

V. Net profit — — — — — — — — 1,694,009

31 December 2017

Segment assets 109,933,201 42,807,246 124,126,900 4,209,689 281,077,036

Segment liabilities 122,057,504 55,928,577 83,732,815 1,351,158 263,070,054

The Bank:

2018

Page 118 of 177

Corporate

banking

Personal

banking

Treasury


I. Operating income 4,113,439 1,510,909 394,202

11,896 6,030,446


external 3,850,441 147,628 -43,818 3,954,251


internal -71,403 1,169,831 -1,098,428

Net interest income 3,779,038 1,317,459 -1,142,246

3,954,251

Net fee and



Gains or losses on

changes in fair value 60,020 60,020

Exchange gains or

losses 5,369 263 13,858 19,490

Other net operating


Gain on disposal of

assets -3,206 -3,206


II. Operating expenses 2,725,392 1,395,064 158,638 14,103 4,293,197



assets 1,688,733 493,478 3,095 2,185,306

III. Operating profit 1,388,047 115,845 235,564

-2,207 1,737,249

Net non-operating

income/expenses 128 128

IV. Total profit 1,388,047 115,845 235,564

-2,079 1,737,377

Income tax — — — — — — — — -165,150

V. Net profit — — — — — — — — 1,902,527

Segment assets 116,571,229 55,879,472 140,398,987 5,621,695 318,471,383


2017

Corporate

banking

Personal

banking

Treasury




external

2,234,037 76,178 1,974,238 4,284,453


internal

970,161 785,235 -1,755,396

Net interest income 3,204,198 861,413 218,842 4,284,453

Net fee and

commission income

274,339 542,023 36,440 852,802

Page 119 of 177

Corporate

banking

Personal

banking

Treasury


Investment income 582,162 582,162

Gains or losses on

changes in fair value

16,786 -34,323 -17,537

Exchange gains or

losses

6,130 285 -17,387 -10,972

Other net operating

income/expenses

4,265 4,265

Gain on disposal of

assets

61,689 61,689


II. Operating expenses 2,694,172 929,443 274,124 13,913 3,911,652



assets

1,661,115 120,474 106,915 1,888,504

III. Operating profit 790,495 474,278 562,719 22,063 1,849,555

Net non-operating

income/expenses

-1,555 -1,555

IV. Total profit 790,495 474,278 562,719 20,508 1,848,000

Income tax — — — — — — — — 159,497

V. Net profit — — — — — — — — 1,688,503

Segment assets 109,647,534 42,584,812 123,533,109 4,311,743 280,077,198


XII. Main Off-balance-sheet Businesses

1. Off-balance-sheet businesses refer to all businesses that are not reflected on the balance sheet.

They consist of two parts: Off-balance-sheet businesses with contingent risk, i.e. provision of

guarantees for customers’ debt service ability and bearing the risk of customer default; and

risk-free off-balance-sheet activities, mainly including settlement and agency services.

2. Contingent risk

(1) Bank’s acceptance bills are commercial drafts for which the applicant applies to the Bank and

which the Bank examines and agrees to accept.

(2) L/C refers to a written guarantee document issued upon request and instruction by the

applicant by the Bank for the beneficiary, whereby a certain amount will be paid based on the

required document within a certain period at the designated place.

(3) Bank guarantee refers to a credit business in which the Bank, upon the request of the applicant

or client, makes a commitment to the beneficiary by issuing a letter of guarantee that the Bank will

fulfill obligation or assume responsibility in accordance with the letter of guarantee if the

applicant fails to perform the obligation or commitment set forth in the contract.

Page 120 of 177

(4) Balances of the Bank’s main off-balance-sheet items with contingent risk are as follows



Letters of guarantee issued 1,562,158 1,234,268

Letters of credit issued 2,836,565 1,530,073

Unused limit of credit cards 7,711,760 6,848,542

Unused online loan limit 19,013

Subtotal 28,362,991 28,077,014

Net exposure of main

off-balance-sheet items with

contingent risk

19,271,353 15,238,782

Note: The Group has commitment to loan limits at any time point, including unused credit limits

provided to credit card customers and loan limits contracted.

XIII. Financial Risk Management

In accordance with disclosure requirements set forth in the Accounting Standard for Business

Enterprises No. 37 - Presentation of Financial Instruments, relevant information on credit risk,

market risk, liquidity risk and operational risk in 2018 and 2017 is disclosed by the Group.

Financial risk management mainly discloses risk taken by the Group as well as management and

monitoring of risks, in particular main risks in the use of financial instruments.

Credit risk means the risk that the Bank will sustain a loss if the Bank’s customer or counterparty

fails to perform contractual obligations.

Market risk means the exposure affected by observable market economic factors, such as

fluctuations in interest rate, exchange rate, stocks and commodities.

Liquidity risk means the risk that the Bank may become unable to pay debts when due in normal

or stagnant market environment.

Operational risk means the financial or reputational loss arising from failure to comply with

systems and procedures or frauds.

The Group has developed a series of policies and procedures to identify the foregoing risks and set

appropriate risk limits and control mechanisms. The Group sets up the Risk Management

Committee and designates a specialized department – the Risk Management Department to take

charge of risk management. Departments responsible for risk management, with their duties well

defined, are relatively independent of business departments taking risks and provides independent

risk reports to the Board of Directors and the Senior Management. The Risk Management

Committee has developed risk management policies and procedures applicable to the Group and

set appropriate risk limits and management mechanisms. In addition to regular meetings, the Risk

Management Committee also holds meetings irregularly according to market conditions to adjust

and modify relevant risk policies and procedures.

i. Credit risk

Credit risk means the possibility of loss the Bank sustains due to default or deteriorated credit

quality of the customer or counterparty. The credit risk the Bank takes is mainly related to loans,

guarantees, bonds and interbank lending.

At present, the Bank adopts a proactive and prudent policy for credit risk and the Board of

Page 121 of 177

Directors assumes the ultimate responsibility for monitoring credit risk management, so as to

ensure that the Bank effectively identifies, assesses, measures, monitors and controls the credit

risk in all areas of business.

As for management of credit assets, the Bank has developed a full set of credit approval policies

and procedures, including credit investigation and declaration, credit examination and approval,

loan issuance, post-disbursement management and NPL management, which are implemented

bank-wide. Meanwhile, in accordance with the Guidelines on Risk-Based Loan Classification

issued by PBOC and the Implementation Opinion on Five-tier Classification of Loan Quality of

Urban Commercial Banks issued by CBRC, the Bank developed the Implementation Rules and

Standards of Hankou Bank for Five-tier Classification of Loan Quality. Based on the five-tier

classification system of CBRC, the Bank classifies loans into five tiers and twelve sub-tiers

according to the borrowers’ ability to pay, repayment records, willingness to pay, security, legal

responsibility for loan repayment as well as financial and non-financial indicators of borrowers.

Classifications are adjusted in due time on the basis of real-time classification, regular review and

re-classification at appropriate times to improve refined management of credit risk.

1. Maximum credit risk exposures

Below are the maximum credit risk exposures of the Group as at 31 December 2018 and 31

December 2017, regardless of collaterals and other credit enhancement measurements. For balance

sheet items, the risk exposure of financial assets is the carrying amount on the balance sheet date.

Consolidated:


Credit risk exposure relating to on-balance-sheet

items:


Deposits with banks and other financial institutions 1,072,991 3,390,629

Lendings to banks and other financial institutions 500,000 317,493

Financial assets designated at fair value through

profit or loss

213,042,298 13,258,475


Financial assets under reverse repurchase

agreements 4,010,200 5,213,687

Loans and advances 132,597,003 110,574,956

—Corporate loans and advances 98,094,706 87,510,236

—Personal loans 34,502,297 23,064,720

Available-for-sale financial assets (excluding equity

investment) 57,145,516

46,587,207

Held-to-maturity investments 41,149,070 25,556,330



Other financial assets 1,178,494 231,413

Subtotal 314,013,893 276,279,735

Risk exposure of off-balance-sheet credit

commitment:






Subtotal 28,362,991 28,077,014

Total 342,376,884 304,356,749

The Bank:

Page 122 of 177


Credit risk exposure relating to on-balance-sheet

items:


Deposits with banks and other financial institutions 929,158 3,268,557

Lendings to banks and other financial institutions 500,000 317,493

Financial assets designated at fair value through

profit or loss

13,042,298 13,258,475


Financial assets under reverse repurchase agreements 4,010,200 5,213,687

Loans and advances 132,013,585 110,068,422

—Corporate loans and advances 97,861,797 87,225,239

—Personal loans 34,151,788 22,843,183

Available-for-sale financial assets (excluding equity

investment)

57,145,516 46,587,207




Other financial assets 1,178,494 229,976

Subtotal 313,160,346 275,240,364

Risk exposure of off-balance-sheet credit

commitment:






Subtotal 28,362,991 28,077,014

Total 341,523,337 303,317,378

Notes: (1) Financial assets measured at fair value through profit or loss does not include

held-for-trading equity instrument investments;

(2) Available-for-sale financial assets exclude the carrying amount of equity investment.

2. Overdue and impairment of financial assets

Impairment and overdue of loans and advances, deposits with banks and other financial

institutions, lendings to banks and other financial institutions, financial assets under reverse

repurchase agreements, available-for-sale financial assets, held-to-maturity investments and

receivables investment are presented as follows:

Page 123 of 177

Consolidated:

Item

Loans and advances

Deposits

with banks

and other

financial

institutions

Lendings to

banks and

other

financial

institutions

Financial

assets under

reverse

repurchase

agreements

Available-for

-sale

financial

assets

Held-to-maturity

investments

Investment

with

receivables

Corporate

loans

Personal

loans Total

31 December 2018

Neither overdue nor

impaired 99,333,396 34,743,167 134,076,563 1,072,991 500,000 4,010,200 57,161,098 41,149,070 35,251,535

Overdue but not impaired 67,644 142,405 210,049

Impaired 2,450,246 451,162 2,901,408 669,077

Total 101,851,286 35,336,734 137,188,020 1,072,991 500,000 4,010,200 57,161,098 41,149,070 35,920,612

Less: Allowance for

impairment losses 3,756,580 834,437 4,591,017 1,047,153

Net value 98,094,706 34,502,297 132,597,003 1,072,991 500,000 4,010,200 57,161,098 41,149,070 34,873,459

31 December 2017

Neither overdue nor

impaired 86,125,503 22,788,573 108,914,076 3,390,629 317,493 5,213,687 46,602,789 25,556,330 41,582,514

Overdue but not impaired 3,220,441 304,388 3,524,829

Impaired 2,052,968 424,777 2,477,745 669,077

Total 91,398,912 23,517,738 114,916,650 3,390,629 317,493 5,213,687 46,602,789 25,556,330 42,251,591

Less: Allowance for


Net value 87,510,231 23,064,725 110,574,956 3,390,629 317,493 5,213,687 46,602,789 25,556,330 41,207,532

The Bank:

Item Loans and advances

Deposits

with banks

and other

financial

institutions

Lendings to

banks and

other

financial

institutions

Financial

assets under

reverse

repurchase

agreements

Available-for-

sale financial

assets

Held-to-maturity

investments

Receivables

investment

Page 124 of 177

Corporate

loans

Personal

loans Total

31 December 2018

Neither overdue nor

impaired 99,110,457 34,391,015 133,501,472 929,158 500,000 4,010,200 57,161,098 41,149,070 35,221,535

Overdue but not impaired 57,264 137,989 195,253

Impaired 2,426,332 440,697 2,867,029 669,077

Total 101,594,053 34,969,701 136,563,754 929,158 500,000 4,010,200 57,161,098 41,149,070 35,890,612

Less: Allowance for


Net value 97,861,797 34,151,788 132,013,585 929,158 500,000 4,010,200 57,161,098 41,149,070 34,843,459

31 December 2017

Neither overdue nor

impaired 85,867,877 22,581,606 108,449,483 3,268,557 317,493 5,213,687 46,602,789 25,556,330 41,262,514

Overdue but not impaired 3,200,680 288,271 3,488,951

Impaired 2,024,936 418,366 2,443,302 669,077

Total 91,093,493 23,288,243 114,381,736 3,268,557 317,493 5,213,687 46,602,789 25,556,330 41,931,591

Less: Allowance for


Net value 87,225,234 22,843,188 110,068,422 3,268,557 317,493 5,213,687 46,602,789 25,556,330 40,887,532

Page 125 of 177

(1) The following table presents the five-tier classification of loans and advances that were neither

overdue nor impaired as at 31 December 2018 and 31 December 2017.

Consolidated:


Corporate loans 99,333,396 86,125,503

Pass 88,880,693 78,687,501

Special mention 10,452,703 7,438,002

Personal loans 34,743,167 22,788,573

Pass 34,689,289 22,754,591

Special mention 53,878 33,982

Total 134,076,563 108,914,076

The Bank:


Corporate loans 99,110,457 85,867,877

Pass 88,667,324 78,457,185

Special mention 10,443,133 7,410,692

Personal loans 34,391,015 22,581,606

Pass 34,344,520 22,548,675

Special mention 46,495 32,931

Total 133,501,472 108,449,483

In addition to the foregoing loans and advances, deposits with banks and other financial

institutions, lendings to banks and other financial institutions, financial assets under reverse

repurchase agreements, available-for-sale financial assets, held-to-maturity investments and

receivables investment that were neither overdue nor impaired were classified as pass as at 31

December 2018 (31 December 2017: Pass).

(2) Overdue but not impaired

The Group holds that overdue loans under this section can be repaid by borrowers’ operating

income, guarantor’s compensation and disposal of collaterals or sealed-up property, and therefore

are not identified as impaired loans. Financial assets overdue but not impaired are disclosed as

follows by the number of days overdue:

Consolidated:


Corporate loans Personal loans Total

31 December 2018

Overdue for less than 30 days 44,363 86,736 131,099

Overdue for 30-60 days 9,000 25,506 34,506

Overdue for 60-90 days 14,281 30,163 44,444

Overdue for over 90 days

Total 67,644 142,405 210,049

31 December 2017

Overdue for less than 30 days 43,050 85,521 128,571

Overdue for 30-60 days 32,846 24,669 57,515

Overdue for 60-90 days 10,324 8,456 18,780

Overdue for over 90 days 3,134,221 185,742 3,319,963

Total 3,220,441 304,388 3,524,829

The Bank:

Page 126 of 177


Corporate loans Personal loans Total

31 December 2018

Overdue for less than

30 days 42,563 86,106 128,669

Overdue for 30-60

days 9,000 25,324 34,324

Overdue for 60-90

days 5,701 26,559 32,260

Overdue for over 90

days

Total 57,264 137,989 195,253

31 December 2017

Overdue for less than

30 days 40,850 85,357 126,207

Overdue for 30-60

days 32,846 23,534 56,380

Overdue for 60-90

days 10,324 8,388 18,712

Overdue for over 90

days 3,116,660 170,992 3,287,652

Total 3,200,680 288,271 3,488,951

As at 31 December 2018, the deposits with banks and other financial institutions, lendings to

banks and other financial institutions, financial assets under reverse repurchase agreements,

available-for-sale financial assets, held-to-maturity investments and receivables investment were

not overdue and not impaired.

(3) Impaired financial assets

(i) Impaired loans and advances are classified as follows by the mode of guarantee:

Consolidated:


Unsecured loans 105,918 109,810

Guaranteed loans 1,366,758 707,080


—Loans secured by

mortgages 1,144,020 1,195,313

—Pledged loans 284,712 465,542

Total 2,901,408 2,477,745

The Bank:


Unsecured loans 105,128 109,065

Guaranteed loans 1,357,868 678,222


—Loans secured by

mortgages 1,119,321 1,190,511

—Pledged loans 284,712 465,504

Total 2,867,029 2,443,302

As at 31 December 2018, fair value of collateral for impaired corporate loans of the Group was

RMB3,668,763,000 (2017: RMB2,794,511,000).

Page 127 of 177

Personal loans issued by the Group are concentrated on home mortgages and housing

mortgage-backed loans. On 31 December 2018, these loans accounted for about 73.14% of total

personal loans (31 December 2017: 77.94%）. The Group strictly followed requirements of PBOC

and CBRC on housing loans. The mortgage rate for home mortgages is capped at 70% to ensure

sufficient collateral value and effective control of credit risk. In the meantime, the Group created

the five-tier classification and rating system for personal loans, with regard to the collateral value,

days overdue, borrowers’ ability and willingness to pay and other risk identification factors,

thereby enhancing credit risk management through loan classification.

As at 31 December 2018, the Group set aside RMB285,430,000 (31 December 2017:

RMB214,279,000) as allowance for impairment losses on impaired personal loans (mainly

problem loans left over from history). As at 31 December 2018, fair value of collateral for

impaired personal loans of the Group was RMB1,436,463,000 (2017: RMB1,367,756,000).

(ii) Other impaired financial assets

The Group has set aside allowance for impairment losses on receivables investment. As at 31

December 2018, RMB371,342,000 of allowance had been set aside for impairment on receivables

investment.

(4) Renegotiated loans

Renegotiated loans refer to loans for which the loan agreement clauses are adjusted by the Bank

due to deteriorated financial position or inability of the borrower to repay.

As at 31 December 2018, the balance of renegotiated loans of the Group was RMB15,211,157,000

(31 December 2017: RMB7,603,856,000).

3. Investment bonds

The table below presents the ratings assigned by external rating agencies to bonds held by the

Group as at 31 December 2018 and 31 December 2017.

Consolidated:

31 December 2018

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for

-sale

financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total

RMB medium- and long-term bonds (due in 1 year or above):

AAA 3,299,484 13,696,742 16,996,226

Page 128 of 177

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for

-sale

financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total

A- to AA+ 1,834,418 460,000 2,294,418

Unrated

- Government bonds 11,355,233 23,762 17,512,902 28,891,897

- Central bank bills

－ Financial bonds of

policy banks

6,976,217 3,173,403 10,149,620

- Interbank CDs

- Local Government bonds 3,415,180 3,415,180

- Bond issued by

government-backed

agencies

100,000 100,000

- Corporate bonds 587,622 654,969 1,242,591


Funds 30,047,802 30,047,802

Asset management plans

and fund trust plans

595,941 26,095,506 26,691,447

Wealth management

investment

Subordinated debts

Equity investment 15,582 15,582

Subtotal 54,712,299 26,319,268 39,013,196 120,044,763

RMB short-term bonds (due within 1 year):

AAA 90,236 751,050 841,286

A- to AA+ 220,963 40,000 260,963

Unrated

- Government bonds 848,109 4,326 699,589 1,552,024

Page 129 of 177

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for

-sale

financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total



policy banks

130,459 39,745 170,204

- Interbank CDs

- Local Government bonds 405,150 405,150

- Bond issued by

government-backed

agencies

- Corporate bonds 231,536 497,117 200,340 928,993

Asset-backed securities

Funds



661,915 9,567,018 10,228,933

Wealth management

investment

12,810,762 - 30,000 12,840,762

Subordinated debts

Equity investment

Subtotal 13,042,298 2,448,799 9,601,344 2,135,874 27,228,315

Foreign currency bonds:

AAA

Unrated


policy banks

Subtotal

Total 13,042,298 57,161,098 35,920,612 41,149,070 147,273,078

The Bank:

31 December 2018

Page 130 of 177

Item

Financial

assets

designated

at fair

value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total


AAA 3,299,484 13,696,742 16,996,226

A- to AA+ 1,834,418 460,000 2,294,418

Unrated

- Government bonds 11,355,233 23,762 17,512,902 28,891,897


- Financial bonds of

policy banks

6,976,217 3,173,403 10,149,620

- Interbank CDs

- Local Government

bonds

3,415,180 3,415,180

- Bond issued by

government-backed

agencies

100,000 100,000

- Corporate bonds 587,622 654,969 1,242,591


Funds 30,047,802 30,047,802



595,941 26,095,506 26,691,447

Wealth management

investment

Subordinated debts


Subtotal 54,712,299 26,319,268 39,013,196 120,044,763


AAA 90,236 751,050 841,286

Page 131 of 177

Item

Financial

assets

designated

at fair

value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total

A- to AA+ 220,963 40,000 260,963

Unrated

- Government bonds 848,109 4,326 699,589 1,552,024



policy banks

130,459 39,745 170,204

- Interbank CDs

- Local Government

bonds

405,150 405,150

- Bond issued by

government-backed

agencies

- Corporate bonds 231,536 497,117 200,340 928,993

Asset-backed securities

Funds



661,915 9,567,018 10,228,933

Wealth management

investment

12,810,762 12,810,762

Subordinated debts

Equity investment

Subtotal 13,042,298 2,448,799 9,571,344 2,135,874 27,198,315


AAA

Unrated


policy banks

Page 132 of 177

Item

Financial

assets

designated

at fair

value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total

Subtotal

Total 13,042,298 57,161,098 35,890,612 41,149,070 147,243,078

Consolidated:

31 December 2017

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total


AAA 2,500,300 5,771,065 8,271,365

A- to AA+ 2,757,106 146,000 2,903,106

Unrated

- Government bonds 315,205 989,773 19,476 8,314,369 9,638,823



policy banks

166,302 937,563 2,116,715 3,220,580

- Interbank CDs 49,732 49,732

- Local Government

bonds

3,820,330 3,820,330

- Bond issued by

government-backed

agencies

100,000 100,000

- Corporate bonds 1,746,897 619,962 2,366,859

Asset-backed

securities

Funds

Page 133 of 177

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total

Asset management

plans and fund trust

plans

31,761,175 31,761,175

Wealth management

investment

100,000 100,000

Subordinated debts


Subtotal 531,239 8,947,221 31,880,651 20,888,441 62,247,552


AAA 546,989 420,617 967,606

A- to AA+ 427,896 427,896

Unrated

- Government bonds 298,395 14,435 2,147,676 2,460,506



policy banks

1,440,843 1,440,843

- Interbank CDs 198,254 198,254

- Local Government

bonds

208,870 208,870

- Bond issued by

government-backed

agencies

- Corporate bonds 885,594 199,975 1,085,569

Asset-backed

securities

500,000 500,000

Funds 35,298,440 35,298,440

Asset management


plans

6,486,505 6,486,505

Page 134 of 177

Item Financial

assets

designated

at fair value

through

profit or

loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments

Total

Wealth management

investment

12,727,236 3,370,000 16,097,236

Subordinated debts 249,908 249,908

Equity investment

Subtotal 12,727,236 37,655,568 10,370,940 4,667,889 65,421,633


AAA

Unrated


policy banks

Subtotal

Total 13,258,475 46,602,789 42,251,591 25,556,330 127,669,185

The Bank:

31 December 2017

Item

Financial

assets

designated

at fair value

through

profit or loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total


AAA 2,500,300 5,771,065 8,271,365

A- to AA+ 2,757,106 146,000 2,903,106

Unrated

- Government bonds 315,205 989,773 19,476 8,314,369 9,638,823


Page 135 of 177

Item

Financial

assets

designated

at fair value

through

profit or loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total


policy banks

166,302 937,563 2,116,715 3,220,580

- Interbank CDs 49,732 49,732

- Local Government

bonds

3,820,330 3,820,330

- Bond issued by

government-backed

agencies

100,000 100,000

- Corporate bonds 1,746,897 619,962 2,366,859

Asset-backed

securities

Funds

Asset management


plans

31,761,175 31,761,175

Wealth management

investment

100,000 100,000

Subordinated debts


Subtotal 531,239 8,947,221 31,880,651 20,888,441 62,247,552


AAA 546,989 420,617 967,606

A- to AA+ 427,896 427,896

Unrated

- Government bonds 298,395 14,435 2,147,676 2,460,506



policy banks

1,440,843 1,440,843

- Interbank CDs 198,254 198,254

Page 136 of 177

Item

Financial

assets

designated

at fair value

through

profit or loss

Available-for-

sale financial

assets

Receivables

financial

assets

Held-to-maturity

investments Total

- Local Government

bonds

208,870 208,870

- Bond issued by

government-backed

agencies

- Corporate bonds 885,594 199,975 1,085,569

Asset-backed

securities

500,000 500,000

Funds 35,298,440 35,298,440

Asset management


plans

6,486,505 6,486,505

Wealth management

investment

12,727,236 3,050,000 15,777,236

Subordinated debts 249,908 249,908

Equity investment

Subtotal 12,727,236 37,655,568 10,050,940 4,667,889 65,101,633


AAA

Unrated


policy banks

Subtotal

Total 13,258,475 46,602,789 41,931,591 25,556,330 127,349,185

3. Credit risk concentration of financial assets

Geographical concentration

Customer loans, financial guarantees and related credit commitments of the Bank are concentrated

in China. As at 31 December 2018 and 31 December 2017, financial assets held by the Bank were

concentrated in Chinese mainland.

Page 137 of 177

Industry concentration

As at 31 December 2018 and 31 December 2017, financial assets of the Bank were mainly

composed of loans (including loans and advances) and securities investment (including financial

assets designated at fair value through profit or loss, available-for-sale financial assets, receivables

financial assets and held-to-maturity investment). For industry concentration of these main

financial assets, please refer to Note VIII to the financial statements.

ii. Market risk

Market risk refers to the risk of a loss in a bank’s on-balance-sheet or off-balance-sheet business

due to adverse changes in the market price. It mainly includes interest rate risk, exchange rate risk

and stock and commodity price risk.

Currently, the Group has further improved the market risk management system and preliminarily

established three lines of defense: front-office, middle-office and back-office. The Financial

Market Department, as the first line of defense for market risk management, assumes the primary

responsibility for the Group’s trading-book market risk. Its responsibility includes managing

foreign currency investment portfolios of the Group, carrying out proprietary and agency trading,

executing market risk management policies and procedures and conducting identification,

measurement, evaluation and control of daily risks. The Planning and Financial Department is

responsible for managing the banking-book market risk, setting the Group’s maturity structure of

assets and liabilities and providing suggestions on interest rate adjustment. The Risk Management

Department, under authorization by the Risk Management Committee, develops the market risk

policy and manages the overall exposure to market risk, sets risk limits, regularly assesses the

Group’s market risk profile and adjusts the investment strategy for the next stage according to

assessment results.

The Group assesses and measures the position and level of trading-book market risk through

revaluation, sensitivity analysis, bond asset risk classification and stress testing using such

indicators as yield to maturity, duration, convexity and unrealized profit or loss; and it also

assesses and measures the position and level of banking-book market risk through gap analysis,

bond asset risk classification and stress testing. The Group establishes a market risk monitoring

and reporting system for regular and irregular reporting to the Senior Management.

The Group has a treasury operations management system for treasury operations mainly exposed

to market risk and make continuous improvements in its analysis and real-time monitoring

function.

(1) Currency risk

The Group’s majority businesses are denominated in RMB, supplemented by a few USD, HKD

and other foreign currencies. Exchange rate changes will affect the financial position and cash

flows of the Group. Given the Group’s small volume of foreign currency business, the exchange

rate risk of foreign currencies has an insignificant impact on the Group. The Group controls

currency risk under the principle that assets and liabilities are matched in respect of each currency

as much as possible and currency exposures are monitored on a routine basis.

The table below summarizes foreign currency exposures of the Group’s financial assets and

financial liabilities, with the carrying amounts of foreign currency assets, liabilities and

off-balance-sheet credit commitments converted to RMB equivalents.

Consolidated:

Page 138 of 177

31 December 2018

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Financial assets

Cash and balances

with central banks

26,873,155 37,311 1,073 2,004 26,913,543

Deposits with banks

and other financial

institutions

536,798 493,571 11,058 31,564 1,072,991

Lendings to banks and

other financial

institutions

500,000 500,000

Financial assets

designated at fair

value through profit or

loss

13,042,298 13,042,298

Derivative financial

assets

Financial assets under

reverse repurchase

agreements

4,010,200 4,010,200

Interest receivable 2,284,265 4,889 2,289,154

Loans and advances 136,693,639 494,381 137,188,020

Available-for-sale

financial assets

57,161,098 57,161,098

Held-to-maturity

investments

41,149,070 41,149,070

Receivables

investment

35,920,612 35,920,612

Long-term equity

investment

787,643 787,643

Other financial assets 1,178,494 1,178,494

Total financial assets 320,137,272 1,030,152 12,131 33,568 321,213,123

Financial liabilities

Page 139 of 177

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Borrowings from

central banks

1,700,000 1,700,000

Deposits from banks

and other financial

institutions

4,570,524 221,195 8,072 13 4,799,804

Borrowings from

banks and other


1,500,000 4,290 1,504,290


designated at fair


loss

13,190,558 13,190,558


liabilities


repurchase

agreements

17,496,238 17,496,238

Customer deposits 188,165,475 629,655 4,340 29,696 188,829,166

Interest payable 3,189,911 2,097 16 20 3,192,044

Bonds payable 67,408,116 67,408,116

Other financial

liabilities

78,840 20 13,301 92,161

Total financial

liabilities

297,299,662 857,257 12,428 43,030 298,212,377

Net balance sheet

position

22,837,610 172,895 -297 -9,462 23,000,746

Off-balance-sheet

credit commitments

31 December 2017

Item

RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Page 140 of 177

Item

RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Financial assets

Cash and balances

with central banks

28,768,281 22,973 853 2,406 28,794,513

Deposits with banks

and other financial

institutions

2,597,885 714,874 12,387 65,483 3,390,629

Lendings to banks and

other financial

institutions

101,864 215,629 317,493

Financial assets

designated at fair


loss

13,258,475 13,258,475


assets


reverse repurchase

agreements

5,213,687 5,213,687

Interest receivable 1,717,146 822 1,717,968

Loans and advances 114,512,270 399,243 5,137 114,916,650

Available-for-sale

financial assets

46,602,789 46,602,789

Held-to-maturity

investments

25,556,330 25,556,330

Receivables

investment

42,251,591 42,251,591

Long-term equity

investment

763,209 763,209

Other financial assets 231,412 1 231,413



Borrowings from 60,200 60,200

Page 141 of 177

Item

RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

central banks

Deposits from banks

and other financial

institutions

4,558,487 46,669 7,753 13 4,612,922

Borrowings from

banks and other


1,500,000 120,267 5,137 1,625,404


designated at fair


loss

13,003,858 13,003,858


liabilities


repurchase

agreements

15,221,395 15,221,395



Bonds payable 61,179,594 61,179,594

Other financial

liabilities

228,801 9 228,810

Total financial

liabilities

260,927,840 936,645 11,744 67,434 261,943,663

Net balance sheet

position

20,647,099 416,897 1,496 5,592 21,071,084

Off-balance-sheet

credit commitments

The Bank:

31 December 2018

Page 142 of 177

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Financial assets

Cash and balances with

central banks

26,773,176 37,311 1,073 2,004 26,813,564

Deposits with banks and


392,965 493,571 11,058 31,564 929,158

Lendings to banks and other


500,000 500,000

Financial assets designated at

fair value through profit or

loss

13,042,298 13,042,298


Financial assets under reverse


4,010,200 4,010,200


Loans and advances 136,069,373 494,381 136,563,754


assets

57,161,098 57,161,098


Receivables investment 35,890,612 35,890,612

Long-term equity investment 844,583 844,583

Other financial assets 1,178,494 1,178,494



Borrowings from central

banks

1,650,000 1,650,000

Deposits from banks and


4,859,108 221,195 8,072 13 5,088,388

Borrowings from banks and


1,500,000 4,290 1,504,290

Page 143 of 177

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total




13,190,558 13,190,558




17,496,238 17,496,238



Bonds payable 67,408,116 67,408,116

Other financial liabilities 78,840 20 13,301 92,161

Total financial liabilities 296,553,726 857,257 12,428 43,030 297,466,441

Net balance sheet position 22,738,443 172,895 -297 -9,462 22,901,579

Off-balance-sheet credit

commitments

31 December 2017

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Financial assets


central banks

28,679,953 22,973 853 2,406 28,706,185

Deposits with banks and


2,475,813 714,874 12,387 65,483 3,268,557

Lendings to banks and other


101,864 215,629 317,493


fair value through profit or

loss

13,258,475 13,258,475

Page 144 of 177

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total




5,213,687 5,213,687

Interest receivable 1,709,109 822 1,709,931

Loans and advances 113,977,356 399,243 5,137 114,381,736


assets

46,602,789 46,602,789


Receivables investment 41,931,591 41,931,591

Long-term equity investment 820,149 820,149

Other financial assets 229,975 1 229,976



Borrowings from central

banks

Deposits from banks and


4,615,329 46,669 7,753 13 4,669,764



1,500,000 120,267 5,137 1,625,404




13,003,858 13,003,858




15,221,395 15,221,395



Bonds payable 61,179,594 61,179,594

Page 145 of 177

Item RMB RMB

equivalent

of USD

RMB

equivalent

of HKD

RMB

equivalent

of other

currencies

Total

Other financial liabilities 227,029 9 227,038

Total financial liabilities 260,023,188 936,645 11,744 67,434 261,039,011

Net balance sheet position 20,533,903 416,897 1,496 5,592 20,957,888

Off-balance-sheet credit

commitments

(2) Interest rate risk

Interest rate risk refers to the risk of volatility of fair value or future cash flows of financial

instruments due to market interest rate changes.

The interest rate risk of cash flows refers to the risk of volatility of future cash flows of financial

instruments due to market interest rate changes. The interest rate risk of fair value refers to the risk

of volatility of financial instruments’ value due to changes in market interest rates.

The interest rate risk exposures of the Group are faced with interest rate risk in fair value and cash

flows due to changes in main market interest rates.

Interest rate fluctuations may either lead to widening interest spread of the Group or result in

narrowing interest spread or even incur a loss due to unexpected changes. The Group mainly

operates business within the interest rate framework of the PBOC. According to historical

experience, PBOC generally adjusts benchmark interest rates of interest-generating loans and

interest-bearing deposits in the same direction (yet maybe in different magnitudes), so the Group

controls its interest rate risk mainly through controlling the maturity distribution of loans and

deposits.

In accordance with PBOC rules, RMB loan interest rates may float upwards or downwards from

the benchmark rate. The RMB benchmark interest rate published by PBOC sets a cap on the RMB

loan interest rate. The discount rate of RMB bills is market-based, subject to a minimum of the

PBOC-specified rediscount rate, and the cap of discount rate shall not exceed the same-period loan

interest rate (including floating).

The Group pays close attention to movements in the interest rates of RMB and foreign currencies,

adjusts RMB and foreign currency deposit and loan rates from time to time to reflect changes in

market interest rates and endeavors to prevent interest rate risk.

The table below provides a summary of the Group’s interest rate risk exposures. Assets and

liabilities listed in the table are as at the earlier of the repricing date and the maturity date.

Financial assets and liabilities are presented at carrying amount.

Consolidated:

31 December 2018

Page 146 of 177

Item Within 1 month

1-3 months

3-12 months

1-5 years Over 5 years

Interest free

Total

Financial assets

Cash and

balances

with central banks

5,078,843 21,795,985 38,715 26,913,543

Deposits

with banks

and other


902,991 110,000 60,000 1,072,991

Lendings to

banks and

other

financial

institutions

500,000 500,000

Financial

assets

designated at

fair value


1,930,239 4,177,549 6,910,391 24,119 13,042,298

Derivative

financial assets

Financial

assets under

reverse


4,010,200 4,010,200

Interest

receivable

2,281,140 4,049 3,965 2,289,154

Loans and advances

9,596,497 13,273,919 49,010,004 36,075,896 26,338,195 2,893,509 137,188,020

Available-for

-sale

financial assets

8,068,895 3,224,802 21,222,695 13,276,830 11,367,876 57,161,098

Held-to-matu

rity investments

70,419 239,186 1,943,334 26,429,777 12,466,354 41,149,070

Receivables

investment

30,000 1,049,868 7,848,021 22,896,504 3,421,600 674,619 35,920,612

Long-term

equity investment

787,643 787,643

Other

financial

1,178,494 1,178,494

Page 147 of 177

Item Within 1 month

1-3 months

3-12 months


Interest free

Total

assets

Total

financial assets

33,147,718 22,079,373 87,494,445 98,703,126 75,390,010 4,398,451 321,213,123


Borrowings

from central banks

1,700,000 1,700,000

Deposits

from banks

and other


-13,353 1,503,328 3,223,969 17,172 68,688 4,799,804

Borrowings

from banks

and other


304,290 700,000 500,000 1,504,290

Financial

liabilities

designated at

fair value

through

profit or loss

1,938,738 4,316,581 6,935,239 13,190,558

Derivative

financial liabilities

Financial

assets under

repurchase

agreements

12,466,166 1,911,168 3,118,904 17,496,238

Customer

deposits

118,607,233 8,039,874 29,120,868 32,840,859 220,332 188,829,166

Interest

payable

183,536 1,524,967 1,466,872 16,669 3,192,044

Bonds

payable

6,409,846 12,740,012 40,663,326 2,598,934 4,995,998 67,408,116

Other


92,161 92,161

Total


139,988,617 30,735,930 86,729,178 35,456,965 5,285,018 16,669 298,212,377

Interest rate

sensitivity gap

Page 148 of 177

Item Within 1 month

1-3 months

3-12 months


Interest free

Total

Total -106,840,899 -8,656,557 765,267 63,246,161 70,104,992 4,381,782 23,000,746

31 December 2017

Item Within 1

month

1-3 months 3-12

months

1-5 years Over 5

years

Interest

free

Total

Financial assets

Cash and

balances

with central banks

4,393,903 24,393,572 7,038 28,794,513

Deposits

with banks

and other


3,390,629 3,390,629

Lendings to

banks and

other


317,493 317,493

Financial

assets

designated

at fair value


2,015,268 3,910,938 7,156,178 176,091 13,258,475

Derivative

financial assets

Financial

assets under

reverse

repurchase

agreements

4,413,687 304,340 495,660 5,213,687

Interest

receivable

1,708,049 1,882 8,037 1,717,968

Loans and

advances

64,909,253 6,965,189 23,387,652 12,755,449 1,250,872 5,648,235 114,916,650

Available-fo

r-sale

financial assets

26,014,080 4,084,234 1,910,497 6,209,567 8,384,411 46,602,789

Held-to-mat

urity investments

79,960 237,023 4,584,772 15,135,911 5,518,664 25,556,330

Page 149 of 177

Item Within 1 month

1-3 months 3-12 months


Interest free

Total

Receivables

investment

3,067,912 3,588,491 3,713,372 28,651,266 3,229,386 1,164 42,251,591

Long-term

equity investment

763,209 763,209

Other

financial assets

229,975 1,438 231,413

Total

financial assets

110,540,209 19,092,097 41,248,131 62,928,284 42,776,905 6,429,121 283,014,747


Borrowings

from central banks

60,200 60,200

Deposits

from banks

and other


1,350,922 3,262,000 4,612,922

Borrowings

from banks

and other


1,515,923 32,205 77,276 1,625,404

Financial

liabilities

designated

at fair value


1,230,081 4,335,438 7,261,123 177,216 13,003,858

Derivative

financial

liabilities

Financial

assets under


14,625,425 595,970 15,221,395

Customer

deposits

110,149,672 9,213,078 24,827,634 18,344,176 227,274 162,761,834

Interest

payable

191,434 1,472,854 1,571,186 14,172 3,249,646

Bonds

payable

7,809,811 17,964,720 26,411,472 3,997,985 4,995,606 61,179,594

Other

financial

227,038 1,772 228,810

Page 150 of 177

Item Within 1 month

1-3 months 3-12 months


Interest free

Total

liabilities

Total


137,100,306 33,614,265 63,470,891 22,519,377 5,222,880 15,944 261,943,663

Interest rate

sensitivity

gap

Total -26,560,097 -14,522,168 -22,222,760 40,408,907 37,554,025 6,413,177 21,071,084

The Bank:

31 December 2018

Item Within 1

month

1-3 months 3-12

months

1-5 years Over 5

years

Interest

free

Total

Financial assets

Cash and

balances with

central banks

5,017,579 21,795,985 26,813,564

Deposits with

banks and other

financial

institutions

879,158 50,000 929,158

Lendings to

banks and other

financial

institutions

500,000 500,000

Financial assets

designated at fair

value through

profit or loss

1,930,239 4,177,549 6,910,391 24,119 13,042,298

Derivative

financial assets

Financial assets

under reverse

repurchase

agreements

4,010,200 4,010,200

Interest

receivable

2,281,140 4,049 2,285,189

Loans and

advances

9,551,239 13,214,148 48,680,541 36,026,062 26,229,284 2,862,480 136,563,754

Available-for-sale

financial assets

8,068,895 3,224,802 21,222,695 13,276,830 11,367,876 57,161,098

Held-to-maturity investments

70,419 239,186 1,943,334 26,429,777 12,466,354 41,149,070

Page 151 of 177

Item Within 1

month

1-3 months 3-12

months

1-5 years Over 5

years

Interest

free

Total

Receivables investment

1,049,868 7,848,021 22,896,504 3,421,600 674,619 35,890,612

Long-term equity

investment

844,583 844,583

Other financial assets

1,178,494 1,178,494

Total financial

assets

32,987,363 21,959,602 87,104,982 98,653,292 75,281,099 4,381,682 320,368,020


Borrowings from

central banks

1,650,000 1,650,000

Deposits from

banks and other


275,231 1,503,328 3,223,969 17,172 68,688 - 5,088,388

Borrowings from

banks and other


304,290 700,000 500,000 1,504,290

Financial

liabilities

designated at fair


1,938,738 4,316,581 6,935,239 13,190,558

Derivative


Financial assets

under repurchase agreements

12,466,166 1,911,168 3,118,904 17,496,238

Customer deposits

118,326,986 8,029,046 28,702,378 32,582,572 220,332 187,861,314

Interest payable 183,537 1,524,967 1,466,872 3,175,376

Bonds payable 6,409,846 12,740,012 40,663,326 2,598,934 4,995,998 67,408,116

Other financial

liabilities

92,161 92,161

Total financial

liabilities

139,996,955 30,725,102 86,260,688 35,198,678 5,285,018 297,466,441

Interest rate

sensitivity gap

Total -107,009,592 -8,765,500 844,294 63,454,614 69,996,081 4,381,682 22,901,579

Page 152 of 177

31 December 2017

Item Within 1

month 1-3 months

3-12

months 1-5 years

Over 5

years

Interest

free Total

Financial assets

Cash and

balances with

central banks

4,312,613 24,393,572 28,706,185

Deposits with

banks and other

financial

institutions

3,268,557 3,268,557

Lendings to

banks and other

financial

institutions

317,493 317,493

Financial assets

designated at fair


2,015,268 3,910,938 7,156,178 176,091 13,258,475


Financial assets

under reverse


4,413,687 304,340 495,660 5,213,687

Interest

receivable

1,708,049 1,882 1,709,931

Loans and

advances

64,870,149 6,922,666 23,046,362 12,725,888 1,232,548 5,584,123 114,381,736

Available-for-sale financial assets

26,014,080 4,084,234 1,910,497 6,209,567 8,384,411 46,602,789

Held-to-maturity

investments

79,960 237,023 4,584,772 15,135,911 5,518,664 25,556,330

Receivables

investment

3,067,912 3,533,491 3,448,372 28,651,266 3,229,386 1,164 41,931,591

Long-term equity

investment

820,149 820,149

Other financial

assets

229,976 229,976

Total financial

assets

110,297,744 18,994,574 40,641,841 62,898,723 42,758,581 6,405,436 281,996,899


Borrowings from central banks

Page 153 of 177

Item Within 1 month

1-3 months 3-12

months 1-5 years

Over 5 years

Interest free

Total

Deposits from

banks and other

financial

institutions

1,407,764 3,262,000 4,669,764

Borrowings from

banks and other

financial

institutions

1,515,923 32,205 77,276 1,625,404

Financial

liabilities

designated at fair


1,230,081 4,335,438 7,261,123 177,216 13,003,858

Derivative

financial

liabilities

Financial assets

under repurchase

agreements

14,625,425 595,970 15,221,395

Customer

deposits

109,869,312 9,207,154 24,401,494 18,171,250 227,274 161,876,484


Bonds payable 7,809,811 17,964,720 26,411,472 3,997,985 4,995,606 61,179,594

Other financial

liabilities

227,038 227,038

Total financial

liabilities

136,876,788 33,608,341 62,984,551 22,346,451 5,222,880 261,039,011

Interest rate

sensitivity gap

Total -26,579,044 -14,613,767 -22,342,710 40,552,272 37,535,701 6,405,436 20,957,888

The Group measured and controlled the interest rate risk mainly through sensitivity analysis. For

the financial assets and liabilities designated at fair value through profit or loss, the Management

believed that the interest rate risk of the Group was not significant. For other financial assets and

liabilities, the Group measured and controlled their interest rate risk mainly through gap analysis.

Below is the result from the gap analysis on the financial assets and liabilities (except those

designated at fair value through profit or loss) as at 31 December 2018 and 31 December 2017:

Net interest income


Consolidated The Bank Consolidated The Bank

Benchmark rate yield moves up by 50 -545,894 -547,008 -231,234 -231,931

Page 154 of 177

Net interest income 31 December 2018 31 December 2017

basis points

Benchmark rate yield moves down by

50 basis points

545,894 547,008 231,234 231,931

The above gap analysis was based on the assumption that financial assets and liabilities (except

those designated at fair value through profit or loss) have static interest rate risk structure.

The sensitivity analysis of net interest income was based on the financial assets and liabilities

(except those designated at fair value through profit or loss) held by the Bank at the end of the

year and estimated influence of interest rate variation on the net interest income within a year. The

above influence on the net interest income did not take into account the influence of relevant

changes on the income tax.

The above analysis is based on the following assumptions: all assets and liabilities re-priced or

matured within a month, after a month but within three months, and after three months but within

one year are re-priced or matured duly; and the yield curve moves parallel with the interest rate

variation.

Due to the above assumption, there might be some difference between the actual change of the

Bank’s net interest income due to interest rate variation and the result of sensitivity analysis.

iii. Liquidity risk

Liquidity risk means the risk that the Group is unable to acquire sufficient fund in time or could

not acquire sufficient fund at a reasonable cost to cope with the assets growth or pay matured

debts in spite of its solvency.

The Asset and Liability Management Committee of the Group is responsible for liquidity risk

management of the whole bank, developing the liquidity risk management policy, defining the

liquidity risk monitoring indicators, formulating the contingency plan for liquidity risk, regularly

analyzing and examining execution of indicators, providing suggestions on improving liquidity

risk management and reviewing bank-wide liquidity risk management on a quarterly basis.

The table below presents the distribution of cash flows in the remaining maturity of financial

assets and financial liabilities of the Group, except for derivative financial instruments. The

remaining maturity is the period from the balance sheet date to the maturity date specified in the

contract. Amounts of financial liabilities under each time period are contract cash flows that are

not discounted; amounts of financial assets under each time period are cash flows anticipated to be

recovered.

Consolidated:

31 December 2018

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

Financial assets

Cash and balances 4,916,904 21,996,639 26,913,543

Page 155 of 177

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

with central banks


financial

institutions

902,991 110,000 60,000 1,072,991

Lendings to banks and other financial

institutions

500,000 500,000

Financial assets

designated at fair


2,161,776 4,167,326 6,689,077 24,119 13,042,298


repurchase

agreements

4,010,200 4,010,200


Loans and advances

2,908,350 9,581,656 13,273,919 49,010,004 36,075,896 26,338,195 137,188,020

Available-for-sale financial assets

12,859,004 4,710,921 1,979,795 13,296,620 24,299,176 15,582 57,161,098


22,539 170,000 1,943,334 26,546,843 12,466,354 41,149,070

Receivables

investment

674,619 30,000 1,049,868 7,848,021 22,896,504 3,421,600 35,920,612

Long-term equity

investment

787,643 787,643

Other financial

assets

1,178,494 1,178,494

Total financial

assets (Expected

maturity)

3,582,969 37,948,458 23,486,294 68,030,231 98,839,982 66,525,325 22,799,864 321,213,123



1,700,000 1,700,000

Deposits from banks and other

financial

institutions

-13,353 1,503,328 3,223,969 17,172 68,688 4,799,804

Borrowings from

banks and other financial

institutions

304,290 700,000 500,000 1,504,290

Financial liabilities designated at fair

value through

profit or loss

1,938,738 4,316,581 6,935,239 13,190,558

Financial assets

under repurchase

12,466,166 1,911,168 3,118,904 17,496,238

Page 156 of 177

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

agreements

Customer deposits 118,607,233 8,039,874 29,120,868 32,840,859 220,332 188,829,166

Interest payable 182,237 1,524,994 1,471,920 12,893 3,192,044

Bonds payable 6,409,846 12,740,012 40,663,326 2,598,934 4,995,998 67,408,116

Other financial

liabilities

92,161 92,161

Total financial

liabilities (Contract

maturity)

139,987,318 30,735,957 86,734,226 35,469,858 5,285,018 298,212,377

Liquidity exposure 3,582,969 -102,038,860 -7,249,663 -18,703,995 63,370,124 61,240,307 22,799,864 23,000,746

31 December 2017

Item Repayable

on demand

Within 1

month

1-3

months

3-12

months 1-5 years

Over 5

years

Unlimited

term Total

Financial assets

Cash and balances with central banks

4,244,660 24,549,853 28,794,513


financial

institutions

3,390,629 3,390,629

Lendings to banks

and other


317,493 317,493

Financial assets designated at fair

value through

profit or loss

2,496,775 3,910,938 6,674,671 176,091 13,258,475

Financial assets

under reverse

repurchase

agreements

4,413,687 304,340 495,660 5,213,687

Interest receivable 1,713,431 2,560 1,977 1,717,968

Loans and

advances

5,652,643 6,734,710 11,670,207 39,505,761 29,437,878 21,915,451 114,916,650

Available-for-sale

financial assets

26,101,458 4,084,234 1,740,829 6,276,275 8,384,411 15,582 46,602,789

Held-to-maturity

investments

617 190,406 4,476,866 15,369,777 5,518,664 25,556,330

Receivables

investment

1,164 3,067,912 3,588,491 3,713,372 28,651,266 3,229,386 42,251,591

Long-term equity

investment

763,209 763,209

Page 157 of 177

Item Repayable on demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total


231,413 231,413

Total financial assets (Expected

maturity)

5,653,807 52,712,785 23,751,176 56,609,136 79,911,287 39,047,912 25,328,644 283,014,747



60,200 60,200


financial

institutions

1,350,922 3,262,000 4,612,922

Borrowings from

banks and other


1,515,923 32,205 77,276 1,625,404


designated at fair

value through

profit or loss

1,230,081 4,335,438 7,261,123 177,216 13,003,858

Financial assets

under repurchase

agreements

14,625,425 595,970 15,221,395

Customer

deposits

110,149,672 9,213,078 24,827,634 18,344,176 227,274 162,761,834

Interest payable 191,447 1,472,867 1,576,244 9,088 3,249,646

Bonds payable 7,809,811 17,964,720 26,411,472 3,997,985 4,995,606 61,179,594

Other financial

liabilities

228,810 228,810

Total financial

liabilities

(Contract maturity)

137,102,091 33,614,278 63,475,949 22,528,465 5,222,880 261,943,663

Liquidity exposure

5,653,807 -84,389,306 -9,863,102 -6,866,813 57,382,822 33,825,032 25,328,644 21,071,084

The Bank:

31 December 2018

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

Financial assets


central banks

4,909,256 21,904,308 26,813,564

Page 158 of 177

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

Deposits with

banks and other

financial

institutions

879,158 50,000 929,158

Lendings to

banks and other financial

institutions

500,000 500,000


fair value

through profit or

loss

2,161,776 4,167,326 6,689,077 24,119 13,042,298

Financial assets

under reverse repurchase

agreements

4,010,200 4,010,200

Interest receivable

2,281,140 4,049 2,285,189

Loans and advances

2,862,480 9,551,239 13,214,148 48,680,541 36,026,062 26,229,284 136,563,754


assets

12,859,004 4,710,921 1,979,795 13,296,620 24,299,176 15,582 57,161,098

Held-to-maturit

y investments

22,539 170,000 1,943,334 26,546,843 12,466,354 41,149,070

Receivables

investment

674,619 1,049,868 7,848,021 22,896,504 3,421,600 35,890,612

Long-term

equity

investment

844,583 844,583


1,178,494 1,178,494

Total financial assets (Expected

maturity)

3,537,099 37,852,806 23,366,312 67,640,768 98,790,148 66,416,414 22,764,473 320,368,020


Borrowings

from central

banks

1,650,000 1,650,000


financial

institutions

275,231 1,503,328 3,223,969 17,172 68,688 5,088,388


other financial

institutions

304,290 700,000 500,000 1,504,290

Financial

liabilities designated at

fair value

1,938,738 4,316,581 6,935,239 13,190,558

Page 159 of 177

Item Repayable on

demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total

through profit or

loss


repurchase

agreements

12,466,166 1,911,168 3,118,904 17,496,238

Customer

deposits

118,326,986 8,029,046 28,702,378 32,582,572 220,332 187,861,314


Bonds payable 6,409,846 12,740,012 40,663,326 2,598,934 4,995,998 67,408,116

Other financial liabilities

92,161 92,161

Total financial liabilities

(Contract

maturity)

139,996,955 30,725,102 86,260,688 35,198,678 5,285,018 297,466,441

Liquidity

exposure

3,537,099 -102,144,149 -7,358,790 -18,619,920 63,591,470 61,131,396 22,764,473 22,901,579

31 December 2017

Item Repayable on

demand

Within 1

month

1-3

months

3-12

months

1-5 years Over 5

years

Unlimited

term

Total

Financial assets

Cash and balances with central banks

4,237,623 24,468,562 28,706,185


financial

institutions

3,268,557 3,268,557

Lendings to banks

and other financial

institutions

317,493 317,493

Financial assets designated at fair

value through

profit or loss

2,496,775 3,910,938 6,674,671 176,091 13,258,475

Financial assets

under reverse


4,413,687 304,340 495,660 5,213,687


Loans and

advances

5,584,123 6,700,013 11,627,684 39,164,471 29,408,318 21,897,127 114,381,736

Available-for-sale

financial assets

26,101,458 4,084,234 1,740,829 6,276,275 8,384,411 15,582 46,602,789

Page 160 of 177

Item Repayable on demand

Within 1 month

1-3 months

3-12 months


Unlimited term

Total


617 190,406 4,476,866 15,369,777 5,518,664 25,556,330

Receivables investment

1,164 3,067,912 3,533,491 3,448,372 28,651,266 3,229,386 41,931,591

Long-term equity investment

820,149 820,149


229,976 229,976

Total financial

assets (Expected

maturity)

5,585,287 52,542,160 23,652,975 56,000,869 79,881,727 39,029,588 25,304,293 281,996,899




financial

institutions

1,407,764 3,262,000 4,669,764

Borrowings from

banks and other


1,515,923 32,205 77,276 1,625,404


designated at fair

value through

profit or loss

1,230,081 4,335,438 7,261,123 177,216 13,003,858

Financial assets

under repurchase

agreements

14,625,425 595,970 15,221,395

Customer

deposits

109,869,312 9,207,154 24,401,494 18,171,250 227,274 161,876,484


Bonds payable 7,809,811 17,964,720 26,411,472 3,997,985 4,995,606 61,179,594

Other financial

liabilities

227,038 227,038

Total financial

liabilities

(Contract maturity)

136,876,788 33,608,341 62,984,551 22,346,451 5,222,880 261,039,011

Liquidity exposure

5,585,287 -84,334,628 -9,955,366 -6,983,682 57,535,276 33,806,708 25,304,293 20,957,888

iv. Operational risk

Operational risk is defined as the risk that causes losses through imperfect or faulty internal

procedures, employees and IT systems as well as external incidents, including internal fraud,

external fraud, employment policy and workplace safety, customers (products) and business

activities, damage to physical assets, information technology systems, settlement execution and

Page 161 of 177

process management.

The Risk Management Department of the Group is responsible for developing the operational risk

management policy and supervising its execution. Based on work done previously, the Group has

mainly carried out the following work in relation to operational risk management:

The Operational Risk Management Policy of Hankou Bank was developed and submitted to the

Board of Directors for discussion. The policy sets out the Group’s basic principles and

management strategies for operational risk management and points out the direction of the

Group’s operational risk management in coming years.

The operational risk incident monitoring and reporting procedures were revised and improved to

clarify the reporting line for operational risk incidents and the duties for operational risk

management; the four-tier account system for operational risk incidents was developed according

to the New Basel Capital Accord, regulatory guidelines and the Bank’s particularities. The Group

tried to classify operational risk incidents by incident types, product lines and driving factors, with

the aim of gradually improving the quality of operational risk incident monitoring.

The operational risk management of information technology systems was further enhanced. On the

one hand, the Information Technology Risk Management Policy of Hankou Bank was developed

and submitted to the Board of Directors, providing basic standards and direction for information

technology risk management. On the other hand, the Group steadily pushed forward the

information technology risk assessment, safeguarded security of information systems and

gradually improved the structure of information technology management to prevent information

technology risk.

The annual plan for internal control inspection was developed to set out items, content and timing

of internal control inspection of all business lines in the year. In the reporting period, the Group

strictly conducted inspections as planned, detected internal control loopholes in a timely manner,

corrected internal control problems, implemented internal control measures and improved internal

control procedures.

1. Fair value of financial assets and financial liabilities

(1) Fair value of financial instruments

The table below presents fair values of financial instruments, including the fair values of financial

assets and financial liabilities whose carrying amounts are different from fair values, but does

reflect the fair values of financial assets and financial liabilities whose carrying amounts are

inconsistent with the fair values of non-financial assets or liabilities (such as fixed assets).

Item


Carrying

amount Fair value Carrying amount Fair value

Financial assets

Held-to-maturity

investments 41,149,070 41,741,539 25,556,330 25,552,073

There are no market prices or market interest rates for some financial assets or financial liabilities

held or issued by the Group. Therefore, their fair values are calculated by the Group using the

valuation models, including the cash flow discounting analysis model. Values estimated by the

Group using these techniques are subject to significant impact of model selection and internal

assumptions, such as the amount and inflow time of future cash flows, discount rate, volatility and

credit risk. In addition, only observable data are used where possible for valuation models, but the

Group still needs to estimate such factors as credit risk of both parties to transactions, market

Page 162 of 177

volatility and correlation. Changes in assumptions concerning the foregoing factors will affect the

assessment of fair value of financial instruments.

Below are methods and important assumptions the Group uses to determine the fair values of

financial assets and financial liabilities listed in the table above.

a. Cash and balances with central banks, deposits with banks and other financial institutions,

lendings to banks and other financial institutions, deposits from banks and other financial

institutions and borrowings from banks and other financial institutions.

Since the maturity dates of the above financial assets and liabilities are within one year, their

carrying amount is close to their fair value.

b. Loans and advances and receivables investment

Loans and advances and receivables investment are presented at the value net of allowance for

impairment losses, with the fair value being estimated to be the present value of cash flows

expected to be received in the future discounted at the current market interest rate.

c. Customer deposits and deposits from banks and other financial institutions

The fair values of check accounts, savings accounts and short-term money market deposits are the

amount payable to customers on demand. The fair value of fixed-rate deposits without quoted

market price is calculated using the cash flow discounting model, with the discount rate being the

current time deposit interest rate similar to that for the remaining maturity.

d. Repurchase and reverse repurchase agreements

Repurchase and reverse repurchase agreements mainly involve bills, loans and bond investment.

Specifically, financial assets under reverse repurchase agreements are presented at the value net of

allowance for impairment losses, with the fair value being estimated to be the present value of

cash flows expected to be received in the future discounted at the current market interest rate.

Repurchase agreements are short-term financing arrangements, with the fair value approximate to

carrying amount.

e. Bonds payable

The fair value of bonds payable is calculated at quoted market price. If the quoted market price is

unavailable, the fair value should be calculated using the cash flow discounting model, with the

discount rate being the current market interest rate for similar bonds with similar remaining

maturity.

(2) Financial instruments at fair value are classified into three tiers:

First tier: Quoted prices of the same assets or liabilities in an active market, including securities

traded on exchanges and some government bonds.

Second tier: Valuation techniques—all directly or indirectly use observable input values other than

quoted market prices of assets or liabilities in the first tier, including the majority of OTC

derivative contracts and bonds whose prices (including CCDC valuation and CCDC settlement

price) acquired from the website of the price provider or the China Central Depository Trust &

Clearing Co. Ltd. (“CCDC”).

Page 163 of 177

Third tier: Valuation techniques - use any input values not based on observable market data

(non-observable input values), mainly OTC structured credit derivatives.

If the publicly quoted market price is unavailable, the Group determines the fair value of financial

instruments using some valuation techniques or inquiry.

For financial instruments held by the Group, main parameters of valuation techniques used include

bond price, interest rate, exchange rate, equity and stock prices, volatility and correlation of price

and options, advance repayment ratio and credit spread of counterparties, all of which are

observable and available in an open market.

Third-tier financial instruments of the Group are mainly composed of OTC structured credit

derivatives. The Management has assessed the impact of changes in macro-economic factors and

other input values to decide whether or not to make necessary adjustments to the fair value of

third-tier financial instruments. The Group has established relevant internal control procedures to

monitor and restrict the Group’s exposures to such financial instruments.

The table below presents the valuation techniques or methods for financial instruments measured

at fair value:

Item First tier Second

tier

Third tier Total

31 December 2018

Financial assets designated at fair value


9,107,604 3,934,694 13,042,298


Available-for-sale financial assets 57,145,516 15,582 57,161,098

Subtotal 66,253,120 3,950,276 70,203,396




13,190,558 13,190,558

31 December 2017

Financial assets designated at fair value


9,923,785 3,334,690 13,258,475


Available-for-sale financial assets 46,587,207 15,582 46,602,789

Subtotal 56,510,992 3,350,272 59,861,264




13,003,858 13,003,858

XIV. Capital Management

Capital management of the Group, centered on capital adequacy ratio and return on capital, aims

to strike a balance between expansion and profitability, capital size and structural optimization as

well as the optimal capital size and return on capital in line with the development plan.

The Group calculated capital adequacy ratios in accordance with the Regulation Governing

Capital of Commercial Banks (Provisional) issued by CBRC on June 2012. According to

requirements, credit risk weighted assets for the reporting period are measured at the weighted

approach, market risk weighted assets are measured at the standardized approach and operational

risk weighted assets are measured at the basic indicator approach.

As at 31 December 2018, the Group’s core tier-1 capital adequacy ratio, tier-1 capital adequacy

ratio and capital adequacy ratio are as follows: (Unit: RMB1,000)

Page 164 of 177


Core tier-1 capital:

Valid portion of paid-up capital 4,127,846

Valid portion of capital reserve 3,259,204

Surplus reserves 1,569,803

General risk reserve 4,203,355

Retained profit 6,461,342

Other comprehensive income 364,218

Valid portion of minority interests 56,511

Total core tier-1 capital 20,042,279

Total deducted items 30,103

Net other intangible assets (excluding land use rights) after deducting

relevant deferred tax liabilities

20,613

Net deferred tax assets that rely on future profitability excluding those

arising from temporary differences

9,490

Investment in core tier-1 capital instruments issued by financial

institutions that are under control but not subject to consolidation

Total deducted items

Additional tier-1 capital:


Others

Total additional tier-1 capital 1,487

Tier-2 capital:

Valid portion of tier-2 capital instruments and related premium 4,995,998

Surplus provision for loan impairment 1,689,610


Others

Total tier-2 capital 6,689,069

Total deducted items

Threshold deduction items

Net capital

Net core tier-1 capital 20,012,176

Net tier-1 capital 20,013,663

Total net capital 26,702,732


Credit risk weighted assets

On-balance-sheet risk weighted assets 172,586,998

Off-balance-sheet risk weighted assets 12,928,415

Total credit risk weighted assets: 185,515,413

Market risk weighted assets 252,871

Operational risk weighted assets 10,625,549

Total risk weighted assets after application of capital bottom line: 196,393,833

Core tier-1 capital adequacy ratio (%) 10.19%

Tier-1 capital adequacy ratio (%) 10.19%

Capital adequacy ratio (%) 13.60%

XV. Related Parties and Connected Transactions

1. Related parties of the Bank and related party relationship:

In accordance with the Company Law, the Accounting Standard for Business Enterprises:

Disclosure of Related Party Relationships and Transactions, the Administrative Measures for the

Page 165 of 177

Connected Transactions between the Commercial Banks and Their Insiders and Shareholders

issued by CBRC and the Administrative Measures for Related Party Transactions of Hankou Bank

Co., Ltd., the Bank’s related parties include related natural persons and related legal persons or

other organizations.

The related natural persons of the Bank include the insiders of the Bank; major natural person

shareholders of the Bank, and close relatives of the Bank’s insiders and major natural person

shareholders; the related legal persons of the Bank or holding natural person shareholders,

directors and key executives of other organizations related to the Bank. The related legal persons

or other organizations exclude the legal persons or other organizations that can be directly,

indirectly or jointly controlled or be greatly influenced by the Bank’s insiders, major natural

person shareholders and their close relatives; and other natural persons who have a significant

influence on the Bank.

Related legal persons and other organizations of the Bank include major non-natural shareholders

of the Bank; legal persons or other organizations directly or indirectly controlled by the same

enterprise as the Bank; legal persons or other organizations directly or indirectly controlled, or

under common control by or subject to significant influence of the Bank’s insiders and major

natural person shareholders as well as their close relatives; other legal persons or other

organizations who may directly, indirectly or jointly control the Bank or have a significant

influence on the Bank; and the Bank’s subsidiaries and associate.

(1) Information on the shareholders holding 5% or more shares of the Bank:

Shareholder

company

Related party

relationship

Company

type

Place of

registration

Legal

representative

Business

nature

Registered

capital

(RMB1,000)

Legend Holdings

Corporation

Shareholder Other

limited

company

(listed)

Room 1701,

17F, Building

1, Yard 2,

Kexueyuan

South Road,

Haidian

District,

Beijing

Liu Chuanzhi Investment 2,356,231

Wuhan Iron and

Steel Group

Corporation

Shareholder Limited

liability

company

(sole

proprietorshi

p of legal

person

invested or

controlled by

a non-natural

person)

Changqian,

Qingshan

District,

Wuhan City,

Hubei

Province

Guo Bin Investment 4,739,610

Wuhan

Development and

Investment Co.,

Ltd.

Shareholder Limited

liability

company

(wholly-state

-owned)

F20 & 21,

Xinhe

Building, No.

618, Jianshe

Avenue,

Jiang’an

District,

Tang Wu Investment 3,000,000

Page 166 of 177

Shareholder

company

Related party

relationship

Company

type

Place of

registration

Legal

representative

Business

nature

Registered

capital

(RMB1,000)

Wuhan City,

Hubei

Province

Note 1: Wuhan Iron and Steel Group Corporation is the new name after name change on 15

November 2017, and its predecessor is Wuhan Iron and Steel (Group) Corporation. The company

type was changed to a limited liability company (sole proprietorship of legal person invested or

controlled by a non-natural), and its legal representative was changed to Guo Bin.

Note 2: Wuhan Development and Investment Co., Ltd changed its legal representative from Xiong

Wei to Tang Wu on 17 August 2018.

(2) As at 31 December 2018, names and shareholding status of shareholders holding 5% or more

shares of the Bank are as follows:

Shareholder

company

Shares

(‘000)

Shareholding

percentage

(%)

Voting right

percentage (%)

Ultimate

controller

of the

Bank

Unified Social Credit

Code

Legend

Holdings

Corporation

633,000 15.33 15.33 911100001011122986

Wuhan Iron

and Steel

Group

Corporation

550,600 13.34 13.34 914201001776819133

Wuhan

Development

and

Investment

Co., Ltd.

337,500 8.18 8.18 91420100717953714H

(3) Shares (or interests) held by the shareholders with a 5% or more stake in the Bank and changes

thereof

Company Beginning balance Increase during the period Decrease during the period Ending balance

Amount

(RMB1,000)

Percentage

(%)

Amount

(RMB1,000)

Percentage

(%)

Amount

(RMB1,000)

Percentage

(%)

Amount

(RMB1,000)

Percentage

(%)

Legend

Holdings

Corporation

633,000 15.33 633,000 15.33

Wuhan Iron

and Steel

Group

Corporation

550,600 13.34 550,600 13.34

Wuhan

Development

and

Investment

Co., Ltd.

337,500 8.18 337,500 8.18

Page 167 of 177

(4) Information disclosure concerning subsidiaries of the Bank:

Subsidiary Type Company

type

Place of

registration

Legal

representative

Business

nature

Registered

capital

(RMB10,000)

Combined

shareholding

percentage

(%)

Combined

percentage

of voting

shares held

(%)

Unified

Social

Credit Code

HB

Zhijiang

Rural Bank

Co., Ltd.

Controlled

subsidiary

Limited

liability

company


industry

5,000 51% 51% 9142050058549827XY

HB

Yangxin

Rural Bank

Co., Ltd.

Controlled

subsidiary

Limited

liability

company


industry

5,000 60% 60% 91420200594244829H

(5) The Bank’s associates

Information on the associate:

Associate name Relationship with the Bank

Aerospace Science & Industry Financial Leasing

Co., Ltd. Associate of the Bank

(6) Other related parties

Other related parties include legal persons or other organizations directly or indirectly controlled

by the same enterprise as the Bank; legal persons or other organizations directly or indirectly

controlled, or under common control by or subject to significant influence of the Bank’s insiders

as well as their close relatives; and other legal persons or other organizations who may directly,

indirectly or jointly control the Bank or have a significant influence on the Bank.

Name of other related party Unified Social Credit Code or

Company Code

Remarks

Lenovo Group Limited 0450816 Registered in

Hong Kong

Nanming Co., Ltd. 0209070 Registered in

Hong Kong

Legend Holdings (Tianjin) Ltd. 911201165864155792

Legend Capital Co., Ltd. 911101087263402318

Beijing Junlian VC Center (Limited

Partnership)

911100007642185019

Beijing Huaxia Liantong Management

Consulting Co., Ltd.

91110108597716270M

Beijing Huaxia Lianhe Auto Network

Technology Co., Ltd.

91110108775453830B

Beijing Legend Star VC Co., Ltd. 91110108697673095D

Tianjin Legend Star VC Co., Ltd. 91120116589752466M

Raycom Real Estate Development Co., Ltd. 911101087263421223

Reycom Property Investment Limited 91110108790650314X

Raycom Real Estate Holdings Limited 91440300791710104J

Joyvio Group Co., Ltd. 911101085960368637

Zeny Supply Chain Co., Ltd. 91110108051437499P

Levima Group Co., Ltd. 91110108593846502N

Page 168 of 177


Company Code

Remarks

Zhengqi Financial Holding Co., Ltd. 91340100054499919H

Bybo Medical Group Co., Ltd. 91440400714842859E

Tibet Dongfang Qihui Investment Co., Ltd. 91540126396977765P

Tibet Dazi Lianke Investment Co., Ltd. 91540126718788968F

Tibet Lianheng Medical Investment Co., Ltd. 91540126MA6T19YC97

Tibet Cola Technological Development Co.,

Ltd.

91540195MA6T1GP96K

Beijing Legend Star Investment Management

Co., Ltd.

91110108MA001H6E1G

Shanghai Weimin Hospital Investment

Management Co., Ltd.

91310107560111550E

JC International Finance & Leasing Co., Ltd. 91310000MA1FL0E14K

Legend Insurance and Investment Group

Limited

911100000535983410

Hefei Guozheng Tech Microlending Co.,

Ltd.

913401006836186347

Anhui Zhengqi Finance & Leasing Co., Ltd. 91340100058470291H

JC (Beijing) Asset Management Co., Ltd. 91110111MA00BJNQ8A

Anhui Zhidao Investment Co., Ltd. 91340100065204899D

Zhengqi Supply Chain Management Co.,

Ltd.

91420105MA4KPPMK04

Zhengqi International Commercial Factoring

Co., Ltd.

91340100MA2MQ07M70

Anhui Zhengqi Supply Chain Management

Co., Ltd.

913401003487344000

Shenzhen Chengzheng Technology

Microlending Co., Ltd.

91440300311875007D

Gain Cold Chain (Wuhan) Co., Ltd. 91420111070513020L

Gain Food (Wuhan) Co., Ltd. 914201110520409443

Better Sun Educational Group Corp. Registered

overseas

Zeny Supply Chain (Tianjin) Co., Ltd. 91120118MA05RXCX5F

Dongpinbang (Tianjin) Supply Chain Co.,

Ltd.

91120118MA05T75A2K

Motorola (Wuhan) Mobile Technology

Communication Co., Ltd.

91420100597900924B

Lenovo Mobile Inc. 91350200705499032F

Wuhan Guozheng Microlending Co., Ltd. 91420105MA4KY5CAXM

China Baowu Iron and Steel Group Corp. 91310000132200821H

Wuhan Iron & Steel Group Echeng Iron &

Steel Co., Ltd.

9142070070691922XN

Wuhan Iron and Steel Resources Group

Corporation

91420100711992632A

Wuhan Iron and Steel Green City

Construction and Development Co., Ltd.

914201008777484103

Wuhan Iron and Steel Jiangbei Group

Corporation

9142010072575458XJ

Wuhan Iron and Steel Engineering

Technology Group Corporation

91420100737504908J

Wuhan Iron and Steel Heavy Industries

Group Corporation

91420100711943873D

Wuhan Steel Electricity Co., Ltd. 91420100300050720E

Wuhan Iron and Steel Group Finance Co.,

Ltd.

91420107300271101E

Wuhan Iron and Steel Group Refractory 914201007119198229

Page 169 of 177


Company Code

Remarks

Material Co., Ltd.

Wuhan Iron and Steel Group Xiangyang

Heavy Equipment and Material Co., Ltd.

91420607706882770F

Wisco Logistics Co., Ltd. 9142010771192818X1

Wuhu Weishike Material Technology Co.,

Ltd.

9134020066144360X4

Taicang Wisco Distribution Co., Ltd. 91320585755868596U

Guangxi Iron and Steel Group Company

Limited

9145000078213554XP

Wisco Brazil Metallurgy Investment Co.,

Ltd.

Registered

overseas

Shanghai Wisco Steel Processing Co., Ltd. 91310110564797983D

Wisco (Beijing) New Materials Research

Co., Ltd.

91110114562075688U

Wuhan International Resources

Development Investment Co., Ltd.

1462440 Registered in

Hong Kong

Wisco Modern City Services (Wuhan) Group

Corporation

91420107063009416B

Wisco Asset Management Co., Ltd. 9142010708196293XU

Qinhuangdao Beidaihe Beihuayuan Sea

View Hotel Co., Ltd.

91130304692065664A

Baoshan Iron & Steel Co., Ltd. 91310000631696382C

Wuhan Iron and Steel Co., Ltd. 91420100MA4KQ8JQX5

Wuhan Pingmei Wugang Unite Coking

Chemical Co., Ltd.

91420107711961422L

Wisco Hanyang Steelworks 91420100177688752B

Baosteel Huangshi Coated and Galvanized

Co., Ltd.

91420200615435780U

Wisco Industrial Company 91420107177661541Y

Wisco Packaging Materials Plant 91420107177683791D

Wisco Maintenance Services Company 914201071776833966

Wisco Industrial Jinyuan Materials Industrial

Development Co., Ltd.

91420107717910394K

Wisco Industrial Jinyuan Furnace Charge

Co., Ltd.

914201077282775555

Wuhan Gangye Xincheng Maintenance

Services Co., Ltd.

914201077310504588

Wuhan Financial Holdings (Group) 91420100778164444G

Wuhan Jinkong New-Energy Vehicle Lease

Co., Ltd.

9142010034720626XD

Wuhan Yangluo Development Co., Ltd. 914201007119145110

Wuhan Trade State-owned Holding Group

Co., Ltd.

91420100724692452X

Wuhan Transportation Construction and

Investment Co., Ltd.

91420100717995703T

Yangtze River Economic United

Development (Group) Co., Ltd.

914201023000248722

Food Logistics Industry in Wuhan Economic

Development Investment Co., Ltd.

9142011779632291XB

Wuhan Financial Assets Exchange Co., Ltd. 91420100581846716M

Wuhan Yangtze Jiashi Trade Co., Ltd. 914201000705406788

Wuhan Yangtze Financial Services Co., Ltd. 91420100070528070P

Wuhan Rongwei Escort Security Service

Co., Ltd.

91420100717921448A

Hubei Financial Leasing Co., Ltd. 91420100333576905P

Page 170 of 177


Company Code

Remarks

Wuhan Financial Holdings Energy (Group)

Co., Ltd.

91420103MA4KLFK72L

Guotong Trust Co., Ltd. 91420100441385161G

Wuhan Youyi Non-Staple Food Commerce

Co., Ltd.

914201007310420798

Wuhan Non-Staple Food Commercial

Reserves Co., Ltd.

914201043000938000

Wuhan Yangtze Shaou Vegetable Oil Co.,

Ltd.

91420106731070950W

Wuhan Yangtze Shaou Oils Trading Co.,

Ltd.

91420100347194158A

Hubei Yujiatou Group Co., Ltd. 91420000707090070E

Wuhan Shengshi Boyang Investment


91420102077711150E

Wuhan Xinneng Properties Co., Ltd. 91420100711958856G

Wuhan Xinneng Industrial Development Co.,

Ltd.

91420100300244170U

Wuhan Kaicheng Mining Investment Co.,

Ltd.

9142011207050495XJ

Wuhan Investment & Development

(Overseas) Co., Ltd.

91420100MA4KL86R82

Wuhan Industrial State-owned Investment

Co., Ltd.

91420100725751370N

Wuhan Construction and Investment Co.,

Ltd.

91420100177738326R

Wuhan Tianli Industrial Co., Ltd. 91420100300059290A

Wuhan Energy Conservation Investment Co.,

Ltd.

91420100300055695K

Wuhan Yangtze Optical Communications

Industry Group Co., Ltd.

91420100177728574C

Wuhan Enterprising Guarantee Co., Ltd. 9142010075181358XC

Wuhan Jiayuan Micro Electric Technology

Co., Ltd.

914201007119948223

Wuhan Electrical Power Development Co.,

Ltd.

91420100177737606H

Wuhan Credit Investment Group Co., Ltd. 91420100574904121T

Wuhan Credit Guarantee (Group) Co., Ltd. 91420100551953860C

Wuhan SME Credit Guarantee Co., Ltd. 914201007179318817

Wuhan Credit Development Investment


91420100555030457N

Wuhan Chengsheng Pawnbrokers Co., Ltd. 91420100685441748L

Wuhan Huahan Investment Management

Co., Ltd.

91420104707122757K

Wuhan Dongchuang Financing Guarantee

Co., Ltd.

91420100675812330C

Wuhan Zhongnan Commercial (Group) Co.,

Ltd.

91420100177691433G

Wuhan Department Store Group Co., Ltd. 91420100300251645N

Wuhan Guochuang Innovative Investment

Co., Ltd.

91420100MA4KMDDK43

Wuhan Guochuang Financial Services Co.,

Ltd.

914201006823410122

Wuhan Xinke Investment Co., Ltd. 914201007310404288

Wuhan Huahan Real Estate Group

Corporation

91420100077740218U

Page 171 of 177


Company Code

Remarks

Wuhan Xinxing Pharmaceutical Technology

Co., Ltd.

91420115725785183H

Wuhan Selline Group Co., Ltd. 91420100799790313Q

Zhongbai Holdings Group Co., Ltd. 91420100177682019R

Wuhan Hantong Investment Co., Ltd. 91420100675828770A

Wuhan Donghu Creative Technology

Investment Co., Ltd.

91420100717945693P

Wuhan Guochuang Capital Investment Co.,

Ltd.

914201000591964661

Wuhan Optics-Valley Finance Leasing Co.,

Ltd.

91420100594515713T

Zhongbai Warehouse Supermarket Co. Ltd. 91420100300085552P

Zhongbai Warehouse Xiaogan Shopping

Mall Co. Ltd.

91420900757001726X

Wuhan Zhongbai Department Store Co., Ltd. 91420100761236122K

Zhongbai Supermarket Co. Ltd. 91420100300209391H

Wuhan Zhongbai Electric Appliances Co.,

Ltd.

91420104MA4KM4TU3T

Shanghai Optics-Valley Finance Leasing

Co., Ltd.

91310115MA1K3QPQ6M

Inner Mongolia Yili Industrial Group

Corporation

91150000114124263Y

GD Power Development Co., Ltd. 912102001183735667

BAIC FOTON Motor Co., Ltd. 911100001012029043

Humanwell Healthcare Group Corporation 914201003000148505

Guangdong Hongde Investment


914406065625544350

Wuhan Hongxin CPAs 91420111722707200R

Hubei Ruitong Tianyuan Law Firm 24201199310600497 Law Firm’s

Practicing

Certificate No.

Wuhan Smart Subway Technology Co., Ltd. 91420100MA4KLPEG59

Note 1: Zhengqi Financial Holding Co., Ltd. is the new name after name change on 23 May 2018,

and its predecessor is Zhengqi Anhui Financial Holding Co., Ltd.

Note 2: Hefei Guozheng Tech Microlending Co., Ltd. is the new name after name change on 25

July 2018, and its predecessor is Hefei Guozheng Microlending Co., Ltd.

Note 3: Wisco (Beijing) New Materials Research Co., Ltd. is the new name after name change on

13 September 2017, and its predecessor is Wisco (Beijing) New Materials Research Center.

Note 4: Wuhan Dongchuang Financing Guarantee Co., Ltd. is the new name after name change on

8 October 2018, and its predecessor is Wuhan Dongchuang Investment & Guarantee Co., Ltd.

2. Main connected transactions of the Bank in the reporting period

The Bank’s connected transactions conform to laws, regulations, national accounting standards

Page 172 of 177

and relevant banking regulatory requirements, observe commercial principles and are based on

conditions that are more favorable than those offered to non-connected transactions in similar

transactions.

(1) Balance of loans


Shareholders holding 5% or more shares of

the Bank

Legend Holdings Corporation and its

related companies 215,000 328,200


Corporation and its related companies 688,224 812,000

Wuhan Development Investment Co.,

Ltd. and its related companies 468,250 558,747

Other non-natural-person related parties 931,892 365,850

Natural-person related parties

Directors, Supervisors and Senior

Executives 3,906

Others 33,200 43,080

(2) Balance of deposits



the Bank


related companies

179,932 49,110


Corporation and its related companies

1,326,677 608,815


Ltd. and its related companies

735,810 158,956

Other non-natural-person related parties 2,285,768 1,426,799



Executives

7,952 8,250

Others 40,092 26,967

(3) Loan interest income



the Bank

Legend Holdings Corporation and its related

companies 16,731 24,086

Wuhan Iron and Steel Group Corporation and

its related companies 34,021 24,967

Wuhan Development Investment Co., Ltd.

and its related companies 27,270 16,445



Page 173 of 177


Executives

Others 1,323 945

(4) Deposit interest expense



the Bank

Legend Holdings Corporation and its related

companies 2,813 292

Wuhan Iron and Steel Group Corporation and

its related companies 8,842 5,123

Wuhan Development Investment Co., Ltd.

and its related companies 7,357 3,025




Executives 10 13

Others 49 46

(5) Net off-balance-sheet position



the Bank


related companies

522,946 17,999


Corporation and its related companies

108,071 219,468


Ltd. and its related companies

-3,750 1,250,472


(6) Remunerations paid to key management members

The Bank had 23 key management members as at 31 December 2018, and 27 key management

members as at 31 December 2017. The remunerations paid to them are as follows:

Related party 31 December 2018 31 December 2017

Key executives 7,927 19,299

XVI. Commitments

1. Capital expenditure commitments

Capital commitments mean capital expenditure commitments including equity investment,

Page 174 of 177

equipment purchase and system development. The Management of the Group believes that future

profitability will meet the foregoing commitments.

Below are capital expenditure commitments as at 31 December 2018:

Contract price Paid Unpaid

System software 111,183 27,214 83,969

Below are capital expenditure commitments as at 31 December 2017:

Contract price Paid Unpaid

System software 107,284 32,215 75,069

2. Leasing commitments

Property leasing commitments mainly reflect rental payable for business premises and office

buildings to be rented of the Group as needed.

Rentals set forth in lease agreements:


Within 1 year (inclusive) 168,889 220,539

1-3 years (inclusive) 215,033 308,277

Over 3 years 176,534 288,700

Total 560,456 817,516

3. Certificate government bonds

The Group acts as an agent of the Ministry of Finance to issue the certificate government bonds.

Holders of certificate government bonds may request earlier redemption of certificate government

bonds, with the redemption amount being the principal amount of certificate government bonds

plus interest accrued up to the date of redemption. As at 31 December 2018, the accumulated

balance of certificate government bonds issued by the Group as an agent but unmatured and

unredeemed was RMB1,078,329,000. As at 31 December 2017, the accumulated balance of

certificate government bonds issued by the Group as an agent but unmatured and unredeemed was

RMB1,234,311,000.

XVII. Contingencies

1. Pending actions and disputes

As at 31 December 2018, pending lawsuits with the Group as defendant involved a total amount of

RMB7,462,900 (31 December 2017: RMB7,823,000). Hearings on relevant cases are not held yet.

Page 175 of 177

2. Contingent liabilities

Repossessed assets without title deeds that were obtained by the credit cooperative, the

predecessor of the Bank before the joint-stock reform, exposed the Bank to lawsuit risk possibly

because of some legal defects.

XVIII. Other Significant Matters

None.

XIX. Supplementary Data

1. List of non-recurring gains or losses

(Gains are presented in positive numbers, losses are presented in negative numbers)

Item 2018

i. Gains/losses on disposal of non-current assets, including the offset part of

allowance for impairment losses on assets set aside

-3,185

ii. Over-power approval, absence of formal approval documents, or incidental tax

rebates and exemptions

iii. Government subsidy recognized in the current profit or loss, excluding the

government subsidy closely relating to the Company’s normal business operation,

complying with national policies and enjoyed by the Company at a fixed amount or

quantity according to certain standards

6,749

iv. Fund occupation charges on non-financial companies recorded in profit or loss

v. Gains generated when the investment cost of acquiring subsidiaries, affiliates and

joint ventures is lower than the fair value of net identifiable assets of the investee

available upon acquisition

vi. Gains or losses on exchange of non-monetary assets

vii. Gains or losses on investment or asset management by agents

viii. Allowance for impairment losses on assets against force majeure, e.g. natural

disaster

ix. Gains or losses on debt restructuring

x. Business restructuring expenses, e.g. employee placement expenses and

integration expenses

xi. Gains or losses on the obviously unfair transaction price in excess of fair value

xii. Net gains or losses on business combination involving entities under the same

control from the beginning of the year to the combination date

xiii. Gains or losses on contingencies irrelevant to normal business operations of the

Company

xiv. Gains or losses on changes in the fair value of financial assets designated at fair

value through profit or loss and financial liabilities designated at fair value through

profit or loss and investment income from disposal of financial assets designated at

fair value through profit or loss, financial liabilities designated at fair value through

profit or loss and available-for-sale financial assets, exclusive of valid hedging

transactions relating to normal business operations of the Bank

xv. Reverse of allowance for impairment losses on receivables individually tested

Page 176 of 177

Item 2018

for impairment

xvi. Gains or losses on external entrusted loans

xvii. Gains or losses on changes in the fair value of investment properties

subsequently measured at fair value

xviii. Effects of one-off adjustments to profit or loss under tax and accounting laws

and regulations on the profit or loss

xix. Income from custody fees on entrusted operations

xx. Recovery of loans written off in previous years during the year 64,785

xxi. Other non-operating income and expenses -144

xxii. Other gains or losses that meet the definition of non-recurring gains or losses

Subtotal 68,205

xxiii. Income tax effects of non-recurring gains or losses 18,008

xxiv. Effects of minority interests 136

Total 50,061

The Group calculates the non-recurring gains or losses in accordance with the Explanatory

Announcement on Information Disclosure for Companies Offering Securities to the Public No. 1 –

Non-recurring Gains or Losses [2008] issued as CBRC Announcement [2008] No. 43.

Gains or losses on changes in the fair value of financial assets designated at fair value through

profit or loss and the investment income from disposal of financial assets designated at fair value

through profit or loss and available-for-sale financial assets are normal business operations of the

Group and not considered as non-recurring.

2. ROE and earnings per share:

ROE and earnings per share are calculated in accordance with the Compilation Rules for

Information Disclosure by Companies Offering Securities to the Public No. 9 – Calculation and

Disclosure of Return on Equity and Earnings per Share (as revised in 2010):

2018

Weighted

average

ROE (%)

Earnings per share

(RMB/share)

Basic Diluted

earnings earnings

Net profit attributable to common shareholders of the

Company 9.96 0.46 0.46


Company net of non-recurring gains or losses 9.70 0.45 0.45

2017

Weighted

average

ROE (%)

Earnings per share

(RMB/share)

Basic Diluted

earnings earnings


Company 9.72 0.41 0.41


Company net of non-recurring gains or losses 9.39 0.40 0.40

XX. Events after the balance sheet date

Page 177 of 177

With the approval of the Sixth Board of Directors of the Bank at its third meeting held on 24 April

2019, the Bank plans to distribute RMB0.11 (before tax) of cash dividend for each of its

4,127,846,000 equity shares as at 31 December 2018. The total cash dividend distribution amounts

to RMB454,063,000. The dividend distribution plan is pending approval by the shareholders’

meeting.

Corporate chief: Chen Xinmin Person in charge of accounting:

Ruan Xuzhou

Head of accounting

department: Li Daquan