Hong Kong, 25 March 2008 - Industrial and Commercial Bank of China Limited ( ICBC or the Bank , SSE: 601398; SEHK: 1398) today announced its annual results for the financial year 2007 in Hong Kong and Beijing. Based on international financial reporting standards, ICBC s profit after tax for the year ended 31 December 2007 was RMB 82.
3 billion, up 64.9% from the year 2006. (Based on PRC GAAP, ICBC s profit after tax for the year 2007 was RMB 82.0 billion, up 65.9% from the year 2006). Earnings per share were RMB 0.24. The Bank proposed that it will pay a final dividend of RMB 0.133 per share.
2007 was the first full financial year following the Bank s listing. Through continuous strategic transformation of business operations and the innovative development of its business, the Bank further improved profitability and delivered outstanding returns to shareholders. In 2007, ICBC s return on average total assets reached 1.02%, up 31 basis points from 2006. Return on weighted average equity was 16.23%, up 86 basis points from 2006.
ICBC also further strengthened its risk management capabilities, resulting in a substantial improvement in asset quality. 2007 was the fifth consecutive year that the Bank achieved declines in both non-performing loans and its NPL ratio. The NPL ratio declined by 1.05 percentage points, to 2.74% at the end of 2007 from 3.79% a year earlier. Allowance to NPL ratio increased by 32.9 percentage points, to 103.5% at the end of 2007 from 70.6% a year earlier, further enhancing the Bank s ability to withstand risks.
The strong growth in earnings in 2007 was the result of the successful transformation in its mode of business operations and development. ICBC integrated the principles of its commercial banking operations with the country s macroeconomic tightening measures, enabling the Bank to capitalize on these measures as business opportunities and optimizing its asset and liability structures.
This led to a substantial increase in net interest margin and rapid growth in fee and commission income. The Bank also achieved breakthroughs in its efforts to expand operations overseas. At the same time, ICBC further enhanced its business management capabilities and effectively controlled its cost-to-income ratio.
The Bank also improved its risk management systems. All these initiatives laid a solid foundation for a sustainable improvement in profitability.
Substantial increase in profitability of asset and liability business
In 2007, ICBC substantially enhanced the profitability of its asset and liability business through optimization of its asset and liability structure. During the year, the Bank s yield on assets increased substantially, while the cost of deposits remained stable. Its net interest spread and net interest margin reached 2.67% and 2.80%, up 35 basis points and 39 basis points from 2006, respectively.
In the lending business, ICBC adhered to the principle of prudent lending and maintained a steady pace of loan growth. At the end of 2007, ICBC s total renminbi loans reached RMB 3,745.2 billion, up by a modest 10.3% from 2006. Loans were mostly provided to sectors with controllable risks and outstanding efficiency.
ICBC s loans to small enterprises reached 213.9 billion, an increase of close to 50%, while personal loans increased by 30.6% to RMB 752.1 billion. Through continual optimization of its loan structure and development of high-yield loan business, ICBC s consolidated loan yield increased by 69 basis points, to 6.
11% in 2007 from 5.42% in 2006.
In the treasury business, ICBC further enhanced its transaction platform and risk management system. It also enriched the combination of investment assets and continually optimized the structure of its investment portfolio. While enhancing risk control, the Bank increased its investment in renminbi credit products and further adjusted the duration structure of its renminbi investment portfolio, resulting in a 65-basis point increase in yield on non-restructuring related bond investments, to 3.48% in 2007 from 2.83% in 2006.
To control the cost of liabilities, ICBC capitalized on the opportunities in the capital markets and implemented proactive liability management. To cater for the wealth management needs of its customers, the Bank channelled a substantial amount of time deposits to wealth management products, resulting in an increase in the proportion of demand deposits in its deposit base.
As a result, the Bank s cost of deposits remained stable despite a series of rate hikes during the year. At the end of 2007, ICBC s total customer deposits and deposits from other banks and financial institutions reached RMB 7,626.0 billion, an increase of 13.9% from 2006. The proportion of demand deposits out of total customer deposits increased by 3 percentage points to 53%.
Rapid growth in fee and commission income
In 2007, ICBC achieved rapid growth in net fee income through diversification of its income structure and innovation in products and services. The Bank s net fee and commission income reached a record RMB 34.4 billion, up 110.4% from 2006. Over the past five years, the compound annual growth rate of such income was 57.
2%. Net fee and commission income accounted for 13.4% of the Bank s operating income in 2007, up 4.4 percentage points from 2006. The Bank achieved substantial growth in the areas of asset custody, wealth management, electronic banking, bank cards and investment banking. Growth in income from wealth management and asset custody reached 381% and 203% respectively.
Growth in income from electronic banking, bank cards and investment banking reached 85%, 41% and 45% respectively.
ICBC further harnessed its leading position in China s credit card market. At the end of 2007, ICBC s total bank cards in issue reached 210 million, of which over 23 million were credit cards, doubling the number at the end of 2006. The Bank is the leader in the credit card market according to a number of indicators, including total and average credit card transaction value.
Breakthroughs in overseas expansion and establishment of integrated operations
In 2007, ICBC made significant progress in overseas expansion. Through the opening of new branches and through acquisitions, ICBC is establishing an international business network that is focused on emerging markets and integrated with the Bank s domestic operations. The network covers major international financial centres and major economic and trading partners of China.
In 2007, ICBC completed the acquisition and business relaunch of PT Bank Halim Indonesia. The Bank also opened a Moscow subsidiary bank and received formal approval from the Qatar Financial Centre Regulatory Authority for the establishment of a Doha branch. ICBC also proceeded with the acquisitions of a 20% interest in Standard Bank Group in South Africa and a 79.
93% stake in Seng Heng Bank in Macau during the year. ICBC becomes the single largest shareholder of Standard Bank and the transaction was the largest foreign investment by China so far. In addition, ICBC received approvals from the China Banking Regulatory Commission and is making steady progress towards seeking approval from foreign regulators to establish branches in New York and Sydney and a subsidiary bank in Dubai.
As at the end of 2007, ICBC has 112 overseas branches and subsidiaries, and has established corresponding bank relationships with 1,349 banks in 122 countries and regions.
In November 2007, a financial leasing company solely owned by the Bank was officially established, representing another step in the development of the Bank s integrated business operations. With commercial banking as its core business, ICBC will continue to explore new modes of business expansion into areas including securities, insurance and other related industries with a view to enhancing synergies among its different businesses.
Further strengthening of management capabilities
In 2007, in addition to a substantial increase in operating income, ICBC also effectively controlled its operating costs. The Bank s cost-to-income ratio declined by 1.7 percentage points from 2006 to 34.7% in 2007, a level considered low by domestic and international standards.
At the same time, ICBC developed its own comprehensive risk management system during the year. It launched a credit rating optimization system for corporate clients, which is capable of determining the default probability and loss ratio for individual non-retail loans, thereby enhancing the accuracy of credit rating results.
With this system, ICBC has met the requirements of the foundation internal rating-based approach (F-IRB) for measuring credit risk under the Basel II accord. The Bank s quantitative risk assessment technology is close to the advanced international standard. This progress is a key step for ICBC to implement the advanced internal-based ratings approach (A-IRB) by the end of 2010.
During the year, ICBC strengthened its market risk management capabilities by further improving its procedures for market risk identification, quantitative measurement, limit management, reporting and market value estimation and emergency procedures for handling major market risks. The Bank also proactively analysed new patterns in its entire liquidity flow as well as changes in market trends, enabling the Bank to capitalize on market opportunities to implement optimal liquidity arrangements and interbank funding strategies, with a view to maximizing return on funds while ensuring that payment requirements for the entire Bank are met.
In addition, ICBC further improved its operational risk monitoring, alert and reporting mechanism, maintaining its leadership in operational risk management among its domestic peers.
Mr. Jiang Jianqing, Chairman of ICBC, said: ICBC has maintained its position as one of the five largest banks in the world in terms of market capitalization since its listing. The Bank has also won widespread recognition for new accomplishments in its reform and development and received numerous awards from reputable international media, including Best Bank of China , the Best State-owned Retail Bank of China , Best Sub-Custodian Bank in China , Best Cash Management , Most Profitable Bank in Asia and Global Deal of the Year 2007 .
Moody s Investors Services upgraded the Bank s long-term credit rating to A1 . Starting in 2008, ICBC will issue a Corporate Responsibility Report to enable the public oversight of our initiatives to be a good corporate citizen that emphasises respect of the law, credibility, charitable activities and the promotion of a society in harmony, and our contribution to the sustainable development of our economy and society.
ICBC is committed to achieving improvement in corporate valuation, shareholder return, customer and staff benefit and in our corporate image. Our goal is to develop the Bank as the most profitable, best quality and the most respected modern financial enterprise.
Mr. Yang Kaisheng, President of ICBC, said: The Bank will continue to implement its strategic transformation in 2008 to ensure sustainable profit growth. The Bank will prudently develop its lending business, streamline its industry credit policies and regional credit policies to ensure healthy and coordinated development of its lending business for different industries and regions. The Bank will step up efforts in the prevention and management of risk related to industries with high pollution, high energy consumption and excess production capacity as well as credit risk related to environmental issues and the real estate sector. At the same time, ICBC will continue to implement its leading retail bank strategy. In addition to exploring the high-end wealth management market, ICBC is striving to ensure coordinated development of its deposit and wealth management businesses and accelerate its entry into the private banking arena. In addition, ICBC will further harness its leading position in the credit card market in terms of both the number of cards in issue and card transactions. ICBC will continue to develop its treasury business to enhance efficiency in managing its own funds. The Bank will further enrich its product offering innovatively to maintain its top position in terms of income growth and market share for its intermediary business. The Bank will further develop its international business and integrated business operations to enhance overall competitiveness and establish an integrated platform for its domestic and international operations. ICBC will proactively seek opportunities to expand into the licensed investment banking, securities and insurance markets. In 2008, ICBC will establish a strategy implementation mechanism and a complete and systematic scheme of quantitative competitiveness indicator measurements. The Bank will also strive to enhance its service quality and brand image and further develop its distribution channels. It will also redouble its efforts to develop its corporate culture and implement measures to meet its social responsibilities, while at the same time enhancing overall core competitiveness.
